SECURITIES AND
EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-Q (MARK ONE) |X| QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED JULY 22, 2005 OR |_| TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE
ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ______ TO ______ COMMISSION FILE NUMBER:
0-27656 LEARNING CARE GROUP,
INC.(Exact Name Of Registrant As Specified In Its
Charter) MICHIGAN
      
      (State or other jurisdiction of incorporation)
    38-3261854 
      (I.R.S. Employer Identification No.)  21333 Haggerty
Road, Suite 300Novi, Michigan 48375(Address of principal executive offices) (248) 697-9000(Registrants telephone number, including
area code) Indicate by check mark whether the
Registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject
to such filing required for the past 90 days. Yes |X|  No |_| Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |_|  No |X| Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_|  No |X| The number of shares of
Registrants Common Stock, no par value per share, outstanding at August 30, 2005,
was 19,940,010.    LEARNING
CARE GROUP, INC. AND SUBSIDIARIES


FORM 10-Q


INDEX


For the
Quarterly Period Ended July 22, 2005




Page
      NumberPART I.  FINANCIAL
      INFORMATIONITEM
      1. Condensed Consolidated Financial StatementsA.
      Condensed Consolidated Balance Sheets July 22, 2005 and April 1, 2005
    3B.
      Condensed Consolidated Statements of Operations 16 weeks ended July 22,2005
      and July 23, 2004
    4C.
      Condensed Consolidated Statements of Cash Flows 16 weeks ended July 22,2005
      and July 23, 2004
    5D.
      Notes to Condensed Consolidated Financial Statements
    6-12ITEM
      2. Managements Discussion and Analysis of Financial Condition and
      Results of Operations
    12-17ITEM
      3. Quantitative and Qualitative Disclosures about Market Risks
    17ITEM
      4. Controls and Procedures
    18PART II.
      OTHER INFORMATIONITEM
      1. Legal Proceedings
    19ITEM
      5. Other Information
    19ITEM
      6. Exhibits
    19SIGNATURES
    19EXHIBIT
      INDEX
    202
PART I 
FINANCIAL INFORMATION



ITEM 1.
Condensed Consolidated Financial Statements


LEARNING
CARE GROUP, INC. AND SUBSIDIARIESCONDENSED
CONSOLIDATED BALANCE SHEETS

July
      22,
      2005
    
    April
      1,
      2005(Unaudited)(In
      thousands)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
    $
    1,260
    
    $
    983Accounts
      receivable, net
    
    9,482
    
    
    9,177Prepaid
      expenses and other current assets
    
    3,918
    
    
    5,611Total
      current assets
    
    14,660
    
    
    15,771LAND, BUILDINGS
      AND EQUIPMENT:Land
    
    9,225
    
    
    9,225Buildings
    
    20,294
    
    
    20,260Leasehold
      improvements
    
    15,871
    
    
    15,055Vehicles,
      furniture and equipment
    
    15,382
    
    
    15,50160,772
    
    
    60,041Less:
      accumulated depreciation and amortization
    
    (22,095
    )
    
    (21,444
    )38,677
    
    
    38,597OTHER NONCURRENT
      ASSETS:Goodwill,
      net
    
    18,932
    
    
    18,932Intangible
      assets, net
    
    11,228
    
    
    11,456Refundable
      deposits and other
    
    2,386
    
    
    2,60132,546
    
    
    32,989TOTAL
      ASSETS
    $
    85,883
    
    $
    87,357LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Accounts
      and drafts payable
    $
    4,528
    
    $
    7,303Accrued
      wages and benefits
    
    7,464
    
    
    8,082Current
      portion of long-term debt
    
    64
    
    
    81Exit
      and closure expense accrual
    
    230
    
    
    187Other
      current liabilities
    
    11,838
    
    
    9,473Total
      current liabilities
    
    24,124
    
    
    25,126LONG-TERM
      DEBT, NET OF CURRENT PORTION
    
    5,151
    
    
    7,921DEFERRED
      RENT LIABILITY
    
    3,070
    
    
    2,880OBLIGATIONS
      UNDER SALE LEASEBACK TRANSACTIONS
    
    11,082
    
    
    11,096Total
      liabilities
    
    43,427
    
    
    47,023SHAREHOLDERS'
      EQUITYCommon
      Stock, 40,000,000 shares authorized, no par value; 19,840,010 and19,839,410
      issued and outstanding at July 22, 2005 and April 1, 2005
    
    43,997
    
    
    43,967Preferred
      Stock, 100,000 shares authorized, no par value; no shares issuedor
      outstanding
    
    
    
    
    Retained
      earnings (accumulated deficit)
    
    (1,541
    )
    
    (3,633
    )Total
      shareholders' equity
    
    42,456
    
    
    40,334TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
    $
    85,883
    
    $
    87,357The accompanying footnotes are an
integral part of the condensed consolidated financial statements.


3
LEARNING CARE GROUP,
INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)

16
      Weeks EndedJuly
      22,
      2005
    
    July
      23,
      2004(In
      thousands, except per share data)Revenue
      from Learning Center Operations
    $
    67,452
    
    $
    62,598Revenue
      from Franchise Operations
    
    2,520
    
    
    2,335Total revenue
    
    69,972
    
    
    64,933Operating
      expenses of Learning Centers (exclusive of depreciation 
      and amortization)
    
    58,521
    
    
    55,830Gross
      profit
    
    11,451
    
    
    9,103General
      and administrative expenses
    
    6,686
    
    
    6,397Depreciation
      and amortization expenses
    
    1,367
    
    
    1,307Gain on
      disposal of assets
    
    (41
    )
    
    (549
    )Provision
      for doubtful accounts
    
    470
    
    
    259Exit and
      closure expenses
    
    65
    
    
    40Operating
      income
    
    2,904
    
    
    1,649Interest
      expense, net
    
    591
    
    
    642Other (income),
      net
    
    (34
    )
    
    Income
      before income taxes and discontinued operations
    
    2,347
    
    
    1,007Income
      tax provision
    
    164
    
    
    108Income
      before discontinued operations
    
    2,183
    
    
    899Discontinued
      operations, net of taxes
    
    (91
    )
    
    58Net
      income
    $
    2,092
    
    $
    957INCOME
      PER SHARE - BASIC:Income
      before discontinued operations
    $
    0.11
    
    $
    0.05Discontinued
      operations, net of taxes
    $
    (0.00
    )
    
    0.00Net
      income
    $
    0.11
    
    $
    0.05INCOME
      PER SHARE - DILUTED:Income
      before discontinued operations
    $
    0.10
    
    $
    0.05Discontinued
      operations, net of taxes
    
    (0.00
    )
    
    0.00Net
      income
    $
    0.10
    
    $
    0.05Weighted
      average shares outstandingBasic
    
    19,840
    
    
    19,809Diluted
    
    21,190
    
    
    20,048The accompanying footnotes are an
integral part of the condensed consolidated financial statements.


4
LEARNING CARE GROUP,
INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)

16
      Weeks EndedJuly
      22, 2005
    
    July
      23, 2004(In
      thousands)OPERATING
      ACTIVITIES:Net income
    $
    2,092
    
    $
    957Adjustments
      to reconcile net income to cashprovided
      by operating activities:Depreciation
      and amortization
    
    1,369
    
    
    1,297Provision
      for doubtful accounts
    
    470
    
    
    280Stock
      compensation expense
    
    30
    
    
    29Deferred
      rent liability
    
    190
    
    
    205Minority
      interest in variable interest entities
    
    
    
    
    20Gain
      on sale of assets
    
    (10
    )
    
    (610
    )Changes
      in operating assets and liabilities:Accounts
      receivable
    
    (775
    )
    
    (1,592
    )Prepaid
      expenses and other current assets
    
    1,693
    
    
    (1,426
    )Income
      tax payable
    
    134
    
    
    Accounts
      payable, accruals and other current liabilities
    
    2,283
    
    
    3,503Exit
      and closure expense accrual
    
    43
    
    
    (91
    )Net
      cash provided by operating activities
    
    7,519
    
    
    2,572INVESTING
      ACTIVITIES:Capital
      spending
    
    (1,286
    )
    
    (1,691
    )Proceeds
      from sale of assets
    
    75
    
    
    706Refunding
      of deposits and other assets
    
    215
    
    
    (24
    )Net
      cash used in investing activities
    
    (996
    )
    
    (1,009
    )FINANCING
      ACTIVITIES:Net
      (paydowns) borrowings on revolving line of credit
    
    (2,745
    )
    
    2,919Repayments
      under long-term debt
    
    (42
    )
    
    (2,383
    )Reduction
      of drafts payable
    
    (3,459
    )
    
    (3,004
    )Net
      cash used in financing activities
    
    (6,246
    )
    
    (2,468
    )Net increase
      (decrease) in cash and cash equivalents
    
    277
    
    
    (905
    )Cash and
      cash equivalents, beginning of year
    
    983
    
    
    1,377Cash and
      cash equivalents, end of period
    $
    1,260
    
    $
    472The accompanying footnotes are an
integral part of the condensed consolidated financial statements.


5
LEARNING CARE GROUP,
INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)


NOTE 1  DESCRIPTION OF
BUSINESS


Learning Care Group, Inc. conducts
business through its wholly-owned subsidiaries, Childtime Childcare, Inc. and Tutor Time
Learning Centers, L.L.C. (collectively, the Company). The Company and its
predecessors began operations in 1967. The Company operates in three business segments:
Childtime Learning Centers, Tutor Time Learning Centers and Franchise Operations. The
Company provides center-based educational services and child care to children between the
ages of six weeks and 12 years under two distinct brand identities: Childtime Learning
Centers (Childtime) and Tutor Time Childcare Learning Centers (Tutor
Time). As of July 22, 2005, the Company operated or franchised a total of 460
centers system-wide under three major lines of business and had system-wide licensed
capacity to serve over 69,000 children. The Companys three lines of business are:



Childtime
Learning Centers:259 centers operated by the Company, consisting of:
253
Childtime centers and
6
Childtime-branded centers operated for third parties;
Tutor
Time Learning Centers:69 Tutor Time centers operated by the Company; and
Tutor
Time Franchise Operations:royalties and other fees received from 132 franchised Tutor
Time centers.Childtime and Tutor Time corporate
centers are located throughout the United States (in 25 states). The vast majority of
these centers are operated on leased premises, with typical lease terms ranging from 1 to
25 years. Thirty-six of the Childtime centers are operated on Company-owned premises.


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


Tutor Time franchise centers are also
predominantly located in the U.S., with 121 centers operating in 15 states. An additional
11 centers are operated in Hong Kong, Indonesia, and the Philippines, mostly under master
franchise agreements. The Company is currently the primary obligor or guarantor on leases
for 49 of its franchise centers.


NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES


Principles of
Consolidation


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


The accompanying financial statements
have been prepared by the Company in accordance with the accounting policies described in
the Companys audited financial statements included in the Companys Annual
Report on Form 10-K for the year ended April 1, 2005, and should be read in conjunction
with the notes thereto.


In the opinion of the Companys
management, the accompanying unaudited condensed consolidated financial statements contain
all adjustments which are necessary to present fairly its financial position as of July
22, 2005, and the results of its operations and cash flows for the periods ended July 22,
2005 and July 23, 2004, respectively, and are of a normal and recurring nature. The
results of operations for interim periods are not necessarily indicative of the operating
results to be expected for the full year.


6
Use of Estimates


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


Fiscal Year


The Company utilizes a 52-53 week
fiscal year ending on the Friday closest to March 31. For fiscal year 2006 and 2005, the
first quarters contained 16 weeks, and the fiscal years contain 52 weeks.


Stock-Based Compensation


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


16
      Weeks EndedJuly
      22,
      2005
    
    July
      23,
      2004Net
      income                                      As
      reported
    $
    2,092
    
    $
    957Pro
      forma
    $
    1,972
    
    $
    893Net
      income per share - BasicAs
      reported
    $
    0.11
    
    $
    0.05Pro
      forma
    $
    0.10
    
    $
    0.04Net
      income per share - DilutedAs
      reported
    $
    0.10
    
    $
    0.05Pro
      forma
    $
    0.09
    
    $
    0.04Weighted
      average fair value of options granted duringthe
      year
    $
    3.31
    
    $
    1.22The fair value of the options used to
compute pro forma net income and net income per share is the estimated present value at
grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions for the 16 weeks ended July 22, 2005 and July 23, 2004,
respectively: no dividend yield; expected volatility of 100.0 and 78.4 percent; risk free
interest rate of 4.1 and 3.4 percent; and expected holding periods of 5.0 years.


NOTE 3  ACCOUNTS
RECEIVABLE


Accounts receivable is presented net
of an allowance for doubtful accounts. At July 22, 2005 and April 1, 2005, the allowance
for doubtful accounts was $0.7 million and $0.6 million, respectively.


7
NOTE 4  DRAFTS
PAYABLE


Drafts payable represent unfunded
checks drawn on zero balance accounts that have not been presented for funding to the
Companys banks. The drafts are funded, without finance charges, as soon as they are
presented. At July 22, 2005 and April 1, 2005, the aggregate drafts payable were $1.3
million and $4.7 million, respectively.


NOTE 5  COMMITMENTS
& CONTINGENCIES


A subsidiary of the Company is
primarily or contingently liable for many of the leases of Tutor Times franchisees.
In an effort to build its franchisee network, Tutor Time either leased the prospective
site for a franchisee, with a subsequent sublease of the site to the franchisee, or
provided a lease guarantee to the landlord for the benefit of the franchisee in exchange
for a monthly lease guarantee fee payable by the franchisee that is based upon the monthly
rent expense of the guaranteed lease. The payments the Company could be required to pay
related to leases and guarantees aggregate $69.7 million and $12.3 million, respectively,
in case of default by the franchisee. Should the Company be required to make payments
under these leases, it may assume obligations for operating the center. Should the center
not be economically viable, the Company will make provision for the lease termination at
that time. The Company does not not anticipate that it will be required to make payments
under any of these lease arrangements, does not believe that any payments are likely and
has not recorded any related liability.


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


NOTE 6  RELATED
PARTY TRANSACTIONS


In July 2000, the Company retained
Jacobson Partners, of which Benjamin R. Jacobson, the Companys Chairman of the
Board, is the managing general partner, to provide management and financial consulting
services. Total consulting fees incurred for Jacobson Partners were $77,000 and $77,000
for the 16 weeks ended July 22, 2005 and July 23, 2004, respectively, and are included in
general and administrative expenses in the accompanying Condensed Consolidated Statements
of Operations.


NOTE 7  INCOME
TAXES


During first quarter 2006, an income
tax provision of $0.2 million was recorded on income before income taxes and discontinued
operations of $2.3 million, compared to an income tax provision of $0.1 million on income
before income taxes and discontinued operations of $1.0 million for the same period last
year. Income tax expense for first quarters 2006 and 2005 varied from the U.S. statutory rate of 34%
due primarily to the utilization of net operating loss carryforwards for which a valuation
allowance has been recorded.


NOTE 8  NET INCOME
PER SHARE


For the 16 weeks ended July 22, 2005
and July 23, 2004, basic income per share has been calculated by dividing earnings
available to common shareholders by the weighted average number of common shares
outstanding for the period. The calculation of basic and diluted shares is as follows (in
thousands):


8
Calculation
      on Incremental Shares
      16 Weeks EndedJuly
      22, 2005
    
    July
      23, 2004Basic
      Shares (based on weighted average)
    19,840
    
    19,809Stock Options
      (1)
    1,350
    
    239Diluted
      Shares
    21,190
    
    20,048(1) For the 16 weeks ended July 22,
2005 and July 23, 2004, the above calculation does not include 819,677 and 1,187,203
shares, respectively, issuable from stock options that have the potential to dilute
earnings per share in the future. These shares were not included in the above calculation
of diluted shares because to do so would have been antidilutive.


NOTE 9  EXIT AND
CLOSURE EXPENSES AND DISCONTINUED OPERATIONS


The Company has made provisions for
closed center lease obligations and discontinued operations in connection with the closing
of under-performing centers. A summary of the accrual and related expenses is as follows
(in thousands):


Exit
      and Closure Expenses and Discontinued Operations Accrual AnalysisBalance
      
      April 1,
      2005
    
    Expenses
    
    Adjustments
    
    Cash 
      Payments
    
    Balance
      
      July 22,
      2005
    
    Expected
      Costs
    
    Cumulative
      
      Costs through
      July 22, 
      2005
    
    Number
      
      of 
      CentersClosed
      center lease obligations
    $
    119
    
    $
    17
    
    $
    50
    
    $
    5
    
    $
    181
    
    $
    181
    
    $
    1,185
    
    
    3Discontinued
      operations lease obligations
    
    68
    
    
    
    
    
    
    
    
    19
    
    $
    49
    
    $
    49
    
    $
    58
    
    
    2Total
    $
    187
    
    $
    17
    
    $
    50
    
    $
    24
    
    $
    230
    
    $
    230
    
    $
    1,243
    
    
    5The liability for the leases on
closed centers during the 16 weeks ended July 22, 2005 and July 23, 2004 has been measured
at the fair value, which is determined by the present value of the remaining lease rentals
and costs, to the extent that they exceed the reasonably attainable sublease rentals. The
exit and closure expenses primarily relate to underperforming centers closed through the
end of the 16 weeks ended July 22, 2005. There were $50,000 in adjustments to the reserve
during first quarter 2006. There were no adjustments to the reserve for first quarter
2005. All exit and closure expenses are in the Childtime business segment.


9
A summary of discontinued operations
is as follows (in thousands):


16
      Weeks EndedJuly
      22,
      2005
    
    July
      23,
      2004Revenues,
      net
    $
    27
    
    $
    1,658Operating
      expenses of Learning Centers
    
    90
    
    
    1,472Gross
      profit (loss)
    
    (63
    )
    
    186Depreciation
      and amortization expenses
    
    2
    
    
    41Loss
      on disposal of assets
    
    31
    
    
    Provision
      for doubtful accounts
    
    1
    
    
    21Exit
      and closure expenses
    
    
    
    
    64Other non-operating
      expense
    
    
    
    
    2Discontinued
      operations before income tax
    
    (97
    )
    
    58Income
      tax provision
    
    (6
    )
    
    Discontinued
      operations, net of tax
    $
    (91
    )
    $
    58NOTE 10  INTANGIBLE
ASSETS AND GOODWILL


The changes in the carrying amounts
of goodwill and other intangible assets for the 16 weeks ended July 22, 2005 were as
follows (in thousands):

Balance
      
      April 1, 2005
    
    Additions
    
    Disposals
    
    Amortization
    
    Balance
      
      July 22, 2005
    
    Useful LifeGoodwill,
      net
    $
    18,932
    
    $
    
    
    $
    
    
    $
    
    
    $
    18,932
    
    IndefiniteFranchise
      Agreements
    
    7,865
    
    
    
    
    
    
    
    
    140
    
    
    7,725
    
    20Trade Name
      and Trademarks
    
    3,379
    
    
    
    
    
    
    
    
    60
    
    
    3,319
    
    20Curriculum
    
    212
    
    
    
    
    
    
    
    
    28
    
    
    184
    
    5Intangible
      assets, net
    
    11,456
    
    
    
    
    
    
    
    
    228
    
    
    11,228Total
      goodwill and intangible assets, net
    $
    30,388
    
    $
    
    
    $
    
    
    $
    228
    
    $
    30,160Estimated amortization of intangible
assets is expected to be $0.7 million for fiscal 2006 and approximately $0.7 million
annually for the next four years.


NOTE 11  SEGMENT
INFORMATION


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


10
Information about the Companys
operating segments are presented below (in thousands):

16
      Weeks EndedJuly
      22,
      2005
    
    July
      23,
      2004Revenues:Childtime
    $
    47,350
    
    $
    44,690Tutor
      Time
    
    20,102
    
    
    17,463Franchise
      Operations
    
    2,520
    
    
    2,335Revenue
      associated with the consolidation of VIEs
    
    
    
    
    446Total
    $
    69,972
    
    $
    64,933Operating
      income (loss):Childtime
    $
    7,024
    
    $
    5,616Tutor
      Time
    
    1,907
    
    
    1,152Franchise
      Operations
    
    2,520
    
    
    2,335Depreciation
      and amortization
    
    (1,367
    )
    
    (1,307
    )Corporate
      and other
    
    (7,180
    )
    
    (6,147
    )Total
    $
    2,904
    
    $
    1,649Goodwill:Childtime
    $
    7,215
    
    $
    7,215Tutor
      Time
    
    6,644
    
    
    5,578Franchise
      Operations
    
    5,073
    
    
    5,073Total
    $
    18,932
    
    $
    17,866All
      other assets:Childtime
    $
    47,309
    
    $
    48,408Tutor
      Time
    
    10,322
    
    
    11,290Franchise
      Operations
    
    9,320
    
    
    10,104Assets
      associated with the consolidation of VIEs
    
    
    
    
    107Total
    $
    66,951
    
    $
    69,909NOTE 12  FINANCIAL
INSTRUMENTS


The Company has entered into interest
rate swap contracts to manage its exposure to fluctuations in interest rates relating to
the revolving line of credit. Swap contracts fix the interest payments of floating rate
debt instruments. As of July 22, 2005 and July 23, 2004, contracts representing $5.0
million of notional amount were outstanding with maturity dates of November 2005 and
January 2006. These contracts provide for the Company to pay interest at an average fixed
rate of 2.98% in return for receiving interest at a floating rate of three month LIBOR,
which is reset in three month intervals. The fair value of interest rate swap agreements
is subject to changes in value due to changes in interest rates, and the fair value of
($15,000) is included in prepaid expenses and other current assets as of July 22, 2005 and
$34,000 is included in other current liabilities as of July 23, 2004.


NOTE 13  NEW
ACCOUNTING PRONOUNCEMENTS


In December 2004, the FASB issued
SFAS 123 (Revised 2004), Share-Based Payment.This standard requires expensing of
stock options and other share-based payments and supersedes SFAS 123, Accounting for
Stock-Based Compensation,and APB Opinion No. 25, Accounting for Stock Issued to
Employees,and its related implementation guidance that had allowed companies to
choose between expensing stock options or showing proforma disclosure only. This
standard, together with a new rule adopted by the Securities and Exchange Commission in
April 2005, is effective for the Companys first fiscal period beginning on or after June 15, 2005. The
ultimate amount of increased compensation expense will be dependent


11
on the number of option shares
granted, their timing and vesting period and the method used to calculate the fair value
of the awards, among other factors. The Company is currently evaluating the expected
impact that the adoption of SFAS 123R will have on results of operations and cash flows
in the future.


NOTE 14  CONSOLIDATION
OF VARIABLE INTEREST ENTITIES:


During the fourth quarter of 2004,
the Company implemented FIN 46R. The Company concluded that some of its franchise
arrangements represented variable interest entities (VIEs) which were subject
to the provisions of FIN 46R. The Companys variable interest in these entities
included royalty fees and in some cases lease guarantees and debt due to the Company from
the franchisee. The Company analyzed these franchise agreements and determined that two
franchises were entities in which the Company was the primary beneficiary. As a result,
these entities were consolidated as of April 2, 2004. During the quarter ended October 15,
2004, the Company acquired the two franchise entities that had previously been
consolidated as VIEs. As a result, these entities are not considered VIEs as of July 22,
2005. The following is a summary of the effect of consolidating these entities in first
quarter 2005.



16
      Weeks Ended
      July 23, 2004Revenue,
      net of elimination of fees of $23,000
    $
    423Cost and
      minority interest, net of elimination of fees of $23,000
    
    423Net
      income
    $
    Total Assets
    $
    107Total
      Liabilities
    
    54Minority
      interest
    $
    53NOTE 15  SUBSEQUENT
EVENT


On August 2, 2005, the Company
amended its Second Amended and Restated Credit Agreement to, among other things, increase
the amount of the credit facility from $17.5 million to $22.5 million and permit optional
redemption of all of the Companys 15% Subordinated Notes due 2008 in the principal
amount of $3.5 million. On September 1, 2005, the Company redeemed the entire $3.5 million
balance on the Subordinated Notes, plus interest, primarily using borrowings under the
Second Amended and Restated Credit Agreement.



ITEM 2. Managements
Discussion and Analysis


GENERAL


The information presented herein
refers to the 16 weeks (first quarter 2006) ended July 22, 2005, compared to the 16 weeks
(first quarter 2005) ended July 23, 2004.


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


During first quarter 2006, the
Company closed three Learning Centers. During first quarter 2005, the Company closed
three Learning Centers and sold two additional Learning Centers to franchisees.


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


12
RESULTS OF OPERATIONS


16 Weeks
      Ended 
      July 22, 2005
    
    Percent
      
      of 
      Revenues
    
    16
      Weeks 
      Ended 
      July 23, 2004
    
    Percent
      
      of 
      Revenues
    
    Change 
      Amount 
      (in Dollars)(Dollars
      in Thousands)Revenue
      from Learning Center Operations
    $
    67,452
    
    
    96.4
    %
    
    $
    62,598
    
    
    96.4
    %
    
    $
    4,854Revenue
      from Franchise Operations
    
    2,520
    
    
    3.6
    %
    
    
    2,335
    
    
    3.6
    %
    
    
    185Total revenue
    
    69,972
    
    
    100.0
    %
    
    
    64,933
    
    
    100.0
    %
    
    
    5,039Operating
      expenses of Learning Centers
    
    58,521
    
    
    83.6
    %
    
    
    55,830
    
    
    86.0
    %
    
    
    2,691Gross profit
    
    11,451
    
    
    16.4
    %
    
    
    9,103
    
    
    14.0
    %
    
    
    2,348General
      and administrative expenses
    
    6,686
    
    
    9.5
    %
    
    
    6,397
    
    
    9.9
    %
    
    
    289Depreciation
      and amortization expenses
    
    1,367
    
    
    2.0
    %
    
    
    1,307
    
    
    2.0
    %
    
    
    60Gain on
      sale of centers and vacant land
    
    (41
    )
    
    -0.1
    %
    
    
    (549
    )
    
    -0.9
    %
    
    
    508Provision
      for doubtful accounts
    
    470
    
    
    0.7
    %
    
    
    259
    
    
    0.4
    %
    
    
    211Exit and
      closure expenses
    
    65
    
    
    0.1
    %
    
    
    40
    
    
    0.1
    %
    
    
    25OPERATING
      INCOME
    $
    2,904
    
    
    4.2
    %
    
    $
    1,649
    
    
    2.5
    %
    
    $
    1,255Total revenue. Total revenue
for first quarter 2006 increased $5.0 million, or 7.8%, from the same period last year to
$70.0 million. Learning Center revenues increased $4.9 million, or 7.8%, with comparable
center revenues (centers opened 18 months or longer) increasing 6.0%. Of this increase,
approximately 3% was a result of average tuition rate increases and approximately 3% was a
result of enrollment increases. Childtime Learning Centers revenues increased $2.7
million, or 6.0%, with comparable Childtime center revenues increasing 6.1%. Tutor Time
Learning Centers revenues increased $2.6 million, or 15.1%, with $2.3 million resulting
from centers acquired during second quarter 2005. Comparable Tutor Time center revenues
increased 5.8%. These increases were offset by a decrease in revenue attributable to the
consolidation of two franchise arrangements considered variable interest entities (VIEs as
discussed in Note 14 of the Notes to Condensed Consolidated Financial Statements
(unaudited) included in this report under Item 1) of $0.4 million. There were no VIEs in
first quarter 2006. Franchise Operations revenues, which consisted primarily of royalties,
increased $0.2 million, or 7.9%, with comparable franchisee revenues increasing 11.1%.


Operating expenses of Learning
Centers. Operating expenses for first quarter 2006 increased $2.7 million, or 4.8%,
from the same period last year to $58.5 million. The increase was a result of an increase
in personnel expense ($1.7 million), which increased with centers acquired, higher
enrollments and general wage increases; an increase in occupancy expense ($0.7 million),
which was a result of rent on acquired and new center openings, and increased insurance
and other occupancy costs for existing centers; an increase in center level operating
expenses ($0.7 million), which increased with centers acquired, higher enrollments and
increased costs from center maintenance improvements, food, transportation and utility
expenses; offset by a decrease in operating expenses associated with the VIEs ($0.4
million). Operating expenses as a percentage of net revenue decreased to 83.6% for first
quarter 2006, from 86.0% in the same period last year. This decrease is a result of a
decrease in personnel expenses as a percentage of net revenue, resulting from increased
revenues and improved labor efficiencies, a decrease in center level operating expenses as
a percentage of net revenue, resulting from primarily improved food costs, and a decrease
in occupancy costs as a percentage of net revenue, resulting from increased revenues.


Gross profit. Gross profit for
first quarter 2006 increased $2.3 million, or 25.8%, from the same period last year to
$11.5 million. This increase consisted of a $2.1 million increase in Learning Center
Operations gross profit and a $0.2 million increase in Franchise Operations gross profit.
Gross profit percentages for first quarter 2006 by segment were 14.8% for Childtime
centers (as compared to 12.5% for 2005), 9.5% for Tutor Time centers (as compared to 6.6%
for 2005) and 100% for Franchise Operations for both years. The first quarter gross profit
and gross profit percentage changes were a result of the changes in operating expenses
described above.


General and administrative
expenses. General and administrative expenses for first quarter 2006 increased $0.3
million, or 4.5%, from the same period last year to $6.7 million. The increase was a
result of increased support staff and general wage increases. General and administrative
expenses as a percentage of net revenue decreased to 9.6%


13
for first quarter 2006 from 9.9% in
the same period last year, due to the greater rate of increase in net revenue for the
current period.


Depreciation and amortization
expense. Depreciation and amortization expense for first quarter 2006 increased $0.1
million, or 4.6%, from the same period last year to $1.4 million. Depreciation and
amortization expense as a percentage of net revenue remained unchanged at 2.0%.


Gain on sale of centers. Gain
on sale of centers in first quarter 2005 was a result of the sale under a franchise
agreement of two Tutor Time centers to an existing franchisee. There was no similar
transaction during the first quarter 2006.


Provision for doubtful
accounts. Provision for doubtful accounts for first quarter 2006 increased $0.2
million from the same period last year to $0.5 million. The increase was a
result of increased revenues and less favorable collection experience.


Exit and closure expenses.
Exit and closure expenses for first quarter 2006 relate to estimated costs to repair
closed centers to the landlords standards upon termination of the leases, and
remained constant at $0.1 million from first quarter 2005.


Interest expense. Interest
expense for first quarter 2006 was $0.6 million, substantially unchanged from the same
period last year.


Income tax provision. Income
tax provision for first quarter 2006 of $0.2 million was recorded on income before income
taxes and discontinued operations of $2.3 million, compared to an income tax provision of
$0.1 million on income before income taxes and discontinued operations of $1.0 million for
the same period last year. Income tax expense for first quarters 2006 and 2005 varied from the U.S.
statutory rate of 34% due primarily to the utilization of net operating loss carryforwards
for which a valuation allowance has been recorded.


Discontinued operations, net of
taxes. Discontinued operations, net of taxes, for first quarter 2006 was a loss of
($0.1 million), compared to income of $0.1 million for the same period last year. Centers
closed during first quarter 2005 generated positive operating results. Centers closed
during first quarter 2006 generated negative operating results.


Net income. As a result of the
foregoing changes, net income increased to $2.1 million for first quarter 2006, compared
to net income of $1.0 million for the same period last year.


LIQUIDITY AND CAPITAL
RESOURCES


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


The Company has a credit agreement
which provides a $17.5 million revolving line of credit that will mature on July 31,
2006. It is collateralized by the Companys receivables, equipment and real estate,
with interest payable at a variable rate, at the Companys option, based on either
the prime rate or the Eurodollar rate. There were outstanding borrowings of $1.6 million
at July 22, 2005, and outstanding borrowings of $4.3 million at April 1, 2005.
Outstanding letters of credit of $4.7 million at July 22, 2005, and $3.4 million at April
1, 2005, reduced the


14
availability under the line of
credit. As of July 22, 2005 and April 1, 2005, unused amounts available for borrowing
under this line of credit were $11.2 million and $9.8 million, respectively.


On August 2, 2005, the Company
amended its credit agreement to, among other things, increase the amount of the credit
facility from $17.5 million to $22.5 million and permit optional redemption of all of the
Companys 15% Subordinated Notes due 2008 in the principal amount of $3.5 million. On
September 1, 2005, the Company redeemed the entire $3.5 million balance on the
Subordinated Notes, plus interest, using primarily borrowings under the credit agreement.


Under this agreement, the Company is
required to maintain certain financial ratios and other financial conditions. In addition,
there are restrictions on the incurrence of additional indebtedness, disposition of assets
and transactions with affiliates. The Company was in compliance with the agreement as of
July 22, 2005.


Net cash provided by operating
activities was $7.5 million for first quarter 2006, compared to $2.6 million for the same
period last year. During first quarter 2006, cash used in financing activities totaled
$6.2 million and consisted primarily of net payments on the revolving line of credit of
$2.7 million and reductions in drafts payable of $3.5 million. During first quarter 2005,
cash used in financing activities totaled $2.5 million and consisted primarily of
repayments under long-term debt of $2.4 million and reductions in drafts payable of $3.0
million, offset by net borrowings on the revolving line of credit of $2.9 million. Cash
used in investing activities totaled $1.0 million for the first quarter 2006, of which
$1.3 million was used for capital spending which was partially offset by $0.2 million of
refunds of security deposits. Cash used in investing activities totaled $1.0 million for
the first quarter 2005, of which $1.7 million was used for capital spending which was
partially offset by $0.7 million of proceeds from asset sales.


The Company has entered into interest
rate swap contracts to manage its exposure to fluctuations in interest rates relating to
the revolving line of credit. Swap contracts fix the interest payments of floating rate
debt instruments. As of July 22, 2005, contracts representing $5.0 million of notional
amount were outstanding with maturity dates of November 2005 and January 2006. These
contracts provide for the Company to pay interest at an average fixed rate of 2.98% in
return for receiving interest at a floating rate of three month LIBOR, which is reset in
three month intervals. The fair value of interest rate swap agreements is subject to
changes in value due to changes in interest rates. During first quarter 2006, the market
value of the outstanding interest rate contracts was substantially unchanged. During first
quarter 2005, the market value of the outstanding interest rate contracts increased $0.1
million.


Contractual Obligations
and Commitments


A subsidiary of the Company is
primarily or contingently liable for many of the leases of Tutor Times franchisees.
In an effort to build its franchisee network, Tutor Time either leased the prospective
site for a franchisee, with a subsequent sublease of the site to the franchisee, or
provided a lease guarantee to the landlord for the benefit of the franchisee in exchange
for a monthly lease guarantee fee payable by the franchisee that is based upon the monthly
rent expense of the guaranteed lease. The payments the Company could be required to pay
related to leases and guarantees aggregate $69.7 million and $12.3 million, respectively,
in case of default by the franchisee. Should the Company be required to make payments
under these leases, it may assume obligations for operating the center. Should the center
not be economically viable, the Company will make provision for the lease termination at
that time. The Company does not not anticipate that it will be required to make payments
under any of these lease arrangements, does not believe that any payments are likely and
has not recorded any related liability.


15
At July 22, 2005, aggregate potential
payments on leases and guarantees over the next five fiscal years and thereafter are as
follows:

Total
    
    Less
      Than
      1 Year
    
    2
      to 3
      Years
    
    4
      to 5
      Years
    
    After
      
      5 Years(In
      thousands)Franchise
      Lease Guarantees
    $
    12,338
    
    $
    1,047
    
    $
    2,115
    
    $
    1,894
    
    $
    7,282Franchise
      Lease Commitments
    
    69,686
    
    
    6,586
    
    
    12,784
    
    
    11,887
    
    
    38,429Total
    $
    82,024
    
    $
    7,633
    
    $
    14,899
    
    $
    13,781
    
    $
    45,711At July 22, 2005, aggregate
principal payments on short and long-term debt over the next five fiscal years and
thereafter are as follows:



Total
    
    Less
      Than
      1 Year
    
    2
      to 3
      Years
    
    4
      to 5
      Years
    
    After
      
      5 Years(In
      thousands)Short-term
      debt
    $
    64
    
    $
    64
    
    $
    
    
    $
    
    
    $
    Long-term
      debt
    
    5,151
    
    
    
    
    
    5,151
    
    
    
    
    
    Total
    $
    5,215
    
    $
    64
    
    $
    5,151
    
    $
    
    
    $
    Related Party
Transactions


For information regarding related
party transactions, see the Companys Annual Report on Form 10-K for the fiscal year
ended April 1, 2005 (see Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations  Related Party Transactions).


Contingencies


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


Critical Accounting
Policies


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


For a description of the
Companys significant accounting policies, see Note 2, Summary of Significant
Accounting Policies, of the Notes to Condensed Consolidated Financial Statements
(unaudited) included in this Report under Item 1. For a more complete description, please
refer to the Companys Annual Report on Form 10-K for the fiscal year ended April 1,
2005.


New Accounting
Pronouncements


In December 2004, the FASB issued
SFAS 123 (Revised 2004), Share-Based Payment.This standard requires expensing of
stock options and other share-based payments and supersedes SFAS 123, Accounting for
Stock-Based Compensation,and APB Opinion No. 25, Accounting for Stock Issued to
Employees,and its related implementation guidance that had allowed companies to
choose between expensing stock options or showing proforma disclosure only. This standard,
together with a new rule adopted by the Securities and Exchange Commission in April 2005,
is effective for the Companys fiscal year ending March 30, 2007 and will apply to
all awards granted, modified, cancelled or repurchased after that date. The ultimate
amount of increased compensation expense will be dependent on the number of option shares
granted, their timing and vesting period and the method used to calculate the fair value
of the awards, among other factors. The Company is currently evaluating the expected
impact that the adoption of SFAS 123R will have on results of operations and cash flows in
the future.


16
Wage Increases


Expenses for center-level salaries,
wages and benefits represented approximately 49% of net revenues for first quarter 2006,
as compared to approximately 51% of net revenues in first quarter 2005. Management
believes that, through increases in tuition rates, the Company can offset any future
center-level wage increases caused by adjustments to the federal, state or county minimum
wage rates, labor issues or other market adjustments. However, no assurance can be given
that rates can be increased sufficiently to cover such increased costs. The Company
continually evaluates its wage structure and may implement changes at targeted local
levels.


SAFE HARBOR STATEMENT
UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995


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



ITEM 3. Quantitative and
Qualitative Disclosures about Market Risks


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


Interest Rates. The Company
has exposure to market risk for changes in interest rates related to its debt obligations.
The Company does not have cash flow exposure due to rate changes on its 15% Subordinated
Notes in the amount of $3.5 million as of July 22, 2005. The Company has cash flow
exposure on the revolving line of credit, with an outstanding balance of $1.6 million, and
its notes payable, with an outstanding balance of $0.1 million, each as of July 22, 2005.
These exposures have been temporarily offset by the Company entering into $5.0 million
notional amount of interest rate swap contracts. Accordingly, a 2% (200 basis points)
change in the LIBOR rate or the prime rate would have resulted in interest expense
changing by less than $0.1 million for first quarter 2006.


Foreign Currency Exchange
Rates. The Companys exposure to foreign currency exchange rates is limited to
royalties for 11 international franchised centers. Based upon the relative size of its
foreign operations, the Company does not believe that the reasonably possible near-term
change in the related exchange rate would have a material effect on its financial
position, results of operations and cash flows.


17
ITEM 4.
Controls and Procedures


Under the supervision and with the
participation of our management, including our chief executive officer and chief financial
officer, we have evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this quarterly report, and,
based on their evaluation, our chief executive officer and chief financial officer have
concluded that these controls and procedures are effective. There were no significant
changes in our internal control over financial reporting during the fiscal quarter ended
July 22, 2005, that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.


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


18
PART II 
OTHER INFORMATION



ITEM 1. Legal
Proceedings


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


ITEMS 2 through 4 are
not applicable.



ITEM 5. Other Information


a)
On
August 23, 2005, members of the Compensation Committee of the Board of Directors of the
Company, other than the                 Chairperson, authorized the payment, as of
January 1, 2005, of additional fees to the Chairperson of the Compensation
                Committee of $5,000 per year, payable in quarterly installments of
$1,250, in recognition of the additional time and                 attention necessary to
fulfill the responsibilities of such position.b)
Not
applicable.

ITEM 6.
Exhibits


10.0
Compensation
of Board of Directors31.1
Rule
13a-14(a) Certification by William D. Davis, President and Chief Executive Officer31.2
Rule
13a-14(a) Certification by Frank M. Jerneycic, Treasurer and Chief Financial Officer32.1
Certification
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act
                                       of 200232.2
Certification
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act
                                       of 2002

SIGNATURES


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


Date: September 1, 2005
    
    LEARNING
      CARE GROUP, INC.
      (REGISTRANT)
      By: /s/ Frank M. Jerneycic
      
      Frank M. Jerneycic
      Chief Financial Officer and Treasurer
      (Duly Authorized Officer
      and Principal Financial Officer)19
EXHIBIT INDEX


Exhibit
      Number
    
    Description10.0
    
    Compensation
      of Board of Directors31.1
    
    Rule
      13a-14(a) Certification by William D. Davis, President and Chief Executive
      Officer31.2
    
    Rule
      13a-14(a) Certification by Frank M. Jerneycic, Treasurer and Chief Financial
      Officer32.1
    
    Certification
      pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of
      the Sarbanes-Oxley Act of 200232.2
    
    Certification
      pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of
      the Sarbanes-Oxley Act of 200220