##### Table of Contents



---

---

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark one)

|  |  |                                                                                            
|- |  | -------------------------------------------------------------------------------------------
|x |  | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

For the Quarterly Period Ended July 19, 2002

|  |  |                                                                                    
|- |  | -----------------------------------------------------------------------------------
|o |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
|  |  | 1934 for the transition period from ______________ to  ______________              

Commission File Number 0-27656



CHILDTIME LEARNING CENTERS, INC.
(Exact name of registrant as specified in its charter)

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Michigan
(State or other jurisdiction of
incorporation or organization) |  | 38-3261854
(I.R.S. Employer
Identification No.)

38345 West 10 Mile Road, Suite 100, Farmington Hills, Michigan 48335-2883
(Address of principal executive offices, including zip code)

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

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

As of August 20, 2002, there were 5,416,210 outstanding shares of Common Stock,
no par value per share, of the registrant.



---

---





---

TABLE OF CONTENTS



|                                                  |                                                                                               |                                                                                         |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I: FINANCIAL INFORMATION                    
|                                                  | Item 1. Consolidated Financial Statements                                                    
|                                                  |                                                                                               | A. Consolidated Balance Sheets July 19, 2002 and July 20, 2001                         
|                                                  |                                                                                               | B. Consolidated Statements of Operations 16 weeks ended July 19, 2002 and July 20, 2001
|                                                  |                                                                                               | C. Consolidated Statements of Cash Flows 16 weeks ended July 19, 2002 and July 20, 2001
|                                                  |                                                                                               | D. Notes to Consolidated Financial Statements                                          
|                                                  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|PART II: OTHER INFORMATION                       
|                                                  | Item 1. Legal Proceedings                                                                    
|                                                  | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                                  | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                       
|CERTIFICATIONS                                   
|EX-3.1 Amendment to Restated Bylaws              
|EX-10.1 Stock Option Agreement - William D. Davis
|EX-10.2 Employment Agreement - Frank Jerneycic   
|EX-99.1 Certification of Chief Executive Officer 
|EX-99.2 Certification of Chief Financial Officer 
|EX-99.3 Press Release issued August 29, 2002     
|EX-99.4 Press Release issued September 9, 2002   



---



##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

|               |         |                                                                                         |                                                                                       |  |      |       |       |  | 
|-------------- | ------- | --------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- |  | ---- | ----- | ----- |  | 
|PART I         |         | FINANCIAL INFORMATION                                                                   |                                                                                       |  |      |      
|               | Item 1. |                                                                                         | Consolidated Financial Statements                                                     |  |      |       |      
|               |         | A. Consolidated Balance Sheets
            July 19, 2002 and July 20, 2001              |                                                                                       |  | 3    |      
|               |         | B. Consolidated Statements of Operations
16 weeks ended July 19, 2002 and July 20, 2001 |                                                                                       |  | 4    |      
|               |         | C. Consolidated Statements of Cash Flows
16 weeks ended July 19, 2002 and July 20, 2001 |                                                                                       |  | 5    |      
|               |         | D. Notes to Consolidated Financial Statements                                           |                                                                                       |  | 6-11 |      
|               | Item 2. |                                                                                         | Management's Discussion and Analysis of Financial Condition and Results of Operations |  |      | 12-14 |      
|PART II        |         | OTHER INFORMATION                                                                       |                                                                                       |  |      |      
|               | Item 1. |                                                                                         | Legal Proceedings                                                                     |  |      | 15    |      
|               | Item 4. |                                                                                         | Submission of Matters to a Vote of Security Holders                                   |  |      | 15    |      
|               | Item 6. |                                                                                         | Exhibits, Reports on Form 8-K                                                         |  |      | 16    |      
|SIGNATURES     |         |                                                                                         |                                                                                       |  |      |       | 16    | 
|CERTIFICATIONS |         |                                                                                         |                                                                                       |  |      |       | 17-18 | 

2



---



##### Table of Contents












Part I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements

CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |   |        |        |         |  
|------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------- | ------ | --------- | - | ------ | ------ | ------- | -
|(In thousands)                                                                       |                                                                                                                                                            | July 19,                                        |         |        | March 29, |  
|                                                                                     |                                                                                                                                                            | 2002                                            |         |        | 2002      |  
|ASSETS                                                                               |                                                                                                                                                            | (Unaudited)                                     |         |        |           |  
|CURRENT ASSETS:                                                                      |                                                                                                                                                            |                                                 |         |        |           |   |        |       
|                                                                                     | Cash and cash equivalents                                                                                                                                  |                                                 | $       | 2,219  |           |   | $      | 4,891  |        
|                                                                                     | Accounts receivable, net                                                                                                                                   |                                                 |         | 7,669  |           |   |        | 5,235  |        
|                                                                                     | Prepaid expenses and other current assets                                                                                                                  |                                                 |         | 2,201  |           |   |        | 2,329  |        
|                                                                                     | Income tax receivable                                                                                                                                      |                                                 |         | 2,941  |           |   |        | 2,509  |        
|                                                                                     | Deferred income taxes                                                                                                                                      |                                                 |         | 2,940  |           |   |        | 3,764  |        
|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |  
|                                                                                     |                                                                                                                                                            | Total current assets                            |         |        | 17,970    |   |        |        | 18,728  |  
|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |  
|LAND, BUILDINGS AND EQUIPMENT:                                                       |                                                                                                                                                            |                                                 |         |        |           |   |        |       
|                                                                                     | Land                                                                                                                                                       |                                                 |         | 9,362  |           |   |        | 9,503  |        
|                                                                                     | Buildings                                                                                                                                                  |                                                 |         | 18,775 |           |   |        | 19,180 |        
|                                                                                     | Leasehold improvements                                                                                                                                     |                                                 |         | 11,143 |           |   |        | 10,010 |        
|                                                                                     | Vehicles, furniture and equipment                                                                                                                          |                                                 |         | 17,390 |           |   |        | 14,820 |        
|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |  
|                                                                                     |                                                                                                                                                            |                                                 | 56,670  |        |           |   | 53,513 |       
|                                                                                     |                                                                                                                                                            | Less: accumulated depreciation and amortization |         |        | (17,244   | ) |        |        | (16,531 | )
|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |  
|                                                                                     |                                                                                                                                                            |                                                 | 39,426  |        |           |   | 36,982 |       
|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |  
|OTHER NONCURRENT ASSETS:                                                             |                                                                                                                                                            |                                                 |         |        |           |   |        |       
|                                                                                     | Intangible assets, net                                                                                                                                     |                                                 |         | 40,648 |           |   |        | 17,325 |        
|                                                                                     | Refundable deposits and other                                                                                                                              |                                                 |         | 2,035  |           |   |        | 1,080  |        
|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |  
|                                                                                     |                                                                                                                                                            |                                                 | 42,683  |        |           |   | 18,405 |       
|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |  
|TOTAL ASSETS                                                                         |                                                                                                                                                            | $                                               | 100,079 |        |           | $ | 74,115 |       
|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                 |                                                                                                                                                            |                                                 |         |        |           |   |        |       
|CURRENT LIABILITIES:                                                                 |                                                                                                                                                            |                                                 |         |        |           |   |        |       
|                                                                                     | Accounts and drafts payable                                                                                                                                |                                                 | $       | 5,757  |           |   | $      | 6,271  |        
|                                                                                     | Accrued wages and benefits                                                                                                                                 |                                                 |         | 5,636  |           |   |        | 4,508  |        
|                                                                                     | Revolving line of credit                                                                                                                                   |                                                 |         | 10,962 |           |   |        | 2,500  |        
|                                                                                     | Current portion of long-term debt                                                                                                                          |                                                 |         | 1,117  |           |   |        | 1,133  |        
|                                                                                     | Restructuring accrual                                                                                                                                      |                                                 |         | 1,101  |           |   |        | 829    |        
|                                                                                     | Other current liabilities                                                                                                                                  |                                                 |         | 9,945  |           |   |        | 8,094  |        
|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |  
|                                                                                     |                                                                                                                                                            | Total current liabilities                       |         |        | 34,518    |   |        |        | 23,335  |  
|LONG-TERM
DEBT, NET OF CURRENT PORTION ($10,844 to related parties at July 19,
2002) |                                                                                                                                                            |                                                 | 18,587  |        |           |   | 3,196  |       
|DEFERRED RENT LIABILITY                                                              |                                                                                                                                                            |                                                 | 960     |        |           |   | 983    |       
|DEFERRED INCOME TAXES                                                                |                                                                                                                                                            |                                                 | 2,458   |        |           |   | 3,119  |       
|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |  
|                                                                                     |                                                                                                                                                            | Total liabilities                               |         |        | 56,523    |   |        |        | 30,633  |  
|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |  
|SHAREHOLDERS EQUITY:                                                                |                                                                                                                                                            |                                                 |         |        |           |   |        |       
|                                                                                     | Common stock, 10,000,000 shares authorized, no par value; 5,416,210 and
5,240,772 issued and outstanding at July 19, 2002 and March 29, 2002,
respectively |                                                 |         | 31,665 |           |   |        | 31,183 |        
|                                                                                     | Preferred stock, 1,000,000 shares authorized, no par value; no shares
issued or outstanding                                                                |                                                 |         |        |           |   |        |        |        
|                                                                                     | Retained earnings                                                                                                                                          |                                                 |         | 11,891 |           |   |        | 12,299 |        
|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |  
|                                                                                     |                                                                                                                                                            | Total shareholders equity                      |         |        | 43,556    |   |        |        | 43,482  |  
|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |  
|TOTAL
LIABILITIES AND SHAREHOLDERS EQUITY                                           |                                                                                                                                                            | $                                               | 100,079 |        |           | $ | 74,115 |       
|                                                                                     |                                                                                                                                                            |                                                 |         |        |           |  

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

3



---



##### Table of Contents






CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)

|                                       |                                             |                |          |       |   |          |        |       | 
|-------------------------------------- | ------------------------------------------- | -------------- | -------- | ----- | - | -------- | ------ | ----- | 
|(In thousands, except per share data)  |                                             | 16 weeks ended |         
|                                       |                                             |                | July 19, |       |   | July 20, |       
|                                       |                                             |                | 2002     |       |   | 2001     |       
|                                       |                                             |                |          |       |   |          |       
|Revenues, net                          |                                             | $              | 44,883   |       |   | $        | 46,730 |      
|                                       |                                             |                |          |       |   |         
|Operating expenses of Learning Centers |                                             |                | 40,422   |       |   |          | 39,916 |      
|Provision for doubtful accounts        |                                             |                | 194      |       |   |          | 75     |      
|General and administrative expenses    |                                             |                | 3,528    |       |   |          | 2,964  |      
|Restructuring
expense                  |                                             |                | 512      |       |   |          |       |      
|Depreciation and amortization expense  |                                             |                | 768      |       |   |          | 1,384  |      
|                                       |                                             |                |          |       |   |         
|                                       | OPERATING EARNINGS (LOSS)                   |                |          | (541  | ) |          |        | 2,391 | 
|Interest expense, net                  |                                             |                | 111      |       |   |          | 173    |      
|Other income, net                      |                                             |                | (5       | )     |   |          | (36    | )    
|                                       |                                             |                |          |       |   |         
|                                       | EARNINGS (LOSS) BEFORE INCOME TAXES         |                |          | (647  | ) |          |        | 2,254 | 
|Income tax provision (benefit)         |                                             |                | (239     | )     |   |          | 850    |      
|                                       |                                             |                |          |       |   |         
|                                       | NET EARNINGS (LOSS)                         |                | $        | (408  | ) |          | $      | 1,404 | 
|                                       |                                             |                |          |       |   |         
|                                       | WEIGHTED AVERAGE SHARES OUTSTANDING         |                |          | 5,241 |   |          |        | 5,226 | 
|                                       | BASIC AND DILUTED EARNINGS (LOSS) PER SHARE |                | $        | (0.08 | ) |          | $      | 0.27  | 
|                                       |                                             |                |          |       |   |         

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

4



---



##### Table of Contents






CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)

|                                             |                                                                                            |                                           |                                                  |         |          |         |        |          |       |        |  
|-------------------------------------------- | ------------------------------------------------------------------------------------------ | ----------------------------------------- | ------------------------------------------------ | ------- | -------- | ------- | ------ | -------- | ----- | ------ | -
|(In thousands)                               |                                                                                            | 16 Weeks Ended                            |                                                 
|                                             |                                                                                            |                                           |                                                  |         | July 19, |         |        | July 20, |      
|                                             |                                                                                            |                                           |                                                  |         | 2002     |         |        | 2001     |      
|                                             |                                                                                            |                                           |                                                  |         |          |         |        |          |      
|OPERATING ACTIVITIES:                        |                                                                                            |                                           |                                                  |         |          |         |        |         
|                                             | Net earnings (loss)                                                                        |                                           | $                                                | (408    | )        |         | $      | 1,404    |      
|                                             | Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities: |                                           |                                                  |         |          |         |        |          |      
|                                             |                                                                                            | Depreciation and amortization             |                                                  |         | 917      |         |        |          | 1,378 |       
|                                             |                                                                                            | Provision for doubtful accounts           |                                                  |         | 194      |         |        |          | 75    |       
|                                             |                                                                                            | Stock option compensation expense         |                                                  |         | 0        |         |        |          | 24    |       
|                                             |                                                                                            | Deferred rent liability                   |                                                  |         | (23      | )       |        |          | (108  | )     
|                                             |                                                                                            | Deferred income taxes                     |                                                  |         | 163      |         |        |          | 489   |       
|                                             |                                                                                            | (Gains) losses on sale of assets          |                                                  |         | (149     | )       |        |          | 18    |       
|                                             | Changes in operating assets and liabilities:                                               |                                           |                                                  |         |          |         |        |          |      
|                                             |                                                                                            | Accounts receivable                       |                                                  |         | (428     | )       |        |          | (833  | )     
|                                             |                                                                                            | Prepaid expenses and other current assets |                                                  |         | 696      |         |        |          | 1,298 |       
|                                             |                                                                                            | Restructuring accrual                     |                                                  |         | 272      |         |        |          | (541  | )     
|                                             |                                                                                            | Accounts payable                          |                                                  |         | 1,540    |         |        |          | (687  | )     
|                                             |                                                                                            | Accruals and other current liabilities    |                                                  |         | (1,601   | )       |        |          | (729  | )     
|                                             |                                                                                            |                                           |                                                  |         |          |        
|                                             |                                                                                            |                                           | Net cash provided (used) by operating activities |         |          | 1,173   |        |          |       | 1,788  |  
|                                             |                                                                                            |                                           |                                                  |         |          |        
|INVESTING ACTIVITIES:                        |                                                                                            |                                           |                                                  |         |          |         |        |         
|                                             | Acquisition of Tutor Time  net of cash acquired                                           |                                           |                                                  | (23,790 | )        |         |        |         |      
|                                             | Capital spending                                                                           |                                           |                                                  | (739    | )        |         |        | (1,476   | )    
|                                             | Expenditures for reimbursable construction costs                                           |                                           |                                                  |        |          |         |        | (898     | )    
|                                             | Proceeds from sales of assets                                                              |                                           |                                                  | 555     |          |         |        |         |      
|                                             | Payments for refundable deposits and other assets                                          |                                           |                                                  | (5      | )        |         |        | (3       | )    
|                                             |                                                                                            |                                           |                                                  |         |          |        
|                                             |                                                                                            |                                           | Net cash used in investing activities            |         |          | (23,979 | )      |          |       | (2,377 | )
|                                             |                                                                                            |                                           |                                                  |         |          |        
|FINANCING ACTIVITIES:                        |                                                                                            |                                           |                                                  |         |          |         |        |         
|                                             | Net borrowings on revolving line of credit                                                 |                                           |                                                  | 8,462   |          |         |        |         |      
|                                             | Repayments under long-term debt                                                            |                                           |                                                  | (275    | )        |         |        | (284     | )    
|                                             | Issuance of long-term debt                                                                 |                                           |                                                  | 14,000  |          |         |        |         |      
|                                             | Changes in drafts payable                                                                  |                                           |                                                  | (2,053  | )        |         |        | (399     | )    
|                                             | Repayments of reimbursable construction                                                    |                                           |                                                  |        |          |         |        | 229      |      
|                                             |                                                                                            |                                           |                                                  |         |          |        
|                                             |                                                                                            |                                           | Net cash provided (used) by financing activities |         |          | 20,134  |        |          |       | (454   | )
|                                             |                                                                                            |                                           |                                                  |         |          |        
|Net decrease in cash and cash equivalents    |                                                                                            |                                           | (2,672                                           | )       |          |         | (1,043 | )       
|Cash and cash equivalents, beginning of year |                                                                                            |                                           | 4,891                                            |         |          |         | 3,379  |         
|                                             |                                                                                            |                                           |                                                  |         |          |        
|Cash and cash equivalents, end of period     |                                                                                            | $                                         | 2,219                                            |         |          | $       | 2,336  |         
|                                             |                                                                                            |                                           |                                                  |         |          |        

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

5



---



##### Table of Contents






CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements

Note 1  Description of Business

Childtime Learning Centers, Inc. and subsidiaries (Childtime or the
Company) began operations in 1967, and operates for-profit childcare centers
in 23 states and the District of Columbia. On July 19, 2002, the Company
acquired substantially all of the assets of Tutor Time Learning Systems, Inc.,
a Florida corporation (Tutor Time), for an aggregate purchase price of
approximately $22,400,000, excluding acquisition costs of
approximately $2.4 million, plus the assumption of certain liabilities. The
acquisition was consummated pursuant to an asset purchase agreement dated as of
June 28, 2002, approved by the U.S. Bankruptcy Court, Southern District of
Florida and closed on July 19, 2002. The assets acquired by the Company consisted of substantially all of
the operating assets and contract rights used by Tutor Time in its child care
operations, which were comprised of 198 company-owned and franchised child care
centers operating in 23 states and internationally, and were purchased to improve its
product offering and to enter the childcare franchise business. The
Tutor Time centers are on average newer and larger than
Childtimes centers, and Tutor Time is the largest franchisor in
the childcare industry. Additionally, the Company gained access to
approximately 34 sites that are in the development pipeline and are
expected to open as either franchise or corporate centers over the
next 18 months. As of July 19, 2002,
Childtime operated 343 Company owned centers and franchised an additional 129 centers with an
aggregate licensed
capacity for over 50,000 children.

Note 2  Acquisition and Pro Forma Information

As previously mentioned, on July 19, 2002, the Company acquired substantially
all of the assets of Tutor Time Learning Systems, Inc., a Florida corporation
(Tutor Time), for an aggregate purchase price of
approximately $22,400,000, excluding acquisition
costs of approximately $2.4 million,
plus the assumption of certain liabilities. In consideration for the provision
of investment advisory services with respect to the acquisition (including
related post-closing services), Jacobson Partners was paid an
advisory fee consisting of a cash payment
of $333,336 and the issuance of 175,438 shares. Jacobson Partners is the management and
financial consultant to the Company of which Benjamin R. Jacobson, a director
of the Company is the managing general partner, James J. Morgan, the Companys
Chairman of the Board, is a partner, and George A. Kellner, the Companys Vice
Chairman of the Board, is a special advisor.

The Tutor Time acquisition was financed, in part, by Bank One, NA through its
secured credit facility with Childtime Childcare, Inc., a wholly-owned
subsidiary of the Company, as amended by the Second Amendment to Amended and
Restated Credit Agreement (Second Amendment) dated as of July 19, 2002.

Subordinated loans (the Subordinated Notes) in the aggregate amount of $14
million were provided by a group of lenders organized by Jacobson Partners to
fund the balance of the Tutor Time acquisition purchase price and to provide
related working capital. The Subordinated Notes are subject to a Subordination
Agreement in favor of Bank One, NA, mature December 31, 2004 and bear interest
at 15% of which 7% is payable in cash, with the balance payable in kind by the
issuance of additional subordinated notes (the Additional Subordinated Notes)
with interest

6



---



##### Table of Contents



and principal payable on the earlier of December 31, 2004 or such date on or
after March 31, 2003, on which the Company is in compliance with the Senior
Debt to EBITDA covenant of the Second Amendment, provided that the Company has
consummated the Rights Offering (defined below) and received net cash proceeds
(and/or cancelled Subordinated Notes) of at least $7,500,000 from the issuance
of Common Stock in such Rights Offering (the Minimum Equity Agreement). If
the Rights Offering is not consummated and the Minimum Equity Amount is not
received on or before July 19, 2003, then until the earlier of December 31,
2004 or the date on which the Company consummates the Rights Offering and
receives the Minimum Equity Amount, all interest on the Subordinated Notes will
be payable by the issuance of Additional Subordinated Notes. Although Jacobson
Partners received no consideration for arranging this financing, lenders
included JP Acquisition Fund II, L.P. and JP Acquisition Fund III, L.P.,
entities controlled and managed by affiliates of Jacobson Partners (for an
aggregate of $10,536,432), and three directors of the Company (Mr. Jacobson,
Mr. Morgan and Mr. Kellner) and trusts for the benefit of their adult children
(for an aggregate of $307,472).

In connection with the Tutor Time acquisition, JP Acquisition Fund II, L.P., JP
Acquisition Fund III, L.P., and certain of their co-investors (collectively,
the Optionees), including Messrs. Jacobson, Morgan and Kellner, agreed to
arrange for the Company to obtain a standby purchase commitment in connection
with the Companys proposed rights offering contemplated for the purpose of
refinancing the subordinated debt incurred by the Company in connection with
the Tutor Time acquisition (the Rights Offering). As consideration for
obtaining such commitment, a Special Committee of the Board of Directors
approved, subject to shareholder approval, the grant to the Optionees of
options to purchase, in the aggregate, up to 400,000 shares of Common Stock,
until July 19, 2006, at an exercise price of $5.00 per share. All shares
acquired by the Optionees would be subject to registration rights, pursuant to
which, until July 6, 2007, the Optionees would have the right to cause the
Company to register, at the Companys expense, their shares of Common Stock,
whenever the Company is otherwise registering shares (except in certain
circumstances). This option grant was approved by shareholders at the
Companys 2002 Annual Meeting of Shareholders held August 15, 2002.

The Rights Offering is expected to take place prior to December 31, 2002 and
will refinance the subordinated debt incurred by the Company in connection with
the Tutor Time acquisition. As currently contemplated, each Rights Offering
unit (Unit) will consist of 30 shares of common stock, valued at $3.50 per
share, and a $35 subordinated debenture, giving an aggregate value to each Unit
of $140. Subject to certain shareholder ownership requirements, all common
shareholders as of the Rights Offering record date will be able to participate
in the offering and will be allowed to acquire Units on a pro rata basis. The
subordinated debentures will bear interest at 15%, have a five-year maturity,
and be redeemable by the Company at any time at par, subject to restrictions
under its senior lending agreements. As indicated above, JP Acquisition Fund
II, L.P., JP Acquisition Fund III, L.P., and certain of their co-investors,
including Messrs. Jacobson, Morgan and Kellner, have provided a commitment to
purchase all Units not subscribed for in the Rights Offering.

The acquisition of Tutor Time is reflected in the consolidated
balance sheet of the Company as of July 19, 2002 and has been
accounted for in accordance with Statement of Financial Accounting
Standards (SFAS) No 141, Business Combinations.
None of the results of operations of Tutor Time is included in the
Companys results of operation for any
periods presented. The purchase price has been tentatively allocated as follows:

|                    |                |   |        |        |  |  |  |  |  |  |  |  | 
|------------------- | -------------- | - | ------ | ------ |  |  |  |  |  |  |  |  | 
|                    |                |   |        |       
|                    |                |   |        |       
|                    |                |   |        |        |  |  | 
|                    |                |   |        |        |  |  | 
|Current assets      |                | $ | 3,600  |        |  |  |  | 
|Property
and notes  |                |   | 3,961  |        |  |  |  | 
|Intangible assets   |                |   | 23,336 |        |  |  |  | 
|                    |                |   |        |        |  |  | 
|                    | Total assets   |   |        | 30,897 |  |  |  |  | 
|Liabilities assumed |                |   | (6,225 | )      |  |  |  | 
|                    |                |   |        |        |  |  | 
|                    | Purchase price |   | $      | 24,672 |  |  |  |  | 




The purchase price allocation is preliminary and has not been finalized since the Company has not yet completed a
valuation of Tutor Time. The Company is currently evaluating the
extent of amortizable intangibles acquired and, for purposes of the pro forma results
has estimated that approximately
$12,000,000 of the purchase price will be amortizable intangibles (primarily
trademarks, proprietary curriculum, franchise agreements and
proprietary software). This amount will be finalized upon completion of the
valuation. Such estimated amortizable intangibles are amortized
over 10 years in the quarterly pro forma data shown
below. As the amount of amortizable intangibles and the amortization
periods are estimates, the final amounts may vary from
the amounts presented below.




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

|                                    |  |   |                |  |        |               |  |   |        |  |  |  | 
|----------------------------------- |  | - | -------------- |  | ------ | ------------- |  | - | ------ |  |  |  | 
|                                    |  |   | Quarter Ending | 
|                                    |  |   |                | 
|                                    |  |   | July 19, 2002  |  |        | July 20, 2001 | 
|                                    |  |   |                |  |        |               | 
|Revenue                             |  | $ |                |  | 61,431 |               |  | $ | 63,464 | 
|Earnings
(loss) before income taxes |  |   |                |  | (568   | )             |  |   | 2,322  | 
|Net
earnings (loss)                 |  |   |                |  | (358   | )             |  |   | 1,639  | 
|Earnings per share                  |  |   |                |  | (0.07  | )             |  |   | 0.30   | 

In connection with the Tutor Time Learning Systems, Inc. bankruptcy
proceedings, Tutor Time, at the request of the Company was able to reject numerous leases and
franchise agreements. The accompanying pro forma information includes
only the revenues and costs from those Tutor Time centers and
franchises that were not rejected as part of the bankruptcy
proceedings. No pro forma adjustments
were made to the historical Tutor Time corporate overhead expenses
($2,030,000 and $3,559,000 for the quarters ended July 19, 2002 and
July 20, 2001, respectively). Additional interest expense was
included in the pro forma results based upon the additional debt
incurred to finance the Tutor Time acquisition.

7



---



##### Table of Contents



Note 3  Summary of Significant Accounting Policies

PRINCIPLES OF CONSOLIDATION

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

The accompanying consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting principles and,
accordingly, include all normal and recurring adjustments which, in the opinion of management, are
necessary for a fair presentation of the periods represented to fairly state
the Companys financial condition, results of operations and its cash flows,
for the interim periods presented.

These statements should be read in conjunction with the Companys consolidated
financial statements and notes thereto for the 52 weeks ended March 29, 2002.
The results for the 16 weeks ended July 19, 2002, are not necessarily
indicative of results for the entire year.

USE OF ESTIMATES

The preparation of 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reported period. 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 years 2002 and 2003, the first quarter contained 16
weeks, and the fiscal years contain 52 weeks.

Note 4  Accounts Receivable

Accounts receivable is presented net of an allowance for doubtful accounts. At
July 19, 2002, and March 29, 2002, the allowance for doubtful accounts was $0.7
million and $0.7 million, respectively.

Note 5  Reimbursable Construction Costs

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 16 weeks ended July 19, 2002,
and the year ended March 29, 2002, the Company financed construction costs of
$0.0 million and $0.9 million, respectively, while related repayments received
under reimbursement agreements were $0.0 million and $2.0 million,
respectively.

8



---



##### Table of Contents



Note 6  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 19, 2002, and March 29, 2002, the
aggregate drafts payable are $2.0 million and $4.0 million, respectively.

Note 7  Financing Arrangements

On January 31, 2002, the Company amended and restated its revolving line of
credit agreement by entering into a new $17.5 million revolving line of credit
agreement with its existing lender. The new credit agreement, as amended on
July 19, 2002, will mature on September 30, 2004, and is secured by the
Companys receivables, equipment and certain 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 $11.0 million at
July 19, 2002, and outstanding borrowings of $2.5 million
at March 29, 2002. Outstanding letters of credit reduced the availability under the line of credit in the amount of $2.3 million
at July 19, 2002 and $2.5 million at March 29, 2002.

Note 8  Contingencies

During fiscal 2002, the Company decided not to pursue opening three new
build-to-suit centers after leases for these centers had been signed with the
developer of the centers. The Company was subsequently sued by the developer
for breach of contract. This case was settled at the end of fiscal 2002, and a
current liability was recorded on the balance sheet as of March 29, 2002 in the
amount of $800,000, which was paid during the quarter ended July 19, 2002. The
Company remains contingently liable for approximately $1.0 million for
subleases negotiated in connection with certain lease terminations (See Note 12).

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.

Note 9  Option Grants for Consulting Services and Related Party Transactions

In July 2000, the Company retained Jacobson Partners, of which Benjamin R.
Jacobson, a director of the Company, is the managing general partner, to
provide management and financial consulting services. As part of the
consideration to be paid to, and to add further incentive for such services,
Jacobson Partners was granted stock options to purchase 557,275 shares. As of
March 29, 2002, Jacobson Partners has exercised options totaling 294,117 shares
at a cost of $2,500,000. The remaining 263,158 shares expired in July 2002.
Additionally, Jacobson Partners receives an annual consulting fee in the amount
of $250,000, plus reimbursement of reasonable out-of-pocket expenses. In
connection with the Tutor Time acquisition, Jacobson Partners was
paid an advisory fee consisting of $333,336 and the issuance of
175,438 shares, and options were granted to certain related parties to acquire up
to 400,000 shares of the Companys common stock (see Note 2
Acquisition and Pro Forma Information). Total expenses incurred for Jacobson
Partners (exclusive of the Tutor Time fee) were $77,000 and $77,000 for the
quarters ended July 19, 2002 and July 20, 2001, respectively, and are included
in General and

9



---



##### Table of Contents



Administrative expense in the accompanying Consolidated
Statement of Operations.

The Companys current Chairman of the Board was granted 60,000 options in
January 2001. As initially granted, the options have a $7.00 exercise price,
vest at the rate of 10,000 per month and expire January 2003. After the
executive was appointed Chairman of the Board in August 2001, these options
were extended to expire in September 2006. At that time, he was also granted
an additional 50,000 options. These additional options have an $11.00 exercise
price, vest after one year and expire in September 2006.

Note 10  Income Taxes

The Company provides for income taxes in accordance
SFAS No. 109, Accounting for Income Taxes, which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the consolidated
financial statements or tax returns. Under this method, 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.

Note 11  Earnings (Loss) Per Share

For the 16 weeks ended July 19, 2002, and July 20, 2001, basic earnings (loss)
per share has been calculated by dividing earnings available to common
shareholders by the weighted average number of common shares outstanding for
the period. Diluted earnings (loss) per share has been calculated by dividing
earnings (loss) available to common shareholders by the weighted average number
of common shares outstanding for the period and the assumed conversion of all
potentially dilutive stock options. There were no dilutive stock options
outstanding during the 16 weeks ended July 19, 2002 and
9 dilutive options outstanding on July 20, 2001. The
calculation of basic and diluted shares is as follows (in thousands):

|                                         |  |                                   |       |  |               |  |       | 
|---------------------------------------- |  | --------------------------------- | ----- |  | ------------- |  | ----- | 
|                                         |  | Calculation of Incremental Shares |      
|                                         |  | Outstanding                       |      
|                                         |  |                                   |      
|                                         |  | 16 weeks ended                    |      
|                                         |  |                                   |      
|                                         |  | July 19, 2002                     |       |  | July 20, 2001 | 
|                                         |  |                                   |       |  |               | 
|Basic shares (based on weighted average) |  |                                   | 5,241 |  |               |  | 5,226 | 
|Stock options                            |  |                                   | 0     |  |               |  | 9     | 
|                                         |  |                                   |       |  |               | 
|Diluted shares                           |  |                                   | 5,241 |  |               |  | 5,235 | 
|                                         |  |                                   |       |  |               | 

Note 12  Restructuring Charges

The Company instituted a restructuring
program in fiscal 2001 and incurred a charge of $4,000,000 in March
2001. In this regard, the Company closed all 10 of its Oxford
Learning Centers of America and identified 19 under-performing
centers to be closed in fiscal 2002. As of July 19, 2002, all but one
of the under-performing centers have been closed. Approximately 200
employees were involuntarily terminated in connection with
the closures of Oxford Learning Centers of America and the 19
under-performing Childtime centers.  The Company expects to complete
its plan during fiscal 2003. For the quarter ended July 19, 2002, the
Company recorded restructuring expenses of $512,000. Of this amount,
$200,000 is related to the closure of one additional center, not
included in the 2001 restructuring program. The remaining $312,000 is
to increase reserves related to the 2001 restructuring program. This
increase is necessary as a result of current real estate market
conditions.

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

|                        |  |                |     |  |               |                                |     |          |  |   |               |  |  |   |       | 
|----------------------- |  | -------------- | --- |  | ------------- | ------------------------------ | --- | -------- |  | - | ------------- |  |  | - | ----- | 
|                        |  |                |     |  |               | Restructuring Reserve Analysis |     |          |  |   |              
|                       
|                        |  | Beginning      |     |  |               |                                |     | Ending   | 
|                        |  | accrual        |     |  | Restructuring |                                |     | Cash     |  |   | accrual       | 
|                        |  | March 29, 2002 |     |  | Charge        |                                |     | payments |  |   | July 19, 2002 | 
|                        |  |                |     |  |               |                                |     |          |  |   |               | 
|Lease termination costs |  | $              | 755 |  |               | $                              | 512 |          |  | $ | 204           |  |  | $ | 1,063 | 
|Severance costs         |  |                | 74  |  |               |                                | 0   |          |  |   | 36            |  |  |   | 38    | 
|                        |  |                |     |  |               |                                |     |          |  |   |               | 
|Total                   |  | $              | 829 |  |               | $                              | 512 |          |  | $ | 240           |  |  | $ | 1,101 | 
|                        |  |                |     |  |               |                                |     |          |  |   |               | 

Note 13  Intangible Assets

Intangible assets as of July 19, 2002 and March 29,
2002 are comprised of the following:
(In thousands, except per share data)

|                                                                           |  |               |  |  |                | 
|-------------------------------------------------------------------------- |  | ------------- |  |  | -------------- | 
|                                                                           |  | July 19, 2002 |  |  | March 29,
2002
|                                                                           |  |               |  |  |               
|                                                                          
|Goodwill
(including estimates for Tutor Time)                              |  | $34,737       |  |  | $23,401       
|Amortizable
intangible assets                                              |  | 1,131         |  |  | 1,131         
|Estimated
intangible
assets related to Tutor Time acquisition (See Note 2) |  | 12,000        |  |  |              
|Less:
accumulated amortization                                             |  | (7,220)       |  |  | (7,207)       
|                                                                           |  |               |  |  |               
|Intangible
assets, net                                                     |  | $40,648       |  |  | $17,325       

The above intangible assets are being amortized
primarily over 15 years. Effective for fiscal year 2003, the
Company implemented SFAS 142 and thus stopped amortizing
goodwill. Total amortization expense during the quarters ending
July 19, 2002 and July 20, 2001 was $19,583 and $583,285
respectively, of which $546,429 related to goodwill during the
quarter ending July 20, 2001. The following pro forma data reflects the elimination
of goodwill for the 2001 results:

(In thousands, except per share data)

|                      |  |                          |      
|--------------------- |  | ------------------------ | -----
|                      |  | July 20, 2001
(excluding
|                      |  | goodwill
amortization)  
|                      |  |                         
|                     
|Earnings
before taxes |  | $                        | 2,800
|Net
income            |  |                          | 1,950
|Earnings
per share    |  |                          | 0.37 

Amortization expense, including
amortization of intangible assets related to the Tutor Time
acquisition, is estimated to be $0.8 million for Fiscal 2003 and $1.2
million for the four years thereafter.

10



---



##### Table of Contents



Note 14  New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued SFAS No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the new
standard, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized, but will be subject to annual impairment tests in
accordance with the statements. Other intangible assets will continue to be
amortized over their useful lives. The Company is currently reviewing the
impact of SFAS 142 and as required by SFAS 142 will complete the first
step of the impairment test during the second quarter of Fiscal 2003.

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

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
was issued in July 2001, and addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. This statement supercedes
SFAS No. 121 on the same topic and establishes an accounting model for the
impairment of long-lived assets. The Company has adopted SFAS 144
which had no impact on reported earnings.

SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections as of April 2002, was issued in April 2002, and
rescinds FASB Statement No. 4, Reporting Gains and Losses from
Extinguishments of Debt, and an amendment of that Statement, FASB
Statement No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. This Statement also rescinds FASB
Statement No. 44, Accounting for Intangible Assets of Motor
Carriers. This Statement amends FASB Statement No. 13,
Accounting for Leases, to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the
required accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions.
This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions.
The Company adopted this Statement during the first quarter of Fiscal
2003 which had no significant effect on the Company.

SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, was issued in June 2002, and
addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The
Company is anticipating the adoption of SFAS No. 146 in the third
quarter of Fiscal 2003.

11



---



##### Table of Contents






Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the financial
statements of the Company and the notes thereto included herein.

General

The information presented herein refers to the sixteen weeks ended July 19,
2002 (first quarter 2003) and the sixteen weeks ended July 20, 2001 (first
quarter 2002).

During the first quarter 2003, the Company closed 2 centers due to financial
under-performance. This compares to the addition of 4 centers and 19
dispositions during the first quarter 2002. The 2002 closings were part of the
senior management teams restructuring program to close under-performing
centers in order to improve productivity and reduce operating costs. As of
July 19, 2002, after giving effect to the Tutor Time acquisition, Childtime
operated 343 Company owned centers and franchised an additional 129
centers with an aggregate licensed capacity for
over 50,000 children.

The results of centers opened, acquired or disposed of are included in the
Companys financial statements from the date of opening or acquisition and
through the date of disposition, as applicable. The timing of such new
openings, acquisitions or dispositions could influence comparisons of year over
year results.

Because the Tutor Time acquisition was not effective until the close of
business on July 19, 2002, the results of operations of Tutor Time and its
subsidiaries are not reflected in the Companys Consolidated Statement of
Operations included elsewhere in this Report.

Results of Operations

First quarter 2003 revenues decreased to $44.9 million from $46.7 for the first
quarter 2002, a 4.0% decrease. This decrease was attributable to decreased
revenues of $1.3 million from centers closed after the first quarter of fiscal
2002. Comparable center revenues (centers operating during the last 18 months)
decreased $1.4 million or 3.2% for the first quarter 2003. The decrease was
primarily due to a decline in utilization percentage and an increase in tuition
discounts. These decreases were offset by revenue increases of $0.9
million from centers open less than 18 months.

First quarter 2003 operating expenses of Learning Centers (Operating
Expenses) increased $0.5 million from the first quarter 2002. Operating
Expenses as a percentage of net revenues increased to 90.1% for the first
quarter 2003, from 85.5% for the first quarter 2002. Included in the first
quarter 2003 and 2002 were $0.1 million and $1.5 million of Operating Expenses
associated with centers that were closed subsequent to the first quarter of
2003 and 2002, respectively. Adjusting for these closed centers, Operating
Expenses would have increased by $1.9 million in the first quarter 2003 compared
with the prior year quarter. This $1.9 million increase was due primarily to
increases in labor ($0.8 million) and other operating expenses ($0.7 million),
primarily center supplies, transportation, and repairs and maintenance. The
Company implemented wage increases effective April 1, 2002 for all hourly
employees, which had been granted previously on each hourly employees
anniversary date.

The provision for doubtful accounts increased by $0.1 million to $0.2 million
in the first quarter of 2003, compared to $0.1 million in the first quarter of
2002, due to the current recessionary environment.

General and administrative expenses increased $0.5 million to $3.5 million for
the first quarter 2003 from $3.0

12



---



##### Table of Contents



million for the first quarter 2002. This increase was due to the higher costs
($0.5 million) associated with the establishment of four new regional offices
during the latter part of first quarter 2002, and increased salaries ($0.1 million) due to
additional personnel, offset by lower costs ($0.1 million) associated with the
installation of a new management reporting system in fiscal 2002.

The Company instituted a restructuring
program in fiscal 2001 and incurred a charge of $4,000,000 in March
2001. In this regard, the Company closed all 10 of its Oxford
Learning Centers of America and identified 19 under-performing
centers to be closed in fiscal 2002. As of July 19, 2002, all but one
of the under-performing centers have been closed. Approximately 200
employees were involuntarily terminated in connection with
the closures of Oxford Learning Centers of America and the 19
under-performing Childtime centers.  The Company expects to complete
its plan during fiscal 2003. For the quarter ended July 19, 2002, the
Company recorded restructuring expenses of $512,000. Of this amount,
$200,000 is related to the closure of one additional center, not
included in the 2001 restructuring program. The remaining $312,000 is
to increase reserves related to the 2001 restructuring program. This
increase is necessary as a result of current real estate market
conditions. During the quarter ended July 19, 2002 the Company made
cash payments of $204,000 related to lease termination costs and
$36,000 related to severance costs.

In accordance with SFAS No. 142 Goodwill
and Other Intangible Assets,
effective in fiscal 2003 goodwill is no longer amortized, which accounts for
the decrease of $0.6 million in Depreciation and Amortization expenses.

As a result of the foregoing changes, operating losses of ($541) thousand for
the first quarter 2003 compares to operating earnings of $2.4 million for the
first quarter 2002.

Interest expense decreased to $0.1 million in the first quarter 2003 from $0.2
million for the first quarter 2002.

The income tax benefit was $239,000 in the first
quarter 2003 compared to an income tax provision of $850,000 in the
first quarter 2002.

As a result of the foregoing changes, net earnings (loss) decreased to a net
loss of ($0.4) million for the first quarter 2003 from $1.4 million in net
earnings for the first quarter 2002.

Liquidity and Capital Resources

The Companys primary cash requirements
currently consist of its repayment of debt, maintenance of
existing Learning Centers, and funding lease termination costs in conjunction with
its fourth quarter Fiscal 2001 restructuring program.
The Company believes that cash flow from operations, together with amounts
available under its $17.5 million secured revolving line of credit facility
entered into on January 31, 2002, as amended (see Note 7 in the Companys Notes to
Consolidated Financial Statements), will be sufficient to satisfy the Companys
anticipated cash requirements on both a long-term and short-term basis.
Outstanding letters of credit reduced the availability under the line of credit
in the amount of $2.3 million at July 19, 2002 and $2.5 million at March 29,
2002. 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-EBITDA ratios and
minimum consolidated EBITDA levels. In addition, there
are restrictions on the incurrence of additional indebtedness, disposition of
assets and transactions with affiliates. At July 19, 2002 the Company had not maintained minimum consolidated EBITDA levels required by the Amended and Restated Credit Agreement. The Company's primary lender
approved a waiver to the Amended and Restated Credit Agreement dated
as of January 31, 2002. This waiver was effective
August 30, 2002, and is limited to the financial results for the quarter ended
July 19, 2002.

Net cash provided by operations decreased to $1.2 million for the first
quarter 2003, from $1.8 million for first quarter 2002. First quarter 2003
cash provided by operations was negatively impacted by lower net earnings and
an increase in accounts receivable. Significant financing and investing activities are discussed below.

On July 19, 2002, the Company acquired substantially all of the assets of Tutor
Time Learning Systems, Inc., a Florida corporation (Tutor Time), for an
aggregate purchase price of approximately $22,400,000, excluding
acquisition costs of approximately $2.4 million, plus the assumption of
certain liabilities. The assets acquired by the Company consisted of
substantially all of the operating assets and contract rights used by Tutor
Time in its child care operations, which were comprised of 198 company-owned
and franchised child care centers operating in 23 states and internationally.

The Tutor Time acquisition was financed, in part, through the Companys $17.5
million secured bank credit facility as well as the issuance of $14 million of
subordinated loans (the Subordinated Notes).

The Subordinated Notes were provided by a group of lenders organized by
Jacobson Partners, to fund the balance of the Tutor Time acquisition purchase
price and to provide related working capital. The Subordinated Notes mature
December 31, 2004 and bear interest at 15% of which 7% is payable in cash,
with the balance payable in kind by the issuance of additional subordinated
notes (the Additional

13



---



##### Table of Contents



Subordinated Notes) with interest and principal payable
on the earlier of December 31, 2004 or such date on or after March 31, 2003, on which the Company is in compliance
with the Senior Debt to EBITDA covenant of the Second Amendment, provided that
the Company has consummated the Rights Offering (defined below) and received
net cash proceeds (and/or cancelled Subordinated Notes) of at least $7,500,000
from the issuance of Common Stock in such Rights Offering (the Minimum Equity
Agreement). If the Rights Offering is not consummated and the Minimum Equity
Amount is not received on or before July 19, 2003, then until the earlier of
December 31, 2004 or the date on which the Company consummates the Rights
Offering and receives the Minimum Equity Amount, all interest on the
Subordinated Notes will be payable by the issuance of Additional Subordinated
Notes.

The Rights Offering is expected to take place prior to December 31, 2002 and
will refinance the subordinated debt incurred by the Company in connection with
the Tutor Time acquisition. As currently contemplated, each Rights Offering
unit (Unit) will consist of 30 shares of common stock, valued at $3.50 per
share, and a $35 subordinated debenture, giving an aggregate value to each Unit
of $140. Subject to certain shareholder ownership requirements, all common
shareholders as of the Rights Offering record date will be able to participate
in the offering and will be allowed to acquire Units on a pro rata basis. The
subordinated debentures will bear interest at 15%, have a five-year maturity,
and be redeemable by the Company at any time at par, subject to restrictions
under its senior lending agreements.

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

Statements included herein that are not historical facts, such as those related
to anticipated cash requirements and funding sources 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, ability to hire, train
and retain qualified personnel, continuation of federal and state assistance
programs, projected restructuring and unusual charges, pricing, competition,
insurability, demand for childcare and general economic conditions.
Accordingly, actual results could differ materially from those projected in
such forward-looking statements.

14



---



##### Table of Contents






PART 2: OTHER INFORMATION




Item 1. Legal Proceedings

Information regarding this item is set forth in Note 8 to the Companys Notes
to Consolidated Financial Statements included in Part I, Item 1 of this
Report.

Items 2 and 3 are not applicable.




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

The Companys Annual Meeting of Shareholders was held on August 15, 2002. At
the meeting, the shareholders voted upon the election of directors and a
proposed grant to affiliates of Jacobson Partners of options to purchase in
the aggregate 400,000 shares of the Companys common stock. The following is
a tabulation of the votes:

|                          |  |     |           |  |                |  |         | 
|------------------------- |  | --- | --------- |  | -------------- |  | ------- | 
|(a) Election of Directors |  |     |           |  |                |  |         | 
|                          |  |     |           |  |                |  |         | 
|                          |  | For |           |  | Votes Withheld | 
|                          |  |     |           |  |                | 
|Jason K. Feld             |  |     | 4,521,928 |  |                |  | 406,850 | 
|James J. Morgan           |  |     | 4,496,072 |  |                |  | 432,706 | 

|                             |  |     |           |  |         |  |         |           |  |  |     | 
|---------------------------- |  | --- | --------- |  | ------- |  | ------- | --------- |  |  | --- | 
|                             |  | For |           |  | Against |  |         | Abstained | 
|                             |  |     |           |  |         |  |         |           | 
|(b) Approval of Option Grant |  |     | 3,685,170 |  |         |  | 818,899 |           |  |  | 540 | 

Other directors of the Company whose term of office as a director continued
after the Annual Meeting of Shareholders were: Milton Dresner, George A.
Kellner, Benjamin R. Jacobson and Leonard C. Tylka.

Item 5. Other Items

On August 29, 2002, the Company announced the appointment of Mr. Frank Jerneycic
as its new Chief Financial Officer, effective August 30, 2002.

On September 9, 2002, the Company announced that it had received notice of the determination
by the Nasdaq Listing Qualifications Department that, absent an
appeal by the Company, the
Companys securities would be delisted from The Nasdaq
National Market System on September 13, 2002, because of the failure to maintain market value of publicly held shares of $5,000,000,
as required for continued inclusion by Marketplace Rule 4450(a)(2). The Company intends to appeal the Staff determination. During
the pendency of the appeal process, the Companys securities will remain listed on The Nasdaq National Market System. If the
Company determines that its appeal will not be successful, it will apply to transfer the listing of its securities to The Nasdaq
SmallCap Market. Although there are no assurances that a transfer application to The Nasdaq SmallCap Market, if necessary, would be
approved, the Company believes that it meets the applicable standards for inclusion in that market.

15



---



##### Table of Contents






Item 6. Exhibits and Reports on Form 8-K



| |                       
| | ----------------------
| | (a) Index to Exhibits:

|        |  |                                                                                                                                                                                                                                     | 
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Exhibit
|Number  |  | Description                                                                                                                                                                                                                        
|       
|3.1     |  | Amendment to Restated Bylaws adopted August 15, 2002
(together with Restated Bylaws, as amended)                                                                                                                                   
|       
|10.1    |  | Stock Option Agreement dated as of August 15, 2002,
between Childtime Learning Centers, Inc. and William D. Davis                                                                                                                  
|       
|10.2    |  | Employment Agreement dated August 26, 2002, between
Childtime Learning Centers, Inc. and Frank Jerneycic                                                                                                                           
|       
|99.1    |  | Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act                                                                                                                                         
|
|       
|99.2    |  | Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act                                                                                                                                         
|       
|99.3    |  | Press release issued August 29, 2002, announcing the appointment of a new Chief Financial
Officer                                                                                                                                  
|       
|99.4    |  | Press release issued September
9, 2002, announcing the Companys receipt of a determination from the
Nasdaq Listing Qualifications Department that the Companys securities will be delisted from The Nasdaq National
Market System



| |                         
| | ------------------------
| | (b) Reports on Form 8-K:



| | 1.) |  | The Company filed a Current Report on Form 8-K on
April 3, 2002, announcing changes in the organization of the
Company.                                                             
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2.) |  | The Company filed a Current Report on Form 8-K on
July 2, 2002, announcing that it had been confirmed as a
successful bidder for the assets of Tutor Time Learning
Systems, Inc.    
|
| | 3.) |  | The Company filed a Current Report on Form 8-K on
August 5, 2002, announcing the acquisition of substantially
all of the assets of Tutor Time Learning Systems, Inc. by the
Company.




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.

| |  |                                                          
| |  | ---------------------------------------------------------
| |  | CHILDTIME LEARNING CENTERS, INC                          
| |  | (REGISTRANT)                                             
| |  |                                                          
| |  | /s/ Frank M. Jerneycic           
          9/9/02       
| |  | Frank M. Jerneycic                                       
| |  | Chief Financial Officer                                  
| |  | (Duly Authorized Officer and Principal Financial Officer)

16



---



##### Table of Contents






CERTIFICATIONS

I, William D. Davis, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Childtime Learning
Centers, Inc.;

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

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

Date: September 9, 2002

| |                        
| | -----------------------
| | /s/ William D. Davis   
| |                        
| | William D. Davis       
| | Chief Executive Officer

17



---



##### Table of Contents



CERTIFICATIONS (Contd)

I, Frank Jerneycic, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Childtime Learning
Centers, Inc.;

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

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

Date: September 9, 2002



| |                                           
| | ------------------------------------------
| | /s/ Frank M. Jerneycic                    
| | Frank M. Jerneycic
Chief Financial Officer

18



---



##### Table of Contents



Exhibit Index



|        |  |                                                                                                                                                                                                                                     | 
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Exhibit
|Number  |  | Description                                                                                                                                                                                                                        
|       
|3.1     |  | Amendment to Restated Bylaws adopted August 15, 2002
(together with Restated Bylaws, as amended)                                                                                                                                   
|       
|10.1    |  | Stock Option Agreement dated as of August 15, 2002,
between Childtime Learning Centers, Inc. and William D. Davis                                                                                                                  
|       
|10.2    |  | Employment Agreement dated August 26, 2002, between
Childtime Learning Centers, Inc. and Frank Jerneycic                                                                                                                           
|       
|99.1    |  | Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act                                                                                                                                         
|       
|99.2    |  | Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act                                                                                                                                         
|       
|99.3    |  | Press release issued August 29, 2002, announcing the appointment of a new Chief Financial
Officer                                                                                                                                  
|       
|99.4    |  | Press release issued September
9, 2002, announcing the Companys receipt of a determination from the
Nasdaq Listing Qualifications Department that the Companys securities will be delisted from The Nasdaq National
Market System