##### Table of Contents






SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K



|                   |                                                                                                                                                                                                          
|------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(X IN BALLOT BOX)  | Annual Report pursuant to Section 13 or 15(d) of the
	Securities Exchange Act of 1934 for the fiscal year ended
	March  30, 2001                                                                         
|                  
|(EMPTY BALLOT BOX) | 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.)

38345 West 10 Mile Road, Suite 100, Farmington Hills,
Michigan  48335

| |                                          |           
| | ---------------------------------------- | ----------
| | (Address of principal executive offices) | (Zip Code)

Registrants telephone number, including area code:
(248) 476-3200

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 IN BALLOT BOX)  No
(EMPTY BALLOT BOX)

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.  
(EMPTY BALLOT BOX)

The aggregate market value of
voting Common Stock held by non-affiliates of the registrant as
of June 1, 2001, computed by reference to the last sale
price for such stock on that date as reported on the NASDAQ
National Market System, was approximately $12,029,000.

At June 1, 2001, the number
of shares outstanding of the registrants Common Stock,
without par value, was 5,225,772.

Portions of the registrants
Proxy Statement for its 2001 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 I                                                                      
|PART II                                                                     
|PART III                                                                    
|PART IV                                                                     
|SIGNATURES                                                                  
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE 
|Report of Independent Accountants                                           
|CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
|CONSOLIDATED STATEMENT OF OPERATIONS                                        
|CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY                   
|CONSOLIDATED STATEMENT OF CASH FLOWS                                        
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                  
|SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS                            
|INDEX TO EXHIBITS                                                           
|Form 10-K                                                                   
|Letter Agreement to Amend the Total Liabilities to                          
|Letter Agreement dated July 6, 2000                                         
|First Amendment to 1995 Stock Incentive Plan                                
|Letter Agreement dated July 6, 2000                                         
|Employment Separation Agreement and Mutual Release                          
|Employment Separation Agreement and Mutual Release                          
|List of Subsidiaries                                                        
|Consent of PricewaterhouseCoopers LLP                                       



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PART I


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, projected total
restructuring charges, 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. conducts business through its
wholly owned subsidiary Childtime Childcare, Inc. and its wholly
owned subsidiaries, Childtime Childcare  Michigan,
Inc., and Childtime Childcare  PMC, Inc. (together
referred to as the Company). All significant
intercompany transactions have been eliminated.

The Company provides for-profit child care through
304 child care centers as of March 30, 2001, located
in 23 states and the District of Columbia. Center-based
child care and preschool educational services are provided five
days a week throughout the year to children between the ages of
six weeks and twelve years. At March 30, 2001, the Company
had over 30,000 children enrolled (full and part-time)
nationwide. Substantially all of the Companys child care
centers are operated under the Childtime Childrens
Centers name. The Companys centers are primarily
located on free-standing sites in suburban residential areas
with substantial preschool populations. Included among the
Companys 304 child care centers at March 30, 2001,
were 46 at-work sites providing child care for
working parents at various business enterprises, office
complexes, shopping centers and hospitals.

The Companys strategy is to offer an independently
developed, nationally recognized educational curriculum within a
stimulating environment in order to provide high quality child
care and to maximize development and preparation of children for
school. The Company places a great deal of emphasis on the
recruitment, selection and ongoing training of its child care
center directors. Within a framework of centralized financial
and quality controls, the Company grants significant authority
over center operations to its center directors and rewards its
center directors on an incentive basis tied to individual center
performance.

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 30,
2001, March 31, 2000 and April 2, 1999 all contained
52 weeks. The first quarter for fiscal 2001, 2000 and 1999
contained 16 weeks whereas the remaining quarters contain
12 weeks.

Business Strategy

The Companys business strategy is to (i) provide a
greater focus on enhancing profitability of existing centers
through various programs; (ii) continue to invest in its
centers to maintain and improve quality; (iii) emphasize
its sales and marketing programs aimed at increasing new
enrollments and promoting customer loyalty; (iv) offer
programs to better utilize its centers on a year-round basis;
(v) provide finance and training managers as additional
support staff to center directors, in an effort to improve
center performance; and (vi) continue to improve the
quality of its staff through recruitment, training and incentive
programs.

Set forth below are certain key elements of the Companys
business strategy:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Standardized Operations.The Company has a consistent
	overall approach in providing child care services in its
	centers. With the exception of certain employer-sponsored sites
	and approximately 20 centers located within Texas and
	Arizona, the centers operate under the Childtime
	Childrens Centers name in suburban communities or
	at-work locations which have similar demographic
	characteristics. Each center utilizes an independently
	developed, nationally recognized educational curriculum. All

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | center facilities are well maintained, similarly equipped and
	utilize the closed classroom concept. The Company utilizes
	prototype building designs for use in its build-to-suit centers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | Center Entrepreneurship.Within a framework of
	centralized financial and quality controls, each center director
	is empowered to customize the centers programs, dietary
	menus and other features to adapt to local market requirements.
	Each director is also involved in the budgeting and financial
	planning process with regard to his or her center. The Company
	believes that its center directors are given more autonomy than
	are directors of other child care centers enabling them to
	better market their center while meeting the child care
	objectives of local customers. The Company trains its center
	directors to fulfill these additional responsibilities through a
	series of internally and externally prepared training programs
	designed to enhance interpersonal and business skills, basic
	financial concepts and marketing. Center directors are
	compensated, in part, through an incentive program based on the
	performance of the center under their supervision.
|
| | Growth Strategy.In prior years the Company has
	historically added approximately 30 to 40 centers per year.
	During fiscal 2001, however, that number was significantly
	reduced. As a result of its new strategy, the Company is
	committed to improving the operations of its existing centers
	before it plans on acquiring additional centers. See
	Growth Strategy below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

Growth Strategy

The Company has expanded its business in prior years through a
number of acquisitions and build-to-suit centers. The following
table sets forth the number of child care centers acquired or
otherwise opened, as well as closed, during the periods
indicated.

|                    |                          |                           |     |           |    |          |     |     |    |  |     |    |    | 
|------------------- | ------------------------ | ------------------------- | --- | --------- | -- | -------- | --- | --- | -- |  | --- | -- | -- | 
|                    |                          |                          
|                    |                          | Fiscal Year Ended        
|                    |                          |                          
|                    |                          | March 30,                 |     | March 31, |    | April 2,
|                    |                          | 2001                      |     | 2000      |    | 1999    
|                    |                          |                           |     |           |    |         
|Number of centers:  |                          |                           |     |           |    |          |     |     |    |  |     |   
|                   
|                   
|                   
|                   
|Beginning of period |                          |                           | 293 |           |    |          | 270 |     |    |  | 242 |   
|                   
|                   
|                   
|                   
|                    | Additions during period: |                           |     |           |    |          |     |     |    |  |     |    |   
|                   
|                   
|                   
|                   
|                    |                          | Acquisitions and other    |     |           | 10 |          |     |     | 34 |  |     |    | 23 | 
|                   
|                   
|                   
|                   
|                    |                          | New builds and new leases |     |           | 8  |          |     |     | 4  |  |     |    | 7  | 
|                    |                          |                           |     |           |    |          |     |     |    |  |     |   
|                    | Total additions          |                           |     | 18        |    |          |     | 38  |    |  |     | 30 |   
|                   
|                   
|                   
|                   
|                    | Closings during period   |                           |     | (7        | )  |          |     | (15 | )  |  |     | (2 | ) 
|                    |                          |                           |     |           |    |          |     |     |    |  |     |   
|End of period       |                          |                           | 304 |           |    |          | 293 |     |    |  | 270 |   
|                    |                          |                           |     |           |    |          |     |     |    |  |     |   

In making its previous expansion decisions, the Company strove
to add units in its existing markets in order to increase market
concentration and to leverage administrative and advertising
expenses. Entry into new markets was also considered, but only
if these markets could eventually support a minimum of
10 centers. As the result of a change in strategy, the
Company is now focused on improving the performance of existing
centers before it continues to add units. Accordingly, during
fiscal 2001, the Company significantly reduced the amount of
acquisitions as compared to previous fiscal years. For fiscal
2002 the outlook is similar. When the Company decides to add a
new center by acquisition or by opening a new location, the
decision is based on which alternative best meets its business
strategy. Furthermore, the Company continuously reviews its
existing center portfolio in an effort to ensure the centers
meet its minimum standards. Centers become candidates for
closure when they fail to meet certain demographic or financial
criteria. As a result, the Company decided to close
7 centers during fiscal 2001 and has announced the closing
of an additional 19 centers in the first part of fiscal
2002. The Company also closed all 10 of its Oxford Learning
Centers of America during fiscal 2001.

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

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In addition to acquiring or building centers in residential
areas, in the past the Company has obtained contracts 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 have begun to 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 acquisition and new build 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
believes, at the appropriate time, that it can continue to
acquire centers on terms that compare favorably with the costs
and risks of establishing new facilities. In an effort to
standardize its new facilities, the Company has developed two
building prototypes which accommodate 130 to 180 children. There
are no assurances, however, that it will be able to continue to
acquire and develop new sites in an economic manner.

Educational Programs

The Companys educational programs stress the process of
learning and discovery. Staff are 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 nationally recognized educational curriculum
developed by independent educators and the centers ongoing
dialogue with parents in providing a learning environment for
their children which meets or exceeds their expectations as
customers.

In each center, the Company utilizes The Creative
Curriculum(R) For Early Childhood, a nationally recognized
educational curriculum 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 Company
believes that using a curriculum prepared by independent
educators, knowledgeable in the education of young children,
enables them to take advantage of professional expertise that is
otherwise not available to themselves or other child care center
operators. In addition, an externally developed curriculum
typically emphasizes educational objectives over cost and other
financial objectives. The Company trains its center directors
and other caregivers to utilize The Creative
Curriculum(R).

Children enrolled at a center are placed into groups, according
to their emotional, physical, intellectual and social maturity,
rather than merely the childs age. Each group has specific
learning goals which enable the staff to develop planning
activities and daily programs and to assess each childs
growth and development. Although all centers utilize the same
educational curriculum, the staff at each center is responsible
for developing daily lesson plans and activities appropriate for
each of its developmental groups and for its locale. At
designated times during the year, an informal developmental
assessment is prepared for each child and reviewed with the
childs parents.

The Companys classrooms 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

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| |                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. 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 to 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 homebase 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.

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.

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 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.

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 to accredit many of
its centers by the National Association for the Education of
Young Children (NAEYC) or the National Child Care
Association (NCCA). The NAEYC and NCCA are national
organizations which have established comprehensive criteria for
providing quality child care. NAEYC and NCCA have developed and
implemented a child care center accreditation process through
which child care providers can receive formal, national
recognition of their child care program. The Company believes
that the review process leading toward accreditation assists the
Company in its efforts to continually improve its programs and
facilities. The Company shares NAEYC and NCCAs commitment
to provide quality child care and accordingly, continues an
aggressive accreditation program.

Products and Services

General.Subsequent to the end of the current fiscal
year, the Company reorganized its operations into two divisions
(East and West), with each division headed by a Vice President
of Operations. Each Vice President oversees two regions, with
each region comprised of a regional operations manager, regional
finance manager and regional trainer. Regional offices have been
established in Baltimore, Maryland; Cleveland, Ohio; Dallas,
Texas and Escondido, California. Reporting to the regional
operations manager are 5 to 6 area managers, with each area
manager responsible for 10 to 16 centers depending upon
geographic dispersion of the centers. Each region comprises
approximately 75 centers. Each individual center has a
dedicated center director and a staff 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 $74 to $265, depending on the location of
the center and the age of the child. Tuition is generally paid,
in advance, on a weekly basis. In addition, parents currently
pay an annual registration fee ranging from $25 to $80. The
Company generally

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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 Director of Real Estate,
Vice President-Marketing, Corporate Controller or Director of
Legal Affairs, 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 officers, 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. The Companys area managers have all served as
center directors with the Company or within other segments of
the child care industry. 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, 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
are required to participate in orientation and training
sessions. Subsequent to year end, the Company has reorganized
its operations into four regional areas, each of which has an
on-site regional training manager to assist in the development
and implementation of its training programs. These training
programs were designed to prepare and enhance the skills of its
caregivers to meet the Companys internal standards and
applicable state licensing requirements.

Safety. The Company is committed to the health and safety
of the children in its care. To prevent unauthorized persons
from entering the center, a majority of the buildings use a
double door entrance with a security code 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.

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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 paid
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 position 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.
During the budgeting process, budgets are initially developed at
the center level, with center directors taking an active role in
developing and submitting the budget for their respective
centers through their area manager and on to the Companys
corporate management for approval. Subsequent to year end, the
Company has reorganized its operations into four regional areas,
each of which includes an on-site regional finance manager. The
regional finance manager will be 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 owned or leased by the Company. The
Company utilizes prototype buildings designed specifically for
each state emphasizing efficiency, lower maintenance costs and
enhanced appearance. Depending on the state, these prototype
designs contain between 7,900 to 9,000 square feet in a one
story, air-conditioned building. 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 typically laid out to accommodate the
grouping of children by age or development. 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 whole
playground 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 of the centers are equipped with personal
computers and software designed for preschool and school age
children. Virtually all of the centers are also equipped with
Company-owned or leased vehicles for the transportation of
children to and from elementary schools and for field trips.

Licensed capacity generally ranges from 135 to 170 children for
the same size building. The capacity variance differs from state
to state because of various licensing requirements. The
aggregate licensed capacity of the Companys centers
(including those under management contracts) at March 30,
2001 was 39,878 children (or an average of 131 children per
center).

At-Work Sites.In addition to operating residential child
care centers, the Company also managed, at March 30, 2001,
46 child care centers in at-work locations, making it one of the
largest providers of at-work child care services. Many of these
centers, including those for Schering Plough (a division of the
Schering Corporation), Blue Cross Blue Shield of Mississippi and
Henry Ford Health Systems, 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. Other at-work centers are located in office complexes or
shopping centers. Historically, public agencies and hospitals
have been the principal employers providing or otherwise
arranging for child care services for their employees.

8



---



##### Table of Contents





Marketing

The Company believes that the quality of a centers
director, staff, center location, and consistent advertising and
marketing are the key components to a successful center. The
Company relies heavily on recommendations from current customers
as a source of new enrollments. To encourage recommendations,
the Company offers a referral bonus to parents and employees of
the Company who successfully recommend the Company to others. In
addition, the Company advertises through a variety of database
direct marketing programs which target parents within a
specified radius of each center. The advertising budget is
largely spent in the summer months in anticipation of the
back-to-school enrollment in new centers. The Company also
advertises through direct mail distribution of promotional
material in residential areas surrounding a center and through
listings in the Yellow Pages and maintains an internet web site.
The Company will continue to promote its safe, secure facilities
along with its respected curriculum and qualified staff through
direct marketing campaigns timed around peak enrollment periods
or to support specified programs.

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 quarterly revenues and gross profit results
for the first quarter are favorably impacted by the additional
four weeks included in such period. Periodically, due to the
Companys closing the fiscal year on the Friday closest to
March 31, the Company will have a five-week period in the
thirteenth period of its fiscal year.

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. To offset this
decline, the Company has successfully implemented and marketed a
summer camp program with a new theme and focus each year. As a
result of such programming and the timing of the quarters,
average weekly revenues by quarter during fiscal 2001 and 2000
were very consistent and not as adversely impacted by the normal
summer enrollment decline. In addition, new enrollments are
generally highest in September and January; accordingly, August
and December are traditionally the best months to open new
centers. However, with the exception of spring, the Company has
demonstrated an ability to successfully open centers throughout
the year because of enhanced pre-opening marketing efforts.
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. The
largest providers of for-profit child care and preschool
education are KinderCare Learning Centers, Inc. and La Petite
Academy, Inc. 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 rental costs, if any,
than the Company and may receive donations or other funding to
cover operating expenses. Consequently, operators of such
centers often charge tuition rates that are less than the
Companys rates. In addition, fees for home-based care are
normally lower than fees for center-based care because providers
of home care are not always required

9



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Personnel

As of March 30, 2001, the Company employed more than 5,500
persons (including part-time and substitute caregivers), of whom
49 are employed at corporate headquarters, 25 area managers
located in various regions and the remainder are employed at the
Companys child care centers or as local field support
personnel. Subsequent to the end of the fiscal year, the Company
established 4 regional offices which are staffed with an
additional 12 full-time employees and reduced the number of area
managers to 22. 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 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 good.

The Company is also subject to the Fair Labor Standards Act,
which governs minimum wages, overtime compensation and working
conditions. A portion of the Companys personnel (estimated
to be less than 1% as a percentage of total payroll expense) are
paid at the federal minimum wage.

Regulation

Child care centers are subject to numerous state and local
regulations and detailed 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
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 30, 2001, approximately 21%
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 which 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. The amount of the qualifying child care
expenses is limited to $2,400 for one child and $4,800 for two
or more children and, therefore, the maximum credit ranges from
$480 to $720 for one child and from $960 to $1,440 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

10



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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. The workers compensation
policy requires contributions to a self-insured deduction fund.
For fiscal 2000 and 2001, the Companys policies for
workers compensation had a deductible of $250,000 per
occurrence. The commercial general liability policy includes
coverage for child physical and sexual abuse claims, with an
annual limit of $1,000,000 per location (including all general
liability claims except product liability claims), $1,000,000
per occurrence and $3,000,000 in the aggregate. The Company also
has excess umbrella coverage, relating to general
liabilities including child physical and sexual 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.

Item 2.  Properties

The following table shows the locations of the Companys
centers, including those operated under management contracts, as
of March 30, 2001 (the numbers in the parentheses reflect
the number of centers in that state):

|                 |  |                    
|---------------- |  | -------------------
|Arizona (26)     |  | New Mexico (1)     
|California (32)  |  | New York (29)      
|Florida (15)     |  | North Carolina (12)
|Georgia (16)     |  | Ohio (23)          
|Illinois (6)     |  | Oklahoma (10)      
|Iowa (3)         |  | Pennsylvania (1)   
|Maryland/DC (14) |  | South Carolina (1) 
|Michigan (19)    |  | Texas (52)         
|Mississippi (1)  |  | Virginia (14)      
|Missouri (4)     |  | Washington (9)     
|Nevada (7)       |  | Wisconsin (1)      
|New Jersey (8)   |  |                    

As of March 30, 2001, the Company operated 304 centers, 242
of which were operated under lease or operating agreements, 54
of which were owned and 8 of which were operated under
management contracts. The 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.

11



---



##### Table of Contents



As of March 30, 2001, the Company had leases or operating
agreements with initial terms (including renewal options)
expiring as follows:

|               |  |            |    | 
|-------------- |  | ---------- | -- | 
|               |  | Number of 
|               |  | Leases or 
|               |  | Operating 
|               |  | Agreements
|Fiscal Year    |  | Expiring  
|               |  |           
|2002-2003      |  |            | 41 | 
|              
|              
|              
|              
|2004-2005      |  |            | 27 | 
|              
|              
|              
|              
|2006-2009      |  |            | 77 | 
|              
|              
|              
|              
|2010 and later |  |            | 97 | 

The Company also owns one undeveloped site acquired prior to
1990. This property does not currently fit within the
Companys long-term growth strategy. Accordingly, this site
is carried on the Companys books at fair value less cost
to sell in the amount of $65,600 and is held for sale.

The Company currently leases approximately 12,800 square feet
for its corporate offices in Farmington Hills, Michigan.

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

None.

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.

12



---



##### Table of Contents








PART II


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

The Companys Common Stock is regularly quoted on the
NASDAQ National Market System under the symbol CTIM. The
following table sets forth, for the fiscal years ended
March 30, 2001, and March 31, 2000, the high and low
closing sale prices for the Companys Common Stock.

|             |             |              |   |       |  |  |   |       | 
|------------ | ----------- | ------------ | - | ----- |  |  | - | ----- | 
|             |             |             
|             |             | Common Stock
|             |             | Sales Prices
|             |             |             
|             |             | High         |   | Low  
|             |             |              |   |      
|Fiscal 2001: |             |              |   |       |  |  |   |      
|            
|            
|            
|            
|             | 1st Quarter |              | $ | 8.13  |  |  | $ | 6.38  | 
|            
|            
|            
|            
|             | 2nd Quarter |              | $ | 8.63  |  |  | $ | 7.50  | 
|            
|            
|            
|            
|             | 3rd Quarter |              | $ | 7.61  |  |  | $ | 5.56  | 
|            
|            
|            
|            
|             | 4th Quarter |              | $ | 9.22  |  |  | $ | 6.25  | 
|            
|            
|            
|            
|Fiscal 2000: |             |              |   |       |  |  |   |      
|            
|            
|            
|            
|             | 1st Quarter |              | $ | 15.50 |  |  | $ | 11.25 | 
|            
|            
|            
|            
|             | 2nd Quarter |              | $ | 15.00 |  |  | $ | 10.63 | 
|            
|            
|            
|            
|             | 3rd Quarter |              | $ | 13.50 |  |  | $ | 12.00 | 
|            
|            
|            
|            
|             | 4th Quarter |              | $ | 12.50 |  |  | $ | 7.13  | 

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 1, 2001, there were approximately 550 holders of
the Companys Common Stock (including individual
participants in security position listings).

13



---



##### 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 30, 2001 appearing elsewhere in this
Report.

Childtime Learning Centers, Inc. and Consolidated
Subsidiaries

|                                                                          |                                                                                            |                                                   |              |            |      |            |         |            |       |            |         |       |       |        |        |       |       |        |        |       |       |        | 
|------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------- | ------------ | ---------- | ---- | ---------- | ------- | ---------- | ----- | ---------- | ------- | ----- | ----- | ------ | ------ | ----- | ----- | ------ | ------ | ----- | ----- | ------ | 
|                                                                          |                                                                                            | March 30,                                         |              | March 31,  |      | April 2,   |         | April 3,   |       | March 28, 
|                                                                          |                                                                                            | 2001                                              |              | 2000       |      | 1999       |         | 1998       |       | 1997      
|                                                                          |                                                                                            | (52 weeks)                                        |              | (52 weeks) |      | (52 weeks) |         | (53 weeks) |       | (52 weeks)
|                                                                          |                                                                                            |                                                   |              |            |      |            |         |            |       |           
|                                                                          |                                                                                            |                                                  
|                                                                          |                                                                                            | (Dollars in thousands, except for per share data)
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Selected Income Statement Data:                                           |                                                                                            |                                                   |              |            |      |            |         |            |       |            |         |       |       |        |        |       |       |        |        |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Revenues                                                                  |                                                                                            | $                                                 | 147,437      |            |      | $          | 128,736 |            |       | $          | 112,963 |       |       | $      | 97,828 |       |       | $      | 78,634 |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cost of revenues                                                          |                                                                                            |                                                   | 131,269      |            |      |            | 112,172 |            |       |            | 96,541  |       |       |        | 83,432 |       |       |        | 66,112 |      
|                                                                          |                                                                                            |                                                   |              |            |      |            |         |            |       |            |         |       |       |        |        |       |       |        |        |      
|                                                                          |                                                                                            |                                                   | Gross profit |            |      | 16,168     |         |            |       | 16,564     |         |       |       | 16,422 |        |       |       | 14,396 |        |       |       | 12,522 | 
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Marketing expenses                                                        |                                                                                            |                                                   | 1,666        |            |      |            | 1,601   |            |       |            | 1,454   |       |       |        | 1,265  |       |       |        | 1,161  |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|General and administrative expenses                                       |                                                                                            |                                                   | 8,825        |            |      |            | 7,598   |            |       |            | 6,854   |       |       |        | 6,193  |       |       |        | 5,393  |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Restructuring expense                                                     |                                                                                            |                                                   | 4,000        |            |      |            | 0       |            |       |            | 0       |       |       |        | 0      |       |       |        | 0      |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Impairment charges                                                        |                                                                                            |                                                   | 1,447        |            |      |            | 282     |            |       |            | 0       |       |       |        | 0      |       |       |        | 0      |      
|                                                                          |                                                                                            |                                                   |              |            |      |            |         |            |       |            |         |       |       |        |        |       |       |        |        |      
|                                                                          |                                                                                            | Operating income                                  |              |            | 230  |            |         |            | 7,083 |            |         |       | 8,114 |        |        |       | 6,938 |        |        |       | 5,968 |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Interest expense                                                          |                                                                                            |                                                   | 966          |            |      |            | 428     |            |       |            | 312     |       |       |        | 287    |       |       |        | 160    |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Interest (income)                                                         |                                                                                            |                                                   | (57          | )          |      |            | (157    | )          |       |            | (240    | )     |       |        | (226   | )     |       |        | (189   | )    
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Other (income), net                                                       |                                                                                            |                                                   | (185         | )          |      |            | (117    | )          |       |            | (119    | )     |       |        | (34    | )     |       |        | (399   | )    
|                                                                          |                                                                                            |                                                   |              |            |      |            |         |            |       |            |         |       |       |        |        |       |       |        |        |      
|                                                                          | Income (loss) before income taxes and
	cumulative effect of change in accounting principle |                                                   |              | (494       | )    |            |         | 6,929      |       |            |         | 8,161 |       |        |        | 6,911 |       |        |        | 6,396 |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Income tax provision (benefit)                                            |                                                                                            |                                                   | (160         | )          |      |            | 2,600   |            |       |            | 3,065   |       |       |        | 2,565  |       |       |        | 1,881  |      
|                                                                          |                                                                                            |                                                   |              |            |      |            |         |            |       |            |         |       |       |        |        |       |       |        |        |      
|Income (loss) before cumulative effect of
	change in accounting principle |                                                                                            |                                                   | (334         | )          |      |            | 4,329   |            |       |            | 5,096   |       |       |        | 4,346  |       |       |        | 4,515  |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cumulative effect of change in accounting
	principle (net of tax)         |                                                                                            |                                                   | 275          |            |      |            | 0       |            |       |            | 0       |       |       |        | 0      |       |       |        | 0      |      
|                                                                          |                                                                                            |                                                   |              |            |      |            |         |            |       |            |         |       |       |        |        |       |       |        |        |      
|                                                                          |                                                                                            | Net income (loss)                                 |              | $          | (609 | )          |         | $          | 4,329 |            |         | $     | 5,096 |        |        | $     | 4,346 |        |        | $     | 4,515 |       
|                                                                          |                                                                                            |                                                   |              |            |      |            |         |            |       |            |         |       |       |        |        |       |       |        |        |      
|Earnings (loss) per share  Basic                                         |                                                                                            | $                                                 | (0.12        | )          |      | $          | 0.82    |            |       | $          | 0.94    |       |       | $      | 0.80   |       |       | $      | 0.83   |      
|                                                                          |                                                                                            |                                                   |              |            |      |            |         |            |       |            |         |       |       |        |        |       |       |        |        |      
|Earnings (loss) per share  Diluted                                       |                                                                                            | $                                                 | (0.12        | )          |      | $          | 0.82    |            |       | $          | 0.93    |       |       | $      | 0.80   |       |       | $      | 0.83   |      
|                                                                          |                                                                                            |                                                   |              |            |      |            |         |            |       |            |         |       |       |        |        |       |       |        |        |      
|                                                                         
|Selected Balance Sheet Data:                                              |                                                                                            |                                                   |              |            |      |            |         |            |       |            |         |       |       |        |        |       |       |        |        |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Total assets                                                              |                                                                                            | $                                                 | 74,111       |            |      | $          | 71,174  |            |       | $          | 62,611  |       |       | $      | 58,118 |       |       | $      | 50,286 |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Total debt                                                                |                                                                                            | $                                                 | 5,545        |            |      | $          | 7,985   |            |       | $          | 2,638   |       |       | $      | 3,062  |       |       | $      | 2,272  |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Total shareholders equity                                                |                                                                                            | $                                                 | 47,236       |            |      | $          | 44,939  |            |       | $          | 46,407  |       |       | $      | 41,287 |       |       | $      | 36,089 |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Selected Operating Data:                                                  |                                                                                            |                                                   |              |            |      |            |         |            |       |            |         |       |       |        |        |       |       |        |        |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Number of centers (at end of period)                                      |                                                                                            |                                                   | 304          |            |      |            | 293     |            |       |            | 270     |       |       |        | 242    |       |       |        | 211    |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Center capacity (at end of period)(1)                                     |                                                                                            |                                                   | 38,877       |            |      |            | 36,770  |            |       |            | 32,832  |       |       |        | 28,911 |       |       |        | 24,280 |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Average utilization(1)                                                    |                                                                                            |                                                   | 64.7         | %          |      |            | 65.9    | %(2)       |       |            | 62.0    | %     |       |        | 62.5   | %     |       |        | 63.4   | %    




|    |                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Average utilization is calculated by dividing total child days
	for a period by the total capacity of the Companys centers
	(excluding the capacity of those centers managed by the Company
	pursuant to management contracts) at the end of such period.
	Child days are calculated based upon the Companys standard
	hours by program (e.g., full-time, before and after, etc.).
|   
|(2) | The utilization percentage for the year ending March 31,
	2000 has been restated to reflect an adjustment for school age
	children.                                                                                                                                                                                                                                                 

14



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##### Table of Contents



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

General

During the past five fiscal years, the Company has increased the
number of centers from 174, at the beginning of fiscal year
1997, to 304 at fiscal year end 2001. The Company has achieved
this growth through a combination of acquisitions, prototype
build-to-suit centers, and new leases. Fiscal year 2001 growth
consisted of only 18 centers, due to the Companys new
strategy to focus on improving existing operations. The
additions included 10 acquisitions and 8 build-to-suit leased
centers. During the fiscal year, the Company also closed 7
centers that no longer met the demographic and growth criteria
as contained in its overall growth strategy. Additionally, the
Company closed all 10 of its Oxford Learning Centers of America
and has identified 19 under-performing Childtime centers that it
will be closing in the first part of fiscal 2002.

Results of Operations

The following table sets forth, for the periods indicated,
certain items from Selected Consolidated Financial
Data expressed as a percentage of revenues and the
percentage change in the dollar amounts of such items compared
to the prior period:

|                                                                                           |                  |                       |       |                     |      |            |       |            |     |            |       |      |     |   |        |       |        |   |       |       |       |  
|------------------------------------------------------------------------------------------ | ---------------- | --------------------- | ----- | ------------------- | ---- | ---------- | ----- | ---------- | --- | ---------- | ----- | ---- | --- | - | ------ | ----- | ------ | - | ----- | ----- | ----- | -
|                                                                                           |                  |                       |       |                    
|                                                                                           |                  | Percentage of Revenue |       | Percentage Increase
|                                                                                           |                  | Fiscal Year Ended     |       | (Decrease)         
|                                                                                           |                  |                       |       |                    
|                                                                                           |                  | March 30,             |       | March 31,           |      | April 2,   |       | FY01 over  |     | FY00 over 
|                                                                                           |                  | 2001                  |       | 2000                |      | 1999       |       | FY00       |     | FY99      
|                                                                                           |                  | (52 weeks)            |       | (52 weeks)          |      | (52 weeks) |       | (52 weeks) |     | (52 weeks)
|                                                                                           |                  |                       |       |                     |      |            |       |            |     |           
|Revenues                                                                                   |                  |                       | 100.0 | %                   |      |            | 100.0 | %          |     |            | 100.0 | %    |     |   | 14.5   | %     |        |   | 14.0  | %    
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Cost of revenues                                                                           |                  |                       | 89.0  | %                   |      |            | 87.1  | %          |     |            | 85.5  | %    |     |   | 17.0   | %     |        |   | 16.2  | %    
|                                                                                           |                  |                       |       |                     |      |            |       |            |     |            |       |      |     |   |        |       |        |   |       |      
|                                                                                           | Gross profit     |                       |       | 11.0                | %    |            |       | 12.9       | %   |            |       | 14.5 | %   |   |        | -2.4  | %      |   |       | 0.9   | %    
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Marketing expenses                                                                         |                  |                       | 1.1   | %                   |      |            | 1.3   | %          |     |            | 1.3   | %    |     |   | 4.1    | %     |        |   | 10.1  | %    
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|General and administrative expenses                                                        |                  |                       | 6.0   | %                   |      |            | 5.9   | %          |     |            | 6.0   | %    |     |   | 16.1   | %     |        |   | 10.9  | %    
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Restructuring expense                                                                      |                  |                       | 2.7   | %                   |      |            | 0.0   | %          |     |            | 0.0   | %    |     |   | N/A    |       |        |   | 0.0   | %    
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Impairment charges                                                                         |                  |                       | 1.0   | %                   |      |            | 0.2   | %          |     |            | 0.0   | %    |     |   | 413.1  | %     |        |   | N/A   |      
|                                                                                           |                  |                       |       |                     |      |            |       |            |     |            |       |      |     |   |        |       |        |   |       |      
|                                                                                           | Operating income |                       |       | 0.2                 | %    |            |       | 5.5        | %   |            |       | 7.2  | %   |   |        | -96.8 | %      |   |       | -12.7 | %    
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Interest expense                                                                           |                  |                       | 0.6   | %                   |      |            | 0.3   | %          |     |            | 0.3   | %    |     |   | 125.7  | %     |        |   | 37.2  | %    
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Interest (income)                                                                          |                  |                       | 0.0   | %                   |      |            | -0.1  | %          |     |            | -0.2  | %    |     |   | -63.1  | %     |        |   | -34.6 | %    
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Other (income), net                                                                        |                  |                       | -0.1  | %                   |      |            | -0.1  | %          |     |            | -0.1  | %    |     |   | 57.3   | %     |        |   | -1.7  | %    
|                                                                                           |                  |                       |       |                     |      |            |       |            |     |            |       |      |     |   |        |       |        |   |       |      
|Income (loss) before income taxes and
	cumulative effect of change in accounting principle |                  |                       | -0.3  | %                   |      |            | 5.4   | %          |     |            | 7.2   | %    |     |   | -107.1 | %     |        |   | -15.1 | %    
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Income tax provision (benefit)                                                             |                  |                       | -0.1  | %                   |      |            | 2.0   | %          |     |            | 2.7   | %    |     |   | -106.2 | %     |        |   | -15.2 | %    
|                                                                                           |                  |                       |       |                     |      |            |       |            |     |            |       |      |     |   |        |       |        |   |       |      
|Income (loss) before cumulative effect of
	change in accounting principle                  |                  |                       | -0.2  | %                   |      |            | 3.4   | %          |     |            | 4.5   | %    |     |   | -107.7 | %     |        |   | -15.1 | %    
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Cumulative effect of change in accounting
	principle (net of tax)                          |                  |                       | 0.2   | %                   |      |            | 0.0   | %          |     |            | 0.0   | %    |     |   | N/A    |       |        |   | 0.0   | %    
|                                                                                           |                  |                       |       |                     |      |            |       |            |     |            |       |      |     |   |        |       |        |   |       |      
|                                                                                           |                  | Net income (loss)     |       |                     | -0.4 | %          |       |            | 3.4 | %          |       |      | 4.5 | % |        |       | -114.1 | % |       |       | -15.1 | %
|                                                                                           |                  |                       |       |                     |      |            |       |            |     |            |       |      |     |   |        |       |        |   |       |      

Fiscal 2001 Compared to Fiscal 2000.Revenues
increased to $147.4 million in fiscal 2001 (52 weeks),
from $128.7 million in fiscal 2000 (52 weeks), an
increase of $18.7 million or 14.5%. The increase was
primarily attributable to a full year impact of centers opened
in fiscal 2000 ($11.9 million) and centers added during
fiscal 2001 ($6.4 million). Centers opened prior to fiscal
2000 provided an additional increase ($2.4 million),
partially offset by a decrease in centers closed during fiscal
2001 ($2.3 million). The growth in comparable center
revenues resulted from increases in tuition rates, slightly
offset by decreased utilization.

15



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##### Table of Contents



Gross profit decreased to $16.2 million in fiscal 2001 from
$16.6 million in fiscal 2000, a decrease of 2.4%. As a
percentage of revenues, gross profit decreased to 11.0% in
fiscal 2001 from 12.9% in fiscal 2000. The decrease in margin
was due to several factors including certain regional markets
falling below enrollment expectations, operating losses of
$0.8 million from the recently closed Oxford Learning
Centers of America, higher occupancy costs, 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 increased to $1.7 million in fiscal 2001
from $1.6 million in fiscal 2000, a 4.1% increase. The increase
was primarily due to the additional marketing expenses relating
to the opening or acquisition of 18 new centers in fiscal 2001
as well as a full year of expense for the 38 new centers opened
or acquired in fiscal 2000. As a percentage of revenues,
however, marketing expenses decreased to 1.1% in fiscal 2001
from 1.3% in 2000, due primarily to operating leverage provided
by higher revenues.

General and administrative expenses increased to
$8.8 million in fiscal 2001 from $7.6 million in 2000,
a 16.1% increase. The increase is primarily due to a charge of
$486,000 for the Jacobson Partners options and related
consulting fees, the Company adding three new area offices and
the additional expenses associated with the operation of more
centers during fiscal 2001 compared to the prior year. As a
percentage of revenues, general and administrative expenses
increased to 6.0% in fiscal 2001 from 5.9% in fiscal 2000.

In January 2001, the Company hired a new management team,
who reviewed the Companys operations and developed a new
strategic direction. This review identified short and long term
profitability goals and identified areas designed to improve
productivity and reduce operating costs.

The Company instituted a restructuring program and incurred a
charge of $4,000,000 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. Approximately 200 employees were or will be
involuntarily terminated in connection with the closures of
Oxford Learning Centers of America and the 19 under-performing
Childtime centers. As of June 14, 2001, all but one of the
under-performing centers have been closed. These
under-performing centers generated operating losses in fiscal
2001 of $526,000 on revenues of $6,132,000, while Oxford
Learning Centers of America generated operating losses of
$818,000 on revenues of $465,000.

The total restructuring charge of $4,000,000 is comprised of
$1,915,000 related to estimated undiscounted lease termination
costs, $1,539,000 related primarily to write-offs of fixed and
intangible assets and $546,000 related to severance costs.
Included as a current liability in the March 30, 2001
balance sheet is $2,410,000 of accrued restructuring expenses.

In accordance with the Statement of Financial Accounting
Standards 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
$1,447,000 in the fourth quarter of the current fiscal year to
write down a portion of the recorded asset values of 14 of the
Companys other under-performing centers to estimated fair
values.

The Company also recorded a charge of $0.4 million for the
cumulative effect of an accounting change which relates to the
revenue recognition of registration and material fees (see
Note 2(k) to the Companys Notes to Consolidated
Financial Statements).

Interest expense increased to $1.0 million in fiscal 2001
from $0.4 million in fiscal 2000, primarily due to interest
paid on new acquisition debt, an increase in the average
outstanding balance on the Companys line of credit and a
higher average prime rate for fiscal 2001 than for fiscal 2000.
As a percentage of revenues, interest expense increased to 0.6%
in fiscal 2001 from 0.3% during fiscal 2000.

Due to the Companys financial results, an income tax
benefit in the amount of $0.3 million was recognized for
fiscal 2001 as compared to an income tax provision of
$2.6 million for fiscal 2000.

As a result of the foregoing changes, the Companys net
loss was $0.6 million, or -0.4% of revenues, in fiscal 2001
as compared to $4.3 million, or 3.4% of revenues, in fiscal
2000.

16



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##### Table of Contents



Fiscal 2000 Compared to Fiscal 1999.Revenues
increased to $128.7 million in fiscal 2000 (52 weeks),
from $113.0 million in fiscal 1999 (52 weeks), a 14.0%
increase. Centers added during fiscal 2000 and a full year
impact of centers opened in fiscal 1999 attributed to a 14.2%
increase. An additional increase of 1.8%, or $2.1 million
came from comparable center revenue growth (revenues from
centers operating during all of fiscal 2000 and fiscal 1999).
However, these increases were offset by a 2.3% decline from
centers closed in fiscal 2000. The growth in comparable center
revenues resulted from increases in tuition rates, slightly
offset by decreased utilization.

Gross profit increased to $16.6 million in fiscal 2000 from
$16.4 million in fiscal 1999, an increase of 0.9%. As a
percentage of revenues, gross profit decreased to 12.9% in
fiscal 2000 from 14.5% in fiscal 1999. The decrease in margin
was due to several factors including certain regional markets
falling below enrollment expectations, cost of labor increases
and the addition of new centers which experienced initial start
up losses early in their operations.

Marketing expenses increased to $1.6 million in fiscal 2000
from $1.5 million in fiscal 1999, a 10.1% increase. The
increase was primarily due to the additional marketing expenses
relating to the opening or acquisition of 38 new centers in
fiscal 2000 as well as a full year of expense for the
30 new centers opened or acquired in fiscal 1999. As a
percentage of revenues, marketing expenses remained constant at
1.3% for fiscal 2000 and fiscal 1999.

General and administrative expenses increased to
$7.6 million in fiscal 2000, from $6.9 million in
1999, a 10.9% increase. As a percentage of revenues, however,
general and administrative expenses decreased to 5.9% in fiscal
2000 from 6.0% in fiscal 1999, due primarily to operating
leverage provided by higher revenues.

Interest expense increased to $0.4 million in fiscal 2000
from $0.3 million in fiscal 1999, primarily due to interest
paid on funds borrowed to repurchase shares of the
Companys common stock. As a percentage of revenues,
interest expense remained constant at 0.3% in fiscal 2000 and
1999.

The provision for income tax decreased to $2.6 million (an
effective rate of 37.5%) in fiscal 2000 from $3.1 million
(an effective rate of 37.6%) in fiscal 1999.

As a result of the foregoing changes, the Companys net
income was $4.3 million, or 3.4% of revenues, in fiscal
2000 as compared to $5.1 million, or 4.5% of revenues, in
fiscal 1999.

Liquidity and Capital Resources

The Companys primary cash requirements during fiscal 2001
were new center expansion (through development of build-to-suit
centers, new leases and acquisitions), capital maintenance of
existing centers, and the repayment of debt and related
interest. The Company does not have any immediate plans for
expansion and its primary cash requirements for fiscal 2002 are
capital maintenance of existing centers and repayment of debt
and related interest. The Company believes that operating cash
flows, together with amounts available under the unsecured
revolving line of credit facility, will be sufficient to satisfy
the Companys anticipated cash requirements on both a
short-term and long-term basis.

Due to the impact of the Companys increased rental
expense, the Companys primary lender approved the
appropriate waiver to the Fixed Charge Coverage
Ratio covenant of the February 1, 1996 credit
agreement. This waiver, made after the fiscal year 2001 close,
was effective March 30, 2001, concurrent with the end of
the fiscal year and expired on June 1, 2001.

During fiscal year 2001, the Company reached a maximum borrowing
of $5,735,000 under the credit agreement, compared to $4,359,000
for fiscal year 2000. However, after subsequent repayments, the
balance as of March 31, 2001 was $0 as compared to the
balance on March 31, 2001 of $1,358,000.

During fiscal 2001, $8.2 million of net cash provided by
operations, $2.5 million from the issuance of shares and
$0.6 million of proceeds on the sale of assets (primarily
from the sale of property for rental purposes), were principally
used for investment in capital expenditures totaling
$6.0 million (to add 18 centers, make capital improvements
to existing centers, and upgrade information technology
systems), payments on long-term debt ($2.8 million),
payments on the revolving line of credit ($1.4 million) and
a

17



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##### Table of Contents





Expenditures related to information technology systems were part
of managements five-year information system plan to
accommodate the growth of the Company for the next five to ten
years. In connection with this plan, the Company purchased and
capitalized financial software upgrades and related hardware of
approximately $228,000 during fiscal 2000. Fiscal 2001 was
primarily used to customize the new software package and to
further assess the information system plan and its ability to
provide the centers with the latest and most efficient
technology. The Company has recently decided to expand on its
original five-year information system plan. The new plan
consists of approximately $900,000 in additional expenditures
related to hardware purchases, internet access for each center
and training costs related to the new operating system. The
Company feels these upgrades will provide the centers with the
latest technology and give them the ability to operate in a more
efficient manner. Implementation of the new system will begin in
May and will be completed in December with approximately 400
employees attending a 3 day training session.

Net accounts receivable increased to $4.7 million at
March 30, 2001, from $4.2 million at March 31,
2000. This increase was principally due to increased
participation in federal child care assistance programs and
general growth in revenues. Reimbursable construction costs
decreased to $1.1 million at March 30, 2001, from
$1.3 million at March 31, 2000.

The Company from time to time enters into contractual
arrangements with general contractors for the construction of
build-to-suit centers. The Companys Director of Real
Estate Development and staff oversee the design and construction
of the new build centers and pay the periodic contractual
construction draws to the general contractor as well as other
developmental costs incurred. The Company then periodically
throughout the construction phase requests reimbursement for the
construction draws and development costs from the property
owner/ landlord with which the Company has a contractual
leaseback arrangement. The Company has various legal remedies
available pursuant to construction agreements to minimize the
risk of non-reimbursement as well as holding a security interest
in the building during the construction phase.

Accrued wages and payroll taxes remained constant at
$3.5 million at March 30, 2001 and for March 31,
2000. This was primarily due to an increase in the payroll costs
of operating 304 centers at the end of fiscal 2001 compared
to 293 at the end of fiscal 2000 offset by a reduction in
management incentives.

During fiscal 2001, the Company opened or acquired
18 centers, consisting of 8 build-to-suit centers or new
leases and 10 acquisitions. Typically, the cash required to open
a build-to-suit center, including capital expenditures for
leasehold improvements and initial start-up costs, is
approximately $100,000 to $110,000, with each center
experiencing additional cash requirements of approximately
$50,000 during its first six to nine months of operation. The
costs for the Companys acquisitions vary considerably
depending, in part, upon the profitability and maturity of the
centers acquired, as well as their size and number. The Company
has historically targeted an acquisition price ranging from
$100,000 to $330,000 per center and provides for cash down
payments generally ranging from 30% to 70% of the acquisition
price. The Company has historically been required to invest an
additional $10,000 to $50,000 to bring certain acquired centers
up to the Companys standards.

Contingencies

The Company is a defendant in a personal injury lawsuit in which
plaintiffs allege their infant son experienced respiratory and
cardiac arrest while in daycare, resulting in brain damage and
developmental abnormality. Plaintiffs have not communicated any
settlement demand and the Company intends to vigorously contest
liability. This case is still in the early stages of discovery
and no estimate can be made at this time as to the possible
amount of loss, if any, that may result from this lawsuit. The
Company believes that any liability regarding this lawsuit will
be covered under the Companys insurance policies.

In addition to the above matter, there are 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

18



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##### Table of Contents





Quantitative and Qualitative Disclosure about Market Risk

The Company has considered the provisions of Financial Reporting
Release No. 48, Disclosure of Accounting Policies for
Derivative Financial Instruments and Derivative Commodity
Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial
Instruments, Other Financial Instruments and Derivative
Commodity Instruments. The Company had no holdings of
derivative financial or commodity-based instruments at
March 30, 2001. A review of the Companys other
financial instruments and risk exposures at that date revealed
that the Company had exposure to interest rate risk. At
March 30, 2001 the Company performed a sensitivity analysis
to assess this risk and concluded that the effects of a
hypothetical change of 200 basis points in the average
interest rate would not be expected to materially affect the
Companys financial position, results of operations or cash
flow.

New Accounting Pronouncements and Reclassifications

Effective April 1, 2000, the Company changed its method of
revenue recognition in accordance with SEC Staff Accounting
Bulletin 101, Revenue Recognition. Previously all
registration and material fees had been recorded when received.
Under the accounting method adopted retroactive to April 1,
2000, the Company now recognizes registration and material fees
over the typical school year of September through August. The
cumulative effect of the change on prior years resulted in a
charge to income (net of taxes) of $275,000. The Company
recognized the entire amount of revenue included in the
cumulative effect adjustment during fiscal 2001.

In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS
No. 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair
value of derivatives are to be recorded each period in current
earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if
it is, the type of hedge transaction. In June 1999, the
FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities  Deferral of
Effective Date of FASB Statement No. 133. Adoption of
SFAS No. 137 deferred the effective adoption date of SFAS
No. 133 to January 1, 2001. The adoption of SFAS
No. 133 will not have a material effect on the
Companys financial statements.

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 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-18, attached hereto and found
following the signature page of this Report.

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

None.

19



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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
executive officers of the Company.

|                     |  |     |    |          |  |                                              
|-------------------- |  | --- | -- | -------- |  | ---------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|James J. Morgan      |  |     | 59 |          |  | Interim President and Chief Executive Officer
|                    
|                    
|                    
|                    
|Leonard C. Tylka     |  |     | 54 |          |  | Interim Chief Financial Officer and Treasurer
|                    
|                    
|                    
|                    
|Deborah D. Ludwig    |  |     | 47 |          |  | Vice President  Eastern Operations          
|                    
|                    
|                    
|                    
|William H. Van Huis  |  |     | 44 |          |  | Vice President  Marketing                   
|                    
|                    
|                    
|                    
|Taylor V. Ward       |  |     | 47 |          |  | Vice President  Western Operations          
|                    
|                    
|                    
|                    
|Denise A. Pollicella |  |     | 33 |          |  | Secretary and General Counsel                

Three of the executive officers of the Company have held the
positions with the Company set forth above since the
Companys incorporation in November 1995. James J. Morgan,
Leonard C. Tylka and Denise A. Pollicella were appointed as
executive officers in January of 2001. In addition, each has
served in the following positions:

James J. Morganhas served as the Interim President and
Chief Executive Officer of Childtime Childcare, Inc. since
January 2001. Mr. Morgan is an investor in Jacobson
Partners and performs consulting assignments for that entity.
Benjamin Jacobson, a director of the Company, is the managing
general partner of Jacobson Partners. Mr. Morgan retired in
1997 as President and Chief Executive Officer of Philip Morris
Incorporated. Mr. Morgan also serves as a Director of
Bertuccis, Inc., a full-service, casual dining, Italian
restaurant chain headquartered in Maynard, Massachusetts and
Conforma Clad, Inc., a manufacturer of specialized bearings and
other industrial components located in New Albany, Indiana.

Leonard C. Tylkahas served as the Interim Chief
Financial Officer and Treasurer of Childtime Childcare, Inc.
since January 2001. Mr. Tylka has also served as a
director of Childtime Childcare, Inc. since November 1990.
From 1987 through May 1997 he served as the Controller of
KD Equities, a private equity investment firm located in New
York City. From May 1997 to September 1998, Mr. Tylka
was Corporate Development Manager for The Loewen Group, Inc., a
publicly held funeral home and cemetery operator, headquartered
in Burnaby, British Columbia, Canada. From April 1999 to
January 2001, he served as Chief Financial Officer of Polar
Ice Entertainment Inc., an ice rink entertainment center
owner-operator located in Tempe, Arizona.

Deborah D. Ludwighas been the Vice President-Eastern
Operations of Childtime Childcare, Inc. since June 1992 and
served as Executive Vice President and General Manager of
Childtime Childcare, Inc. from July 1990 to June 1992.
Ms. Ludwig also served as a director of Childtime
Childcare, Inc. from July 1990 until November 1995.
She has a 25-year career in child care with the Company and its
predecessor, Gerber Childrens Center. Ms. Ludwig
holds a BA from the University of Michigan.

William H. Van Huishas been the Vice President of
Marketing of Childtime Childcare, Inc. since November 1990. In
addition to supervising the marketing and advertising of the
Companys centers, Mr. Van Huis is also
responsible for developing employer-sponsored child care
locations. From 1986 to 1990, Mr. Van Huis was
National Marketing Manager for Ziebart International
Corporation/ TKD North America, an automotive aftermarket
firm located in Troy, Michigan. He holds a BA from Michigan
State University.

Taylor V. Wardhas been the Vice President-Western
Operations of Childtime Childcare, Inc. since June 1992. From
1982 until joining the Company, Ms. Ward served as a
District Manager for KinderCare Learning Centers in the Texas,
California and Nevada areas. Ms. Ward holds degrees in
Accounting from Wichita State University and in Early Childhood
Development from Southwest Texas State University, and she has
substantially completed her course work for a Masters of Science
in Communications from Southwest Texas State University.

20



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Denise A. Pollicellahas served as Secretary and General
Counsel of Childtime Childcare, Inc. since January 2001.
Ms. Pollicella has been with the Company since
April 1998, serving as Director of Legal Affairs. From
March 1996 to January 1998, she served as an
employment and civil rights defense attorney in Detroit,
Michigan. Ms. Pollicella holds a BA from the University of
Michigan and a JD from Wayne State University Law School.

Additional information required by this Item will be contained
in the 2001 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 2001
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 2001
Proxy Statement of the Company under the captions,
Election of Directors and Principal
Shareholders, and is incorporated herein by reference.

Item 13.  Certain Relationships and Related
Transactions

Information required by this Item will be contained in the 2001
Proxy Statement under the caption, Compensation Committee
Interlocks and Insider Participation, and is incorporated
herein by reference.

21



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##### Table of Contents








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-2.

(b) Reports on Form 8-K

On January 29, 2001, the Company filed a Current Report on
Form 8-K to report the issuance of a press release
announcing the resignations of its chief executive officer and
president and of its chief financial officer.

22



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##### Table of Contents








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 20, 2001.



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

Dated: June 20, 2001

| |     |                    
| | --- | -------------------
| | By: | /s/ JAMES J. MORGAN

| |                                              
| | ---------------------------------------------
| |                                              
| | James J. Morgan,                             
| | Interim President and Chief Executive Officer

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 20, 2001.

|                                             |  |                                                                                            
|-------------------------------------------- |  | -------------------------------------------------------------------------------------------
|Signature                                    |  | Title                                                                                      
|                                             |  |                                                                                            
|/s/ JAMES J. MORGANJames J. Morgan           |  | Interim President, Chief Executive Officer and
	Director (Principal Executive Officer)     
|/s/ LEONARD C. TYLKALeonard C. Tylka         |  | Interim Chief Financial Officer and Director
	(Principal  Financial and Accounting Officer)
|/s/ MILTON H. DRESNERMilton H. Dresner       |  | Director                                                                                   
|/s/ JASON K. FELDJason K. Feld               |  | Director                                                                                   
|/s/ JAMES W. GEISZJames W. Geisz             |  | Director                                                                                   
|/s/ BENJAMIN R. JACOBSONBenjamin R. Jacobson |  | Director                                                                                   
|/s/ GEORGE A. KELLNERGeorge A. Kellner       |  | Director                                                                                   

23



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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 Sheet                                 |       |     | F-3        | 
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                 | Consolidated Statement of Operations                       |       |     | F-4        | 
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                 | Consolidated Statement of Changes in
	Shareholders Equity |       |     | F-5        | 
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                 | Consolidated Statement of Cash Flows                       |       |     | F-6        | 
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                 | Notes to Consolidated Financial Statements                 |       |     | F-7 - F-18 | 
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|The following consolidated financial statement
	schedule of Childtime Learning Centers, Inc. is included herein: |                                                            |       |     |           
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                 | Schedule II  Valuation and
	qualifying accounts           |       |     | S-1        | 

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



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##### Table of Contents








Report of Independent Accountants


To the Board of Directors and Shareholders of



In our opinion, the consolidated financial statements listed in
the index appearing under Item 14(a)(1) on page 22
present fairly, in all material respects, the financial position
of Childtime Learning Centers, Inc. and Subsidiaries (the
Company) at March 30, 2001 and March 31,
2000, and the results of their operations and their cash flows
for each of the three fiscal years in the period ended
March 30, 2001 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 under Item 14(a)(2) on page 22
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 Note 2(k) to the Companys
Consolidated Financial Statements, effective April 1, 2000,
the Company changed its method of recognizing revenue.

-s- PricewaterhouseCoopers LLP

Detroit, Michigan



F-2



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##### Table of Contents








CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEET

|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |        |         |        | 
|------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------ | --------- | ------- | ------ | ------ | ------ | ------- | ------ | 
|                                                                                                             |                                                                                           | March 30,                                      |                                            | March 31,
|                                                                                                             |                                                                                           | 2001                                           |                                            | 2000     
|                                                                                                             |                                                                                           |                                                |                                            |          
|                                                                                                             |                                                                                           |                                               
|                                                                                                             |                                                                                           | (In thousands                                 
|                                                                                                             |                                                                                           | except for share data)                        
|ASSETS                                                                                                       |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Current assets:                                                                                              |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Cash and cash equivalents                                                                 |                                                | $                                          | 3,379     |         |        | $      | 2,704  |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Accounts receivable, less allowance for doubtful
	accounts of $360 and $295, respectively |                                                |                                            | 4,697     |         |        |        | 4,217  |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Reimbursable construction costs                                                           |                                                |                                            | 1,065     |         |        |        | 1,280  |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Prepaid expenses and other                                                                |                                                |                                            | 2,773     |         |        |        | 2,548  |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Deferred income taxes                                                                     |                                                |                                            | 3,342     |         |        |        | 1,437  |        
|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                             |                                                                                           |                                                | Total current assets                       |           |         | 15,256 |        |        |         | 12,186 | 
|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |       
|Land, buildings and equipment:                                                                               |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Land                                                                                      |                                                |                                            | 9,730     |         |        |        | 9,996  |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Buildings                                                                                 |                                                |                                            | 19,161    |         |        |        | 19,233 |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Vehicles, furniture and equipment                                                         |                                                |                                            | 13,960    |         |        |        | 11,954 |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Leasehold improvements                                                                    |                                                |                                            | 8,245     |         |        |        | 8,073  |        
|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                             |                                                                                           |                                                | 51,096                                     |           |         |        | 49,256 |       
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             |                                                                                           | Less accumulated depreciation and amortization |                                            |           | (14,399 | )      |        |        | (12,411 | )     
|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                             |                                                                                           |                                                | 36,697                                     |           |         |        | 36,845 |       
|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |       
|Other noncurrent assets:                                                                                     |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Intangible assets, net                                                                    |                                                |                                            | 21,079    |         |        |        | 21,131 |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Refundable deposits and other                                                             |                                                |                                            | 1,079     |         |        |        | 1,012  |        
|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                             |                                                                                           |                                                | 22,158                                     |           |         |        | 22,143 |       
|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                             |                                                                                           |                                                | Total assets                               |           | $       | 74,111 |        |        | $       | 71,174 | 
|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |       
|LIABILITIES                                                                                                  |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Current liabilities:                                                                                         |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Revolving line of credit                                                                  |                                                | $                                          |          |         |        | $      | 1,358  |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Current maturities of long-term debt                                                      |                                                |                                            | 1,321     |         |        |        | 2,413  |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Accounts payable                                                                          |                                                |                                            | 2,450     |         |        |        | 1,763  |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Book overdrafts                                                                           |                                                |                                            | 2,806     |         |        |        | 3,457  |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Accrued wages and payroll taxes                                                           |                                                |                                            | 3,516     |         |        |        | 3,478  |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Restructuring accrual                                                                     |                                                |                                            | 2,410     |         |        |        |       |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Accrued vacation                                                                          |                                                |                                            | 1,241     |         |        |        | 1,215  |        
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             | Other current liabilities                                                                 |                                                |                                            | 4,517     |         |        |        | 3,474  |        
|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                             |                                                                                           |                                                | Total current liabilities                  |           |         | 18,261 |        |        |         | 17,158 | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Long-term debt                                                                                               |                                                                                           |                                                | 4,224                                      |           |         |        | 4,214  |       
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Deferred rent liability                                                                                      |                                                                                           |                                                | 1,074                                      |           |         |        | 1,129  |       
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Deferred income taxes                                                                                        |                                                                                           |                                                | 3,316                                      |           |         |        | 3,734  |       
|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                             |                                                                                           |                                                | Total liabilities                          |           |         | 26,875 |        |        |         | 26,235 | 
|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |       
|Commitments and contingencies (see Note 11)                                                                  |                                                                                           |                                                |                                            |           |         |        |        |       
|SHAREHOLDERS EQUITY                                                                                         |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Common stock, 10,000,000 shares authorized, no
	par value; 5,225,772 and 4,931,655 outstanding, respectively |                                                                                           |                                                | 30,902                                     |           |         |        | 27,996 |       
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Preferred stock, 1,000,000 shares authorized, no
	par value; no shares issued or outstanding                 |                                                                                           |                                                |                                           |           |         |        |       |       
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Retained earnings                                                                                            |                                                                                           |                                                | 16,334                                     |           |         |        | 16,943 |       
|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                             |                                                                                           |                                                | Total shareholders equity                 |           |         | 47,236 |        |        |         | 44,939 | 
|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |       
|                                                                                                             |                                                                                           |                                                | Total liabilities and shareholders equity |           | $       | 74,111 |        |        | $       | 71,174 | 
|                                                                                                             |                                                                                           |                                                |                                            |           |         |        |        |       

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

F-3



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES






CONSOLIDATED STATEMENT OF OPERATIONS


|                                                                                  |                                                                       |                    |         |           |   |          |         |        |  |   |         |        | 
|--------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------ | ------- | --------- | - | -------- | ------- | ------ |  | - | ------- | ------ | 
|                                                                                  |                                                                       |                   
|                                                                                  |                                                                       | Fiscal Years Ended
|                                                                                  |                                                                       |                   
|                                                                                  |                                                                       | March 30,          |         | March 31, |   | April 2,
|                                                                                  |                                                                       | 2001               |         | 2000      |   | 1999    
|                                                                                  |                                                                       |                    |         |           |   |         
|                                                                                  |                                                                       |                   
|                                                                                  |                                                                       | (In thousands)    
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Revenues                                                                          |                                                                       | $                  | 147,437 |           |   | $        | 128,736 |        |  | $ | 112,963 |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cost of revenues                                                                  |                                                                       |                    | 131,269 |           |   |          | 112,172 |        |  |   | 96,541  |       
|                                                                                  |                                                                       |                    |         |           |   |          |         |        |  |   |         |       
|                                                                                  | Gross profit                                                          |                    |         | 16,168    |   |          |         | 16,564 |  |   |         | 16,422 | 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Marketing expenses                                                                |                                                                       |                    | 1,666   |           |   |          | 1,601   |        |  |   | 1,454   |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|General and administrative expenses                                               |                                                                       |                    | 8,825   |           |   |          | 7,598   |        |  |   | 6,854   |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Restructuring expense                                                             |                                                                       |                    | 4,000   |           |   |          |        |        |  |   |        |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Impairment charges                                                                |                                                                       |                    | 1,447   |           |   |          | 282     |        |  |   |        |       
|                                                                                  |                                                                       |                    |         |           |   |          |         |        |  |   |         |       
|                                                                                  | Operating income                                                      |                    |         | 230       |   |          |         | 7,083  |  |   |         | 8,114  | 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Interest expense                                                                  |                                                                       |                    | 966     |           |   |          | 428     |        |  |   | 312     |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Interest income                                                                   |                                                                       |                    | (57     | )         |   |          | (157    | )      |  |   | (240    | )     
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Other income, net                                                                 |                                                                       |                    | (185    | )         |   |          | (117    | )      |  |   | (119    | )     
|                                                                                  |                                                                       |                    |         |           |   |          |         |        |  |   |         |       
|                                                                                  | Income (loss) before income taxes and change
	in accounting principle |                    |         | (494      | ) |          |         | 6,929  |  |   |         | 8,161  | 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Income tax provision (benefit)                                                    |                                                                       |                    | (160    | )         |   |          | 2,600   |        |  |   | 3,065   |       
|                                                                                  |                                                                       |                    |         |           |   |          |         |        |  |   |         |       
|                                                                                  | Net income (loss) before change in
	accounting principle              |                    |         | (334      | ) |          |         | 4,329  |  |   |         | 5,096  | 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cumulative effect of change in accounting
	principle (less tax benefit of $148)   |                                                                       |                    | 275     |           |   |          |        |        |  |   |        |       
|                                                                                  |                                                                       |                    |         |           |   |          |         |        |  |   |         |       
|                                                                                  | Net income (loss)                                                     |                    | $       | (609      | ) |          | $       | 4,329  |  |   | $       | 5,096  | 
|                                                                                  |                                                                       |                    |         |           |   |          |         |        |  |   |         |       
|Earnings (loss) per share:                                                        |                                                                       |                    |         |           |   |          |         |        |  |   |         |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Basic-income (loss) before cumulative effect
	of change in accounting principle   |                                                                       | $                  | (0.07   | )         |   | $        | 0.82    |        |  | $ | 0.94    |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cumulative effect of change in accounting
	principle                              |                                                                       |                    | (0.05   | )         |   |          |        |        |  |   |        |       
|                                                                                  |                                                                       |                    |         |           |   |          |         |        |  |   |         |       
|                                                                                  | Net income (loss)                                                     |                    | $       | (0.12     | ) |          | $       | 0.82   |  |   | $       | 0.94   | 
|                                                                                  |                                                                       |                    |         |           |   |          |         |        |  |   |         |       
|Diluted-income (loss) before cumulative
	effect of change in accounting principle |                                                                       | $                  | (0.07   | )         |   | $        | 0.82    |        |  | $ | 0.93    |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cumulative effect of change in accounting
	principle                              |                                                                       |                    | (0.05   | )         |   |          |        |        |  |   |        |       
|                                                                                  |                                                                       |                    |         |           |   |          |         |        |  |   |         |       
|                                                                                  | Net income (loss)                                                     |                    | $       | (0.12     | ) |          | $       | 0.82   |  |   | $       | 0.93   | 
|                                                                                  |                                                                       |                    |         |           |   |          |         |        |  |   |         |       

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

F-4



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##### 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, April 3, 1998         |  |                     | 5,429 |          |  | $        | 30,812 |       |  | $ | 10,475 |   |  | $ | 41,287 |  
|                               
|                               
|                               
|                               
|Shares issued under stock plans |  |                     | 3     |          |  |          | 24     |       |  |   |       |   |  |   | 24     |  
|                               
|                               
|                               
|                               
|Net income                      |  |                     |      |          |  |          |       |       |  |   | 5,096  |   |  |   | 5,096  |  
|                                |  |                     |       |          |  |          |        |       |  |   |        |   |  |   |        |  
|Balances, April 2, 1999         |  |                     | 5,432 |          |  |          | 30,836 |       |  |   | 15,571 |   |  |   | 46,407 |  
|                               
|                               
|                               
|                               
|Repurchase of common stock      |  |                     | (500  | )        |  |          | (2,840 | )     |  |   | (2,957 | ) |  |   | (5,797 | )
|                               
|                               
|                               
|                               
|Net income                      |  |                     |      |          |  |          |       |       |  |   | 4,329  |   |  |   | 4,329  |  
|                                |  |                     |       |          |  |          |        |       |  |   |        |   |  |   |        |  
|Balances, March 31, 2000        |  |                     | 4,932 |          |  |          | 27,996 |       |  |   | 16,943 |   |  |   | 44,939 |  
|                               
|                               
|                               
|                               
|Shares issued under stock plans |  |                     | 294   |          |  |          | 2,500  |       |  |   |       |   |  |   | 2,500  |  
|                               
|                               
|                               
|                               
|Stock compensation expense      |  |                     |      |          |  |          | 406    |       |  |   |       |   |  |   | 406    |  
|                               
|                               
|                               
|                               
|Net income (loss)               |  |                     |      |          |  |          |       |       |  |   | (609   | ) |  |   | (609   | )
|                                |  |                     |       |          |  |          |        |       |  |   |        |   |  |   |        |  
|Balances, March 30, 2001        |  |                     | 5,226 |          |  | $        | 30,902 |       |  | $ | 16,334 |   |  | $ | 47,236 |  
|                                |  |                     |       |          |  |          |        |       |  |   |        |   |  |   |        |  

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

F-5



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES






CONSOLIDATED STATEMENT OF CASH FLOWS


|                                                      |                                                                                    |                                                                                                                                                     |                                                            |           |         |          |        |        |        |        |       |        |        |      |  
|----------------------------------------------------- | ---------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | --------- | ------- | -------- | ------ | ------ | ------ | ------ | ----- | ------ | ------ | ---- | -
|                                                      |                                                                                    |                                                                                                                                                    
|                                                      |                                                                                    | Fiscal Years Ended                                                                                                                                 
|                                                      |                                                                                    |                                                                                                                                                    
|                                                      |                                                                                    | March 30,                                                                                                                                           |                                                            | March 31, |         | April 2,
|                                                      |                                                                                    | 2001                                                                                                                                                |                                                            | 2000      |         | 1999    
|                                                      |                                                                                    |                                                                                                                                                     |                                                            |           |         |         
|                                                      |                                                                                    |                                                                                                                                                    
|                                                      |                                                                                    | (In thousands)                                                                                                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Cash flows from operating activities:                 |                                                                                    |                                                                                                                                                     |                                                            |           |         |          |        |        |        |        |       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Net income (loss)                                                                  |                                                                                                                                                     | $                                                          | (609      | )       |          | $      | 4,329  |        |        | $     | 5,096  |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Adjustments to reconcile net income to net cash
	provided by operating activities: |                                                                                                                                                     |                                                            |           |         |          |        |        |        |        |       |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    | Depreciation expense                                                                                                                                |                                                            |           | 2,586   |          |        |        | 2,030  |        |       |        | 1,764  |     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    | Amortization expense                                                                                                                                |                                                            |           | 2,012   |          |        |        | 1,393  |        |       |        | 1,097  |     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    | Stock compensation expense                                                                                                                          |                                                            |           | 406     |          |        |        |       |        |       |        |       |     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    | Deferred rent liability                                                                                                                             |                                                            |           | (55     | )        |        |        | (49    | )      |       |        | (96    | )   
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    | Deferred income taxes                                                                                                                               |                                                            |           | (2,323  | )        |        |        | (9     | )      |       |        | (68    | )   
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    | (Gains) losses and provisions for losses
	including impairment charges on land, buildings, equipment,
	intangible assets and land held for disposal |                                                            |           | 2,717   |          |        |        | 295    |        |       |        | (12    | )   
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    | Changes in assets and liabilities providing
	(consuming)  cash:                                                                                     |                                                            |           |         |          |        |        |        |        |       |        |        |     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    |                                                                                                                                                     | Accounts receivable                                        |           |         | (480     | )      |        |        | (1,091 | )     |        |        | (640 | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    |                                                                                                                                                     | Prepaid expenses and other assets                          |           |         | (225     | )      |        |        | (349   | )     |        |        | (344 | )
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    |                                                                                                                                                     | Restructuring accrual                                      |           |         | 2,410    |        |        |        |       |       |        |        |     |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                                    |                                                                                                                                                     | Accounts payable, accruals, and other current
	liabilities |           |         | 1,794    |        |        |        | 949    |       |        |        | (195 | )
|                                                      |                                                                                    |                                                                                                                                                     |                                                            |           |         |          |        |        |        |        |       |       
|                                                      |                                                                                    | Net cash provided by operating activities                                                                                                           |                                                            |           | 8,233   |          |        |        | 7,498  |        |       |        | 6,602  |     
|                                                      |                                                                                    |                                                                                                                                                     |                                                            |           |         |          |        |        |        |        |       |       
|Cash flows from investing activities:                 |                                                                                    |                                                                                                                                                     |                                                            |           |         |          |        |        |        |        |       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Expenditures for land, buildings and equipment                                     |                                                                                                                                                     |                                                            | (4,049    | )       |          |        | (3,664 | )      |        |       | (3,245 | )     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Expenditures for reimbursable construction costs                                   |                                                                                                                                                     |                                                            | (6,990    | )       |          |        | (2,660 | )      |        |       | (4,663 | )     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Acquisition of intangible assets                                                   |                                                                                                                                                     |                                                            | (1,962    | )       |          |        | (3,235 | )      |        |       | (2,712 | )     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Proceeds from sales of land, buildings, equipment
	and intangible assets           |                                                                                                                                                     |                                                            | 629       |         |          |        | 725    |        |        |       | 1,103  |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Net payments for refundable deposits and other
	assets                             |                                                                                                                                                     |                                                            | (67       | )       |          |        | (64    | )      |        |       | (237   | )     
|                                                      |                                                                                    |                                                                                                                                                     |                                                            |           |         |          |        |        |        |        |       |       
|                                                      |                                                                                    | Net cash used in investing activities                                                                                                               |                                                            |           | (12,439 | )        |        |        | (8,898 | )      |       |        | (9,754 | )   
|                                                      |                                                                                    |                                                                                                                                                     |                                                            |           |         |          |        |        |        |        |       |       
|Cash flows from financing activities:                 |                                                                                    |                                                                                                                                                     |                                                            |           |         |          |        |        |        |        |       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Net borrowings (repayments) on revolving
	line of credit                           |                                                                                                                                                     |                                                            | (1,358    | )       |          |        | 1,358  |        |        |       |       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Changes in book overdraft                                                          |                                                                                                                                                     |                                                            | (651      | )       |          |        | 3,456  |        |        |       |       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Payments on long-term debt                                                         |                                                                                                                                                     |                                                            | (2,815    | )       |          |        | (2,295 | )      |        |       | (2,006 | )     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Repayments of reimbursable construction costs                                      |                                                                                                                                                     |                                                            | 7,205     |         |          |        | 1,539  |        |        |       | 5,436  |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Repurchase of common stock                                                         |                                                                                                                                                     |                                                            |          |         |          |        | (5,797 | )      |        |       |       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Issuance of common stock                                                           |                                                                                                                                                     |                                                            | 2,500     |         |          |        |       |        |        |       | 24     |       
|                                                      |                                                                                    |                                                                                                                                                     |                                                            |           |         |          |        |        |        |        |       |       
|                                                      |                                                                                    | Net cash provided by financing activities                                                                                                           |                                                            |           | 4,881   |          |        |        | (1,739 | )      |       |        | 3,454  |     
|                                                      |                                                                                    |                                                                                                                                                     |                                                            |           |         |          |        |        |        |        |       |       
|Net increase (decrease) in cash and cash
	equivalents |                                                                                    |                                                                                                                                                     | 675                                                        |           |         |          | (3,139 | )      |        |        | 302   |       
|                                                     
|                                                     
|                                                     
|                                                     
|Cash and cash equivalents, beginning of year          |                                                                                    |                                                                                                                                                     | 2,704                                                      |           |         |          | 5,843  |        |        |        | 5,541 |       
|                                                      |                                                                                    |                                                                                                                                                     |                                                            |           |         |          |        |        |        |        |       |       
|Cash and cash equivalents, end of year                |                                                                                    | $                                                                                                                                                   | 3,379                                                      |           |         | $        | 2,704  |        |        | $      | 5,843 |       
|                                                      |                                                                                    |                                                                                                                                                     |                                                            |           |         |          |        |        |        |        |       |       

The accompanying notes 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 30, 2001, the Company provides for-profit child
care through 304 child care centers located in 23 states and the
District of Columbia. (see Note 12)

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 30, 2001, March 31, 2000 and
April 2, 1999 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
15 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 or the life of the lease. The
Company owns a piece of land held for disposal and it is carried
at its estimated fair value less cost to sell in the amount of
$65,600. Land held for disposal is included in the Land caption
of the Consolidated Balance Sheet. 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. Intangible Assets:Intangible assets represent
principally the unamortized excess of the cost of acquiring
Childtime (by the predecessor of Childtime Learning Centers,
Inc.) and other acquisitions of existing child care facilities
over the fair values of the companies net tangible assets
at the dates of acquisition. The intangible assets are being
amortized using a straight-line method over various periods, but
primarily over 15 years, with such amortization expense
included in cost of revenues. Accumulated amortization at
March 30, 2001 and March 31, 2000 was $5,806,263 and
$4,469,483, respectively.

e. Impairment of Long-Lived Assets:Long-lived
assets are comprised of intangible assets and property, plant
and equipment. Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. 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. These cash flows
are reviewed by management in connection with the Companys
annual long-range planning process. Once the Company has
utilized its resources in order to make the center profitable,
without success, and future cash flows fail to match 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 with
fair market value calculated using future discounted cash flows.
At March 30, 2001, the Company recorded impairment losses
of $1,079,125 on intangible assets and $367,639 on tangible
property as compared to impairment losses of $231,007 on
intangible assets and $50,884 on tangible property for the
fiscal year ending March 31, 2000.

f.  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.

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. 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.

h. Risk Concentration: Accounts receivable is the
principal financial instrument which 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
2001, 2000 and 1999, federal assistance revenues were
approximately $31,100,000 (21 percent), $24,800,000 (19
percent) and $19,500,000 (17 percent), respectively.

In connection with certain build-to-suit centers to be leased,
the Company enters into arrangements, whereby the Company
accumulates costs during the construction process and is then
reimbursed by the developer. The Company has various legal
remedies available pursuant to the construction agreements to
minimize the risk of nonreimbursement. For the years ended
March 30, 2001, March 31, 2000 and April 2, 1999, the
Company financed construction costs of $6,990,355, $2,659,854
and $4,663,361, respectively. Related repayments received under
reimbursement agreements were $7,204,495, $1,538,755 and
$5,435,800 for the years then ended.

i.  Common Stock Repurchase: During fiscal
2000, the Companys board of directors authorized the
repurchase of up to 500,000 shares of the Companys common
stock. During fiscal 2000 the Company purchased all 500,000
shares at a total cost of $5,797,401. The Companys
repurchase of shares was recorded as a charge against common
stock in an amount equal to the average paid in capital per
share, multiplied by the number of shares repurchased. The
excess of the aggregate repurchase price over the amount charged
against common stock is charged against retained earnings.
During fiscal 2000, $2,957,401 was charged against retained
earnings. The Company was not authorized to repurchase any
additional shares during fiscal 2001.

j.  Common Stock and Earnings Per Share: All
earnings per share amounts have been presented, and where
necessary, restated 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:

|             |                                                        |                                                  |  |           |           |          |  |           |           |  |  |           |           | 
|------------ | ------------------------------------------------------ | ------------------------------------------------ |  | --------- | --------- | -------- |  | --------- | --------- |  |  | --------- | --------- | 
|             |                                                        | March 30,                                        |  | March 31, |           | April 2,
|             |                                                        | 2001                                             |  | 2000      |           | 1999    
|             |                                                        |                                                  |  |           |           |         
|Denominator: |                                                        |                                                  |  |           |           |          |  |           |           |  |  |          
|            
|            
|            
|            
|             | Weighted average shares outstanding EPS, basic         |                                                  |  | 5,102,146 |           |          |  | 5,251,438 |           |  |  | 5,429,785 |          
|            
|            
|            
|            
|             | Incremental shares from assumed conversion of
	options |                                                  |  | 0         |           |          |  | 19,793    |           |  |  | 48,292    |          
|             |                                                        |                                                  |  |           |           |          |  |           |           |  |  |          
|             |                                                        | Weighted average shares outstanding EPS, diluted |  |           | 5,102,146 |          |  |           | 5,271,231 |  |  |           | 5,478,077 | 
|             |                                                        |                                                  |  |           |           |          |  |           |           |  |  |          

Incremental shares of 292 from assumed conversion of options in
fiscal 2001 have been excluded from shares used in computing
diluted loss per share as the effect would be anti-dilutive.

k. Revenue Recognition: Substantially all of the
Companys revenues are derived from providing child care
services through residential and at-work centers. All revenues
are recognized as the service is provided. For services provided
to employers under short-term (1-5 years) management
contract arrangements where the employer assumes financial
responsibility for the ongoing operations, only the management
fee is recorded as revenue. Management contracts generally call
for reimbursement of all operational costs of the center plus a
management fee, negotiated based on center size, as well as
various operational and financial considerations.

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)

Effective April 1, 2000, the Company changed its method of
revenue recognition in accordance with SEC Staff Accounting
Bulletin 101, Revenue Recognition. Previously all
registration and material fees had been recorded when received.
Under the accounting method adopted retroactive to April 1,
2000, the Company now recognizes registration and material fees
over the typical school year of September through August. The
cumulative effect of the change on prior years resulted in a
charge to income (net of taxes) of $275,000 which was recognized
during fiscal 2001.

The pro forma effect of retroactive application of SAB 101 on
the fourth quarter 2000 would have resulted in revenue of
$128.3 million, gross profit of $16.1 million, net
income of $4.1 million, and diluted earnings per share of
$0.77 for fiscal year 2000. The effect of SAB 101 on fiscal 1999
could not be accurately determined.

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

m. Advertising Expenses: Yellow pages advertising is
paid in advance and recorded as a prepaid expense which is
amortized over the one year publication period. Direct mailing
costs are incurred at various times during the fiscal year and
are expensed over the period in which revenues are generated and
recognized (generally measured in months and less than one
year). All other marketing costs are treated as period expenses
and, accordingly, are expensed in the period incurred. As of
March 30, 2001, the Company recorded prepaid yellow pages
and prepaid direct mailing costs of $405,689 and $93,338,
respectively.

n. Use of Estimates: The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the 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.

o. Reclassifications: Certain amounts for the fiscal
years ended March 31, 2000 and April 2, 1999 have been
reclassified to conform to the presentation adopted in fiscal
2001.

p. Segment Reporting: The Company organizes itself
as one segment reporting to the chief operating decision makers.

3.  Acquisitions:

The Company completed 10 center acquisitions during fiscal 2001
for an aggregate of approximately $1,732,500 in cash and
$1,732,500 in seller-financed debt. Approximately $3,389,000 of
intangible assets were recorded as a result of the fiscal 2001
acquisitions. The Company completed 32 center acquisitions
during fiscal 2000 for an aggregate of approximately $3,614,000
in cash and $6,284,000 in seller-financed debt. Approximately
$9,085,000 of intangible assets were recorded as a result of the
fiscal 2000 acquisitions. The results of operations of the
acquired centers have been included in the consolidated results
of the Company (accounted for under the purchase method) from
their respective acquisition dates.

F-9



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)



3.  Acquisitions  (Continued)


The following unaudited pro forma information assumes that all
acquisitions occurred at the beginning of each of the fiscal
years. For fiscal 2001, all acquisitions did occur at the
beginning of the fiscal year and therefore requires no change
from its historical information. For fiscal 2000, pro forma
information is based upon certain assumptions and estimates,
including interest expense on debt assumed (ranging from
7.75 percent to 9.0 percent); depreciation and
amortization charges based on the new accounting basis for
assets acquired; and the related income tax effect and do not
necessarily represent results which would have occurred if the
acquisitions had taken place as assumed above, nor are they
necessarily indicative of future results.

|                            |  |                        |         |             |  |   |         | 
|--------------------------- |  | ---------------------- | ------- | ----------- |  | - | ------- | 
|                            |  |                       
|                            |  | Year Ended March 31,  
|                            |  | 2000                  
|                            |  |                       
|                            |  | Historical             |         | Pro Forma  
|                            |  |                        |         |            
|                            |  |                        |         | (Unaudited)
|                            |  |                       
|                            |  | (In thousands         
|                            |  | except for share data)
|                           
|                           
|                           
|                           
|Revenue                     |  | $                      | 128,736 |             |  | $ | 139,157 | 
|                           
|                           
|                           
|                           
|Net income                  |  |                        | 4,329   |             |  |   | 4,389   | 
|                           
|                           
|                           
|                           
|Earnings per share, diluted |  | $                      | 0.82    |             |  | $ | 0.83    | 

4.  Other Current Assets and Liabilities:

Other current assets and liabilities are composed of the
following:

|                                           |                                                                                                                                                                   |                |       |           |  |   |       |       | 
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ----- | --------- |  | - | ----- | ----- | 
|                                           |                                                                                                                                                                   | March 30,      |       | March 31,
|                                           |                                                                                                                                                                   | 2001           |       | 2000     
|                                           |                                                                                                                                                                   |                |       |          
|                                           |                                                                                                                                                                   |               
|                                           |                                                                                                                                                                   | (In thousands)
|                                          
|                                          
|                                          
|                                          
|Prepaid expenses and other current assets: |                                                                                                                                                                   |                |       |           |  |   |       |      
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid rent                                                                                                                                                      |                | $     | 1,662     |  |   | $     | 1,412 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid advertising                                                                                                                                               |                |       | 499       |  |   |       | 458   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Other                                                                                                                                                             |                |       | 612       |  |   |       | 678   | 
|                                           |                                                                                                                                                                   |                |       |           |  |   |       |      
|                                           |                                                                                                                                                                   | $              | 2,773 |           |  | $ | 2,548 |      
|                                           |                                                                                                                                                                   |                |       |           |  |   |       |      
|Other current liabilities:                 |                                                                                                                                                                   |                |       |           |  |   |       |      
|                                          
|                                          
|                                          
|                                          
|                                           | Unearned revenue                                                                                                                                                  |                | $     | 1,421     |  |   | $     | 801   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued property taxes                                                                                                                                            |                |       | 683       |  |   |       | 682   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued workers compensation expense (net
	of $781 and $1,033 of advance deposits held by insurance company
	at March 30, 2001 and March 31, 2000, respectively) |                |       | 989       |  |   |       | 330   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Other                                                                                                                                                             |                |       | 1,424     |  |   |       | 1,661 | 
|                                           |                                                                                                                                                                   |                |       |           |  |   |       |      
|                                           |                                                                                                                                                                   | $              | 4,517 |           |  | $ | 3,474 |      
|                                           |                                                                                                                                                                   |                |       |           |  |   |       |      

F-10



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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 30,      |       | March 31,
|                                                                                                                                                                                                                                                                                                  |                                           | 2001           |       | 2000     
|                                                                                                                                                                                                                                                                                                  |                                           |                |       |          
|                                                                                                                                                                                                                                                                                                  |                                           |               
|                                                                                                                                                                                                                                                                                                  |                                           | (In thousands)
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|Note payable to a corporation resulting from an
	acquisition, interest at prime, (8.0 percent at March 
	30,2001 and 9.0 percent at March 31, 2000) quarterly
	principal payments of $100,000 plus interest, remaining balance
	payable January 2005                                              |                                           | $              | 1,500 |           |  | $ | 1,900 |      
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|Note payable to a corporation resulting from an
	acquisition, interest at prime, quarterly principal payments of
	$54,688, plus interest, remaining principal balance payable by
	April 2001                                                                                                      |                                           |                |      |           |  |   | 875   |      
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|Notes payable to corporations resulting from an
	acquisition, interest at prime, principal and interest due in
	full April 2004                                                                                                                                                                   |                                           |                | 1,805 |           |  |   |      |      
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|Notes payable 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 |                                           |                | 2,240 |           |  |   | 3,852 |      
|                                                                                                                                                                                                                                                                                                  |                                           |                |       |           |  |   |       |      
|                                                                                                                                                                                                                                                                                                  |                                           |                | 5,545 |           |  |   | 6,627 |      
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                  | Less current maturities of long-term debt |                |       | 1,321     |  |   |       | 2,413 | 
|                                                                                                                                                                                                                                                                                                  |                                           |                |       |           |  |   |       |      
|                                                                                                                                                                                                                                                                                                  |                                           | $              | 4,224 |           |  | $ | 4,214 |      
|                                                                                                                                                                                                                                                                                                  |                                           |                |       |           |  |   |       |      

At March 30, 2001, aggregate principal payments due on
long-term debt over the next four years and thereafter are as
follows:

|                    |  |                |       | 
|------------------- |  | -------------- | ----- | 
|                    |  | (In thousands)
|                   
|                   
|                   
|                   
|2002                |  | $              | 1,321 | 
|                   
|                   
|                   
|                   
|2003                |  |                | 1,144 | 
|                   
|                   
|                   
|                   
|2004                |  |                | 718   | 
|                   
|                   
|                   
|                   
|2005                |  |                | 2,186 | 
|                   
|                   
|                   
|                   
|2006 and thereafter |  |                | 176   | 
|                    |  |                |       | 
|                    |  | $              | 5,545 | 
|                    |  |                |       | 

At March 30, 2001, the Companys revolving line of
credit is unsecured and provides for borrowings up to
$10,000,000, with interest payable monthly at a variable rate,
at the Companys option, based on either the prime rate or
the Eurodollar rate. Under the line of credit, there were no
borrowings at March 30, 2001 and outstanding borrowings of
$1,357,800 at March 31, 2000. For the year ended
March 30, 2001, the average borrowings on the line of
credit were in the amount of $2,198,572, with an average
interest rate of 9.22 percent, as compared to average
borrowings of $1,490,826, with an average interest rate of
8.71 percent for the year ended March 31, 2000.
Outstanding letters of credit further reduced the availability
under the line of credit in the amount of $2,450,147 at
March 30, 2001 and $2,972,498 at March 31, 2000. Under
this agreement, the Company is required to maintain certain
financial ratios and other financial conditions, the most
restrictive of which requires the Company to maintain certain
debt-to-equity ratios, a minimum fixed charge coverage and a
minimum amount of tangible net worth. In addition, there are
restrictions on the incurrence of additional indebtedness,
disposition of assets and transactions with affiliates.

F-11



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)



5.  Financing Arrangements  (Continued)


Due to the impact of the Companys increased rental
expense, the primary lender approved the appropriate waiver to
the Fixed Charge Coverage Ratio covenant of the
February 1, 1996 credit agreement. This waiver, made after
the fiscal year 2001 close, was effective March 30, 2001,
concurrent with the end of the fiscal year and expired on
June 1, 2001.

6.  Income Taxes:

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

|          |                 |                |        |           |   |          |       |       |   |   |       |       |  
|--------- | --------------- | -------------- | ------ | --------- | - | -------- | ----- | ----- | - | - | ----- | ----- | -
|          |                 | March 30,      |        | March 31, |   | April 2,
|          |                 | 2001           |        | 2000      |   | 1999    
|          |                 |                |        |           |   |         
|          |                 |               
|          |                 | (In thousands)
|         
|         
|         
|         
|Current:  |                 |                |        |           |   |          |       |       |   |   |       |      
|         
|         
|         
|         
|          | Federal         |                | $      | 1,899     |   |          | $     | 2,440 |   |   | $     | 2,726 |  
|         
|         
|         
|         
|          | State and local |                |        | 116       |   |          |       | 169   |   |   |       | 407   |  
|          |                 |                |        |           |   |          |       |       |   |   |       |      
|          |                 |                | 2,015  |           |   |          | 2,609 |       |   |   | 3,133 |      
|          |                 |                |        |           |   |          |       |       |   |   |       |      
|Deferred: |                 |                |        |           |   |          |       |       |   |   |       |      
|         
|         
|         
|         
|          | Federal         |                |        | (2,137    | ) |          |       | (8    | ) |   |       | (60   | )
|         
|         
|         
|         
|          | State and local |                |        | (186      | ) |          |       | (1    | ) |   |       | (8    | )
|          |                 |                |        |           |   |          |       |       |   |   |       |      
|          |                 |                | (2,323 | )         |   |          | (9    | )     |   |   | (68   | )    
|          |                 |                |        |           |   |          |       |       |   |   |       |      
|          |                 | $              | (308   | )         |   | $        | 2,600 |       |   | $ | 3,065 |      
|          |                 |                |        |           |   |          |       |       |   |   |       |      

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 30,      |      | March 31, |  | April 2,
|                                                   |  | 2001           |      | 2000      |  | 1999    
|                                                   |  |                |      |           |  |         
|                                                   |  |               
|                                                   |  | (In thousands)
|                                                  
|                                                  
|                                                  
|                                                  
|Income tax provision at the statutory federal rate |  | $              | (312 | )         |  | $        | 2,356 |  |  | $ | 2,775 | 
|                                                  
|                                                  
|                                                  
|                                                  
|State and local taxes, net of federal tax benefit  |  |                | (46  | )         |  |          | 111   |  |  |   | 263   | 
|                                                  
|                                                  
|                                                  
|                                                  
|Other                                              |  |                | 50   |           |  |          | 133   |  |  |   | 27    | 
|                                                   |  |                |      |           |  |          |       |  |  |   |       | 
|                                                   |  | $              | (308 | )         |  | $        | 2,600 |  |  | $ | 3,065 | 
|                                                   |  |                |      |           |  |          |       |  |  |   |       | 

F-12



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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 which give rise to
deferred tax assets and (liabilities) are as follows:

|                        |                                                |                                    |        |           |    |   |        |        |        |  
|----------------------- | ---------------------------------------------- | ---------------------------------- | ------ | --------- | -- | - | ------ | ------ | ------ | -
|                        |                                                |                                   
|                        |                                                | Fiscal Year                       
|                        |                                                |                                   
|                        |                                                | March 30,                          |        | March 31,
|                        |                                                | 2001                               |        | 2000     
|                        |                                                |                                    |        |          
|                        |                                                |                                   
|                        |                                                | (In thousands)                    
|                       
|                       
|                       
|                       
|Deferred tax asset:     |                                                |                                    |        |           |    |   |        |       
|                       
|                       
|                       
|                       
|                        | Provision for bad debt balance                 |                                    | $      | 137       |    |   | $      | 114    |       
|                       
|                       
|                       
|                       
|                        | Vested and non-vested vacation balance         |                                    |        | 471       |    |   |        | 469    |       
|                       
|                       
|                       
|                       
|                        | Workers compensation accrual                   |                                    |        | 673       |    |   |        | 526    |       
|                       
|                       
|                       
|                       
|                        | Capital loss carryforwards                     |                                    |        | 233       |    |   |        | 361    |       
|                       
|                       
|                       
|                       
|                        | Provision for restructuring charges            |                                    |        | 1,483     |    |   |        |       |       
|                       
|                       
|                       
|                       
|                        | Deferred registration fees                     |                                    |        | 337       |    |   |        |       |       
|                       
|                       
|                       
|                       
|                        | All other                                      |                                    |        | 8         |    |   |        | (33    | )     
|                        |                                                |                                    |        |           |    |   |        |       
|                        |                                                | $                                  | 3,342  |           |    | $ | 1,437  |       
|                        |                                                |                                    |        |           |    |   |        |       
|Deferred tax liability: |                                                |                                    |        |           |    |   |        |       
|                       
|                       
|                       
|                       
|                        | Basis and depreciation differences of property |                                    | $      | (3,760    | )  |   | $      | (4,218 | )     
|                       
|                       
|                       
|                       
|                        | Straight-line rent                             |                                    |        | 444       |    |   |        | 484    |       
|                        |                                                |                                    |        |           |    |   |        |       
|                        |                                                |                                    | (3,316 | )         |    |   | (3,734 | )     
|                        |                                                |                                    |        |           |    |   |        |       
|                        |                                                | Net deferred tax asset (liability) |        | $         | 26 |   |        | $      | (2,297 | )
|                        |                                                |                                    |        |           |    |   |        |       

The Company has capital loss carryforwards which will expire as
follows: March 29, 2002, $74,000; March 28, 2003,
$58,000; and April 1, 2005, $482,000. During fiscal 2001, a
capital loss carryforward expired in the amount of $351,000. The
Company believes that all of its deferred tax assets will be
realized either through the generation of future income,
recovery of income taxes paid in prior years or the
implementation of certain tax planning strategies as they relate
to the capital loss carryforward.

7.  Leases:

The Company leases certain land and buildings, primarily
childrens centers and vehicles, under noncancelable
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 30, 2001, March 31, 2000 and
April 2, 1999 was $21,358,383, $17,496,726 and $14,529,077,
respectively. These amounts included contingent rental expense
of $352,213, $338,705 and $365,466 for the years ended
March 30, 2001, March 31, 2000 and April 2, 1999,
respectively.

Future minimum rental commitments at March 30, 2001 for all
noncancelable operating leases are as follows:

|           |  |                |        | 
|---------- |  | -------------- | ------ | 
|           |  | (In thousands)
|          
|          
|          
|          
|2002       |  | $              | 20,741 | 
|          
|          
|          
|          
|2003       |  |                | 19,618 | 
|          
|          
|          
|          
|2004       |  |                | 18,531 | 
|          
|          
|          
|          
|2005       |  |                | 17,433 | 
|          
|          
|          
|          
|2006       |  |                | 16,025 | 
|          
|          
|          
|          
|Thereafter |  |                | 88,650 | 

F-13



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)



7.  Leases  (Continued)


Included in the future minimum rental commitments are the
operating leases on the 19 centers announced to close in the
first part of fiscal 2002 totaling $5,788,000 and the 10 Oxford
Learning Centers of America totaling $1,276,000.

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 25 percent of employee
contributions up to 4 percent of compensation. Employees
may contribute up to 15 percent of compensation to the
Plan. Amounts expensed for the years ended March 30, 2001,
March 31, 2000, and April 2, 1999 were $97,091,
$92,506 and $100,481, respectively.

9.  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
which 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 2001 (153,800) and 2000
(56,350) were granted at the then market price and vest evenly
over a three-year period with the exception of 25,000 options
for senior management that vested immediately. In addition, the
Company adopted the Director Stock Option Plan, effective
February 2, 1996, providing for annual grants of stock
options to nonemployee 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 15,000 options
were granted under the plan during both fiscal 2001 and 2000.

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

F-14



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

9.  Stock Options  (Continued)

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:

|                                                                |         |             |             |                                      |       |            |   |            |       |      |  |   |       |      | 
|--------------------------------------------------------------- | ------- | ----------- | ----------- | ------------------------------------ | ----- | ---------- | - | ---------- | ----- | ---- |  | - | ----- | ---- | 
|                                                                |         |             |             | Year Ended                           |       | Year Ended |   | Year Ended
|                                                                |         |             |             | March 30,                            |       | March 31,  |   | April 2,  
|                                                                |         |             |             | 2001                                 |       | 2000       |   | 1999      
|                                                                |         |             |             |                                      |       |            |   |           
|                                                                |         |             |             |                                     
|                                                                |         |             |             | (In thousands except for share data)
|                                                               
|                                                               
|                                                               
|                                                               
|Net income (loss):                                              |         |             |             |                                      |       |            |   |            |       |      |  |   |       |     
|                                                                |         | As reported |             | $                                    | (609  | )          |   | $          | 4,329 |      |  | $ | 5,096 |     
|                                                                |         | Pro forma   |             | $                                    | (688  | )          |   | $          | 4,106 |      |  | $ | 4,897 |     
|                                                               
|                                                               
|                                                               
|                                                               
|Earnings (loss) per share:                                      |         |             |             |                                      |       |            |   |            |       |      |  |   |       |     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Basic   |             | As reported |                                      | $     | (0.12      | ) |            | $     | 0.82 |  |   | $     | 0.94 | 
|                                                                |         | Pro forma   |             | $                                    | (0.13 | )          |   | $          | 0.78  |      |  | $ | 0.90  |     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Diluted |             | As reported |                                      | $     | (0.12      | ) |            | $     | 0.82 |  |   | $     | 0.93 | 
|                                                                |         | Pro forma   |             | $                                    | (0.13 | )          |   | $          | 0.78  |      |  | $ | 0.89  |     
|                                                               
|                                                               
|                                                               
|                                                               
|Weighted average fair value of options granted
	during the year |         |             |             | $                                    | 2.55  |            |   | $          | 4.22  |      |  | $ | 6.00  |     
|                                                                |         |             |             |                                      |       |            |   |            |       |      |  |   |       |     

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 2001, 2000 and 1999, respectively: no dividend
yield; expected volatility of 34.2, 39.0 and 37.2 percent;
risk free interest rate of 6.0, 5.3 and 5.6 percent; and
expected holding periods of 3.6 years for fiscal 2001 and
3.7 years for fiscal years 2000 and 1999.

Presented below is a summary of the status of the stock options
held by employees of the Company as of March 30, 2001,
March 31, 2000 and April 2, 1999:

|                                           |  |                |         |                |  |               |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |       | 
|------------------------------------------ |  | -------------- | ------- | -------------- |  | ------------- | ----- | -------- |  | ------ | ------- | -------- |  | - | ----- |  |  |  | ------- | - |  | - | ----- | 
|                                           |  |                |         |                |  |              
|                                           |  | Year Ended     |         | Year Ended     |  | Year Ended   
|                                           |  | March 30, 2001 |         | March 31, 2000 |  | April 2, 1999
|                                           |  |                |         |                |  |              
|                                           |  |                |         | Weighted       |  |               |       | Weighted |  |        |         | Weighted
|                                           |  |                |         | Average        |  |               |       | Average  |  |        |         | Average 
|                                           |  |                |         | Exercise       |  |               |       | Exercise |  |        |         | Exercise
|                                           |  | Shares         |         | Price          |  | Shares        |       | Price    |  | Shares |         | Price   
|Options                                    |  |                |         |                |  |               |       |          |  |        |         |         
|Options outstanding at beginning of period |  |                | 314,351 |                |  | $             | 11.80 |          |  |        | 251,267 |          |  | $ | 11.81 |  |  |  | 198,083 |   |  | $ | 10.04 | 
|                                          
|                                          
|                                          
|                                          
|Granted                                    |  |                | 158,800 |                |  |               | 7.99  |          |  |        | 71,350  |          |  |   | 11.77 |  |  |  | 65,000  |   |  |   | 17.20 | 
|                                          
|                                          
|                                          
|                                          
|Exercised                                  |  |                |        |                |  |               |      |          |  |        |        |          |  |   |      |  |  |  | (2,333  | ) |  |   | 10.42 | 
|                                          
|                                          
|                                          
|                                          
|Forfeited/expired                          |  |                | (71,701 | )              |  |               | 11.01 |          |  |        | (8,266  | )        |  |   | 12.09 |  |  |  | (9,483  | ) |  |   | 12.02 | 
|                                           |  |                |         |                |  |               |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |       | 
|Options outstanding at end of period       |  |                | 401,450 |                |  | $             | 10.30 |          |  |        | 314,351 |          |  | $ | 11.80 |  |  |  | 251,267 |   |  | $ | 11.81 | 
|                                           |  |                |         |                |  |               |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |       | 
|Options exercisable                        |  |                | 268,286 |                |  | $             | 10.89 |          |  |        | 183,667 |          |  | $ | 11.44 |  |  |  | 122,167 |   |  | $ | 10.51 | 
|                                           |  |                |         |                |  |               |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |       | 

Of the 401,450 options outstanding at March, 30, 2001, 238,954
were exercisable at per share prices ranging from $7.25 to
$11.81, with a weighted average exercise price of $10.15 and a
weighted average remaining contractual life of 3.4 years;
29,332 were exercisable at per share prices ranging from $11.82
to $18.28, with a weighted average exercise price of $16.88 and
a weighted average remaining contractual life of 2.9 years.

10.  Option Grants for Consulting Services:

In July 2000, the Company retained Jacobson Partners, of
which Benjamin R. Jacobson, a director of the Company, is the
managing general partner, to provide management and financial
consulting services. As part

F-15



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CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)



10.  Option Grants for Consulting Services 
(Continued)


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. As of March 30, 2001, Jacobson
Partners has exercised options totaling 294,117 shares at a cost
of $2,500,000. The remaining 263,158 shares have an option price
of $9.50 and expire in July 2002. Additionally, Jacobson
Partners will receive an annual consulting fee in the amount of
$250,000, plus reimbursement of reasonable out-of-pocket
expenses. As a result of the stock option grants, the Company
has recorded additional compensation expense of $297,950.

The interim CEO was granted 60,000 options in January 2001.
The options have a $7.00 exercise price, vest at the rate of
10,000 per month and expire in January 2003. As a result of
the stock option grants, the Company has recorded additional
compensation expense of $108,300.

The interim CFO was granted 10,000 options in March 2001.
The options, which have a $7.98 exercise price, vest evenly over
3 years and expire in March 2007. The Company will record
the majority of the compensation expense associated with these
options during fiscal 2002.

11.  Contingencies:

The Company is a defendant in a personal injury lawsuit in which
plaintiffs allege their infant son experienced respiratory and
cardiac arrest while in daycare, resulting in brain damage and
developmental abnormality. Plaintiffs have not communicated any
settlement demand and the Company intends to vigorously contest
liability. This case is still in the early stages of discovery
and no estimate can be made at this time as to the possible
amount of loss, if any, that may result from this lawsuit. The
Company believes that any liability regarding this lawsuit will
be covered under the Companys insurance policies.

In addition to the above matter, there are 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.

12.  Restructuring and Impairment Charges:

In January 2001, the Company hired a new senior management
team, who reviewed the Companys operations and developed a
new strategic direction. This review identified short and long
term profitability goals and identified areas designed to
improve productivity and reduce operating costs.

The Company instituted a restructuring program and incurred a
charge of $4,000,000 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. Approximately 200 employees were or will be
involuntarily terminated in connection with the closures of
Oxford Learning Centers of America and the 19 under-performing
Childtime centers. As of June 14, 2001, all but one of the
under-performing centers have been closed. These
under-performing centers generated operating losses in fiscal
2001 of $526,000 on revenues of $6,132,000, while Oxford
Learning Centers of America generated operating losses of
$818,000 on revenues of $465,000.

The total restructuring charge of $4,000,000 is comprised of
$1,915,000 related to estimated undiscounted lease termination
costs, $1,539,000 related primarily to write-offs of fixed and
intangible assets and $546,000 related to severance costs.
Included as a current liability in the March 30, 2001
balance sheet is $2,410,000 of accrued restructuring expenses.

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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)



12.  Restructuring and Impairment Charges 
(Continued)


In accordance with the Statement of Financial Accounting
Standards 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
$1,447,000 in the fourth quarter of the current fiscal year to
write down a portion of the recorded asset values of 14 of the
Companys other under-performing centers to estimated fair
values.

13.  Supplemental Cash Flow Information:

|                                   |              |                |   |           |  |          |   |       |  |  |   |       | 
|---------------------------------- | ------------ | -------------- | - | --------- |  | -------- | - | ----- |  |  | - | ----- | 
|                                   |              | March 30,      |   | March 31, |  | April 2,
|                                   |              | 2001           |   | 2000      |  | 1999    
|                                   |              |                |   |           |  |         
|                                   |              |               
|                                   |              | (In thousands)
|                                  
|                                  
|                                  
|                                  
|Cash payments during the year for: |              |                |   |           |  |          |   |       |  |  |   |      
|                                  
|                                  
|                                  
|                                  
|                                   | Interest     |                | $ | 1,003     |  |          | $ | 371   |  |  | $ | 316   | 
|                                  
|                                  
|                                  
|                                  
|                                   | Income taxes |                | $ | 2,265     |  |          | $ | 2,867 |  |  | $ | 3,119 | 

In connection with the acquisition of certain assets, the
Company incurred debt of $1,732,500, $6,283,500 and $1,582,500
in 2001, 2000 and 1999, respectively.

14.  Book Overdrafts:

Book overdrafts represent unfunded checks drawn on zero balance
accounts that have not been presented for funding to the
Companys banks. The overdrafts are funded, without bank
finance charges, as soon as they are presented. The aggregate
book overdrafts for the year ended March 30, 2001 was
$2,806,000 as compared to $3,457,000 for March 31, 2000.

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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

15.  Quarterly Data (unaudited):

The following table shows certain unaudited financial
information for the Company for the interim periods indicated.
As discussed in Note 2(k), the Company changed its method
of revenue recognition related to registration and materials
fees effective April 1, 2000. Accordingly, the following
unaudited quarterly operating results for the first three
quarters of the year ended March 30, 2001 have been restated to
reflect the impact of the change in accounting method as if
adopted on April 1, 2000. Additionally, quarterly results
may vary from year to year depending on the timing and amount of
revenues and costs associated with new center development and
acquisitions, as well as certain other costs, including
restructuring and impairment charges of $4,000,000 and
$1,447,000, respectively, during the last quarter of fiscal 2001.

|                                                                   |  |                                       |        |                 |  |                  |        |                |  |          |        |            |  |          |        |  |  |   |        |  |  |   |        |  |  |   |        |  
|------------------------------------------------------------------ |  | ------------------------------------- | ------ | --------------- |  | ---------------- | ------ | -------------- |  | -------- | ------ | ---------- |  | -------- | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ | -
|                                                                   |  |                                      
|                                                                   |  | Quarterly Data                       
|                                                                   |  |                                      
|                                                                   |  | Fiscal 2001                          
|                                                                   |  |                                      
|                                                                   |  |                                       |        |                 |  |                  |        |               
|                                                                   |  | 12 Weeks Ended                        |        | 12 Weeks Ended  |  | 12 Weeks Ended   |        | 16 Weeks Ended
|                                                                   |  | March 30, 2001                        |        | January 5, 2001 |  | October 13, 2000 |        | July 21, 2000 
|                                                                   |  |                                       |        |                 |  |                  |        |               
|                                                                   |  |                                       |        | As              |  |                  |        | As             |  |          |        | As         |  |         
|                                                                   |  | As                                    |        | Previously      |  | As               |        | Previously     |  | As       |        | Previously |  | As      
|                                                                   |  | Reported                              |        | Reported        |  | Adjusted         |        | Reported       |  | Adjusted |        | Reported   |  | Adjusted
|                                                                   |  |                                       |        |                 |  |                  |        |                |  |          |        |            |  |         
|                                                                   |  |                                      
|                                                                   |  | (In thousands, except per share data)
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Revenue                                                            |  | $                                     | 34,989 |                 |  | $                | 33,073 |                |  | $        | 33,109 |            |  | $        | 33,693 |  |  | $ | 33,284 |  |  | $ | 45,861 |  |  | $ | 46,055 |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Gross Profit                                                       |  | $                                     | 3,656  |                 |  | $                | 3,643  |                |  | $        | 3,679  |            |  | $        | 3,352  |  |  | $ | 2,943  |  |  | $ | 5,696  |  |  | $ | 5,890  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Cumulative effect of change in accounting
	principle (net of  tax) |  | $                                     |       |                 |  | $                |       |                |  | $        |       |            |  | $        |       |  |  | $ |       |  |  | $ |       |  |  | $ | (275   | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Net income (loss)                                                  |  | $                                     | (2,741 | )               |  | $                | 669    |                |  | $        | 693    |            |  | $        | 603    |  |  | $ | 337    |  |  | $ | 1,251  |  |  | $ | 1,102  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Earnings (loss) per share  Diluted                                |  | $                                     | (0.52  | )               |  | $                | 0.13   |                |  | $        | 0.13   |            |  | $        | 0.12   |  |  | $ | 0.07   |  |  | $ | 0.25   |  |  | $ | 0.22   |  

|                             |  |                |        |                 |  |                  |        |                |  |   |        |  |  |   |        | 
|---------------------------- |  | -------------- | ------ | --------------- |  | ---------------- | ------ | -------------- |  | - | ------ |  |  | - | ------ | 
|                             |  |               
|                             |  | Fiscal 2000   
|                             |  |               
|                             |  | 12 Weeks Ended |        | 12 Weeks Ended  |  | 12 Weeks Ended   |        | 16 Weeks Ended
|                             |  | March 31, 2000 |        | January 7, 2000 |  | October 15, 1999 |        | July 23, 1999 
|                             |  |                |        |                 |  |                  |        |               
|Revenue                      |  | $              | 32,364 |                 |  | $                | 28,865 |                |  | $ | 28,763 |  |  | $ | 38,744 | 
|                            
|                            
|                            
|                            
|Gross profit                 |  | $              | 4,474  |                 |  | $                | 3,320  |                |  | $ | 3,548  |  |  | $ | 5,222  | 
|                            
|                            
|                            
|                            
|Net income                   |  | $              | 1,168  |                 |  | $                | 507    |                |  | $ | 974    |  |  | $ | 1,680  | 
|                            
|                            
|                            
|                            
|Earnings per share  Diluted |  | $              | 0.23   |                 |  | $                | 0.10   |                |  | $ | 0.18   |  |  | $ | 0.31   | 

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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 April 2, 1999, reserve for
	doubtful accounts and claims  |  | $                    | 225 |          |  | $          | 278 |            |  | $      | 0 |  |  | $ | (248 | ) |  | $ | 255 | 
|                                                                            |  |                      |     |          |  |            |     |            |  |        |   |  |  |   |      |   |  |   |     | 
|Fiscal year ended March 31, 2000, reserve
	for doubtful accounts and claims |  | $                    | 255 |          |  | $          | 385 |            |  | $      | 0 |  |  | $ | (345 | ) |  | $ | 295 | 
|                                                                            |  |                      |     |          |  |            |     |            |  |        |   |  |  |   |      |   |  |   |     | 
|Fiscal year ended March 30, 2001, reserve
	for doubtful accounts and claims |  | $                    | 295 |          |  | $          | 454 |            |  | $      | 0 |  |  | $ | (393 | ) |  | $ | 360 | 
|                                                                            |  |                      |     |          |  |            |     |            |  |        |   |  |  |   |      |   |  |   |     | 

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INDEX TO EXHIBITS


|        |      |  |  |   |  |                                                                                                                                                                                                                                                                                     
|------- | ---- |  |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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  |  |  |  |  | Restated Bylaws of the Registrant, filed as
	Exhibit 3.4 to the Registrants Form S-1
	Registration Statement (Registration No. 33-99596), are
	incorporated herein by reference.                                                                                                   
|        | 4.1  |  |  |  |  | Common Stock Purchase Warrant between Security
	Pacific Business Credit Inc. (SPBC) and KD
	Acquisition Corporation (Acquisition), filed as
	Exhibit 4.1 to the Registrants Form S-1
	Registration Statement (Registration No. 33-99596), is
	incorporated herein by reference.
|        | 4.2  |  |  |  |  | Credit Agreement between Childtime Childcare,
	Inc. (Childtime) and NBD Bank dated as of
	February 1, 1996, filed as Exhibit 4 to the
	Registrants Form 10-Q for the quarter ended
	January 5, 1996, is incorporated herein by reference.                                        
|        | 4.3  |  |  |  |  | First Amendment to Common Stock Purchase Warrant
	between SPBC and Acquisition dated as of December 28, 1995,
	filed as Exhibit 4.4 to the Registrants Form S-1
	Registration Statement (Registration No. 33-99596), is
	incorporated herein by reference.                         
|        | 4.4  |  |  |  |  | First Amendment to Credit Agreement between
	Childtime and NBD Bank dated as of February 1, 1996, filed
	as Exhibit  4.5 to the Registrants Form 10-K for
	the year ended April  2, 1999, is incorporated herein by
	reference.                                                    
|        | 4.5  |  |  |  |  | Second Amendment to Credit Agreement between
	Childtime and NBD Bank dated as of April 1, 1999, filed as
	Exhibit 4.1 to the Registrants Form 10-Q for the
	quarter ended January 7, 2000, is incorporated herein by
	reference.                                                   
|        | 4.6  |  |  |  |  | Third Amendment to Credit Agreement between
	Childtime and Bank One, Michigan (f/k/a/ NBD Bank), dated as of
	December  6, 1999, filed as Exhibit 4.2 to the
	Registrants Form  10-Q for the quarter ended
	January 7, 2000, is incorporated herein by reference.                  
|        | 4.7  |  |  |  |  | Letter Agreement to amend the Total Liabilities
	to Tangible Net Worth negative covenant pursuant to the
	February 1, 1996 Credit Agreement.                                                                                                                                        
|        | 4.8  |  |  |  |  | Fourth Amendment to Credit Agreement between
	Childtime and Bank One, Michigan (f/k/a NBD Bank), dated as of
	November  11, 2000, filed as Exhibit 4.1 to the
	Registrants Form  10-Q for the quarter ended
	October 13, 2000, is incorporated herein by reference.                
|        | 9    |  |  |  |  | Letter agreement dated July 6, 2000, among
	Childcare Associates, KD Partners II and Jacobson Partners.                                                                                                                                                                             
|        | 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.                                                                                                                                                                                                                    
|        | 10.4 |  |  |  |  | Letter agreement dated July 6, 2000, between
	Registrant and Jacobson Partners, regarding management and
	financial consulting services.                                                                                                                                            
|        | 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.                                                            

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|        |      |  |  |   |  |                                                                                                                                                                                                                             
|------- | ---- |  |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |  |  
|Number  |      |  |  |  
|        |      |  |  |  
|        | 10.6 |  |  |  |  | Consulting Agreement dated January 19, 2001 between the
	Registrant and Leonard C. Tylka, filed as Exhibit 10.2 to
	the Registrants Form 10-Q for the quarter ended
	January  5, 2001, is incorporated herein by reference.
|        | 10.7 |  |  |  |  | Employment Separation Agreement and Mutual Release dated
	February 14, 2001, among the Registrant, Childtime and
	Harold A. Lewis.                                                                                          
|        | 10.8 |  |  |  |  | Employment Separation Agreement and Mutual Release dated
	February 12, 2001, among the Registrant, Childtime and
	Michael M. Yeager.                                                                                        
|        | 21   |  |  |  |  | List of Subsidiaries.                                                                                                                                                                                                       
|        | 23   |  |  |  |  | Consent of PricewaterhouseCoopers, LLP, dated June 20, 2001.                                                                                                                                                                

E-2