##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---



FORM 10-K



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



| | For the Fiscal Year Ended October 1, 2004
| | -----------------------------------------



or



| ̈ | 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: 0-27248



LEARNING TREE

INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in its Charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 95-3133814                          
|(State or other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



6053 West Century
Boulevard

Los Angeles, CA 90045-0028

(310) 417-9700

(Address, Including Zip Code and Telephone Number, Including Area Code of
Registrants Principal Executive Offices)



Securities Registered Pursuant to Section 12(b) of the Act:    None



Securities Registered Pursuant to Section 12(g) of the Act:    Common Stock



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



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



Indicate by check mark whether
the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes x    No ̈



The aggregate market value of
the common stock, $.0001 par value, held by non-affiliates of the registrant, as of April 2, 2004, was $164,667,000. (Excludes 6,713,000 shares held by directors and officers of the registrant since such persons may be deemed to be affiliates.)



The number of shares of common stock, $.0001 par value,
outstanding as of December 6, 2004, was 16,988,900 shares.



DOCUMENTS INCORPORATED BY REFERENCE



Portions
of the definitive Proxy Statement of the registrant to be delivered to shareholders in connection with the 2005 Annual Meeting of Shareholders are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Form 10-K.

---



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K



TABLE OF CONTENTS



|           |  |                                                                                                             |  |     
|---------- |  | ----------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                             |  | Page
|           |  |                                                                                                            
|           |  | Part I                                                                                                      |  |     
|           |  |                                                                                                            
|Item 1.    |  | Business                                                                                                    |  | 3   
|Item 2.    |  | Properties                                                                                                  |  | 10  
|Item 3.    |  | Legal Proceedings                                                                                           |  | 11  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                         |  | 11  
|           |  |                                                                                                            
|           |  | Part II                                                                                                     |  |     
|           |  |                                                                                                            
|Item 5.    |  | Market for Registrants Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 12  
|Item 6.    |  | Selected Consolidated Financial Data                                                                        |  | 13  
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                       |  | 14  
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                  |  | 28  
|Item 8.    |  | Financial Statements and Supplementary Data                                                                 |  | 29  
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                        |  | 45  
|Item 9A.   |  | Controls and Procedures                                                                                     |  | 45  
|Item 9B.   |  | Other Information                                                                                           |  | 45  
|           |  |                                                                                                            
|           |  | Part III                                                                                                    |  |     
|           |  |                                                                                                            
|Item 10.   |  | Directors and Executive Officers of the Registrant                                                          |  | 46  
|Item 11.   |  | Executive Compensation                                                                                      |  | 48  
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management                                              |  | 48  
|Item 13.   |  | Certain Relationships and Related Transactions                                                              |  | 48  
|Item 14.   |  | Principal Accountant Fees and Services                                                                      |  | 48  
|           |  |                                                                                                            
|           |  | Part IV                                                                                                     |  |     
|           |  |                                                                                                            
|Item 15.   |  | Exhibits and Financial Statement Schedules                                                                  |  | 49  
|           | 
|Signatures |  | 50                                                                                                         



2



---

##### Table of Contents

Except for historical statements, the matters addressed in the discussion which follows are
forward-looking statements. Please do not put undue reliance on these forward-looking statements, since they are based on key assumptions about future risks and uncertainties. Although Learning Tree International, Inc. (Learning Tree)
believes that its assumptions are reasonable, inevitably some will prove to be incorrect. As a result, Learning Trees actual future results can be expected to differ from those in the discussion that follows, and those differences may be
material. Learning Tree is not undertaking any obligation to update forward-looking statements.



In order to help the reader assess the major risks in Learning Trees business, Learning Tree has identified many, but not all, of these risks in
Exhibit 99.1, Risk Factors (Exhibit 99.1). Please read that exhibit carefully. Some of the factors discussed in Exhibit 99.1 that could affect Learning Tree include risks associated with:



| |  | The timely development, introduction, and customer acceptance of Learning Trees courses;
| | - | -----------------------------------------------------------------------------------------



| |  | Competition;
| | - | ------------



| |  | International operations, including currency fluctuations;
| | - | ----------------------------------------------------------



| |  | Changing economic and market conditions;
| | - | ----------------------------------------



| |  | Technology development and new technology introduction;
| | - | -------------------------------------------------------



| |  | Efficient delivery and scheduling of Learning Trees courses;
| | - | -------------------------------------------------------------



| |  | Adverse weather conditions, strikes, acts of war or terrorism and other external events; and
| | - | --------------------------------------------------------------------------------------------



| |  | Attracting and retaining qualified personnel.
| | - | ---------------------------------------------



PART I



Item 1. BUSINESS



Overview



Learning Tree is a leading worldwide vendor-independent provider of training
to managers and information technology (IT) professionals working in business and government organizations. Since its founding in 1974, Learning Tree has provided high-quality training to over 1,500,000 IT professionals and managers. In
fiscal 2004, Learning Tree provided training to over 87,000 course participants. Approximately two-thirds of Learning Tree participants come from Fortune 1000-level companies, their international equivalents and government organizations, and
approximately one-third come from small and medium-size companies.



Learning Tree offers a broad, proprietary library of intensive instructor-led courses from two to five days in length, comprising 146 different course titles representing over 3,600 hours of training at October 1, 2004. Learning Tree
courses focus on web development, operating systems, programming languages, databases, computer networks, computer and network security, object-oriented technology, project management, leadership and professional development, and other key business
skills. During fiscal 2004, Learning Tree expanded its management course offerings to 29 titles in order to meet demands for these courses from both technical and non-technical managers.



Learning Tree uses a well-defined, systematic approach in developing and updating its course library to provide training
that is immediately relevant to course participants working in a broad range of applications and industries. Learning Trees proprietary course development process also allows it to customize its courses for delivery at its customers
sites.



Learning Tree designs its own vendor-independent IT
courses to provide participants an unbiased perspective of software and hardware products and the ability to compare and integrate multiple platforms and



3



---

##### Table of Contents

technologies from various vendors in a single course. Learning Tree management courses, while addressing core concepts and theory, focus heavily on providing
skills, tools, and techniques that participants can apply immediately upon returning to their jobs.



Learning Tree courses are highly interactive. They are translated into French, Swedish and Japanese. Based on their sophistication and quality, all of
Learning Trees courses are recommended for one to two semester hours of college credit by the American Council on Education. In addition, Learning Tree is on the National Association of State Boards of Accountancy National Registry of CPE
sponsors and is a Registered Education Provider of the Project Management Institute (PMI).



Learning Tree had 655 instructors as of October 1, 2004, each of whom was a practicing professional combining expert knowledge with extensive practical experience. On average, each expert instructor teaches
approximately ten Learning Tree course events per year on an as-needed basis. During the rest of the year, Learning Tree instructors apply the IT and management skills they teach as either full-time employees for other companies or as
independent consultants.



Learning Tree offers its proprietary
courses through local operations in the United States, United Kingdom, France, Canada, Sweden and Japan, and generates approximately half of its revenue internationally. Each Learning Tree operating subsidiary is staffed by local nationals
responsible for the sale and delivery of Learning Tree courses in that country. Learning Trees infrastructure and logistical capabilities allow it to coordinate, plan and deliver its courses at Learning Trees education centers, hotel and
conference facilities and customer sites worldwide. During fiscal 2004, Learning Tree presented courses in 27 countries.



Learning Tree has only one material operating segment, which is the design and delivery of training courses and related services. See Note 7 of
Notes to Consolidated Financial Statements for certain financial data regarding operating segments and geographic regions. See also, Markets and Competition.



Learning Trees Business Strategy



Learning Trees long-term objective is to strengthen its position as a leading worldwide vendor-independent provider of training to IT professionals
and managers and thus become the training provider of choice for large and medium-sized commercial and government organizations. To achieve its objective, Learning Tree focuses on providing individuals with the knowledge and skills they need to
contribute immediately and directly to their employers key business objectives, and on developing and maintaining long-term relationships with its corporate customers and course participants.



Commitment to Quality Training.Since its founding in 1974,
Learning Tree has considered the quality of its courses to be the most important driver of its long-term success. During fiscal 2004, Learning Trees course participants rated the companys instructors and courses at the highest levels in
Learning Trees 30-year history. This sustained high performance results both from improvements in the classroomincluding the 100% roll-out of Learning Trees MagnaLearn instructional enhancement systemand steady, regular improvement of instructor
skills and capabilities.



High Quality Instructor Team.At October 1, 2004, Learning Tree had 655 course instructors located around the world, each of whom was a practicing professional combining both expert knowledge and extensive real world experience. Learning Tree instructors
teach an average of approximately ten Learning Tree course events per year on an as-needed basis. During the rest of the year, they apply the skills that they teach, either as full-time employees for other companies or as independent
consultants. This on-demand structure enables Learning Tree to quickly schedule additional courses anywhere in the world and to respond efficiently to its customers needs for IT and management skills training. In addition, because
Learning Tree instructors generally spend an average of over 80% of their time working in industry settings, they provide Learning Tree with a unique access to industry experts on IT and management skills trends throughout the world.



4



---

##### Table of Contents

Learning Trees success depends on its ability to attract and retain highly skilled instructors.
Learning Tree uses a highly systemized program in each of its local operating subsidiaries to recruit, train, coach, manage and evaluate its instructor team. See Exhibit 99.1, Risk Factors.



Broad Proprietary Course Library. Learning Tree offers a
broad, proprietary library of 146 instructor-led course titles comprising over 3,600 hours of classroom instruction covering a wide range of IT and management topics. Learning Trees intensive two- to five-day courses are recommended for one to
two semester hours of college credit by the American Council on Education. In addition, Learning Tree is on the National Association of State Boards of Accountancy National Registry of CPE sponsors and is a Registered Education Provider of the
Project Management Institute (PMI).



The following table breaks
down the number of Learning Tree course titles by curriculum at October 1, 2004:



|                             |  |                      |  |                       
|---------------------------- |  | -------------------- |  | ----------------------
|Curriculum                   |  | NumberofCourseTitles |  | TotalHours of Training
|Windows Systems and Exchange |  | 18                   |  | 528                   
|SQL Server                   |  | 6                    |  | 162                   
|Windows Development          |  | 17                   |  | 426                   
|RDBMS, Oracle9i and Oracle8i |  | 10                   |  | 276                   
|Web Development and XML      |  | 12                   |  | 288                   
|Applied Management           |  | 7                    |  | 138                   
|Key Business Skills          |  | 8                    |  | 150                   
|Project Management           |  | 9                    |  | 198                   
|Security                     |  | 11                   |  | 276                   
|Software Engineering         |  | 9                    |  | 222                   
|Java Programming             |  | 8                    |  | 192                   
|UNIX, Linux and Solaris      |  | 8                    |  | 192                   
|C, C++ and Perl Programming  |  | 4                    |  | 96                    
|Networking and PC Support    |  | 15                   |  | 372                   
|Notes/Domino                 |  | 4                    |  | 108                   
|                             |  |                      |  |                       
|Total                        |  | 146                  |  | 3,624                 
|                             |  |                      |  |                       



As a leading
vendor-independent provider of IT training, Learning Tree designs its courses to provide participants an unbiased perspective of software and hardware products and the ability to compare and integrate multiple platforms and technologies from various
vendors in a single course. Drawing from the expertise of Learning Trees international team of instructors, each Learning Tree course presents multiple points of view concerning technology applications as used throughout the world. Learning
Tree IT courses are designed to be highly interactive; most involve hands-on training on networked state-of-the-art workstations so that participants can practice and assimilate the skills being taught. Participants spend a significant
portion of each hands-on Learning Tree course working on computer-based exercises, participating in group workshops and class interactions, and receive extensive printed course materials that facilitate learning and serve as a post-course reference
tool.



Learning Tree management courseswhile including
core concepts and theoryfocus heavily on providing skills, tools, and techniques that participants can apply immediately upon returning to their jobs. Participants work extensively in group exercises designed to apply key concepts in
real-world situations, so that they are fully prepared to apply their new skills in their workplace environments. In the fourth quarter of fiscal 2004, Learning Tree offered 29 titles in its management curriculum representing 20% of Learning
Trees entire course library, compared to 19 titles, which represented 13% in the fourth quarter of fiscal 2003.



5



---

##### Table of Contents

To assist participants in their professional development, Learning Tree offers more than 40 Professional
Certification programs, where participants must demonstrate mastery of subject matter by successfully completing four Learning Tree courses in a particular field, and passing a mastery examination for each course. Each Learning Tree Professional
Certification Program is designed to teach all of the skills necessary to master a specific job function. Since the inception of the Learning Tree Professional Certification Program in fiscal 1993, over 281,000 participants have completed one or
more certification examinations.



Over its 30-year history,
Learning Tree has developed and implemented a well-defined, systematic approach to rapidly develop, customize and update its course library and to translate its course content into multiple languages. Courses are structured into curricula that
reflect general topics or disciplines. Learning Tree continuously updates and expands its course curriculum structure and course content and adds new course titles to keep pace with the introduction of new technologies and to reflect the evolving
training needs of its customers. To identify potential new courses for development, Learning Tree incorporates feedback from Learning Trees worldwide instructor team, course participants and corporate customers, and from the development groups
of leading IT vendors. In fiscal 2004, Learning Tree developed 17 new titles and retired 23 titles. Learning Tree may or may not develop more titles than it retires in any period. Course development costs may increase in the future if Learning Tree
expands its course library. However, there can be no assurance that Learning Tree will develop courses that keep pace with the introduction of new hardware, software and networking technologies or the need for key business skills training. See
Exhibit 99.1, Risk Factors.



International
Infrastructure and Logistics Capability. Learning Tree meets customers demands for scheduling flexibility by delivering course events frequently and at multiple locations throughout the world. Participants can attend any one of
Learning Trees 146 courses that, on average, are presented almost weekly around the world. Learning Trees sophisticated infrastructure and logistics capability allow it to coordinate, plan and deliver its courses at its education
centers, hotel and conference facilities and at its customers sites worldwide. Learning Tree can also present standard or customized courses on demand at its customers facilities whenever and wherever they desirewith quality
standards that are identical to those for courses presented in Learning Trees own education centers. By using its team of 655 instructors, its course development and customization processes, its team of customer support specialists, its
logistics team and its thousands of classroom computer workstations, Learning Tree can rapidly deliver any of its courses to any location in the world.



In fiscal 2004, Learning Tree presented over 6,800 course events at its education centers and at third-party and customer sites in a total of 27
countries. Learning Tree currently operates through wholly-owned subsidiaries in the United States (opened in 1974), France (opened in 1977), the United Kingdom (opened in 1978), Canada (opened in 1985), Sweden (opened in 1986) and Japan (opened in
1989). Each Learning Tree subsidiary is staffed by local nationals responsible for the sale and delivery of courses in that country. Learning Trees international operations produced approximately half of Learning Trees revenues in fiscal
2004, as they have throughout Learning Trees history. Such international operations face certain risks inherent to international businesses, such as currency fluctuations; potential difficulties in translating course subject matter into
foreign languages; varying political and economic conditions; changes in government regulation; trade barriers; difficulty in staffing foreign offices, and in training and retaining foreign instructors; adverse tax consequences; and potential costs
associated with expansion into new territories. There can be no assurance that such factors will not have a material adverse effect on Learning Tree in the future. See Exhibit 99.1, Risk Factors.



Learning Tree evaluates the expansion of its operations both within existing
education center cities and in new cities or countries on an ongoing basis. In fiscal 2004, Learning Tree opened one new education center in Arlington, VA, its third education center in the greater Washington, DC area. Learning Tree also began
offering courses for the first time in Baltimore, MD; Annapolis, MD; Stamford, CT and Long Island, NY using hotel conference rooms. There can be no assurance that Learning Tree will open additional education centers in the future or that such
additional education centers will be successful. See Exhibit 99.1, Risk Factors.



6



---

##### Table of Contents

Long-Term Relationships with Global Customer Base. Learning Tree has built
long-standing relationships with its customer base. Learning Tree focuses on training the employees of Fortune 1000-level companies, their international equivalents and government organizations throughout the world, and seeks to build continuing
relationships both with its individual course participants and its corporate customers. Learning Trees customers generally operate in the finance, computer, communications, electronics, systems integration, aerospace, government and military,
manufacturing and energy sectors, among others. In fiscal 2004, Learning Tree provided training to over 87,000 course participants and had over 180 customers worldwide that each purchased more than $100,000 of Learning Tree training.



In fiscal 2004, Learning Tree began developing broader enterprise-wide
relationships with a few large customers. By creating an enterprise-wide relationship, Learning Tree achieves preferred supplier status and can provide training services more readilywith fewer administrative or bureaucratic
requirementsto individual employees of the customer. Within these enterprise-wide provider programs, Learning Tree provides training services to customers at Learning Trees education centers, hotel and conference facilities, as well as
its customers sites worldwide. No customer accounted for 10% or more of Learning Trees fiscal 2004 revenues.



Multi-Tiered Sales and Marketing Organization. Learning Tree employs a multi-tiered sales and marketing organization that integrates
direct mail, telemarketing and field sales to market and sell its course offerings to existing customers and to attract new customers.



Since its inception over 30 years ago, Learning Tree has created and built a strong brand image for providing high-quality training for IT professionals
and managers through the frequent and prominent use of its trademarks in direct marketing and course materials. Learning Tree markets its courses primarily through direct mail marketing to its proprietary database of over 2,300,000 IT professionals
and managers who have attended, inquired about, or sent a staff member to Learning Tree courses, and also uses direct mail to reach additional IT professionals and managers on rented mailing lists. Learning Tree also utilizes targeted, personalized
e-mails through its automated e-mail marketing system to advise prospective course participants of upcoming events. Learning Tree has recently begun using rented e-mail address lists to augment its own database, thus further expanding the reach of
direct e-mail marketing. In addition, Learning Tree markets its products and services over the Internet on its website (http://www.learningtree.com). (Information contained on Learning Trees website is not part of this Annual Report on
Form 10-K.)



Learning Tree has built a telemarketing
sales team which was comprised of approximately 110 telemarketers and related support staff at October 1, 2004. Learning Trees telemarketers are responsible for calling customer leads generated from direct mailings, website inquiries and other
Learning Tree sales and marketing programs. In addition, Learning Trees sales team follows up on inquiries from customers and potential clients, and works to identify key personnel at clients with the potential to become major Learning Tree
customers. Learning Tree employs a proprietary automated system which provides its telemarketers with online information that facilitates rapid response to inbound callers, provides targeted lists for outbound calling, records the results of calls
and automates the sales follow-up process.



At October 1, 2004,
Learning Tree employed a field sales team of approximately 39 direct field sales representatives and related support staff. The direct sales force primarily focuses on selling training programs which will be delivered at Learning Trees
customers sites.



To remain successful, Learning Tree
must continue to expand its business with both existing and new customers. To encourage repeat purchases from existing customers, Learning Tree offers two different multiple-course discount programsTraining Passports and
Training Vouchersand also provides Learning Tree Professional Certification Programs, as described earlier. Learning Tree believes that, in addition to generating revenues directly, these programs foster long-term relationships
with participants and encourage participants to recommend Learning Trees courses to their colleagues. See Exhibit 99.1, Risk Factors.



Training Passports permit an individual Passport holder to attend up to a specified number of courses during a 12-month period. The Passports are
generally sold as either four-course or eight-course Passports. The list price



7



---

##### Table of Contents

for a four-course Passport is approximately equivalent to two individual four-day courses and the list price for an eight-course Passport is approximately
equivalent to the list price of three four-day courses. The Training Voucher program allows corporate customers to buy blocks of five or more Vouchers, at a fixed discounted price, for future Learning Tree courses to be taken by any person in the
client company over a 12-month period.



Markets and
Competition



Instructor-Led
Training. The IT and management training markets include outside third-party providers of training, as well as in-house training conducted by organizations. Outside providers of IT training include a group of vendor-dependent
providers, which deliver courses developed by the vendors of software and hardware technologies and which depend heavily on those vendors to market their courses. The IT training market also includes vendor-independent providers,
which independently develop, market and deliver proprietary courses. In addition, outside providers of management training include for-profit providers, which provide training largely as a professional development service, and
academic providers, which offer courses that lead to accredited undergraduate or graduate degrees.



In these markets, Learning Tree is a vendor-independent provider of IT training, and a for-profit provider of management training. Some competitors offer
course titles and programs similar to those of Learning Tree at lower prices. In addition, some competitors have greater financial and other resources than Learning Tree. See Exhibit 99.1, Risk Factors.



Learning Trees main IT training competitors are vendor-dependent and
include the IT hardware and software vendors themselves. Many hardware and software vendors supply training, sometimes bundled in the prices of their product. Other vendor-dependent providers are Authorized Technical Education Centers
(ATECs) and Certified Technical Education Centers (CTECs) that deliver these vendors proprietary courses. Vendor-dependent providers may have, or claim, greater knowledge of upcoming developments in their products, and
their certifications are widely recognized. Learning Tree differentiates itself from vendor-dependent providers by maintaining a vendor-independent posture and providing cross-platform training solutions. By being vendor-independent, Learning Tree
can address both the strengths and the weaknesses of a product and teach IT professionals how to integrate one product with those of other vendors in a multi-vendor network configuration. Learning Tree leverages the expertise of its instructors and
authors, to ensure that Learning Tree offers a level of expertise that matches or exceeds that of vendor-dependent providers while also providing a vendor-independent platform that provides meaningful product comparisons.



Learning Trees main management training competitors are typically
training companies who focusas does Learning Treeon providing continuing professional development training programs to Government and commercial organizations, and the employees of those organizations. Learning Tree differentiates itself
from these competitors by adopting a more practical, results-oriented approach to management training than is typical in this market, as well as through Learning Trees advanced instructional techniques and proprietary instructional enhancement
technology.



Learning Tree believes that the majority of
independent training providerswhether in IT training or management trainingare smaller organizations which often provide training as one of several services or product lines. Learning Tree differentiates itself from these providers based
on the breadth and quality of its proprietary course library, its worldwide delivery capability, and the size, quality and experience of Learning Trees instructor force.



Internal training departments generally provide companies with the most control over the method and content of training,
enabling them to tailor the training to their specific needs. However, Learning Tree believes that since internal trainers find it difficult to keep pace with new technologies, lack the hands-on experience needed to teach the latest technological
developments and lack the capacity to meet demand, organizations must supplement their internal training resources with externally supplied training. This is particularly critical when



8



---

##### Table of Contents

dealing with new or emerging technologies. Additionally, internal training departments may not operate consistently on a worldwide basis, where Learning Tree
offers consistent IT and management training courses, processes, and quality around the globe.



e-learning and Computer-Based Training (CBT.) IT training is primarily delivered by classroom instructors; video; technology-based training, including Internet-based e-learning and CD-ROM;
and printed means. Learning Tree believes that instructor-led training will continue to be the largest portion of the market because classroom-based instructor-led training provides the greatest foundation for participants to learn, practice and
receive feedback on their mastery of new knowledge and skills. Course participants value the personalized interaction and problem solving with their instructor and fellow participants concerning their specific projects and applications. Further,
instructor-led classroom training insulates course participants from workplace interruptions and thus accelerates their learning of new technologies. The use of technology-based IT education and training formats, such as Internet-based e-learning,
appears to have gained some acceptance in the IT training market.



Employees



Learning Trees personnel are critical to its
success. The Learning Tree management team has extensive experience in the training and education industry with an average of 15 years of experience with Learning Tree and 23 years of relevant industry experience.



On October 1, 2004, Learning Tree had a total of 446 full-time equivalent
employees, of whom 185 were employed outside the United States. Learning Tree also utilized the services of 655 expert instructors to teach its courses on an as-needed basis. Learning Tree considers its relations with its employees and
its instructors to be good. See Exhibit 99.1, Risk Factors.



Intellectual Property Rights



LEARNING TREE, LEARNING TREE INTERNATIONAL, the Learning Tree logo, LEARNING TREE INTERNATIONAL and LEARNING TREE PROFESSIONAL CERTIFICATION design, EDUCATION IS OUR BUSINESS,
EDUCATION YOU CAN TRUST, WE BRING EDUCATION TO LIFE, PRODUCTIVITY THROUGH EDUCATION, FROM THE LEARNING TREE, TRAINING PASSPORT, TRAINING ADVANTAGE, ALUMNI GOLD,
TRAINING YOU CAN TRUST, WE BRING LEARNING TO LIFE, WE BRING IT TRAINING TO YOU, WWW.LEARNINGTREE.COM, MAGNALEARN, VENDOR INDEPENDENT TRAINING YOU CAN TRUST, ON-SITE
COURSES & Design, 800-LRN-TREE, and 800-THE-TREE are among the trademarks and service marks of Learning Tree. In addition to the trademarks and service marks of Learning Tree, this Annual Report on Form 10-K also
contains trademarks and trade names of other companies.



Learning Tree cannot be certain that its means of protecting its proprietary rights will be adequate or that Learning Trees competitors will not independently develop similar course titles or delivery methods. If substantial
unauthorized use of Learning Trees products were to occur, Learning Trees business and results of operations could be materially adversely impacted. Learning Tree may also have to defend against claims that its current or future courses
infringe on the proprietary rights of others. Defending and prosecuting these claims could have a material adverse effect on Learning Trees operating results. See Exhibit 99.1, Risk Factors.



Regulatory Environment



Learning Tree is paid directly by the employers of its course participants and does not receive funding from any government
aid or loan programs. As a result, Learning Tree does not depend on government appropriations for those programs and is generally exempt from the governmental regulation of public education providers. In contrast, providers of education to the
public must comply with many laws and regulations of Federal, state and international governments. However, Learning Trees operations could be affected by current or future licensing or regulatory requirements. See Exhibit 99.1, Risk
Factors.



9



---

##### Table of Contents

Website Access to Learning Tree Reports



Learning Tree makes available on its website (http://www.learningtree.com), free of charge, its annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such material is electronically
filed or furnished to the Securities and Exchange Commission. (Information contained on Learning Trees website is not part of this Annual Report on Form 10-K.)



Item 2. PROPERTIES



Learning
Trees headquarters are located at 6053 West Century Boulevard, Los Angeles, California 90045.



Learning Tree owns a 38,500 square foot office facility which is occupied by the sales, administrative and operations groups of its U.S. subsidiary.
Learning Tree leases all of its other offices and education center classroom facilities. The leases expire at various dates over the next 14 years. Learning Tree subleases or is seeking to sublease excess space in certain facilities (see below and
Part II Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsFiscal 2004 Compared with Fiscal 2003 and Critical Accounting Estimates and Policies for further discussion.)
Learning Tree may lease additional facilities in the foreseeable future. Learning Tree also presents its courses at rented hotel and conference facilities and customer sites. Learning Tree typically provides all of the software, hardware and
networking systems required for use in its courses.



Learning
Tree presents its classroom courses at Learning Tree Education Centers in Atlanta; Boston; Chicago; Los Angeles; New York City; the Washington, D.C. area; Ottawa; Toronto; London; Paris and Stockholm, as well as in rented hotel or conference centers
in those and other cities worldwide.



Learning Tree Education
Center classrooms are custom-designed to accommodate the technical demands of its computer-based courses, including local area networks within the classroom and its proprietary MagnaLearn Instructional Enhancement System. The multi-mode communication techniques within the
MagnaLearn System provide an enhanced learning
experience for Learning Trees course participants by making it easier and faster for them to absorb information and grasp complex concepts.



Learning Tree believes that its facilities are adequate and suitable for its needs. In general, at current attendee levels Learning Tree has excess
capacity at most of its education centers. In addition, Learning Tree has not been using some of the space in its United Kingdom education center and administrative office facility. In fiscal 1999, Learning Tree executed a 20-year lease for a
building in London to house Learning Trees United Kingdom education center. This building had sufficient space for Learning Trees current classroom needs, plus three floors for potential future classroom expansion that Learning Tree has
been subletting to two subtenants. The first of these subleases has expired and the other subtenant recently notified Learning Tree that it will vacate when its sublease expires on March 25, 2005. Learning Tree is seeking subtenants for these
floors, as a whole or in parts, but has yet to sublease this space. In addition, Learning Tree recently sublet a portion of its United Kingdom administrative office space for a period co-terminus with Learning Trees prime lease on this office
(see Part II Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsFiscal 2004 Compared with Fiscal 2003 and Critical Accounting Estimates and Policies for further
discussion.)



10



---

##### Table of Contents

The following table contains certain information regarding Learning Trees education centers and
offices at October 1, 2004:



|                             |  |                                      |  |                  |  |                          |       
|---------------------------- |  | ------------------------------------ |  | ---------------- |  | ------------------------ | ------
|Location (Metropolitan
Area) |  | Function(s)                          |  | No. ofClassrooms |  | Total Area inSquare Feet |       
|Atlanta, GA                  |  | Education Center                     |  | 9                |  | 16,903                   |       
|Boston, MA                   |  | Education Center                     |  | 6                |  | 13,717                   |       
|Chicago, IL                  |  | Education Center                     |  | 9                |  | 15,779                   |       
|Los Angeles, CA              |  | Education Center & Office            |  | 6                |  | 45,687                   |       
|New York, NY                 |  | Education Center                     |  | 21               |  | 44,380                   | (a)   
|Washington, DC area          |  | Education Centers (3 sites)          |  | 40               |  | 80,402                   |       
|Reston, VA                   |  | Offices (2 sites)                    |  |                 |  | 45,896                   |       
|Paris, France                |  | Education Centers & Office (2 sites) |  | 27               |  | 58,276                   |       
|London, England              |  | Education Center                     |  | 41               |  | 76,001                   | (b)(c)
|Leatherhead, England         |  | Office                               |  |                 |  | 23,209                   | (d)   
|Ottawa, Canada               |  | Education Center & Office            |  | 6                |  | 20,006                   |       
|Toronto, Canada              |  | Education Center                     |  | 10               |  | 17,207                   |       
|Stockholm, Sweden            |  | Education Center & Office            |  | 17               |  | 32,130                   |       
|Tokyo, Japan                 |  | Office                               |  |                 |  | 1,547                    |       
|                             |  |                                      |  |                  |  |                          |       
|Total                        |  |                                      |  | 192              |  | 491,140                  |       
|                             |  |                                      |  |                  |  |                          |       

---

|(a) | Excludes 11,600 square feet which Learning Tree subleases. Sublease ends co-terminus with Learning Trees prime lease.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(b) | Excludes 24,078 square feet which Learning Tree subleases. Learning Tree is seeking subtenant(s) as current subtenant has notified Learning Tree that it intends to vacate the
premises March 25, 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Excludes 12,039 square feet which was vacant as of October 1, 2004 and for which Learning Tree is seeking subtenant(s).
|--- | -----------------------------------------------------------------------------------------------------------------------

|(d) | Excludes 7,000 square feet which Learning Tree subleases. Sublease ends co-terminus with Learning Trees prime lease. Subtenant may opt for early termination effective May
2008.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 3. LEGAL PROCEEDINGS



Learning Tree is not involved in any pending or threatened legal proceedings that it believes could reasonably be expected to have a material adverse effect on the financial condition or results of operations of Learning Tree.



Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2004 through the solicitation of proxies or otherwise.



11



---

##### Table of Contents

PART II



|Item 5. | MARKET FOR REGISTRANTS COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | -----------------------------------------------------------------------------------------------------------



Price Range of Common Stock



Learning Trees Common Stock trades on the Nasdaq Stock Market under
the symbol LTRE. The following table sets forth, for the periods indicated, the range of high and low sales prices for the Common Stock on the Nasdaq Stock Market:



|               |  |      |       |     |   |      
|-------------- |  | ---- | ----- | --- | - | -----
|               |  | High |       | Low
|Fiscal 2003    |  |      |       |     |   |      
|First Quarter  |  | $    | 18.87 |     | $ | 11.68
|Second Quarter |  |      | 14.72 |     |   | 11.13
|Third Quarter  |  |      | 16.98 |     |   | 13.23
|Fourth Quarter |  |      | 18.62 |     |   | 15.30
|               |  |     
|Fiscal 2004    |  |      |       |     |   |      
|First Quarter  |  |      | 19.00 |     |   | 16.00
|Second Quarter |  |      | 19.52 |     |   | 14.34
|Third Quarter  |  |      | 17.14 |     |   | 13.53
|Fourth Quarter |  |      | 14.58 |     |   | 12.06



As of December 6,
2004, there were over 1,300 holders of record of the Common Stock.



Volatility of Stock Price



Over Learning
Trees 30-year history, the price of its Common Stock has fluctuated significantly and may continue to do so in the future. Learning Tree believes that some of the reasons for past fluctuations in the price of its stock have included:
announcements of developments related to Learning Trees business; announcements concerning new products or enhancements by Learning Tree or its competitors; developments in relationships with its customers; market perceptions of new means of
delivering training, such as CD-ROMs or the Internet; variations in revenues, gross margins, earnings or other financial results from investors expectations; fluctuations in results of operations and general conditions in the economy, the
market, and the markets served by Learning Trees customers; and delays in introducing new technologies by both Learning Trees customers and technology vendors. In addition, prices in the stock market, particularly for technology-related
stocks, have been volatile in recent years. In some cases, the fluctuations have been unrelated to the operating performance of affected companies. Sales of the Common Stock by officers, directors and employees, especially Learning Trees
founders, could also adversely and unpredictably affect the price of the Common Stock. Additionally, the price could be affected even by the potential for sales by these persons. There can be no assurance that the market price of the Common Stock
will not continue to experience significant fluctuations in the future, including fluctuations that are unrelated to Learning Trees performance. See Exhibit 99.1, Risk Factors.



Dividends



To date, Learning Tree has not paid any cash dividends on its Common Stock and does not anticipate doing so in the
foreseeable future. The declaration and payment of dividends by Learning Tree are subject to the discretion of its Board of Directors and to compliance with applicable laws. Any determination as to the payment of dividends in the future will depend
upon, among other things, general business conditions, the effect such payment would have on Learning Trees financial condition and other factors Learning Trees Board of Directors may in the future consider to be relevant.



Issuer Purchases of Equity Securities



Learning Tree did not repurchase any of its Common Stock in the fourth
quarter of fiscal 2004.



12



---

##### Table of Contents

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA



The following selected consolidated financial data of Learning Tree is qualified in its entirety by reference to, and should be read in conjunction with, the audited consolidated financial statements and notes thereto
and other financial data included elsewhere in this Annual Report on Form 10-K. The statement of operations data set forth below for each of the three years in the period ended October 1, 2004, and the balance sheet data as of September 30, 2003 and
October 1, 2004, are derived from Learning Trees consolidated financial statements which are included elsewhere herein. The statement of operations data for each of the two years in the period ended September 30, 2001, and the balance sheet
data at September 30, 2000, 2001 and 2002, are derived from audited financial statements of Learning Tree not included herein. These historical results are not necessarily indicative of the results to be expected in the future. See
Managements Discussion and Analysis of Financial Condition and Results of Operations.



|                                              |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|--------------------------------------------- |  | ------------------------------------- | ------- | ------------- | - | ------------- |  | ------------- | ------- | ------------ | - | ------- |  | - | ------- | -
|                                              |  | Fiscal Year Ended                     |        
|                                              |  | Sept. 30,2000                         |         | Sept. 30,2001 |   | Sept. 30,2002 |  | Sept. 30,2003 |         | Oct. 1,2004* |  
|                                              |  | (in Thousands, Except Per Share Data) |        
|STATEMENT OF OPERATIONS DATA:                 |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|Revenues                                      |  | $                                     | 224,008 |               | $ | 227,220       |  | $             | 174,161 |              | $ | 151,897 |  | $ | 152,058 |  
|Cost of revenues                              |  |                                       | 80,839  |               |   | 92,805        |  |               | 79,392  |              |   | 72,389  |  |   | 73,612  |  
|                                              |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|Gross profit                                  |  |                                       | 143,169 |               |   | 134,415       |  |               | 94,769  |              |   | 79,508  |  |   | 78,446  |  
|                                              |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|Operating expenses:                           |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|Course development                            |  |                                       | 10,294  |               |   | 11,323        |  |               | 9,319   |              |   | 7,897   |  |   | 7,960   |  
|Sales and marketing                           |  |                                       | 56,603  |               |   | 63,957        |  |               | 50,251  |              |   | 43,781  |  |   | 47,206  |  
|General and administrative                    |  |                                       | 25,913  |               |   | 26,676        |  |               | 25,426  |              |   | 23,014  |  |   | 24,476  |  
|                                              |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|Total operating expenses                      |  |                                       | 92,810  |               |   | 101,956       |  |               | 84,996  |              |   | 74,692  |  |   | 79,642  |  
|                                              |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|Income (loss) from operations                 |  |                                       | 50,359  |               |   | 32,459        |  |               | 9,773   |              |   | 4,816   |  |   | (1,196  | )
|Other income (expense), net                   |  |                                       | 6,709   |               |   | 6,287         |  |               | 2,467   |              |   | 2,315   |  |   | 2,049   |  
|                                              |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|Income before provision for income taxes      |  |                                       | 57,068  |               |   | 38,746        |  |               | 12,240  |              |   | 7,131   |  |   | 853     |  
|Provision for income taxes                    |  |                                       | 19,973  |               |   | 13,755        |  |               | 4,345   |              |   | 1,970   |  |   | 284     |  
|                                              |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|Net income                                    |  | $                                     | 37,095  |               | $ | 24,991        |  | $             | 7,895   |              | $ | 5,161   |  | $ | 569     |  
|                                              |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|Earnings per common share                     |  | $                                     | 1.70    |               | $ | 1.21          |  | $             | 0.42    |              | $ | 0.30    |  | $ | 0.03    |  
|                                              |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|Earnings per common share assuming dilution   |  | $                                     | 1.65    |               | $ | 1.18          |  | $             | 0.42    |              | $ | 0.30    |  | $ | 0.03    |  
|                                              |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|Weighted average number of shares outstanding |  |                                       | 21,771  |               |   | 20,593        |  |               | 18,763  |              |   | 17,394  |  |   | 17,039  |  
|                                              |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|Diluted shares outstanding                    |  |                                       | 22,504  |               |   | 21,156        |  |               | 18,992  |              |   | 17,449  |  |   | 17,065  |  
|                                              |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|                                              | 
|                                              |  | Year Ended At                         |        
|                                              |  | Sept. 30,2000                         |         | Sept. 30,2001 |   | Sept. 30,2002 |  | Sept. 30,2003 |         | Oct. 1,2004* |  
|                                              |  | (in Thousands)                        |        
|BALANCE SHEET DATA:                           |  |                                       |         |               |   |               |  |               |         |              |   |         |  |   |         |  
|Cash and cash equivalents                     |  | $                                     | 116,231 |               | $ | 108,544       |  | $             | 96,897  |              | $ | 86,711  |  | $ | 83,913  |  
|Short-term interest-bearing investments       |  |                                       | 37,882  |               |   |              |  |               |        |              |   |        |  |   |        |  
|Total current assets                          |  |                                       | 186,652 |               |   | 137,716       |  |               | 120,411 |              |   | 109,322 |  |   | 105,757 |  
|Total assets                                  |  |                                       | 220,353 |               |   | 174,975       |  |               | 154,018 |              |   | 140,909 |  |   | 137,434 |  
|Deferred revenue                              |  |                                       | 53,327  |               |   | 61,662        |  |               | 55,868  |              |   | 50,082  |  |   | 46,847  |  
|Total current liabilities                     |  |                                       | 85,159  |               |   | 88,744        |  |               | 74,556  |              |   | 69,086  |  |   | 65,454  |  
|Total stockholders equity                    |  |                                       | 132,795 |               |   | 84,060        |  |               | 76,730  |              |   | 68,980  |  |   | 68,543  |  

---

|* | In the second quarter of fiscal 2004, the Company adopted a 52- or 53-week fiscal year, by changing its year-end date from September 30 to the Friday nearest the end of September.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13



---

##### Table of Contents

|Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



Except for historical statements, the matters addressed in the discussion which follows are forward-looking statements.
Please do not put undue reliance on these forward-looking statements, since they are based on key assumptions about future risks and uncertainties. Although Learning Tree believes that its assumptions are reasonable, inevitably some will prove to be
incorrect. As a result, Learning Trees actual future results can be expected to differ from those in the discussion that follows, and those differences may be material. Learning Tree is not undertaking any obligation to update forward-looking
statements.



In order to help the reader assess the major risks
in Learning Trees business, Learning Tree has identified many, but not all, of these risks in Exhibit 99.1, Risk Factors (Exhibit 99.1). Please read that exhibit carefully. Some of the factors discussed in Exhibit 99.1
that could affect Learning Tree include risks associated with:



| |  | The timely development, introduction, and customer acceptance of Learning Trees courses;
| | - | -----------------------------------------------------------------------------------------



| |  | Competition;
| | - | ------------



| |  | International operations, including currency fluctuations;
| | - | ----------------------------------------------------------



| |  | Changing economic and market conditions;
| | - | ----------------------------------------



| |  | Technology development and new technology introduction;
| | - | -------------------------------------------------------



| |  | Efficient delivery and scheduling of Learning Trees courses;
| | - | -------------------------------------------------------------



| |  | Adverse weather conditions, strikes, acts of war or terrorism and other external events; and
| | - | --------------------------------------------------------------------------------------------



| |  | Attracting and retaining qualified personnel.
| | - | ---------------------------------------------



OVERVIEW



Nature of the Business. Learning Tree is a leading worldwide vendor-independent provider of training to managers and information technology
(IT) professionals working in business and government organizations. Since its founding in 1974, Learning Tree has provided high-quality training to over 1,500,000 IT professionals and managers. In fiscal 2004, Learning Tree provided
training to over 87,000 course participants. Approximately two-thirds of Learning Tree participants come from Fortune 1000-level companies, their international equivalents and government organizations, and approximately one-third come from small and
medium-size companies.



Learning Tree offers a broad,
proprietary library of intensive instructor-led courses from two to five days in length, comprising 146 different course titles representing over 3,600 hours of training at October 1, 2004. Learning Tree courses focus on web development, operating
systems, programming languages, databases, computer networks, computer and network security, object-oriented technology, project management, leadership and professional development, and other key business skills. During fiscal 2004, Learning Tree
expanded its management course offerings to 29 titles in order to meet demands for these courses from both technical and non-technical managers.



Learning Tree uses a well-defined, systematic approach in developing and updating its course library to provide training that is immediately relevant to
course participants working in a broad range of applications and industries. Learning Trees proprietary course development process also allows it to customize its courses for delivery at its customers sites.



Learning Tree designs its own vendor-independent IT courses to provide
participants an unbiased perspective of software and hardware products and the ability to compare and integrate multiple platforms and technologies from various vendors in a single course. Learning Tree management courses, while addressing core
concepts and theory, focus heavily on providing skills, tools, and techniques that participants can apply immediately upon returning to their jobs.



14



---

##### Table of Contents

Learning Tree courses are highly interactive. They are translated into French, Swedish and Japanese.
Based on their sophistication and quality, all of Learning Trees courses are recommended for one to two semester hours of college credit by the American Council on Education. In addition, Learning Tree is on the National Association of State
Boards of Accountancy National Registry of CPE sponsors and is a Registered Education Provider of the Project Management Institute (PMI).



The actual number of course titles that Learning Tree will execute, and their delivery dates, are subject to the rate of new technological developments
and perceived customer demand. In general, titles are retired when the profits they generate are not sufficient to justify the ongoing cost of marketing them and maintaining their content. Thus, Learning Tree may or may not develop more titles than
it retires in any period. Course development costs may increase in the future if Learning Tree expands its course library.



Learning Tree had 655 instructors as of October 1, 2004, each of whom was a practicing professional combining expert knowledge with extensive practical
experience. On average, each expert instructor teaches approximately ten Learning Tree course events per year on an as-needed basis. During the rest of the year, Learning Tree instructors apply the IT and management skills they teach as
either full-time employees for other companies or as independent consultants.



Learning Tree offers its proprietary courses through local operations in the United States, United Kingdom, France, Canada, Sweden and Japan, and generates approximately half of its revenue internationally. Each
Learning Tree operating subsidiary is staffed by local nationals responsible for the sale and delivery of Learning Tree courses in that country. Learning Trees infrastructure and logistical capabilities allow it to coordinate, plan and deliver
its courses at Learning Trees education centers, hotel and conference facilities and customer sites worldwide. During fiscal 2004, Learning Tree presented courses in 27 countries.



Learning Tree has structured its business so that the majority of its course costs are variable and depend primarily upon
the number of course events conducted. Learning Tree schedules its course events throughout the year based on its assessment of demand. Since Learning Trees instructors typically work full-time or as consultants in business and industry, or in
the case of management instructors as industry consultants and facilitators, and teach Learning Tree course events as needed, Learning Trees instructor-related costs are largely variable. However, Learning Trees expenses associated with
its own education centers and course equipment are largely fixed.



Learning Tree adjusts its expenditures for sales and marketing depending on its strategic objectives, which generally include an assessment of Learning Trees expectations for influencing future customer demand, market conditions and
other factors. However, if Learning Trees expectations regarding the results of its marketing efforts prove to be wrong, any significant revenue shortfall would have a material adverse effect on Learning Trees results of operations.



Recent Trends. As it has for 30
years, Learning Tree continues to focus on enhancing quality levels in its core strengths: its expert instructors, proprietary content library, state-of-the-art classrooms and worldwide course delivery systems. Learning Tree believes that quality
and customer satisfaction remain the underlying driving force for its long-term success. During fiscal 2004, Learning Trees course participants rated the Companys instructors and courses at the highest level in Learning Trees
30-year history.



Learning Trees customers have continued
to respond positively to the Companys recent increase in the breadth and depth of Learning Trees management course offerings. In the fourth quarter of fiscal 2004, Learning Tree offered 29 titles in its management curriculum representing
20% of Learning Trees entire course library, compared to 19 titles, which represented 13% in the fourth quarter of fiscal 2003. Learning Tree intends to meet the demand for these courses by continuing to develop additional management course
titles, and by increasing the marketing for Learning Trees management course program.



Learning Trees business continues to be influenced by world events, by the economy, and by corporate spending trends for IT, among other factors. Learning Tree believes that the best way to counteract adverse



15



---

##### Table of Contents

market trends is to use a strong, focused, integrated marketing and sales strategy that clearly and visibly helps Learning Trees customers identify
specific applications of training services to improve their business performance. Accordingly, Learning Tree continues to assess alternative approaches to sales and marketing with the objective of improving its performance under current market
conditions. However, there is no guarantee that these approaches will be successful. See Exhibit 99.1, Risk Factors.



Beginning with the second quarter of fiscal 2004, Learning Tree adopted a 52- or 53-week fiscal year, changing its year-end and quarter-end dates to the
Friday nearest the end of the calendar quarter. Accordingly, Learning Trees fiscal 2004 year ended on October 1, 2004. Learning Tree made this change in order to better align its external financial reporting with the way Learning Tree operates
its business.



Learning Trees financial results in the
fourth quarter of fiscal 2004 were significantly impacted by charges to general and administrative expenses totaling approximately $1.6 million for actual and potential costs through March 2005 related to the subleasing of Learning Tree facilities
in the United Kingdom. See Results of OperationsGeneral and Administrative Expenses for further discussion.



RESULTS OF OPERATIONS



The following table summarizes Learning Trees consolidated statements of operations for the periods indicated expressed as percentages of revenues:



|                                         |  |                   |   |  |                   |   |  |                |  
|---------------------------------------- |  | ----------------- | - |  | ----------------- | - |  | -------------- | -
|                                         |  | Fiscal Year Ended |  
|                                         |  | September 30,2002 |   |  | September 30,2003 |   |  | October 1,2004 |  
|Revenues                                 |  | 100               | % |  | 100               | % |  | 100            | %
|Cost of revenues                         |  | 46                |   |  | 48                |   |  | 48             |  
|                                         |  |                   |   |  |                   |   |  |                |  
|Gross profit                             |  | 54                |   |  | 52                |   |  | 52             |  
|Operating Expenses:                      |  |                   |   |  |                   |   |  |                |  
|Course development                       |  | 5                 |   |  | 5                 |   |  | 5              |  
|Sales and marketing                      |  | 29                |   |  | 29                |   |  | 31             |  
|General and administrative               |  | 14                |   |  | 15                |   |  | 16             |  
|                                         |  |                   |   |  |                   |   |  |                |  
|Total operating expenses                 |  | 48                |   |  | 49                |   |  | 52             |  
|                                         |  |                   |   |  |                   |   |  |                |  
|Income (loss) from operations            |  | 6                 |   |  | 3                 |   |  | (1             | )
|Other income (expense), net              |  | 1                 |   |  | 1                 |   |  | 1              |  
|                                         |  |                   |   |  |                   |   |  |                |  
|Income before provision for income taxes |  | 7                 |   |  | 4                 |   |  |               |  
|Provision for income taxes               |  | 2                 |   |  | 1                 |   |  |               |  
|                                         |  |                   |   |  |                   |   |  |                |  
|Net income                               |  | 5                 | % |  | 3                 | % |  |               | %
|                                         |  |                   |   |  |                   |   |  |                |  



FISCAL 2004 COMPARED WITH FISCAL
2003



In fiscal 2004, Learning Trees revenues were
$152.1 million compared to $151.9 million in fiscal 2003. Learning Tree reported a loss from operations of $1.2 million in fiscal 2004 compared to income from operations of $4.8 million in the prior year. Net income for fiscal 2004 was $569,000
compared to $5.2 million in fiscal 2003. Learning Trees fiscal 2004 financial results include a charge of approximately $1.6 million in the fourth quarter related to subleasing its United Kingdom facilities (see General and
Administrative Expenses for further discussion.) Excluding this charge, during fiscal 2004, Learning Trees income from operations was approximately $405,000 and net income was approximately $1.6 million (calculated as: Net income as
reported of $0.6 million plus $1.6 million charge less related tax benefits of $0.6 million.)



Revenues. Learning Trees fiscal 2004 revenues primarily reflect the net effect of increased average revenue per attendee due to the effect of changes in exchange rates, offset by a decline in the
number of course



16



---

##### Table of Contents

participants compared to fiscal 2003. During fiscal 2004, Learning Tree trained a total of 87,156 effective course participants, a decrease of 4% from the
prior years 91,133 effective course participants.



For
fiscal 2004, average revenue per attendee was 4% higher compared to fiscal 2003. However, excluding a 6% effect from changes in foreign exchange rates, Learning Trees average revenue per attendee declined 2% in fiscal 2004 compared to the
prior year. Approximately half of Learning Trees business is conducted in currencies other than U.S. dollars. Accordingly, exchange rate fluctuations impact both Learning Trees reported revenues and expenses when translated into dollars.
(See Exhibit 99.1, Risk Factors.) Excluding the effect of exchange rates, the decrease in average revenue per attendee primarily reflects the effect of a change in course mix to a greater proportion of courses conducted at customer sites
and a lower proportion conducted at Learning Tree education centers. Courses held at customer sites generally have lower revenues per attendee compared to those conducted at Learning Tree education centers.



Cost of Revenues. Learning Trees cost of revenues
primarily includes the costs of course instructors and their travel and living expenses, course materials and equipment, freight, classroom facilities and refreshments.



Learning Trees cost of revenues for fiscal 2004 was $73.6 million compared to $72.4 million in fiscal 2003. This
increase primarily reflects the net effect of changes in foreign exchange rates, partially offset by the effect of a 3% decrease in the number of course events and the effects of Learning Trees cost reduction and control measures. During
fiscal 2004, Learning Tree presented 6,832 effective course events compared to 7,026 effective course events in fiscal 2003.



In fiscal 2004, Learning Trees cost of revenues increased to 48.4% of revenues compared to 47.7% in fiscal 2003. Changes in foreign exchange rates
did not materially affect Learning Trees gross profit percentage since exchange rate changes increased Learning Trees cost of revenues by approximately the same percentage as they increased Learning Trees revenues.



In fiscal 2004, excluding the effect of exchange rates, the increase in cost
of revenues as a percentage of revenues reflects a 3% decrease in average revenue per event, partially offset by the effect of a 1% decrease in average cost per event compared to fiscal 2003. The decrease in average revenue per event, excluding the
effect of exchange rates, primarily reflects the change in mix to a greater proportion of courses conducted at customer sites. Courses held at customer sites generally have lower revenues per event compared to those conducted at Learning Tree
education centers. The improvement in average cost per event, excluding the effect of exchange rates, primarily reflects the results of Learning Trees cost reduction and control measures, including reductions in instructor-related costs and
decreased staffing levels. These decreases in cost per event were partially offset by the effect of increased allocated fixed costs per event, stemming from reduced utilization of Learning Trees education centers and course equipment, as well
as other fixed costs which were spread over fewer events.



Course Development Expenses. Learning Tree maintains a disciplined process to develop new courses and update its existing courses. The costs incurred in that process, principally for internal product development staff and for
subject matter experts, are expensed when incurred, and are included in course development expenses. In fiscal 2003, course development expenses also included all costs of Learning Trees e-learning research and development activities, which
were terminated in the second quarter of that year because Learning Tree was unable to find what it believed could be a profitable and sustainable e-learning business model.



In fiscal 2004 and fiscal 2003, course development expenses were 5.2% of revenues. Expenditures on course development
increased slightly to $8.0 million in fiscal 2004 from $7.9 million the year before. This increase primarily reflects increased course development activities and the effect of changes in foreign exchange rates, partially offset by the termination of
all e-learning research and development activities in the second quarter of fiscal 2003.



During fiscal 2004, Learning Tree released additional course titles on technical topics that included Wi-Fi Networking, Windows Server 2003, Integrating Microsoft Access with SQL Server, Oracle Database 10g,
and



17



---

##### Table of Contents

Systems Management Server 2003, as well as additional course titles on management topics that included Leading Virtual and Remote Teams, Preparing for the
Project Management Professional (PMP) Exam, Performance Management, Time Management, Presentation Skills, Negotiation Skills, Project Leadership, Project Quality Management, Microsoft Project Server 2003 for the Enterprise, and A Guide to
Information Technology.



At the end of fiscal 2004, Learning
Tree offered 146 different course titles, comprising over 3,600 hours of training, compared to 152 titles a year earlier. The decrease in the number of titles in fiscal 2004 reflects the net effect of introducing 17 new titles and retiring 23
titles.



Sales and Marketing Expenses. Sales and
marketing expenses include salaries, commissions and travel-related costs for sales and marketing personnel, the costs of designing, producing and distributing direct mail marketing and media advertisements and the costs of information systems to
support these activities.



For fiscal 2004, sales and marketing
expenses were 31.0% of revenues compared to 28.8% in fiscal 2003. The increase in sales and marketing expenses as a percentage of revenues primarily reflects an increase in sales and marketing expenditures. The increase in expenditures is primarily
due to an increase in the number of regular catalogs mailed compared to the prior year, as well as Learning Trees new Management Curriculum catalog which was introduced during the second quarter of fiscal 2004. In addition, the increase in
sales and marketing expenses reflects the effect of changes in foreign exchange rates. These increases were partially offset by the effect of lower expenditures for marketing activities other than major mailings, lower sales and marketing staffing
levels and lower sales commissions.



General and
Administrative Expenses. As a percentage of revenue, general and administrative expenses were 16.1% in fiscal 2004 compared to 15.2% in fiscal 2003. General and administrative expenses increased to $24.5 million in fiscal 2004 from $23.0
million in fiscal 2003. This increase primarily reflects the charge of approximately $1.6 million (described below) related to subleasing portions of Learning Trees United Kingdom education center and administrative office facilities and the
effect of changes in foreign exchange rates. These increases were partially offset by the effects of various cost savings including reduced staffing levels and lower depreciation expense.



The $1.6 million charge related to subleasing portions of Learning Tree facilities in the United Kingdom was comprised of
three components. Two of the components relate to a 20-year lease that was executed in fiscal 1999 for a building in London to house Learning Trees United Kingdom education center. This building had sufficient space for Learning Trees
immediate classroom needs, plus three floors for potential future classroom expansion that Learning Tree has been subletting to two subtenants. The first of these subleases has expired and the other subtenant recently notified Learning Tree that it
will vacate when its sublease expires on March 25, 2005. Learning Tree is actively seeking subtenants for these floors, as a whole or in parts, but has yet to sublease this space.



The first component of the charge arises from Learning Trees estimate that a sublease with a new tenant for the
currently vacant floor in its United Kingdom education center is unlikely to be concluded much before March 25, 2005. Accordingly, in the fourth quarter of fiscal 2004, Learning Tree recorded a charge of $541,000 which reflects its rent expense
for the vacant floor from July 2, 2004 through March 25, 2005. However, there can be no assurance of when Learning Tree will complete a sublease of the currently vacant floor, or when it will find tenants for the other two floors that will become
vacant on March 25, 2005. To the extent that any of these floors are vacant after March 25, 2005, Learning Trees general and administrative expenses will include a further charge of approximately $186,000 per quarter for each vacant floor.
Accordingly, Learning Tree will make further provisions each quarter, as appropriate.



The second component of the charge arises because Learning Tree anticipates that in order to rent these floors in its United Kingdom education center, it may need to make certain concessions, such as a period of free
rent. Such concessions could result in a net sublease rental rate that is somewhat less than the rental rate that



18



---

##### Table of Contents

Learning Tree pays on its lease. Therefore, Learning Trees charges in the fourth quarter include an additional $566,000 for the net present value of
the estimated difference between the net sublease rental rates that Learning Tree anticipates for these three floors and its costs over an expected 5-year sublease period. However, the actual vacancy period(s), the actual sublease rental rate(s),
and the actual duration of the sublease(s) will be different from the estimates that Learning Tree has used in computing its estimate for this charge. If Learning Trees estimates are wrong, and such space is sublet sooner/later, or at
more/less favorable rates, Learning Tree will have to record either additional charges or a reversal of previously recorded charges.



The third component of this charge is related to a portion of Learning Trees United Kingdom administrative office space that it subleased for the
first time, and which will result in a reduction of Learning Trees ongoing general and administrative expenses by an average over the sublease period of approximately $44,000 per quarter, beginning with Learning Trees first quarter of
fiscal 2005. However, Learning Tree subleased this space at a total rental rate that is below its costs. Therefore, Learning Tree recorded a charge of approximately $494,000 to reflect the net present value of this shortfall over the
six-and-a-half-year period of the sublease, which ends co-terminus with Learning Trees prime lease on this office.



Other Income (Expense). Other income (expense) is primarily comprised of interest income and foreign currency transaction gains and losses.
In fiscal 2004, other income (expense) decreased to income of $2.0 million from $2.3 million in fiscal 2003 primarily because of lower interest income. Interest income decreased $490,000 compared to fiscal 2003 due to the effect of lower interest
rates together with a decline in the amount of Learning Trees interest-bearing investments because of expenditures for repurchases of its Common Stock. The decrease in interest income was partially offset by a $203,000 gain from the
liquidation of a $1.0 million minority interest equity investment in Collegis, Inc. (formerly eduprise.com) that Learning Tree had purchased in January 2000.



Learning Tree recorded foreign exchange gains of $335,000 in fiscal 2004 compared to foreign exchange gains of $346,000 in fiscal 2003. These gains arose
from cash balances, receivables and payables denominated in currencies other than the functional currencies of Learning Trees foreign subsidiaries.



Income Taxes. In fiscal 2004, Learning Trees income tax provision decreased to $284,000 from $2.0 million in fiscal 2003. This
decrease reflects the lower taxable income and a lower effective tax rate consistent with Learning Trees lower profit. In addition, the change in Learning Trees tax provision reflects changes in deferred taxes in fiscal 2003.



Learning Tree operates as a holding company with operating subsidiaries in
several countries. Each subsidiary is taxed based on the laws of the jurisdiction in which it operates. Since taxes are incurred at the subsidiary level, and tax rates vary from country to country and one subsidiarys tax losses cannot offset
the taxable income of subsidiaries in other tax jurisdictions, Learning Trees consolidated effective tax rate may vary. See Note 2 of Notes to Consolidated Financial Statements.



Geographic Segments. Learning Tree has education centers in six
countries around the world, and has historically derived approximately half of its revenues from outside the United States. The change in revenues in fiscal 2004 primarily reflects the net effect of changes in exchange rates, offset by a decline in
the number of course participants in all Learning Tree locations compared to fiscal 2003. Learning Trees operating subsidiaries in the United Kingdom, France, Sweden, Canada and Asia, reported a decline in revenues on a local currency basis.
However, due to changes in exchange rates in fiscal 2004 compared to fiscal 2003, those locations reported an increase in revenues compared to fiscal 2003 when their local currency revenues were translated into U.S. dollars.



The United States recorded revenues of $70.4 million in fiscal 2004 compared
to revenues of $74.5 million in fiscal 2003. Revenues from Europe were $69.2 million in fiscal 2004 compared to $65.5 million in fiscal 2003. Canada recorded revenues of $10.6 million in fiscal 2004 compared to revenues of $10.2 million in fiscal
2003 and Asia recorded revenues of $1.8 million in fiscal 2003 compared to $1.7 million in fiscal 2003. See Note 7 of Notes to Consolidated Financial Statements.



19



---

##### Table of Contents

Although Learning Trees consolidated financial statements are stated in U.S. dollars, several of
Learning Trees subsidiaries have functional currencies other than the U.S. dollar. Gains and losses arising from the translation of the balance sheets of Learning Trees subsidiaries from the functional currencies to U.S. dollars are
reported as an adjustment to stockholders equity. Fluctuations in exchange rates may also have an effect on Learning Trees results of operations. Since both revenues and expenses are generally denominated in the subsidiarys local
currency, changes in exchange rates that have an adverse effect on Learning Trees foreign revenues are partially offset by a favorable effect on Learning Trees foreign expenses. The impact of future exchange rates on Learning Trees
results of operations cannot be accurately predicted. To date, Learning Tree has not sought to hedge the risks associated with fluctuations in exchange rates and therefore continues to be subject to such risks. In the future, Learning Tree may
undertake such transactions. There can be no assurance that any hedging techniques implemented by Learning Tree would be successful in eliminating or reducing the effects of currency fluctuations. See Exhibit 99.1, Risk Factors.



FISCAL 2003 COMPARED WITH FISCAL 2002



In fiscal 2003, Learning Trees revenues decreased by 13% to $151.9
million from $174.2 million in fiscal 2002. Income from operations for fiscal 2003 was $4.8 million versus $9.8 million in fiscal 2002. Net income for fiscal 2003 was $5.2 million compared to $7.9 million in fiscal 2002.



Revenues. The decrease in revenues in fiscal 2003 compared to
fiscal 2002 was due to a decline in the number of course participants. During fiscal 2003, Learning Tree trained a total of 91,133 effective course participants, a decrease of 18% from the prior years 111,757 participants. Learning Tree
believes that the sluggishness in the IT industry resulted in the continued year-over-year decline in spending on IT training.



For fiscal 2003, revenues reflected a 7% increase in average revenue per attendee. Approximately 6% of the improvement was due to changes in foreign
exchange rates. The remaining improvement was primarily due to an increase in the proportion of course participants using Training Vouchers compared to those using Training Passports. Training Vouchers are discounted less
from list prices than Training Passports.



Cost of
Revenues. The cost of revenues for fiscal 2003 was $72.4 million compared to $79.4 million in fiscal 2002. This decrease primarily reflected a 15% decrease in the number of course events during fiscal 2003. During fiscal 2003, Learning Tree
presented 7,026 effective course events compared to 8,218 events in fiscal 2002. The decrease in the cost of revenues also reflected the effect of Learning Trees cost reduction and control measures. These savings were partially offset by the
impact of foreign exchange rate changes. The gross margin percentage was not significantly affected by the changes in exchange rates since such changes also increased fiscal 2003 revenues by a similar percentage.



In fiscal 2003, the cost of revenues increased to 47.7% of revenues compared
to 45.6% in fiscal 2002. In fiscal 2003, excluding the impact of exchange rates, the cost of revenues as a percentage of revenues reflected a 3% decrease in average revenue per event and a 2% increase in the average cost per event compared to fiscal
2002. The decrease in average revenue per event reflected a lower average number of attendees per event, partially offset by the increase in average revenue per attendee discussed above. Learning Tree believes that the decrease in the average number
of attendees per event primarily reflected the economic conditions in the IT industry, which lowered Learning Trees overall attendance rate. The increase in the average cost per event primarily reflected the impact of the reduced utilization
of Learning Trees education centers, course equipment and other fixed costs which were spread over fewer events, partially offset by Learning Trees cost reduction and control measures, including the adjustment of staffing, the continued
negotiation of supplier costs, the decrease of software costs and less course equipment depreciation.



Course Development Expenses. In fiscal 2003, course development expenses were 5.2% of revenues compared to 5.4% in fiscal 2002. Course
development expenses as a percentage of revenues, reflected a reduction in absolute expenditures on course development compared to fiscal 2002, partially offset by the effect



20



---

##### Table of Contents

of the decline in revenues. Course development expenses decreased in fiscal 2003 by 15% to $7.9 million from $9.3 million in fiscal 2002. The reduction in
course development expenditures primarily reflected cost reductions realized in author-related expenses, personnel costs, and the termination of the e-learning development program in the second quarter of fiscal 2003.



During fiscal 2003, Learning Tree released additional course titles on topics
such as risk management, Microsoft Operations Manager, .NET development, Java programming, Crystal reports, Windows Server 2003, network vulnerability assessment and defense, Oracle 9iAS, MySQL, Windows Server 2003 and Exchange Server 2003.



At the end of fiscal 2003, Learning Tree offered 152 different
course titles, comprising over 3,800 hours of training, compared to 158 titles a year earlier. The decrease in the number of titles in fiscal 2003 reflected the net effect of introducing 18 new titles and retiring 24 titles.



Sales and Marketing Expenses. For fiscal 2003, sales and
marketing expenses were 28.8% of revenues compared to 28.9% in fiscal 2002. The improvement resulted from absolute reductions in sales and marketing expenditures, which more than offset the effect of the decline in revenues. During fiscal 2003,
sales and marketing expenses decreased by 13% to $43.8 million from $50.3 million in fiscal 2002. The reduction in sales and marketing expenses primarily reflected the results of initiatives to adjust marketing expenditures and sales staffing, based
on current operating levels, as well as lower selling commissions.



General and Administrative Expenses. As a percentage of revenue, general and administrative expenses were 15.2% in fiscal 2003 compared to 14.6% in fiscal 2002. General and administrative expenses decreased in fiscal 2003 by
9% to $23.0 million from $25.4 million in fiscal 2002. The decrease in general and administrative expenses primarily reflected Learning Trees cost reduction and control measures, including reduced staffing levels, as well as a reduction in bad
debt expense. These improvements were partially offset by the effects of changes in exchange rates.



Other Income (Expense). Other income (expense) is primarily comprised of interest income and foreign currency transaction gains and losses.
In fiscal 2003, other income (expense) decreased to $2.3 million of income from $2.5 million in fiscal 2002 primarily because of $899,000 lower interest income which was partially offset by foreign exchange gains. The decrease in interest income
reflected lower interest rates together with the decline in the amount of Learning Trees interest-bearing investments because of expenditures for repurchases of its Common Stock.



Learning Tree recorded foreign exchange gains of $346,000 in fiscal 2003 compared to foreign exchange losses of $50,000 in
fiscal 2002.



Income Taxes. In fiscal 2003,
Learning Trees income tax provision decreased to $2.0 million from $4.3 million in fiscal 2002, as a result of lower taxable income and changes in deferred taxes.



Geographic Segments. The decrease in revenues in fiscal 2003 reflected decreased revenues in all locations,
except France, where the effect of changes in exchange rates more than offset the decrease in revenues in local currency.



The United States recorded revenues of approximately $74.5 million in fiscal 2003 compared to revenues of $87.8 million in fiscal 2002. Revenues from
Europe were $65.5 million in fiscal 2003 compared to $73.1 million in fiscal 2002, due to declines in the United Kingdom and Sweden. Canada recorded revenues of $10.2 million in fiscal 2003 compared to revenues of $11.5 million in fiscal 2002, and
Asia recorded revenues of $1.7 million in fiscal 2003 compared to $1.8 million in fiscal 2002. See Note 7 of Notes to Consolidated Financial Statements.



21



---

##### Table of Contents

QUARTERLY RESULTS OF OPERATIONS



The following tables set forth unaudited quarterly financial data for each of the eight consecutive fiscal quarters ended
October 1, 2004 and its percentage of Learning Trees revenues. Learning Tree believes that this information includes all adjustments necessary for a fair presentation of such quarterly information when read in conjunction with the consolidated
financial statements included elsewhere herein. The operating results for any quarter are not necessarily indicative of the results for any future period.



|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|-------------------------------------------------- |  | ------------------------------------------------ | ------ | - | ------------ | - | ------ | ------------ |  | - | ------------- | - |  | ------------ | ------ | --- | ------------ | - | ------ | ----------- |  | - | ----------- | -- |  | - | ------ | - |  | - | ------ | -
|                                                   |  | Three Months Ended                               |       
|                                                   |  | Dec. 31,2002                                     |        |   | Mar. 31,2003 |   |        | June 30,2003 |  |   | Sept. 30,2003 |   |  | Dec. 31,2003 |        |     | April 2,2004 |   |        | July 2,2004 |  |   | Oct. 1,2004 |   
|                                                   |  | (Dollars in Thousands, Except Per Share Amounts) |       
|Revenues                                           |  | $                                                | 41,759 |   |              | $ | 35,062 |              |  | $ | 39,099        |   |  | $            | 35,977 |     |              | $ | 39,867 |             |  | $ | 35,729      |    |  | $ | 39,139 |   |  | $ | 37,323 |  
|Cost of revenues                                   |  |                                                  | 18,888 |   |              |   | 17,452 |              |  |   | 18,955        |   |  |              | 17,094 |     |              |   | 18,407 |             |  |   | 18,475      |    |  |   | 18,518 |   |  |   | 18,212 |  
|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Gross profit                                       |  |                                                  | 22,871 |   |              |   | 17,610 |              |  |   | 20,144        |   |  |              | 18,883 |     |              |   | 21,460 |             |  |   | 17,254      |    |  |   | 20,621 |   |  |   | 19,111 |  
|Operating expenses:                                |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Course development                                 |  |                                                  | 2,075  |   |              |   | 2,117  |              |  |   | 1,856         |   |  |              | 1,849  |     |              |   | 1,997  |             |  |   | 2,078       |    |  |   | 2,066  |   |  |   | 1,819  |  
|Sales and marketing                                |  |                                                  | 10,006 |   |              |   | 11,069 |              |  |   | 11,543        |   |  |              | 11,163 |     |              |   | 10,478 |             |  |   | 13,403      |    |  |   | 12,791 |   |  |   | 10,534 |  
|General and administrative                         |  |                                                  | 6,196  |   |              |   | 6,031  |              |  |   | 5,667         |   |  |              | 5,120  |     |              |   | 5,765  |             |  |   | 6,046       |    |  |   | 5,921  |   |  |   | 6,744  | *
|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Total operating expenses                           |  |                                                  | 18,277 |   |              |   | 19,217 |              |  |   | 19,066        |   |  |              | 18,132 |     |              |   | 18,240 |             |  |   | 21,527      |    |  |   | 20,778 |   |  |   | 19,097 |  
|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Income (loss) from operations                      |  |                                                  | 4,594  |   |              |   | (1,607 | )            |  |   | 1,078         |   |  |              | 751    |     |              |   | 3,220  |             |  |   | (4,273      | )  |  |   | (157   | ) |  |   | 14     |  
|Other income (expense), net                        |  |                                                  | 630    |   |              |   | 683    |              |  |   | 475           |   |  |              | 527    |     |              |   | 488    |             |  |   | 1,014       |    |  |   | 260    |   |  |   | 287    |  
|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Income (loss) before provision for income taxes    |  |                                                  | 5,224  |   |              |   | (924   | )            |  |   | 1,553         |   |  |              | 1,278  |     |              |   | 3,708  |             |  |   | (3,259      | )  |  |   | 103    |   |  |   | 301    |  
|Provision (benefit) for income taxes               |  |                                                  | 1,855  |   |              |   | (328   | )            |  |   | 551           |   |  |              | (108   | )** |              |   | 1,317  |             |  |   | (1,158      | )  |  |   | 37     |   |  |   | 88     |  
|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Net income (loss)                                  |  | $                                                | 3,369  |   |              | $ | (596   | )            |  | $ | 1,002         |   |  | $            | 1,386  |     |              | $ | 2,391  |             |  | $ | (2,101      | )  |  | $ | 66     |   |  | $ | 213    |  
|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Earnings (loss) per common share                   |  | $                                                | 0.19   |   |              | $ | (0.03  | )            |  | $ | 0.06          |   |  | $            | 0.08   |     |              | $ | 0.14   |             |  | $ | (0.12       | )  |  | $ | 0.00   |   |  | $ | 0.01   |  
|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Earnings (loss) per common share assuming dilution |  | $                                                | 0.19   |   |              | $ | (0.03  | )            |  | $ | 0.06          |   |  | $            | 0.08   |     |              | $ | 0.14   |             |  | $ | (0.12       | )  |  | $ | 0.00   |   |  | $ | 0.01   |  
|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|                                                   |  |                                                  |        |   |              |   |        |             
|AS A PERCENTAGE OF REVENUES:                       |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Revenues                                           |  |                                                  | 100    | % |              |   | 100    | %            |  |   | 100           | % |  |              | 100    | %   |              |   | 100    | %           |  |   | 100         | %  |  |   | 100    | % |  |   | 100    | %
|Cost of revenues                                   |  |                                                  | 45     |   |              |   | 50     |              |  |   | 48            |   |  |              | 48     |     |              |   | 46     |             |  |   | 52          |    |  |   | 47     |   |  |   | 49     |  
|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Gross profit                                       |  |                                                  | 55     |   |              |   | 50     |              |  |   | 52            |   |  |              | 52     |     |              |   | 54     |             |  |   | 48          |    |  |   | 53     |   |  |   | 51     |  
|Operating expenses:                                |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Course development                                 |  |                                                  | 5      |   |              |   | 6      |              |  |   | 5             |   |  |              | 5      |     |              |   | 5      |             |  |   | 6           |    |  |   | 5      |   |  |   | 5      |  
|Sales and marketing                                |  |                                                  | 24     |   |              |   | 32     |              |  |   | 30            |   |  |              | 31     |     |              |   | 26     |             |  |   | 37          |    |  |   | 33     |   |  |   | 28     |  
|General and Administrative                         |  |                                                  | 15     |   |              |   | 17     |              |  |   | 14            |   |  |              | 14     |     |              |   | 15     |             |  |   | 17          |    |  |   | 15     |   |  |   | 18     | *
|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Total operating expenses                           |  |                                                  | 44     |   |              |   | 55     |              |  |   | 49            |   |  |              | 50     |     |              |   | 46     |             |  |   | 60          |    |  |   | 53     |   |  |   | 51     |  
|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Income (loss) from operations                      |  |                                                  | 11     |   |              |   | (5     | )            |  |   | 3             |   |  |              | 2      |     |              |   | 8      |             |  |   | (12         | )  |  |   | (     | ) |  |   |       |  
|Other income (expense), net                        |  |                                                  | 2      |   |              |   | 2      |              |  |   | 1             |   |  |              | 2      |     |              |   | 1      |             |  |   | 3           |    |  |   |       |   |  |   | 1      |  
|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Income (loss) before provision for income taxes    |  |                                                  | 13     |   |              |   | (3     | )            |  |   | 4             |   |  |              | 4      |     |              |   | 9      |             |  |   | (9          | )  |  |   |       |   |  |   | 1      |  
|Provision (benefit) for income taxes               |  |                                                  | 5      |   |              |   | (1     | )            |  |   | 1             |   |  |              | 0      | **  |              |   | 3      |             |  |   | (3          | )  |  |   |       |   |  |   |       |  
|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  
|Net income (loss)                                  |  |                                                  | 8      | % |              |   | (2     | )%           |  |   | 3             | % |  |              | 4      | %   |              |   | 6      | %           |  |   | (6          | )% |  |   |       | % |  |   | 1      | %
|                                                   |  |                                                  |        |   |              |   |        |              |  |   |               |   |  |              |        |     |              |   |        |             |  |   |             |    |  |   |        |   |  |   |        |  

---

|* | General and administrative expenses in the fourth quarter of fiscal 2004 include a charge of approximately $1.6 million (4%) for estimated costs through March 2005 related to the
subleasing of Learning Tree facilities in the United Kingdom.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Income taxes in the fourth quarter of fiscal 2003 reflect the effect of recording a foreign deferred tax asset of approximately $561,000 (2%).
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------



22



---

##### Table of Contents

Historically, Learning Trees quarterly operating results have fluctuated, and that is expected to
continue in the future. The fluctuations may be caused by many factors such as: (i) the frequency of course events; (ii) the number of weeks during which courses can be conducted in a quarter; (iii) the timing, timely delivery, frequency and size
of, and response to Learning Trees direct mail marketing and advertising campaigns; (iv) the timing of the introduction of new course titles; (v) the mix between course events held at customer sites and course events held in Learning
Trees education centers and hotels due to differing gross profit margins; (vi) competitive forces within markets served by Learning Tree; (vii) Learning Trees ability to attract customers and meet their expectations; (viii) currency
fluctuations and other risks inherent in international operations; (ix) natural disasters, external strikes, acts of war or terrorism and other external factors; and (x) general economic conditions and industry-specific slowdowns. Fluctuations in
quarter-to-quarter results also occur as a result of differences in the timing of Learning Trees spending on the marketing of its courses. In addition, the timing of Learning Trees spending on the development of its courses and other
areas may also result, to a lesser extent, in quarter-to-quarter fluctuations. See Exhibit 99.1, Risk Factors.



LIQUIDITY AND CAPITAL RESOURCES



Learning Trees cash and cash equivalents decreased to $83.9 million at October 1, 2004 from $86.7 million at September 30, 2003. This decrease
primarily reflects investments in course equipment and repurchases of Learning Trees Common Stock, partially offset by the effect of exchange rates on cash, cash provided by operations and proceeds from the liquidation of a minority interest
equity investment in Collegis, Inc. (formerly eduprise.com.)



During fiscal 2004, Learning Tree repurchased approximately 158,000 shares of its Common Stock for approximately $2.6 million. Learning Tree may make additional purchases through open-market transactions, but has no commitments to do so.



Cash provided by operations for fiscal 2004 was $1.9 million
compared to $4.5 million for fiscal 2003. This decrease primarily reflects lower profitability. At October 1, 2004, Learning Tree had a net working capital balance of $40.3 million.



During fiscal 2004, Learning Tree invested $5.7 million in equipment and facilities compared to $3.5 million in fiscal
2003. The investments in the current year primarily relate to purchases of course equipment. Although Learning Tree expects to continue to invest in additional equipment in fiscal 2005, as of October 1, 2004, Learning Tree had no material future
purchase obligations, capital commitments or debt. In the future, Learning Tree may use cash for acquisitions or other strategic transactions. While Learning Tree has no current agreements in place or negotiations underway with respect to any
acquisition or other strategic transaction, Learning Tree may, on occasion, evaluate acquisition opportunities that appear to fit within its overall business strategy. Learning Tree believes its cash and cash equivalents and the cash provided by its
operations will be sufficient to meet its cash requirements for the foreseeable future. See Exhibit 99.1, Risk Factors.



Learning Tree has not paid any cash dividends since its inception and does not anticipate paying cash dividends in the foreseeable future.



The following table summarizes Learning Trees contractual cash
commitments at October 1, 2004:



|                        |  |                        |             |                               |   |                                 |  |                                 |            |                                              |   |            |  |   |           
|----------------------- |  | ---------------------- | ----------- | ----------------------------- | - | ------------------------------- |  | ------------------------------- | ---------- | -------------------------------------------- | - | ---------- |  | - | ----------
|                        |  | Payments Due by Period
|Contractual Obligations |  | Total                  |             | Less than 1year (Fiscal 2005) |   | 1-3 years (Fiscal 2006and 2007) |  | 3-5 years (Fiscal 2008and 2009) |            | More than 5 years (Fiscal 2010 through 2020)
|Operating leases*       |  | $                      | 105,479,000 |                               | $ | 14,030,000                      |  | $                               | 26,747,000 |                                              | $ | 19,333,000 |  | $ | 45,369,000
|Employment contracts**  |  |                        | 2,313,000   |                               |   | 2,313,000                       |  |                                 |           |                                              |   |           |  |   |          
|Purchase commitments*** |  |                        | 4,730,000   |                               |   | 4,730,000                       |  |                                 |           |                                              |   |           |  |   |          
|                        |  |                        |             |                               |   |                                 |  |                                 |            |                                              |   |            |  |   |           
|Total                   |  | $                      | 112,522,000 |                               | $ | 21,073,000                      |  | $                               | 26,747,000 |                                              | $ | 19,333,000 |  | $ | 45,369,000
|                        |  |                        |             |                               |   |                                 |  |                                 |            |                                              |   |            |  |   |           



23



---

##### Table of Contents

---

|* | Amounts have not been reduced by future minimum sublease rentals of $2,261,000 due in the future under noncancelable subleases. See Note 3 of Notes to Consolidated Financial
Statements for further details.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Employment contracts reflect severance provisions of certain executive management employment contracts and other similar arrangements which may be payable in certain circumstances
in the future. Some amounts reflect estimates as the actual cost of the severance is not defined in the contract.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** | Represents estimated commitments at year-end to purchase goods and services in the normal course of business to meet operational requirements. These obligations are expected to be
paid in future periods as stated in the table, although the amounts are subject to change based on operating requirements and other factors.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



OFF-BALANCE SHEET ARRANGEMENTS



Learning Tree has no off-balance sheet arrangements (as defined in Regulation S-K Item 303 paragraph (a)(4)(ii)) that have or are reasonably likely to
have a material current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.



CRITICAL ACCOUNTING ESTIMATES AND POLICIES



Managements discussion and analysis of Learning Trees financial
condition and results of operations is based upon Learning Trees consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial
statements requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The following list of critical
accounting estimates and policies is not intended to be a comprehensive list of all of Learning Trees accounting policies. Learning Trees significant accounting policies are more fully described in Note 1 of Notes to Consolidated
Financial Statements. The following represents a summary of Learning Trees critical accounting estimates and policies, defined as those policies that Learning Tree believes are the most important to the portrayal of Learning Trees
financial condition and results of operations, and/or require managements significant judgments and estimates.



Critical Accounting Estimates



Revenue Recognition. Learning Tree offers its customers a multiple-course sales discount referred to as a Training Passport. A Training
Passport allows an individual passport holder to attend up to a specified number of Learning Tree courses over a one-year period for a fixed price. For a Training Passport, the amount of revenue recognized for each attendance in one of Learning
Trees courses is based upon the selling price of the Training Passport, the list price of the course taken and the estimated average number of courses passport holders will actually attend. Upon expiration of a Training Passport, Learning Tree
records the difference, if any, between the revenues previously recognized and the Training Passport selling price. The estimated attendance rate is based upon the historical experience of the average actual number of course events that Training
Passport holders have been attending. If the Training Passport attendance rates change, the revenue recognition rate for all active Training Passports and for all Training Passports sold thereafter is adjusted.



Learning Tree believes it is appropriate to recognize revenues on this basis
in order to most closely match revenue and related costs, as the substantial majority of its Passport holders do not attend the maximum number of course events permitted under their Training Passport. Learning Tree believes that the use of
historical data is reasonable and appropriate because of the relative stability of the average actual number of course events attended by the tens of thousands of Passport holders since the inception of the program in fiscal 1993.



The average actual attendance rate for all expired Training Passports has
closely approximated the estimated rate utilized by Learning Tree. Although Learning Tree has seen no material changes in the historical rates as the



24



---

##### Table of Contents

number of course titles has changed, it monitors such potential effects. In general, determining the estimated average number of course events that will be
attended by a Training Passport holder is based on historical trends that may not continue in the future. These estimates could differ in the near term from amounts used in arriving at the reported revenue. If the estimates are wrong, Learning Tree
would record the difference between the revenues previously recognized for that Training Passport and the Training Passport selling price upon expiration of that Training Passport. Thus, the timing of revenue recognition may be affected by an error
in estimation, but the error would have no effect on the aggregate revenue recognized over the 12-month life of each Training Passport.



Allowance for Doubtful Accounts Receivable. Trade accounts receivable are reduced by an allowance for amounts that may become uncollectible
in the future. The Company uses estimates in determining the allowance for doubtful accounts receivable, based on its analysis of various factors, including the Companys historical collection experience, current trends, specific identification
of invoices which are considered doubtful, and a percentage of the Companys past due accounts receivable. Although the Companys estimates for this reserve have in the past been reasonably accurate, these estimates could differ from
actual collection experience and are subject to adjustment. The Companys trade accounts receivable are written-off when they are deemed uncollectible.



Operating Leases. Learning Tree leases education center and administrative office space under various operating lease agreements. Certain of
these operating leases include space that has not been used by Learning Tree and which is either currently subleased, or is vacant and for which Learning Tree is seeking a subtenant(s). For such vacated space, Learning Tree estimates and records the
estimated fair value of its liability for costs that Learning Tree will incur under the operating lease without economic benefit. The estimated fair value of the liability is determined based upon the remaining lease costs, as per the operating
lease agreement, reduced by estimated sublease rental income that could be reasonably obtained for the property based upon prevailing real estate market conditions. The liability recorded reflects Learning Trees best estimate based upon the
information available at the time. Learning Tree adjusts the liability, as necessary, as new information becomes available or subsequent developments occur.



In 1999, Learning Tree entered into a 20-year lease on a building in London to house its United Kingdom education center. This building had sufficient
space for Learning Trees immediate classroom needs, plus three floors for potential future classroom expansion that Learning Tree has been subletting to two subtenants. The first of these subleases has expired and the other subtenant notified
Learning Tree in September 2004, that it will vacate when its sublease expires on March 25, 2005. Learning Tree is actively seeking subtenants for these floors, as a whole or in parts, but has yet to sublease this space.



In the fourth quarter of fiscal 2004, Learning Tree recorded a $541,000
charge to reflect its estimate that a sublease with a new tenant for the currently vacant floor in its United Kingdom education center is unlikely to be concluded much before March 25, 2005. This charge reflects Learning Trees rent expense for
the vacant floor from July 2, 2004 through March 25, 2005. However, there can be no assurance of when Learning Tree will complete a sublease of the currently vacant floor, or when it will find tenants for the other two floors. To the extent that any
of these floors are vacant after March 25, 2005, Learning Trees general and administrative expenses will include a further charge of approximately $186,000 per quarter for each vacant floor. Accordingly, Learning Tree will make further
provisions each quarter as necessary.



In addition, Learning
Tree anticipates that in order to rent these floors in its United Kingdom education center it may need to make certain concessions, such as a period of free rent. Such concessions could result in a net sublease rental rate that is somewhat less than
the rental rate that Learning Tree pays on its lease. Therefore, Learning Tree also recorded a charge of $566,000 in the fourth quarter of fiscal 2004 for the net present value of the estimated difference between the net sublease rental rates that
Learning Tree anticipates for these three floors and its costs over an expected 5-year sublease period. However, the actual vacancy period(s), the actual sublease rental rate(s), and the actual duration of the sublease(s) will be different from the
estimates that Learning Tree has used in computing its estimate for this charge.



25



---

##### Table of Contents

If Learning Trees estimates are wrong, and such space is sublet sooner/later, or at more/less
favorable rates, Learning Tree may have to record either additional charges or a reversal of previously recorded charges.



Critical Accounting Policies



Revenue Recognition. Learning Tree course events range from two to five days, with an average of approximately four days. As stated above,
beginning with the second quarter of fiscal 2004, Learning Tree adopted a 52- or 53-week fiscal year in order to better align its external financial reporting with the way Learning Tree operates its business. Under this method, each fiscal quarter
ends on the Friday closest to the end of the calendar quarter. Since all courses have a duration of five days or less, and all courses begin and end within the same calendar week, under the 52- or 53-week fiscal year method all revenues and related
direct costs for each course event are recognized in the week and the fiscal quarter in which the event takes place. Prior to the adoption of the 52- or 53- week method, it was Learning Trees policy to recognize revenues and the related direct
costs of course events as courses are delivered on a straight-line basis. However, for administrative purposes, the revenues and the related costs of course events were recorded upon commencement of each course event, unless the difference between
Learning Trees revenue recognition policy and recording revenues and related course costs on a straight-line basis was more than inconsequential.



In addition to its Training Passports, Learning Tree also offers a multiple-course sales discount referred to as Training Vouchers. Under Learning
Trees Training Vouchers, a customer buys the right to send a specified number of attendees to Learning Tree courses over a one-year period for a fixed price. Revenue is recognized on a pro rata basis for each attendance. If a Training Voucher
expires unused, Learning Tree records the selling price of the expired Training Voucher as revenue.



Prepaid Marketing Expenses. Prepaid marketing expenses are charged to income in the month in which the advertising materials are mailed
since the benefit period for such costs is short and the amount of such future benefit is not practically measurable.



Course Development Costs. Course development costs are charged to operations in the period incurred.



Stock Based Compensation. Learning Tree uses the intrinsic
value method under APB Opinion No. 25 Accounting for Stock Issued to Employees, in accounting for its stock option plans. The exercise price of all stock options granted under Learning Trees stock option plans was equal to their
fair market value at the dates of the grants. Accordingly, no compensation cost was recognized during fiscal 2003 and fiscal 2004 for stock options granted to employees.



Facilities, Intangible and Other Long-Lived Assets. Learning Tree periodically reviews the carrying value of
its facilities, intangible and other long-lived assets to identify and assess any impairment of the carrying value.



Income Taxes. Learning Tree applies SFAS No. 109 Accounting for Income Taxes, in accounting for income taxes. Under SFAS No.
109, deferred income tax assets and liabilities arise from carry-forwards and from temporary differences between the tax basis of assets and liabilities and the book basis of such assets and liabilities as reported in the financial statements.
Deferred income tax assets arise from expected reductions in taxes payable in future periods. Deferred tax assets reflect managements estimate of the amounts that will be realized from future profitability and can be predicted with reasonable
certainty. Deferred income tax liabilities represent taxes that Learning Tree expects to pay in future periods.



OUTLOOK FOR FISCAL 2005



Throughout this document, there have been various forward-looking statements. However, all of the statements in this section are forward-looking and are
subject to various risks and uncertainties, including those detailed from time to time in Learning Trees filings with the Securities and Exchange Commission and in



26



---

##### Table of Contents

Exhibit 99.1, Risk Factors. Since economic and market conditions may change at any time, Learning Trees future revenues, plans and
expenditures will vary from the observations below, and these differences may be material.



Recent Trends.Learning Trees business continues to be influenced by world events, by the economy, and by corporate spending trends for IT, among other factors. Learning Tree believes that the best
way to counteract adverse market trends is to use a strong, focused, integrated marketing and sales strategy that clearly and visibly helps Learning Trees customers identify specific applications of training services to improve their business
performance. Accordingly, Learning Tree continues to assess alternative approaches to sales and marketing with the objective of improving its performance under current market conditions.



Effect of Exchange Rates. Approximately half of Learning Trees business is conducted in currencies other
than U.S. dollars and fluctuations in exchange rates will affect future revenues and expenses when translated into dollars. If the exchange rates of November 15, 2004 remain stable through the remainder of fiscal 2005, Learning Trees revenues
would be favorably affected by approximately 6% in the first quarter and approximately 3% for the full fiscal year compared to the corresponding periods in fiscal 2004. Conversely, Learning Trees expenses would be unfavorably affected by
similar percentages in these periods.



First Quarter 2005
Revenues. A number of factors may influence Learning Trees revenues in its first fiscal quarter ending December 31, 2004. These include the following:



| |  | Learning Tree has yet to see any sustained improvement in demand for IT skills training from its customers.
| | - | -----------------------------------------------------------------------------------------------------------



| |  | At October 1, 2004, Learning Trees backlog of $33.6 million was about 2% lower than it had been on September 30, 2003. This October 1, 2004 backlog included a 3% favorable
effect from changes in foreign exchange rates. Four weeks later, at October 29, 2004, Learning Trees overall backlog of $31.8 million was 3% lower than at October 31, 2003. And, at October 29, 2004, the sum of Learning Trees
revenues for October courses plus its backlog for November and December courses was 5% lower than it had been at October 31, 2003. These October 29, 2004 backlogs each included a 4% favorable effect from changes in foreign exchange rates.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Based upon the above and other factors, Learning
Tree believes that its revenues in the first quarter of fiscal 2005 will be approximately $38.0 million to $39.5 million, or 1% to 5% lower than the prior year period.



First Quarter Gross Profit. Learning Tree expects its gross profit percentage in the first quarter of fiscal
2005 to be between 49.0% and 50.5%.



First Quarter
Operating Expenses. Learning Tree expects overall operating expenses for the first quarter of fiscal 2005 to be approximately $18.5 million, an increase of approximately $250,000 compared to the same quarter a year earlier. This increase
primarily reflects the effect of changes in exchange rates and annual compensation increases. Learning Tree expects this increase to be partially offset by lower marketing costs due to the net effect of mailing fewer regular catalogs than in the
same quarter of fiscal 2004 and the increased costs of mailing Management Curriculum catalogs in fiscal 2005, which Learning Tree first introduced in the second quarter of fiscal 2004.



First Quarter Interest Income. Learning Trees interest income reflects changes in interest rates, as
well as changes in cash balances. Learning Tree expects first quarter interest income to be approximately the same as it was in the fourth quarter of fiscal 2004.



2005 Tax Rate. Learning Tree estimates that its effective tax rate in fiscal 2005 will be approximately 33.3%
as a result of utilizing foreign tax credits during the year.



Future Outlook. Looking forward, Learning Tree remains confident in the long-term outlook for the technology industry and the need for IT and management training. Learning Tree believes that technology



27



---

##### Table of Contents

provides mission-critical resources that can be used by organizations to gain a competitive advantage, provided that their technical personnel are adequately
trained in the technologies they are using. Learning Tree believes that even more critical is the training of managers at all levels in an organization. Studies show again and again that effective training in basic and applied management skills
increases the likelihood of successful project implementation, reduces risk and costs and increases overall organizational performance.



Learning Trees strong global brand, operational strengths and financial resources position it to respond both to the current business environment
and to future opportunities that may develop. Learning Tree plans to continue to apply Learning Trees considerable resources to provide the best possible service to its customers with the expectation of maintaining their continuing loyalty and
capturing additional market share.



Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Learning Trees cash equivalents are diversified and consist primarily of investment grade securities of high-quality financial institutions and
corporations. The fair value of Learning Trees portfolio of marketable securities would not be significantly impacted by either a 10 percent (approximately 10 basis points) increase or decrease in the rates of interest due primarily to the
short-term nature of the portfolio. Learning Tree does not hold or issue derivative financial instruments.



Learning Trees consolidated financial statements are prepared in U.S. dollars, while the operations of its foreign subsidiaries are conducted in
their respective local currencies. Consequently, changes in exchange rates can result in exchange gains or losses. The impact of future exchange rates on Learning Trees results of operations cannot be accurately predicted. To date, Learning
Tree has not sought to hedge the risks associated with fluctuations in exchange rates and therefore continues to be subject to such risks. In the future, Learning Tree may undertake such transactions. However, any hedging techniques implemented by
Learning Tree might not be successful in eliminating or reducing the effects of currency fluctuations. See Exhibit 99.1, Risk Factors.



28



---

##### Table of Contents

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                           |  |     
|-------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                           |  | Page
|Report of Independent Registered Public Accounting Firm                                                                    |  | 30  
|Consolidated Balance Sheets at September 30, 2003 and October 1, 2004                                                      |  | 31  
|Consolidated Statements of Operations for the fiscal years ended September 30, 2002 and 2003 and October 1, 2004           |  | 32  
|Consolidated Statements of Stockholders Equity for the fiscal years ended September 30, 2002 and 2003 and October 1, 2004 |  | 33  
|Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2002 and 2003 and October 1, 2004           |  | 34  
|Notes to Consolidated Financial Statements                                                                                 |  | 35  



29



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Shareholders and Board of Directors

Learning Tree International, Inc.



We have audited the accompanying consolidated balance sheets of Learning Tree International, Inc. and subsidiaries (the
Company) as of October 1, 2004 and September 30, 2003, and the related consolidated statements of operations, stockholders equity and cash flows for each of the three years in the period ended October 1, 2004. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.



In our opinion,
the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Learning Tree International, Inc. and subsidiaries at October 1, 2004 and September 30, 2003, and the consolidated results of
their operations and their cash flows for each of the three years in the period ended October 1, 2004 in conformity with U.S. generally accepted accounting principles.



/s/ Ernst & Young LLP



Los Angeles, California

November 5, 2004



30



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



|                                                                                                                                    |  |                   |             |   |                 |   |             |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | --------------- | - | ----------- | -
|                                                                                                                                    |  | September 30,2003 |             |   | October 1, 2004 |  
|ASSETS                                                                                                                              |  |                   |             |   |                 |   |             |  
|Current assets:                                                                                                                     |  |                   |             |   |                 |   |             |  
|Cash and cash equivalents                                                                                                           |  | $                 | 86,711,000  |   |                 | $ | 83,913,000  |  
|Trade accounts receivable, less allowances of $818,000 and $402,000, respectively                                                   |  |                   | 11,779,000  |   |                 |   | 12,902,000  |  
|Prepaid marketing expenses                                                                                                          |  |                   | 915,000     |   |                 |   | 814,000     |  
|Prepaid income taxes                                                                                                                |  |                   | 3,974,000   |   |                 |   | 3,791,000   |  
|Prepaid expenses and other                                                                                                          |  |                   | 5,943,000   |   |                 |   | 4,337,000   |  
|                                                                                                                                    |  |                   |             |   |                 |   |             |  
|Total current assets                                                                                                                |  |                   | 109,322,000 |   |                 |   | 105,757,000 |  
|                                                                                                                                    |  |                   |             |   |                 |   |             |  
|                                                                                                                                    |  |                  
|Equipment, property and leasehold improvements:                                                                                     |  |                   |             |   |                 |   |             |  
|Education and office equipment                                                                                                      |  |                   | 43,888,000  |   |                 |   | 44,707,000  |  
|Transportation equipment                                                                                                            |  |                   | 149,000     |   |                 |   | 164,000     |  
|Property and leasehold improvements                                                                                                 |  |                   | 21,696,000  |   |                 |   | 22,964,000  |  
|                                                                                                                                    |  |                   |             |   |                 |   |             |  
|                                                                                                                                    |  |                   | 65,733,000  |   |                 |   | 67,835,000  |  
|Less: accumulated depreciation and amortization                                                                                     |  |                   | (44,966,000 | ) |                 |   | (47,024,000 | )
|                                                                                                                                    |  |                   |             |   |                 |   |             |  
|                                                                                                                                    |  |                   | 20,767,000  |   |                 |   | 20,811,000  |  
|Long-term interest-bearing investments                                                                                              |  |                   | 8,333,000   |   |                 |   | 8,929,000   |  
|Deferred income taxes                                                                                                               |  |                   | 585,000     |   |                 |   | 878,000     |  
|Other assets                                                                                                                        |  |                   | 1,902,000   |   |                 |   | 1,059,000   |  
|                                                                                                                                    |  |                   |             |   |                 |   |             |  
|Total assets                                                                                                                        |  | $                 | 140,909,000 |   |                 | $ | 137,434,000 |  
|                                                                                                                                    |  |                   |             |   |                 |   |             |  
|                                                                                                                                    |  |                  
|LIABILITIES                                                                                                                         |  |                   |             |   |                 |   |             |  
|Current liabilities:                                                                                                                |  |                   |             |   |                 |   |             |  
|Trade accounts payable                                                                                                              |  | $                 | 12,275,000  |   |                 | $ | 12,570,000  |  
|Deferred revenue                                                                                                                    |  |                   | 50,082,000  |   |                 |   | 46,847,000  |  
|Accrued payroll, benefits and related taxes                                                                                         |  |                   | 3,577,000   |   |                 |   | 2,794,000   |  
|Other accrued liabilities                                                                                                           |  |                   | 2,641,000   |   |                 |   | 2,957,000   |  
|Income taxes payable                                                                                                                |  |                   | 511,000     |   |                 |   | 286,000     |  
|                                                                                                                                    |  |                   |             |   |                 |   |             |  
|Total current liabilities                                                                                                           |  |                   | 69,086,000  |   |                 |   | 65,454,000  |  
|                                                                                                                                    |  |                   |             |   |                 |   |             |  
|Deferred income taxes                                                                                                               |  |                   | 575,000     |   |                 |   | 550,000     |  
|Deferred facilities rent                                                                                                            |  |                   | 2,268,000   |   |                 |   | 2,887,000   |  
|                                                                                                                                    |  |                   |             |   |                 |   |             |  
|Total liabilities                                                                                                                   |  |                   | 71,929,000  |   |                 |   | 68,891,000  |  
|                                                                                                                                    |  |                   |             |   |                 |   |             |  
|                                                                                                                                    |  |                  
|Commitments and contingencies                                                                                                       |  |                   |             |   |                 |   |             |  
|                                                                                                                                    |  |                  
|STOCKHOLDERS EQUITY                                                                                                                |  |                   |             |   |                 |   |             |  
|Common Stock, $.0001 par value, 75,000,000 shares authorized, 17,108,000 and 16,989,000 shares issued and outstanding,
respectively |  |                   | 2,000       |   |                 |   | 2,000       |  
|Preferred Stock, $.0001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding                                    |  |                   |            |   |                 |   |            |  
|Additional paid-in capital                                                                                                          |  |                   | 9,000       |   |                 |   | 9,000       |  
|Cumulative foreign currency translation                                                                                             |  |                   | (473,000    | ) |                 |   | 626,000     |  
|Retained earnings                                                                                                                   |  |                   | 69,442,000  |   |                 |   | 67,906,000  |  
|                                                                                                                                    |  |                   |             |   |                 |   |             |  
|Total stockholders equity                                                                                                          |  |                   | 68,980,000  |   |                 |   | 68,543,000  |  
|                                                                                                                                    |  |                   |             |   |                 |   |             |  
|Total liabilities and stockholders equity                                                                                          |  | $                 | 140,909,000 |   |                 | $ | 137,434,000 |  
|                                                                                                                                    |  |                   |             |   |                 |   |             |  



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



31



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS



|                                              |  |                    |             |   |                    |   |             |                 |  |   |             |  
|--------------------------------------------- |  | ------------------ | ----------- | - | ------------------ | - | ----------- | --------------- |  | - | ----------- | -
|                                              |  | Fiscal Year Ended  |            
|                                              |  | September 30, 2002 |             |   | September 30, 2003 |   |             | October 1, 2004 | 
|Revenues                                      |  | $                  | 174,161,000 |   |                    | $ | 151,897,000 |                 |  | $ | 152,058,000 |  
|Cost of revenues                              |  |                    | 79,392,000  |   |                    |   | 72,389,000  |                 |  |   | 73,612,000  |  
|                                              |  |                    |             |   |                    |   |             |                 |  |   |             |  
|Gross profit                                  |  |                    | 94,769,000  |   |                    |   | 79,508,000  |                 |  |   | 78,446,000  |  
|                                              |  |                    |             |   |                    |   |             |                 |  |   |             |  
|Operating expenses:                           |  |                    |             |   |                    |   |             |                 |  |   |             |  
|Course development                            |  |                    | 9,319,000   |   |                    |   | 7,897,000   |                 |  |   | 7,960,000   |  
|Sales and marketing                           |  |                    | 50,251,000  |   |                    |   | 43,781,000  |                 |  |   | 47,206,000  |  
|General and administrative                    |  |                    | 25,426,000  |   |                    |   | 23,014,000  |                 |  |   | 24,476,000  |  
|                                              |  |                    |             |   |                    |   |             |                 |  |   |             |  
|                                              |  |                    | 84,996,000  |   |                    |   | 74,692,000  |                 |  |   | 79,642,000  |  
|                                              |  |                    |             |   |                    |   |             |                 |  |   |             |  
|Income (loss) from operations                 |  |                    | 9,773,000   |   |                    |   | 4,816,000   |                 |  |   | (1,196,000  | )
|                                              |  |                    |             |   |                    |   |             |                 |  |   |             |  
|Other income (expense):                       |  |                    |             |   |                    |   |             |                 |  |   |             |  
|Interest expense                              |  |                    | (30,000     | ) |                    |   | (12,000     | )               |  |   |            |  
|Interest income                               |  |                    | 2,833,000   |   |                    |   | 1,934,000   |                 |  |   | 1,444,000   |  
|Foreign exchange gains (losses)               |  |                    | (50,000     | ) |                    |   | 346,000     |                 |  |   | 335,000     |  
|Other                                         |  |                    | (286,000    | ) |                    |   | 47,000      |                 |  |   | 270,000     |  
|                                              |  |                    |             |   |                    |   |             |                 |  |   |             |  
|                                              |  |                    | 2,467,000   |   |                    |   | 2,315,000   |                 |  |   | 2,049,000   |  
|                                              |  |                    |             |   |                    |   |             |                 |  |   |             |  
|Income before provision for income taxes      |  |                    | 12,240,000  |   |                    |   | 7,131,000   |                 |  |   | 853,000     |  
|Provision for income taxes                    |  |                    | 4,345,000   |   |                    |   | 1,970,000   |                 |  |   | 284,000     |  
|                                              |  |                    |             |   |                    |   |             |                 |  |   |             |  
|Net income                                    |  | $                  | 7,895,000   |   |                    | $ | 5,161,000   |                 |  | $ | 569,000     |  
|                                              |  |                    |             |   |                    |   |             |                 |  |   |             |  
|Earnings per common share                     |  | $                  | 0.42        |   |                    | $ | 0.30        |                 |  | $ | 0.03        |  
|                                              |  |                    |             |   |                    |   |             |                 |  |   |             |  
|Earnings per common share assuming dilution   |  | $                  | 0.42        |   |                    | $ | 0.30        |                 |  | $ | 0.03        |  
|                                              |  |                    |             |   |                    |   |             |                 |  |   |             |  
|Weighted average number of shares outstanding |  |                    | 18,763,000  |   |                    |   | 17,394,000  |                 |  |   | 17,039,000  |  
|                                              |  |                    |             |   |                    |   |             |                 |  |   |             |  
|Diluted shares outstanding                    |  |                    | 18,992,000  |   |                    |   | 17,449,000  |                 |  |   | 17,065,000  |  
|                                              |  |                    |             |   |                    |   |             |                 |  |   |             |  





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



32



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



|                                              |  |              |   |                          |        |       |                                      |   |            |                  |  |   |                          |   |  |   |             |   |  |   |             |  
|--------------------------------------------- |  | ------------ | - | ------------------------ | ------ | ----- | ------------------------------------ | - | ---------- | ---------------- |  | - | ------------------------ | - |  | - | ----------- | - |  | - | ----------- | -
|                                              |  | Common Stock |   | AdditionalPaid-inCapital |        |       | ForeignCurrencyTranslationAdjustment |   |            | RetainedEarnings |  |   | TotalStockholdersEquity |  
|                                              |  | Shares       |   |                          | Amount |       |                                      |   |           
|Balance, September 30, 2001                   |  | 18,929,000   |   |                          | $      | 2,000 |                                      | $ |           |                  |  | $ | (4,584,000               | ) |  | $ | 88,642,000  |   |  | $ | 84,060,000  |  
|Comprehensive income:                         |  |              |   |                          |        |       |                                      |   |            |                  |  |   |                          |   |  |   |             |   |  |   |             |  
|Net income                                    |  |             |   |                          |        |      |                                      |   |           |                  |  |   |                         |   |  |   | 7,895,000   |   |  |   | 7,895,000   |  
|Foreign currency translation                  |  |             |   |                          |        |      |                                      |   |           |                  |  |   | 1,697,000                |   |  |   |            |   |  |   | 1,697,000   |  
|                                              |  |              |   |                          |        |       |                                      |   |            |                  |  |   |                          |   |  |   |             |   |  |   |             |  
|Comprehensive income                          |  |              |   |                          |        |       |                                      |   |            |                  |  |   |                          |   |  |   |             |   |  |   | 9,592,000   |  
|Stock options issued for services             |  |             |   |                          |        |      |                                      |   | 32,000     |                  |  |   |                         |   |  |   |            |   |  |   | 32,000      |  
|Stock repurchases                             |  | (1,104,000   | ) |                          |        |      |                                      |   | (4,212,000 | )                |  |   |                         |   |  |   | (16,922,000 | ) |  |   | (21,134,000 | )
|Stock option exercises                        |  | 302,000      |   |                          |        |      |                                      |   | 2,950,000  |                  |  |   |                         |   |  |   |            |   |  |   | 2,950,000   |  
|Tax benefit related to stock option exercises |  |             |   |                          |        |      |                                      |   | 1,230,000  |                  |  |   |                         |   |  |   |            |   |  |   | 1,230,000   |  
|                                              |  |              |   |                          |        |       |                                      |   |            |                  |  |   |                          |   |  |   |             |   |  |   |             |  
|Balance, September 30, 2002                   |  | 18,127,000   |   |                          |        | 2,000 |                                      |   |           |                  |  |   | (2,887,000               | ) |  |   | 79,615,000  |   |  |   | 76,730,000  |  
|Comprehensive income:                         |  |              |   |                          |        |       |                                      |   |            |                  |  |   |                          |   |  |   |             |   |  |   |             |  
|Net income                                    |  |             |   |                          |        |      |                                      |   |           |                  |  |   |                         |   |  |   | 5,161,000   |   |  |   | 5,161,000   |  
|Foreign currency translation                  |  |             |   |                          |        |      |                                      |   |           |                  |  |   | 2,414,000                |   |  |   |            |   |  |   | 2,414,000   |  
|                                              |  |              |   |                          |        |       |                                      |   |            |                  |  |   |                          |   |  |   |             |   |  |   |             |  
|Comprehensive income                          |  |              |   |                          |        |       |                                      |   |            |                  |  |   |                          |   |  |   |             |   |  |   | 7,575,000   |  
|Stock options issued for services             |  |             |   |                          |        |      |                                      |   | 23,000     |                  |  |   |                         |   |  |   |            |   |  |   | 23,000      |  
|Stock repurchases                             |  | (1,159,000   | ) |                          |        |      |                                      |   | (1,632,000 | )                |  |   |                         |   |  |   | (15,334,000 | ) |  |   | (16,966,000 | )
|Stock option exercises                        |  | 140,000      |   |                          |        |      |                                      |   | 1,485,000  |                  |  |   |                         |   |  |   |            |   |  |   | 1,485,000   |  
|Tax benefit related to stock option exercises |  |             |   |                          |        |      |                                      |   | 133,000    |                  |  |   |                         |   |  |   |            |   |  |   | 133,000     |  
|                                              |  |              |   |                          |        |       |                                      |   |            |                  |  |   |                          |   |  |   |             |   |  |   |             |  
|Balance, September 30, 2003                   |  | 17,108,000   |   |                          |        | 2,000 |                                      |   | 9,000      |                  |  |   | (473,000                 | ) |  |   | 69,442,000  |   |  |   | 68,980,000  |  
|Comprehensive income:                         |  |              |   |                          |        |       |                                      |   |            |                  |  |   |                          |   |  |   |             |   |  |   |             |  
|Net income                                    |  |             |   |                          |        |      |                                      |   |           |                  |  |   |                         |   |  |   | 569,000     |   |  |   | 569,000     |  
|Foreign currency translation                  |  |             |   |                          |        |      |                                      |   |           |                  |  |   | 1,099,000                |   |  |   |            |   |  |   | 1,099,000   |  
|                                              |  |              |   |                          |        |       |                                      |   |            |                  |  |   |                          |   |  |   |             |   |  |   |             |  
|Comprehensive income                          |  |              |   |                          |        |       |                                      |   |            |                  |  |   |                          |   |  |   |             |   |  |   | 1,668,000   |  
|Stock options issued for services             |  |             |   |                          |        |      |                                      |   | 8,000      |                  |  |   |                         |   |  |   |            |   |  |   | 8,000       |  
|Stock repurchases                             |  | (158,000     | ) |                          |        |      |                                      |   | (477,000   | )                |  |   |                         |   |  |   | (2,105,000  | ) |  |   | (2,582,000  | )
|Stock option exercises                        |  | 39,000       |   |                          |        |      |                                      |   | 445,000    |                  |  |   |                         |   |  |   |            |   |  |   | 445,000     |  
|Tax benefit related to stock option exercises |  |             |   |                          |        |      |                                      |   | 24,000     |                  |  |   |                         |   |  |   |            |   |  |   | 24,000      |  
|                                              |  |              |   |                          |        |       |                                      |   |            |                  |  |   |                          |   |  |   |             |   |  |   |             |  
|Balance, October 1, 2004                      |  | 16,989,000   |   |                          | $      | 2,000 |                                      | $ | 9,000      |                  |  | $ | 626,000                  |   |  | $ | 67,906,000  |   |  | $ | 68,543,000  |  
|                                              |  |              |   |                          |        |       |                                      |   |            |                  |  |   |                          |   |  |   |             |   |  |   |             |  



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



33



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  
|--------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | - | ----------- | -------------- |  | - | ---------- | -
|                                                                                  |  | Fiscal Year Ended |            
|                                                                                  |  | September 30,2002 |             |   | September 30,2003 |   |             | October 1,2004 | 
|Cash flowsoperating activities:                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  
|Net income                                                                        |  | $                 | 7,895,000   |   |                   | $ | 5,161,000   |                |  | $ | 569,000    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                   |             |   |                   |   |             |                |  |   |            |  
|Depreciation and amortization                                                     |  |                   | 8,215,000   |   |                   |   | 7,473,000   |                |  |   | 6,132,000  |  
|Unrealized foreign exchange losses (gains)                                        |  |                   | (469,000    | ) |                   |   | (806,000    | )              |  |   | (521,000   | )
|Gain on liquidation of investment in Collegis, Inc                                |  |                   |            |   |                   |   |            |                |  |   | (203,000   | )
|Loss related to subleasing                                                        |  |                   |            |   |                   |   |            |                |  |   | 1,601,000  |  
|Loss (gain) on disposals of equipment and leasehold improvements                  |  |                   | 179,000     |   |                   |   | (17,000     | )              |  |   | 30,000     |  
|Deferred facilities rent charges                                                  |  |                   | (406,000    | ) |                   |   | (239,000    | )              |  |   | (544,000   | )
|Change in net assets and liabilities:                                             |  |                   |             |   |                   |   |             |                |  |   |            |  
|Trade accounts receivable                                                         |  |                   | 4,970,000   |   |                   |   | 565,000     |                |  |   | (690,000   | )
|Prepaid marketing expenses                                                        |  |                   | 613,000     |   |                   |   | 787,000     |                |  |   | 120,000    |  
|Prepaid expenses and other                                                        |  |                   | 1,125,000   |   |                   |   | (719,000    | )              |  |   | 1,868,000  |  
|Income taxes                                                                      |  |                   | (916,000    | ) |                   |   | 1,047,000   |                |  |   | (334,000   | )
|Trade accounts payable                                                            |  |                   | (5,407,000  | ) |                   |   | (585,000    | )              |  |   | (219,000   | )
|Deferred revenue                                                                  |  |                   | (7,423,000  | ) |                   |   | (8,239,000  | )              |  |   | (4,906,000 | )
|Accrued payroll, benefits and related taxes                                       |  |                   | (373,000    | ) |                   |   | 462,000     |                |  |   | (1,121,000 | )
|Other accrued liabilities                                                         |  |                   | (1,471,000  | ) |                   |   | (395,000    | )              |  |   | 72,000     |  
|                                                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  
|Net cash provided by operating activities                                         |  |                   | 6,532,000   |   |                   |   | 4,495,000   |                |  |   | 1,854,000  |  
|                                                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  
|Cash flowsinvesting activities:                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  
|Purchases of equipment, property and leasehold improvements                       |  |                   | (3,832,000  | ) |                   |   | (3,503,000  | )              |  |   | (5,737,000 | )
|Retirements of equipment and leasehold improvements                               |  |                   | 110,000     |   |                   |   | 278,000     |                |  |   | 3,000      |  
|Liquidation of investment in Collegis, Inc                                        |  |                   |            |   |                   |   |            |                |  |   | 1,203,000  |  
|Other, net                                                                        |  |                   | 836,000     |   |                   |   | 145,000     |                |  |   | (101,000   | )
|                                                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  
|Net cash used in investing activities                                             |  |                   | (2,886,000  | ) |                   |   | (3,080,000  | )              |  |   | (4,632,000 | )
|                                                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  
|Cash flowsfinancing activities:                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  
|Proceeds from exercise of stock options                                           |  |                   | 2,950,000   |   |                   |   | 1,485,000   |                |  |   | 445,000    |  
|Repurchases of Common Stock                                                       |  |                   | (21,134,000 | ) |                   |   | (16,966,000 | )              |  |   | (2,582,000 | )
|                                                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  
|Net cash used in financing activities                                             |  |                   | (18,184,000 | ) |                   |   | (15,481,000 | )              |  |   | (2,137,000 | )
|                                                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  
|Effects of exchange rates on cash                                                 |  |                   | 2,891,000   |   |                   |   | 3,880,000   |                |  |   | 2,117,000  |  
|                                                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  
|Net decrease in cash and cash equivalents                                         |  |                   | (11,647,000 | ) |                   |   | (10,186,000 | )              |  |   | (2,798,000 | )
|Cash and cash equivalents at the beginning of the period                          |  |                   | 108,544,000 |   |                   |   | 96,897,000  |                |  |   | 86,711,000 |  
|                                                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  
|Cash and cash equivalents at the end of the period                                |  | $                 | 96,897,000  |   |                   | $ | 86,711,000  |                |  | $ | 83,913,000 |  
|                                                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  
|Supplemental disclosures:                                                         |  |                   |             |   |                   |   |             |                |  |   |            |  
|Income taxes paid                                                                 |  | $                 | 7,115,000   |   |                   | $ | 3,022,000   |                |  | $ | 1,774,000  |  
|                                                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  
|Interest paid                                                                     |  | $                 | 6,000       |   |                   | $ | 2,000       |                |  | $ |           |  
|                                                                                  |  |                   |             |   |                   |   |             |                |  |   |            |  



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



34



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:



a. Nature of the Business:



Learning Tree International, Inc. and subsidiaries (the Company) develop, market and deliver a broad proprietary library of courses which are designed to meet the training needs of information technology
(IT) professionals and managers worldwide. These courses are delivered primarily at the Companys leased education centers located in the United States, United Kingdom, Canada, France and Sweden. Such course events are also
conducted in hotel and conference facilities, and at customer sites throughout the world. The Company provides courses that are regularly presented worldwide and cover such technology topics as web development, operating systems, programming
languages, databases, computer networks, computer and network security, object-oriented technology, project management, leadership and professional development, and key business skills.



In the second quarter of fiscal 2004, the Company adopted a 52- or 53-week fiscal year, by changing its year-end date from
September 30 to the Friday nearest the end of September. Thus, these consolidated financial statements report the Companys consolidated financial position as of September 30, 2003 and October 1, 2004, and the related consolidated statements of
operations, stockholders equity and cash flows for each of the three years in the period ended October 1, 2004.



b. Principles of Consolidation:



The accompanying consolidated financial statements include the accounts of Learning Tree International, Inc. and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Minority interests in certain subsidiaries are not significant. Following is a summary of the subsidiaries of the Company:



Learning Tree International USA, Inc. (U.S.)

Learning Tree International, K.K. (Japan)

Learning Tree International Ltd. (United Kingdom)

Learning Tree International S.A. (France)

Learning Tree International AB (Sweden)

Learning Tree Publishing AB (Sweden)

Learning Tree International Inc. (Canada)

Learning Tree International Ltd. (Hong Kong)

Advanced Technology Marketing, Inc. (U.S.)



c. Capital Stock:



The Company has 75,000,000 authorized shares of $.0001 par value Common
Stock (Common Stock). In addition, the Companys authorized capital stock includes 10,000,000 shares of $.0001 par value Preferred Stock (Preferred Stock). No shares of Preferred Stock have been issued nor have the
terms, conditions or preferences for such Preferred Stock been established.



d. Revenue Recognition and Accounts Receivable:



The Companys revenues are received from business entities and governmental agencies for the training of their employees. Course events range from two to five days, with an average of approximately four days. As stated above, beginning
with the second quarter of fiscal 2004, the Company adopted a 52- or 53-week fiscal year. This method was adopted in order to better align the Companys external financial reporting with the way the Company operates its business. Under this
method, each fiscal quarter ends on the Friday closest to the end of the calendar quarter. Since all courses have a duration of five days or less, and all courses begin and end within the same calendar week, under the 52- or 53-week fiscal year
method all revenues and related direct costs for



35



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



each course event are recognized in the week and the fiscal quarter in which the event takes place. Prior to the adoption of the 52- or 53- week method, it
was the Companys policy to recognize revenues and the related direct costs of course events as courses were delivered on a straight-line basis. However, for administrative purposes, the revenues and the related costs of course events were
recorded upon commencement of each course event, unless the difference between the Companys revenue recognition policy and recording revenues and related course costs on a straight-line basis was more than inconsequential.



The Company offers its customers a multiple-course sales discount referred to
as a Training Passport. A Training Passport allows an individual passport holder to attend up to a specified number of the Companys courses over a one-year period for a fixed price. For a Training Passport, the amount of revenue
recognized for each attendance in one of the Companys courses is based upon the selling price of the Training Passport, the list price of the course taken and the estimated average number of courses passport holders will actually attend. Upon
expiration of a Training Passport, the Company records the difference, if any, between the revenues previously recognized and the Training Passport selling price. The estimated attendance rate is based upon the historical experience of the average
actual number of course events that Training Passport holders have been attending. The average actual attendance rate for all expired Training Passports has closely approximated the estimated rate utilized by the Company. If the Training Passport
attendance rates change, the revenue recognition rate for all active Training Passports and for all Training Passports sold thereafter is adjusted. The Company believes it is appropriate to recognize revenues on this basis in order to most closely
match revenue and related costs, as the substantial majority of its Passport holders do not attend the maximum number of course events permitted under their Training Passport. The Company believes that the use of historical data is reasonable and
appropriate because of the relative stability of the average actual number of course events attended by the tens of thousands of Passport holders since the inception of the program in fiscal 1993. Although the Company has seen no material changes in
the historical rates as the number of course titles has changed, it monitors such potential effects. In general, determining the estimated average number of course events that will be attended by a Training Passport holder is based on historical
trends that may not continue in the future. These estimates could differ in the near term from amounts used in arriving at the reported revenue.



The Company also offers a multiple-course sales discount referred to as Training Vouchers. Under the Companys Training Vouchers, the
customer buys the right to send a specified number of attendees to the Companys courses over a one-year period for a fixed price. Revenue is recognized on a pro rata basis for each attendance. If a Training Voucher expires unused, the Company
records the selling price of the expired Training Voucher as revenue.



Trade accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The Company uses estimates in determining the allowance for doubtful accounts receivable, based on its analysis of various
factors, including the Companys historical collection experience, current trends, specific identification of invoices which are considered doubtful, and a percentage of the Companys past due accounts receivable. These estimates could
differ from actual collection experience and are subject to adjustment. The Companys trade accounts receivable are written-off when they are deemed uncollectible.



e. Deferred Revenues:



Deferred revenues primarily relate to unearned revenues associated with Training Passports, Training Vouchers and advance payments received from customers
for course events to be held in the future.



f. Prepaid Marketing
Expenses:



Prepaid marketing expenses primarily
include the external costs associated with the design, printing, postage and handling of direct mail advertising materials to be mailed in the future. These costs are charged to



36



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



income in the month in which the advertising materials are mailed since the benefit period for such costs is short and the amount of such future benefit is
not practically measurable. Marketing expenses for the fiscal years ended September 30, 2002 and 2003 and October 1, 2004 were $34,418,000, $30,674,000 and $34,075,000, respectively.



g. Course Development Costs:



Course development costs are charged to operations in the period incurred.



h. Stock Based Compensation:



The Company uses the intrinsic value method under APB Opinion No. 25 Accounting for Stock Issued to Employees, in accounting for its stock
option plans, which are more fully described in Note 5. The exercise price of all stock options granted under the Companys stock option plans was equal to their fair market value at the dates of the grants. Accordingly, no compensation cost
was recognized for stock options granted to employees during fiscal 2002, 2003 and 2004. Had compensation cost for the options granted been determined based upon the estimated fair value at the grant dates in accordance with SFAS No. 123
Accounting for Stock-Based Compensation, the Companys net income and earnings per common share would have been reduced to the pro forma amounts below:



|                                                                                  |  |                   |            |   |                   |   |            |                |  |   |            |  
|--------------------------------------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | -------------- |  | - | ---------- | -
|                                                                                  |  | Fiscal Year Ended |           
|                                                                                  |  | September 30,2002 |            |   | September 30,2003 |   |            | October 1,2004 | 
|Net income, as reported                                                           |  | $                 | 7,895,000  |   |                   | $ | 5,161,000  |                |  | $ | 569,000    |  
|Less: stock-based employee compensation cost, at estimated fair value, net of tax |  |                   | (1,951,000 | ) |                   |   | (1,934,000 | )              |  |   | (1,063,000 | )
|                                                                                  |  |                   |            |   |                   |   |            |                |  |   |            |  
|Pro forma net income (loss)                                                       |  | $                 | 5,944,000  |   |                   | $ | 3,227,000  |                |  | $ | (494,000   | )
|                                                                                  |  |                   |            |   |                   |   |            |                |  |   |            |  
|As reported:                                                                      |  |                   |            |   |                   |   |            |                |  |   |            |  
|Earnings per common share                                                         |  | $                 | 0.42       |   |                   | $ | 0.30       |                |  | $ | 0.03       |  
|Earnings per common share assuming dilution                                       |  | $                 | 0.42       |   |                   | $ | 0.30       |                |  | $ | 0.03       |  
|Pro forma:                                                                        |  |                   |            |   |                   |   |            |                |  |   |            |  
|Earnings (loss) per common share                                                  |  | $                 | 0.32       |   |                   | $ | 0.19       |                |  | $ | (0.03      | )
|Earnings (loss) per common share assuming dilution                                |  | $                 | 0.31       |   |                   | $ | 0.18       |                |  | $ | (0.03      | )



The preceding pro
forma amounts have been calculated using the Black-Scholes option-pricing model to estimate the fair value of the options granted during the years ended September 30, 2002 and 2003 and October 1, 2004, with the following assumptions: risk-free
interest rates of 3.1%, 1.9% and 2.9%; a dividend yield of zero; an expected life of 2.5 years, 2.5 years and 3.1 years; and a volatility of 55%, 41% and 41%. Based upon these assumptions, the pro forma weighted average fair value of the options
granted during fiscal 2002 was $8.00, during fiscal 2003 was $4.00 and during fiscal 2004 was $4.90. The Company estimates the total number of options expected to vest and adjusts that estimate based upon an analysis of historical trends, on a
prospective basis.



i. Foreign Currency:



The Company translates the financial statements of its foreign subsidiaries
from the local (functional) currencies to United States dollars in accordance with SFAS No. 52 Foreign Currency Translation. The rates of exchange at each fiscal year end are used for translating the balance sheets and the average
monthly rates of exchange for each year are used for the statements of operations. Gains or losses arising from the translation of



37



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



the foreign subsidiaries financial statements are included in the accompanying consolidated balance sheets as a separate component of
stockholders equity. Gains or losses resulting from foreign currency transactions are included in the consolidated statements of operations.



To date, the Company has not sought to hedge the risk associated with fluctuations in currency exchange rates, and therefore continues to be subject to
such risk.



j. Equipment, Property and Leasehold Improvements:



Equipment, property and leasehold improvements are
recorded at cost and depreciated or amortized using the straight-line method over the following estimated useful lives:



|                               |  |                                              
|------------------------------ |  | ---------------------------------------------
|Education and office equipment |  | 3 to 7 years                                 
|Transportation equipment       |  | 4 years                                      
|Leasehold improvements         |  | 10 years or the life of the lease, if shorter
|Property                       |  | 30 years                                     



Costs of normal
maintenance and repairs and minor replacements are charged to expense as incurred. The costs of assets sold or retired are eliminated from the accounts along with the related accumulated depreciation or amortization and any resulting gain or loss is
included in income.



k. Intangible and Long-Lived Assets:



The Company periodically reviews the carrying value
of its facilities, intangible and other long-lived assets to identify and assess any impairment of the carrying value.



l. Facilities Leases:



The Company leases education center and administrative office space under various operating lease agreements. Certain lease agreements include provisions
that provide for cash incentives, graduated rent payments and other inducements. The Company recognizes rent expense on a straight-line basis over the related terms of such leases. The value of lease incentives and/or inducements, along with the
excess of the rent expense recognized over the rentals paid is recorded as deferred facilities rent charges in the accompanying consolidated financial statements.



Certain of these operating leases include space that has not been used by the Company and which is either currently
subleased, or is vacant and for which the Company is seeking a subtenant(s). For such vacated space the Company estimates and records the estimated fair value of its liability for costs that the Company will incur under the operating lease without
economic benefit. The estimated fair value of the liability is determined based upon the remaining lease costs, as per the operating lease agreement, reduced by estimated future sublease rental income that could be reasonably obtained for the
property based upon prevailing real estate market conditions. The estimated long-term portion of such liabilities is recorded as deferred facilities rent charges in the accompanying consolidated financial statements. The liability recorded by the
Company reflects the Companys best estimate based upon the information available at the time. The Company adjusts the liability, as necessary, as new information becomes available or subsequent developments occur.



m. Computation of Earnings per Common Share and Assuming Dilution:



Earnings per common share and earnings per common share assuming dilution
are computed using the weighted average number of shares of Common Stock outstanding during the period. Earnings per common share



38



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



assuming dilution are computed by including the dilutive effect, if any, of all outstanding options to purchase Common Stock using the treasury stock method.
To calculate the number of diluted shares outstanding, 229,000 shares, 55,000 shares and 26,000 shares were added to the weighted average number of shares outstanding for the fiscal years ended September 30, 2002 and 2003 and October 1, 2004,
respectively. Approximately 1,302,000 stock options, 1,681,000 stock options and 1,498,000 stock options were excluded from the calculation of earnings per common share assuming dilution for the fiscal years ended September 30, 2002 and 2003 and
October 1, 2004 respectively, because they were antidilutive.



n. Use of
Estimates:



The preparation of financial statements in
conformity with accounting principles generally accepted in the United States requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could
differ from those estimates.



2. INCOME TAXES:



The Company files a consolidated U.S. Federal income tax return which
includes substantially all of its domestic operations. The Company files separate tax returns for each of its foreign subsidiaries in the countries in which they reside.



Income before provision for income taxes consists of the following:



|         |  |                    |            |                    |   |                 |  |   |        
|-------- |  | ------------------ | ---------- | ------------------ | - | --------------- |  | - | -------
|         |  | Fiscal Year Ended 
|         |  | September 30, 2002 |            | September 30, 2003 |   | October 1, 2004
|Domestic |  | $                  | 8,550,000  |                    | $ | 5,356,000       |  | $ | 782,000
|Foreign  |  |                    | 3,690,000  |                    |   | 1,775,000       |  |   | 71,000 
|         |  |                    |            |                    |   |                 |  |   |        
|Total    |  | $                  | 12,240,000 |                    | $ | 7,131,000       |  | $ | 853,000
|         |  |                    |            |                    |   |                 |  |   |        



The provision for
income taxes is comprised of the following:



|                                 |  |                   |           |   |                   |   |           |                |  |   |          |  
|-------------------------------- |  | ----------------- | --------- | - | ----------------- | - | --------- | -------------- |  | - | -------- | -
|                                 |  | Fiscal Year Ended |          
|                                 |  | September 30,2002 |           |   | September 30,2003 |   |           | October 1,2004 | 
|Current tax provision:           |  |                   |           |   |                   |   |           |                |  |   |          |  
|U.S. Federal                     |  | $                 | 2,122,000 |   |                   | $ | 1,239,000 |                |  | $ | 158,000  |  
|State                            |  |                   | 471,000   |   |                   |   | 200,000   |                |  |   | 80,000   |  
|Foreign                          |  |                   | 1,563,000 |   |                   |   | 907,000   |                |  |   | 264,000  |  
|                                 |  |                   |           |   |                   |   |           |                |  |   |          |  
|                                 |  |                   | 4,156,000 |   |                   |   | 2,346,000 |                |  |   | 502,000  |  
|                                 |  |                   |           |   |                   |   |           |                |  |   |          |  
|Deferred tax provision:          |  |                   |           |   |                   |   |           |                |  |   |          |  
|U.S. Federal                     |  |                   | 187,000   |   |                   |   | 413,000   |                |  |   | 348,000  |  
|State                            |  |                   | 14,000    |   |                   |   | 31,000    |                |  |   | 26,000   |  
|Foreign                          |  |                   | (12,000   | ) |                   |   | (820,000  | )              |  |   | (592,000 | )
|                                 |  |                   |           |   |                   |   |           |                |  |   |          |  
|                                 |  |                   | 189,000   |   |                   |   | (376,000  | )              |  |   | (218,000 | )
|                                 |  |                   |           |   |                   |   |           |                |  |   |          |  
|Total provision for income taxes |  | $                 | 4,345,000 |   |                   | $ | 1,970,000 |                |  | $ | 284,000  |  
|                                 |  |                   |           |   |                   |   |           |                |  |   |          |  



39



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following is a reconciliation of the provision for income taxes computed by applying the U.S.
Federal statutory rate to the income before taxes, to the reported provision for income taxes:



|                                        |  |                   |           |   |                   |   |           |                |  |   |         |  
|--------------------------------------- |  | ----------------- | --------- | - | ----------------- | - | --------- | -------------- |  | - | ------- | -
|                                        |  | Fiscal Year Ended |          
|                                        |  | September 30,2002 |           |   | September 30,2003 |   |           | October 1,2004 | 
|Income taxes at the statutory rate      |  | $                 | 4,284,000 |   |                   | $ | 2,496,000 |                |  | $ | 290,000 |  
|Permanent differences                   |  |                   | 21,000    |   |                   |   | 54,000    |                |  |   | (2,000  | )
|Effect of foreign taxes and tax credits |  |                   | (266,000  | ) |                   |   | (710,000  | )              |  |   | (57,000 | )
|State income taxes                      |  |                   | 306,000   |   |                   |   | 130,000   |                |  |   | 53,000  |  
|                                        |  |                   |           |   |                   |   |           |                |  |   |         |  
|Total provision for income taxes        |  | $                 | 4,345,000 |   |                   | $ | 1,970,000 |                |  | $ | 284,000 |  
|                                        |  |                   |           |   |                   |   |           |                |  |   |         |  



Under SFAS No. 109
Accounting for Income Taxes, deferred income tax assets and liabilities arise from carryforwards and from temporary differences between the tax basis of assets and liabilities and the book basis of such assets and liabilities as reported
in the financial statements. Deferred income tax assets arise from expected reductions in taxes payable in future periods. Deferred tax assets reflect managements estimate of the amounts that will be realized from future profitability and can
be predicted with reasonable certainty. Deferred income tax liabilities represent taxes the Company expects to pay in future periods.



Deferred income tax assets and liabilities consist of the following:



|                                               |  |                        |            |   |                     |   |            |  
|---------------------------------------------- |  | ---------------------- | ---------- | - | ------------------- | - | ---------- | -
|                                               |  | As ofSeptember 30,2003 |            |   | As ofOctober 1,2004 |  
|Domestic operations:                           |  |                        |            |   |                     |   |            |  
|Deferred tax assets:                           |  |                        |            |   |                     |   |            |  
|Deferred facilities rent charges               |  | $                      | 528,000    |   |                     | $ | 451,000    |  
|Other                                          |  |                        | 393,000    |   |                     |   | 332,000    |  
|Deferred tax liabilities:                      |  |                        |            |   |                     |   |            |  
|Depreciation and amortization                  |  |                        | (1,471,000 | ) |                     |   | (1,724,000 | )
|Other                                          |  |                        | (18,000    | ) |                     |   | (1,000     | )
|                                               |  |                        |            |   |                     |   |            |  
|Net domestic deferred tax liabilities          |  |                        | (568,000   | ) |                     |   | (942,000   | )
|                                               |  |                        |            |   |                     |   |            |  
|Foreign operations:                            |  |                        |            |   |                     |   |            |  
|Deferred tax assets:                           |  |                        |            |   |                     |   |            |  
|Depreciation and other                         |  |                        | 585,000    |   |                     |   | 878,000    |  
|Deferred tax liabilities:                      |  |                        |            |   |                     |   |            |  
|Depreciation and other                         |  |                        | (7,000     | ) |                     |   | 392,000    |  
|                                               |  |                        |            |   |                     |   |            |  
|Net foreign deferred tax assets (liabilities). |  |                        | 578,000    |   |                     |   | 1,270,000  |  
|                                               |  |                        |            |   |                     |   |            |  
|Net deferred tax assets (liabilities)          |  | $                      | 10,000     |   |                     | $ | 328,000    |  
|                                               |  |                        |            |   |                     |   |            |  



40



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



3. COMMITMENTS AND CONTINGENCIES:



a. Commitments:



The Company leases its education centers and certain administrative facilities and certain equipment under various operating lease agreements which expire
at various dates through 2019. The minimum future rental payments for all operating leases are as follows:



|           |  |   |            
|---------- |  | - | -----------
|2005       |  | $ | 14,030,000 
|2006       |  |   | 13,394,000 
|2007       |  |   | 13,353,000 
|2008       |  |   | 12,016,000 
|2009       |  |   | 7,317,000  
|Thereafter |  |   | 45,369,000 
|           |  |   |            
|           |  | $ | 105,479,000
|           |  |   |            



The minimum future
rental payments have not been reduced by future minimum sublease rentals of $2,261,000 due in the future under noncancelable subleases. For the years ended September 30, 2002 and 2003 and October 1, 2004, rent expense net of sublease income was
$11,612,000, $12,244,000 and $13,426,000, respectively. The sublease rental income for the years ended September 30, 2002 and 2003 and October 1, 2004 was $2,174,000, $2,316,000 and $2,244,000, respectively. The agreements generally require the
payment of property taxes, insurance and maintenance in addition to the minimum base rent.



b. Contingencies:



In the fourth quarter of fiscal 2004, the Company recorded a charge of approximately $1.6 million related to subleasing portions of Learning Trees United Kingdom (UK) education center which are either currently vacant or
will be vacated by the current subtenant when its sublease expires in March 2005, and a portion of the UKs administrative office which was recently sublet for the first time. The estimate is based upon the Companys estimate of the time
period that the UK education center space will be vacant and the future sublease rental rate. The Company is actively seeking subtenant(s) for this UK education center space, however has yet to execute any sublease agreement(s). If the
Companys estimates are wrong, and the UK education center space is sublet sooner/later, or at more/less favorable rates, the Company will have to record either additional charges or a reversal of previously recorded charges.



4. STOCKHOLDERS EQUITY:



During fiscal 2002, the Company repurchased approximately 1,104,000 shares
at a total cost of approximately $21,134,000. During fiscal 2003, the Company repurchased approximately 1,159,000 shares at a total cost of approximately $16,966,000. During fiscal 2004, the Company repurchased approximately 158,000 shares at a
total cost of approximately $2,582,000.



5. EMPLOYEE STOCK OPTION PLAN:



In March 1999, the Company and its shareholders adopted
the Learning Tree International, Inc. 1999 Stock Option Plan (the 1999 Plan.) The 1999 Plan permits the grant of options to officers, employees and directors of the Company. It provides for the issuance of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code and non-qualified stock options. In March 2002, the 1999 Plan was amended to increase the number of shares of Common Stock that may be purchased under the plan from an aggregate of 1,500,000
shares to 3,964,000 shares.



41



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



In October 1995, the 1995 Stock Option Plan (the 1995 Plan) had been adopted. The 1995
Plan generally had the same terms and conditions as the 1999 Plan. Effective with the approval of the amendment of the 1999 Plan, the Company no longer grants options under the 1995 Plan which had provided for options covering up to an aggregate of
2,250,000 shares of Common Stock.



The exercise price of
incentive stock options granted will be greater than or equal to their fair market value at the date of grant, and the maximum term of all options may not exceed ten years. The vesting schedule and the period required for full exercisability of the
stock options is at the discretion of the Board of Directors, but in no event can it be less than six months.



In fiscal 2002, 2003 and 2004, options were granted to certain employees under the 1999 Plan. The exercise price of all options granted was equal to their
fair market value at the dates of the grants and the terms of the options are generally five years. The options are generally subject to a four-year vesting schedule at 25% per year on each anniversary date. Following is a summary of the options
granted under the plans:



|                                  |  |           |   |  |                                 |      
|--------------------------------- |  | --------- | - |  | ------------------------------- | -----
|                                  |  | Shares    |   |  | Weighted Average Exercise Price
|Outstanding at September 30, 2001 |  | 2,346,000 |   |  |                                 | 21.70
|Options Granted                   |  | 667,000   |   |  |                                 | 22.08
|Exercised during the year         |  | (302,000  | ) |  |                                 | 9.75 
|Forfeited during the year         |  | (591,000  | ) |  |                                 | 22.30
|                                  |  |           |   |  |                                 |      
|Outstanding at September 30, 2002 |  | 2,120,000 |   |  |                                 | 23.36
|Options Granted                   |  | 313,000   |   |  |                                 | 14.71
|Exercised during the year         |  | (140,000  | ) |  |                                 | 10.61
|Forfeited during the year         |  | (320,000  | ) |  |                                 | 15.59
|                                  |  |           |   |  |                                 |      
|Outstanding at September 30, 2003 |  | 1,973,000 |   |  |                                 | 24.15
|Options Granted                   |  | 225,000   |   |  |                                 | 15.64
|Exercised during the year         |  | (39,000   | ) |  |                                 | 11.24
|Forfeited during the year         |  | (476,000  | ) |  |                                 | 20.38
|                                  |  |           |   |  |                                 |      
|Outstanding at October 1, 2004    |  | 1,683,000 |   |  | $                               | 24.38
|                                  |  |           |   |  |                                 |      



As of October 1, 2004,
the Company had 2,395,000 shares of Common Stock available for grant under the 1999 Plan.



The following table summarizes stock options outstanding and exercisable at October 1, 2004:



|                      |  |                     |  |                                 |       |                                |     |        |           |                                 |   |      
|--------------------- |  | ------------------- |  | ------------------------------- | ----- | ------------------------------ | --- | ------ | --------- | ------------------------------- | - | -----
|                      |  | Options Outstanding |  | Options Exercisable            
|Exercise Price Ranges |  | Shares              |  | Weighted Average Exercise Price |       | Average Remaining Life (Years) |     | Shares |           | Weighted Average Exercise Price
|$  6.6317.55         |  | 517,000             |  | $                               | 15.22 |                                | 3.7 |        | 121,000   |                                 | $ | 15.09
|20.9228.00           |  | 583,000             |  |                                 | 23.38 |                                | 1.9 |        | 393,000   |                                 |   | 23.48
|30.2548.50           |  | 583,000             |  |                                 | 33.51 |                                | 1.0 |        | 576,000   |                                 |   | 33.39
|                      |  |                     |  |                                 |       |                                |     |        |           |                                 |   |      
|$  6.6348.50         |  | 1,683,000           |  | $                               | 24.38 |                                | 2.1 |        | 1,090,000 |                                 | $ | 27.79
|                      |  |                     |  |                                 |       |                                |     |        |           |                                 |   |      



42



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



6. EMPLOYEE BENEFIT PLANS:



The Company has adopted a defined contribution plan for the benefit of its domestic employees who have met the eligibility
requirements. The Learning Tree International 401(k) Plan (the Plan) is a profit-sharing plan qualifying under Section 401(k) of the Internal Revenue Code.



Qualified employees may elect to contribute up to 15% of their compensation to the Plan on a pre-tax basis, subject to
statutory limitations. The Company makes contributions at a rate of 75% of elective contributions up to 4.5% of the compensation of such contributors. The Company contributed $730,000, $695,000 and $614,000 to the Plan for the fiscal years ended
September 30, 2002 and 2003 and October 1, 2004, respectively.



The Company has adopted similar plans for the benefit of its employees in certain of its foreign subsidiaries. Contributions to these plans are subject to various age, length of service and compensation level criteria, as well as certain
limitations. For the fiscal years ended September 30, 2002 and 2003 and October 1, 2004, the cost to the Company of these plans was approximately $379,000, $360,000 and $347,000, respectively.



7. OPERATING SEGMENT INFORMATION:



The Company has only one material operating segment, the design and delivery
of training courses and related services, which is managed on a geographic basis. There were no sales to any individual customers that accounted for 10% or more of revenue in fiscal 2002, 2003 or 2004.



The table below presents information by geographic location:



|                               |  |                    |             |                    |   |                 |  |   |            
|------------------------------ |  | ------------------ | ----------- | ------------------ | - | --------------- |  | - | -----------
|                               |  | Fiscal Year Ended 
|                               |  | September 30, 2002 |             | September 30, 2003 |   | October 1, 2004
|Revenues:                      |  |                    |             |                    |   |                 |  |   |            
|United States                  |  | $                  | 87,748,000  |                    | $ | 74,499,000      |  | $ | 70,404,000 
|Canada                         |  |                    | 11,462,000  |                    |   | 10,212,000      |  |   | 10,642,000 
|United Kingdom                 |  |                    | 46,532,000  |                    |   | 39,290,000      |  |   | 43,159,000 
|Europeother                   |  |                    | 26,581,000  |                    |   | 26,205,000      |  |   | 26,025,000 
|Asia                           |  |                    | 1,838,000   |                    |   | 1,691,000       |  |   | 1,828,000  
|                               |  |                    |             |                    |   |                 |  |   |            
|Consolidated revenues          |  | $                  | 174,161,000 |                    | $ | 151,897,000     |  | $ | 152,058,000
|                               |  |                    |             |                    |   |                 |  |   |            
|Long-lived assets:             |  |                    |             |                    |   |                 |  |   |            
|United States                  |  |                    |             |                    | $ | 13,687,000      |  | $ | 14,102,000 
|Canada                         |  |                    |             |                    |   | 1,182,000       |  |   | 1,118,000  
|United Kingdom                 |  |                    |             |                    |   | 2,418,000       |  |   | 2,691,000  
|Europeother                   |  |                    |             |                    |   | 4,290,000       |  |   | 3,754,000  
|Asia                           |  |                    |             |                    |   | 82,000          |  |   | 164,000    
|                               |  |                    |             |                    |   |                 |  |   |            
|Consolidated long-lived assets |  |                    |             |                    | $ | 21,659,000      |  | $ | 21,829,000 
|                               |  |                    |             |                    |   |                 |  |   |            



Revenues are
attributed to countries based on the location in which the sale originated. Long-lived assets principally consist of net equipment, property and leasehold improvements.



43



---

##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



8. VALUATION AND QUALIFYING ACCOUNTS:



Activity with respect to the Companys allowance for doubtful accounts receivable is summarized as follows:



|                    |  |                   |          |   |                   |   |          |                |  |   |          |  
|------------------- |  | ----------------- | -------- | - | ----------------- | - | -------- | -------------- |  | - | -------- | -
|                    |  | Fiscal Year Ended |         
|                    |  | September 30,2002 |          |   | September 30,2003 |   |          | October 1,2004 | 
|Beginning balance   |  | $                 | 786,000  |   |                   | $ | 908,000  |                |  | $ | 818,000  |  
|Charged to expense  |  |                   | 411,000  |   |                   |   | 190,000  |                |  |   | 36,000   |  
|Amounts written off |  |                   | (289,000 | ) |                   |   | (280,000 | )              |  |   | (452,000 | )
|                    |  |                   |          |   |                   |   |          |                |  |   |          |  
|Ending balance      |  | $                 | 908,000  |   |                   | $ | 818,000  |                |  | $ | 402,000  |  
|                    |  |                   |          |   |                   |   |          |                |  |   |          |  



9. CASH, CASH EQUIVALENTS AND
INTEREST-BEARING INVESTMENTS:



Cash Equivalents



The Company considers highly liquid investments with
original maturities of 90 days or less to be cash equivalents. Cost approximates market value for the Companys cash equivalents.



Long-Term Interest-Bearing Investments



Long-term interest-bearing investments reflect $8,929,000 (5,000,000 British Pounds) which has been pledged to secure the Companys obligation under
a lease for certain education center facilities in the United Kingdom. The terms of the lease require the Company to pledge a cash deposit or provide a letter of credit for the same amount as collateral for its obligations thereunder. The investment
is carried at cost, which approximates market value. The Company receives interest earned by the cash deposit. The required level of the cash deposit or letter of credit will decline if certain financial ratios have been met.



10. RELATED PARTY TRANSACTIONS:



In October 1995, the Company entered into an employment agreement with the
Chief Executive Officer for an initial period of three years. Since October 1995, the agreement has periodically been amended and extended. In September 2002, the employment agreement with the Chief Executive Officer was extended until
September 30, 2004. In September 2004, the employment agreement with the Chief Executive Officer was extended for an additional three years, until September 30, 2007.



In November 2003, the President of Learning Tree became Vice Chairman of Learning Trees Board of Directors (Vice
Chairman) and a new employment agreement was established. The new employment agreement provides for the part-time employment, on an hourly basis, of the Vice Chairman and may be terminated by either party on three months written notice.



44



---

##### Table of Contents

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



Item 9A. CONTROLS AND PROCEDURES



Learning Tree maintains disclosure controls and procedures designed to ensure that information required to be disclosed by Learning Tree in the reports that it files or submits under the Securities Exchange Act of 1934 (Exchange
Act) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. Learning Trees disclosure controls and procedures are designed to provide
reasonable, not absolute, assurance of achieving their objectives. As of the end of the period covered by this report, Learning Tree carried out an evaluation of the effectiveness of the design and operation of Learning Trees disclosure
controls and procedures pursuant to Exchange Act Rules 13a-14 and 15d-14. The evaluation was conducted under the supervision of, and with the participation of, Learning Trees management, including Learning Trees Chief Executive Officer
(CEO) and Principal Financial Officer (PFO). Based upon that evaluation, and subject to the limitations noted below, Learning Trees CEO and PFO concluded that Learning Trees disclosure controls and procedures are
effective at the reasonable assurance level in alerting them, on a timely basis, to material information relating to Learning Tree (including its consolidated subsidiaries) that is required to be included in its periodic filings with the
Securities and Exchange Commission.



Since the most recent
evaluation of Learning Trees internal control over financial reporting by Learning Trees CEO and PFO, there have been no significant changes in its internal control over financial reporting or in other factors that could materially
affect, or is reasonably likely to materially affect, Learning Trees internal control over financial reporting.



Learning Trees management, including its CEO and PFO, does not expect that its disclosure controls and procedures will prevent all errors and all
fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and
instances of fraud, if any, within Learning Tree have been detected. These inherent limitations include the reality that judgments and decisions can be wrong, although made in good faith in light of the information available at the time, and that
breakdowns can result from inadvertent errors or mistakes or by management override of the controls. Additionally, controls can be disrupted and circumvented by the bad faith acts of one or more persons. The design of any system of controls also is
based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future circumstances. To maintain adequate and efficient
controls, over time, Learning Trees CEO and PFO periodically review Learning Trees internal and disclosure controls with other members of Learning Trees management and update controls and systems as needed.



Item 9B. OTHER INFORMATION



None.



45



---

##### Table of Contents

PART III



Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



The following table provides biographical information regarding the directors and executive officers of Learning Tree as of October 1, 2004. All other information regarding directors and executive officers of Learning
Tree required by this item is incorporated by reference to the section entitled Executive Officers of the Registrant of Learning Trees definitive Proxy Statement to be delivered to shareholders in connection with the 2005 Annual
Meeting of Shareholders.



|                             |  |     |  |                                                               
|---------------------------- |  | --- |  | --------------------------------------------------------------
|Name                         |  | Age |  | Title                                                         
|David C. Collins             |  | 63  |  | Chairman of the Board of Directors and Chief Executive Officer
|Eric R. Garen                |  | 57  |  | Vice Chairman of the Board of Directors                       
|Nicholas R. Schacht          |  | 45  |  | President and Chief Operating Officer                         
|Mary C. Adams                |  | 48  |  | Chief Administrative Officer and Secretary                    
|Bill B. Concevitch           |  | 46  |  | Executive Vice President                                      
|W. Mathew Juechter (1)       |  | 71  |  | Director                                                      
|Howard A. Bain III (2)(3)(4) |  | 58  |  | Director                                                      
|Curtis A. Hessler (3)(4)(5)  |  | 60  |  | Director                                                      
|Wilford D.Godbold (3)(4)(5)  |  | 66  |  | Director                                                      

---

|(1) | Chairman of the Compensation and Stock Option Committee and the Nominating and Governance Committee.
|--- | ----------------------------------------------------------------------------------------------------

|(2) | Chairman of the Audit Committee.
|--- | --------------------------------

|(3) | Member of the Compensation and Stock Option Committee.
|--- | ------------------------------------------------------

|(4) | Member of the Nominating and Governance Committee.
|--- | --------------------------------------------------

|(5) | Member of the Audit Committee.
|--- | ------------------------------



Dr. Collins, a co-founder of Learning Tree, has been Chairman of the Board and Chief Executive Officer since Learning Tree began operations in August,
1974. Dr. Collins has a Bachelor of Science degree (with distinction) in Electrical Engineering from Stanford University, and Masters and Ph.D. degrees in Electrical Engineering from the University of Southern California.



Mr. Garen, a co-founder of Learning Tree, has served as Vice Chairman of
Learning Trees Board of Directors since November 2003. Prior to November 2003, Mr. Garen served as President and as Executive Vice President of Learning Tree since Learning Trees business began in 1974. Mr. Garen holds a Bachelor of
Science degree in Electrical Engineering from the California Institute of Technology and a Masters degree in Computer Science from the University of Southern California, earning both degrees with honors.



Mr. Schacht has been President and Chief Operating Officer of Learning Tree
since November 2003. He was Chief Operating Officer of Learning Tree from 2002 to 2003. He was President of Global Learning Systems from 1999 to 2002, Group President for the Institute for International Research from 1998 to 1999, and held a variety
of positions with ESI International from 1989 to 1998, culminating as its President. From 1987 to 1989, Mr. Schacht was a Research Fellow with Logistics Management Institute, and from 1981 to 1987, he was a U.S. Naval officer. Mr. Schacht holds a
B.S. degree with honors from the U.S. Naval Academy, a Masters degree in General Administration from the University of Maryland, and a Master of Science degree from The George Washington University.



Ms. Adams has served as Chief Administrative Officer since October 2003. She
was Vice President, Administration and Investor Relations from 1995 to 2003. She began her association with Learning Tree in September 1975 and has held a variety of key positions in Learning Tree. Ms. Adams is also the President of Advanced
Technology Marketing, Inc., a wholly owned subsidiary of Learning Tree.



46



---

##### Table of Contents

Mr. Concevitch has served as Executive Vice President of Learning Tree since August 2004. He was Senior
Director of the Learning Business of Witness Systems from 2003 to 2004. He was Executive Vice President of KnowledgePool in 2002 to 2003 and President of Mentergy North America in 2001 and 2002. Prior to Mentergy, Mr. Concevitch was Senior Vice
President of Element K. From 1993 to 2000, he held various positions with ExecuTrain, including Senior Vice President of Sales and Chief Learning Officer. Earlier in his career, Mr. Concevitch held a number of positions within the Dale Carnegie
Training organization. Mr. Concevitch understudied with the Grammy Award winning Clair D. Krepps, receiving an Audio Engineering Diploma in Recording Arts and Sciences. Mr. Concevitch instructs public speaking at the collegiate level.



Mr. Juechter has been a director of Learning Tree since June 1987. He is
President and Chief Executive Officer of IRA, Inc., a management consulting company that works primarily in the areas of strategy, structure and executive development. From 1991 to 1999, he was Chief Executive Officer of ARC International Ltd., a
management consulting and training company. From 1986 to 1991, Mr. Juechter was Managing Director of IRA, Inc. in St. Paul, Minnesota. Mr. Juechter served as President and Chief Executive Officer of Wilson Learning Corp., a multi-national training
organization, from 1977 to 1986. From 1989 to 1997, he also was President of the Board of Governors of the American Society for Training and Development (ASTD). Mr. Juechter is a graduate of Boston University and Harvard Business School.



Mr. Bain has served as a director of Learning Tree since June 2001. He was
most recently Chief Financial Officer of Portal Software (NASDAQ: PRSF), a developer of customer management and billing software for communications and content service providers, from August 2001 to November 2004. Prior to joining Portal,
Mr. Bain held CFO positions at Vicinity Corporation (NASDAQ: VCNT) in 2000, Informix (NASDAQ: IFMX) from 1999 to 2000, and Symantec Corporation (NASDAQ: SYMC) from 1991 to 1999. He has additional experience in various technology companies in
the areas of semiconductor manufacturing equipment; semiconductor BiCMOS SRAMs; laser-based large screen projection systems; and disk drives. He has also held senior financial and accounting management positions with Fairchild Camera and Instrument
Corporation and as a consultant with Arthur Andersen LLP where he was a certified public accountant. Mr. Bain holds a B.S. in Business from California Polytechnic University.



Mr. Hessler has been a director of Learning Tree since April 2003. He has been Chairman and founding Chief Executive Officer
of 101communications LLC, an international publishing and educational conference company serving advanced information technology professionals, since 1998. From 1997 to 1998 he served as President and Chief Executive Officer of Quarterdeck
Corporation, a software firm. From 1996 to 1997 he served as Chairman and Chief Executive Officer of I-Net, Inc., a network management services company. From 1991 to 1995 he served as Executive Vice President, Chief Financial Officer of the Times
Mirror Company, a media company. From 1984 to 1991 he served as Vice Chairman and Chief Financial Officer of the Unisys Corporation, a computer and computer services company. From 1981 to 1983 he was a partner of Paul Weiss Rifkind Wharton and
Garrison, a law firm. From 1977 to 1981 he held various positions with the Federal Government: Assistant Secretary of the U.S. Treasury for Economic Policy, Executive Director of the Presidents Economic Policy Group and Associate Director of
the Office of Management and Budget. Mr. Hessler is a graduate of Harvard College (BA, summa), Oxford University (Rhodes Scholarship), the Yale Law School (JD), and the University of California, Berkeley (MA Economics).



Mr. Godbold has been a director of Learning Tree since April 2004. He
currently is a private investor. From 1984 to 1998, he served as President and Chief Executive Officer of ZERO Corporation (NYSE), an international manufacturer of technical equipment for the telecommunications, instrumentation and data processing
markets. From 1982 to 1984 he served as Executive Vice President of that company. Prior to joining ZERO Corporation, he practiced law as a partner of the international law firm of Gibson, Dunn & Crutcher, where his practice, from 1966, was
focused primarily on mergers and acquisitions, corporate finance and general corporate law. He represented both public companies and financial institutions. Mr. Godbold is a graduate of Stanford University (BAPolitical Science), UCLA School of
Law (JDOrder of the Coif) and UCLA Graduate School of ManagementExecutive Management Program. He currently serves on the Board of Directors of SEMPRA Energy (NYSE), a Fortune 500 energy services holding company, and K2 Inc. (NYSE), a
premier brand sports



47



---

##### Table of Contents

products company. He formerly served as a director of Pacific Enterprises (NYSE), Santa Fe Pacific Pipeline (NYSE), Winchells (NYSE), Ceradyne Inc.
(NASD) and Sanwa Bank of California (Private). He was Chairman of the Boards of the California State Chamber of Commerce, The Employers Group and Marlborough School.



David C. Collins and Mary C. Adams are married. There are no other family relationships among any of the directors or
executive officers of Learning Tree.



Audit Committee
Financial Experts. Learning Trees Board of Directors has determined that Howard A. Bain III, Chairman of Learning Trees Audit Committee, is a financial expert because he has the following attributes: (i) an understanding of
generally accepted accounting principles and financial statements; (ii) the ability to assess the general application of such principles in connection with accounting for estimates, accruals and reserves; (iii) experience preparing, auditing,
analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by Learning
Trees financial statements, or experience actively supervising one or more persons engaged in such activities; (iv) an understanding of internal controls and procedures for financial reporting; and (v) an understanding of audit committee
functions. Mr. Bain acquired these attributes by means of having held various positions that provided relevant experience, as described above. Mr. Bain is independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.



Code of Ethics.On December 4, 2002, Learning
Trees Board of Directors adopted the Code of Business Conduct and Ethics for all Learning Tree employees, including its principal executive officer, principal financial officer and principal accounting officer. A copy of the Code
of Business Conduct and Ethics is publicly available on Learning Trees website at www.learningtree.com. Learning Tree intends to post on its website any amendments to, or waivers from, its Code of Business Conduct and Ethics within two
days of any such amendment or waiver.



Item 11. EXECUTIVE COMPENSATION



The information regarding compensation of executive officers of Learning Tree required by this item is incorporated by reference to the section entitled Executive Compensation of Learning Trees definitive Proxy Statement
to be delivered to shareholders in connection with the 2005 Annual Meeting of Shareholders.



Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



The information regarding the security ownership of certain beneficial owners and management and the information regarding securities authorized for
issuance under equity compensation plans required by this item is incorporated by reference to the section entitled Security Ownership of Certain Beneficial Owners and Management and Stock Option Plans of Learning Trees
definitive Proxy Statement to be delivered to shareholders in connection with the 2005 Annual Meeting of Shareholders.



Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The information regarding certain relationships and related transactions required by this item is incorporated by reference to the section entitled Certain Transactions of Learning Trees definitive
Proxy Statement to be delivered to shareholders in connection with the 2005 Annual Meeting of Shareholders.



Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The information regarding certain principal accountant fees and services required by this item is incorporated by reference to the section entitled Independent Auditor Fees of Learning Trees
definitive Proxy Statement to be delivered to shareholders in connection with the 2005 Annual Meeting of Shareholders.



48



---

##### Table of Contents

PART IV



Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



(a) Financial Statements and Schedules



The financial statements of Learning Tree International, Inc. as set forth under item 8 are filed as part of this report.



All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are omitted because such
schedules are not required under the related instructions, are not applicable or the required information is given in the financial statements.



(b) Exhibit Index



|            |  |                                                                                                                                                                             
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                 
|            | 
|3.1         |  | Amended and Restated Certificate of Incorporation of the Registrant*                                                                                                        
|            | 
|3.2         |  | By-Laws of the Registrant*                                                                                                                                                  
|            | 
|4.1         |  | Specimen of Common Stock Certificate**                                                                                                                                      
|            | 
|10.1        |  | Amendment to Employment Agreement dated as of October 1, 1995 (previously filed**) between Learning Tree International, Inc. and Dr. David C. Collins                       
|            | 
|10.2        |  | Employment Agreement dated as of November 16, 2003, between Learning Tree International, Inc. and Eric R. Garen******                                                       
|            | 
|10.4        |  | Employment Agreement dated as of February 1978, as amended, between Learning Tree International, Inc. and Mary C. Adams**                                                   
|            | 
|10.7        |  | Form of Training Advantage Agreement*                                                                                                                                       
|            | 
|10.8        |  | 1995 Stock Option Plan dated as of September 29, 1995**                                                                                                                     
|            | 
|10.9        |  | Employment Agreement dated as of November 16, 2003, between Learning Tree International, Inc. and Nicholas R. Schacht******                                                 
|            | 
|10.10       |  | 1999 Stock Option Plan dated as of January 29, 1999***                                                                                                                      
|            | 
|10.11       |  | Reimbursement and Indemnification Agreement dated as of September 15, 2000, between Learning Tree International, Inc. and David Collins, Eric Garen and related entities****
|            | 
|10.12       |  | Employment Agreement dated as of August 1, 2004, between Learning Tree International, Inc. and Bill Byron Concevitch                                                        
|            | 
|10.13       |  | Form of Officers and Directors Indemnification Agreement                                                                                                                    
|            | 
|14.1        |  | Learning Tree International Code of Business Conduct and Ethics*****                                                                                                        
|            | 
|21.1        |  | Subsidiaries of the Registrant                                                                                                                                              
|            | 
|23.1        |  | Consent of Registered Public Accounting Firm                                                                                                                                
|            | 
|31.1        |  | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer                                                                                                       
|            | 
|31.2        |  | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer                                                                                                       
|            | 
|32.1        |  | Section 1350 Certification of Chief Executive Officer and President (Principal Financial Officer)                                                                           
|            | 
|99.1        |  | Risk Factors                                                                                                                                                                

---

|* | Previously filed on October 6, 1995.
|- | ------------------------------------

|** | Previously filed on November 13, 1995.
|-- | --------------------------------------

|*** | Previously filed on January 29, 1999.
|--- | -------------------------------------

|**** | Previously filed on December 15, 2000.
|---- | --------------------------------------

|***** | Previously filed on December 16, 2002.
|----- | --------------------------------------

|****** | Previously filed on February 10, 2004.
|------ | --------------------------------------



49



---

##### Table of Contents

SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant, Learning Tree International, Inc., a corporation organized and existing under the laws of the State of Delaware, has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on the 14th day of December, 2004.



LEARNING TREE INTERNATIONAL, INC.By:

/s/    DAVID C. COLLINS,
PH.D.Name: David C. Collins, Ph.D.Title:   Chairman of the Board of Directors and Chief Executive Officer




Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, this annual report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                                      |  |                                                                                 |  |                  
|----------------------------------------------------- |  | ------------------------------------------------------------------------------- |  | -----------------
|Signature                                             |  | Title                                                                           |  | Date             
|                                                      |  |                                                                                
|/s/    DAVID C. COLLINS,
PH.D.David C. Collins,
Ph.D. |  | Chairman of the Board and Chief Executive Officer (principal executive officer) |  | December 14, 2004
|                                                      |  |                                                                                
|/s/    ERIC R. GARENEric R. Garen                     |  | Vice Chairman of the Board                                                      |  | December 14, 2004
|                                                      |  |                                                                                
|/s/    NICHOLAS R.
SCHACHTNicholas R.
Schacht         |  | President and Chief Operating Officer (principal financial officer)             |  | December 14, 2004
|                                                      |  |                                                                                
|/s/    W. MATHEW
JUECHTERW. Mathew
Juechter           |  | Director                                                                        |  | December 14, 2004
|                                                      |  |                                                                                
|/s/    HOWARD A. BAIN
IIIHoward A. Bain III           |  | Director                                                                        |  | December 14, 2004
|                                                      |  |                                                                                
|/s/    CURTIS A.
HESSLERCurtis A. Hessler             |  | Director                                                                        |  | December 14, 2004
|                                                      |  |                                                                                
|/s/    WILFORD D.
GODBOLDWilford D.
Godbold           |  | Director                                                                        |  | December 14, 2004



50