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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 FOR THE FISCAL YEAR ENDED APRIL 2, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FOR THE TRANSITION PERIOD FROM                 TO              .

   COMMISSION FILE NUMBER 0-27656

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

                         CHILDTIME LEARNING CENTERS, INC.
              (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>

                   MICHIGAN                                      38-3261854
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)
</TABLE>

     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] No [ ]

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

     The aggregate market value of voting Common Stock held by non-affiliates of
the registrant as of May 24, 1999, computed by reference to the last sale price
for such stock on that date as reported on the NASDAQ National Market System,
was approximately $29,439,000.

     At May 24, 1999, the number of shares outstanding of the registrant's
Common Stock, without par value, was 5,431,655.

     Portions of the registrant's Proxy Statement for its 1999 Annual Meeting of
Shareholders have been incorporated by reference in Part III of this Annual
Report on Form 10-K.

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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,
identification and availability of quality acquisition or new development
targets, continuation of federal and state assistance programs, demand for child
care, Year 2000 readiness of the Company and third parties, 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 270 child care centers
as of April 2, 1999, located in 19 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 April 2, 1999, the Company had approximately 29,000 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 270 child care centers at April 2, 1999, were 48 "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 year
ended March 28, 1997, contained 52 weeks, the fiscal year ended April 3, 1998,
contained 53 weeks, while the fiscal year ended April 2, 1999, contained 52
weeks. The fourth quarter of fiscal 1998 contained 13 weeks, as compared to 12
weeks in the fourth quarter of both fiscal 1997 and 1999.

BUSINESS STRATEGY

     The Company's business strategy is to (i) develop and acquire new centers
in areas which meet its specific demographic requirements; (ii) maintain and
enhance profitability through a program of financial planning, budgeting and
cost control; (iii) continue to invest in its centers to maintain and improve
quality; (iv) emphasize its sales and marketing programs aimed at increasing new
enrollments and promoting customer loyalty; (v) offer programs to better utilize
its centers on year-round basis; 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. Other than at certain
     employer-sponsored sites, all centers operate under the

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     "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 center facilities are well maintained, similarly equipped
     and utilize the closed classroom concept. The Company has two prototype
     designs to be used 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 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.

          Balanced Growth Strategy. The Company's strategy for growth consists
     of a combination of acquisitions of existing child care centers and
     development of new build-to-suit centers. Other large multi-unit operators
     often rely solely on acquisitions or, alternatively, new center
     construction. In addition to acquiring or building centers in residential
     areas, the Company also actively pursues contracts with employers and
     office complex managers to operate centers in at-work locations. The
     Company believes that its ability to grow both through the acquisition of
     existing child care centers and development of build-to-suit centers
     affords it greater flexibility to sustain its controlled growth strategy in
     various geographic markets. See "Growth Strategy" below.

GROWTH STRATEGY

     The Company has a strategy to expand its business through a combination of
acquisitions and the development of new build-to-suit centers. The following
table sets forth the numbers of child care centers acquired or otherwise opened,
as well as closed, during the periods indicated.

<TABLE>
<CAPTION>
                                                                      FISCAL YEAR ENDED
                                                              ---------------------------------
                                                              APRIL 2,    APRIL 3,    MARCH 28,
                                                                1999        1998        1997
                                                              --------    --------    ---------
<S>                                                           <C>         <C>         <C>
NUMBER OF CENTERS:
Beginning of period.........................................    242         211          174
  Additions during period:
     Acquisitions and other.................................     23          26           29
     New builds and new leases..............................      7           9            8
                                                                ---         ---          ---
  Total additions...........................................     30          35           37
  Closings during period....................................     (2)         (4)           0
                                                                ---         ---          ---
End of period...............................................    270         242          211
                                                                ===         ===          ===
</TABLE>

     The Company expects to add 35 to 40 new centers in fiscal 2000 through both
residential sites and at-work sites. In making its expansion decisions, the
Company strives to add units in its existing markets in order to increase market
concentration and to leverage administrative and advertising expenses. Entry
into new markets is also considered, but only if these markets can eventually
support a minimum of ten centers. The Company's decision whether to add a new
center by acquisition or by opening a new location is based on which alternative
best meets its needs and objectives.

     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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criteria: an above-average concentration in the percentage of children under age
six; a minimum population density of 25,000 people within a three-mile radius
surrounding a proposed site; and an average household income in excess of
$50,000. The Company also analyzes the percentage of the population consisting
of college-educated, dual income families, as well as the average home value in
the target area. The Company believes that parents in more affluent areas are
more willing to pay a slight premium for higher quality child care services.

     In addition to acquiring or building centers in residential areas, the
Company also actively pursues 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 expects to capitalize on this trend by actively pursuing contracts with
employers, as well as selectively acquiring existing at-work centers.

     The Company's acquisition activity is limited to child care centers in
market areas showing strong growth potential and to sites which the Company
believes can conform to its standard facility and educational format.
Historically, the Company has targeted its acquisition activities on less
profitable centers which meet its demographic criteria. The Company believes
that it can continue to acquire centers on terms which compare favorably with
the costs and risks of establishing new facilities. Management is continually
reviewing possible acquisition candidates (including, from time to time,
multi-unit child care operations consisting of more than ten centers), although
there are no assurances that the Company will be able to continue acquiring
acceptable centers. In addition, the Company has accelerated its development
activities over the past few years. In an effort to standardize its
build-to-suit centers, the Company has developed building prototypes which
accommodate 120 to 180 children. Although the Company engages in an active new
site selection process, there are no assurances 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. Staffs 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 its use of a curriculum
prepared by independent educators with expertise in the education of young
children enables it to take advantage of professional expertise that is not
otherwise available to it 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 care 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.

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     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 listening and
     language skills and 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 and small muscles for grasping,
     reaching, holding and picking up objects.

  YOUNG TODDLER (1 - 2 YEARS)

          Classroom space and materials are organized to support the young
     toddler's need to physically explore and 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
     provide repeated opportunities with sensory experiences to help develop
     large and small muscles and thinking skills, and to promote 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 material 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 to become familiar
     with the sequence of routines and 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,
     develop eye-hand coordination and develop large muscles.

  PRESCHOOL 1 (3 - 4 YEARS)

          Classroom space and materials are organized in distinct interest
     centers to support young preschoolers' initiative to practice and test
     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 and pretend play, and develop the ability to play
     cooperatively. Small muscles and eye-hand coordination continue to be
     strengthened through art activities, sand and water play and work 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), and expand listening and speaking
     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.

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  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 interest in writing. Educational interest
     centers continue to provide opportunities for hands-on exploration to
     sharpen observation skills, explore cause and effect, share and play
     cooperatively with others, plan and carry out a task and engage in
     independent or group play for an extended period of time. Materials are
     provided to encourage representation and 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 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 interest, perfect
     coordination of large and small muscles and perceptual motor coordination,
     and to learn to work with others. The environment is designed to engage
     children in activities (arts and crafts, cooking, dramatize 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
the Company's 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. The Company's child care operations consist of an Eastern Region,
a Central Region and a Western Region, each headed by a Regional Vice President.
These three regions are further divided into 21 areas, each of which is managed
by an area manager. Area managers are generally responsible for the operation
and performance of nine to eighteen 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 $99 to $245, 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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reviews its tuition rates at least once each year to determine whether rates at
a particular center should be changed in light of that center's competitive
environment and financial results.

     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 law 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 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 one of the three Regional Vice Presidents. Area
managers also work very closely with other corporate staff members, such as the
Director of Real Estate, Vice President-Marketing or Vice President of Human
Resources, 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
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 on such subjects as interpersonal
and business skills, basic financial concepts and marketing, and regularly
conducts seminars for its area managers and directors. 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. All center staff is required to participate in
orientation and training sessions. In addition, the Company has developed and
implements, on an ongoing basis, extensive training programs 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 care and safety of the children
enrolled in its centers. Each center has at least one staff member trained in
first aid. Furthermore, all members of a center's staff are trained to be
protective of the security of each child. Precautions are taken to ensure the
safety and well being of all children, and children must be signed in or out of
a center only by a parent or other guardian or by a person authorized by the
parents or other guardian. The Company has received isolated allegations
relating to child physical or sexual abuse by its employees. It is the Company's
policy, and State law requires, that the Company and its staff report any
allegation of abuse to the appropriate authorities for investigation.

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Additionally, the Company's policy is to place any accused employee on paid
administrative leave pending investigation of the alleged misconduct. Although
the Company's procedures are designed to prevent incidents of child abuse, no
assurances can be made that allegations of child abuse will not occur in the
future.

     Management believes that pending cases of allegations of child physical or
sexual abuse by its employees would be fully covered under the Company's
insurance policy limits and would not materially affect the financial position,
operations, or cash flow position of the Company. The Company maintains general
liability insurance, as well as an umbrella policy, as described under
"Insurance", covering these risks.

     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. Under this
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. 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 two prototype designs which
emphasize efficiency, lower maintenance costs and enhanced appearance. Depending
on the size of the site, these prototype designs contain either 7,900 or 6,400
square feet in a one story, air-conditioned building. The interiors primarily
consist of closed classrooms bordering an open area in the middle of the center.
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 infants and toddlers. The whole
playground is fenced 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 and indoor and outdoor play equipment.
In addition, most of the centers are equipped with personal computers and
software which is specially designed for preschoolers. Virtually all of the
centers are also equipped with Company-owned or leased vehicles for the
transportation of children to and from elementary school and for field trips.

     Licensed capacity for the same size building varies from state to state
because of different licensing requirements. A 6,400 square foot center is
typically licensed for 120 to 140 children, and a 7,900 square foot center is
typically licensed for 120 to 180 children. The aggregate licensed capacity of
the Company's centers (including those under management contracts) at April 2,
1999 was 33,694 children (or an average of 125 children per center).

     At-Work Sites. In addition to operating residential child care centers, the
Company also operated, at April 2, 1999, 48 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 Prudential Insurance
Company, Schering Plough (a division of the Schering Corporation), Blue Cross
Blue Shield of Mississippi and Henry Ford Hospital, are located on or near the
premises of a specific employer and encompass 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. 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 of offering such benefits. The Company expects to capitalize on this

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trend by actively pursuing contracts with employers, as well as acquiring
centers that serve particular employers.

MARKETING

     The Company believes that the quality of a center's director and 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. The Company expects to continue to
promote its safe and secure facilities, qualified staff and respected curriculum
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 four four-week periods comprising the first fiscal quarter and
three 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. Such was the case for the
thirteenth period of the fiscal year ended April 3, 1998. Consequently, the 1998
fiscal year was comprised of four four-week periods in the first fiscal quarter,
three four-week periods in each of the second and third fiscal quarters, and two
four-week periods and a five-week period in the fourth fiscal quarter.

     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
1999 and 1998 were very consistent and not 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. Active enrollments are
typically at their highest levels during the fourth quarter (which includes the
months of January, February and March).

     The following table shows certain unaudited financial information for the
Company for the interim periods indicated. 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.

<TABLE>
<CAPTION>
                                                                  QUARTERLY DATA
                                                                    FISCAL 1999
                                      -----------------------------------------------------------------------
                                      12 WEEKS ENDED    12 WEEKS ENDED      12 WEEKS ENDED     16 WEEKS ENDED
                                      APRIL 2, 1999     JANUARY 8, 1999    OCTOBER 16, 1998    JULY 24, 1998
                                      --------------    ---------------    ----------------    --------------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                   <C>               <C>                <C>                 <C>
Revenues............................     $28,088            $25,524            $25,323            $34,028
Gross profit........................     $ 4,401            $ 3,493            $ 3,383            $ 5,145
Net income..........................     $ 1,600            $   939            $   914            $ 1,643
Earnings per share -- Diluted.......     $  0.29            $  0.17            $  0.17            $  0.30
</TABLE>

                                        9
<PAGE>   10

<TABLE>
<CAPTION>
                                                                    FISCAL 1998
                                      -----------------------------------------------------------------------
                                      13 WEEKS ENDED    12 WEEKS ENDED      12 WEEKS ENDED     16 WEEKS ENDED
                                      APRIL 3, 1998     JANUARY 2, 1998    OCTOBER 10, 1997    JULY 18, 1997
                                      --------------    ---------------    ----------------    --------------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                   <C>               <C>                <C>                 <C>
Revenues............................     $26,216            $21,545            $21,524            $28,543
Gross profit........................     $ 4,216            $ 2,836            $ 2,904            $ 4,440
Net income..........................     $ 1,545            $   687            $   745            $ 1,369
Earnings per share -- Diluted.......     $  0.28            $  0.13            $  0.14            $  0.25
</TABLE>

     Although the operations of the Company are influenced by general economic
conditions, the Company does not believe that inflation has had a material
effect on its results of operations during the past two years.

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
higher 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 to satisfy the same health,
safety, insurance or operational regulations as the Company's centers. The
Company competes by hiring and training quality center directors and by offering
professionally-planned educational and recreational programs, modern,
well-equipped facilities, trained staff and supervisory personnel, and a range
of services, including infant and toddler care, drop in service and the
transportation of older children enrolled in the Company's before and after
school program between the Company's child care centers and schools.

PERSONNEL

     As of April 2, 1999, the Company employed approximately 5,000 persons
(including part-time and substitute caregivers), of whom 40 are employed at
corporate headquarters, 21 are area managers and the remainder are employed at
the Company's child care centers or as local field support personnel. Center
employees include center directors and assistant directors, regular full-time
and part-time caregivers, substitute caregivers and aides, and other staff,
including cooks and van drivers. All center directors 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
such matters as minimum wages overtime compensation and working conditions. A
portion of the Company's personnel (estimated to be less than 4% 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
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 compliance with health and safety

                                       10
<PAGE>   11

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 April 2, 1999, approximately 16% of the Company's
revenues were generated from federal 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. In addition, the Company
participates in the Georgia Prekindergarten Program which provides services for
eligible four-year-old children and their families. This resulted in
approximately $1,322,000 of revenue during the fiscal year ended April 2, 1999.
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 the Company to comply
with the ADA have not been significant. A determination that the Company is not
in compliance with the ADA, however, could result in the imposition of fines or
an award of damages to private litigants, and could require significant
expenditures by the Company to bring the Company's centers into compliance with
the ADA.

INSURANCE

     The Company's insurance program currently includes the following types of
policies: workers' compensation, commercial general and automobile liability,
property, 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 1998 and 1999, 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 $2,000,000 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 that the Company's current insurance coverages are adequate
to meet its needs.

                                       11
<PAGE>   12

ITEM 2. PROPERTIES

     The following table shows the locations of the Company's centers, including
those operated under management contracts, as of April 2, 1999 (the numbers in
the parentheses reflect the number of centers in that state):

<TABLE>
<S>                                       <C>
Arizona (28)                              New Jersey (7)
California (26)                           New York (31)
Florida (15)                              Ohio (17)
Georgia (15)                              Oklahoma (11)
Illinois (6)                              Pennsylvania (1)
Maryland/DC (16)                          South Carolina (1)
Michigan (19)                             Texas (43)
Mississippi (1)                           Virginia (15)
Nevada (7)                                Washington (10)
                                          Wisconsin(1)
</TABLE>

     As of April 2, 1999, the Company operated 270 centers, 210 of which were
operated under lease or operating agreement, 53 of which were owned and 7 of
which were operated under management contracts. The leases have terms ranging
from one to 25 years, often with renewal options, with most leases having an
initial term of five 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.

     As of April 2, 1999, the Company had leases or operating agreements with
initial terms (including renewal options) expiring as follows:

<TABLE>
<CAPTION>
                                                              NUMBER OF
                                                              LEASES OR
                                                              OPERATING
                                                              AGREEMENTS
FISCAL YEAR                                                    EXPIRING
-----------                                                   ----------
<S>                                                           <C>
2000-2001...................................................      41
2002-2003...................................................      21
2004-2007...................................................      51
2008 and later..............................................      97
</TABLE>

     The Company also owns five undeveloped sites acquired prior to 1990. These
properties do not currently fit within the Company's long-term growth strategy.
Accordingly, these sites are carried on the Company's books at an estimated
realizable value aggregating $512,450 and are held for sale.

     The Company currently leases approximately 10,120 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 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.

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
<PAGE>   13

                                    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 April 2, 1999, and April 3, 1998, the high and low closing
sale prices for the Company's Common Stock.

<TABLE>
<CAPTION>
                                                                  COMMON STOCK
                                                                  SALES PRICES
                                                                ----------------
                                                                 HIGH      LOW
                                                                 ----      ---
<S>                                                             <C>       <C>
Fiscal 1999:
  1st Quarter...............................................    $25.00    $16.00
  2nd Quarter...............................................    $21.25    $13.25
  3rd Quarter...............................................    $15.63    $12.88
  4th Quarter...............................................    $16.75    $12.25
Fiscal 1998:
  1st Quarter...............................................    $10.50    $ 8.75
  2nd Quarter...............................................    $13.00    $ 9.13
  3rd Quarter...............................................    $14.50    $ 9.50
  4th Quarter...............................................    $16.75    $14.06
</TABLE>

     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 7, 1999, there were approximately 1,203 holders of the Company's
Common Stock (including individual participants in security position listings).

                                       13
<PAGE>   14

ITEM 6. SELECTED FINANCIAL DATA

     The following table sets forth, for the periods indicated, selected data
from the Company's financial statements. This table and subsequent discussions
should be read in conjunction with the Consolidated Financial Statements and
related Notes appearing elsewhere in this Report.

         CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARIES

<TABLE>
<CAPTION>
                                               APRIL 2,     APRIL 3,    MARCH 28,    MARCH 29,    MARCH 31,
                                                 1999         1998         1997         1996         1995
                                              (52 WEEKS)   (53 WEEKS)   (52 WEEKS)   (52 WEEKS)   (52 WEEKS)
                                              ----------   ----------   ----------   ----------   ----------
                                                    (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S>                                           <C>          <C>          <C>          <C>          <C>
SELECTED INCOME STATEMENT DATA:
Revenues....................................   $112,963     $97,828      $78,634      $65,623      $55,339
Cost of revenues............................     96,541      83,432       66,437       53,951       44,717
                                               --------     -------      -------      -------      -------
          Gross profit......................     16,422      14,396       12,197       11,672       10,622
Marketing expenses..........................      1,455       1,265        1,161        1,038          929
General and administrative expenses.........      6,853       6,193        5,393        5,139        5,072
Revaluation of land held for disposal.......         --          --           --          612           --
                                               --------     -------      -------      -------      -------
       Operating income.....................      8,114       6,938        5,643        4,884        4,621
Interest expense............................        312         287          160        1,800        2,135
Interest (income)...........................       (240)       (226)        (189)         (39)          --
Other (income), net.........................       (119)        (34)        (399)        (331)        (386)
                                               --------     -------      -------      -------      -------
       Income before income taxes and
          extraordinary item................      8,161       6,911        6,071        3,453        2,872
Income tax provision........................      3,065       2,565        1,751        1,326        1,092
                                               --------     -------      -------      -------      -------
Income before extraordinary item............      5,096       4,346        4,320        2,127        1,780
Extraordinary item, gain on extinguishment
  of debt, net of tax.......................         --          --           --          148           --
                                               --------     -------      -------      -------      -------
       Net income...........................   $  5,096     $ 4,346      $ 4,320      $ 2,275      $ 1,780
                                               ========     =======      =======      =======      =======
Earnings per share -- Basic.................   $   0.94     $  0.80      $  0.80      $  0.60      $  0.46
                                               ========     =======      =======      =======      =======
Earnings per share -- Diluted...............   $   0.93     $  0.80      $  0.80      $  0.60      $  0.46
                                               ========     =======      =======      =======      =======

SELECTED BALANCE SHEET DATA:
Total assets................................   $ 62,611     $58,118      $50,286      $44,688      $40,967
Total debt..................................   $  2,638     $ 3,062      $ 2,272      $ 1,236      $19,424
Total shareholder's equity..................   $ 46,407     $41,287      $35,489      $31,109      $ 9,529

SELECTED OPERATING DATA:
Number of centers (at end of period)........        270         242          211          174          148
Center capacity (at end of period)(1).......     32,832      28,911       24,280       19,922       16,836
Average utilization(1)......................       62.0%       62.5%        63.4%        66.5%        67.2%
</TABLE>

-------------------------
(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.).

                                       14
<PAGE>   15

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 128, at the beginning of fiscal year 1995, to 270 at fiscal year
end 1999. The Company has achieved this growth through a combination of
acquisitions, prototype build-to-suit centers, and new leases. The Company has
continued to increase the number of centers in both "at-work" and residential
locations.

     Fiscal year 1999 growth consisted of 30 centers. The additions included 21
acquisitions, 2 management contracts, 2 new leases, and 5 build-to-suit leased
centers. The Company also closed 2 centers.

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:

<TABLE>
<CAPTION>
                                                   PERCENTAGE OF REVENUE               PERCENTAGE INCREASE
                                                     FISCAL YEAR ENDED                      (DECREASE)
                                           --------------------------------------    ------------------------
                                            APRIL 2,      APRIL 3,     MARCH 28,     FY99 OVER     FY98 OVER
                                              1999          1998          1997          FY98          FY97
                                           (52 WEEKS)    (53 WEEKS)    (52 WEEKS)    (52 WEEKS)    (52 WEEKS)
                                           ----------    ----------    ----------    ----------    ----------
<S>                                        <C>           <C>           <C>           <C>           <C>
Revenues.................................    100.0%        100.0%        100.0%         15.5%         24.4%
Cost of revenues.........................     85.5%         85.3%         84.5%         15.7%         25.6%
                                             -----         -----         -----         -----         -----
  Gross profit...........................     14.5%         14.7%         15.5%         14.1%         18.0%
Marketing expenses.......................      1.3%          1.3%          1.5%         14.9%          9.0%
General and administrative expenses......      6.1%          6.3%          6.9%         10.7%         14.8%
                                             -----         -----         -----         -----         -----
  Operating income.......................      7.2%          7.1%          7.2%         17.0%         22.9%
Interest expense.........................      0.3%          0.3%          0.2%          9.0%         79.4%
Interest (income)........................     (0.2)%        (0.2)%        (0.2)%         6.3%         19.6%
Other (income), net......................     (0.1)%        (0.0)%        (0.5)%       258.3%        (91.5)%
                                             -----         -----         -----         -----         -----
  Income before income taxes.............      7.3%          7.1%          7.7%         18.1%         13.8%
Income tax provision.....................      2.7%          2.6%          2.2%         19.5%         46.5%
                                             -----         -----         -----         -----         -----
  Net income.............................      4.5%          4.4%          5.5%         17.3%          0.6%
                                             =====         =====         =====         =====         =====
</TABLE>

     FISCAL 1999 COMPARED TO FISCAL 1998. Revenues increased to $113.0 million
in fiscal 1999 (52 weeks), from $97.8 million in fiscal 1998 (53 weeks), a 15.5%
increase. Of that increase, 14.7% came from centers added during fiscal 1999 and
from the full year impact of centers opened in fiscal 1998. The remaining
increase came from comparable center revenue growth (revenues from centers
operating during all of fiscal 1999 and fiscal 1998), partially offset by
centers closed in fiscal 1999. Comparable center revenue growth was 1.2%, or
$1.2 million over last year's comparable center revenues. This growth in
comparable center revenues resulted primarily from increases in tuition rates.
The Company's fiscal 1998 revenues, however, benefited from an additional week
of revenue ($2,068,000) as a result of the Company's policy to utilize a 52 --
53 week fiscal year ending on the Friday closest to March 31.

     Gross profit increased to $16.4 million in fiscal 1999 from $14.4 million
in fiscal 1998, an increase of 14.1%. As a percentage of revenues, gross profit
decreased to 14.5% in fiscal 1999 from 14.7% in fiscal 1998. This decrease in
margin was primarily due to the Company continuing to add new centers, which
early in their operations will experience initial start up costs, operating
losses and/or low margins. In addition, in fiscal 1998 the Company benefited
from an additional week of gross profit as a result of the Company's policy to
utilize a 52 -- 53 week fiscal year ending on the Friday closest to March 31.

     Marketing expenses increased to $1.5 million in fiscal 1999 from $1.3
million in fiscal 1998, a 14.9% increase. The increase was primarily due to the
additional marketing expenses relating to the opening or

                                       15
<PAGE>   16

acquisition of 30 new centers in fiscal 1999 as well as a full year of expense
for the 35 new centers opened or acquired in fiscal 1998. As a percentage of
revenues, however, marketing expenses remained constant at 1.3% for both fiscal
1999 and 1998, due primarily to operating leverage provided by higher revenues.

     General and administrative expenses increased to $6.9 million in fiscal
1999, from $6.2 million in 1998, a 10.7% increase. As a percentage of revenues,
however, general and administrative expenses decreased to 6.1% in fiscal 1999
from 6.3% in fiscal 1998, due primarily to operating leverage provided by higher
revenues.

     Interest expense remained constant at $0.3 million in fiscal 1999 and 1998.
As a percentage of revenues, interest expense remained constant at 0.3% in
fiscal 1999 and 1998.

     Other income increased to $0.1 million in fiscal 1999 from $0.03 million in
fiscal 1998. This increase is due to the Company's early retirement of certain
acquisition debt that resulted in a gain of approximately $82,000.

     The provision for income tax increased to $3.1 million (an effective rate
of 37.6%) in fiscal 1999 from $2.6 million (an effective rate of 37.1%) in
fiscal 1998.

     As a result of the foregoing changes, the Company's net income was $5.1
million, or 4.5% of revenues, in fiscal 1999 as compared to $4.3 million, or
4.4% of revenues, in fiscal 1998.

     FISCAL 1998 COMPARED TO FISCAL 1997. Revenues increased to $97.8 million in
fiscal 1998 (53 weeks) from $78.6 million in fiscal 1997 (52 weeks), a 24.4%
increase. Of that increase, 21.0% came from centers added during fiscal 1998 and
from the full year impact of centers opened in fiscal 1997. The remaining 3.4%
came from comparable center revenue growth (revenues from centers operating
during all of fiscal 1998 and fiscal 1997). Comparable center revenue growth was
4.2%, or $3.0 million over last year's comparable center revenues. This growth
in comparable center revenues resulted primarily from increases in tuition rates
and to a lesser extent, increases in center utilization. In addition, the
Company benefited from an additional week of revenue in fiscal 1998 as a result
of the Company's policy to utilize a 52 -- 53 week fiscal year ending on the
Friday closest to March 31.

     Gross profit increased to $14.4 million in fiscal 1998 from $12.2 million
in fiscal 1997, an increase of 18.0%. As a percentage of revenues, gross profit
decreased to 14.7% in fiscal 1998 from 15.5% in fiscal 1997. This decrease in
margin was primarily due to the Company continuing to add new centers, which
early in their operations will experience initial start up costs, operating
losses and/or low margins. In addition, the Company benefited from an additional
week of gross profit in fiscal 1998 as a result of the Company's policy to
utilize a 52 -- 53 week fiscal year ending on the Friday closest to March 31.

     Marketing expenses increased to $1.3 million in fiscal 1998 from $1.2
million in fiscal 1997, a 9.0% increase. The increase was primarily due to the
additional marketing expenses relating to the opening or acquisition of 35 new
centers in fiscal 1998 as well as a full year of expense for the 37 new centers
opened or acquired in fiscal 1997. As a percentage of revenues, however,
marketing expenses decreased to 1.3% in fiscal 1998 from 1.5% in fiscal 1997,
due primarily to operating leverage provided by higher revenues.

     General and administrative expenses increased to $6.2 million in fiscal
1998, from $5.4 million in 1997, a 14.8% increase. As a percentage of revenues,
however, general and administrative expenses decreased to 6.3% in fiscal 1998
from 6.9% in fiscal 1997, due primarily to operating leverage provided by higher
revenues.

     Interest expense increased to $0.3 million in fiscal 1998 from $0.2 million
in fiscal 1997. As a percentage of revenues, interest expense increased to 0.3%
in fiscal 1998 from 0.2% in fiscal 1997.

     The provision for income tax increased to $2.6 million (an effective rate
of 37.1%) in fiscal 1998 from $1.8 million (an effective rate of 28.8%) in
fiscal 1997. The increase in the effective tax rate was principally due to the
$600,000 tax credit (a 9.4% impact) realized in the third quarter of fiscal 1997
as a result of the settlement with the IRS regarding the deductibility of
certain acquisition costs. See Note 6 of the Notes to the Consolidated Financial
Statements included as part of Item 14 of this Report.

     As a result of the foregoing changes, the Company's net income was $4.3
million, or 4.4% of revenues, in fiscal 1998 as compared to $4.3 million, or
5.5% of revenues, in fiscal 1997.
                                       16
<PAGE>   17

LIQUIDITY AND CAPITAL RESOURCES

     The Company's primary cash requirements during fiscal 1999 and 1998 were
new center expansion (through development of build-to-suit centers, new leases
and acquisitions), maintenance of existing centers and the repayment of debt and
related interest. The Company's primary cash requirements for fiscal 2000 will
be its new center expansion program, maintenance of existing centers and the
repayment of debt and related interest. The Company believes that operating cash
flows, together with amounts available under a $5 million 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. As a result of the
Company's cash position and its three plus years history of funding growth
internally, the Company has reduced the availability on its line of credit from
$10,000,000 to $5,000,000 effective April 5, 1999. The line of credit bears
annual interest at either the prime rate or an adjusted Eurodollar based rate,
at the Company's option.

     The Company has obtained a waiver as of April 2, 1999 and has amended
certain covenant calculations in the credit agreement between the Company and
its lending institution. This was in response to a technical default at April 2,
1999. During fiscal year 1999, and at April 2, 1999, no borrowings were incurred
under this credit agreement.

     Cash balances of $5.8 million and debt of $2.6 million at April 2, 1999,
will allow the Company to continue to internally fund its growth. Net cash
provided by operations was $6.6 million during fiscal 1999 and $8.4 million
during fiscal 1998. During the fiscal 1999 period, the cash provided by
operations, and additionally proceeds from the sale of assets ($1.1 million),
were principally used to add 30 centers, make capital improvements to existing
centers (aggregating $3.2 million), repay current installments due on
acquisition debt ($1.1 million), retire certain acquisition debt ($0.9 million),
upgrade information technology systems, and increase cash balances ($0.3
million). 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 $144,000 during fiscal 1998, $163,000 during fiscal
1999, and has plans to spend approximately $75,000 -- $150,000 to complete this
plan during the next 12 months. The Company incurred additional seller-financed
notes payable of approximately $1,583,000 during fiscal 1999 relating to the
acquisition of centers.

     Net accounts receivable increased to $3.1 million at April 2, 1999, from
$2.5 million at April 3, 1998. This increase was principally due to increased
participation in federal child care assistance programs and general growth in
revenues. Reimbursable construction costs decreased to $0.2 million at April 2,
1999, from $0.9 million at April 3, 1998.

     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 lease back
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 decreased to $2.8 million at April 2, 1999,
from $3.5 million at April 3, 1998. This decrease was primarily due to having a
two week accrual at April 2, 1999, as compared to a three week accrual at April
3, 1998, as a result of the Company's policy to utilize a 52 -- 53 week fiscal
year ending on the Friday closest to March 31.

     During fiscal 1999, the Company opened or acquired 30 centers, consisting
of 7 build-to-suit centers or new leases, with the balance coming from
acquisitions. Typically, the cash required to open a build-to-suit center,
consisting of capital expenditures for lease improvements and initial start-up
costs, is approximately $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,

                                       17
<PAGE>   18

upon the profitability and maturity of the centers to be acquired, as well as
their size and number. The Company has historically targeted an acquisition
price ranging from $100,000 to $300,000 per center and provides for cash down
payments generally ranging from 30% to 70% of the acquisition price. On
occasion, the Company has been required to invest an additional $10,000 to
$50,000 to bring certain acquired centers up to the Company's standards.

     During fiscal year 2000, the Company estimates opening or acquiring 35 to
40 centers. While the financial impact of acquired centers will vary with the
economic impact and size of each transaction, the Company's build-to-suit cash
requirements per center should not change substantially from prior years. The
Company's estimated total cash requirements for center expansion and ongoing
maintenance of existing centers should approximate $6.5 million in fiscal 2000.
An acquisition of a larger multi-unit operator could increase these cash
requirements.

YEAR 2000 DATE CONVERSION

     The Year 2000 Issue is the result of computer programs that were written
using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date using "00" as the Year 1900, rather than
the Year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions.

     The Company has evaluated its Year 2000 risks and compliance by identifying
three major components: information technology systems, non-information
technology systems, including internal embedded chip technology and third party
risks.

     INFORMATION TECHNOLOGY SYSTEMS. The Company has purchased and completed
implementation of its payroll, general ledger and accounts payable financial
software during fiscal 1998 and fiscal 1999, which has been represented as Year
2000 compliant by the software vendors. The Company has also purchased a center
information system, which has been certified as Year 2000 compliant from the
software vendor. The center information system is currently in the
implementation phase, with completion scheduled by the fall of 1999. Based on
Year 2000 compliance representations received from the Company's software
vendors and the successful testing of systems internally, management expects to
be in full compliance with its internal financial systems before the Year 2000.
However, if the center information system implementation is not completed on a
timely basis, or other systems fail to be Year 2000 compliant, the Year 2000
Issue could have a material impact on the operations of the Company. Management
will continue to monitor the progress of all systems and, if needed, will
develop contingency plans. Each of the above described information technology
systems were purchased pursuant to upgrades necessary to provide adequate
financial reporting and control directly connected to the growth of the Company,
rather than to address the Year 2000 Issue. Accordingly, no information systems
costs have been associated with the Year 2000 Issue. However, see Liquidity and
Capital Resources for costs associated with general upgrades.

     NON-INFORMATION AND INTERNAL EMBEDDED CHIP TECHNOLOGY. The Company has
completed its assessment with regard to imbedded chip technology and the impact
of the Year 2000 Issue on its major non-financial systems. Inquiries have been
made to the providers of non-information embedded chip systems installed at
various locations. Written and verbal confirmations have been received
documenting that such systems are either Year 2000 compliant, or that the
systems installed do not have any date driven technology. Management believes
that even if the Company is unable to achieve Year 2000 compliance for its major
non-financial systems, related Year 2000 Issues will not have a material impact
on the operations of the Company. Accordingly, the Company does not have a
contingency plan in place for its non-information and internal embedded chip
technology risk.

     THIRD PARTY RISKS. The Company has identified and contacted its
subsidy/funding providers, major vendors and financial service organizations to
determine the extent to which the Company's operations and interface systems
would be vulnerable to those third parties' failure to remedy their own Year
2000 Issues. The Company has received positive compliance status from
approximately 80 percent of identified major third party risks. Responses from
certain governmental agencies which administer tuition subsidy programs have
                                       18
<PAGE>   19

been limited or unreturned. Based on informal conversations with agencies that
have not responded, management believes the most likely worst case scenario
would be a delay in funding payments. The Company currently estimates that up to
16% of its revenues are related to subsidy/funding providers. In the event all
third party subsidy/funding providers fail to comply with Year 2000
requirements, the Company could experience cash flow delays that could have a
material impact on its operations. Management believes that, while the Company
could experience delays in collecting receivables from such third parties, the
collectibility of such receivables would not be significantly adversely
impacted. The Company has contingency plans in order to expedite resolution of
any billing discrepancies that may result from Year 2000 issues, including
maintaining all documentation related to agency contracts and authorizations,
and the issuance of child care and billings. Additional contingency plans will
be developed and implemented based on management's continued monitoring of
agency communications. To the extent that the vendor responses to Year 2000
readiness were unsatisfactory, the Company intends to change vendors to those
who have demonstrated Year 2000 readiness. There are no assurances, however,
that the Company would be successful in finding such alternative vendors.

EFFECT ON INFLATION

     The Company does not believe that inflation has had a material effect on
the results of its operations in 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-15, 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
<PAGE>   20

                                    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.

<TABLE>
<CAPTION>
                       NAME                            AGE                    POSITION
                       ----                            ---                    --------
<S>                                                    <C>    <C>
Harold A. Lewis....................................    53     President and Chief Executive Officer
Michael M. Yeager..................................    40     Vice President, Chief Financial Officer
                                                              Secretary and Treasurer
Deborah D. Ludwig..................................    45     Vice President -- Eastern Region
Taylor V. Ward.....................................    45     Vice President -- Western Region
Cherie M. King.....................................    42     Vice President -- Central Region
William H. Van Huis................................    42     Vice President -- Marketing
Kathryn C. Peel....................................    49     Vice President -- Human Resources
</TABLE>

     Six 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.
Kathryn C. Peel was appointed as an executive officer in August 1997. Cherie M.
King was appointed as an executive officer in January 1999. In addition, each
has served in the following positions:

     Harold A. Lewis has been the President and Chief Executive Officer and a
director of Childtime Childcare, Inc. since August 1991. From 1990 to 1991, he
was Chief Operating Officer International Operations of U.S. Travel Systems,
Inc., a national, multi-unit travel company headquartered in Rockville,
Maryland. From 1989 to 1990, Mr. Lewis was Chief Operating Officer of U.S.
Travel Systems, Inc. Mr. Lewis' previous experience includes 14 years with The
Dun & Bradstreet Corporation in New York, including as President of one of its
subsidiaries, Thomas Cook Travel USA, a national multi-unit travel company. Mr.
Lewis serves on the Dean's Executive Council at the Frank G. Zarb School of
Business at Hofstra University. Mr. Lewis holds an MBA from New York University.

     Michael M. Yeager has served as Chief Financial Officer, Secretary and
Treasurer of Childtime Childcare, Inc. since April 1991. From 1987 until he
joined the Company, Mr. Yeager held various executive level positions, including
Chief Financial Officer and Director of International Operations and Regional
Controller, for Domino's Pizza Distribution Corporation, located in Ann Arbor,
Michigan, a multi-unit food manufacturer and distributor. Mr. Yeager, a
certified public accountant, has a BA from Albion College.

     Deborah D. Ludwig has been the Vice President-Eastern Region 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, GCC. Ms. Ludwig has an Associates Degree from Mott Community
College in Early Childhood Development and a BA from the University of Michigan.

     Taylor V. Ward has been the Vice President-Western Region 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.

     Cherie M. King has been the Vice President-Central Region of Childtime
Childcare, Inc. since January 1999. Ms. King served as an Area Manager for
Childtime from August 1993 to her present promotion where she covered areas from
Oklahoma to Texas and was instrumental in growing the two states from 12 centers
to 54 centers. During her 22-year career in child care, she has also worked as a
Director of several centers achieving NAEYC Accreditation, as a District Manager
for Kids At Work where she developed and

                                       20
<PAGE>   21

opened corporate child care centers, and as a District Manager for KinderCare
Learning Centers in Arizona. Ms. King's educational background is in business
and sociology, with a BA to be completed in the near future.

     William H. Van Huis has 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.

     Kathryn C. Peel has been the Vice President of Human Resources of Childtime
Childcare, Inc. since April 1997. She joined Childtime in May 1993 as Director
of Human Resources. From 1989 to 1993, Ms. Peel was Director of Corporate Human
Resource Services for Mercy Health Services in Michigan. From 1984 to 1989 she
was Assistant Administrator at Egleston Hospital for Children in Atlanta,
Georgia. She has 20 years experience in human resources and communications. She
holds a BS in Journalism from The George Washington University and an MS in
Human Resources from Troy State University.

     Additional information required by this Item will be contained in the 1999
Proxy Statement of the Company under the caption, "Election of Directors," and
is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

     Information required by this Item will be contained in the 1999 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 1999 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 1999 Proxy
Statement under the caption, "Certain Transactions," and is incorporated herein
by reference.

                                       21
<PAGE>   22

                                    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 statement 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
page E-1.

     (b) REPORTS ON FORM 8-K

     No current Reports on Form 8-K were filed by the Company during the last
quarter of the fiscal year ended April 2, 1999.

                                       22
<PAGE>   23

                                   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 10, 1999.

                                          CHILDTIME LEARNING CENTERS, INC.

Dated: June 10, 1999                      By: /s/ HAROLD A. LEWIS

                                            ------------------------------------
                                            Harold A. Lewis,
                                            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 10, 1999.

<TABLE>
<CAPTION>
                  SIGNATURE                                              TITLE
                  ---------                                              -----
<S>                                              <C>

/s/ HAROLD A. LEWIS                              President, Chief Executive Officer and Director
---------------------------------------------    (Principal Executive Officer)
Harold A. Lewis

/s/ MICHAEL M. YEAGER                            Vice President and Chief Financial Officer
---------------------------------------------    (Principal Financial and Accounting Officer)
Michael M. Yeager

/s/ MILTON H. DRESNER                            Director
---------------------------------------------
Milton H. Dresner

/s/ JAMES W. GEISZ                               Director
---------------------------------------------
James W. Geisz

/s/ GEORGE A. KELLNER                            Director
---------------------------------------------
George A. Kellner

/s/ LEONARD C. TYLKA                             Director
---------------------------------------------
Leonard C. Tylka

/s/ JASON K. FELD                                Director
---------------------------------------------
Jason K. Feld

/s/ BENJAMIN R. JACOBSON                         Director
---------------------------------------------
Benjamin R. Jacobson
</TABLE>

                                       23
<PAGE>   24

               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:

<TABLE>
<CAPTION>
                                                                  PAGES
                                                                  -----
<S>                                                             <C>
Report of Independent Accountants...........................           F-2
Financial Statements:
  Consolidated Balance Sheet................................           F-3
  Consolidated Statement of Income..........................           F-4
  Consolidated Statement of Changes in Common Stock Purchase
     Warrant and Shareholders' Equity.......................           F-5
  Consolidated Statement of Cash Flows......................           F-6
  Notes to Consolidated Financial Statements................    F-7 - F-15
The following consolidated financial statement schedule of Childtime
  Learning Centers, Inc. is included herein:
  Schedule II - Valuation and qualifying accounts...........           S-1
</TABLE>

     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
<PAGE>   25

                       REPORT OF INDEPENDENT ACCOUNTANTS

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

     In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, changes in common stock purchase warrant and
shareholders' equity and cash flows present fairly, in all material respects,
the financial position of Childtime Learning Centers, Inc. and Subsidiaries (the
"Company") at April 2, 1999 and April 3, 1998, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended April 2, 1999, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards 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 the opinion expressed
above.

PricewaterhouseCoopers LLP
May 27, 1999

                                       F-2
<PAGE>   26

               CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                  APRIL 2,       APRIL 3,
                                                                    1999           1998
                                                                  --------       --------
<S>                                                             <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................    $  5,843,329    $ 5,541,122
  Accounts receivable, less allowance for doubtful accounts
    of $255,000 and
    $225,000, respectively..................................       3,126,072      2,485,811
  Reimbursable construction costs...........................         158,249        930,688
  Prepaid expenses and other................................       2,198,272      1,853,812
  Deferred income taxes.....................................       1,100,000        945,000
                                                                ------------    -----------
         Total current assets...............................      12,425,922     11,756,433
                                                                ------------    -----------
Land, buildings and equipment:
  Land......................................................       9,935,000     10,220,000
  Buildings.................................................      19,010,848     19,640,018
  Vehicles, furniture and equipment.........................      10,379,719      8,783,584
  Leasehold improvements....................................       6,766,398      5,674,308
                                                                ------------    -----------
                                                                  46,091,965     44,317,910
    Less accumulated depreciation and amortization..........     (10,718,523)    (9,359,509)
                                                                ------------    -----------
                                                                  35,373,442     34,958,401
  Land held for disposal....................................         512,450        512,450
                                                                ------------    -----------
                                                                  35,885,892     35,470,851
                                                                ------------    -----------
Other noncurrent assets:
  Intangible assets, net....................................      13,350,826     10,179,240
  Refundable deposits and other.............................         948,067        711,146
                                                                ------------    -----------
         Total assets.......................................    $ 62,610,707    $58,117,670
                                                                ============    ===========
LIABILITIES
Current liabilities:
  Current maturities of long-term debt......................    $    746,502    $   818,781
  Accounts payable..........................................       1,607,573      1,535,590
  Accrued wages and payroll taxes...........................       2,753,769      3,492,206
  Accrued vacation..........................................         971,804        913,835
  Other current liabilities.................................       3,647,344      3,108,890
                                                                ------------    -----------
         Total current liabilities..........................       9,726,992      9,869,302
Long-term debt..............................................       1,891,857      2,242,790
Deferred rent liability.....................................       1,178,617      1,400,000
Deferred income taxes.......................................       3,406,000      3,319,000
                                                                ------------    -----------
         Total liabilities..................................      16,203,466     16,831,092
                                                                ------------    -----------
Commitments and contingencies...............................              --             --
SHAREHOLDERS' EQUITY
Common stock, 10,000,000 shares authorized, no par value;
  5,431,655 and 5,429,322 issued and outstanding,
  respectively..............................................      30,836,180     30,811,877
Preferred stock, 1,000,000 shares authorized, no par value;
  no shares issued or outstanding...........................              --             --
Retained earnings...........................................      15,571,061     10,474,701
                                                                ------------    -----------
         Total shareholders' equity.........................      46,407,241     41,286,578
                                                                ------------    -----------
         Total liabilities and shareholders' equity.........    $ 62,610,707    $58,117,670
                                                                ============    ===========
</TABLE>

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

                                       F-3
<PAGE>   27

               CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                    FISCAL YEARS ENDED
                                                        ------------------------------------------
                                                          APRIL 2,       APRIL 3,       MARCH 27,
                                                            1999           1998           1997
                                                          --------       --------       ---------
<S>                                                     <C>             <C>            <C>
Revenues..............................................  $112,962,784    $97,827,659    $78,633,673
Cost of revenues......................................    96,541,248     83,431,931     66,436,784
                                                        ------------    -----------    -----------
     Gross profit.....................................    16,421,536     14,395,728     12,196,889
Marketing expenses....................................     1,454,358      1,265,356      1,161,049
General and administrative expenses...................     6,853,303      6,192,608      5,392,966
                                                        ------------    -----------    -----------
     Operating income.................................     8,113,875      6,937,764      5,642,874
Interest expense......................................       312,191        286,514        159,927
Interest income.......................................      (240,644)      (226,375)      (188,564)
Other income, net.....................................      (119,032)       (33,217)      (399,153)
                                                        ------------    -----------    -----------
     Income before income taxes.......................     8,161,360      6,910,842      6,070,664
Income tax provision..................................     3,065,000      2,565,000      1,751,000
                                                        ------------    -----------    -----------
     Net income.......................................  $  5,096,360    $ 4,345,842    $ 4,319,664
                                                        ============    ===========    ===========
Earnings per share:
  Basic...............................................  $       0.94    $      0.80    $      0.80
                                                        ============    ===========    ===========
  Diluted.............................................  $       0.93    $      0.80    $      0.80
                                                        ============    ===========    ===========
</TABLE>

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

                                       F-4
<PAGE>   28

               CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES

       CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCK PURCHASE WARRANT
                            AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                    SHAREHOLDERS' EQUITY
                                           ----------------------------------------------------------------------
                              COMMON                                                    RETAINED
                               STOCK             COMMON STOCK                           EARNINGS
                             PURCHASE      ------------------------   SUBSCRIPTIONS   (ACCUMULATED
                              WARRANT       SHARES        AMOUNT       RECEIVABLE       DEFICIT)         TOTAL
                             --------       ------        ------      -------------   ------------       -----
<S>                         <C>            <C>          <C>           <C>             <C>             <C>
Balances, March 29,
  1996....................  $ 1,440,000    5,227,811    $29,363,816     $(64,171)     $ 1,809,195     $31,108,840
Collection of
  subscriptions
  receivable..............           --           --             --       60,730               --          60,730
Net income................           --           --             --           --        4,319,664       4,319,664
                            -----------    ---------    -----------     --------      -----------     -----------
Balances, March 28,
  1997....................    1,440,000    5,227,811     29,363,816       (3,441)       6,128,859      35,489,234
Collection of
  subscriptions
  receivable..............           --           --             --        3,441               --           3,441
Exercise of purchase
  warrant.................   (1,440,000)     201,511      1,448,061           --               --       1,448,061
Net income................           --           --             --           --        4,345,842       4,345,842
                            -----------    ---------    -----------     --------      -----------     -----------
Balances, April 3, 1998...            0    5,429,322     30,811,877            0       10,474,701      41,286,578
Shares issued under stock
  plans...................                     2,333         24,303           --               --          24,303
Net income................           --           --             --           --        5,096,360       5,096,360
                            -----------    ---------    -----------     --------      -----------     -----------
Balances, April 2, 1999...  $         0    5,431,655    $30,836,180     $      0      $15,571,061     $46,407,241
                            ===========    =========    ===========     ========      ===========     ===========
</TABLE>

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

                                       F-5
<PAGE>   29

               CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                     FISCAL YEARS ENDED
                                                          -----------------------------------------
                                                           APRIL 2,       APRIL 3,       MARCH 28,
                                                             1999           1998           1997
                                                           --------       --------       ---------
<S>                                                       <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income..........................................    $ 5,096,360    $ 4,345,842    $ 4,319,664
  Adjustments to reconcile net income to net cash
     provided by operating activities:
     Depreciation and amortization....................      2,861,480      2,393,689      1,853,311
     Deferred rent liability..........................        (96,383)       400,000        325,000
     Deferred income taxes............................        (68,000)      (220,000)    (1,087,000)
     (Gain) losses and provisions for losses on land,
       buildings, equipment, and intangible assets and
       land held for disposal.........................        (11,912)        (8,454)         8,048
     Changes in assets and liabilities providing
       (consuming) cash:
       Accounts receivable............................       (640,261)      (544,752)      (220,911)
       Prepaid expenses and other assets..............       (344,460)      (441,539)      (237,787)
       Accounts payable, accruals, and other current
          liabilities.................................       (195,031)     2,463,370        659,544
                                                          -----------    -----------    -----------
     Net cash provided by operating activities........      6,601,793      8,388,156      5,619,869
                                                          -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Expenditures for land, buildings and equipment......     (3,244,799)    (2,464,472)    (1,968,524)
  Expenditures for reimbursable construction costs....     (4,663,361)    (4,174,674)    (2,764,817)
  Acquisition of intangible assets....................     (2,712,159)    (2,312,408)    (1,767,621)
  Proceeds from sales of land, buildings, equipment
     and intangible assets............................      1,103,263        118,717        173,076
  Payments for refundable deposits and other assets...       (236,921)      (120,674)      (108,215)
                                                          -----------    -----------    -----------
     Net cash used in investing activities............     (9,753,977)    (8,953,511)    (6,436,101)
                                                          -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on long-term debt..........................     (2,005,712)      (897,231)      (583,098)
  Repayments of reimbursable construction costs.......      5,435,800      3,259,032      2,758,305
  Issuance of shares, net of subscriptions
     receivable.......................................         24,303         11,502         60,730
                                                          -----------    -----------    -----------
     Net cash provided by financing activities........      3,454,391      2,373,303      2,235,937
                                                          -----------    -----------    -----------
Net increase in cash and cash equivalents.............        302,207      1,807,948      1,419,705
Cash and cash equivalents, beginning of year..........      5,541,122      3,733,174      2,313,469
                                                          -----------    -----------    -----------
Cash and cash equivalents, end of year................    $ 5,843,329    $ 5,541,122    $ 3,733,174
                                                          ===========    ===========    ===========
</TABLE>

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

                                       F-6
<PAGE>   30

               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. The Company provides for-profit child care through
270 child care centers located in 19 states and the District of Columbia as of
April 2, 1999.

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 year
ended April 3, 1998 contained 53 weeks, while fiscal years ended April 2, 1999,
and March 28, 1997 contained 52 weeks.

     b. 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. Land held for disposal is carried at its estimated fair market
value (which is less than its original cost). Gains and losses on sales and
retirements are included in the determination of the results of operations.
Maintenance and repair costs and preopening costs for new centers are charged to
operating expense in the period incurred.

     c. DEFERRED FINANCING COSTS: Costs related to incurring debt are deferred
and amortized over the life of the underlying indebtedness. Accumulated
amortization at April 2, 1999 and April 3, 1998 was $20,606 and $17,134,
respectively.

     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 up to 20 years with such amortization
expense included in cost of revenues. Accumulated amortization at April 2, 1999
and April 3, 1998 was $3,265,781 and $2,190,788, respectively.

     e. IMPAIRMENT OF LONG-LIVED ASSETS: The Company periodically 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 prepared and reviewed by management in connection
with the Company's annual long-range planning process.

     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.

     g. 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.

     h. 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.

                                       F-7
<PAGE>   31
                CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
     i. 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 child care assistance programs represent a
significant portion of total revenues. For fiscal 1999, 1998 and 1997, federal
assistance revenues were approximately $18,200,000 (16 percent), $13,200,000 (14
percent) and $8,800,000 (11 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 April 2, 1999, April
3, 1998 and March 28, 1997, the Company financed construction costs of
$4,663,361, $4,174,674 and $2,764,817, respectively. Related repayments received
under reimbursement agreements were $5,435,800, $3,259,032 and $2,758,305 for
the years then ended.

     j. COMMON STOCK PURCHASE WARRANT: The common stock purchase warrant was
initially recorded at its estimated fair value at the date of issuance, July 9,
1990. The Company's policy was to record changes in the estimated fair value of
the common stock purchase warrant only to the extent it exceeded the carrying
value for the periods in which the former lender had the right to "put" the
common stock purchase warrant to the Company. During fiscal 1998, the former
lender exercised its right to require the Company to convert the warrant to
201,511 common shares represented by this warrant. In addition, the former
lender has the right to require the Company to register these shares under the
Securities Exchange Act of 1934.

     k. 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." The common stock purchase warrant (201,511
shares) is treated as a common stock equivalent prior to exercise in 1998 and,
accordingly, has been included in common shares outstanding for all periods
presented. A reconciliation of the denominators used in the basic and diluted
EPS calculation follows:

<TABLE>
<CAPTION>
                                                                  APRIL 2,     APRIL 3,     MARCH 28,
                                                                    1999         1998         1997
                                                                  --------     --------     ---------
    <S>                                                           <C>          <C>          <C>
    Denominator:
      Weighted average shares outstanding EPS, basic..........    5,429,785    5,429,322    5,429,322
      Incremental shares from assumed conversion of options...       48,292       21,063           --
                                                                  ---------    ---------    ---------
         Weighted average shares outstanding EPS, diluted.....    5,478,077    5,450,385    5,429,322
                                                                  =========    =========    =========
</TABLE>

     l. 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.

     m. PRE-OPENING COSTS: Pre-opening costs are expensed as incurred.

     n. 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

                                       F-8
<PAGE>   32
                CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(generally measured in months and less than one year). All other marketing costs
are treated as period expenses and, accordingly, are directly expensed in the
period incurred.

     o. 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.

     p. RECLASSIFICATIONS: Certain amounts for the fiscal years ended April 3,
1998 and March 28, 1997 have been reclassified to conform to the presentation
adopted in fiscal 1999.

3. ACQUISITIONS:

     The Company completed 22 center acquisitions during fiscal 1999 from
various independent child care providers for an aggregate of approximately
$2,924,000 in cash and $1,582,000 in seller-financed debt. Approximately
$1,451,000 of intangible assets were recorded as a result of the fiscal 1999
acquisitions. The Company completed 24 center acquisitions during fiscal 1998
from various independent child care providers for an aggregate of approximately
$2,645,000 in cash and $1,687,000 in seller-financed debt. Approximately
$4,332,000 of intangible assets were recorded as a result of the fiscal 1998
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.

     The following unaudited pro forma information assumes that all fiscal 1999
and 1998 acquisitions occurred at the beginning of each of the fiscal years. 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.

<TABLE>
<CAPTION>
                                             YEAR ENDED APRIL 2, 1999       YEAR ENDED APRIL 3, 1998
                                           ----------------------------    ---------------------------
                                            HISTORICAL      PRO FORMA      HISTORICAL      PRO FORMA
                                            ----------      ---------      ----------      ---------
                                                           (UNAUDITED)                    (UNAUDITED)
<S>                                        <C>             <C>             <C>            <C>
Revenue................................    $112,962,784    $118,394,394    $97,827,659    $113,920,834
Net income.............................       5,096,360       5,038,078      4,345,842       4,316,559
Earnings per share, diluted............    $       0.93    $       0.92    $      0.80    $       0.79
</TABLE>

                                       F-9
<PAGE>   33
                CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. OTHER CURRENT ASSETS AND LIABILITIES:

     Other current assets and liabilities are composed of the following:

<TABLE>
<CAPTION>
                                                                 APRIL 2,      APRIL 3,
                                                                   1999          1998
                                                                 --------      --------
<S>                                                             <C>           <C>
Prepaid expenses and other current assets:
  Prepaid rent..............................................    $1,181,303    $  935,007
  Other.....................................................     1,016,969       918,805
                                                                ----------    ----------
                                                                $2,198,272    $1,853,812
                                                                ==========    ==========
Other current liabilities:
  Unearned revenue..........................................    $  746,921    $  736,791
  Accrued workers' compensation expense (net of $512,299 and
     $392,260 of advance deposits held by insurance company
     at April 2, 1999 and April 3, 1998, respectively)......       804,384       569,224
  Other.....................................................     2,096,039     1,802,875
                                                                ----------    ----------
                                                                $3,647,344    $3,108,890
                                                                ==========    ==========
</TABLE>

5. FINANCING ARRANGEMENTS:

     Financing arrangements consist of the following:

<TABLE>
<CAPTION>
                                                                 APRIL 2,      APRIL 3,
                                                                   1999          1998
                                                                 --------      --------
<S>                                                             <C>           <C>
Note payable to a corporation, interest at prime (7.75
  percent at April 2, 1999 and 8.5 percent at April 3, 1998)
  plus 1 percent, quarterly principal payments of $34,000,
  plus interest, remaining balance payable October 2001.....    $  340,000    $  476,000
Note payable to a corporation, interest at 8 percent per
  year, quarterly principal payments of $16,752, plus
  interest, remaining principal balance payable January
  2004......................................................       318,287       385,295
Note payable to an individual, interest at prime (7.75
  percent at April 2, 1999 and 8.5 percent at April 3,
  1998), but not below 8.25 percent, quarterly principal
  payments of $11,437, plus interest, remaining principal
  balance payable July 2007.................................       377,407       423,153
Notes payable to various entities and individuals, interest
  at various fixed rates ranging from 7.75 to 9.0 percent
  and variable rates ranging from prime (7.75 percent at
  April 2, 1999 and 8.5 percent at April 3, 1998) to prime
  plus 1 percent, various payment terms with original
  maturities ranging from two to ten years..................     1,602,665     1,777,123
                                                                ----------    ----------
                                                                 2,638,359     3,061,571
  Less current maturities of long-term debt.................       746,502       818,781
                                                                ----------    ----------
                                                                $1,891,857    $2,242,790
                                                                ==========    ==========
</TABLE>

                                      F-10
<PAGE>   34
                CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. FINANCING ARRANGEMENTS -- (CONTINUED)
     At April 2, 1999, aggregate principal payments due on the long-term debt
over the next five years are as follows:

<TABLE>
<S>                                                             <C>
2000........................................................    $  746,502
2001........................................................       657,448
2002........................................................       547,009
2003........................................................       288,187
2004 and thereafter.........................................       399,213
                                                                ----------
                                                                $2,638,359
                                                                ==========
</TABLE>

     At April 2, 1999, 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 (7.75
percent at April 2, 1999) or the Eurodollar rate. There were no outstanding
borrowings under the line of credit at April 2, 1999 and April 3, 1998. The
availability under the line of credit was reduced by outstanding letters of
credit in the amount of $1,149,668 at April 2, 1999 and $1,249,573 at April 3,
1998. 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.

     In connection with obtaining original acquisition financing in 1990, the
Company issued a common stock purchase warrant to the former lender which
entitled the former lender to purchase 201,511 shares of common stock. A fair
value of $806,044 was originally ascribed to the common stock purchase warrant.
Until January 5, 1996, the former lender had the right to "put" the common stock
purchase warrant to the Company at a price equal to the fair value or book value
of the common stock purchase warrant as defined in the Agreement. The Company
also had the right to call the common stock purchase warrant under similar
terms. During fiscal 1998, the former lender exercised its right to require the
Company to convert the warrant to 201,511 common shares. In addition, the former
lender has the right to require the Company to register these shares under the
Securities Exchange Act of 1934.

6. INCOME TAXES:

     The income tax provision on income before income taxes and extraordinary
item reflected in the consolidated statement of income consists of the
following:

<TABLE>
<CAPTION>
                                                            APRIL 2,      APRIL 3,      MARCH 28,
                                                              1999          1998          1997
                                                            --------      --------      ---------
<S>                                                        <C>           <C>           <C>
CURRENT:
  Federal................................................  $2,726,000    $2,366,000    $ 2,395,000
  State and local........................................     407,000       419,000        443,000
                                                           ----------    ----------    -----------
                                                            3,133,000     2,785,000      2,838,000
                                                           ----------    ----------    -----------
DEFERRED:
  Federal................................................     (60,000)     (213,000)      (914,000)
  State and local........................................      (8,000)       (7,000)      (173,000)
                                                           ----------    ----------    -----------
                                                              (68,000)     (220,000)    (1,087,000)
                                                           ----------    ----------    -----------
                                                           $3,065,000    $2,565,000    $ 1,751,000
                                                           ==========    ==========    ===========
</TABLE>

                                      F-11
<PAGE>   35
                CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. INCOME TAXES -- (CONTINUED)
     Differences between the income tax provision on income before income taxes
reflected in the statement of income and that computed by applying the statutory
federal income tax rate are attributable to the following:

<TABLE>
<CAPTION>
                                                             APRIL 2,      APRIL 3,     MARCH 28,
                                                               1999          1998          1997
                                                             --------      --------     ---------
<S>                                                         <C>           <C>           <C>
Income tax provision at the statutory federal rate........  $2,775,000    $2,350,000    $2,064,000
State and local taxes, net of federal tax benefit.........     263,000       272,000       178,000
Internal Revenue Service settlement.......................                                (600,000)
Other.....................................................      27,000       (57,000)      109,000
                                                            ----------    ----------    ----------
                                                            $3,065,000    $2,565,000    $1,751,000
                                                            ==========    ==========    ==========
</TABLE>

     The Internal Revenue Service ("IRS") had challenged the deductibility of
certain costs incurred by KD Acquisition Corporation (the predecessor of
Childtime Learning Centers, Inc.) in connection with its acquisition of the
Company and had issued a Statutory Notice of Deficiency for the tax years
1991-1994. Accordingly, prior to March 29, 1996, the Company had not recognized
for financial statement purposes the income tax benefit of approximately
$900,000 associated with these deductions.

     During fiscal 1997, legislation was enacted by Congress which clarified
certain provisions of the Internal Revenue Code related to the deductibility of
such expenses. As a result of the enacted legislation, the Company and the IRS
reached an agreement which resulted in a settlement at an amount substantially
below that originally claimed. Accordingly, the accompanying consolidated
statement of income for the year ended March 28, 1997 includes a $600,000 credit
in the income tax provision to reflect the settlement of this issue with the
IRS.

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

<TABLE>
<CAPTION>
                                                                    FISCAL YEARS
                                                      -----------------------------------------
                                                       APRIL 2,       APRIL 3,       MARCH 28,
                                                         1999           1998           1997
                                                       --------       --------       ---------
<S>                                                   <C>            <C>            <C>
Deferred tax asset:
  Provision for estimated expenses..................  $ 1,100,000    $   945,000    $   904,000
Deferred tax liability:
  Basis and depreciation differences of property....  $(3,909,000)   $(3,859,000)   $(3,898,000)
  Straight-line rent................................      503,000        540,000        400,000
                                                      -----------    -----------    -----------
                                                       (3,406,000)    (3,319,000)    (3,498,000)
     Net deferred tax liability.....................  $(2,306,000)   $(2,374,000)   $(2,594,000)
                                                      ===========    ===========    ===========
</TABLE>

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 April 2,
1999, April 3, 1998 and March 28, 1997 was $14,529,077, $12,081,613 and
$9,062,000, respectively.

                                      F-12
<PAGE>   36
                CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. LEASES -- (CONTINUED)
These amounts included contingent rental expense of $365,466, $390,573 and
$304,209 for the years ended April 2, 1999, April 3, 1998 and March 28, 1997,
respectively.

     Future minimum rental commitments at April 2, 1999 for all noncancelable
operating leases are as follows:

<TABLE>
<S>                                                           <C>
2000........................................................  $12,764,642
2001........................................................   12,146,557
2002........................................................   11,712,203
2003........................................................   11,265,292
2004........................................................   10,724,872
Thereafter..................................................   66,219,348
</TABLE>

     The Company was party to a lease subsidy agreement with Gerber Products
Company, which required semiannual payments of $200,000 to be made to the
Company through March 31, 1997. The payments were contingent upon the Company
meeting certain conditions as set forth in the subsidy agreement. These
conditions were met and $400,000 has been reflected as other income in the
accompanying consolidated statement of income for the fiscal year ended March
28, 1997.

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 April 2, 1999, April 3, 1998 and March 28, 1997 were $100,481, $91,055 and
$71,795, 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, is 300,000 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. All options granted during fiscal 1999 (50,000)
and 1998 (109,000) were granted at the then market price and vest evenly over a
three-year period.

     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 in five years from the date of grant. Options vest in full on the first
anniversary of the date of grant. 15,000 options were granted under the plan
during both fiscal 1999 and 1998.

                                      F-13
<PAGE>   37
                CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
                                                          YEAR ENDED    YEAR ENDED    YEAR ENDED
                                                           APRIL 2,      APRIL 3,     MARCH 28,
                                                             1999          1998          1997
                                                          ----------    ----------    ----------
<S>                                        <C>            <C>           <C>           <C>
NET INCOME:
                                           As reported    $5,096,360    $4,345,842    $4,319,664
                                             Pro forma    $4,897,494    $4,150,803    $4,191,884
EARNINGS PER SHARE:
  Basic..................................  As reported         $0.94         $0.80         $0.80
                                             Pro forma         $0.90         $0.76         $0.77
  Diluted................................  As reported         $0.93         $0.80         $0.80
                                             Pro forma         $0.89         $0.76         $0.77
Weighted average fair value of options
  granted during the year................                      $6.00         $4.23           $--
                                                          ==========    ==========    ==========
</TABLE>

     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 1999 and 1998, respectively: no dividend yield; expected
volatility of 37.2 percent and 50.3 percent; risk free interest rate of 5.6
percent and 6.5 percent; and expected holding period of 3.7 years and 3.8 years.
There were no stock options granted during fiscal 1997.

     Presented below is a summary of the status of the stock options held by
employees of the Company as of April 2, 1999, April 3, 1998 and March 28, 1997:

<TABLE>
<CAPTION>
                                           YEAR ENDED           YEAR ENDED          YEAR ENDED
                                         APRIL 2, 1999        APRIL 3, 1998       MARCH 28, 1997
                                       ------------------   ------------------   -----------------
                                                 WEIGHTED             WEIGHTED            WEIGHTED
                                                 AVERAGE              AVERAGE             AVERAGE
                                                 EXERCISE             EXERCISE            EXERCISE
               OPTIONS                 SHARES     PRICE     SHARES     PRICE     SHARES    PRICE
               -------                 ------    --------   ------    --------   ------   --------
<S>                                    <C>       <C>        <C>       <C>        <C>      <C>
Options outstanding at beginning of
  period.............................  198,083    $10.04     79,250    $11.00    80,000    $11.00
Granted..............................   65,000     17.20    124,000      9.41        --        --
Exercised............................   (2,333)    10.42         --        --        --        --
Forfeited/expired....................   (9,483)    12.02     (5,167)     9.60      (750)    11.00
                                       -------    ------    -------    ------    ------    ------
Options outstanding at end of
  period.............................  251,267    $11.81    198,083    $10.04    79,250    $11.00
                                       =======    ======    =======    ======    ======    ======
Options exercisable..................  122,167    $10.51     57,169    $11.00        --    $   --
                                       =======    ======    =======    ======    ======    ======
</TABLE>

     Of the 251,167 options outstanding at April 2, 1999, 189,167 were
exercisable at per share prices ranging from $11 to $16.50, with a weighted
average exercise price of $10.04 and a weighted average remaining contractual
life of 2.6 years; 62,100 were exercisable at per share prices ranging from
$16.87 to $18.28, with a weighted average exercise price of $17.21 and a
weighted average remaining contractual life of 4.1 years.

                                      F-14
<PAGE>   38
                CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. CONTINGENCIES:

     Various legal actions and other claims are pending or could be asserted
against the Company. Litigation is subject to many uncertainties; the outcome of
individual litigated matters is not predictable with assurance, and it is
reasonably possible that some of these matters may be decided unfavorably to the
Company. It is the opinion of management that the ultimate liability, if any,
with respect to these matters will not materially affect the financial position,
results of operations or cash flows of the Company.

11. SUPPLEMENTAL CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
                                                          APRIL 2,      APRIL 3,     MARCH 28,
                                                            1999          1998          1997
                                                          --------      --------     ---------
<S>                                                      <C>           <C>           <C>
CASH PAYMENTS DURING THE YEAR FOR:
  Interest.............................................  $  315,892    $  289,429    $  164,469
  Income taxes.........................................  $3,118,506    $2,772,527    $2,633,380
</TABLE>

     In connection with the acquisition of certain assets, the Company incurred
debt of $1,582,500, $1,686,750 and $1,619,433 in 1999, 1998 and 1997,
respectively.

                                      F-15
<PAGE>   39

               CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                                     ADDITIONS CHARGED TO
                                                BALANCE AT    ----------------------------------    BALANCE AT
                                                BEGINNING     COST AND     OTHER                       END
                 DESCRIPTION                    OF PERIOD     EXPENSES    ACCOUNTS    DEDUCTIONS    OF PERIOD
                 -----------                    ----------    --------    --------    ----------    ----------
                                                                        (IN THOUSANDS)
<S>                                             <C>           <C>         <C>         <C>           <C>
Fiscal year ended March 28, 1997, reserve for
  doubtful accounts and claims................     $125         $325         $0         $(265)         $185
                                                   ====         ====         ==         =====          ====
Fiscal year ended April 3, 1998, reserve for
  doubtful accounts and claims................     $185         $330         $0         $(290)         $225
                                                   ====         ====         ==         =====          ====
Fiscal year ended April 2, 1999, reserve for
  doubtful accounts and claims................     $225         $278         $0         $(248)         $255
                                                   ====         ====         ==         =====          ====
</TABLE>

                                       S-1
<PAGE>   40

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C>       <C>    <S>
   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 Corp.,
                 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    --     Shareholders Agreement between the Company, Childcare
                 Associates, KD Partners II, GCC Partners, Ltd., Lenard B.
                 Tessler and James W. Geisz dated as of July 9, 1990,
                 together with amendments thereto dated January 4, 1993 and
                 as of July 7, 1995, filed as Exhibit 4.3 to the Registrant's
                 Form S-1 Registration Statement (Registration No. 33-99596),
                 is incorporated herein by reference.
   4.4    --     First Amendment dated April 1, 1999, 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.
   4.5    --     First Amendment to Credit Agreement between Childtime
                 Childcare, Inc. and NBD Bank dated as of February 1, 1996.
   9      --     Voting Agreement between Harold A. Lewis and George A.
                 Kellner dated January 8, 1996, filed as Exhibit 9 to the
                 Registrant's Form S-1 Registration Statement (Registration
                 No. 33-99596), is incorporated herein by reference.
  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    --     Employment Agreement between Childtime and Harold A. Lewis
                 dated January 8, 1996, filed as Exhibit 10.8 to the
                 Registrant's Form S-1 Registration Statement (Registration
                 No. 33-99596), is incorporated herein by reference.
  21      --     List of Subsidiaries.
  23      --     Consent of PricewaterhouseCoopers, LLP, dated June 10, 1999.
  27      --     Financial Data Schedule.
</TABLE>

                                       E-1