##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K



|  |                                                                                                                                                                                 
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|x | Annual Report pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934 for the fiscal year ended
    March 28, 2003                                           
| 
|o | 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




CHILDTIME LEARNING CENTERS, INC.

(Exact name of registrant as specified in its
charter)


|                                                                                                                |  |                                                        
|--------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------
|                                                                                                               
|Michigan
    (State or other jurisdiction of
    incorporation or organization)                                 |  | 38-3261854
    (I.R.S. Employer
    Identification No.)
|                                                                                                               
|21333 Haggerty Road, Suite 300, Novi,
    Michigan 48375(Address of principal executive
    offices) (Zip Code)

Registrants telephone number, including
area code: 1 (248) 697-9000

Securities registered pursuant to
Section 12(b) of the Act: None



|                                                            |                           
|----------------------------------------------------------- | --------------------------
|Securities registered pursuant to Section 12(g) of the Act: | Common Stock, No Par Value

(Title of Class)


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
o

Indicate by check
mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.  o

The aggregate
market value of voting Common Stock held by non-affiliates of
the registrant as of October 11, 2002, computed by
reference to the last sale price for such stock on that date as
reported on The Nasdaq SmallCap Market, was approximately
$1,294,700.

At June 15,
2003, the number of shares outstanding of the registrants
Common Stock, without par value, was 19,516,210.

Portions of the
registrants Proxy Statement for its 2003 Annual
Meeting of Shareholders have been incorporated by reference in
Part III of this Annual Report on Form 10-K.



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TABLE OF CONTENTS



|                                                                            |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART II                                                                    
|PART III                                                                   
|PART IV                                                                    
|SIGNATURES                                                                 
|CERTIFICATIONS                                                             
|CERTIFICATIONS                                                             
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
|Report of Independent Accountants                                          
|CONSOLIDATED BALANCE SHEETS                                                
|CONSOLIDATED STATEMENTS OF OPERATIONS                                      
|CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY                  
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                      
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                 
|EXHIBIT INDEX                                                              
|4th Amendment to Amended/Restated Credit Agreement                         
|Separation Agreement and Release, dated 4/14/03                            
|Consent of PricewaterhouseCoopers, LLP                                     
|906 Certification of Chief Executive Officer                               
|906 Certification of Chief Financial Officer                               



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Safe Harbor Statement Under
Private Securities Litigation Reform Act of 1995

Statements included herein which are not
historical facts are forward-looking statements pursuant to the
safe harbor provisions of the Private/ Securities Litigation
Reform Act of 1995. Forward-looking statements involve a number
of risks and uncertainties, including, but not limited to,
continuation of federal and state assistance programs, demand
for child care, general economic conditions as well as pricing,
competition and insurability. Childtime Learning Centers, Inc.
cautions that actual results could differ materially from those
projected forward-looking statements.

Item 1. Business

General

Childtime Learning Centers, Inc. is one of the
largest publicly traded for-profit providers of early childhood
care and educational services in the United States. Childtime
Learning Centers, 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 March 28, 2003, the Company operated
or franchised a total of 474 centers system-wide under
three major lines of business and had system-wide licensed
capacity capable of serving over 50,000 children. The
Companys three lines of business are:



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | Childtime Learning Centers:276 centers operated by the
    Company, consisting of:



| |   |                                                             
| | - | ------------------------------------------------------------
| |  | 264 Childtime centers and                                   
|
| |  | 12 Childtime-branded centers operated for
    third parties;



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | Tutor Time Learning Centers:63 Tutor Time centers operated by
    the Company; and
|
| |  | Tutor Time Franchise Operations:135 franchised Tutor Time centers.                

The Childtime and Tutor Time brands operate in
largely distinct market segments. Tutor Time attracts a more
affluent customer base with higher average incomes than the
typical Childtime center. Childtime centers are, on average,
smaller, less standardized in construction and appeal to parents
who value a homey feel and more intimate experience
for their child. Tutor Time centers are larger, more
standardized in layout, and designed to appeal to parents who
value a more structured educational and developmental
experience. Both brands place emphasis on educational quality
and content, with the Companys Curriculum Department
developing proprietary content distinct to each brand. Because
Tutor Time centers are typically larger than Childtime centers,
they generally deliver the potential for higher economic returns
per center. However, Tutor Time centers also require higher
investment and are typically fitted with more expensive
equipment and supplies (e.g., telephones, intercoms and
security cameras in each room, and childrens computers).

Childtime and Tutor Time corporate centers are
located in the United States (in 27 states), with the
exception of one Tutor Time center located in Canada. The vast
majority of these centers are operated on leased premises, with
typical lease terms ranging from 1 to 25 years; 51 of the
Childtime centers are operated on Company-owned premises.

The 12 Childtime centers the Company
operates under management contracts are all located in the U.S.,
serving 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.

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Tutor Time franchise centers are also
predominantly located in the U.S., with 123 centers
operating in 12 states. An additional 12 centers are
operated in Canada, Hong Kong, Indonesia, and the Philippines,
for the most part under master franchise agreements. The Company
currently guarantees leases for 66 of its franchise centers,
including sites under development. The Company believes that
Tutor Time is currently one of the largest franchisors of child
care services based in the United States.

The Company acquired the assets of Tutor Time
Learning Systems, Inc. on July 19, 2002, for an aggregate
purchase price of approximately $22.8 million, including
acquisition costs, plus the assumption of certain liabilities.
The Company purchased substantially all of the operating assets
and contract rights used by Tutor Time in its child care
operations and, as a result, significantly increased its revenue
base and the number of centers under its management. The
strategic rationale for the acquisition was to improve the range
of the Companys product offering and to enable the Company
to enter the child care franchise business. Specifically,
through the acquisition of Tutor Time, the Company acquired the
ability to serve a different segment of the child care market
and to broaden its prospective customer base. By catering to a
more premium-priced clientele, the Company can operate and
market its Tutor Time centers as a different and distinct brand.
Furthermore, by operating Tutor Time as a separate brand, the
Company will be able to franchise and operate this unique model,
both domestically and internationally.

The Companys primary objective is to
maximize the development and preparation of children for school.
In an effort to ensure achievement of this goal, the Company
provides its children with high quality child care and a
proprietary curriculum based on developmentally appropriate
practices aligned with nationally recognized early childhood
educational standards. With over 7,500 employees, the
quality, skills, and motivation of our center staff is of
paramount importance. The Company places a great deal of
emphasis on the recruitment, selection and ongoing training of
its child care center directors and area managers.

Management seeks to improve both the revenue and
profit performance of the Companys existing centers by
placing strong emphasis on actions to increase enrollment and to
manage costs. This is particularly important given the
fixed-cost and labor-intensive nature of the business and its
sensitivity to overall economic conditions. The Companys
current initiatives include development of targeted marketing
programs, cost (particularly labor cost) management tools,
high-quality training for pivotal operating roles
(e.g., center directors and area managers), and multi-unit
business management techniques. The Company also maintains an
incentive plan that ties center director and area manager
compensation directly to center performance.

The Company will continue to seek opportunities
to drive profitable growth. Management continues to see
attractive growth opportunities in the development of new
centers in the Companys core domestic corporate and
franchise markets. In addition, we continue to receive strong
interest from qualified parties in potentially attractive
international markets. Going forward, we will consider
acquisitions where there is a strong fit with the Companys
existing operations, where management has confidence in the
organizations ability to effectively manage the
integration, and where the price can be justified on
conservative expectations of future returns.

The Company utilizes a 52 to 53 week fiscal
year (generally comprised of 13 four-week periods), ending
on the Friday closest to March 31. The fiscal years ended
March 28, 2003, March 29, 2002 and March 30, 2001
all contained 52 weeks. The first quarter for each of
fiscal 2003, 2002 and 2001 contained 16 weeks, while the
remaining quarters for fiscal 2003, 2002 and 2001 each contained
12 weeks. All significant inter-company transactions have
been eliminated.

Recent Developments

On May 16, 2003, the Company completed a
rights offering to existing shareholders of 100,000 Units,
each Unit consisting of $35 principal amount of
15% Subordinated Notes due 2008 and 141 shares of
Common Stock (the Rights Offering). Each Unit was
sold at a price of $158.52. As a result of the Rights Offering
and the related purchase of Units pursuant to a standby
commitment from affiliates of Jacobson Partners, a private
equity firm whose managing partner is the Companys
Chairman of the Board, the Company issued 14.1 million
shares of Common Stock and $3.5 million of
15% subordinated notes due 2008. Substantially all of the
proceeds from the Rights Offering were used to refinance
$14.0 million in principal

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amount of subordinated debt, plus related accrued
and unpaid interest, that Childtime incurred in July 2002
to finance its acquisition of substantially all of the assets of
Tutor Time Learning Systems, Inc. and related working capital
needs.


As a result of the rights offering, the Company
retired $12.3 million of subordinated notes and related
accrued and unpaid interest (net of $3.5 million of the new
subordinated notes issued as part of the Rights Offering) and
reduced annual interest expense by more than $1.8 million.

Business Strategy

The Companys business strategy is to:



| |     |                                                                                            
| | --- | -------------------------------------------------------------------------------------------
| | (1) | focus on excellent operational execution and
    profitability for our corporate centers;  
|
| | (2) | develop a culture of dedication to customer
    service and performance;                   
|
| | (3) | reinforce our value proposition to Tutor Time
    franchisees;                             
|
| | (4) | capitalize on the integration of Childtimes
    and Tutor Times operations; and          
|
| | (5) | improve the Companys organizational
    leadership, institutional skills and capabilities.

Management believes that focus on these factors
will help create value in the near-term, and re-position the
Company for profitable growth in the medium to long-term.

Excellent
Operational Execution and Profitability for Corporate
Centers

Excellent operational execution for corporate
centers is critical to the success of the Company. Market
research shows that parents decision to enroll their child
in a Childtime or Tutor Time center is based on a number of
factors and typically involves an intense, focused
buy decision. Parents make tradeoffs between price
and perceived value, especially value in relation to our major
national and local competitors, and a wide range of other
options that can include nannies, home care, and frequently
lower-cost locally-sponsored child care options.

Happy children, satisfied parents, and positive
word-of-mouth are the most critical tests of how well the
Company is managing the business and its ability to capture a
price premium. They are a reflection of the many factors that
determine the overall quality of the program in any given
center. Based on experience, the most important of these factors
include: the skills and (often) the longevity of center
directors and staff; the differentiation and quality of the
educational offering; the condition of facilities; and the
degree to which the Company is perceived as service-oriented and
values-driven.

The most notable areas that management is focused
on to improve corporate operations are as follows:



| |   |                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Tightened oversight of center operations by
    corporate and field staff with a combination of both child care
    and multi-unit management experience, supported by more timely,
    accurate and relevant data and analysis to manage the business                                                                            
|
| |  | Development of a number of modules to improve
    training for center directors, staff and field support
    personnel, not just in the areas of center management and
    curriculum, but also in financial management, marketing,
    customer service, and the technologies that can improve center
    and business management
|
| |  | Development of new tools and approaches to focus
    center directors and area managers on the major value drivers of
    the business, primarily                                                                                                                                                                                 



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Improved marketing tools and techniques to drive
    enrollment, critical in a largely fixed/semi-fixed cost business                             
|
| |  | New scheduling and labor management tools to
    optimize labor hours, by far the largest cost item (often
    greater than 50% of total revenues)

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| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | Revised capital expenditure processes to improve
    oversight and effectiveness of facilities maintenance costs             
|
| |  | New performance management approaches to drive
    stronger ownership incentives for center directors
    and area managers



| |   |                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Standardization and communication of best
    practice operating policies and procedures                                                                                                                                      
|
| |  | Revised recruitment practices to hire staff who
    have a higher likelihood of success and length of service
    (reduced staff turnover has the potential to save the Company
    millions of dollars in largely hidden costs)
|
| |  | Ongoing focus on under-performing centers to
    determine the reasons for poor performance with appropriate
    action plans to turn around each center or remove it from the
    portfolio                                    
|
| |  | Improving the quality and differentiation of
    curriculum for both brands by improving content development and
    follow-through on curriculum delivery                                                                      

Improved
Customer Service and Performance Culture

The Company is taking steps to refocus all
employees on providing timely and responsive customer service
and on delivering a top-quality product to each employees
customer at all times whether that customer be children,
parents, center staff, center directors, area managers, the
corporate or franchise operations team, etc. This is being
accomplished through dedicated customer-service training
initiatives and through re-design of job descriptions,
performance evaluation systems, and incentive plans.

Improved
Franchisee Relations and Value Proposition

Franchising represents an important component of
the Companys current Tutor Time business and an attractive
growth option for the Company going forward. Relations with
existing Tutor Time franchisees were severely strained as a
result of Tutor Time Learning Systems, Inc.s financial
distress and the Chapter 11 process. Major initiatives have been
established by senior management which has begun to repair
franchise relationships and re-earn the trust and cooperation of
the franchisee community. The Company is focused on further
strengthening franchise relations by providing superior support
to franchisees through its franchise district management team,
with additional support from key roles in the regional
management structure, including regional training and human
resource managers, and marketing support. In addition, the
Education, Technology and Marketing Departments have improved
their value delivery and support infrastructures, and continue
to bolster their respective contributions to the Companys
franchisees. The Franchise Operations group is expanding its
role to include business advisory and performance benchmarking.

Ongoing
Benefits from the Integration of Operations

With the acquisition of Tutor Time, management
focused on consolidating several back-office
functions to its Michigan headquarters. This included the
corporate operations, finance and accounting, technology,
marketing, and real estate functions. Management used the
integration process to pick the best of both companies in terms
of technology and accounting systems, operating policies and
procedures, and management talent. Going forward, the Company
will maintain an office in Florida focused mainly on franchise
operations and curriculum. This consolidation of operations has
resulted in reduced costs while providing consistent information
and services to the entire organization. While the integration
of Childtime and Tutor Time operations is now largely completed,
a number of opportunities remain to further improve the
Companys operating efficiency and effectiveness.

Improved
Organizational Leadership, Skills and Capabilities

The Company has made a concerted effort to
upgrade the overall level of management talent to capitalize on
the growth opportunity presented with the acquisition of the
Tutor Time brand. New hires include the CEO, CFO, Vice President
of Human Resources, Vice President of Marketing, as well as a
reorganization of

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and internal hires into key positions in the
regional management teams. The Company currently has an interim
Chief Operating Officer with significant post-merger, turnaround
and project management skills, and plans to hire a permanent
Chief Operating Officer.


The new management team is focused on developing
institutional skills and capabilities in critical areas to focus
the organization on key value drivers including: high-impact
marketing techniques to drive enrollment, labor and controllable
cost management, training, curriculum development, capital
expenditure management, action plans for management of
under-performing centers, and overall business planning and
strategy.

Growth Strategy

The following table sets forth the number of
centers acquired or otherwise opened, as well as closed, during
the periods indicated. Figures include Tutor Time franchise
centers.

|                                |                                      |                        |     |           |     |           |     |     |   |  |     |    |    | 
|------------------------------- | ------------------------------------ | ---------------------- | --- | --------- | --- | --------- | --- | --- | - |  | --- | -- | -- | 
|                                |                                      |                       
|                                |                                      | Fiscal Year Ended     
|                                |                                      |                       
|                                |                                      | March 28,              |     | March 29, |     | March 30,
|                                |                                      | 2003                   |     | 2002      |     | 2001     
|                                |                                      |                        |     |           |     |          
|Number of centers in operation: |                                      |                        |     |           |     |           |     |     |   |  |     |   
|Beginning of period             |                                      |                        | 286 |           |     |           | 304 |     |   |  | 293 |   
|                                | Additions during period:             |                        |     |           |     |           |     |     |   |  |     |    |   
|                                |                                      | Acquisitions and other |     |           | 182 |           |     |     | 1 |  |     |    | 10 | 
|                                |                                      | New center openings    |     |           | 21  |           |     |     | 3 |  |     |    | 8  | 
|                                |                                      |                        |     |           |     |           |     |     |   |  |     |   
|                                | Total additions                      |                        |     | 203       |     |           |     | 4   |   |  |     | 18 |   
|                                | Closings/ Terminations during period |                        |     | (15       | )   |           |     | (22 | ) |  |     | (7 | ) 
|                                |                                      |                        |     |           |     |           |     |     |   |  |     |   
|End of period                   |                                      |                        | 474 |           |     |           | 286 |     |   |  | 304 |   
|                                |                                      |                        |     |           |     |           |     |     |   |  |     |   

In the years prior to the acquisition of Tutor
Time, the Company had focused on expanding its Childtime brand
through a number of smaller acquisitions and build-to-suit
centers at the rate of approximately 30 to 40 centers per year.
During fiscal 2001 and 2002, the Company shifted strategy to
focus on improving the profitability of current operations, and
significantly reduced the number of these smaller acquisitions.
As a result, the Company closed 22 centers during fiscal 2002
(18 of which were included in its restructuring plan initiated
at the end of fiscal 2001). Ten additional centers were closed
in fiscal 2003, and five Tutor Time franchise centers that had
reached the end of their contracted franchise terms were allowed
to exit the system.

With the acquisition of Tutor Time in
July 2002, the Company acquired and accepted the contracts
on 58 operating corporate centers, 124 operating franchise
centers, and additional Tutor Time centers that were at various
stages of development.

In addition to the current development pipeline,
the Company is actively researching new sites to add to the
Tutor Time portfolio. Current plans are for a mix of franchise
and corporate sites to be opened within existing franchise and
corporate geographies. The Company will prioritize adding units
in its existing markets in order to increase market
concentration and to leverage administrative and advertising
expenses. The Company continues to experience a large number of
inquiries from qualified candidates interested in franchise
opportunities, as well as ongoing demand from its existing base
of franchisees. The majority of inquiries are for U.S.-based
opportunities. The Company has also received inquiries for
international opportunities, presenting an attractive long-term
growth option for the Company.

In choosing locations for new centers, the
Company considers a number of factors, emphasizing suburban
neighborhoods with growing populations of young families.
Management looks for sites in proximity to newly developed or
developing residential areas on heavily traveled local streets.
The Company performs a detailed analysis of the demographics of
the area surrounding the proposed site and focuses on several
site selection criteria including: the percentage of children
under age six; the population density within a three-mile radius
surrounding a proposed site; and average household income. The
Company also analyzes the percentage of the population
consisting of college-educated, dual-income families, as well as
the average home value in the target area.

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In addition to acquiring or building centers in
residential areas, the Company had obtained contracts in the
past with employers and office complex managers to operate
centers in at-work locations. Historically, public agencies and
hospitals have been the principal employers providing or
otherwise arranging for child care services for their employees.
A number of private sector employers also offer this benefit, as
they recognize that reduction of employee absenteeism due to a
lack of reliable and available child care can significantly
offset the cost to employers in offering such benefits.

The Companys expansion activity is limited
to child care centers in market areas showing strong growth
potential and to sites which the Company believes it can conform
to its standard facility and educational format. The Company
utilizes prototype building designs in its build-to-suit centers.

The Company continuously reviews its existing
center portfolio in an effort to ensure all centers meet minimum
performance standards. Centers become candidates for closure
when they fail to meet certain demographic or financial criteria.

Going forward, there are no assurances that the
Company will be able to continue to develop or acquire new sites
in a manner that will meet its requirements.

Educational Programs

The Companys educational programs stress
the process of learning and discovery. The staff is trained to
support children in their active explorations and to help them
to become self-confident, independent and inquisitive learners.
The Company believes in fostering all aspects of a childs
development: social, emotional, physical and intellectual. The
two primary means of meeting this goal are the use in each
center of a proprietary educational curriculum modeled on
national standards for early childhood development and the
centers ongoing dialogue with parents in providing a
learning environment for their children that meets or exceeds
their expectations as customers.

In each Childtime center, the Company has
historically utilized The Creative Curriculum®
For Early Childhood, a nationally recognized educational
curriculum development guide published by Teaching Strategies,
Inc. and written by Diane Trister Dodge (a member of the
Governing Board of the National Association for the Education of
Young Children from 1990 to 1994) and Laura J. Colker.
The Creative Curriculum® provides a philosophy and a
framework for development of appropriate curriculum, but it does
not provide detailed daily lesson plans. Tutor Time centers in
contrast have used an in-house proprietary curriculum developed
by Dr. Victoria Folds, Tutor Times Vice President of
Education. Dr. Folds curriculum emphasizes
developmentally appropriate activities, drawing on best
practices from traditional, progressive and Montessori teaching
approaches. As the two brands have been integrated into one
Company, Dr. Folds education team continues to
develop proprietary curriculum for Tutor Time, and is using the
principles laid out in The Creative Curriculum® as a
philosophical guide to develop more detailed lesson plans and
support materials for Childtime centers. Emphasis will be placed
on keeping the materials for Childtime and Tutor Time distinct
from each other and from competitors offerings in the
market.

Children enrolled at a center are placed into
groups according to their age. Each group has specific learning
goals that enable the staff to develop planning activities and
daily programs and to assess each childs growth and
development. At designated times during the year, an informal
developmental assessment is prepared for each child and reviewed
with the childs parents.

Generally speaking, the Companys classrooms
under both brands are organized in seven levels following the
sequential process of growth and development, from infancy
through school-age:

Infants (six
weeks  twelve months)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A homelike environment and positive caregiver
    interactions foster the infants sense of trust and
    self-esteem. Daily routines (feeding, diapering and rocking) and
    sensory experiences are used to promote listening and language
    skills to help infants learn about the world around them. Play
    activities and interactions focus on the development of large
    muscles for sitting, crawling, standing and walking.

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| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | Activities that develop small muscles for
    grasping, reaching, holding and picking up objects are also
    utilized on a routine basis.

Young Toddler
(1  2 years)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Classroom space and materials are organized to
    support the young toddlers need to physically explore,
    discover and be independent. Caregivers provide comforting words
    and lap time to help toddlers deal with separation from parents.
    Toddlers are encouraged to participate in daily routines to
    develop self-help skills and self-esteem. Play activities with
    sensory experiences provide opportunities to help in the
    development of thinking skills, large and small muscles and
    assist in promoting communication skills. Stories, pictures and
    books are introduced to help toddlers experience reading as a
    pleasurable activity. Caregivers reinforce positive behaviors,
    set limits and are consistently available as a home
    base to support the toddlers conflicting need for
    independence and comfort.

Toddler
(2  3 years)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Classroom space and materials are organized to
    support the older toddlers increased need for independence
    in making simple decisions, engaging in pretend play and playing
    cooperatively with other children. Toddlers are supported in
    their self-help skills (dressing, feeding and toileting) and
    encouraged to help with daily routines in order to become
    familiar with the sequence of events to foster their
    self-esteem. Play activities provide opportunities to practice
    skills, increase communication about sensory experiences and
    promote listening and speaking skills. Indoor and outdoor
    activities focus on helping toddlers strengthen small muscles
    and aid in the development of hand-eye coordination and large
    muscles.

Preschool 1
(3  4 years)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Classroom space and materials are organized in
    distinct interest centers to support young preschoolers
    initiative to practice their new skills and express their ideas
    and feelings. These centers are set up to encourage preschoolers
    to select play activities, engage in hands-on exploration,
    participate in pretend play and develop the ability to play
    cooperatively. Small muscles and hand-eye coordination continue
    to be strengthened through art activities, sand and water play
    and by working with manipulative toys and blocks. The daily
    schedule includes many activities for large muscle development.
    Stories and books are used daily to increase familiarity with
    the meaning of letters and words (emergent literacy) and to
    foster reading as a pleasurable activity.

Preschool 2
(4  5 years)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Classroom organization and the daily schedule
    provide increased opportunities for independent and small group
    play in interest centers. Such group play supports older
    preschoolers developing ability to organize their own
    play, assign roles and tasks and work towards a common goal.
    Activities provide hands-on experiences. Caregiver interaction
    focuses on helping preschoolers organize the information they
    gather, develop an understanding of number concepts, reasoning
    and problem solving skills (matching, classifying and
    sequencing), while expanding listening and language skills.
    Independent and group activities with books and stories promote
    reading readiness. Caregivers create a print rich environment
    (signs, labels and charts) and provide opportunities for
    children to draw, paint and engage in writing activities.
    Children are increasingly involved in helping to set limits for
    positive and caring behaviors. Caregivers focus special
    attention in order to promote kindergarten readiness.

Five Year Old
or Kindergartner (5  6 years)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Classroom organization, materials and activities
    support the five year-olds increased ability to understand
    written symbols (letters, numbers and some words) and create an
    interest in writing. Educational interest centers continue to
    provide opportunities for hands-on exploration to sharpen
    observation skills, explore cause and effect, share and play
    cooperatively with others, plan and carry out a

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | task and engage in independent or group play for
    an extended period of time. Materials are provided to encourage
    representation, symbolic play and to practice drawing and
    writing. Activities are planned to help children learn to follow
    directions, recall and sequence events, understand measurement,
    recognize how materials can change, think creatively to solve
    problems, improve their coordination skills and use their bodies
    in challenging outdoor play tasks. Centers which offer a
    kindergarten program for transitioning children into first grade
    follow the local school districts specific goals and
    assessment requirements.

School-ages
(6  12 years)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Classroom space, equipment and materials are
    organized to support school-agers sense of industry and
    competence and to accommodate the wide range of interests and
    abilities of six to twelve year-olds. The program provides
    opportunities for school-agers to pursue their interests,
    perfect coordination of large and small muscles and to learn to
    work with others. The environment is designed to engage children
    in activities (arts and crafts, cooking, dramatic play, music,
    dance, games and sports) they can pursue independently, with a
    friend, or as a group project. Caregiver integration focuses on
    helping children set reasonable goals and manageable tasks,
    guiding them to think about the consequences of their words and
    actions so as to foster a sense of community. Special time is
    allotted for children to complete their homework assignments.

Through parent surveys, the Company continually
assesses the quality of its education curriculum. These surveys
provide the Company with feedback on parent satisfaction with
their childs developmental growth and with the
Companys curriculum, center director and overall quality
of the center. Center directors also conduct both formal and
informal parent interviews in order to ascertain parent
satisfaction levels and address any concerns. Information gained
from these interviews is forwarded to the Companys
management for review. The Company also endeavors to provide an
exit-survey to parents who stop utilizing its services.

The Company continues to focus its efforts on
obtaining accreditation for many of its centers by the National
Association for the Education of Young Children
(NAEYC) or the National Early Childhood Program
Accreditation (NECPA). NAEYC and NECPA are national
organizations that have established comprehensive criteria for
providing quality child care. Both organizations have developed
and implemented a voluntary and rigorous accreditation process
through which child care providers have their programs formally
evaluated by trained NAEYC or NECPA verifiers and the families
served by the providers. Centers which earn such national
accreditation status demonstrate a commitment to excellence by
operating centers of the highest quality for the children they
serve. The Company believes that the process of earning
accreditation assists in the Companys efforts to
continually improve its programs, training and facilities. The
Company shares NAEYCs and NECPAs commitment to
provide the highest quality child care and, thus, continues to
pursue an aggressive accreditation schedule.

Products and Services

General.During
fiscal 2003, the Company reorganized its corporate operations
into one division with the Childtime learning center and Tutor
Time learning center operations headed by a Director of
Corporate Operations. The Director oversees regional teams, with
each team comprised of a regional operations manager, finance
manager and training manager. Reporting to the regional
operations manager are area managers, with each area manager
responsible for multiple learning centers. Each individual
center has a dedicated center director and a staff generally
ranging from 15 to 30 persons. The centers operate year-round,
five days per week, generally opening at 6:30 a.m. and
remaining open until 6:30 p.m. A child may be enrolled in
any of a variety of program schedules, from a full-time,
five-day-per-week plan to as little as two or three half-days a
week. A child attending full-time typically spends approximately
9 hours a day, five days per week, at a center.

The Companys current weekly tuition for
full-day service typically ranges from approximately $100 to
$300 depending on the location of the center, the age of the
child, and whether it is a Childtime or Tutor Time center.
Tuition is generally paid in advance on a weekly basis. The
Company also charges additional

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registration and materials fees which vary by
brand and location. The Company generally reviews its tuition
rates at least once each year to determine whether rates at a
particular center should be changed in light of that
centers competitive environment and financial results.


The Companys franchise operations are
headed by Tutor Times Vice President of Franchise
Operations. The Vice President oversees District Franchise
Managers, who in turn are the main point of contact between
franchisees and the Company. The District Franchise Managers
provide support and training to franchisees and their center
staff, and also ensure that franchisee operations are in
compliance with Company standards.

Both the regional corporate operations teams and
the franchise district managers can draw on additional resources
within the Company to bring in expert advice on specific topics
including marketing, curriculum, human resources, training,
finance and business management, licensing, new center openings,
state and federal grants, government relations, real estate and
facilities management.

Center Operations.Each center is managed by a director
who is supervised by an area manager. The Company places a great
deal of emphasis on the recruitment, selection and ongoing
training of center directors. Center directors are hired by
their respective area manager from a pool of candidates who have
undergone an initial psychological profile screen, reference
check, and criminal background check. All center directors are
required by state regulations to have some minimum level of
training, which is typically in the form of credit hours from a
state approved training agency or an accredited educational
institution. The Company prefers that potential directors have a
bachelors degree in early childhood education, child
development or a health-related field plus a minimum of two
years experience in licensed child care. Many directors are
recruited from within the Company and have served as caregivers
or assistant directors in one of the Companys centers. A
center director has overall responsibility for the operations of
a center including: ensuring that the center is operated in
accordance with Company and state licensing standards and
operating procedures; providing an educational, caring and safe
environment for children and their parents; marketing the
Company to parents and otherwise promoting the positive image of
the Company in the community. The center directors receive a
salary and bonus tied to the financial and operating performance
of their center. Each center director is also responsible for
hiring his or her staff, including caregivers.

The center director assesses and collects tuition
and fees. All funds received by each center are deposited in an
account established by the Company in a local bank. All payroll
and most other center expenses are paid directly by the
Companys corporate office. Basic supplies are purchased by
the centers pursuant to national vendor contracts negotiated by
the corporate office to take advantage of volume buying
discounts and to retain financial controls. Direct expenditures
by the centers are limited to miscellaneous operating expenses.

Area Supervision.An
area manager hires the director of each of his or her centers
and is supervised by a regional manager. Area managers also work
very closely with other corporate staff members, such as the
Vice President  Human Resources, Director of Real
Estate, Vice President  Marketing, Corporate
Controller or General Counsel, on such issues as center
acquisition and marketing, personnel actions and financial
planning. Additional duties of area managers are to facilitate
communications between center directors and the corporate
office, as well as among center directors, and to monitor cost
control and revenue generation efforts and licensing compliance.
Area managers typically spend 80% of their work time in the
centers they supervise. Area managers receive a salary and bonus
tied to the financial and operating performance of the centers
under their supervision.

Training.The
Company believes that the skills and expertise of the director
and staff at each center are among the most significant factors
for parents selecting center-based child care programs. In order
to enhance the quality of the staff at each center, the Company
provides both externally and internally developed training
programs for its personnel. It has developed training materials
and manuals for its staff and conducts seminars for its area
managers and directors on such subjects as interpersonal and
business skills, curriculum, health and safety, basic financial
concepts and marketing. All management personnel (including area
managers, center directors and assistant directors) participate
in periodic training programs or meetings and must comply with
applicable state and local licensing regulations. Center staff
is required to participate in orientation and training sessions.
The Company is organized for its operations into regions, each
of which has an on-site regional training manager to assist in
the development and implementation of its training programs.
These

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training programs are designed to prepare and
enhance the skills of its caregivers to meet the Companys
internal standards and applicable state licensing requirements.
All new center directors are required to attend a one-week
training course held at their respective region office within
four weeks of their hire date.


Safety.The Company
is committed to the health and safety of the children in its
care. To prevent unauthorized persons from entering the center,
substantially all centers are equipped with front door security
systems requiring card keys, security codes, or other forms of
access control. In addition, most centers use a double door
entrance and have a centrally monitored security system to
protect the center after hours. Each day, children must be
signed in and out by parents, legal guardians or an authorized
designee of the parent or guardian. All centers have at least
one staff member trained in first aid and CPR.

Center staff members are trained to detect child
neglect and abuse, and are required by law and company policy to
immediately report all suspected instances. In the rare event
that an employee is accused of child neglect or abuse, it is the
Companys policy to place the employee on administrative
leave pending the results of an independent state agency
investigation, in which the Company cooperates fully. No
assurances can be made that allegations of child neglect or
abuse will not be made in the future. However, allegations of
child neglect or abuse against an employee are rare, and in most
cases, covered by the Companys general liability
insurance. Since these incidents fall within the insurance
policy limits, it is the Companys position that such
occurrences will not materially affect the financial position,
results of operations, or cash flow of the Company. The Company
maintains general liability insurance and appropriate umbrella
policies in adequate amounts, as described under
Insurance.

Financial Planning, Budgeting and Cost
Control.The Company has implemented a
program of financial planning and cost control which seeks to
maximize operational profit without sacrificing quality child
care. This goal is accomplished by actively engaging the area
manager and center director in the formulation and
implementation of the budget for each center. The Companys
operations are organized into regions, each of which includes an
on-site regional finance manager. The regional finance manager
is responsible for assisting the director and area manager in
the budgeting process along with other financial functions.
Directors are then responsible for implementing the approved
budget and become primarily responsible for the financial
performance of the center. In order to encourage profitable
performance, the Company has implemented a financial incentive
program for meeting or exceeding pre-approved budget goals.

Facilities.Most of
the Companys centers are freestanding structures leased or
owned by the Company. The Company utilizes prototype buildings
designed specifically for each state emphasizing energy
efficiencies, lower maintenance costs and enhanced appearance.
Depending on the state, these prototype designs for Childtime
centers generally contain between 7,900 to 9,000 square feet in
a one story, air-conditioned building; Tutor Time centers are
typically larger with prototype centers averaging over 10,000
square feet.

The interiors primarily consist of closed
classrooms bordering a central hallway. Such a design
accommodates the desire to allow children the freedom to explore
their environment as well as the staffs need to be able to
monitor activities in the classroom. The Companys centers
contain classrooms, recreational areas, a kitchen and bathroom
facilities and are designed to accommodate the grouping of
children by age or development level. Two unique features of
Tutor Time centers are the Tutor Towne Village® and
self-contained classrooms. The Tutor Towne Village®
is a common room outfitted with a post office, firehouse, and
other facades that create a play and learning environment
imitating a small town. Use of the room is purposefully
integrated into the Tutor Time curriculum in a way that enables
staff to teach children through guided socio-dramatic play.
Classrooms are self-contained in that each classroom is designed
to have its own areas for play, learning, eating, crafts and
diaper changing so that teachers and children do not need to
leave the room, except for other special activities such as use
of playgrounds or the Tutor Towne Village®.
Childtime centers do not have the same level of standardization
of features due to the varying age of centers and the fact that
many were acquired. However, most centers have unique and
appealing features in line with the educational and
developmental philosophy of the Company.

Room materials are chosen for their educational
value, quality and versatility. The infant/young toddler room
features separate, sanitary diaper changing areas. Each facility
has a playground designed to accommodate the full range of
children attending the center, including an area specifically
for toddlers. The playground

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is fenced in for security and organized to
provide adequate supervision for every age group. Each center is
equipped with a variety of audio-visual aids, educational
supplies, games, toys, indoor and outdoor play equipment. In
addition, most Tutor Time centers and some Childtime centers are
equipped with personal computers and software designed for
preschool and school age children. Tutor Time centers typically
are equipped with security cameras and phones in each classroom.
Virtually all of the centers are also equipped with vehicles for
the transportation of children to and from elementary schools
and for field trips. Van drivers carry cellular telephones in
the event of a break down while on the road.


As of March 28, 2003, the Company operated
327 Company-owned centers and franchised 135 centers. Aggregate
licensed capacity for these centers was over 50,000 children.
The capacity of centers differs from state to state because of
various licensing requirements.

Management Contracts.As of March 28, 2003, the Company
also had contracts to manage 12 child care centers. Many of
these centers are located on or near the premises of a specific
employer and involve varying degrees of involvement from the
employer, such as ownership of the premises, minimum enrollment
guarantees, the assumption of financial responsibility for the
ongoing operations of the center, other management arrangements,
or any combination of the above. Historically, public agencies
and hospitals have been the principal employers providing or
otherwise arranging for child care services for their employees.

Marketing

The Company believes that the quality of a
centers director, staff and center location, supported by
consistent national and localized marketing and sales efforts,
are the key components to a successful, profitable center. With
the acquisition of Tutor Time, the Marketing Department now
develops two separate marketing strategies to support the
individual development of the Childtime and Tutor Time brands as
well as provides training and support for both corporate and
franchise center-level marketing and sales.

The core marketing strategy for the Company is to
focus on developing cost-efficient programs targeted to those
areas which will have the greatest impact on corporate growth.
The first area is to boost leads and enrollment, particularly
focusing on: 1) under-performing and new centers, where
increased enrollments have the greatest impact on revenue
growth; 2) increasing customer retention and driving
customer referrals, the leading source of new enrollments for
existing centers; 3) providing the foundation and training
for corporate and franchise center-level marketing and sales;
and 4) creating national marketing programs and efforts
targeted to peak enrollment periods, such as Back to School,
Summer Camp and Winter Enrollment. These programs include
national and regional advertising; regional direct mail,
Val-paks, and Advos; national and regional media relations
activities; regional events; collateral material development;
and Internet marketing.

Since a large number of new enrollments come from
existing parents, the Company has developed special programs and
incentives to encourage parent referrals. The Company also
advertises in Yellow Pages, another key source of new
enrollments.

Seasonality

Generally, the Companys accounting periods
are organized into 13 four-week periods, with 4 four-week
periods comprising the first fiscal quarter and 3 four-week
periods comprising each of the second, third and fourth fiscal
quarters. Consequently, the Companys revenues, gross
profit and operating results for the first quarter are favorably
impacted by the additional four weeks included in that quarter.
Periodically, due to the Companys closing the fiscal year
on the Friday closest to March 31, the Company will have
five weeks in the thirteenth period of its fiscal year.

Due to the impact of summer vacation, in July and
August of each year (the last month of the Companys first
fiscal quarter and the first month of the Companys second
fiscal quarter), the Company has historically experienced an
enrollment decline. In addition, the Company typically
experiences revenue declines in the months of November and
December due to the impact of several major holidays. To
partially offset these declines, the Company has successfully
implemented and marketed both a summer camp program with a new
theme and focus each year, as well as a December holiday camp.

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New enrollments are generally highest in
September and January; accordingly, August and December are
traditionally the best months to open new centers. Total
enrollments (and, accordingly, the Companys results) are
typically the strongest in the fourth quarter (which include the
months of January, February and March).

Competition

The child care and preschool education industry
is highly fragmented and competitive and has historically been
dominated by small, local nursery schools and child care
centers. The Companys competition consists principally of
local nursery schools and child care centers (some of which are
non-profit, including church-affiliated centers), providers of
services that operate out of homes, and other proprietary
multi-unit child care center providers, some of which are larger
and may have substantially greater financial resources than the
Company. Among the larger providers of for-profit child care and
preschool education are KinderCare Learning Centers, Inc., La
Petite Academy, Inc., and Knowledge Learning Corporation. Bright
Horizons Family Solutions, Inc. is the largest competitor in the
at-work/management contract segment. Major competitors in the
franchise segment include Goddard Schools, Primrose Schools, and
Kiddie Academy.

The Company believes it is able to compete
favorably with these providers by offering a high quality level
of child care services. This is especially true in competing
against local nursery schools, child care centers and in-home
providers where the Company is often at a price disadvantage,
because these providers generally charge less for their services
than the Company charges. Many church-affiliated and other
non-profit child care centers have lower occupancy costs than
the Company and may receive donations or other funding to cover
operating expenses. Consequently, operators of such centers may
charge tuition rates that are less than the Companys
rates. In addition, fees for home-based and not-for-profit care
are normally lower than fees for center-based care, because
these providers are often not regulated and, thus, not required
to satisfy the same health, safety, insurance or state
regulations as the Companys centers.

The Company competes by hiring and training
quality center directors and by offering professionally-planned
educational and recreational programs, well-equipped facilities,
and trained staff and supervisory personnel. In addition, the
Company provides a range of enrichment programs, including
foreign language, dance, music and karate. The Company also
provides drop in service, and the transportation between the
Companys child care centers and schools of children
enrolled in the Companys before and after school program.

Personnel

As of March 28, 2003, the Company employed
approximately 7,500 persons (including part-time and substitute
caregivers), of which 92 are employed at corporate headquarters
in Michigan and in Florida, 18 are employed at regional offices
and 37 are employed as area managers or franchise district
managers. The remainder are employed at the Companys child
care centers. Center employees include center directors,
assistant directors, full-time and part-time teachers,
caregivers, substitute caregivers, aides and other staff,
including cooks and van drivers. All center directors, regional
managers, area managers and most corporate supervisory personnel
are salaried; all other employees are paid on an hourly basis.
The Company does not have an agreement with any labor union and
believes that its relations with its employees are favorable.

Regulation

Child care centers are subject to numerous state
and local regulations and detailed state licensing requirements.
Although these regulations vary from jurisdiction to
jurisdiction, government agencies generally review, among other
things, the adequacy of buildings and equipment, licensed
capacity, the ratio of staff to children, staff training, record
keeping, the dietary program, the daily curriculum and health
and safety standards. In most jurisdictions, these agencies
conduct scheduled and unscheduled inspections of centers, and
licenses must be renewed periodically. In a few jurisdictions,
new legislation or regulations have been enacted or are being
considered which establish requirements for employee background
checks or other clearance procedures for new employees of child
care centers. Repeated failures by a center to comply with
applicable

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regulations can subject it to state sanctions,
which might include fines, corrective orders, being placed on
probation or, in more serious cases, suspension or revocation of
the centers license to operate. Management believes the
Company is in substantial compliance with all material
regulations applicable to its business.


For the fiscal year ended March 28, 2003,
approximately 24% of the Companys revenues were generated
from federal and state child care assistance programs, primarily
the Child Care and Development Block Grant and At-Risk Programs.
These programs are typically designed to assist low-income
families with child care expenses and are administered through
various state agencies. Although no federal license is required
at this time, there are minimum standards that must be met to
qualify for participation in certain federal programs. There is
no assurance that funding for such federal and state programs
will continue at current levels and a significant reduction in
such funding may have an adverse impact on the Company.

There are certain tax incentives for parents
utilizing child care programs. Section 21 of the Internal
Revenue Code provides a federal income tax credit ranging from
20% to 30% of certain child care expenses for qualifying
individuals (as defined therein). The fees paid to the
Company for child care services by eligible taxpayers qualify
for the tax credit, subject to the limitations of
Section 21. For 2002 and 2003, the tax credit ranges from
20% to 35% of qualifying child care expenses and is limited to
$3,000 for one child and $6,000 for two or more children.
Therefore, the maximum credits ranges from $600 to $1,050 for
one child and $1,200 to $2,100 for two or more children. Tax
incentives provided under the Internal Revenue Code are subject
to change.

The Company must also comply with the Americans
with Disabilities Act (ADA), which prohibits
discrimination on the basis of disability in public
accommodations and employment. Costs incurred to date by the
Company to comply with the ADA have not been significant. A
determination that the Company is not in compliance with the
ADA, however, could result in the imposition of fines or an
award of damages to private litigants, and could require
significant expenditures. The Company believes that the majority
of its centers are substantially in compliance with all material
ADA requirements.

Insurance

The Companys insurance program currently
includes the following types of policies: workers
compensation, commercial general and automobile liability,
commercial property, director and officer liability, flood
coverage in applicable locations, excess umbrella
liability, and a medical payment program for accidents which
provides secondary coverage for each child enrolled in a Company
center. The policies provide for a variety of coverages and are
subject to various limits and deductibles. For fiscal 2003 and
2002, the Companys policies for workers compensation
have a deductible of $250,000 per occurrence. The commercial
general liability policy has a $1,000,000 limit per occurrence,
with a $3,000,000 general aggregate limit per location. There is
a separate limit for sexual abuse and molestation coverage of
$1,000,000 for each occurrence and $3,000,000 in the aggregate,
with defense limits of $1,000,000 per occurrence and $3,000,000
in the aggregate. The Company also has excess
umbrella coverage, relating to general liabilities
(exclusive of sexual/physical abuse claims) in the amount of
$20,000,000 per year. Management believes the Companys
current insurance coverages are adequate to meet its needs.

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Item 2. Properties

The following table shows the locations of the
Companys centers, including those operated under
management contracts, as of March 28, 2003. (The numbers
reflect the number of centers in that state or country):

|               |       |           |    |            |  |           |    |       |  |  |    |     |  |  |    |     | 
|-------------- | ----- | --------- | -- | ---------- |  | --------- | -- | ----- |  |  | -- | --- |  |  | -- | --- | 
|               |       |           |    |            |  |          
|               |       |           |    | Tutor Time |  |          
|               |       |           |    |            |  |          
|               |       | Childtime |    | Corporate  |  | Franchise |    | Total
|               |       |           |    |            |  |           |    |      
|Arizona        |       |           | 21 |            |  |           | 0  |       |  |  | 17 |     |  |  | 38 |    
|California     |       |           | 33 |            |  |           | 6  |       |  |  | 26 |     |  |  | 65 |    
|Connecticut    |       |           | 0  |            |  |           | 2  |       |  |  | 5  |     |  |  | 7  |    
|Delaware       |       |           | 0  |            |  |           | 1  |       |  |  | 1  |     |  |  | 2  |    
|Florida        |       |           | 12 |            |  |           | 2  |       |  |  | 12 |     |  |  | 26 |    
|Georgia        |       |           | 15 |            |  |           | 0  |       |  |  | 2  |     |  |  | 17 |    
|Illinois       |       |           | 6  |            |  |           | 9  |       |  |  | 2  |     |  |  | 17 |    
|Indiana        |       |           | 0  |            |  |           | 0  |       |  |  | 1  |     |  |  | 1  |    
|Iowa           |       |           | 3  |            |  |           | 0  |       |  |  | 0  |     |  |  | 3  |    
|Kansas         |       |           | 0  |            |  |           | 2  |       |  |  | 0  |     |  |  | 2  |    
|Maryland/ DC   |       |           | 14 |            |  |           | 0  |       |  |  | 0  |     |  |  | 14 |    
|Massachusetts  |       |           | 0  |            |  |           | 1  |       |  |  | 0  |     |  |  | 1  |    
|Michigan       |       |           | 18 |            |  |           | 17 |       |  |  | 1  |     |  |  | 36 |    
|Minnesota      |       |           | 0  |            |  |           | 0  |       |  |  | 9  |     |  |  | 9  |    
|Mississippi    |       |           | 1  |            |  |           | 0  |       |  |  | 0  |     |  |  | 1  |    
|Missouri       |       |           | 4  |            |  |           | 0  |       |  |  | 3  |     |  |  | 7  |    
|Nevada         |       |           | 7  |            |  |           | 0  |       |  |  | 0  |     |  |  | 7  |    
|New Jersey     |       |           | 6  |            |  |           | 3  |       |  |  | 7  |     |  |  | 16 |    
|New Mexico     |       |           | 1  |            |  |           | 0  |       |  |  | 0  |     |  |  | 1  |    
|New York       |       |           | 26 |            |  |           | 13 |       |  |  | 24 |     |  |  | 63 |    
|North Carolina |       |           | 12 |            |  |           | 0  |       |  |  | 5  |     |  |  | 17 |    
|Ohio           |       |           | 22 |            |  |           | 1  |       |  |  | 1  |     |  |  | 24 |    
|Oklahoma       |       |           | 8  |            |  |           | 0  |       |  |  | 0  |     |  |  | 8  |    
|Pennsylvania   |       |           | 1  |            |  |           | 3  |       |  |  | 2  |     |  |  | 6  |    
|South Carolina |       |           | 1  |            |  |           | 0  |       |  |  | 0  |     |  |  | 1  |    
|Texas          |       |           | 43 |            |  |           | 1  |       |  |  | 5  |     |  |  | 49 |    
|Virginia       |       |           | 13 |            |  |           | 0  |       |  |  | 0  |     |  |  | 13 |    
|Washington     |       |           | 8  |            |  |           | 1  |       |  |  | 0  |     |  |  | 9  |    
|Wisconsin      |       |           | 1  |            |  |           | 0  |       |  |  | 0  |     |  |  | 1  |    
|Canada         |       |           | 0  |            |  |           | 1  |       |  |  | 1  |     |  |  | 2  |    
|Hong Kong      |       |           | 0  |            |  |           | 0  |       |  |  | 2  |     |  |  | 2  |    
|Indonesia      |       |           | 0  |            |  |           | 0  |       |  |  | 7  |     |  |  | 7  |    
|Philippines    |       |           | 0  |            |  |           | 0  |       |  |  | 2  |     |  |  | 2  |    
|               |       |           |    |            |  |           |    |       |  |  |    |     |  |  |    |    
|               | Total |           |    | 276        |  |           |    | 63    |  |  |    | 135 |  |  |    | 474 | 
|               |       |           |    |            |  |           |    |       |  |  |    |     |  |  |    |    

As of March 28, 2003, the Company operated
276 Childtime centers and 63 Tutor Time corporate
centers. Of the Childtime centers, 213 were operated under lease
or operating agreements, 51 were owned and 12 were operated
under management contracts. Of the Tutor Time corporate centers,
all 63 were under lease agreements. Both the Childtime and Tutor
Time leases have terms ranging from 1 to 25 years, often
with renewal options, with most leases having an initial term of
5 to 20 years. The leases typically require the Company to
pay utilities, maintenance, insurance and property taxes, and
some provide for contingent rentals if the centers
revenues exceed a specified base level. In addition, the Company
serves as guarantor on 66 franchise leases.

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##### Table of Contents



As of March 28, 2003, the Company had leases
or operating agreements with initial terms (including renewal
options) expiring as follows:

|               |       |                               |     |     | 
|-------------- | ----- | ----------------------------- | --- | --- | 
|               |       | Number of Leases or          
|Fiscal Year    |       | Operating Agreements Expiring
|               |       |                              
|2003-2004      |       |                               | 22  | *  
|2005-2006      |       |                               | 44  |    
|2007-2010      |       |                               | 100 |    
|2011 and later |       |                               | 133 |    
|               |       |                               |     |    
|               | Total |                               |     | 299 | 
|               |       |                               |     |    




|  |                                                                         
|- | ------------------------------------------------------------------------
|* | Includes 3 U.S. Government operating contracts
    with indefinite terms

Effective May 5, 2003, the Company moved its
corporate offices to a leased office facility in Novi, Michigan,
consisting of approximately 20,000 square feet. The lease
expires April 30, 2013.

Item 3. Legal Proceedings

The Company is involved from time to time in
routine litigation arising out of the ordinary course of its
business, most of which is covered by general liability
insurance. In managements opinion, none of the litigation
in which the Company is currently involved will have a material
effect on its financial condition, results of operations or cash
flows. (See Contingencies in Item 7 of
Managements Discussion and Analysis of Financial Condition
and Results of Operations.)

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

As previously reported in the Companys
Current Report on Form 8-K dated March 10, 2003, the
Company held a Special Meeting of Shareholders at which the
shareholders on March 10, 2003, approved an amendment to
the Companys Restated Articles of Incorporation to
increase the number of authorized shares of Common Stock from
20,000,000 shares to 40,000,000 shares.

Item 4A. Executive Officers of the
Registrant

The information regarding executive officers of
the Company contained in Item 10 of this Report as it
appears in Part III of this Report is incorporated herein
by reference.

16



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##### Table of Contents








PART II




|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity and
    Related Stockholder Matters

The following table sets forth the high and low
sales prices of the Companys Common Stock for the fiscal
years ended March 28, 2003 and March 29, 2002, as
reported on The Nasdaq National Market System through
October 10, 2002, and the high and low bid prices as
reported on The Nasdaq SmallCap Market beginning
October 11, 2002. These quotations represent prices between
dealers and do not include retail mark-ups, mark-downs or other
fees or commissions and may not represent actual transactions.

|             |             |              |   |      |  |  |   |      | 
|------------ | ----------- | ------------ | - | ---- |  |  | - | ---- | 
|             |             |             
|             |             | Common Stock
|             |             | Sales Prices
|             |             |             
|             |             | High         |   | Low 
|             |             |              |   |     
|Fiscal 2003: |             |              |   |      |  |  |   |     
|             | 1st Quarter |              | $ | 3.70 |  |  | $ | 2.56 | 
|             | 2nd Quarter |              | $ | 3.00 |  |  | $ | 1.16 | 
|             | 3rd Quarter |              | $ | 1.80 |  |  | $ | 0.98 | 
|             | 4th Quarter |              | $ | 1.28 |  |  | $ | 0.32 | 
|            
|Fiscal 2002: |             |              |   |      |  |  |   |     
|             | 1st Quarter |              | $ | 9.00 |  |  | $ | 6.76 | 
|             | 2nd Quarter |              | $ | 9.05 |  |  | $ | 7.00 | 
|             | 3rd Quarter |              | $ | 8.00 |  |  | $ | 5.50 | 
|             | 4th Quarter |              | $ | 5.90 |  |  | $ | 2.90 | 

The Company has not paid dividends on shares of
Common Stock and has no intention of declaring or paying any
such dividends in the foreseeable future. The Company is not
currently subject to any contractual restrictions on its ability
to pay dividends. Nonetheless, the Company intends to retain its
earnings, if any, to finance the growth and development of its
business, including future acquisitions.

As of June 15, 2003, there were
approximately 460 holders of the Companys Common
Stock (including individual participants in security position
listings).

On May 12, 2003, the Company received
notification from Nasdaq Listing Qualifications that, for the 30
consecutive trading days, the bid price of the Companys
Common Stock had closed below the minimum of $1.00 per
share requirement for continued inclusion on The Nasdaq SmallCap
Market under Marketplace Rule 4310(c)(4). Therefore, in
accordance with Marketplace Rule 4310(c)(8)(D), the Company
was provided 180 calendar days, or until November 10, 2003,
to regain compliance or be subject to possible delisting. By
letter dated June 19, 2003, the Company was notified by
Nasdaq that the bid price of the Companys Common Stock had
closed at $1.00 per share or more for a minimum of ten
consecutive trading days and, thus, the Company had regained
compliance with Marketplace Rule 4301(c)(4) and avoided
delisting. Although the Company is currently in compliance with
the requirements for continued inclusion of its Common Stock on
The Nasdaq SmallCap Market, there are no assurances that the
Company will be able to maintain its compliance with such
requirements.

17



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##### Table of Contents



Item 6. Selected Financial
Data

The following table sets forth, for the periods
indicated, selected data from the Companys financial
statements. This table should be read in conjunction with
Item 7 (Managements Discussion and Analysis of
Financial Condition and Results of Operations) and with the
Companys Consolidated Financial Statements and related
Notes for the year and period ended March 28, 2003
appearing elsewhere in this Report.

Childtime Learning Centers, Inc. and
Consolidated Subsidiaries

|                                                           |                                                                                                                            |                                                   |                   |           |         |           |         |           |        |          |         |       |     |      |         |       |       |       |         |       |       |       | 
|---------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | ----------------- | --------- | ------- | --------- | ------- | --------- | ------ | -------- | ------- | ----- | --- | ---- | ------- | ----- | ----- | ----- | ------- | ----- | ----- | ----- | 
|                                                           |                                                                                                                            | March 28,                                         |                   | March 29, |         | March 30, |         | March 31, |        | April 2,
|                                                           |                                                                                                                            | 2003                                              |                   | 2002      |         | 2001      |         | 2000      |        | 1999    
|                                                           |                                                                                                                            |                                                   |                   |           |         |           |         |           |        |         
|                                                           |                                                                                                                            |                                                  
|                                                           |                                                                                                                            | (Dollars in thousands, except for per share data)
|Revenue from Learning Center Operations                    |                                                                                                                            | $                                                 | 173,602           |           |         | $         | 141,391 |           |        | $        | 146,583 |       |     | $    | 127,883 |       |       | $     | 112,208 |      
|Revenue from Franchise Operations                          |                                                                                                                            |                                                   | 3,763             |           |         |           |        |           |        |          |        |       |     |      |        |       |       |       |        |      
|                                                           |                                                                                                                            |                                                   |                   |           |         |           |         |           |        |          |         |       |     |      |         |       |       |       |         |      
|Revenue, net                                               |                                                                                                                            |                                                   | 177,365           |           |         |           | 141,391 |           |        |          | 146,583 |       |     |      | 127,883 |       |       |       | 112,208 |      
|Operating expenses of Learning Centers                     |                                                                                                                            |                                                   | 157,690           |           |         |           | 124,594 |           |        |          | 127,210 |       |     |      | 109,388 |       |       |       | 94,342  |      
|                                                           |                                                                                                                            |                                                   |                   |           |         |           |         |           |        |          |         |       |     |      |         |       |       |       |         |      
|Gross profit                                               |                                                                                                                            |                                                   | 19,675            |           |         |           | 16,797  |           |        |          | 19,373  |       |     |      | 18,495  |       |       |       | 17,866  |      
|Provision for doubtful accounts                            |                                                                                                                            |                                                   | 1,272             |           |         |           | 1,321   |           |        |          | 405     |       |     |      | 384     |       |       |       | 277     |      
|General and administrative expenses                        |                                                                                                                            |                                                   | 16,561            |           |         |           | 11,996  |           |        |          | 8,825   |       |     |      | 7,598   |       |       |       | 6,854   |      
|Depreciation and amortization expenses(1)                  |                                                                                                                            |                                                   | 3,526             |           |         |           | 4,750   |           |        |          | 4,562   |       |     |      | 3,404   |       |       |       | 2,852   |      
|Exit and closure expenses                                  |                                                                                                                            |                                                   | 1,051             |           |         |           | 578     |           |        |          | 4,000   |       |     |      |        |       |       |       |        |      
|Mold remediation expense                                   |                                                                                                                            |                                                   |                  |           |         |           | 1,005   |           |        |          |        |       |     |      |        |       |       |       |        |      
|Failed merger costs                                        |                                                                                                                            |                                                   |                  |           |         |           | 952     |           |        |          |        |       |     |      |        |       |       |       |        |      
|Intangible asset impairment charges(2)                     |                                                                                                                            |                                                   | 4,181             |           |         |           | 1,693   |           |        |          | 1,447   |       |     |      |        |       |       |       |        |      
|Fixed asset impairment charges(2)                          |                                                                                                                            |                                                   | 3,401             |           |         |           | 223     |           |        |          |        |       |     |      | 282     |       |       |       |        |      
|                                                           |                                                                                                                            |                                                   |                   |           |         |           |         |           |        |          |         |       |     |      |         |       |       |       |         |      
|                                                           |                                                                                                                            | Operating income (loss)                           |                   |           | (10,317 | )         |         |           | (5,721 | )        |         |       | 134 |      |         |       | 6,827 |       |         |       | 7,883 |      
|Interest expense, net                                      |                                                                                                                            |                                                   | 2,577             |           |         |           | 458     |           |        |          | 966     |       |     |      | 428     |       |       |       | 312     |      
|Other (income) expense, net                                |                                                                                                                            |                                                   | (84               | )         |         |           | (63     | )         |        |          | (242    | )     |     |      | (274    | )     |       |       | (359    | )    
|                                                           |                                                                                                                            |                                                   |                   |           |         |           |         |           |        |          |         |       |     |      |         |       |       |       |         |      
|                                                           | Income (loss) before income taxes, discontinued
    operations and cumulative effect of change in accounting
    principle |                                                   |                   | (12,810   | )       |           |         | (6,116    | )      |          |         | (590  | )   |      |         | 6,673 |       |       |         | 7,930 |      
|Income tax provision (benefit)                             |                                                                                                                            |                                                   | (228              | )         |         |           | (2,270  | )         |        |          | (191    | )     |     |      | 2,504   |       |       |       | 2,978   |      
|                                                           |                                                                                                                            |                                                   |                   |           |         |           |         |           |        |          |         |       |     |      |         |       |       |       |         |      
|                                                           | Income (loss) before discontinued operations and
    cumulative effect of change in accounting principle                   |                                                   |                   | (12,582   | )       |           |         | (3,846    | )      |          |         | (399  | )   |      |         | 4,169 |       |       |         | 4,952 |      
|Discontinued operations, net of taxes                      |                                                                                                                            |                                                   | (602              | )         |         |           | (189    | )         |        |          | 65      |       |     |      | 160     |       |       |       | 144     |      
|                                                           |                                                                                                                            |                                                   |                   |           |         |           |         |           |        |          |         |       |     |      |         |       |       |       |         |      
|                                                           | Income (loss) before cumulative effect of change
    in accounting principle                                               |                                                   |                   | (13,184   | )       |           |         | (4,035    | )      |          |         | (334  | )   |      |         | 4,329 |       |       |         | 5,096 |      
|Cumulative effect of change in accounting
    principle(2) |                                                                                                                            |                                                   | (4,967            | )         |         |           |        |           |        |          | (275    | )     |     |      |        |       |       |       |        |      
|                                                           |                                                                                                                            |                                                   |                   |           |         |           |         |           |        |          |         |       |     |      |         |       |       |       |         |      
|                                                           |                                                                                                                            |                                                   | Net income (loss) |           | $       | (18,151   | )       |           | $      | (4,035   | )       |       | $   | (609 | )       |       | $     | 4,329 |         |       | $     | 5,096 | 
|                                                           |                                                                                                                            |                                                   |                   |           |         |           |         |           |        |          |         |       |     |      |         |       |       |       |         |      
|Earnings (loss) per share:                                 |                                                                                                                            |                                                   |                   |           |         |           |         |           |        |          |         |       |     |      |         |       |       |       |         |      
|                                                           | Basic income (loss) before discontinued
    operations and cumulative effect of change in accounting
    principle         |                                                   | $                 | (2.35     | )       |           | $       | (0.73     | )      |          | $       | (0.08 | )   |      | $       | 0.79  |       |       | $       | 0.91  |      
|                                                           | Discontinued operations, net                                                                                               |                                                   |                   | (0.11     | )       |           |         | (0.04     | )      |          |         | 0.01  |     |      |         | 0.03  |       |       |         | 0.03  |      
|                                                           |                                                                                                                            |                                                   |                   |           |         |           |         |           |        |          |         |       |     |      |         |       |       |       |         |      
|                                                           | Basic income (loss) before cumulative effect
    of change in accounting principle                                         |                                                   | $                 | (2.46     | )       |           | $       | (0.77     | )      |          | $       | (0.07 | )   |      | $       | 0.82  |       |       | $       | 0.94  |      
|                                                           | Cumulative effect of change in accounting
    principle                                                                    |                                                   |                   | (0.93     | )       |           |         |          |        |          |         | (0.05 | )   |      |         |      |       |       |         |      |      
|                                                           |                                                                                                                            |                                                   |                   |           |         |           |         |           |        |          |         |       |     |      |         |       |       |       |         |      
|                                                           | Net income (loss)                                                                                                          |                                                   | $                 | (3.39     | )       |           | $       | (0.77     | )      |          | $       | (0.12 | )   |      | $       | 0.82  |       |       | $       | 0.94  |      
|                                                           |                                                                                                                            |                                                   |                   |           |         |           |         |           |        |          |         |       |     |      |         |       |       |       |         |      

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|                                     |                                                                                                                      |                                                   |        |           |   |           |        |           |   |          |        |       |   |   |        |      |  |   |        |      | 
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | ------ | --------- | - | --------- | ------ | --------- | - | -------- | ------ | ----- | - | - | ------ | ---- |  | - | ------ | ---- | 
|                                     |                                                                                                                      | March 28,                                         |        | March 29, |   | March 30, |        | March 31, |   | April 2,
|                                     |                                                                                                                      | 2003                                              |        | 2002      |   | 2001      |        | 2000      |   | 1999    
|                                     |                                                                                                                      |                                                   |        |           |   |           |        |           |   |         
|                                     |                                                                                                                      |                                                  
|                                     |                                                                                                                      | (Dollars in thousands, except for per share data)
|                                     | Diluted income (loss) before discontinued
    operations and cumulative effect of change in accounting
    principle |                                                   | $      | (2.35     | ) |           | $      | (0.73     | ) |          | $      | (0.08 | ) |   | $      | 0.79 |  |   | $      | 0.90 | 
|                                     | Discontinued operations, net                                                                                         |                                                   |        | (0.11     | ) |           |        | (0.04     | ) |          |        | 0.01  |   |   |        | 0.03 |  |   |        | 0.03 | 
|                                     |                                                                                                                      |                                                   |        |           |   |           |        |           |   |          |        |       |   |   |        |      |  |   |        |     
|                                     | Diluted income (loss) before cumulative effect of
    change in accounting principle                                 |                                                   | $      | (2.46     | ) |           | $      | (0.77     | ) |          | $      | (0.07 | ) |   | $      | 0.82 |  |   | $      | 0.93 | 
|                                     | Cumulative effect of change in accounting
    principle                                                              |                                                   |        | (0.93     | ) |           |        |          |   |          |        | (0.05 | ) |   |        |     |  |   |        |     | 
|                                     |                                                                                                                      |                                                   |        |           |   |           |        |           |   |          |        |       |   |   |        |      |  |   |        |     
|                                     | Net income (loss)                                                                                                    |                                                   | $      | (3.39     | ) |           | $      | (0.77     | ) |          | $      | (0.12 | ) |   | $      | 0.82 |  |   | $      | 0.93 | 
|                                     |                                                                                                                      |                                                   |        |           |   |           |        |           |   |          |        |       |   |   |        |      |  |   |        |     
|                                    
|Selected Balance Sheet Data:         |                                                                                                                      |                                                   |        |           |   |           |        |           |   |          |        |       |   |   |        |      |  |   |        |     
|Total Assets                         |                                                                                                                      | $                                                 | 83,945 |           |   | $         | 74,115 |           |   | $        | 74,111 |       |   | $ | 71,174 |      |  | $ | 62,611 |     
|Total long-term debt                 |                                                                                                                      | $                                                 | 29,631 |           |   | $         | 3,196  |           |   | $        | 4,224  |       |   | $ | 4,214  |      |  | $ | 1,892  |     
|Total shareholders equity           |                                                                                                                      | $                                                 | 25,813 |           |   | $         | 43,482 |           |   | $        | 47,236 |       |   | $ | 44,939 |      |  | $ | 46,407 |     
|                                    
|Selected Operating Data:             |                                                                                                                      |                                                   |        |           |   |           |        |           |   |          |        |       |   |   |        |      |  |   |        |     
|Number of centers (at end of period) |                                                                                                                      |                                                   | 339    |           |   |           | 286    |           |   |          | 304    |       |   |   | 293    |      |  |   | 270    |     




|    |                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In accordance with the provisions of SFAS
    No. 142, Goodwill and Other Intangible Assets, the
    Company did not amortize goodwill for the fiscal year ended
    March 28, 2003. If goodwill amortization had not been
    recorded for the prior periods, net income (loss) and earnings
    (loss) per share as shown above would have been as follows:

|     |  |               |      |                 |  |   |       |  
|---- |  | ------------- | ---- | --------------- |  | - | ----- | -
|     |  | Net Income    |      | Earnings (Loss)
|     |  | (Loss)        |      | Per Share      
|     |  |               |      |                
|     |  | (In millions) |      |                
|2002 |  | $             | (2.9 | )               |  | $ | (0.55 | )
|2001 |  | $             | 0.8  |                 |  | $ | 0.15  |  
|2000 |  | $             | 5.2  |                 |  | $ | 0.99  |  
|1999 |  | $             | 5.8  |                 |  | $ | 1.06  |  




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | During the second quarter of 2003, the Company
    completed the implementation of SFAS No. 142, Goodwill
    and Other Intangible Assets. Under SFAS No. 142,
    goodwill is no longer amortized. Instead, goodwill and
    indefinite-lived intangible assets are tested for impairment in
    accordance with the provisions of SFAS No. 142. In
    accordance with its impairment policy, the Company employed a
    discounted cash flow analysis in conducting its impairment tests
    for the year ended March 29, 2002. The Company completed
    its impairment test and recorded an impairment loss of
    $5.0 million (net of a tax benefit of $0.9 million) as
    a cumulative effect of a change in accounting principle. In
    addition, as a result of continuing weakening economic
    conditions, the Company tested for goodwill impairment as of
    October 11, 2002, and recorded an impairment loss during
    the second quarter of $4.2 million. Due to the continuing
    weakening economic conditions, the Company also tested for
    long-lived asset impairment, which consists primarily of
    equipment, leasehold improvements and other assets, as of
    October 11, 2002, in accordance with the provisions of SFAS
    No. 144, Accounting for the Impairment or Disposal of
    Long-Lived Assets. The Company employed a cash flow analysis
    in conducting its impairment test. The Company completed its
    impairment test and recorded an impairment loss of
    $3.5 million, including $0.1 million in discontinued
    operations, which impacted the Childtime reporting segment.
|   
|    | The impairment charges shown for fiscal years
    ended March 2002, 2001 and 2000 reflect charges for the
    write-down of goodwill and fixed assets determined in accordance
    with the provisions of SFAS No. 121, Accounting for the
    Impairment of Long-Lived Assets and for Long-Lived Assets to be
    Disposed of.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

19



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of
    Financial Condition and Results of Operations

Since the beginning of fiscal year 1999, the
Company has increased its number of centers from
242 centers to 339 Company-owned and
135 franchised centers at March 28, 2003. We have
achieved this growth through a combination of acquisitions
(including the acquisition of Tutor Time centers in
July 2002), prototype build-to-suit centers, and new
leases. Fiscal 2002 growth consisted of three new
build-to-suit leased centers and one management contract. During
fiscal 2002, we closed 22 under-performing centers, 18 of
which had been identified in our restructuring plan at the prior
fiscal year ended March 30, 2001. With the acquisition of
Tutor Time in fiscal 2003, the Company acquired and
accepted the contracts on 58 operating corporate centers,
124 operating franchise centers, and additional Tutor Time
centers that were at various stages of development.

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.

Critical Accounting Policies

Childtime prepares its financial statements in
conformity with accounting principles generally accepted in the
United States. In preparing these statements management makes
certain estimates, judgments and assumptions, which affect the
reported amounts of assets and liabilities at the date of the
financial statements, as well as the amounts of revenue and
expenses for each period presented. The application of the
Companys accounting policies, in certain instances,
requires the exercise of judgment and assumptions that pertain
to future uncertainties and as a result, actual future results
could differ from managements estimates. The accounting
policies management believes are critical in the preparation of
the Companys financial statements relate to revenue
recognition, accounts receivable, impairment of long-lived
assets, liability for workers compensation insurance
obligations, and income taxes.

Revenue Recognition.The Company recognizes revenue in
accordance with SEC Staff Accounting Bulletin 101, which
requires that the following criteria be met before recognizing
revenue: persuasive evidence of an arrangement exists, delivery
has occurred or services have been rendered, the fee is fixed
and determinable, and collectibility is reasonably assured. The
Companys revenues consist primarily of tuition paid by
parents, supplemented in some cases by payments (either partial
or in total) from government agencies. Each agency has its own
set of guidelines in administering subsidies and management must
constantly monitor affected centers to ensure compliance.
Revenues also include, to a lesser degree, management fees paid
by corporate sponsors and franchise royalties and fees. Tuition
revenue is recognized as services are performed. In some
centers, the Company receives payment in advance of services
being rendered, in which case, revenue is deferred until the
services have been provided. Franchise fees and site development
fees are recognized as revenue at the time the franchise center
receives a certificate of occupancy. Royalty income related to
franchise operations is recognized as revenue is earned by
franchisees.

Accounts Receivable.The Company generates accounts
receivable primarily from fees charged to governmental agencies,
franchisees and, to a lesser degree, parents. The Company
monitors collections and payments from these customers and
maintains a provision for estimated losses based on historical
trends and current overall economic conditions. Amounts charged
to this provision for uncollectible accounts receivable have
historically been within the Companys expectations, but
there can be no assurance that future experience will be
consistent with the Companys past experience.

Impairment of Intangible and Long-lived Assets
under SFAS 142 and SFAS 144.During the second quarter of 2003, the Company completed the
implementation of SFAS 142, Goodwill and Other
Intangible Assets.Under SFAS 142, goodwill is no
longer amortized. Instead, goodwill and intangible assets with
indefinite lives are tested for impairment in accordance with
the provisions of SFAS 142. The Company employed a
discounted cash flow analysis to compute fair value in
conducting its impairment tests under SFAS 142. The Company
also tests for long-lived asset impairment, which consists
primarily of equipment,

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leasehold improvements and other assets, as of
October 11, 2002, in accordance with the provisions of
SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.The Company employed a cash flow analysis
in conducting its impairment test. In the fourth quarter of
fiscal 2003, the Company again tested for impairment using the
discounted, forecasted cash flows for the three segments of the
Company  Childtime corporate, Tutor Time corporate
and Franchise operations. These cash flows were compared to the
fair value of intangible and long-lived assets for each segment,
and it was determined that there was no further impairment for
fiscal 2003. Assumptions and estimates about future cash flows
are subjective in nature and can be affected by a variety of
factors, such as the economy, regulatory changes and changes in
state mandated programs.


There is a potential for impairment charges in
future years that would reduce operating income and asset values
on our balance sheet.

Liability for Workers Compensation
Insurance Obligations.The Company
self-insures a significant portion of its workers compensation
insurance plans. The full extent of certain liabilities, in many
cases, may not become fully recognized for several years. The
Company, therefore, estimates the potential obligation for
liabilities which have been incurred but not yet reported based
upon historical data and experience, and utilizes an outside
consulting firm to assist the Company in developing these
estimates. Although management believes that the amounts accrued
for these obligations are sufficient, any significant increase
in either the number of claims and/or costs associated with
claims made under these plans could have a material effect on
the Companys financial results.

Results of Operations

Fiscal 2003
Compared to Fiscal 2002

Revenues, net.Net
revenues for fiscal 2003 increased $36.0 million, or 25.5%,
from fiscal 2002 to $177.4 million. The increase was the
result of additional revenues of $32.2 million contributed
by Tutor Time centers and $3.8 million contributed by
Franchise Operations. Childtime center revenues were
substantially unchanged, with continuing center revenue
increases of $2.9 million offset by the loss of revenues
from closed centers of $2.9 million. Comparable Childtime
center revenues (centers opened more than 18 months)
increased $1.8 million or 1.3%. Revenues from closed
centers relate to centers closed in fiscal 2002 or fiscal 2003
that would not be considered under the scope of SFAS 142
and therefore are not included in discontinued operations.

Operating expenses of Learning Centers.Operating expenses for fiscal 2003
increased $33.1 million, or 26.6%, from fiscal 2002 to
$157.7 million. The increase was a result of additional
operating expenses of $32.5 million for Tutor Time centers
and an increase of operating expenses of $0.6 million for
Childtime centers. The operating expenses increase for Childtime
centers was primarily in personnel, where wage increases were
implemented prior to tuition increases, and occupancy costs that
rose with inflation on comparable revenues. These costs were
partially offset by other operating costs, which decreased. For
fiscal 2003, operating expenses as a percentage of revenue from
Learning Center Operations increased to 90.8%, from 88.1% for
fiscal 2002. This increase was a result of higher operating
costs in the acquired Tutor Time centers, costs incurred in
center openings and closings, and higher Childtime center costs.

Gross profit.Gross
profit for fiscal 2003 increased $2.9 million, or 17.3%,
from fiscal 2002 to $19.7 million. The increase was
attributable to $3.8 million contributed by Franchise
Operations offset by ($0.3) million contributed by Tutor
Time centers and a ($0.6) million decrease by Childtime
centers. Gross profit percentages for fiscal 2003 by segment
were 11.4% for Childtime centers (as compared to 11.9% for
fiscal 2002), (0.8)% for Tutor Time centers and 100.0% for
Franchise Operations. The decrease in the Childtime centers
gross profit is attributable to increased personnel costs, where
wage increases were implemented prior to tuition increases, and
occupancy costs that rose with inflation on comparable revenues.

Provision for doubtful accounts.Provision for doubtful accounts for
fiscal 2003 was $1.3 million, unchanged from fiscal 2002.

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General and administrative expenses.General and administrative expenses
for fiscal 2003 increased $4.6 million, or 38.2%, from
fiscal 2002 to $16.6 million. This increase was a result of
$4.1 million of general and administrative costs incurred
by Tutor Time operations and higher costs associated with the
establishment of regional offices.

Depreciation and amortization expense.Depreciation and amortization expenses
for fiscal 2003 decreased $1.2 million from fiscal 2002 to
$3.5 million. This was primarily a result of a reduction of
amortization expense of $1.9 million for Childtime centers
for fiscal 2003, which was partially offset by depreciation and
amortization of $0.7 million attributable to Tutor Time
centers.

Exit and closure expenses.The Company instituted a restructuring
program in fiscal 2001 and incurred a charge of
$4.0 million in March 2001. In this regard, the
Company closed all 10 of its Oxford Learning Centers of America
and identified 19 under-performing centers to be closed in
fiscal 2002. As of March 28, 2003, 18 of the
under-performing centers have been closed. One center is
operating profitably and the Company has decided not to close
this center. Approximately 200 employees were involuntarily
terminated in connection with the closures of Oxford Learning
Centers of America and the 18 under-performing Childtime
centers. For fiscal 2003, the Company recorded exit and closure
expenses of $1.1 million. Of this amount, $0.7 million
related to the closure of three additional centers not included
in the 2001 restructuring program. The remaining
$0.4 million was to increase reserves related to the 2001
restructuring program, as a result of current real estate market
conditions. During fiscal 2003, the Company made cash payments
of $0.9 related to lease termination costs.

Impairment charges.During fiscal 2003, the Company
incurred an expense of $4.2 million as a result of an
evaluation done under SFAS No. 142, Goodwill and Other
Intangible Assets. During fiscal 2003, the Company incurred
an expense of $3.5 million, including $0.1 million in
discontinued operations as a result of an evaluation done under
SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets. There were no charges for these items
in fiscal 2002.

Operating (loss).As
a result of the foregoing changes, the Companys operating
losses were ($10.3) million for fiscal 2003 compared to
operating losses of ($5.7) million for fiscal 2002.

Interest expense.Interest expense for fiscal 2003 was
$2.6 million compared to $0.5 million for fiscal 2002.
This increase was a result of indebtedness incurred in
connection with the acquisition of Tutor Time, partially offset
by the reduction of interest rates on variable rate indebtedness.

Income tax benefit.Income tax benefit for fiscal 2003 was
$0.2 million compared to $2.3 million for fiscal 2002.
The effective tax rate was 1.8% for fiscal 2003 compared to
37.1% for fiscal 2002. The tax benefits and rates for fiscal
2003 were reduced due to the establishment of valuation reserves.

Discontinued operations, net of taxes.Discontinued operations, net of taxes,
for fiscal 2003 was ($0.6) million compared to
($0.2) million for fiscal 2002. The additional losses for
fiscal 2003 were a result of lease termination costs and SFAS
No. 142 and SFAS No. 144 impairments.

Cumulative effect of change in accounting
principle.An adjustment of $5.0
million as the cumulative effect of goodwill impairment under
SFAS 142, Goodwill and Other Intangibleswas made for
fiscal 2003. This amount was reduced by a tax benefit of
$0.9 million, which has been reduced by a valuation
reserve. There was no charge for this item in fiscal 2002.

Net loss.As a
result of the foregoing changes, net loss for fiscal 2003 was
($18.1) million, compared to net a loss of ($4.0) million for
fiscal 2002.

Fiscal 2002
Compared to Fiscal 2001

Revenues, net.Revenues decreased to
$141.4 million in fiscal 2002, from $146.6 million in
fiscal 2001, a decrease of $5.2 million or 3.5%. The
decrease was primarily attributable to the impact of the 18
centers closed during the first quarter of fiscal 2002 pursuant
to the restructuring plan initiated at the end of fiscal 2001
($5.0 million net decrease) and an additional 4 centers
closed during fiscal 2002 ($0.7 million). Centers opened
during fiscal 2002 provided an additional increase in revenues
($1.5 million), which partially offset the

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centers closed during fiscal 2002 and decreased
utilization. Decreased utilization reflected lower enrollment
for the last two quarters of fiscal 2002, due to a downturn in
the economy after September 11 and an increase in the
national unemployment rate. Due to these factors,
comp center (i.e., a center opened for at least
18 months) revenues were $135.4 million in fiscal 2002
compared with $136.4 million in fiscal 2001, representing a
decrease of 0.7% from the prior year.


Gross profit.Gross
profit decreased to $16.8 million in fiscal 2002 from
$19.4 million in fiscal 2001, a decrease of 13.3%. As a
percentage of revenues, gross profit decreased to 11.9% in
fiscal 2002 from 13.2% in fiscal 2001. The decrease in margin
was due to several factors including decreased utilization,
certain regional markets falling below enrollment expectations,
an unfavorable sales mix (higher revenues from unprofitable
infant programs and lower revenues from profitable pre-school
programs), and an increased number of new build-to-suit centers
which experience initial start up losses early in their
operations. Marketing expenses decreased to $1.5 million in
fiscal 2002 from $1.7 million in fiscal 2001, a 12.1%
decrease. The decrease was primarily due to the 18 centers
closed pursuant to the restructuring plan initiated at the end
of fiscal 2001.

Provision for doubtful accounts.During fiscal 2002, the Company
implemented a new center based management information system
that now provides the Company with significantly more detailed
information on its receivables, particularly its subsidized
accounts. As a result of this information, difficulties
encountered during the implementation, and the current
recessionary environment, the Company recorded a
$1.3 million provision for doubtful accounts in fiscal 2002.

General and administrative expenses.General and administrative expenses
increased to $12.0 million in fiscal 2002 from
$8.8 million in 2001, a 35.9% increase. The increase is
primarily due to the four region office operating structure
($1.2 million) established during the second quarter of
fiscal 2002, settlement of a property development lawsuit
($0.8 million) and the conversion and installation of a new
revenue management information system ($0.5 million). As a
percentage of revenues, general and administrative expenses
increased to 8.4% in fiscal 2002 from 6.0% in fiscal 2001.

Depreciation and amortization expenses.Depreciation and amortization expenses
increased to $4.8 million in fiscal 2002 from
$4.6 million in 2001, a 4.1% increase. The increase is due
to increased depreciation associated with the Companys
purchase of additional furniture and equipment in fiscal 2002.

Restructuring expenses.The Company instituted a restructuring
program in March 2001, and incurred a charge of $4,000,000
for fiscal year ended March 30, 2001. For the fiscal year
ended March 29, 2002, additional restructuring costs were
$578,000. As part of the 2001 program, the Company, during the
first quarter of fiscal 2002, closed 18 of 19 under-performing
centers targeted for closing under that program. These 19
under-performing centers generated operating losses in fiscal
2001 of $526,000 on revenues of $6,132,000. An additional 4
centers, not identified under the 2001 restructuring program,
were also closed during fiscal 2002. These under-performing
centers generated operating losses in fiscal 2002 of $265,000 on
revenues of $1,484,000.

The total restructuring charge of $4,000,000 in
fiscal 2001 is comprised of $1,915,000 of estimated undiscounted
lease termination costs, $1,539,000 of impairment of fixed and
intangible assets and $546,000 of severance costs. The total
restructuring charge of $578,000 for fiscal 2002 is comprised of
$150,000 of unanticipated required maintenance and additional
estimated undiscounted lease termination costs (net of $73,000
of recoveries from favorable severance settlements) associated
with the 2001 restructuring plan and $428,000 of severance costs
for three executives associated with the 2002 plan to
restructure the Companys management. Both plans are
expected to be completed in fiscal 2003.

Mold remediation expense.In fiscal 2002, to continue providing
a safe environment for our customers, the Company began a mold
remediation program for its operating centers, identifying
approximately 86 affected centers. The Company expensed
$1,005,000 in fiscal 2002 for the required remediation. The
remediation efforts will be substantially complete by the end of
the second quarter of fiscal 2003.

Impairment charges.In accordance with the SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, the
Company recorded a non-cash impairment charge of $1,916,000 in
the fourth quarter of fiscal year 2002 to write down a portion
of the recorded asset

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values of 15 of the Companys
under-performing centers to estimated fair values. The Company
recorded a non-cash impairment charge of $1,447,000 in the
fourth quarter of fiscal 2001 for 14 of the Companys
under-performing centers identified in its restructuring plan.


Interest expense.Interest expense decreased to
$.5 million in fiscal 2002 from $1.0 million in fiscal
2001, primarily due to the reduction of the Federal Reserve
prime lending rate generating a lower average prime rate for
fiscal 2002 compared to fiscal 2001. As a percentage of
revenues, interest expense decreased to 0.3% in fiscal 2002 from
0.6% during fiscal 2001.

Income tax benefit.Due to the Companys financial
results, an income tax benefit in the amount of
$2.4 million, including $0.2 million in discontinued
operations, was recognized for fiscal 2002 as compared to an
income tax benefit of $0.2 million for fiscal 2001.

Discontinued operations, net of taxes.Discontinued operations, net of taxes,
in fiscal 2002 was a loss of ($231,000) compared to a gain of
$7,000 in fiscal 2001. The decrease was attributable to a
decline in revenue and an increase in operating expenses for
operations discontinued in fiscal 2003.

Net loss.As a
result of the foregoing changes, the Companys net loss was
$4.0 million, or (2.8)% of revenues, in fiscal 2002 as
compared to a net loss of $.6 million, or (0.4)% of
revenues, in fiscal 2001.

Liquidity and Capital Resources

The Companys primary cash requirements
currently consist of its funding of losses from operations,
expenses associated with planned center openings, repayment of
debt, maintenance and capital improvement of existing centers,
and funding lease termination costs in conjunction with its
restructuring program. The Company expects to fund cash needs
through the revolving credit facility, described below, and cash
generated from operations, although alternative forms of funding
continue to be evaluated and new arrangements may be entered
into in the future. The Company experienced 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 amended and
restated its revolving line of credit agreement by entering into
a new $17.5 million revolving line of credit agreement with
its existing lender. This credit agreement, as further amended
subsequent to the fiscal year end, will mature on June 30,
2004, and 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 $13.0 million at March 28, 2003, and outstanding
borrowings of $2.5 million at March 29, 2002.
Outstanding letters of credit reduced the availability under the
line of credit in the amount of $2.5 million at
March 28, 2003 and $1.8 million at March 29,
2002. (See Note 5 to the Companys Notes to
Consolidated Financial Statements).

Under this agreement, 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. During each of the first three
fiscal quarters of the year ended March 28, 2003, the
Company had not maintained minimum consolidated EBITDA levels
and, for the first two fiscal quarters of 2003, had not
provided timely reporting, as required by the Amended and
Restated Credit Agreement. The Companys lender has
provided waivers for these non-compliances. The Amended and
Restated Credit Agreement was further amended and the Company is
in compliance with the agreement as of March 28, 2003.

Net cash provided (used) by operating activities
was $1.5 million for fiscal 2003, compared to
$1.4 million for fiscal 2002. During fiscal 2003, financing
activities totaled $22.4 million and consisted primarily of
net borrowings on the revolving line of credit of
$10.5 million, the issuance of long-term debt of
$14.0 million, and a $0.9 million increase in drafts
payable. This compared to financing activities of

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$4.6 million for fiscal 2002, consisting
primarily of net borrowings on the revolving line of credit of
$2.5 million and repayments of reimbursable instruction
costs of $2.0 million offset by repayments under long term
debt of $1.2 million. Investing activities were
$26.2 million for fiscal 2003, of which $21.7 million
was associated with the purchase of Tutor Time, and
$5.0 million was used for capital spending which was
partially offset by $0.6 million of proceeds from asset
sales. Investing activities were $4.5 million for fiscal
2002, and consisted primarily of $4.1 million of capital
spending and $0.9 million for reimbursable construction
costs, offset by $0.5 million from proceeds from the sale
of assets. Net accounts receivable increased to $8.1 at
March 28, 2003, from $5.2 million at March 29,
2002. This increase was primarily due to the inclusion of Tutor
Time Learning Centers and Franchise Operations receivables.


On July 19, 2002, the Company acquired the
assets of Tutor Time Learning Systems, Inc., for an aggregate
purchase price of approximately $22.8 million, including
acquisition costs, plus the assumption of certain liabilities.
The assets acquired by the Company consisted of substantially
all of the operating assets and contract rights used by Tutor
Time in its child care operations, which were comprised of 198
company-owned and franchised child care centers operating in 23
states and internationally, and were purchased to improve the
range of the Companys product offering and to enter the
child care franchise business. The Tutor Time acquisition was
financed, in part, through the Companys $17.5 million
secured bank credit facility as well as the issuance of
$14 million of subordinated loans (the Prior
Subordinated Notes). The Prior Subordinated Notes were
issued to the JP Acquisition Fund Group (see Related
Party Transactions below) to fund the balance of the Tutor
Time acquisition purchase price and to provide related working
capital. The Prior Subordinated Notes had an original maturity
of December 31, 2004 and bore interest at 15%, of which 7%
was payable in cash, with the balance payable in kind by the
issuance of additional subordinated notes.

During fiscal 2003, the Company 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 March 28, 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. During fiscal 2003, the Company
recognized a loss of $0.1 million as a result of a decline
in the market value of the outstanding interest rate contracts.

Subsequent Events

On May 16, 2003, the Company completed a
Rights Offering under which it issued 100,000 units at $158.52
per unit. Total proceeds from the offering were
$15.9 million, of which $12.4 million was common stock
and $3.5 million was new subordinated notes. The proceeds
of the offering were used to pay off the balance, which included
accrued interest, on the Prior Subordinated Notes (see
Note 5 of the Companys Notes to Consolidated
Financial Statements). The new subordinated notes bear interest
at 15%, payable quarterly, and are due May 15, 2008.
Subject to the applicable subordination provisions, these
Subordinated Notes may be redeemed, at the option of the
Company, at any time and must be redeemed following the
occurrence of a change of control. In either case,
the redemption price is 100% of the principal balance of the
Notes, plus accrued and unpaid interest on such principal
balance to the date of redemption.

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Contractual Obligations and
Commitments

At March 28, 2003, aggregate principal
payments due on short and long-term debt (based on the
refinancing as discussed in Note 21 of the Companys
Notes to Consolidated Financial Statements) and operating leases
over the next five fiscal years and thereafter are as follows:

|                                     |       |                |         |           |  |       |        |        |  |         |        |        |  |   |        |        |  |   |         |         | 
|------------------------------------ | ----- | -------------- | ------- | --------- |  | ----- | ------ | ------ |  | ------- | ------ | ------ |  | - | ------ | ------ |  | - | ------- | ------- | 
|                                     |       |                |         | Less Than |  | 1-3   |        | 4-5    |  | After  
|                                     |       | Total          |         | 1 Year    |  | Years |        | Years  |  | 5 Years
|                                     |       |                |         |           |  |       |        |        |  |        
|                                     |       |               
|                                     |       | (In thousands)
|Current maturities of long-term debt |       | $              | 1,280   |           |  | $     | 1,280  |        |  | $       |       |        |  | $ |       |        |  | $ |        |        
|Long-term debt                       |       |                | 29,631  |           |  |       |       |        |  |         | 15,031 |        |  |   | 87     |        |  |   | 14,513  |        
|Operating leases                     |       |                | 292,847 |           |  |       | 31,066 |        |  |         | 58,577 |        |  |   | 50,318 |        |  |   | 152,886 |        
|                                     |       |                |         |           |  |       |        |        |  |         |        |        |  |   |        |        |  |   |         |        
|                                     | Total |                | $       | 323,758   |  |       | $      | 32,346 |  |         | $      | 73,608 |  |   | $      | 64,918 |  |   | $       | 152,886 | 
|                                     |       |                |         |           |  |       |        |        |  |         |        |        |  |   |        |        |  |   |         |        

Included in operating leases above, are
obligations totaling $5.4 million related to closed
centers. The Company has accrued as of March 28, 2003, $1.3
million in exit and closure expenses related to these lease
payments. The Company is primarily liable on approximately
$1.1 million for lease assignments (included in the
$5.4 million for closed centers) already negotiated in
connection with certain lease terminations resulting from the
fiscal 2001 restructuring program. The Company expects to assign
the remaining amounts to a third party or negotiate reductions
with the landlord (see Note 13 of the Companys Notes to
Consolidated Financial Statements).

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 aggregates
$95.9 million and $27.9 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 has taken over operations
for a center previously operated by a franchisee as a result of
a default under the franchisees lease and intends to
continue to operate this center. Other than with respect to the
foregoing center, the Company has not been notified 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. At March 28, 2003,
aggregate potential payments on leases and guarantees over the
next five fiscal years and thereafter are as follows:

|                            |       |                |        |           |  |       |       |        |  |         |        |        |  |   |        |        |  |   |        |        | 
|--------------------------- | ----- | -------------- | ------ | --------- |  | ----- | ----- | ------ |  | ------- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                            |       |                |        | Less Than |  | 1-3   |       | 4-5    |  | After  
|                            |       | Total          |        | 1 Year    |  | Years |       | Years  |  | 5 Years
|                            |       |                |        |           |  |       |       |        |  |        
|                            |       |               
|                            |       | (In thousands)
|Franchise Lease Guarantees  |       | $              | 27,874 |           |  | $     | 2,600 |        |  | $       | 4,521  |        |  | $ | 3,611  |        |  | $ | 17,142 |       
|Franchise Lease Commitments |       |                | 95,939 |           |  |       | 7,489 |        |  |         | 14,978 |        |  |   | 14,633 |        |  |   | 58,839 |       
|                            |       |                |        |           |  |       |       |        |  |         |        |        |  |   |        |        |  |   |        |       
|                            | Total |                | $      | 123,813   |  |       | $     | 10,089 |  |         | $      | 19,499 |  |   | $      | 18,244 |  |   | $      | 75,981 | 
|                            |       |                |        |           |  |       |       |        |  |         |        |        |  |   |        |        |  |   |        |       

Related Party Transactions

In July 2000, the Company retained Jacobson
Partners to provide management and financial consulting
services. Jacobson Partners is a private equity firm of which
Benjamin R. Jacobson, the Chairman of the Board of the Company,
is the managing general partner, James J. Morgan, a director and
former Chairman of the Board and Interim Chief Executive Officer
of the Company, is a partner, and George A. Kellner, the
Companys Vice Chairman of the Board, is a special advisor.
As consideration for the provision of such services to the
Company and its Board of Directors, Jacobson Partners is
entitled to receive an annual fee of $250,000, plus
reimbursement of reasonable out-of-pocket expenses. The
agreement will continue in effect

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until terminated by either party upon six
months prior written notice. As additional consideration
for its services, the Company granted to Jacobson Partners, and
its designees, two options to acquire, in the aggregate, up to
557,275 shares of the Companys common stock. Options for
294,117 shares were exercised at a cost of $2,500,000. The
options to acquire the remaining 263,158 shares expired
July 2002. The 294,117 shares acquired by Jacobson Partners
and its designees upon exercise of the options are subject to
registration rights until July 2007.


As part of its agreement with the Company,
Jacobson Partners agreed that, until July 2002, neither it
nor its designees would acquire additional shares of the
Companys common stock (whether in the open market or in
private transactions) (i) having an aggregate purchase
price in excess of $2,500,000 or (ii) at the same time the
Company would be engaged in a share repurchase agreement. During
that two-year period, pursuant to a separate agreement with
Childcare Associates and KD Partners II (Company shareholders
controlled by Mr. Kellner), Jacobson Partners and its
designees had the right to acquire Company shares owned by such
entities to the extent investors in such entities wish to have
their pro rata interest in the Companys common stock sold;
provided that any shares so purchased by Jacobson Partners and
its designees would be subject to an irrevocable voting proxy in
favor of Mr. Kellner. All shares of the common stock
acquired by Jacobson Partners and its designees during the first
two years of the agreement, including shares purchased in the
open market or in private transactions, are subject to
registration rights until July 6, 2007.

On June 26, 2002, in connection with the
Companys acquisition of substantially all of the assets of
Tutor Time Learning Systems, Inc., the Company entered into an
investment advisory agreement with Jacobson Partners. Upon
consummation of the acquisition, Jacobson Partners earned a fee
consisting of a cash payment of $333,334 and the issuance of
175,438 shares of the Companys common stock.

In July 2002, to provide a majority of the
funding to finance the Companys acquisition of
substantially all of the assets of Tutor Time Learning Systems,
Inc., and to provide related working capital, the
JP Acquisition Fund Group, a group of lenders organized by
Jacobson Partners, loaned an aggregate of $14,000,000 to the
Company. The loans, evidenced by the Prior Subordinated Notes,
were subject to a subordination agreement in favor of the
Companys secured creditor, bore interest at 15% (of which
only 7% is payable in cash unless certain conditions are met,
with the rest payable in kind with the issuance of additional
subordinated debt) and had an original maturity of
December 31, 2004. The terms of this subordinated loan
arrangement were approved by a Special Committee of the Board of
Directors. Although Jacobson Partners received no consideration
for arranging this financing, lenders included JP Acquisition
Fund II, L.P. and JP Acquisition Fund III, L.P.,
entities controlled and managed by affiliates of Jacobson
Partners (for an aggregate of $10,497,154), Mr. Jacobson
(for $115,703), Mr. Kellner (for $174,429) and
Mr. Morgan (for $225,000). During fiscal 2003, the Prior
Subordinated Notes held by these related lenders accrued
interest in the following amounts: JP Acquisition Fund II,
L.P. and JP Acquisition Fund III, L.P. 
$1,170,264; Mr. Jacobson  $12,899;
Mr. Kellner  $19,446; and
Mr. Morgan  $25,084.

Also in July 2002, certain members of the JP
Acquisition Fund Group (the Optionees) agreed to
arrange for the Company to obtain a standby purchase commitment
in connection with the Companys Rights Offering. As
consideration for such commitment, a Special Committee of the
Board of Directors approved the grant to the Optionees of
options (the Standby Commitment Options) to
purchase, in the aggregate, up to 400,000 shares of common
stock, until July 19, 2006, at an exercise price of $5.00
per share (approximately 171% of the five-day average of the
daily closing prices of the common stock on The Nasdaq National
Market System as of July 19, 2002, the date of the
agreement). All shares acquired by the Optionees would be
subject to registration rights, pursuant to which, until
July 6, 2007, the Optionees would have the right to cause
the Company to register, at the Companys expense, their
shares of common stock, whenever the Company is otherwise
registering shares (except in certain circumstances). The option
grant to the Optionees was approved by the Companys
shareholders and became effective and fully vested upon
consummation of the Rights Offering. Optionees receiving Standby
Commitment Options included Mr. Jacobson (options for 4,790
shares, including 473 shares reflecting his proportionate
interest in options beneficially owned by Jacobson Partners,
Mr. Kellner (options for 6,401 shares) and Mr. Morgan
(options for 5,303 shares, including 5 shares reflecting his
proportionate interest in options beneficially owned by Jacobson
Partners).

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In February 2003, prior to the commencement
of the Rights Offering, the JP Acquisition Fund Group
entered into a Standby Securities Purchase Agreement pursuant to
which the Group agreed to purchase the securities to be offered
by the Company as part of the Rights Offering not subscribed for
by the Companys shareholders, at the same price to be made
available under the Rights Offering to the Companys
shareholders. Upon consummation of the Rights Offering and the
purchases contemplated under the Standby Securities Purchase
Agreement, the JP Acquisition Fund Group acquired an
aggregate of 76,023 Units, consisting of 10,719,243 shares of
common stock and $2,660,805 principal amount of New Subordinated
Notes. The Units were acquired at the Rights Offering price of
$158.52 per Unit. Of such amounts, Mr. Jacobson acquired
887,525 shares and $220,308 of New Subordinated Notes (including
11,069 shares and $2,748 of New Subordinated Notes reflecting
his proportionate interest in securities beneficially owned by
Jacobson Partners), Mr. Kellner and his spouse acquired
665,802 shares and $165,270 of New Subordinated Notes, and
Mr. Morgan acquired 226,569 shares and $56,241 of New
Subordinated Notes (including 123 shares and $31 of New
Subordinated Notes reflecting his proportionate interest in
securities beneficially owned by Jacobson Partners).

Contingencies

During fiscal 2002, the Company decided not to
pursue opening three new build-to-suit centers after leases for
these centers had been signed with the developer of the centers.
The Company was subsequently sued by the developer for breach of
contract. This case was settled at the end of fiscal 2002, and a
current liability was recorded on the balance sheet as of
March 29, 2002 in the amount of $0.8 million, which
was paid during the first quarter of fiscal 2003.

In addition, various legal actions and other
claims are pending or could be asserted against the Company.
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.

New Accounting Pronouncements

SFAS No. 143, Accounting for Asset
Retirement Obligations,was issued in August 2001, and
addresses legal obligations (arising from laws, statutes,
contracts, etc.) that an entity must satisfy when disposing of
tangible, long-lived assets. The standard requires entities to
record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. The Company is
evaluating the impact this Statement will have on its
consolidated financial statements and is anticipating the
adoption of SFAS No. 143 in the first quarter of fiscal 2004.

In April 2003, the FASB issued SFAS
No. 149, Accounting for Derivative Instruments and
Hedging Activities.SFAS No. 149 amends SFAS
No. 133, Accounting for Derivative Instruments and
Hedging Activities.SFAS No. 149 improves financial
reporting by requiring that contracts with comparable
characteristics be accounted for similarly. SFAS No. 149 is
effective for contracts entered into or modified after
June 30, 2003 and should be applied prospectively. The
Company anticipates the adoption of SFAS No. 149 will not
have a material impact on its financial condition or results of
operations.

During May 2003, the FASB issued SFAS 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.
SFAS 150 clarifies the accounting for certain financial
instruments with characteristics of both liabilities and equity
and requires that those instruments be classified as liabilities
in statements of financial position. Previously, many of those
financial instruments were classified as equity. SFAS 150
is effective for financial instruments entered into or modified
after May 31, 2003 and otherwise is effective at the
beginning of the first interim period beginning after June 15,
2003. The Company does not expect the adoption of SFAS 150 to
have a significant impact on its operating results or financial
position.

In November 2002, the FASB released FASB
Interpretation No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others: an

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interpretation of FASB Statements No. 5, 57,
and 107 and rescission of FASB Interpretation No. 34.
FIN 45 establishes new disclosure and liability-recognition
requirements for direct and indirect debt guarantees with
specified characteristics. The initial measurement and
recognition requirements of FIN 45 are effective prospectively
for guarantees issued or modified after December 31, 2002.
However, the disclosure requirements are effective for interim
and annual financial statement periods ending after
December 15, 2002. The Company has adopted the disclosure
provisions and management does not expect the full adoption of
FIN 45 to have a material impact on the Companys results
of operations or financial position.


Effect of Inflation

The Company does not believe that general
inflation has had an overall material effect on the results of
its operations over the past three fiscal years.

Item 7A. Quantitative and
Qualitative Disclosures About Market Risk

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 $14.5 million at March 28,
2003. The Company has cash flow exposure on the revolving line
of credit, with an outstanding balance of $13.0 million and
its notes payable, with an outstanding balance of
$3.4 million as of March 28, 2003, which 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 $0.2 million for fiscal 2003.

Foreign Currency Exchange Rates.The Companys exposure to foreign
currency exchange rates is limited to revenues for one
company-owned center and franchise royalties for 12 franchised
centers. Based upon the relative size of our 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 8. Financial Statements and
Supplementary Data

The financial statements and supplementary data
required by this Item are included in the Consolidated Financial
Statements set forth on pages F-1 through F-25, attached hereto
and found following the signature page of this Report.

Item 9. Changes and Disagreements
with Accountants on Accounting and Financial
Disclosure

None.

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PART III


Item 10. Directors and Executive
Officers of the Registrant

Set forth below is certain information with
respect to the officers of the Company.

|                   |  |     |    |          |  |                                                   
|------------------ |  | --- | -- | -------- |  | --------------------------------------------------
|Name               |  | Age |    | Position
|                   |  |     |    |         
|William D. Davis   |  |     | 53 |          |  | President and Chief Executive Officer and Director
|Frank M. Jerneycic |  |     | 54 |          |  | Chief Financial Officer and Treasurer             
|Melanie de Vries   |  |     | 39 |          |  | Vice President of Marketing                       
|Thomas G. Horton   |  |     | 40 |          |  | Vice President and Interim Chief Operating Officer
|Scott W. Smith     |  |     | 45 |          |  | Vice President of Human Resources                 
|Ira L. Young       |  |     | 43 |          |  | Secretary and General Counsel                     

William D. Davishas
served as the President and Chief Executive Officer of the
Company since July 22, 2002, and as a Director since
August 2002. Mr. Davis was formerly President and
Chief Executive Officer of Tutor Time Learning Systems, Inc.,
from March 2002 until the Companys acquisition of
Tutor Time in July 2002. Tutor Time filed Chapter 11
bankruptcy in May 2002. Prior to joining Tutor Time,
Mr. Davis served as Chief Executive Officer of Waterbury
Holdings, a holding company located in Burlington, Vermont, from
March 1995 through January 1998. During his association
with Waterbury Holdings, Mr. Davis held the position of
Partner and Chief Executive Officer of Waterburys
affiliates, including McKenzie LLC, All Seasons Kitchen
LLC, Franklin County Cheese Corporation, Waterbury Fresh Foods
LLC, Rondele LLC, and Frank Hahn Incorporated. In
December 1998, Mr. Davis, along with other investors,
purchased Rondele Foods LLC from Waterbury Holdings, and he
became Chairman of the newly-formed company, Rondele Specialty
Foods, based in Wausau, Wisconsin. Mr. Davis also served as the
President and Chief Executive Officer of ChefExpress.Net Inc.,
an Internet-based virtual warehouse providing ingredients and
specialty food, from January 2000 through June 2001.
Mr. Davis is also a board member of Green Mountain Coffee
Roasters Inc., where he serves as Chairman of the Audit
Committee.

Frank M. Jerneycichas served as the Chief Financial
Officer and Treasurer since August 30, 2002. Mr. Jerneycic
previously served for six years as the Senior Vice President and
Chief Financial Officer of Decision Consultants, Inc., a
software services company located in Southfield, Michigan.

Melanie de Vrieshas
served as Vice President of Marketing since January 2003. Prior
to joining the Company, Ms. de Vries spent a year and
a half as the Senior Marketing officer for ForeSee Results, a
start-up website measurement services company. Prior to that,
Ms. de Vries spent seven years with Deloitte & Touche LLP,
where she served as the National Director of Marketing and
Public Relations for the firms Manufacturing Practice,
National Director of Public Relations and Communications for
Deloitte Consulting, and Director of Marketing for the
Deloitte & Touche Michigan Practice.
Ms. de Vries holds a BA from the University of
Michigan.

Thomas G. Hortonhas
served in the capacity of a Vice President and Interim Chief
Operating Officer of the Company since September 2002, and
was formally appointed to those positions at the end of
March 2003. He previously served as a consultant and
Director of Special Projects for the Company from July 2002
to September 2002 after having held the same position with
Tutor Time Learning Systems, Inc., from March 2002 until
the Companys acquisition of Tutor Time in July 2002.
Mr. Horton was an engagement manager and later an associate
principal with McKinsey & Company, a leading international
management consulting firm, from September 1995 to
December 2001 He holds a Master of Management from the
J.L. Kellogg Graduate School of Management at Northwestern
University (1995) and a BA from Dartmouth College (1985).

Scott W. Smithhas
served as Vice President of Human Resources since May 1,
2002. Prior to joining Childtime, Mr. Smith was the Vice
President of Human Resources for Glotel, PLC, a human capital
solutions provider located in London, England, where he had
responsibility for the startup of the Human Resources

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Department. Prior to that, Mr. Smith worked
for Kelly Services, a temporary employment placement firm
located in Troy, Michigan, for eight years, most recently
serving as the Vice President of Human Resources. Mr. Smith
holds a BS from Central Michigan University.


Ira L. Younghas
served as General Counsel and Secretary of the Company since
July 22, 2002. Prior to assuming this position with the
Company, Mr. Young served as General Counsel of Tutor Time
Learning Systems, Inc. from February 1999 and Corporate
Secretary of Tutor Time from June 1999. Mr. Young
joined Tutor Time as Litigation Counsel in March 1998,
having previously served as an associate attorney with Mandel,
Weisman & Kirschner, of Boca Raton, Florida, since 1993.

Additional information required by this Item will
be contained in the 2003 Proxy Statement of the Company under
the captions, Election of Directors and
Compliance with Section 16(a) of the Securities and
Exchange Act of 1934 and is incorporated herein by
reference.

Item 11. Executive
Compensation

Information required by this Item will be
contained in the 2003 Proxy Statement of the Company under the
captions, Executive Compensation, Compensation
Committee Interlocks and Insider Participation,
Committees of the Board of Directors and
Director Compensation, and is incorporated herein by
reference.

Item 12. Security Ownership of
Certain Beneficial Owners and Management

Information required by this Item will be
contained in the 2003 Proxy Statement of the Company under the
captions, Election of Directors and Principal
Shareholders, and is incorporated herein by reference.

Additional information regarding the
Companys equity compensation plans follows:

Equity Compensation Plan Information

(as of March 28, 2003)


|                                                               |  |                            |         |                           |  |                       |      |  |  |  |         | 
|-------------------------------------------------------------- |  | -------------------------- | ------- | ------------------------- |  | --------------------- | ---- |  |  |  | ------- | 
|                                                               |  |                            |         |                           |  | (c)                  
|                                                               |  |                            |         |                           |  |                      
|                                                               |  |                            |         |                           |  | Number of securities 
|                                                               |  |                            |         |                           |  | remaining available  
|                                                               |  | (a)                        |         | (b)                       |  | for future issuance  
|                                                               |  |                            |         |                           |  | under equity         
|                                                               |  | Number of securities to be |         | Weighted-average exercise |  | compensation plans   
|                                                               |  | issued upon exercise of    |         | price of outstanding      |  | (excluding securities
|                                                               |  | outstanding options,       |         | options, warrants         |  | reflected in         
|Plan category                                                  |  | warrants and rights        |         | and rights                |  | column (a))          
|                                                               |  |                            |         |                           |  |                      
|Equity compensation plans approved by security
    holders     |  |                            | 349,403 | (1)                       |  | $                     | 6.91 |  |  |  | 325,597 | 
|Equity compensation plans not approved by
    security holders |  |                            | 297,500 |                           |  | $                     | 6.07 |  |  |  | 0       | 
|                                                               |  |                            |         |                           |  |                       |      |  |  |  |         | 
|Total                                                          |  |                            | 646,903 |                           |  | $                     | 6.52 |  |  |  | 325,597 | 
|                                                               |  |                            |         |                           |  |                       |      |  |  |  |         | 




|    |                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include options for 400,000 shares
    approved by shareholders for grant to certain members of the
    Jacobson Partners Group during fiscal 2003, the grant of which
    did not become effective until consummation of the
    Companys Rights Offering subsequent to March 28, 2003.

The following is a brief summary of the equity
compensation plans which have not been approved by the
Companys security holders:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) Upon his appointment in January 2001
    as Interim President and Chief Executive Officer, James J.
    Morgan was granted options to purchase 60,000 shares of the
    Companys common stock at $7.00 per share. As
    originally granted, the options were to vest at the rate of
    10,000 shares per month and were to expire
    January 2003. After his appointment in August 2001 as
    Chairman of the Board, the expiration of these options was
    extended to September 2006. At that time, Mr. Morgan
    was also granted

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | options to purchase an additional
    50,000 shares at $11.00 per share. These additional
    options vest after one year and expire September 2006. The
    options automatically vest upon a change of control of the
    Company.                                                                                                                                                                                                                                                                                                                           
|
| | 2) In March 2001, the Interim Chief
    Financial Officer, Leonard C. Tylka was granted options to
    purchase 10,000 shares of the Companys common stock at a
    price of $7.97 per share. These options vest evenly over
    3 years and expire in March 2007. In
    September 2001, Mr. Tylka was granted additional
    options to purchase 20,000 shares at $11.00 per share.
    These additional shares vest in September 2002 and expire
    in September 2006. Mr. Tylkas options
    automatically vest upon a change of control of the Company.
|
| | 3) On June 26, 2002, in connection with
    the Companys acquisition of substantially all of the
    assets of Tutor Time Learning Systems, Inc., the Company entered
    into an investment advisory agreement with Jacobson Partners.
    Upon consummation of the acquisition, Jacobson Partners was paid
    an advisory fee consisting of a cash payment of $333,336 and the
    issuance of 175,438 shares of the Companys Common
    Stock.                                                                                                           
|
| | 4) On August 15, 2002, pursuant to a
    Stock Option Agreement, the Company granted to William D.
    Davis, its then newly-appointed President and Chief Executive
    Officer, an option to purchase 150,000 shares of the
    Companys Common Stock, at an exercise price of $3.50. The
    option will vest annually in 20% increments (30,000 shares
    each) on August 15, 2003, and on each subsequent
    anniversary of the grant date. The option granted to
    Mr. Davis will expire on August 15, 2009.                                        
|
| | 5) On October 16, 2002, as an
    inducement to their acceptance of their appointment to the
    Companys Board of Directors, each of Paula L. Gavin,
    Kenneth Johnsson and Brett D. Shevack were granted options
    to purchase 2,500 shares of the Companys Common Stock
    at $1.50 per share. The options vest on the first
    anniversary of the grant date and expire in October 2007.                                                                                                                                                           

Item 13. Certain Relationships and
Related Transactions

Information required by this item will be
contained in the 2003 Proxy Statement under the caption,
Compensation Committee Interlocks and Insider
Participation, and is incorporated herein by reference.
Additionally, see Note 9 of the Notes to Consolidated Financial
Statements and Related Party Transactions under
Item 7 of this Report.

Item 14. Controls and
Procedures

Under the supervision and with the participation
of the Companys 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 within 90 days of the filing date
of this 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 the Companys internal controls or
in other factors that could significantly affect these controls
subsequent to the date of their evaluation.

Disclosure controls and procedures are the
Companys controls and other procedures that are designed
to ensure that information required to be disclosed by us in the
reports that the Company files or submits under the Securities
Exchange Act of 1934, as amended (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
the Company 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.

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PART IV


Item 14. Exhibits, Financial
Statements, Schedule, and Reports on Form 8-K

(a) 1. Financial
Statements



| |                                                                            
| | ---------------------------------------------------------------------------
| | The financial statements filed with this Report
    are listed on page F-1.

2. Financial Statements
Schedule

The financial statements schedule filed with this
Report is listed on page F-1. Other financial statement
schedules, for which provision is made in the applicable
accounting regulations of the Securities and Exchange
Commission, are not required under the related instructions or
are inapplicable and, therefore, have been omitted.

3. Exhibits

The exhibits filed with this Report are listed on
the Exhibit Index on pages E-1 through E-3.

(b) Reports on Form 8-K

The Company filed a Current Report on
Form 8-K dated March 10, 2003, to report the amendment
of its Restated Articles of Incorporation increasing its
authorized Common Stock to 40,000,000 shares.

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SIGNATURES


Pursuant to the requirements of Section 13
of the Securities Exchange Act of 1934, the registrant has
caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on June 26, 2003.



| |                                 
| | --------------------------------
| | CHILDTIME LEARNING CENTERS, INC.



| |     |                       
| | --- | ----------------------
| | By: | /s/ FRANK M. JERNEYCIC

| |                                      
| | -------------------------------------
| |                                      
| | Frank M. Jerneycic,                  
| | Chief Financial Officer and Treasurer

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated on June 26, 2003.

|                                             |  |                                                                                       
|-------------------------------------------- |  | --------------------------------------------------------------------------------------
|Signature                                    |  | Title                                                                                 
|                                             |  |                                                                                       
|/s/ WILLIAM D. DAVISWilliam D. Davis         |  | President, Chief Executive Officer and
    Director
    (Principal Executive Officer) 
|                                            
|/s/ FRANK M. JERNEYCICFrank M. Jerneycic     |  | Chief Financial Officer and Treasurer
    (Principal Financial and Accounting Officer)
|                                            
|/s/ JASON K. FELDJason K. Feld               |  | Director                                                                              
|                                            
|/s/ PAULA L. GAVINPaula L. Gavin             |  | Director                                                                              
|                                            
|/s/ BENJAMIN R. JACOBSONBenjamin R. Jacobson |  | Director                                                                              
|                                            
|/s/ KENNETH JOHNSSONKenneth Johnsson         |  | Director                                                                              
|                                            
|/s/ GEORGE A. KELLNERGeorge A. Kellner       |  | Director                                                                              
|                                            
|/s/ JAMES J. MORGANJames J. Morgan           |  | Director                                                                              
|                                            
|/s/ BRETT D. SHEVACKBrett D. Shevack         |  | Director                                                                              

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CERTIFICATIONS


I, William D. Davis, certify that:

1. I have reviewed this Annual Report on
Form 10-K of Childtime Learning Centers, Inc.;

2. Based on my knowledge, this Annual Report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
Annual Report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
Annual Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Annual
Report;

4. The registrants other certifying
officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this Annual Report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this Annual
    Report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this Annual Report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officer and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or
persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officer and I have indicated in this Annual Report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.

Date: June 26, 2003



| |                                
| | -------------------------------
| | /s/ WILLIAM D. DAVIS           
| |                                
| | William D. Davis, President and
| | Chief Executive Officer        

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CERTIFICATIONS


I, Frank M. Jerneycic, certify that:

1. I have reviewed this Annual Report on
Form 10-K of Childtime Learning Centers, Inc.;

2. Based on my knowledge, this Annual Report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
Annual Report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
Annual Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Annual
Report;

4. The registrants other certifying
officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this Annual Report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this Annual
    Report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this Annual Report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officer and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or
persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officer and I have indicated in this Annual Report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.

Date: June 26, 2003

| |                                            
| | -------------------------------------------
| | /s/ FRANK M. JERNEYCIC                     
| |                                            
| | Frank M. Jerneycic, Chief Financial Officer
| | and Treasurer                              

36



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES






INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS


AND FINANCIAL STATEMENT SCHEDULE


The following consolidated financial statements
of Childtime Learning Centers, Inc. are referred to in
Item 8:

|                                                                                                                    |                                                               |       |     |            | 
|------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ----- | --- | ---------- | 
|                                                                                                                    |                                                               | Pages
|                                                                                                                    |                                                               |      
|Report of Independent Accountants                                                                                   |                                                               |       | F-2 |           
|                                                                                                                   
|Financial Statements:                                                                                               |                                                               |       |     |           
|                                                                                                                   
|                                                                                                                    | Consolidated Balance Sheets                                   |       |     | F-3        | 
|                                                                                                                   
|                                                                                                                    | Consolidated Statements of Operations                         |       |     | F-4        | 
|                                                                                                                   
|                                                                                                                    | Consolidated Statement of Changes in
    Shareholders Equity |       |     | F-5        | 
|                                                                                                                   
|                                                                                                                    | Consolidated Statements of Cash Flows                         |       |     | F-6        | 
|                                                                                                                   
|                                                                                                                    | Notes to Consolidated Financial Statements                    |       |     | F-7 - F-24 | 
|                                                                                                                   
|The following consolidated financial statement
    schedule of Childtime Learning Centers, Inc. is included herein: |                                                               |       |     |           
|                                                                                                                   
|                                                                                                                    | Schedule II  Valuation and
    qualifying accounts           |       |     | F-25       | 

All other schedules for which provision is made
in the applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.

F-1



---



##### Table of Contents








Report of Independent Accountants


To the Board of Directors and Shareholders of 
 Childtime Learning Centers, Inc. and Subsidiaries:

In our opinion, the consolidated financial
statements listed in the index appearing on page F-1 present
fairly, in all material respects, the financial position of
Childtime Learning Centers, Inc. and Subsidiaries (the
Company) at March 28, 2003 and March 29,
2002, and the results of their operations and their cash flows
for each of the three fiscal years in the period ended
March 28, 2003, in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
index appearing on page F-1 presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are
the responsibility of the Companys management; our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

As discussed in Notes 2 and 15 to the
Companys consolidated financial statements, effective
March 30, 2002, the Company changed its method of
accounting related to goodwill in accordance with the adoption
of Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan

June 25, 2003


F-2



---



##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                         |                                           |                                                 |                                            |           |         |        |        |        |         |        | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------------- | ------------------------------------------ | --------- | ------- | ------ | ------ | ------ | ------- | ------ | 
|                                                                                                                                                         |                                           | March 28,                                       |                                            | March 29,
|                                                                                                                                                         |                                           | 2003                                            |                                            | 2002     
|                                                                                                                                                         |                                           |                                                 |                                            |          
|                                                                                                                                                         |                                           |                                                
|                                                                                                                                                         |                                           | (In thousands)                                 
|ASSETS                                                                                                                                                   |                                           |                                                 |                                            |           |         |        |        |       
|Current assets:                                                                                                                                          |                                           |                                                 |                                            |           |         |        |        |       
|                                                                                                                                                         | Cash and cash equivalents                 |                                                 | $                                          | 2,499     |         |        | $      | 4,891  |        
|                                                                                                                                                         | Accounts receivable, net                  |                                                 |                                            | 8,112     |         |        |        | 5,235  |        
|                                                                                                                                                         | Prepaid expenses and other current assets |                                                 |                                            | 1,771     |         |        |        | 2,329  |        
|                                                                                                                                                         | Income tax receivable                     |                                                 |                                            | 1,965     |         |        |        | 2,509  |        
|                                                                                                                                                         | Deferred income taxes                     |                                                 |                                            |          |         |        |        | 3,764  |        
|                                                                                                                                                         |                                           |                                                 |                                            |           |         |        |        |       
|                                                                                                                                                         |                                           |                                                 | Total current assets                       |           |         | 14,347 |        |        |         | 18,728 | 
|Land, buildings and equipment:                                                                                                                           |                                           |                                                 |                                            |           |         |        |        |       
|                                                                                                                                                         | Land                                      |                                                 |                                            | 9,362     |         |        |        | 9,503  |        
|                                                                                                                                                         | Buildings                                 |                                                 |                                            | 19,924    |         |        |        | 19,180 |        
|                                                                                                                                                         | Leasehold improvements                    |                                                 |                                            | 10,304    |         |        |        | 10,010 |        
|                                                                                                                                                         | Vehicles, furniture and equipment         |                                                 |                                            | 13,202    |         |        |        | 14,820 |        
|                                                                                                                                                         |                                           |                                                 |                                            |           |         |        |        |       
|                                                                                                                                                         |                                           |                                                 | 52,792                                     |           |         |        | 53,513 |       
|                                                                                                                                                         |                                           | Less: accumulated depreciation and amortization |                                            |           | (16,663 | )      |        |        | (16,531 | )     
|                                                                                                                                                         |                                           |                                                 |                                            |           |         |        |        |       
|                                                                                                                                                         |                                           |                                                 | 36,129                                     |           |         |        | 36,982 |       
|Other noncurrent assets:                                                                                                                                 |                                           |                                                 |                                            |           |         |        |        |       
|                                                                                                                                                         | Intangible assets, net                    |                                                 |                                            | 30,812    |         |        |        | 17,325 |        
|                                                                                                                                                         | Refundable deposits and other             |                                                 |                                            | 2,657     |         |        |        | 1,080  |        
|                                                                                                                                                         |                                           |                                                 |                                            |           |         |        |        |       
|                                                                                                                                                         |                                           |                                                 | 33,469                                     |           |         |        | 18,405 |       
|                                                                                                                                                         |                                           |                                                 |                                            |           |         |        |        |       
|                                                                                                                                                         |                                           |                                                 | Total assets                               |           | $       | 83,945 |        |        | $       | 74,115 | 
|                                                                                                                                                         |                                           |                                                 |                                            |           |         |        |        |       
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                     |                                           |                                                 |                                            |           |         |        |        |       
|Current liabilities:                                                                                                                                     |                                           |                                                 |                                            |           |         |        |        |       
|                                                                                                                                                         | Accounts and drafts payable               |                                                 | $                                          | 5,929     |         |        | $      | 6,271  |        
|                                                                                                                                                         | Accrued wages and benefits                |                                                 |                                            | 6,491     |         |        |        | 4,508  |        
|                                                                                                                                                         | Current portion of long-term debt         |                                                 |                                            | 1,280     |         |        |        | 3,633  |        
|                                                                                                                                                         | Exit and closure expense accrual          |                                                 |                                            | 1,270     |         |        |        | 829    |        
|                                                                                                                                                         | Other current liabilities                 |                                                 |                                            | 12,110    |         |        |        | 8,094  |        
|                                                                                                                                                         |                                           |                                                 |                                            |           |         |        |        |       
|                                                                                                                                                         |                                           |                                                 | Total current liabilities                  |           |         | 27,080 |        |        |         | 23,335 | 
|Long-term debt, net of current portion                                                                                                                   |                                           |                                                 | 29,631                                     |           |         |        | 3,196  |       
|Deferred rent liability                                                                                                                                  |                                           |                                                 | 1,421                                      |           |         |        | 983    |       
|Deferred income taxes                                                                                                                                    |                                           |                                                 |                                           |           |         |        | 3,119  |       
|                                                                                                                                                         |                                           |                                                 |                                            |           |         |        |        |       
|                                                                                                                                                         |                                           |                                                 | Total Liabilities                          |           |         | 58,132 |        |        |         | 30,633 | 
|                                                                                                                                                         |                                           |                                                 |                                            |           |         |        |        |       
|Commitments & Contingencies (See
    Note 10)                                                                                                            |                                           |                                                 |                                            |           |         |        |        |       
|SHAREHOLDERS EQUITY                                                                                                                                     |                                           |                                                 |                                            |           |         |        |        |       
|Common Stock, 40,000,000 shares authorized, no
    par value; 5,416,210 and 5,240,772 outstanding on March 28,
    2003 and March 29, 2002, respectively |                                           |                                                 | 31,665                                     |           |         |        | 31,183 |       
|Preferred Stock, 1,000,000 shares authorized, no
    par value; no shares issued or outstanding                                                          |                                           |                                                 |                                           |           |         |        |       |       
|Retained earnings (accumulated deficit)                                                                                                                  |                                           |                                                 | (5,852                                     | )         |         |        | 12,299 |       
|                                                                                                                                                         |                                           |                                                 |                                            |           |         |        |        |       
|                                                                                                                                                         |                                           |                                                 | Total shareholders equity                 |           |         | 25,813 |        |        |         | 43,482 | 
|                                                                                                                                                         |                                           |                                                 |                                            |           |         |        |        |       
|                                                                                                                                                         |                                           |                                                 | Total liabilities and shareholders equity |           | $       | 83,945 |        |        | $       | 74,115 | 
|                                                                                                                                                         |                                           |                                                 |                                            |           |         |        |        |       

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

F-3



---



##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                                                                               |                                                                                                                     |                                       |         |           |   |           |         |        |   |   |         |        |  
|------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------- | --------- | - | --------- | ------- | ------ | - | - | ------- | ------ | -
|                                                                                                                               |                                                                                                                     | March 28,                             |         | March 29, |   | March 30,
|                                                                                                                               |                                                                                                                     | 2003                                  |         | 2002      |   | 2001     
|                                                                                                                               |                                                                                                                     |                                       |         |           |   |          
|                                                                                                                               |                                                                                                                     |                                      
|                                                                                                                               |                                                                                                                     | (In thousands, except per share data)
|Revenue from Learning Center Operations                                                                                        |                                                                                                                     | $                                     | 173,602 |           |   | $         | 141,391 |        |   | $ | 146,583 |       
|Revenue from Franchise Operations                                                                                              |                                                                                                                     |                                       | 3,763   |           |   |           |        |        |   |   |        |       
|                                                                                                                               |                                                                                                                     |                                       |         |           |   |           |         |        |   |   |         |       
|Revenue, net                                                                                                                   |                                                                                                                     |                                       | 177,365 |           |   |           | 141,391 |        |   |   | 146,583 |       
|Operating expenses of Learning Centers                                                                                         |                                                                                                                     |                                       | 157,690 |           |   |           | 124,594 |        |   |   | 127,210 |       
|                                                                                                                               |                                                                                                                     |                                       |         |           |   |           |         |        |   |   |         |       
|                                                                                                                               | Gross profit                                                                                                        |                                       |         | 19,675    |   |           |         | 16,797 |   |   |         | 19,373 |  
|Provision for doubtful accounts                                                                                                |                                                                                                                     |                                       | 1,272   |           |   |           | 1,321   |        |   |   | 405     |       
|General and administrative expenses                                                                                            |                                                                                                                     |                                       | 16,561  |           |   |           | 11,996  |        |   |   | 8,825   |       
|Depreciation and amortization expenses                                                                                         |                                                                                                                     |                                       | 3,526   |           |   |           | 4,750   |        |   |   | 4,562   |       
|Exit and closure expenses                                                                                                      |                                                                                                                     |                                       | 1,051   |           |   |           | 578     |        |   |   | 4,000   |       
|Mold remediation expense                                                                                                       |                                                                                                                     |                                       |        |           |   |           | 1,005   |        |   |   |        |       
|Failed merger costs                                                                                                            |                                                                                                                     |                                       |        |           |   |           | 952     |        |   |   |        |       
|Goodwill impairment charges                                                                                                    |                                                                                                                     |                                       | 4,181   |           |   |           | 1,693   |        |   |   | 1,447   |       
|Fixed asset impairment charges                                                                                                 |                                                                                                                     |                                       | 3,401   |           |   |           | 223     |        |   |   |        |       
|                                                                                                                               |                                                                                                                     |                                       |         |           |   |           |         |        |   |   |         |       
|                                                                                                                               | Operating income (loss)                                                                                             |                                       |         | (10,317   | ) |           |         | (5,721 | ) |   |         | 134    |  
|Interest expense, net                                                                                                          |                                                                                                                     |                                       | 2,577   |           |   |           | 458     |        |   |   | 966     |       
|Other (income) expense, net                                                                                                    |                                                                                                                     |                                       | (84     | )         |   |           | (63     | )      |   |   | (242    | )     
|                                                                                                                               |                                                                                                                     |                                       |         |           |   |           |         |        |   |   |         |       
|                                                                                                                               | (Loss) before income taxes, discontinued
    operations and cumulative effect of change in accounting
    principle |                                       |         | (12,810   | ) |           |         | (6,116 | ) |   |         | (590   | )
|Income tax provision (benefit)                                                                                                 |                                                                                                                     |                                       | (228    | )         |   |           | (2,270  | )      |   |   | (191    | )     
|                                                                                                                               |                                                                                                                     |                                       |         |           |   |           |         |        |   |   |         |       
|                                                                                                                               | (Loss) before discontinued operations and
    cumulative effect of change in accounting principle                   |                                       |         | (12,582   | ) |           |         | (3,846 | ) |   |         | (399   | )
|Discontinued operations, net of taxes                                                                                          |                                                                                                                     |                                       | (602    | )         |   |           | (189    | )      |   |   | 65      |       
|                                                                                                                               |                                                                                                                     |                                       |         |           |   |           |         |        |   |   |         |       
|                                                                                                                               | (Loss) before cumulative effect of change in
    accounting principle                                               |                                       |         | (13,184   | ) |           |         | (4,035 | ) |   |         | (334   | )
|Cumulative effect of change in accounting
    principle, net of taxes                                                          |                                                                                                                     |                                       | (4,967  | )         |   |           |        |        |   |   | (275    | )     
|                                                                                                                               |                                                                                                                     |                                       |         |           |   |           |         |        |   |   |         |       
|                                                                                                                               | Net (loss)                                                                                                          |                                       | $       | (18,151   | ) |           | $       | (4,035 | ) |   | $       | (609   | )
|                                                                                                                               |                                                                                                                     |                                       |         |           |   |           |         |        |   |   |         |       
|Earnings (loss) per share:                                                                                                     |                                                                                                                     |                                       |         |           |   |           |         |        |   |   |         |       
|Basic and diluted-income (loss) before
    discontinued operations and cumulative effect of change in
    accounting principle |                                                                                                                     | $                                     | (2.35   | )         |   | $         | (0.73   | )      |   | $ | (0.08   | )     
|Discontinued operations, net                                                                                                   |                                                                                                                     |                                       | (0.11   | )         |   |           | (0.04   | )      |   |   | 0.01    |       
|                                                                                                                               |                                                                                                                     |                                       |         |           |   |           |         |        |   |   |         |       
|Basic and diluted-income (loss) before cumulative
    effect of change in accounting principle                                 |                                                                                                                     |                                       | (2.46   | )         |   |           | (0.77   | )      |   |   | (0.07   | )     
|Cumulative effect of change in accounting
    principle                                                                        |                                                                                                                     |                                       | (0.93   | )         |   |           |        |        |   |   | (0.05   | )     
|                                                                                                                               |                                                                                                                     |                                       |         |           |   |           |         |        |   |   |         |       
|                                                                                                                               | Net income (loss)                                                                                                   |                                       | $       | (3.39     | ) |           | $       | (0.77  | ) |   | $       | (0.12  | )
|                                                                                                                               |                                                                                                                     |                                       |         |           |   |           |         |        |   |   |         |       
|Weighted average shares outstanding                                                                                            |                                                                                                                     |                                       | 5,362   |           |   |           | 5,234   |        |   |   | 5,102   |       
|                                                                                                                               |                                                                                                                     |                                       |         |           |   |           |         |        |   |   |         |       

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

F-4



---



##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS EQUITY


|                         |  |                      |       |          |  |          |        |       |  |   |         |   |  |   |         |  
|------------------------ |  | -------------------- | ----- | -------- |  | -------- | ------ | ----- |  | - | ------- | - |  | - | ------- | -
|                         |  |                     
|                         |  | Shareholders Equity
|                         |  |                     
|                         |  |                      |       |         
|                         |  | Common Stock         |       |         
|                         |  |                      |       | Retained |  |         
|                         |  | Shares               |       | Amount   |  | Earnings |        | Total
|                         |  |                      |       |          |  |          |        |      
|                         |  |                     
|                         |  | (In thousands)      
|Balances, March 31, 2000 |  |                      | 4,932 |          |  | $        | 27,996 |       |  | $ | 16,943  |   |  | $ | 44,939  |  
|Shares issued            |  |                      | 294   |          |  |          | 2,500  |       |  |   |        |   |  |   | 2,500   |  
|Stock compensation       |  |                      |      |          |  |          | 406    |       |  |   |        |   |  |   | 406     |  
|Net income (loss)        |  |                      |      |          |  |          |       |       |  |   | (609    | ) |  |   | (609    | )
|                         |  |                      |       |          |  |          |        |       |  |   |         |   |  |   |         |  
|Balances, March 30, 2001 |  |                      | 5,226 |          |  | $        | 30,902 |       |  | $ | 16,334  |   |  | $ | 47,236  |  
|Shares issued            |  |                      | 15    |          |  |          | 122    |       |  |   |        |   |  |   | 122     |  
|Stock compensation       |  |                      |      |          |  |          | 159    |       |  |   |        |   |  |   | 159     |  
|Net income (loss)        |  |                      |      |          |  |          |       |       |  |   | (4,035  | ) |  |   | (4,035  | )
|                         |  |                      |       |          |  |          |        |       |  |   |         |   |  |   |         |  
|Balances, March 29, 2002 |  |                      | 5,241 |          |  | $        | 31,183 |       |  | $ | 12,299  |   |  | $ | 43,482  |  
|Shares issued            |  |                      | 175   |          |  |          | 482    |       |  |   |        |   |  |   | 482     |  
|Net income (loss)        |  |                      |      |          |  |          |       |       |  |   | (18,151 | ) |  |   | (18,151 | )
|                         |  |                      |       |          |  |          |        |       |  |   |         |   |  |   |         |  
|Balances, March 28, 2003 |  |                      | 5,416 |          |  | $        | 31,665 |       |  | $ | (5,852  | ) |  | $ | 25,813  |  
|                         |  |                      |       |          |  |          |        |       |  |   |         |   |  |   |         |  

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

F-5



---



##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                             |                                                                                 |                                                                                                                                           |                                                              |           |         |           |       |        |        |        |       |        |         |       |  
|-------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | --------- | ------- | --------- | ----- | ------ | ------ | ------ | ----- | ------ | ------- | ----- | -
|                                             |                                                                                 |                                                                                                                                          
|                                             |                                                                                 | Fiscal Years Ended                                                                                                                       
|                                             |                                                                                 |                                                                                                                                          
|                                             |                                                                                 | March 28,                                                                                                                                 |                                                              | March 29, |         | March 30,
|                                             |                                                                                 | 2003                                                                                                                                      |                                                              | 2002      |         | 2001     
|                                             |                                                                                 |                                                                                                                                           |                                                              |           |         |          
|                                             |                                                                                 |                                                                                                                                          
|                                             |                                                                                 | (In thousands)                                                                                                                           
|Operating activities:                        |                                                                                 |                                                                                                                                           |                                                              |           |         |           |       |        |        |        |       |       
|                                             | Net (loss)                                                                      |                                                                                                                                           | $                                                            | (18,151   | )       |           | $     | (4,035 | )      |        | $     | (609   | )      
|                                             | Adjustments to reconcile net loss to cash
    provided by operating activities: |                                                                                                                                           |                                                              |           |         |           |       |        |        |        |       |        |        
|                                             |                                                                                 | Depreciation and amortization                                                                                                             |                                                              |           | 3,540   |           |       |        | 4,789  |        |       |        | 4,598   |      
|                                             |                                                                                 | Interest capitalized as part of subordinated notes                                                                                        |                                                              |           | 513     |           |       |        |        |        |       |        |         |      
|                                             |                                                                                 | Intangible and fixed asset impairment charges
    (includes $5,877 classified as cumulative effect of change
    in accounting principle) |                                                              |           | 13,532  |           |       |        | 1,916  |        |       |        | 1,447   |      
|                                             |                                                                                 | Provision for doubtful accounts                                                                                                           |                                                              |           | 1,276   |           |       |        | 1,323  |        |       |        | 406     |      
|                                             |                                                                                 | Stock option compensation expense                                                                                                         |                                                              |           |        |           |       |        | 159    |        |       |        | 406     |      
|                                             |                                                                                 | Deferred rent liability                                                                                                                   |                                                              |           | 454     |           |       |        | (68    | )      |       |        | (55     | )    
|                                             |                                                                                 | Deferred income taxes                                                                                                                     |                                                              |           | 645     |           |       |        | (619   | )      |       |        | (2,323  | )    
|                                             |                                                                                 | Gains (loss) on sale of assets                                                                                                            |                                                              |           | 27      |           |       |        | 327    |        |       |        | 1,270   |      
|                                             |                                                                                 | Changes in operating assets and liabilities:                                                                                              |                                                              |           |         |           |       |        |        |        |       |        |         |      
|                                             |                                                                                 |                                                                                                                                           | Accounts receivable                                          |           |         | (704      | )     |        |        | (1,863 | )     |        |         | (886  | )
|                                             |                                                                                 |                                                                                                                                           | Prepaid expenses and other current assets                    |           |         | 1,770     |       |        |        | (2,066 | )     |        |         | (225  | )
|                                             |                                                                                 |                                                                                                                                           | Accounts payable, accruals and other current
    liabilities |           |         | (1,877    | )     |        |        | 3,084  |       |        |         | 1,794 |  
|                                             |                                                                                 |                                                                                                                                           | Exit and closure expense accrual                             |           |         | 441       |       |        |        | (1,581 | )     |        |         | 2,410 |  
|                                             |                                                                                 |                                                                                                                                           |                                                              |           |         |           |       |        |        |        |       |       
|                                             |                                                                                 | Net cash provided (used) by operating activities                                                                                          |                                                              |           | 1,466   |           |       |        | 1,366  |        |       |        | 8,233   |      
|Investing activities:                        |                                                                                 |                                                                                                                                           |                                                              |           |         |           |       |        |        |        |       |       
|                                             | Acquisition of Tutor Time (net of cash of $614)                                 |                                                                                                                                           |                                                              | (21,689   | )       |           |       |       |        |        |       |       |        
|                                             | Acquisition of other intangible assets                                          |                                                                                                                                           |                                                              |          |         |           |       |       |        |        |       | (1,962 | )      
|                                             | Capital spending                                                                |                                                                                                                                           |                                                              | (5,016    | )       |           |       | (4,101 | )      |        |       | (4,049 | )      
|                                             | Expenditures from reimbursable construction costs                               |                                                                                                                                           |                                                              |          |         |           |       | (939   | )      |        |       | (6,990 | )      
|                                             | Proceeds from sale of assets                                                    |                                                                                                                                           |                                                              | 595       |         |           |       | 539    |        |        |       | 629    |        
|                                             | Payments for refundable deposits and other assets                               |                                                                                                                                           |                                                              | (134      | )       |           |       |       |        |        |       | (67    | )      
|                                             |                                                                                 |                                                                                                                                           |                                                              |           |         |           |       |        |        |        |       |       
|                                             |                                                                                 | Net cash used in investing activities                                                                                                     |                                                              |           | (26,244 | )         |       |        | (4,501 | )      |       |        | (12,439 | )    
|Financing activities:                        |                                                                                 |                                                                                                                                           |                                                              |           |         |           |       |        |        |        |       |       
|                                             | Net borrowings on revolving line of credit                                      |                                                                                                                                           |                                                              | 10,451    |         |           |       | 2,500  |        |        |       | (1,358 | )      
|                                             | Repayments under long-term debt                                                 |                                                                                                                                           |                                                              | (1,207    | )       |           |       | (1,216 | )      |        |       | (2,815 | )      
|                                             | Issuance of subordinated notes                                                  |                                                                                                                                           |                                                              | 14,000    |         |           |       |       |        |        |       |       |        
|                                             | Changes in drafts payable                                                       |                                                                                                                                           |                                                              | (858      | )       |           |       | 1,237  |        |        |       | (651   | )      
|                                             | Repayments of reimbursable construction costs                                   |                                                                                                                                           |                                                              |          |         |           |       | 2,004  |        |        |       | 7,205  |        
|                                             | Issuance of common shares                                                       |                                                                                                                                           |                                                              |          |         |           |       | 122    |        |        |       | 2,500  |        
|                                             |                                                                                 |                                                                                                                                           |                                                              |           |         |           |       |        |        |        |       |       
|                                             |                                                                                 | Net cash provided by financing activities                                                                                                 |                                                              |           | 22,386  |           |       |        | 4,647  |        |       |        | 4,881   |      
|Net decrease in cash and cash equivalents    |                                                                                 |                                                                                                                                           | (2,392                                                       | )         |         |           | 1,512 |        |        |        | 675   |       
|Cash and cash equivalents, beginning of year |                                                                                 |                                                                                                                                           | 4,891                                                        |           |         |           | 3,379 |        |        |        | 2,704 |       
|                                             |                                                                                 |                                                                                                                                           |                                                              |           |         |           |       |        |        |        |       |       
|Cash and cash equivalents, end of period     |                                                                                 | $                                                                                                                                         | 2,499                                                        |           |         | $         | 4,891 |        |        | $      | 3,379 |       
|                                             |                                                                                 |                                                                                                                                           |                                                              |           |         |           |       |        |        |        |       |       

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

F-6



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


1. Principles of Consolidation and
Corporate Organization:

The consolidated financial statements include the
accounts of Childtime Learning Centers, Inc. and its wholly
owned subsidiaries (together referred to as the
Company). All significant intercompany transactions
have been eliminated. The Company began operations in 1967.
Childtime Learning Centers, Inc. was incorporated on
November 2, 1995 and completed its initial public offering
on February 2, 1996. As of March 28, 2003, the Company
provides for-profit child care through 474 corporate and
franchise child care centers.

2. Summary of Significant Accounting
Policies:

a. Fiscal Year:The Company utilizes
a 52-53 week fiscal year (comprised of 13 four-week
periods), ending on the Friday closest to March 31. The
fiscal years ended March 28, 2003, March 29, 2002 and
March 30, 2001 all contained 52 weeks.

b. Cash and Cash Equivalents:The
Company considers all temporary investments with original
maturities of three months or less at time of purchase to
be cash equivalents.

c. Land, Buildings and Equipment:Land, buildings and equipment are recorded at cost.
Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets (generally 40 years
for buildings and between 3 and 10 years for vehicles,
furniture and equipment). Leasehold improvements are recorded at
cost and amortized on a straight-line basis over the lesser of
the estimated useful life of the leasehold improvement
(generally 15 years) or the life of the lease. Gains and
losses on sales and retirements are included in the
determination of the results of operations. Maintenance and
repair costs for new centers are charged to operating expense in
the period incurred.

d. Accounts Receivable:The Company
generates accounts receivable primarily from fees charged to
governmental agencies, franchisees and, to a lesser degree,
parents. The Company monitors collections and payments from
these customers and maintains a provision for estimated losses
based on historical trends and current overall economic
conditions. Amounts charged to this provision for uncollectible
accounts receivable have historically been within the
Companys expectations, but there can be no assurance that
future experience will be consistent with the Companys
past experience.

e. Intangible Assets:Intangible
assets represent principally goodwill and identifiable
intangible assets related to franchise agreements, trademarks
and curriculum and beginning in fiscal 2003 are accounted
for in accordance with SFAS 142, Goodwill and Other
Intangible Assets. Under SFAS 142, goodwill is no
longer amortized. Instead, goodwill and intangible assets with
indefinite lives are tested annually for impairment in
accordance with the provisions of SFAS 142. Intangible
assets with a determinable life are amortized on a straight-line
basis over the estimated period benefited, ranging from five to
twenty years. Prior to fiscal 2003 the Company had
amortized all intangible assets, including goodwill, over the
estimated period of benefit over various periods, but primarily
over 15 years, with such amortization expense included in
depreciation and amortization expenses. (See Note 15)

f.  Impairment of Long-Lived AssetsLong-lived assets are reviewed for possible impairment
whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable in
accordance with SFAS No. 144, Accounting for the
Impairment and Disposal of Long-Lived Assets. The Company
assesses the recoverability of the unamortized cost of acquired
assets in excess of fair value based on a review of projected
undiscounted cash flows of the related centers. Once the Company
has utilized its resources in order to make the center
profitable, without success, and future cash flows fail to
recover the carrying value of the assets, they are deemed to be
impaired. The extent of the impairment is measured as the
difference between the fair market of the asset and its carrying
value.

F-7



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



2. Summary of Significant Accounting
Policies  (Continued)


g. Liability for Workers
Compensation Insurance Obligations:The Company self-insures
a significant portion of its workers compensation insurance
plans. The full extent of certain liabilities, in many cases,
may not become fully recognized for several years. The Company,
therefore, estimates the potential obligation for liabilities
which have been incurred but not yet reported based upon
historical data and experience, and utilizes an outside
consulting firm to assist the Company in developing these
estimates. Although management believes that the amounts accrued
for these obligations are sufficient, any significant increase
in either the number of claims and/or costs associated with
claims made under these plans could have a material adverse
effect on the Companys financial results.

h. Income Taxes:The Company provides
for income taxes for the expected future tax consequences of
events that have been included in the financial statements or
tax returns. Deferred tax liabilities and assets are determined
based on the difference between financial statement and tax
bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse.

i.  Financial Instruments:In
managements opinion, the carrying values of cash and cash
equivalents, accounts receivable and payable, and accrued
liabilities approximate fair value due to the short-term
maturities of these instruments. The carrying values of
long-term debt approximate fair value based on the current
borrowing rates for similar instruments.

j.  Risk Concentration:Accounts
receivable is the principal financial instrument that subjects
the Company to concentration of credit risk. Concentration of
credit risk is somewhat limited due to the Companys large
number, diversity and dispersion of customers. The Company
maintains an allowance for doubtful accounts based upon the
expected collectibility of accounts receivable.

Revenues from federal and state child care
assistance programs represent a significant portion of total
revenues. For fiscal 2003, 2002 and 2001, federal
assistance revenues were approximately $40.4 million
(24 percent) $31.0 million (22 percent) and
$31.1 million (21 percent), respectively.

k. 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 and earnings per
share would have been reduced to the pro forma amounts indicated
below in thousands:

|                                                                   |  |             |      |                   |         |           |      |           |        |   |      |   |       |  
|------------------------------------------------------------------ |  | ----------- | ---- | ----------------- | ------- | --------- | ---- | --------- | ------ | - | ---- | - | ----- | -
|                                                                   |  |             |      |                  
|                                                                   |  |             |      | Fiscal Year Ended
|                                                                   |  |             |      |                  
|                                                                   |  |             |      | March 28,         |         | March 29, |      | March 30,
|                                                                   |  |             |      | 2003              |         | 2002      |      | 2001     
|                                                                   |  |             |      |                   |         |           |      |          
|Net loss                                                           |  | As reported |      | $                 | (18,151 | )         |      | $         | (4,035 | ) |      | $ | (609  | )
|                                                                   |  | Pro forma   |      | $                 | (18,431 | )         |      | $         | (4,128 | ) |      | $ | (688  | )
|Net loss per share                                                 |  |             |      |                   |         |           |      |           |        |   |      |   |       |  
|Basic and diluted                                                  |  | As reported |      | $                 | (3.39   | )         |      | $         | (0.77  | ) |      | $ | (0.12 | )
|                                                                   |  | Pro forma   |      | $                 | (3.44   | )         |      | $         | (0.79  | ) |      | $ | (0.13 | )
|Weighted average fair value of options granted
    during the year |  | $           | 0.90 |                   |         | $         | 3.54 |           |        | $ | 2.55 |  
|                                                                   |  |             |      |                   |         |           |      |           |        |   |      |  

The fair value of the options used to compute pro
forma net income and earnings per share disclosures is the
estimated present value at grant date using the
Black-Scholes option-pricing model with the
following weighted average assumptions for fiscal 2003, 2002 and
2001, respectively: no dividend yield; expected

F-8



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



2. Summary of Significant Accounting
Policies  (Continued)


volatility of 56.4, 35.5 and 34.2 percent;
risk free interest rate of 3.2, 4.3 and 6.0 percent; and
expected holding periods of 4.0, 4.0 and 3.6 for fiscal 2003,
2002 and 2001, respectively.

l.  Common Stock and Earnings Per
Share:All earnings per share amounts have been presented to
conform with the requirements of SFAS 128, Earnings Per
Share. A reconciliation of the denominators used in the
basic and diluted EPS calculation follows:

|                                         |  |                                               |       |                |  |                |       |  |  |  |       | 
|---------------------------------------- |  | --------------------------------------------- | ----- | -------------- |  | -------------- | ----- |  |  |  | ----- | 
|                                         |  |                                              
|                                         |  | Calculation of Incremental Shares Outstanding
|                                         |  |                                              
|                                         |  |                                               |       | 52 Weeks Ended |  |               
|                                         |  | March 28, 2003                                |       | March 29, 2002 |  | March 28, 2001
|                                         |  |                                               |       |                |  |               
|Basic shares (based on weighted average) |  |                                               | 5,362 |                |  |                | 5,234 |  |  |  | 5,102 | 
|Stock options                            |  |                                               |      |                |  |                |      |  |  |  |      | 
|                                         |  |                                               |       |                |  |                |       |  |  |  |       | 
|Diluted shares                           |  |                                               | 5,362 |                |  |                | 5,234 |  |  |  | 5,102 | 
|                                         |  |                                               |       |                |  |                |       |  |  |  |       | 

Incremental shares from assumed conversion of
options of 646,903, 605,251, 551,444 in fiscal 2003, 2002 and
2001, respectively, have been excluded from shares used in
computing diluted earnings (loss) per share as the effect
would be anti-dilutive.

m. Revenue Recognition:The Company
recognizes revenue in accordance with SEC Staff Accounting
Bulletin 101, which requires that the following criteria be met
before recognizing revenue: persuasive evidence of an
arrangement exists, delivery has occurred or services have been
rendered, the fee is fixed and determinable, and collectibility
is reasonably assured. The Companys revenues consist
primarily of tuition paid by parents, supplemented in some cases
by payments (either partial or in total) from government
agencies. Each agency has its own set of guidelines in
administering subsidies and management must constantly monitor
affected centers to ensure compliance. Revenues also include, to
a lesser degree, management fees paid by corporate sponsors.
Revenue is recognized as services are performed. In some
centers, the Company receives revenue in advance of services
being rendered, in which case, revenue is deferred until the
services have been provided. Franchise fees are recognized as
revenue at the time the franchise center receives a certificate
of occupancy. Royalty income related to franchise operations is
recognized as revenue is earned by franchisees.

n. Pre-Opening Costs:Pre-opening
costs are expensed as incurred.

o. Advertising Expenses:Yellow pages
advertising costs are expensed concurrent with the period in
which the Yellow Pages books are distributed to customers. All
other marketing costs are treated as period expenses and,
accordingly, are expensed in the period incurred. The Company
incurred advertising expenses of $1.5 million,
$1.2 million and $1.1 million during fiscal 2003, 2002
and 2001, respectively.

p. Business Risks: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 and general economic conditions.

q. Use of Estimates:The preparation
of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions (in areas, among others, such as provision for
doubtful accounts and accrued workers compensation
expense), that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

F-9



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



2. Summary of Significant Accounting
Policies  (Continued)


r.  Reclassifications:Certain
amounts for the fiscal years ended March 29, 2002 and
March 30, 2001 have been reclassified to conform to the
presentation adopted in fiscal 2003.

s.  Segment Reporting:The
Company has three reportable segments: Childtime, Tutor Time and
Franchise Operations. Childtime operates child care centers
primarily under the Childtime Learning Centers brand name, Tutor
Time operates child care centers under the Tutor Time brand name
and Franchise Operations licenses and provides developmental and
administrative support to franchises 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. (See Note 16)

t.  New Accounting
Pronouncements:

SFAS No. 143, Accounting for Asset
Retirement Obligations,was issued in August 2001, and
addresses legal obligations (arising from laws, statutes,
contracts, etc.) that an entity must satisfy when disposing of
tangible, long-lived assets. The standard requires entities to
record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. The Company is
evaluating the impact this Statement will have on its
consolidated financial statements and is anticipating the
adoption of SFAS No. 143 in the first quarter of fiscal 2004.

In April 2003, the FASB issued SFAS
No. 149, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 149 amends SFAS
No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 149 improves financial
reporting by requiring that contracts with comparable
characteristics be accounted for similarly. SFAS No. 149 is
effective for contracts entered into or modified after
June 30, 2003 and should be applied prospectively. The
Company anticipates the adoption of SFAS No. 149 will not
have a material impact on its financial condition or results of
operations.

During May 2003, the FASB issued SFAS 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.
SFAS 150 clarifies the accounting for certain financial
instruments with characteristics of both liabilities and equity
and requires that those instruments be classified as liabilities
in statements of financial position. Previously, many of those
financial instruments were classified as equity. SFAS 150
is effective for financial instruments entered into or modified
after May 31, 2003 and otherwise is effective at the
beginning of the first interim period beginning after June 15,
2003. The Company does not expect the adoption of SFAS 150
to have a significant impact on its operating results or
financial position.

In November 2002, the FASB released FASB
Interpretation No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others: an interpretation
of FASB Statements No. 5, 57, and 107 and rescission of
FASB Interpretation No. 34. FIN 45 establishes
new disclosure and liability-recognition requirements for direct
and indirect debt guarantees with specified characteristics. The
initial measurement and recognition requirements of FIN 45 are
effective prospectively for guarantees issued or modified after
December 31, 2002. However, the disclosure requirements are
effective for interim and annual financial statement periods
ending after December 15, 2002. The Company has adopted the
disclosure provisions and management does not expect the full
adoption of FIN 45 to have a material impact on the
Companys results of operations or financial position.

3. Acquisition and Pro Forma
Information:

On July 19, 2002, the Company acquired
substantially all of the assets of Tutor Time Learning Systems,
Inc., a Florida corporation (Tutor Time), for an
aggregate purchase price of approximately $22.8 million,

F-10



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

3. Acquisition and Pro Forma
Information  (Continued)

including acquisition costs, plus the
assumption of certain liabilities. In consideration for
providing investment advisory services with respect to the
acquisition, Jacobson Partners was paid an advisory fee
consisting of a cash payment of $333,336 and the issuance of
175,438 shares of common stock. These costs have been
capitalized as part of the acquisition costs. Jacobson Partners
is the management and financial consultant to the Company of
which Benjamin R. Jacobson, the Companys Chairman of the
Board is the managing general partner, James J. Morgan, the
Companys former Chairman of the Board and interim Chief
Executive Officer, is a partner, and George A. Kellner, the
Companys Vice Chairman of the Board, is a special
advisor.

The Tutor Time acquisition was financed, in part,
by Bank One, NA through its secured revolving line of credit
with the Company. Subordinated loans (the Subordinated
Notes) in the aggregate amount of $14 million were
provided by a group of lenders organized by Jacobson Partners to
fund the balance of the Tutor Time acquisition purchase price
and to provide related working capital. (See Note 5) Although
Jacobson Partners received no consideration for arranging this
financing, lenders included JP Acquisition Fund II, L.P.
and JP Acquisition Fund III, L.P., entities controlled and
managed by affiliates of Jacobson Partners (for an aggregate of
$10,497,154), and three directors of the Company
(Mr. Jacobson, Mr. Morgan and Mr. Kellner) and
trusts for the benefit of their children (for an aggregate of
$545,132).

In connection with the Tutor Time acquisition,
JP Acquisition Fund II, L.P., JP Acquisition Fund III,
L.P., and certain of their co-investors (collectively, the
Optionees), including Messrs. Jacobson, Morgan
and Kellner, agreed to arrange for the Company to obtain a
standby purchase commitment in connection with the
Companys proposed Rights Offering which was completed
subsequent the fiscal year end. (See Note 21) As
consideration for obtaining such commitment, a Special Committee
of the Board of Directors approved the grant to the Optionees of
options to purchase, in the aggregate, up to 400,000 shares of
common stock, until July 19, 2006, at an exercise price of
$5.00 per share.

The acquisition of Tutor Time is reflected in the
consolidated balance sheet of the Company as of March 28,
2003 and has been accounted for in accordance with SFAS No
141, Business Combinations. The results of operations of
Tutor Time since July 19, 2002 are included in the
Companys results of operations The purchase price has been
allocated as follows (in thousands):

|                    |                           |                         |        |        |        | 
|------------------- | ------------------------- | ----------------------- | ------ | ------ | ------ | 
|Current assets      |                           | $                       | 3,610  |       
|Property and notes  |                           |                         | 2,633  |       
|Intangible assets:  |                           |                         |        |       
|                    | Trade name and trademarks |                         |        | 3,905  |       
|                    | Franchise agreements      |                         |        | 9,090  |       
|                    | Curriculum                |                         |        | 460    |       
|                    | Goodwill                  |                         |        | 10,651 |       
|                    |                           |                         |        |       
|                    |                           | Total Intangible assets |        |        | 24,106 | 
|                    |                           |                         |        |       
|Total assets        |                           |                         | 30,349 |       
|Liabilities assumed |                           |                         | (7,564 | )     
|                    |                           |                         |        |       
|Purchase price      |                           | $                       | 22,785 |       
|                    |                           |                         |        |       

F-11



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



3. Acquisition and Pro Forma
Information  (Continued)


Pro forma unaudited information for the Company
and Tutor Time follows (in thousands, except per share data):

|                 |                                                                                                                     |                |         |           |   |   |         |         |  
|---------------- | ------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | --------- | - | - | ------- | ------- | -
|                 |                                                                                                                     |               
|                 |                                                                                                                     | 52 Weeks Ended
|                 |                                                                                                                     |               
|                 |                                                                                                                     | March 28,      |         | March 29,
|                 |                                                                                                                     | 2003           |         | 2002     
|                 |                                                                                                                     |                |         |          
|Revenue, net     |                                                                                                                     | $              | 193,938 |           |   | $ | 192,014 |        
|Operating (loss) |                                                                                                                     |                | (9,273  | )         |   |   | (18,063 | )      
|                 | (Loss) before income taxes, discontinued
    operations and cumulative effect of change in accounting
    principle |                | $       | (12,576   | ) |   | $       | (25,555 | )
|                 | (Loss) before cumulative effect of change in
    accounting principle                                               |                | $       | (12,950   | ) |   | $       | (21,641 | )
|                 | Net (loss)                                                                                                          |                | $       | (17,917   | ) |   | $       | (21,641 | )
|                 | Net (loss) per share                                                                                                |                | $       | (3.34     | ) |   | $       | (4.13   | )
|                 |                                                                                                                     |                |         |           |   |   |         |        

In connection with the Tutor Time Learning
Systems, Inc. bankruptcy proceedings, Tutor Time, at the request
of the Company was able to reject numerous leases and franchise
agreements. The preceding pro forma information includes only
the revenues and costs from those Tutor Time centers and
franchises that were not rejected as part of the bankruptcy
proceedings. No pro forma adjustments were made to the
historical Tutor Time corporate overhead expenses
($2.0 million and $16.6 million for the 52 weeks
ended March 28, 2003 and March 29, 2002,
respectively). Additional interest expense was included in the
pro forma results based upon the additional debt incurred to
finance the Tutor Time acquisition.

F-12



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

4. Other Current Assets and
Liabilities:

Other current assets and liabilities are composed
of the following:

|                                           |                                                                                                                                                                          |                |        |           |  |   |       |       | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------- | ------ | --------- |  | - | ----- | ----- | 
|                                           |                                                                                                                                                                          | March 28,      |        | March 29,
|                                           |                                                                                                                                                                          | 2003           |        | 2002     
|                                           |                                                                                                                                                                          |                |        |          
|                                           |                                                                                                                                                                          |               
|                                           |                                                                                                                                                                          | (In thousands)
|Prepaid expenses and other current assets: |                                                                                                                                                                          |                |        |           |  |   |       |      
|                                           | Prepaid rent                                                                                                                                                             |                | $      | 38        |  |   | $     | 1,538 | 
|                                           | Property taxes                                                                                                                                                           |                |        | 760       |  |   |       | 395   | 
|                                           | Rights offering costs                                                                                                                                                    |                |        | 442       |  |   |       |      | 
|                                           | Other                                                                                                                                                                    |                |        | 531       |  |   |       | 396   | 
|                                           |                                                                                                                                                                          |                |        |           |  |   |       |      
|                                           |                                                                                                                                                                          | $              | 1,771  |           |  | $ | 2,329 |      
|                                           |                                                                                                                                                                          |                |        |           |  |   |       |      
|Other current liabilities:                 |                                                                                                                                                                          |                |        |           |  |   |       |      
|                                           | Unearned revenue                                                                                                                                                         |                | $      | 2,172     |  |   | $     | 1,262 | 
|                                           | Accrued merger expenses                                                                                                                                                  |                |        |          |  |   |       | 693   | 
|                                           | Accrued property taxes                                                                                                                                                   |                |        | 803       |  |   |       | 613   | 
|                                           | Accrued legal settlement                                                                                                                                                 |                |        |          |  |   |       | 800   | 
|                                           | Accrued mold remediation                                                                                                                                                 |                |        |          |  |   |       | 810   | 
|                                           | Ad fund                                                                                                                                                                  |                |        | 471       |  |   |       |      | 
|                                           | Deposits                                                                                                                                                                 |                |        | 1,037     |  |   |       |      | 
|                                           | Accrued interest on subordinated notes                                                                                                                                   |                |        | 1,048     |  |   |       |      | 
|                                           | Franchise obligations                                                                                                                                                    |                |        | 972       |  |   |       |      | 
|                                           | Accrued workers compensation expenses (net
    of $602 and $1,122 of advance deposits held by insurance company
    at March 28, 2003 and March 29, 2002, respectively) |                |        | 2,743     |  |   |       | 1,617 | 
|                                           | Accrued utilities                                                                                                                                                        |                |        | 321       |  |   |       | 227   | 
|                                           | Other                                                                                                                                                                    |                |        | 2,543     |  |   |       | 2,072 | 
|                                           |                                                                                                                                                                          |                |        |           |  |   |       |      
|                                           |                                                                                                                                                                          | $              | 12,110 |           |  | $ | 8,094 |      
|                                           |                                                                                                                                                                          |                |        |           |  |   |       |      

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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5. Financing Arrangements:

Financing arrangements consist of the following:

|                                                                                                                                                                                                                                                                                                                                       |  |                |        |           |  |   |       | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | --------- |  | - | ----- | 
|                                                                                                                                                                                                                                                                                                                                       |  | March 28,      |        | March 29,
|                                                                                                                                                                                                                                                                                                                                       |  | 2003           |        | 2002     
|                                                                                                                                                                                                                                                                                                                                       |  |                |        |          
|                                                                                                                                                                                                                                                                                                                                       |  |               
|                                                                                                                                                                                                                                                                                                                                       |  | (In thousands)
|Revolving line of credit, due June 2004
    interest at prime plus 1.5% (5.75%) and Eurodollar plus 3.75%
    (5.16%) at March 28, 2003 and at Eurodollar plus 2.0%
    (4.53%) at March 29, 2002                                                                                                                                      |  | $              | 12,951 |           |  | $ | 2,500 | 
|Subordinated Debt to Jacobson Partners Group with
    a maturity of December 31, 2004 interest at 15%, of which
    7% was payable in cash, with the balance payable in kind by the
    issuance of additional subordinated notes                                                                                                      |  |                | 14,513 |           |  |   |      | 
|Note payable (collateralized by a letter of
    credit) to a corporation resulting from an acquisition, interest
    at prime (4.25% and 4.75% at March 28, 2003 and
    March 29, 2002, respectively), quarterly principal payments
    of $100,000 plus interest, remaining balance payable
    January 2005                         |  |                | 700    |           |  |   | 1,100 | 
|Notes payable (non-collateralized) to
    corporations resulting from an acquisition, interest at prime
    (4.25% and 4.75% at March 28, 2003 and March 29, 2002,
    respectively), principal and interest due in full April 2004                                                                                                    |  |                | 2,016  |           |  |   | 1,923 | 
|Notes payable (non-collateralized) to various
    entities and individuals resulting from acquisitions, interest
    at various fixed rates ranging from 7.75 to 8.5 percent and
    variable rates ranging from prime to prime plus 1 percent,
    various payment terms with original maturities ranging from one
    to seven years |  |                | 731    |           |  |   | 1,306 | 
|                                                                                                                                                                                                                                                                                                                                       |  |                |        |           |  |   |       | 
|                                                                                                                                                                                                                                                                                                                                       |  |                | 30,911 |           |  |   | 6,829 | 
|Less current maturities of long-term debt                                                                                                                                                                                                                                                                                              |  |                | 1,280  |           |  |   | 3,633 | 
|                                                                                                                                                                                                                                                                                                                                       |  |                |        |           |  |   |       | 
|                                                                                                                                                                                                                                                                                                                                       |  | $              | 29,631 |           |  | $ | 3,196 | 
|                                                                                                                                                                                                                                                                                                                                       |  |                |        |           |  |   |       | 

At March 28, 2003, aggregate principal
payments due on long-term debt (based on the refinancing as
discussed in Note 21) over the next five fiscal years and
thereafter are as follows:

|           |       |                |        |        | 
|---------- | ----- | -------------- | ------ | ------ | 
|           |       | (In thousands)
|2004       |       | $              | 1,280  |       
|2005       |       |                | 14,930 |       
|2006       |       |                | 101    |       
|2007       |       |                | 87     |       
|2008       |       |                |       |       
|Thereafter |       |                | 14,513 |       
|           |       |                |        |       
|           | Total |                | $      | 30,911 | 
|           |       |                |        |       

On January 31, 2002, the Company amended and
restated its revolving line of credit agreement by entering into
a new $17.5 million revolving line of credit agreement with
its existing lender. This credit agreement, as further amended
subsequent to year end, will mature on June 30, 2004, and
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
$13.0 million at March 28, 2003, and outstanding
borrowings of $2.5 million at March 29, 2002.
Outstanding letters of credit reduced the availability under the
line of credit in the amount of $2.5 million at
March 28, 2003 and $1.8 million at March 29, 2002.

Under this agreement, 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

F-14



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



5. Financing Arrangements 
(Continued)


and transactions with affiliates. During each of
the first three fiscal quarters of the year ended March 28,
2003, the Company had not maintained minimum consolidated EBITDA
levels and, for the first two fiscal quarters of 2003, had
not provided timely reporting as required by the Amended and
Restated Credit Agreement. The Companys lender has
provided waivers for these non-compliances. The Amended and
Restated Credit Agreement was further amended and the Company is
in compliance with the agreement as of March 28, 2003.

Subordinated Notes in the aggregate amount of
$14 million were provided by a group of lenders organized
by Jacobson Partners to fund the balance of the Tutor Time
acquisition purchase price and to provide related working
capital. The Subordinated Notes are subject to a Subordination
Agreement in favor of Bank One, NA, mature December 31,
2004 and bear interest at 15% of which 7% is payable in cash,
with the balance payable in kind by the issuance of Additional
Subordinated Notes ($0.5 million accrued and included in
Subordinated Notes), with interest and principal payable on the
earlier of December 31, 2004 or such date on which the
Company consummated the Rights Offering, provided that interest
on the Subordinated Notes (including the Additional Subordinated
Notes and interest thereon) may be paid only to the extent the
aggregate proceeds of the Rights Offering exceeds
$14 million. These notes were refinanced subsequent to the
fiscal year end with the proceeds from the Rights Offering. (See
Note 21)

6. Income Taxes:

The income tax provision or benefit reflected in
the consolidated statement of operations consists of the
following:

|          |                 |                |        |           |   |           |        |        |   |   |        |        |  
|--------- | --------------- | -------------- | ------ | --------- | - | --------- | ------ | ------ | - | - | ------ | ------ | -
|          |                 | March 28,      |        | March 29, |   | March 30,
|          |                 | 2003           |        | 2002      |   | 2001     
|          |                 |                |        |           |   |          
|          |                 |               
|          |                 | (In thousands)
|Current:  |                 |                |        |           |   |           |        |        |   |   |        |       
|          | Federal         |                | $      | (2,543    | ) |           | $      | (1,645 | ) |   | $      | 1,899  |  
|          | State and local |                |        | (28       | ) |           |        | (117   | ) |   |        | 116    |  
|          |                 |                |        |           |   |           |        |        |   |   |        |       
|          |                 |                | (2,571 | )         |   |           | (1,762 | )      |   |   | 2,015  |       
|          |                 |                |        |           |   |           |        |        |   |   |        |       
|Deferred: |                 |                |        |           |   |           |        |        |   |   |        |       
|          | Federal         |                |        | 2,438     |   |           |        | (458   | ) |   |        | (2,020 | )
|          | State and local |                |        | (95       | ) |           |        | (50    | ) |   |        | (186   | )
|          |                 |                |        |           |   |           |        |        |   |   |        |       
|          |                 |                | 2,343  |           |   |           | (508   | )      |   |   | (2,206 | )     
|          |                 |                |        |           |   |           |        |        |   |   |        |       
|          |                 | $              | (228   | )         |   | $         | (2,270 | )      |   | $ | (191   | )     
|          |                 |                |        |           |   |           |        |        |   |   |        |       

Differences between the income tax provision on
income before income taxes reflected in the statement of
operations and that computed by applying the statutory federal
income tax rate are attributable to the following:

|                                                        |  |                |        |           |  |           |        |   |  |   |      |  
|------------------------------------------------------- |  | -------------- | ------ | --------- |  | --------- | ------ | - |  | - | ---- | -
|                                                        |  | March 28,      |        | March 29, |  | March 30,
|                                                        |  | 2003           |        | 2002      |  | 2001     
|                                                        |  |                |        |           |  |          
|                                                        |  |               
|                                                        |  | (In thousands)
|Income tax provision at the statutory federal
    level |  | $              | (4,355 | )         |  | $         | (2,079 | ) |  | $ | (201 | )
|State and local taxes, net of federal tax benefit       |  |                | (81    | )         |  |           | (110   | ) |  |   | (46  | )
|Valuation allowance                                     |  |                | 4,208  |           |  |           |       |   |  |   |     |  
|Other                                                   |  |                |       |           |  |           | (81    | ) |  |   | 56   |  
|                                                        |  |                |        |           |  |           |        |   |  |   |      |  
|                                                        |  | $              | (228   | )         |  | $         | (2,270 | ) |  | $ | (191 | )
|                                                        |  |                |        |           |  |           |        |   |  |   |      |  

F-15



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



6. Income Taxes 
(Continued)


Temporary differences and carryforwards that give
rise to deferred tax assets and (liabilities) are as
follows:

|                               |                                                |                                    |        |           |   |  |        |        |     | 
|------------------------------ | ---------------------------------------------- | ---------------------------------- | ------ | --------- | - |  | ------ | ------ | --- | 
|                               |                                                | March 28,                          |        | March 29,
|                               |                                                | 2003                               |        | 2002     
|                               |                                                |                                    |        |          
|                               |                                                |                                   
|                               |                                                | (In thousands)                    
|Deferred tax asset:            |                                                |                                    |        |           |   |  |        |       
|                               | Allowance for doubtful accounts                |                                    | $      | 378       |   |  | $      | 263    |    
|                               | Vested and non-vested vacation balance         |                                    |        | 604       |   |  |        | 450    |    
|                               | Workers compensation accrual                   |                                    |        | 1,381     |   |  |        | 1,041  |    
|                               | Capital loss carryforwards                     |                                    |        | 205       |   |  |        | 205    |    
|                               | Provision for restructuring charges            |                                    |        | 275       |   |  |        | 292    |    
|                               | Provision for mold remediation                 |                                    |        |          |   |  |        | 308    |    
|                               | Stock compensation                             |                                    |        | 207       |   |  |        | 214    |    
|                               | Deferred registration fees                     |                                    |        | 53        |   |  |        | 168    |    
|                               | All other                                      |                                    |        | 26        |   |  |        | 9      |    
|                               |                                                |                                    |        |           |   |  |        |       
|                               |                                                |                                    | 3,129  |           |   |  | 2,950  |       
|                               |                                                |                                    |        |           |   |  |        |       
|Deferred tax liability:        |                                                |                                    |        |           |   |  |        |       
|                               | Basis and depreciation differences of property |                                    |        | 2,516     |   |  |        | (2,722 | )  
|                               | Straight-line rent                             |                                    |        | 429       |   |  |        | 417    |    
|                               |                                                |                                    |        |           |   |  |        |       
|                               |                                                |                                    | 2,945  |           |   |  | (2,305 | )     
|                               |                                                |                                    |        |           |   |  |        |       
|Deferred tax asset (liability) |                                                |                                    | 6,074  |           |   |  | 645    |       
|Valuation allowance            |                                                |                                    | (6,074 | )         |   |  |       |       
|                               |                                                |                                    |        |           |   |  |        |       
|                               |                                                | Net deferred tax asset (liability) |        | $         |  |  |        | $      | 645 | 
|                               |                                                |                                    |        |           |   |  |        |       

The Company has a capital loss carryforward of
$0.5 million which will expire on April 1, 2005. Due
to continued losses and uncertainties, the Company has
determined that it is more likely than not that the deferred tax
assets will not be recovered through future taxable income. As a
result, a valuation reserve has been provided reducing deferred
tax assets to an amount recoverable through the reversal of
deferred tax liabilities or through carryback to prior tax years.

7. Leases:

The Company leases certain land and buildings,
primarily childrens centers and vehicles, under
non-cancelable operating leases with original terms ranging from
1 to 25 years. Certain leases contain purchase and
renewal options, impose restrictions upon making certain
payments and incurring additional debt, and may provide for
rental increases at specified intervals and contingent rents
based upon a specified percentage of the gross revenues derived
from operating a business at the lease facility. Rental expense
for the years ended March 28, 2003, March 29, 2002 and
March 30, 2001 was $29.3 million, $22.0 million
and $21.4 million respectively. These amounts included
contingent rental expense of $0.5 million,
$0.3 million and $0.4 million for the years ended
March 28, 2003 March 29, 2002, March 30, 2001,
respectively.

F-16



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

7. Leases 
(Continued)

Future minimum rental commitments at
March 28, 2003 for all non-cancelable operating leases are
as follows:

|           |       |                |         |                |  |   |       |       | 
|---------- | ----- | -------------- | ------- | -------------- |  | - | ----- | ----- | 
|           |       | Total  All    |         | Closed Centers
|           |       | Centers        |         | Only          
|           |       |                |         |               
|           |       |               
|           |       | (In thousands)
|2004       |       | $              | 31,066  |                |  | $ | 964   |      
|2005       |       |                | 29,999  |                |  |   | 953   |      
|2006       |       |                | 28,578  |                |  |   | 842   |      
|2007       |       |                | 26,375  |                |  |   | 688   |      
|2008       |       |                | 23,943  |                |  |   | 534   |      
|Thereafter |       |                | 152,886 |                |  |   | 1,432 |      
|           |       |                |         |                |  |   |       |      
|           | Total |                | $       | 292,847        |  |   | $     | 5,413 | 
|           |       |                |         |                |  |   |       |      

The Closed Centers Only column in the
table above represents the minimum lease payments in total for
all closed centers. The Company has accrued as of March 28,
2003, $1.3 million in exit and closure expenses related to
these lease payments. The Company is primarily liable on
approximately $1.1 million (included in the
$5.4 million closed centers total) for lease assignments
already negotiated in connection with certain lease terminations
resulting from the fiscal 2001 restructuring program. The
Company expects to assign the remaining amounts to a third party
or negotiate reductions with the landlord (see Note 13).

8. Employee Benefit Plan:

The Company has a 401(k) Savings and Retirement
Plan (the Plan) covering substantially all of its
full-time employees. The Company matches a portion of employee
contributions up to a maximum Company contribution of one
percent of compensation. Employees may contribute up to
15 percent of compensation to the Plan. Amounts expensed
for the years ended March 28, 2003, March 29, 2002,
and March 30, 2001 were $116,121, $104,121 and $97,091,
respectively.

9. Option Grants for Consulting Services
and Related Party Transactions:

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. As part of
the consideration to be paid to, and to add further incentive
for such services, Jacobson Partners was granted stock options
to purchase 557,275 shares. Jacobson Partners has exercised
options totaling 294,117 shares at a cost of $2,500,000. The
remaining 263,158 shares expired in July 2002.
Additionally, Jacobson Partners receives an annual consulting
fee in the amount of $250,000, plus reimbursement of reasonable
out-of-pocket expenses. In connection with the Tutor Time
acquisition, Jacobson Partners was paid an advisory fee
consisting of $333,336 and the issuance of 175,438 shares,
and options were granted to certain related parties to acquire
up to 400,000 shares of the Companys common stock
(see Note 3). Total expenses incurred for Jacobson Partners
(exclusive of the Tutor Time fee) were $250,000, $261,255 and
$485,196 for fiscal 2003, 2002 and 2001, respectively, and are
included in general and administrative expense in the
accompanying Consolidated Statement of Operations.

The Companys former Chairman of the Board
and Interim Chief Executive Officer was granted
60,000 options in January 2001. As initially granted,
the options have a $7.00 exercise price, vest at the rate
of 10,000 per month and expire January 2003. After the
executive was appointed Chairman of the Board in
August 2001, these options were extended to expire in
September 2006. At that time, he was also granted an

F-17



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

9. Option Grants for Consulting Services
and Related Party Transactions  (Continued)

additional 50,000 options. These additional
options have an $11.00 exercise price, vest after one year
and expire in September 2006.

The former interim Chief Financial Officer was
granted 10,000 options in March 2001. The options have
a $7.97 exercise price, vest evenly over 3 years and
expire in March 2007. In September 2001, the executive
was granted an additional 20,000 options. These additional
options have an $11.00 exercise price, vest after one year and
expire in September 2006.

10. Commitments &
Contingencies:

During fiscal 2002, the Company decided not to
pursue opening three new build-to-suit centers after leases for
these centers had been signed with the developer of the centers.
The Company was subsequently sued by the developer for breach of
contract. This case was settled at the end of fiscal 2002, and a
current liability was recorded on the balance sheet as of
March 29, 2002 in the amount of $0.8 million, which
was paid during first quarter 2003.

The Company is primarily liable on approximately
$1.1 million for lease assignments already negotiated in
connection with certain lease terminations resulting from the
fiscal 2001 restructuring program (see Note 13). 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 (all of which were entered
into prior to December 15, 2002, the effective date of
FIN 45) aggregates $95.9 million and
$27.9 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 has taken over operations for a center
previously operated by a franchisee as a result of a default
under the franchisees lease and intends to continue to
operate this center. Other than with respect to the foregoing
center, the Company has not been notified 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.

In addition, various legal actions and other
claims are pending or could be asserted against the Company.
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.

11. Accounts Receivable:

Accounts receivable is presented net of an
allowance for doubtful accounts. At March 28, 2003 and
March 29, 2002, the allowance for doubtful accounts was
$2.7 million and $0.7 million, respectively.

12. 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

F-18



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

12. Drafts Payable 
(Continued)

presented. At March 28, 2003 and
March 29, 2002, the aggregate drafts payable were
$3.2 million and $4.0 million, respectively.

13. Exit and Closure Expenses:

The Company instituted a restructuring program in
fiscal 2001 and incurred a charge of $4.0 million in
March 2001. In this regard, the Company closed all 10 of
its Oxford Learning Centers of America and identified
19 under-performing centers to be closed in fiscal 2002.
During the 52 weeks ended March 28, 2003,
10 centers were closed, of which 5 were included in
the Companys 2001 plan, 2 related to centers whose
cash flows were not entirely eliminated and 3 related to
centers classified as discontinued operations. As of
March 28, 2003, 18 of the under-performing centers have
been closed. One center is operating profitably and the Company
has decided not to close this center. Approximately
200 employees were involuntarily terminated in connection
with the closures of Oxford Learning Centers of America and the
18 under-performing Childtime centers. For the
52 weeks ended March 28, 2003, the Company recorded
exit and closure expenses of $1.4 million. Of this amount,
$0.4 million is related to the closure of
three additional centers, not included in the
2001 restructuring program. The remaining $1.0 million
is to increase estimated lease costs related to the 2001
restructuring program. This increase is necessary as a result of
current real estate market conditions.

A summary of the accrual is as follows (in
thousands):

Exit and Closure Expenses and Discontinued
operations Accrual Analysis

|                                      |       |                |     |          |  |          |       |                |  |   |     |     |  |   |     |       | 
|------------------------------------- | ----- | -------------- | --- | -------- |  | -------- | ----- | -------------- |  | - | --- | --- |  | - | --- | ----- | 
|                                      |       | Beginning      |     |          |  |          |       | Ending        
|                                      |       | Accrual        |     |          |  | Cash     |       | Accrual       
|                                      |       | March 29, 2002 |     | Expenses |  | Payments |       | March 28, 2003
|                                      |       |                |     |          |  |          |       |               
|Continuing operations:                |       |                |     |          |  |          |       |                |  |   |     |     |  |   |     |      
|Lease costs                           |       | $              | 755 |          |  | $        | 1,051 |                |  | $ | 855 |     |  | $ | 951 |      
|Severance costs                       |       |                | 74  |          |  |          |      |                |  |   | 74  |     |  |   |    |      
|                                      |       |                |     |          |  |          |       |                |  |   |     |     |  |   |     |      
|Continuing operations total           |       |                | 829 |          |  |          | 1,051 |                |  |   | 909 |     |  |   | 951 |      
|Discontinued operations  lease costs |       |                |    |          |  |          | 386   |                |  |   | 67  |     |  |   | 319 |      
|                                      |       |                |     |          |  |          |       |                |  |   |     |     |  |   |     |      
|                                      | Total |                | $   | 829      |  |          | $     | 1,417          |  |   | $   | 976 |  |   | $   | 1,270 | 
|                                      |       |                |     |          |  |          |       |                |  |   |     |     |  |   |     |      

|                                      |       |                |       |          |  |          |     |                |  |   |       |       |  |   |     |     | 
|------------------------------------- | ----- | -------------- | ----- | -------- |  | -------- | --- | -------------- |  | - | ----- | ----- |  | - | --- | --- | 
|                                      |       | Beginning      |       |          |  |          |     | Ending        
|                                      |       | Accrual        |       |          |  | Cash     |     | Accrual       
|                                      |       | March 30, 2001 |       | Expenses |  | Payments |     | March 29, 2002
|                                      |       |                |       |          |  |          |     |               
|Continuing operations:                |       |                |       |          |  |          |     |                |  |   |       |       |  |   |     |    
|Lease costs                           |       | $              | 1,958 |          |  | $        | 223 |                |  | $ | 1,426 |       |  | $ | 755 |    
|Severance costs                       |       |                | 452   |          |  |          |    |                |  |   | 378   |       |  |   | 74  |    
|                                      |       |                |       |          |  |          |     |                |  |   |       |       |  |   |     |    
|Continuing operations total           |       |                | 2,410 |          |  |          | 223 |                |  |   | 1,804 |       |  |   | 829 |    
|Discontinued operations  lease costs |       |                |      |          |  |          |    |                |  |   |      |       |  |   |    |    
|                                      |       |                |       |          |  |          |     |                |  |   |       |       |  |   |     |    
|                                      | Total |                | $     | 2,410    |  |          | $   | 223            |  |   | $     | 1,804 |  |   | $   | 829 | 
|                                      |       |                |       |          |  |          |     |                |  |   |       |       |  |   |     |    

The lease liability for the centers closed during
the 52 weeks ended March 28, 2003 and March 29,
2002 has been recorded at managements estimate of expected
future payments.

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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

14. Discontinued Operations:

The consolidated statement of operations includes
discontinued operations of three centers closed during
2003. Prior year amounts have been reclassified to reflect these
changes. A summary of discontinued operations was as follows,
with dollars in thousands:

|                                          |                                           |                |      |           |   |           |       |      |   |   |       |    | 
|----------------------------------------- | ----------------------------------------- | -------------- | ---- | --------- | - | --------- | ----- | ---- | - | - | ----- | -- | 
|                                          |                                           |               
|                                          |                                           | 52 Weeks Ended
|                                          |                                           |               
|                                          |                                           | March 28,      |      | March 29, |   | March 30,
|                                          |                                           | 2003           |      | 2002      |   | 2001     
|                                          |                                           |                |      |           |   |          
|Revenues, net                             |                                           | $              | 602  |           |   | $         | 1,007 |      |   | $ | 1,261 |   
|Operating expenses of Learning Centers    |                                           |                | 738  |           |   |           | 1,266 |      |   |   | 1,127 |   
|                                          |                                           |                |      |           |   |           |       |      |   |   |       |   
|Gross profit                              |                                           |                | (136 | )         |   |           | (259  | )    |   |   | 134   |   
|Provision for doubtful accounts           |                                           |                | 4    |           |   |           | 2     |      |   |   | 1     |   
|Depreciation and amortization expenses    |                                           |                | 14   |           |   |           | 39    |      |   |   | 36    |   
|Exit and closure expenses                 |                                           |                | 386  |           |   |           |      |      |   |   |      |   
|Intangible asset impairment charges       |                                           |                | 10   |           |   |           |      |      |   |   |      |   
|Long lived fixed asset impairment charges |                                           |                | 63   |           |   |           |      |      |   |   |      |   
|                                          |                                           |                |      |           |   |           |       |      |   |   |       |   
|                                          | Discontinued operations before income tax |                |      | (613      | ) |           |       | (300 | ) |   |       | 97 | 
|Income tax provision (benefit)            |                                           |                | (11  | )         |   |           | (111  | )    |   |   | 32    |   
|                                          |                                           |                |      |           |   |           |       |      |   |   |       |   
|                                          | Discontinued operations, net of tax       |                | $    | (602      | ) |           | $     | (189 | ) |   | $     | 65 | 
|                                          |                                           |                |      |           |   |           |       |      |   |   |       |   

15. Intangible Assets and Long-lived
Impairment:

During the second quarter of fiscal 2003, the
Company completed the implementation of SFAS 142,
Goodwill and Other Intangible Assets. Under
SFAS 142, goodwill is no longer amortized. Instead,
goodwill and indefinite-lived intangible assets are tested for
impairment in accordance with the provisions of SFAS 142.
In accordance with its impairment policy, the Company employed a
discounted cash flow analysis in conducting its impairment tests
as of the beginning of fiscal 2003. The Company completed
its impairment test and recorded an impairment loss of
$5.0 million (net of a tax benefit of $0.9 million) as
a cumulative effect of a change in accounting principle. In
addition, as a result of continuing weakening economic
conditions, the Company tested for goodwill impairment as of
October 11, 2002, and recorded an impairment loss during
the second quarter of $4.2 million.

In accordance with the provisions of SFAS
No. 142, Goodwill and Other Intangible Assets, the
Company did not amortize goodwill for the fiscal year ended
March 28, 2003. If goodwill amortization had not been
recorded for the prior periods, net income (loss) and earnings
(loss) per share as shown above would have been as follows:

|     |  |               |      |                 |  |   |       |  
|---- |  | ------------- | ---- | --------------- |  | - | ----- | -
|     |  | Net Income    |      | Earnings (Loss)
|     |  | (Loss)        |      | Per Share      
|     |  |               |      |                
|     |  | (In millions) |      |                
|2002 |  | $             | (2.9 | )               |  | $ | (0.55 | )
|2001 |  | $             | 0.8  |                 |  | $ | 0.15  |  

F-20



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

15. Intangible Assets and Long-lived
Impairment  (Continued)

The changes in the carrying amounts of goodwill
and other intangible assets for the 52 weeks ended
March 28, 2003 and March 29, 2002 were as follows (in
thousands):

|                          |  |         |        |           |  |            |        |              |  |         |        |             |  |   |     |  |  |   |        |  |  |  |            | 
|------------------------- |  | ------- | ------ | --------- |  | ---------- | ------ | ------------ |  | ------- | ------ | ----------- |  | - | --- |  |  | - | ------ |  |  |  | ---------- | 
|                          |  |         |        |           |  | Pre-Tax    |        |              |  |         |        |            
|                          |  | Balance |        |           |  | Impairment |        |              |  | Balance |        |            
|                          |  | 3/29/02 |        | Additions |  | Loss       |        | Amortization |  | 3/28/03 |        | Useful Life
|                          |  |         |        |           |  |            |        |              |  |         |        |            
|Covenants                 |  | $       | 52     |           |  | $          |       |              |  | $       |       |             |  | $ | 47  |  |  | $ | 5      |  |  |  | 5          | 
|Trade Name and Trademarks |  |         |       |           |  |            | 3,905  |              |  |         |       |             |  |   | 135 |  |  |   | 3,770  |  |  |  | 20         | 
|Franchise Agreements      |  |         |       |           |  |            | 9,090  |              |  |         |       |             |  |   | 315 |  |  |   | 8,775  |  |  |  | 20         | 
|Curriculum                |  |         |       |           |  |            | 460    |              |  |         |       |             |  |   | 64  |  |  |   | 396    |  |  |  | 5          | 
|Goodwill                  |  |         | 17,273 |           |  |            | 10,651 |              |  |         | 10,058 |             |  |   |    |  |  |   | 17,866 |  |  |  | Indefinite | 

|          |  |         |        |           |  |            |      |              |  |         |       |             |  |   |       |  |  |   |        |  |  |  |            | 
|--------- |  | ------- | ------ | --------- |  | ---------- | ---- | ------------ |  | ------- | ----- | ----------- |  | - | ----- |  |  | - | ------ |  |  |  | ---------- | 
|          |  |         |        |           |  | Pre-Tax    |      |              |  |         |       |            
|          |  | Balance |        |           |  | Impairment |      |              |  | Balance |       |            
|          |  | 3/30/01 |        | Additions |  | Loss       |      | Amortization |  | 3/29/02 |       | Useful Life
|          |  |         |        |           |  |            |      |              |  |         |       |            
|Covenants |  | $       | 164    |           |  | $          |     |              |  | $       |      |             |  | $ | 112   |  |  | $ | 52     |  |  |  | 5          | 
|Goodwill  |  |         | 20,915 |           |  |            | (199 | )            |  |         | 1,693 |             |  |   | 1,750 |  |  |   | 17,273 |  |  |  | Indefinite | 

Estimated amortization of intangible assets is
expected to be approximately $0.7 million for each of the
next five years.

16. Segment Information:

The Company has three reportable segments:
Childtime, Tutor Time and Franchise Operations. Childtime
operates child care centers primarily under the Childtime
Learning Centers brand name, Tutor Time operates child care
centers under the Tutor Time brand name and Franchise Operations
licenses and provides developmental and administrative support
to franchises 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 are presented below in thousands:

|                               |  |                               |         |            |  |            |        |       |  |   |        |  |  |   |         |  
|------------------------------ |  | ----------------------------- | ------- | ---------- |  | ---------- | ------ | ----- |  | - | ------ |  |  | - | ------- | -
|                               |  |                              
|                               |  | 52 Weeks Ended March 28, 2003
|                               |  |                              
|                               |  |                               |         | Franchise  |  |           
|                               |  | Childtime                     |         | Tutor Time |  | Operations |        | Total
|                               |  |                               |         |            |  |            |        |      
|External revenues              |  | $                             | 141,413 |            |  | $          | 32,189 |       |  | $ | 3,763  |  |  | $ | 177,365 |  
|Intersegment revenues          |  |                               |        |            |  |            |       |       |  |   |       |  |  |   |        |  
|Depreciation and amortization  |  |                               | 2,816   |            |  |            | 395    |       |  |   | 315    |  |  |   | 3,526   |  
|Goodwill impairment charges    |  |                               | 4,181   |            |  |            |       |       |  |   |       |  |  |   | 4,181   |  
|Fixed asset impairment charges |  |                               | 3,401   |            |  |            |       |       |  |   |       |  |  |   | 3,401   |  
|Operating income (loss)        |  |                               | (8,459  | )          |  |            | (4,539 | )     |  |   | 2,681  |  |  |   | (10,317 | )
|Goodwill                       |  |                               | 7,215   |            |  |            | 5,578  |       |  |   | 5,073  |  |  |   | 17,866  |  
|All other assets               |  |                               | 45,760  |            |  |            | 9,909  |       |  |   | 10,410 |  |  |   | 66,079  |  

F-21



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

16. Segment Information 
(Continued)

|                               |  |                               |         |            |  |            |   |       |  |   |   |  |  |   |         |  
|------------------------------ |  | ----------------------------- | ------- | ---------- |  | ---------- | - | ----- |  | - | - |  |  | - | ------- | -
|                               |  |                              
|                               |  | 52 Weeks Ended March 29, 2002
|                               |  |                              
|                               |  |                               |         | Franchise  |  |           
|                               |  | Childtime                     |         | Tutor Time |  | Operations |   | Total
|                               |  |                               |         |            |  |            |   |      
|External revenues              |  | $                             | 141,391 |            |  | $          |  |       |  | $ |  |  |  | $ | 141,391 |  
|Intersegment revenues          |  |                               |        |            |  |            |  |       |  |   |  |  |  |   |        |  
|Depreciation and amortization  |  |                               | 4,750   |            |  |            |  |       |  |   |  |  |  |   | 4,750   |  
|Goodwill impairment charges    |  |                               | 1,693   |            |  |            |  |       |  |   |  |  |  |   | 1,693   |  
|Fixed asset impairment charges |  |                               | 223     |            |  |            |  |       |  |   |  |  |  |   | 223     |  
|Operating (loss)               |  |                               | (5,721  | )          |  |            |  |       |  |   |  |  |  |   | (5,721  | )
|Goodwill                       |  |                               | 17,273  |            |  |            |  |       |  |   |  |  |  |   | 17,273  |  
|All other assets               |  |                               | 56,842  |            |  |            |  |       |  |   |  |  |  |   | 56,842  |  

|                               |  |                               |         |            |  |            |   |       |  |   |   |  |  |   |         | 
|------------------------------ |  | ----------------------------- | ------- | ---------- |  | ---------- | - | ----- |  | - | - |  |  | - | ------- | 
|                               |  |                              
|                               |  | 52 Weeks Ended March 30, 2001
|                               |  |                              
|                               |  |                               |         | Franchise  |  |           
|                               |  | Childtime                     |         | Tutor Time |  | Operations |   | Total
|                               |  |                               |         |            |  |            |   |      
|External revenues              |  | $                             | 146,583 |            |  | $          |  |       |  | $ |  |  |  | $ | 146,583 | 
|Intersegment revenues          |  |                               |        |            |  |            |  |       |  |   |  |  |  |   |        | 
|Depreciation and amortization  |  |                               | 4,562   |            |  |            |  |       |  |   |  |  |  |   | 4,562   | 
|Goodwill impairment charges    |  |                               | 1,447   |            |  |            |  |       |  |   |  |  |  |   | 1,447   | 
|Fixed asset impairment charges |  |                               |        |            |  |            |  |       |  |   |  |  |  |   |        | 
|Operating income               |  |                               | 134     |            |  |            |  |       |  |   |  |  |  |   | 134     | 
|Goodwill                       |  |                               | 20,915  |            |  |            |  |       |  |   |  |  |  |   | 20,915  | 
|All other assets               |  |                               | 53,196  |            |  |            |  |       |  |   |  |  |  |   | 53,196  | 

17. Stock Options:

In November 1995, the Company adopted the
1995 Stock Incentive Plan for Key Employees (the Stock
Option Plan). The Stock Option Plan became effective,
February 2, 1996, concurrent with the effectiveness of the
registration statement relating to the Companys initial
public offering of Common Stock. The aggregate number of shares
that may be issued pursuant to the Stock Option Plan, was
300,000 shares. At the 2000 Annual Shareholder Meeting, an
amendment was approved increasing the amount of shares available
for grant or award by 300,000, bringing the new total to 600,000
shares. Options may be granted, or restricted stock awarded, at
the discretion of the Companys compensation committee from
time to time at a range of 75 percent to 110 percent
of the market value of the stock on the date on which such
option is granted as defined in the Stock Option Plan. Each
option granted under the plan shall expire in five to ten years
from the date of grant, as defined in the Stock Option Plan.
Restrictions on sale or transfer of stock awarded under the
Stock Option Plan, if any, range from six months to five years.
Vesting requirements are determined by the committee at the time
of the grant, provided however, no stock option may be
exercisable prior to the expiration of six months from the date
of grant unless the participant dies or becomes disabled prior
thereto. Options granted during fiscal 2003 of 295,000 were
granted at or above the market price and vest evenly over a
three-year period. No compensation expense has been recorded on
any employee options, as all options were granted at the fair
market price. In addition, the Company adopted the Director
Stock Option Plan, effective February 2, 1996, providing for
annual grants of stock options to non-employee directors to
purchase common stock at fair value as of the date of such
grant. The aggregate number of shares which may be issued
pursuant to the Director Stock Option Plan, is 75,000 shares.
Each option grant under the plan shall expire five years from
the date of grant. Options vest in full on the first anniversary
of the date of grant and 7,500, 12,500 and 15,000 options were
granted under the plan during fiscal 2003, 2002 and 2001,
respectively.

F-22



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

17. Stock Options 
(Continued)

Presented below is a summary of the status of the
stock options held by employees of the Company as of
March 28, 2003, March 29, 2002 and March 31, 2000:

|                                           |  |                |          |                |  |                |       |          |  |        |          |          |  |   |       |  |  |  |         |   |  |   |       | 
|------------------------------------------ |  | -------------- | -------- | -------------- |  | -------------- | ----- | -------- |  | ------ | -------- | -------- |  | - | ----- |  |  |  | ------- | - |  | - | ----- | 
|                                           |  |                |          |                |  |               
|                                           |  | March 28, 2003 |          | March 29, 2002 |  | March 30, 2001
|                                           |  |                |          |                |  |               
|                                           |  |                |          | Weighted       |  |                |       | Weighted |  |        |          | Weighted
|                                           |  |                |          | Average        |  |                |       | Average  |  |        |          | Average 
|                                           |  |                |          | Exercise       |  |                |       | Exercise |  |        |          | Exercise
|Options                                    |  | Shares         |          | Price          |  | Shares         |       | Price    |  | Shares |          | Price   
|                                           |  |                |          |                |  |                |       |          |  |        |          |         
|Options outstanding at beginning of period |  |                | 350,084  |                |  | $              | 9.96  |          |  |        | 401,450  |          |  | $ | 10.43 |  |  |  | 314,351 |   |  | $ | 11.80 | 
|Granted                                    |  |                | 295,000  |                |  |                | 3.45  |          |  |        | 633,000  |          |  |   | 10.46 |  |  |  | 158,800 |   |  |   | 7.99  | 
|Exercised                                  |  |                |         |                |  |                |      |          |  |        |         |          |  |   |      |  |  |  |        |   |  |   |      | 
|Forfeited/expired                          |  |                | (180,681 | )              |  |                | 9.71  |          |  |        | (684,366 | )        |  |   | 10.62 |  |  |  | (71,701 | ) |  |   | 11.01 | 
|                                           |  |                |          |                |  |                |       |          |  |        |          |          |  |   |       |  |  |  |         |   |  |   |       | 
|Options outstanding at end of period       |  |                | 464,403  |                |  | $              | 5.59  |          |  |        | 350,084  |          |  | $ | 9.96  |  |  |  | 401,450 |   |  | $ | 10.43 | 
|                                           |  |                |          |                |  |                |       |          |  |        |          |          |  |   |       |  |  |  |         |   |  |   |       | 
|Options exercisable                        |  |                | 138,570  |                |  | $              | 10.09 |          |  |        | 278,760  |          |  | $ | 11.06 |  |  |  | 268,286 |   |  | $ | 10.89 | 
|                                           |  |                |          |                |  |                |       |          |  |        |          |          |  |   |       |  |  |  |         |   |  |   |       | 

Of the 464,403 employee options outstanding at
March 28, 2003, 42,287 were exercisable at per share prices
ranging from $5.85 to $7.97, with a weighted average exercise
price of $7.48 and a weighted average remaining contractual life
of 3.5 years; 75,750 were exercisable at per share prices
ranging from $9.19 to $11.81, with a weighted average exercise
price of $9.7 and a weighted average remaining contractual life
of 0.4 years; and 20,533 were exercisable at a per share price
of $16.88 with a remaining contractual life of 1.1 years.

18. Financial Instrument:

During fiscal 2003, the Company 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 March 28, 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
$(0.1) million is included in other current liabilities on
the consolidated balance sheet. During fiscal 2003, the Company
recognized a loss of $0.1 million as a result of a decline
in the market value of the outstanding interest rate contracts.

19. Supplemental Cash Flow
Information:

|                                   |                                                                        |                |   |           |   |           |   |     |  |  |   |       | 
|---------------------------------- | ---------------------------------------------------------------------- | -------------- | - | --------- | - | --------- | - | --- |  |  | - | ----- | 
|                                   |                                                                        | March 28,      |   | March 29, |   | March 30,
|                                   |                                                                        | 2003           |   | 2002      |   | 2001     
|                                   |                                                                        |                |   |           |   |          
|                                   |                                                                        |               
|                                   |                                                                        | (In thousands)
|Cash payments during the year for: |                                                                        |                |   |           |   |           |   |     |  |  |   |      
|                                   | Interest                                                               |                | $ | 715       |   |           | $ | 438 |  |  | $ | 1,003 | 
|                                   | Income taxes                                                           |                | $ | (2,357    | ) |           | $ | 821 |  |  | $ | 2,265 | 
|                                   | Stock issued to Jacobson Partners for Tutor Time
    acquisition costs |                | $ | 482       |   |           |   |    |  |  |   |      | 

In connection with the acquisition of certain
assets, the Company incurred debt of $14.0 million,
$0.0 million and $1.7 million in fiscal 2003, 2002 and
2001, respectively.

F-23



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

20. Quarterly Data (unaudited):

Quarterly financial data for fiscal 2003 and 2002
are summarized as follows in thousands except per share data:

Quarterly Data

|                                                                             |                                                                              |                |        |                 |   |                  |        |                |   |   |         |       |   |   |        |       |  
|---------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | -------------- | ------ | --------------- | - | ---------------- | ------ | -------------- | - | - | ------- | ----- | - | - | ------ | ----- | -
|                                                                             |                                                                              |               
|                                                                             |                                                                              | Fiscal 2003   
|                                                                             |                                                                              |               
|                                                                             |                                                                              | 12 Weeks Ended |        | 12 Weeks Ended  |   | 12 Weeks Ended   |        | 16 Weeks Ended
|                                                                             |                                                                              | March 28, 2003 |        | January 3, 2003 |   | October 11, 2002 |        | July 19, 2002 
|                                                                             |                                                                              |                |        |                 |   |                  |        |               
|Revenue                                                                      |                                                                              | $              | 45,788 |                 |   | $                | 43,195 |                |   | $ | 43,765  |       |   | $ | 44,617 |      
|Gross profit                                                                 |                                                                              | $              | 6,348  |                 |   | $                | 6,141  |                |   | $ | 2,682   |       |   | $ | 4,504  |      
|Income (loss) before cumulative effect of change
    in accounting principle |                                                                              | $              | (322   | )               |   | $                | (1,066 | )              |   | $ | (11,388 | )     |   | $ | (408   | )    
|Net income (loss)                                                            |                                                                              | $              | (322   | )               |   | $                | (1,066 | )              |   | $ | (11,388 | )     |   | $ | (5,375 | )    
|Earnings (loss) per share  Basic and
    Diluted:                           |                                                                              |                |        |                 |   |                  |        |                |   |   |         |       |   |   |        |      
|                                                                             | Income (loss) before cumulative effect of change
    in accounting principle |                | $      | (0.06           | ) |                  | $      | (0.20          | ) |   | $       | (2.10 | ) |   | $      | (0.08 | )
|                                                                             | Net income (loss)                                                            |                | $      | (0.06           | ) |                  | $      | (0.20          | ) |   | $       | (2.10 | ) |   | $      | (1.03 | )

|                             |  |                |        |                 |  |                  |        |                |  |   |        |   |  |   |        | 
|---------------------------- |  | -------------- | ------ | --------------- |  | ---------------- | ------ | -------------- |  | - | ------ | - |  | - | ------ | 
|                             |  |               
|                             |  | Fiscal 2002   
|                             |  |               
|                             |  | 12 Weeks Ended |        | 12 Weeks Ended  |  | 12 Weeks Ended   |        | 16 Weeks Ended
|                             |  | March 29, 2002 |        | January 4, 2002 |  | October 12, 2001 |        | July 20, 2001 
|                             |  |                |        |                 |  |                  |        |               
|Revenue                      |  | $              | 32,477 |                 |  | $                | 30,760 |                |  | $ | 31,730 |   |  | $ | 46,424 | 
|Gross profit                 |  | $              | 3,596  |                 |  | $                | 3,251  |                |  | $ | 3,127  |   |  | $ | 6,823  | 
|Net income (loss)            |  | $              | (2,468 | )               |  | $                | (544   | )              |  | $ | (2,427 | ) |  | $ | 1,404  | 
|Earnings per share  Diluted |  | $              | (0.48  | )               |  | $                | (0.10  | )              |  | $ | (0.46  | ) |  | $ | 0.27   | 

21. Subsequent Events:

On May 16, 2003, the Company completed a
Rights Offering under which it issued 100,000 units at $158.52
per unit. Total proceeds from the offering were
$15.9 million, of which $12.4 million was common stock
and $3.5 million was new subordinated notes. The proceeds
of the offering were used to pay off the balance, which included
accrued interest, on the Subordinated Notes (see Note 5).
The new subordinated notes bear interest at 15%, payable
quarterly, and are due May 15, 2008. Subject to the
applicable subordination provisions, these Subordinated Notes
may be redeemed, at the option of the Company, at any time and
must be redeemed following the occurrence of a change of
control. In either case, the redemption price is 100% of
the principal balance of the Notes, plus accrued and unpaid
interest on such principal balance to the date of redemption.

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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND
SUBSIDIARIES

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

|                                                                               |  |                      |     |          |  |            |       |            |  |        |       |  |  |   |        |   |  |   |       | 
|------------------------------------------------------------------------------ |  | -------------------- | --- | -------- |  | ---------- | ----- | ---------- |  | ------ | ----- |  |  | - | ------ | - |  | - | ----- | 
|                                                                               |  |                     
|                                                                               |  | Additions Charged to
|                                                                               |  |                     
|                                                                               |  | Balance at           |     |          |  | Balance at
|                                                                               |  | Beginning            |     | Cost and |  | Other*     |       |            |  | End of
|Description                                                                    |  | of Period            |     | Expenses |  | Accounts   |       | Deductions |  | Period
|                                                                               |  |                      |     |          |  |            |       |            |  |       
|                                                                               |  |                     
|                                                                               |  | (in thousands)      
|Fiscal year ended March 30, 2001, reserve
    for doubtful accounts and claims |  | $                    | 295 |          |  | $          | 458   |            |  | $      | 0     |  |  | $ | (393   | ) |  | $ | 360   | 
|                                                                               |  |                      |     |          |  |            |       |            |  |        |       |  |  |   |        |   |  |   |       | 
|Fiscal year ended March 29, 2002, reserve
    for doubtful accounts and claims |  | $                    | 360 |          |  | $          | 1,324 |            |  | $      | 0     |  |  | $ | (991   | ) |  | $ | 693   | 
|                                                                               |  |                      |     |          |  |            |       |            |  |        |       |  |  |   |        |   |  |   |       | 
|Fiscal year ended March 28, 2003, reserve
    for doubtful accounts and claims |  | $                    | 693 |          |  | $          | 1,272 |            |  | $      | 6,115 |  |  | $ | (5,359 | ) |  | $ | 2,721 | 
|                                                                               |  |                      |     |          |  |            |       |            |  |        |       |  |  |   |        |   |  |   |       | 




|  |                                                                                                                    
|- | -------------------------------------------------------------------------------------------------------------------
|* | Other accounts in fiscal 2003, represents amounts
    associated with the Tutor Time opening balance sheet reserve.

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##### Table of Contents








EXHIBIT INDEX


|        |     |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | --- |  |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |  |  |  
|Number  |     |  |  |  
|        |     |  |  |  
|        | 3.1 |  |  |  |  | Restated Articles of Incorporation of the
    Registrant, filed as Exhibit 3.2 to the Registrants
    Form S-1 Registration Statement (Registration
    No. 33-99596), are incorporated herein by reference.                                                                                                                                                                                                                    
|        | 3.2 |  |  |  |  | Certificate of Amendment to Articles of
    Incorporation of the Registrant, filed as Exhibit 3.1 to
    the Registrants Current Report on Form 8-K (filed
    with the Securities and Exchange Commission on January 8,
    2003), is incorporated herein by reference.                                                                                                                                                        
|        | 3.3 |  |  |  |  | Certificate of Amendment to Articles of
    Incorporation of the Registrant, filed as Exhibit 3.1 to
    the Registrants Current Report on Form 8-K (filed
    with the Securities and Exchange Commission on March 20,
    2003), is incorporated herein by reference.                                                                                                                                                         
|        | 3.4 |  |  |  |  | Restated Bylaws of the Registrant, filed as
    Exhibit 3.1 to the Registrants Quarterly Report on
    Form 10-Q for the fiscal quarter ended July 19, 2002,
    are incorporated herein by reference.                                                                                                                                                                                                                          
|        | 4.1 |  |  |  |  | Amended and Restated Credit Agreement dated as of
    January 31, 2002, between Childtime Childcare, Inc.
    (Childtime) and Bank One, Michigan, filed as
    Exhibit 4.1 to the Registrants Form 10-Q for the
    quarter ended January 4, 2002, is incorporated herein by
    reference.                                                                                                                                   
|        | 4.2 |  |  |  |  | First Amendment to Amended and Restated Credit
    Agreement dated as of April 1, 2002, between Childtime and
    Bank One, Michigan, filed as Exhibit 4.4 to the
    Registrants Form 10-K for the year ended
    March 29, 2002, is incorporated herein by reference.                                                                                                                                                         
|        | 4.3 |  |  |  |  | Second Amendment to Amended and Restated Credit
    Agreement dated as of July 19, 2002, between Childtime and
    Bank One, NA, filed as Exhibit 4.1 to the Registrants
    Current Report on Form 8-K (filed with the Securities and
    Exchange Commission on August 6, 2002), is incorporated
    herein by reference.                                                                                                     
|        | 4.4 |  |  |  |  | Subordination Agreement dated as of July 19,
    2002, among Bank One, NA, Childtime and the subordinated
    lenders, including the form of Subordinated Promissory Note
    attached thereto as Schedule B, filed as Exhibit 4.2
    to the Registrants Current Report on Form 8-K (filed
    with the Securities and Exchange Commission on August 6,
    2002), is incorporated herein by reference.                        
|        | 4.5 |  |  |  |  | Third Amendment to Amended and Restated Credit
    Agreement dated as of February 14, 2003, between Childtime
    and Bank One, NA, filed as Exhibit 4.1 to the
    Registrants Quarterly Report on Form 10-Q for the
    fiscal quarter ended January 3, 2003, is incorporated
    herein as reference.                                                                                                                        
|        | 4.6 |  |  |  |  | Indenture dated as of May 16, 2003, between
    the Registrant and U.S. Bank National Association, as
    trustee, related to Subordinated Debt Securities, filed as
    Exhibit 4.1 to the Registrants Current Report on
    Form 8-K (filed with the Securities and Exchange Commission
    on May 20, 2003), is incorporated herein by reference.                                                                            
|        | 4.7 |  |  |  |  | First Supplemental Indenture, dated as of
    May 16, 2003, between the Registrant and U.S. Bank
    National Association, as trustee, related to the
    15% Subordinated Notes due 2008, including the form of
    Subordinated Note, filed as Exhibit 4.2 to the
    Registrants Current Report on Form 8-K (filed with
    the Securities and Exchange Commission on May 20, 2003), is
    incorporated herein by reference.
|        | 4.8 |  |  |  |  | Fourth Amendment to Amended and Restated Credit
    Agreement dated as of June 25, 2003, between Childtime and
    Bank One, NA.                                                                                                                                                                                                                                                                                                 
|        | 9   |  |  |  |  | Letter agreement dated July 6, 2000, among
    Childcare Associates, KD Partners II and Jacobson Partners,
    filed as Exhibit 9 to the Registrants Form 10-K
    for the year ended March 30, 2001, is incorporated herein
    by reference.                                                                                                                                                                                  

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##### Table of Contents



|        |       |  |  |   |  |                                                                                                                                                                                                                                                                                   
|------- | ----- |  |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |  
|Number  |       |  |  |  
|        |       |  |  |  
|        | 10.1  |  |  |  |  | Director Stock Option Plan, filed as
    Exhibit 10.1 to the Registrants Form S-1
    Registration Statement (Registration No. 33-99596), is
    incorporated herein by reference.                                                                                               
|        | 10.2  |  |  |  |  | 1995 Stock Incentive Plan for Key Employees,
    filed as Exhibit 10.2 to the Registrants
    Form S-1 Registration Statement (Registration
    No. 33-99596), is incorporated herein by reference.                                                                              
|        | 10.3  |  |  |  |  | First Amendment to 1995 Stock Incentive Plan
    for Key Employees, filed as Exhibit 10.3 to the
    Registrants Form 10-K for the year ended
    March 30, 2001, is incorporated herein by reference.                                                                           
|        | 10.4  |  |  |  |  | Letter agreement dated July 6, 2000, between
    Registrant and Jacobson Partners, regarding management and
    financial consulting services, filed as Exhibit 10.4 to the
    Registrants Form 10-K for the year ended
    March 30, 2001, is incorporated herein by reference.
|        | 10.5  |  |  |  |  | Consulting Agreement dated January 16, 2001,
    between the Registrant and James Morgan, filed as
    Exhibit 10.1 to the Registrants Form 10-Q for
    the quarter ended January 5, 2001, is incorporated herein
    by reference.                                             
|        | 10.6  |  |  |  |  | Letter agreement dated July 26, 2001,
    between Jacobson Partners, on behalf of the Registrant, and
    James J. Morgan, filed as Exhibit 10.1 to the
    Registrants Form 10-Q for the quarter ended
    October 12, 2001, is incorporated herein by reference.               
|        | 10.7  |  |  |  |  | Employment Agreement dated August 14, 2001,
    between the Registrant and Alfred R. Novas, filed as
    Exhibit 10.2 to the Registrants Form 10-Q for
    the quarter ended October 12, 2001, is incorporated herein
    by reference.                                          
|        | 10.8  |  |  |  |  | Option Agreement dated August 14, 2001,
    between the Registrant and Alfred R. Novas, filed as
    Exhibit 10.3 to the Registrants Form 10-Q for
    the quarter ended October 12, 2001, is incorporated herein
    by reference.                                              
|        | 10.9  |  |  |  |  | Option Agreement dated August 14, 2001,
    between the Registrant and Alfred R. Novas, filed as
    Exhibit 10.4 to the Registrants Form 10-Q for
    the quarter ended October 12, 2001, is incorporated herein
    by reference.                                              
|        | 10.10 |  |  |  |  | Option Agreement dated August 14, 2001,
    between the Registrant and Alfred R. Novas, filed as
    Exhibit 10.5 to the Registrants Form 10-Q for
    the quarter ended October 12, 2001, is incorporated herein
    by reference.                                              
|        | 10.11 |  |  |  |  | Option Agreement dated September 5, 2001,
    between the Registrant and Leonard C. Tylka, filed as
    Exhibit 10.15 to the Registrants Form 10-K for
    the year ended March 29, 2002, is incorporated herein by
    reference.                                               
|        | 10.12 |  |  |  |  | Consulting Agreement dated as of
    February 20, 2002, between the Registrant and
    Leonard C. Tylka, filed as Exhibit 10.16 to the
    Registrants Form 10-K for the year ended
    March 29, 2002, is incorporated herein by reference.                                     
|        | 10.13 |  |  |  |  | Employment Agreement dated March 13, 2002,
    between Childtime and Karen R. Danner, filed as
    Exhibit 10.17 to the Registrants Form 10-K for
    the year ended March 29, 2002, is incorporated herein by
    reference.                                                    
|        | 10.14 |  |  |  |  | Employment Severance Agreement dated
    March 27, 2002, between the Registrant and Alfred R.
    Novas, filed as Exhibit 10.17 to the Registrants
    Form 10-K for the year ended March 29, 2002, is
    incorporated herein by reference.                                     
|        | 10.15 |  |  |  |  | Fee Agreement dated June 27, 2002 between
    the Registrant and Jacobson Partners, filed as
    Exhibit 10.19 to the Registrants Form 10-K for
    the year ended March 29, 2002, is incorporated herein by
    reference.                                                      

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##### Table of Contents



|        |       |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | ----- |  |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |  
|Number  |       |  |  |  
|        |       |  |  |  
|        | 10.16 |  |  |  |  | Asset Purchase Agreement among TT Acquisition
    LLC, Tutor Time Learning Systems, Inc. and other sellers named
    therein, dated as of June 28, 2002, filed as
    Exhibit 2.1 to the Registrants Current Report on
    Form 8-K (filed with the Securities and Exchange Commission
    on August 6, 2002), is incorporated herein by reference.                                                
|        | 10.17 |  |  |  |  | Option grant letter agreement, dated
    July 19, 2002, among the Registrant, JP Acquisition
    Fund II, L.P. and JP Acquisition Fund III, L.P., filed
    as Exhibit 10.1 to the Registrants Current Report on
    Form 8-K (filed with the Securities and Exchange Commission
    on August 6, 2002), is incorporated herein by reference.                                                      
|        | 10.18 |  |  |  |  | Stock Option Agreement, dated as of
    August 15, 2002, between the Registrant and William D.
    Davis, filed as Exhibit 10.1 to the Registrants
    Quarterly Report on Form 10-Q for the quarter ended
    July 19, 2002, is incorporated herein by reference.                                                                                                                                 
|        | 10.19 |  |  |  |  | Employment Agreement, dated August 26, 2002,
    between the Registrant and Frank Jerneycic, filed as
    Exhibit 10.2 to the Registrants Quarterly Report on
    Form 10-Q for the quarter ended July 19, 2002, is
    incorporated herein by reference.                                                                                                                                          
|        | 10.20 |  |  |  |  | Option Agreement, dated as of October 16,
    2002, between the Registrant and Paula L. Gavin, filed as
    Exhibit 10.1 to the Registrants Quarterly Report on
    Form 10-Q for the quarter ended October 11, 2002, is
    incorporated herein by reference.                                                                                                                                     
|        | 10.21 |  |  |  |  | Option Agreement, dated as of October 16,
    2002, between the Registrant and Kenneth Johnsson, filed as
    Exhibit 10.2 to the Registrants Quarterly Report for
    the quarter ended October 11, 2002, is incorporated herein
    by reference.                                                                                                                                                
|        | 10.22 |  |  |  |  | Option Agreement, dated as of October 16,
    2002, between the Registrant and Brett D. Shevack, filed as
    Exhibit 10.3 to the Registrants Quarterly Report for
    the quarter ended October 11, 2002, is incorporated herein
    by reference.                                                                                                                                                
|        | 10.23 |  |  |  |  | Standby Securities Purchase Agreement, dated as
    of February 20, 2003, among the Registrant, Childtime
    Childcare, Inc., JP Acquisition Fund II, L.P.,
    JP Acquisition Fund III, L.P., and the other
    purchasers named therein, filed as Exhibit 1.1 to the
    Registrants Form S-1 Registration Statement
    (Registration No. 333-103397), is incorporated herein by
    reference.
|        | 10.24 |  |  |  |  | Separation Agreement and Release, dated
    April 14, 2003, between the Registrant and Karen R.
    Danner.                                                                                                                                                                                                                                                                                         
|        | 21    |  |  |  |  | List of Subsidiaries, filed as Exhibit 21.1
    to the Registrants Form S-1 Registration Statement
    (Registration No. 333-103397), is incorporated herein by
    reference.                                                                                                                                                                                                                     
|        | 23    |  |  |  |  | Consent of PricewaterhouseCoopers LLP, dated
    June 25, 2003.                                                                                                                                                                                                                                                                                                                                     
|        | 99.1  |  |  |  |  | Certification of Chief Executive Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act.                                                                                                                                                                                                                                                                                                     
|        | 99.2  |  |  |  |  | Certification of Chief Financial Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act.                                                                                                                                                                                                                                                                                                     

E-3