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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | Quarterly report pursuant to Section 13 and 15 (d) of the Securities Exchange Act of 1934
|- | -----------------------------------------------------------------------------------------



For the quarterly period ended December 31, 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



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Learning Tree International, Inc.

(Exact name of registrant as specified in its charter)



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|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                      |  | 95-3133814                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. Employeridentification No.)



6053 West Century
Boulevard, Los Angeles, CA 90045

(Address of principal executive offices) (Zip Code)



Registrants telephone number, including area code (310) 417-9700



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



The number of shares of common stock, $.0001 par value, outstanding as of
January 28, 2005, is 16,943,135 shares.



Total number of pages
22



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##### Table of Contents

LEARNING TREE INTERNATIONAL, INC.



FORM
10-Q



December 31, 2004



TABLE OF CONTENTS



|                              |  |                                                                                                                     |  |   
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------- |  | --
|                              |  | Page                                                                                                               
|Part I
Financial Information |  |                                                                                                                    
|                              |  |                                                                                                                    
|Item 1.                       |  | Financial Statements (unaudited):                                                                                   |  |   
|                              |  | Condensed Consolidated Balance SheetsDecember 31, 2004 and October 1, 2004                                          |  | 3 
|                              |  | Condensed Consolidated Statements of OperationsThree Months Ended December 31, 2004 and December 31, 2003           |  | 4 
|                              |  | Condensed Consolidated Statements of Stockholders EquityThree Months Ended December 31, 2004 and December 31, 2003 |  | 5 
|                              |  | Condensed Consolidated Statements of Cash FlowsThree Months Ended December 31, 2004 and December 31, 2003           |  | 6 
|                              |  | Notes to Condensed Consolidated Financial Statements                                                                |  | 7 
|                              |  |                                                                                                                    
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                               |  | 9 
|                              |  |                                                                                                                    
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                          |  | 19
|                              |  |                                                                                                                    
|Item 4.                       |  | Controls and Procedures                                                                                             |  | 19
|                              | 
|Part II
Other Information    |  |                                                                                                                    
|                              |  |                                                                                                                    
|Item 1.                       |  | Legal Proceedings                                                                                                   |  | 21
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                         |  | 21
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                     |  | 21
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                 |  | 21
|Item 5.                       |  | Other Information                                                                                                   |  | 21
|Item 6.                       |  | Exhibits                                                                                                            |  | 21
|                              | 
|Signatures                    |  | 22                                                                                                                 



2



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##### Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS



LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                    |  |                  |             |                 |   |            
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | --------------- | - | -----------
|                                                                                                                                    |  | December 31,2004 |             | October 1, 2004
|                                                                                                                                    |  | (Unaudited)      |             |                
|ASSETS                                                                                                                              |  |                  |             |                 |   |            
|Current assets:                                                                                                                     |  |                  |             |                 |   |            
|Cash and cash equivalents                                                                                                           |  | $                | 82,818,000  |                 | $ | 83,913,000 
|Trade accounts receivable, net                                                                                                      |  |                  | 13,448,000  |                 |   | 12,902,000 
|Prepaid marketing expenses                                                                                                          |  |                  | 964,000     |                 |   | 814,000    
|Prepaid income taxes                                                                                                                |  |                  | 3,188,000   |                 |   | 3,791,000  
|Prepaid expenses and other                                                                                                          |  |                  | 5,958,000   |                 |   | 4,337,000  
|                                                                                                                                    |  |                  |             |                 |   |            
|Total current assets                                                                                                                |  |                  | 106,376,000 |                 |   | 105,757,000
|                                                                                                                                    |  |                  |             |                 |   |            
|Equipment, property and leasehold improvements, net                                                                                 |  |                  | 21,664,000  |                 |   | 20,811,000 
|Long-term interest-bearing investments                                                                                              |  |                  | 9,615,000   |                 |   | 8,929,000  
|Deferred income taxes                                                                                                               |  |                  | 510,000     |                 |   | 878,000    
|Other assets                                                                                                                        |  |                  | 1,111,000   |                 |   | 1,059,000  
|                                                                                                                                    |  |                  |             |                 |   |            
|Total assets                                                                                                                        |  | $                | 139,276,000 |                 | $ | 137,434,000
|                                                                                                                                    |  |                  |             |                 |   |            
|LIABILITIES                                                                                                                         |  |                  |             |                 |   |            
|Current liabilities:                                                                                                                |  |                  |             |                 |   |            
|Trade accounts payable                                                                                                              |  | $                | 11,288,000  |                 | $ | 12,570,000 
|Deferred revenue                                                                                                                    |  |                  | 46,648,000  |                 |   | 46,847,000 
|Accrued liabilities                                                                                                                 |  |                  | 6,256,000   |                 |   | 5,751,000  
|Income taxes payable                                                                                                                |  |                  | 390,000     |                 |   | 286,000    
|                                                                                                                                    |  |                  |             |                 |   |            
|Total current liabilities                                                                                                           |  |                  | 64,582,000  |                 |   | 65,454,000 
|                                                                                                                                    |  |                  |             |                 |   |            
|Deferred income taxes                                                                                                               |  |                  | 550,000     |                 |   | 550,000    
|Deferred facilities rent                                                                                                            |  |                  | 2,876,000   |                 |   | 2,887,000  
|                                                                                                                                    |  |                  |             |                 |   |            
|Total liabilities                                                                                                                   |  |                  | 68,008,000  |                 |   | 68,891,000 
|                                                                                                                                    |  |                  |             |                 |   |            
|Commitments and contingencies                                                                                                       |  |                  |             |                 |   |            
|                                                                                                                                    |  |                 
|STOCKHOLDERS EQUITY                                                                                                                |  |                  |             |                 |   |            
|Preferred Stock, $.0001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding                                    |  |                  |            |                 |   |           
|Common Stock, $.0001 par value, 75,000,000 shares authorized, 16,943,000 and 16,989,000 shares issued and outstanding,
respectively |  |                  | 2,000       |                 |   | 2,000      
|Additional paid-in capital                                                                                                          |  |                  | 2,000       |                 |   | 9,000      
|Cumulative foreign currency translation adjustment                                                                                  |  |                  | 1,811,000   |                 |   | 626,000    
|Retained earnings                                                                                                                   |  |                  | 69,453,000  |                 |   | 67,906,000 
|                                                                                                                                    |  |                  |             |                 |   |            
|Total stockholders equity                                                                                                          |  |                  | 71,268,000  |                 |   | 68,543,000 
|                                                                                                                                    |  |                  |             |                 |   |            
|Total liabilities and stockholders equity                                                                                          |  | $                | 139,276,000 |                 | $ | 137,434,000
|                                                                                                                                    |  |                  |             |                 |   |            



See accompanying notes
to condensed consolidated financial statements.



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##### Table of Contents

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                              |  |                            |            |   |                  |   |           
|--------------------------------------------- |  | -------------------------- | ---------- | - | ---------------- | - | ----------
|                                              |  | For the Three Months Ended
|                                              |  | December 31,2004           |            |   | December 31,2003
|Revenues                                      |  | $                          | 39,762,000 |   |                  | $ | 39,867,000
|Cost of revenues                              |  |                            | 18,824,000 |   |                  |   | 18,407,000
|                                              |  |                            |            |   |                  |   |           
|Gross profit                                  |  |                            | 20,938,000 |   |                  |   | 21,460,000
|                                              |  |                            |            |   |                  |   |           
|Operating expenses:                           |  |                            |            |   |                  |   |           
|Course development                            |  |                            | 1,805,000  |   |                  |   | 1,997,000 
|Sales and marketing                           |  |                            | 9,788,000  |   |                  |   | 10,478,000
|General and administrative                    |  |                            | 6,608,000  |   |                  |   | 5,765,000 
|                                              |  |                            |            |   |                  |   |           
|                                              |  |                            | 18,201,000 |   |                  |   | 18,240,000
|                                              |  |                            |            |   |                  |   |           
|Income from operations                        |  |                            | 2,737,000  |   |                  |   | 3,220,000 
|                                              |  |                            |            |   |                  |   |           
|Other income (expense):                       |  |                            |            |   |                  |   |           
|Interest income                               |  |                            | 508,000    |   |                  |   | 361,000   
|Foreign exchange                              |  |                            | (44,000    | ) |                  |   | 123,000   
|Other                                         |  |                            | 11,000     |   |                  |   | 4,000     
|                                              |  |                            |            |   |                  |   |           
|                                              |  |                            | 475,000    |   |                  |   | 488,000   
|                                              |  |                            |            |   |                  |   |           
|Income before provision for income taxes      |  |                            | 3,212,000  |   |                  |   | 3,708,000 
|Provision for income taxes                    |  |                            | 1,070,000  |   |                  |   | 1,317,000 
|                                              |  |                            |            |   |                  |   |           
|Net income                                    |  | $                          | 2,142,000  |   |                  | $ | 2,391,000 
|                                              |  |                            |            |   |                  |   |           
|Earnings per common share                     |  | $                          | 0.13       |   |                  | $ | 0.14      
|                                              |  |                            |            |   |                  |   |           
|Earnings per common share assuming dilution   |  | $                          | 0.13       |   |                  | $ | 0.14      
|                                              |  |                            |            |   |                  |   |           
|Weighted average number of shares outstanding |  |                            | 16,982,000 |   |                  |   | 17,083,000
|                                              |  |                            |            |   |                  |   |           
|Diluted shares outstanding                    |  |                            | 16,988,000 |   |                  |   | 17,129,000
|                                              |  |                            |            |   |                  |   |           



See accompanying notes
to condensed consolidated financial statements.



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LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(Unaudited)



|                                              |  |              |   |  |        |       |                          |   |         |                                      |  |   |                  |   |  |                          |            |   |  |   |            |  
|--------------------------------------------- |  | ------------ | - |  | ------ | ----- | ------------------------ | - | ------- | ------------------------------------ |  | - | ---------------- | - |  | ------------------------ | ---------- | - |  | - | ---------- | -
|                                              |  |              |   |  |        |       | ADDITIONALPAID-INCAPITAL |   |         | FOREIGNCURRENCYTRANSLATIONADJUSTMENT |  |   | RETAINEDEARNINGS |   |  | TOTALSTOCKHOLDERSEQUITY |           
|                                              |  | COMMON STOCK |   |  |        |      
|                                              |  | SHARES       |   |  | AMOUNT |       |                          |   |        
|Balance, September 30, 2003                   |  | 17,108,000   |   |  | $      | 2,000 |                          | $ | 9,000   |                                      |  | $ | (473,000         | ) |  | $                        | 69,442,000 |   |  | $ | 68,980,000 |  
|                                              |  |              |   |  |        |      
|Comprehensive income:                         |  |              |   |  |        |       |                          |   |         |                                      |  |   |                  |   |  |                          |            |   |  |   |            |  
|Net income                                    |  |             |   |  |        |      |                          |   |        |                                      |  |   |                 |   |  |                          | 2,391,000  |   |  |   | 2,391,000  |  
|Foreign currency translation                  |  |             |   |  |        |      |                          |   |        |                                      |  |   | 1,312,000        |   |  |                          |           |   |  |   | 1,312,000  |  
|                                              |  |              |   |  |        |       |                          |   |         |                                      |  |   |                  |   |  |                          |            |   |  |   |            |  
|Comprehensive income                          |  |              |   |  |        |       |                          |   |         |                                      |  |   |                  |   |  |                          |            |   |  |   | 3,703,000  |  
|Stock options issued for services             |  |             |   |  |        |      |                          |   | 5,000   |                                      |  |   |                 |   |  |                          |           |   |  |   | 5,000      |  
|Stock repurchases                             |  | (33,000      | ) |  |        |      |                          |   | (79,000 | )                                    |  |   |                 |   |  |                          | (482,000   | ) |  |   | (561,000   | )
|Stock option exercises                        |  | 6,000        |   |  |        |      |                          |   | 57,000  |                                      |  |   |                 |   |  |                          |           |   |  |   | 57,000     |  
|Tax benefit related to stock option exercises |  |             |   |  |        |      |                          |   | 8,000   |                                      |  |   |                 |   |  |                          |           |   |  |   | 8,000      |  
|                                              |  |              |   |  |        |       |                          |   |         |                                      |  |   |                  |   |  |                          |            |   |  |   |            |  
|Balance, December 31, 2003                    |  | 17,081,000   |   |  | $      | 2,000 |                          | $ |        |                                      |  | $ | 839,000          |   |  | $                        | 71,351,000 |   |  | $ | 72,192,000 |  
|                                              |  |              |   |  |        |       |                          |   |         |                                      |  |   |                  |   |  |                          |            |   |  |   |            |  
|Balance, October 1, 2004                      |  | 16,989,000   |   |  | $      | 2,000 |                          | $ | 9,000   |                                      |  | $ | 626,000          |   |  | $                        | 67,906,000 |   |  | $ | 68,543,000 |  
|                                              |  |              |   |  |        |      
|Comprehensive income:                         |  |              |   |  |        |       |                          |   |         |                                      |  |   |                  |   |  |                          |            |   |  |   |            |  
|Net income                                    |  |             |   |  |        |      |                          |   |        |                                      |  |   |                 |   |  |                          | 2,142,000  |   |  |   | 2,142,000  |  
|Foreign currency translation                  |  |             |   |  |        |      |                          |   |        |                                      |  |   | 1,185,000        |   |  |                          |           |   |  |   | 1,185,000  |  
|                                              |  |              |   |  |        |       |                          |   |         |                                      |  |   |                  |   |  |                          |            |   |  |   |            |  
|Comprehensive income                          |  |              |   |  |        |       |                          |   |         |                                      |  |   |                  |   |  |                          |            |   |  |   | 3,327,000  |  
|Stock options issued for services             |  |             |   |  |        |      |                          |   | 1,000   |                                      |  |   |                 |   |  |                          |           |   |  |   | 1,000      |  
|Stock repurchases                             |  | (46,000      | ) |  |        |      |                          |   | (8,000  | )                                    |  |   |                 |   |  |                          | (595,000   | ) |  |   | (603,000   | )
|                                              |  |              |   |  |        |       |                          |   |         |                                      |  |   |                  |   |  |                          |            |   |  |   |            |  
|Balance, December 31, 2004                    |  | 16,943,000   |   |  | $      | 2,000 |                          | $ | 2,000   |                                      |  | $ | 1,811,000        |   |  | $                        | 69,453,000 |   |  | $ | 71,268,000 |  
|                                              |  |              |   |  |        |       |                          |   |         |                                      |  |   |                  |   |  |                          |            |   |  |   |            |  



See accompanying notes
to condensed consolidated financial statements.



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LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                            |  |                            |            |   |                  |   |            |  
|------------------------------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                                                            |  | For the Three Months Ended |           
|                                                                                            |  | December 31,2004           |            |   | December 31,2003 |  
|Cash flowsoperating activities:                                                            |  |                            |            |   |                  |   |            |  
|Net income                                                                                  |  | $                          | 2,142,000  |   |                  | $ | 2,391,000  |  
|Adjustments to reconcile net income to net cash (used in) provided by operating activities: |  |                            |            |   |                  |   |            |  
|Depreciation and amortization                                                               |  |                            | 1,679,000  |   |                  |   | 1,703,000  |  
|Unrealized foreign exchange gains                                                           |  |                            | (219,000   | ) |                  |   | (229,000   | )
|(Gains) losses on disposals of equipment and leasehold improvements                         |  |                            | (4,000     | ) |                  |   | 4,000      |  
|Loss related to subleasing                                                                  |  |                            | 423,000    |   |                  |   |           |  
|Deferred facilities rent charges                                                            |  |                            | (116,000   | ) |                  |   | (135,000   | )
|Change in operating assets and liabilities:                                                 |  |                            |            |   |                  |   |            |  
|Trade accounts receivable                                                                   |  |                            | 123,000    |   |                  |   | 514,000    |  
|Prepaid marketing expenses                                                                  |  |                            | (101,000   | ) |                  |   | (215,000   | )
|Prepaid expenses and other                                                                  |  |                            | (1,263,000 | ) |                  |   | 1,939,000  |  
|Income taxes                                                                                |  |                            | 1,125,000  |   |                  |   | 1,626,000  |  
|Trade accounts payable                                                                      |  |                            | (1,934,000 | ) |                  |   | (2,630,000 | )
|Deferred revenue                                                                            |  |                            | (1,983,000 | ) |                  |   | (4,356,000 | )
|Other accrued liabilities                                                                   |  |                            | (141,000   | ) |                  |   | (267,000   | )
|                                                                                            |  |                            |            |   |                  |   |            |  
|Net cash (used in) provided by operating activities                                         |  |                            | (269,000   | ) |                  |   | 345,000    |  
|                                                                                            |  |                            |            |   |                  |   |            |  
|Cash flowsinvesting activities:                                                            |  |                            |            |   |                  |   |            |  
|Purchases of equipment, property and leasehold improvements                                 |  |                            | (1,940,000 | ) |                  |   | (742,000   | )
|Retirements of equipment and leasehold improvements                                         |  |                            | 8,000      |   |                  |   | 4,000      |  
|Other, net                                                                                  |  |                            | 20,000     |   |                  |   | (15,000    | )
|                                                                                            |  |                            |            |   |                  |   |            |  
|Net cash used in investing activities                                                       |  |                            | (1,912,000 | ) |                  |   | (753,000   | )
|                                                                                            |  |                            |            |   |                  |   |            |  
|Cash flowsfinancing activities:                                                            |  |                            |            |   |                  |   |            |  
|Repurchases of Common Stock                                                                 |  |                            | (603,000   | ) |                  |   | (561,000   | )
|Proceeds from exercise of stock options                                                     |  |                            |           |   |                  |   | 57,000     |  
|                                                                                            |  |                            |            |   |                  |   |            |  
|Net cash used in financing activities                                                       |  |                            | (603,000   | ) |                  |   | (504,000   | )
|                                                                                            |  |                            |            |   |                  |   |            |  
|Effects of exchange rates on cash                                                           |  |                            | 1,689,000  |   |                  |   | 1,864,000  |  
|                                                                                            |  |                            |            |   |                  |   |            |  
|Net (decrease) increase in cash and cash equivalents                                        |  |                            | (1,095,000 | ) |                  |   | 952,000    |  
|Cash and cash equivalents at the beginning of the period                                    |  |                            | 83,913,000 |   |                  |   | 86,711,000 |  
|                                                                                            |  |                            |            |   |                  |   |            |  
|Cash and cash equivalents at the end of the period                                          |  | $                          | 82,818,000 |   |                  | $ | 87,663,000 |  
|                                                                                            |  |                            |            |   |                  |   |            |  
|Supplemental disclosures:                                                                   |  |                            |            |   |                  |   |            |  
|Income taxes paid                                                                           |  | $                          | 38,000     |   |                  | $ | 761,000    |  
|                                                                                            |  |                            |            |   |                  |   |            |  
|Interest paid                                                                               |  | $                          |           |   |                  | $ |           |  
|                                                                                            |  |                            |            |   |                  |   |            |  



See accompanying notes
to condensed consolidated financial statements.



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LEARNING TREE INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 1 Operations and Significant Accounting
Policies:



The accompanying unaudited condensed
consolidated financial statements have been prepared by Learning Tree International, Inc. (Learning Tree) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such regulations. The condensed consolidated financial statements reflect
all adjustments and disclosures which are, in the opinion of management, necessary for a fair presentation. All such adjustments are of a normal recurring nature. The condensed consolidated financial statements in this Quarterly Report on Form 10-Q
should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended October 1, 2004 that are contained in Learning Trees 2004 Annual Report on Form 10-K. Learning Trees business is subject
to substantial risk and fluctuations in earnings. See Managements Discussion and Analysis of Financial Condition and Results of Operations.



In fiscal 2004, Learning Tree adopted a 52- or 53-week fiscal year, by changing its year-end date from September 30th to the Friday nearest the end of
September. Thus, these unaudited condensed consolidated financial statements report Learning Trees financial position as of December 31, 2004 and October 1, 2004, and its results of operations and cash flows for the three months ended December
31, 2004 and 2003.



Note 2 Computation of
Earnings per Common Share and Earnings per Common Share 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 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, 6,000 shares and 46,000 shares were added to
the weighted average number of shares outstanding for the three-month periods ended December 31, 2004 and 2003, respectively. Approximately 1,541,000 and 1,462,000 stock options were excluded from the calculation of earnings per common share
assuming dilution for the three-month periods ended December 31, 2004 and 2003, respectively, because they were antidilutive.



Note 3 Repurchase of Company Stock:



During the first quarter of fiscal 2005, Learning Tree repurchased approximately 46,000 shares of its Common Stock on the open market at a total cost of
$603,000. Learning Tree may make additional purchases through open-market transactions, but has no commitments to do so.



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##### Table of Contents

Note 4 Employee Stock Options:



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 the first quarter of fiscal 2005 and 2004 for stock options granted to employees. 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:



|                                                                                  |  |                    |           |   |                  |   |           |  
|--------------------------------------------------------------------------------- |  | ------------------ | --------- | - | ---------------- | - | --------- | -
|                                                                                  |  | THREE MONTHS ENDED |          
|                                                                                  |  | DECEMBER 31,2004   |           |   | DECEMBER 31,2003 |  
|Net income, as reported                                                           |  | $                  | 2,142,000 |   |                  | $ | 2,391,000 |  
|Less: stock-based employee compensation cost, at estimated fair value, net of tax |  |                    | (247,000  | ) |                  |   | (440,000  | )
|                                                                                  |  |                    |           |   |                  |   |           |  
|Pro forma net income                                                              |  | $                  | 1,895,000 |   |                  | $ | 1,951,000 |  
|                                                                                  |  |                    |           |   |                  |   |           |  
|As reported:                                                                      |  |                    |           |   |                  |   |           |  
|Earnings per common share                                                         |  | $                  | .13       |   |                  | $ | .14       |  
|Earnings per common share assuming dilution                                       |  | $                  | .13       |   |                  | $ | .14       |  
|Pro forma:                                                                        |  |                    |           |   |                  |   |           |  
|Earnings per common share                                                         |  | $                  | .11       |   |                  | $ | .11       |  
|Earnings per common share assuming dilution                                       |  | $                  | .11       |   |                  | $ | .11       |  



There were no options
granted during the first quarter of fiscal 2005. In January 2005, Learning Trees Board of Directors approved acceleration of vesting for all stock options that first vest prior to April 2002. No other terms for such stock options were
modified.



In December 2004, the Financial Accounting Standards
Board (FASB) issued SFAS No. 123 (revised 2004) (SFAS 123R), Share-Based Payment. SFAS 123R requires that the cost resulting from all share-based payment transactions, including employee stock options, be
recognized in the financial statements using a fair-value-based method. The statement replaces SFAS 123, supersedes APB 25, and amends SFAS No. 95, Statement of Cash Flows. As required by SFAS 123R, Learning Tree will adopt SFAS 123R in
its fourth quarter of fiscal 2005 which ends September 30, 2005. SFAS 123R will also require Learning Tree to classify the excess tax benefit of stock options as an operating cash flow.



While Learning Tree continues to evaluate the effect of SFAS 123R on its financial statements, Learning Tree believes that
the effect on quarters subsequent to the initial adoption will be somewhat less than its historical pro forma disclosure under SFAS 123, as amended, due to the effect of the acceleration of stock option vesting discussed above.



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Item 2. 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 to Learning Trees Annual Report on Form 10-K (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. 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 136 different course titles representing over 3,300 hours of training at December 31, 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. Recently, 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



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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.



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 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. Over the past 30 years, Learning Tree has progressively set and exceeded the highest standards of excellence
in educating and training IT professionals and managers from Government and commercial customers around the world. Throughout its history, Learning Tree has grown, adapted, and evolved its course offerings based on its customer needs, all the while
continuing to advance the state of the art in its industry.



Learning Tree continues its tradition of excellence today by improving its core strengths: its expert instructors, proprietary content library, state-of-the-art classrooms and worldwide course delivery systems. During the first quarter of
fiscal 2005 Learning Tree again set record high levels in its course participants evaluations of the quality of Learning Trees instructors and courses.



Learning Trees customers continue to respond positively to its recent increase in the breadth and depth of its
management course offerings. In the first quarter of fiscal 2005, Learning Tree offered 29 titles in its management curriculum representing 21% of Learning Trees entire course library, compared to 21 titles, which represented 14% in the first
quarter of fiscal 2004. Learning Tree believes that technical and non-technical managers are becoming increasingly aware of the need for training in project management, personal effectiveness, and other key business skills. Learning Tree intends to
meet this demand by continuing to develop additional management course titles, based on feedback from its customers.



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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. Learning Tree made this change in order to better align its external financial reporting with the way Learning Tree operates its business.



RESULTS OF OPERATIONS



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



|                                         |  |                    |   |  |              |  
|---------------------------------------- |  | ------------------ | - |  | ------------ | -
|                                         |  | Three Months Ended |  
|                                         |  | Dec. 31,2004       |   |  | Dec. 31,2003 |  
|Revenues                                 |  | 100                | % |  | 100          | %
|Cost of revenues                         |  | 47                 |   |  | 46           |  
|                                         |  |                    |   |  |              |  
|Gross profit                             |  | 53                 |   |  | 54           |  
|                                         |  |                    |   |  |              |  
|Operating expenses:                      |  |                    |   |  |              |  
|Course development                       |  | 4                  |   |  | 5            |  
|Sales and marketing                      |  | 25                 |   |  | 26           |  
|General and administrative               |  | 17                 |   |  | 15           |  
|                                         |  |                    |   |  |              |  
|Total operating expenses                 |  | 46                 |   |  | 46           |  
|                                         |  |                    |   |  |              |  
|Income (loss) from operations            |  | 7                  |   |  | 8            |  
|Other income (expense), net              |  | 1                  |   |  | 1            |  
|                                         |  |                    |   |  |              |  
|Income before provision for income taxes |  | 8                  |   |  | 9            |  
|Provision for income taxes               |  | 3                  |   |  | 3            |  
|                                         |  |                    |   |  |              |  
|Net income                               |  | 5                  | % |  | 6            | %
|                                         |  |                    |   |  |              |  



In the first quarter
of fiscal 2005, Learning Trees revenues were $39.8 million compared to $39.9 million for the corresponding quarter of fiscal 2004. Income from operations for the first quarter of fiscal 2005 was $2.7 million compared to $3.2 million for the
same quarter of fiscal 2004. Net income for the first quarter of fiscal 2005 was $2.1 million compared to $2.4 million for the same quarter of fiscal 2004.



Revenues. Learning Trees revenues in the first quarter of fiscal 2005 compared to the same period in fiscal 2004 primarily reflect the net
effect of a decline in the number of course participants, partially offset by increased revenues per attendee due to the effect of changes in exchange rates.



During the first quarter of fiscal 2005, Learning Tree trained 21,892 course participants, a 4% decrease from the 22,890 participants that were trained in
the same quarter last year. In the first quarter of fiscal 2005, the average revenue per attendee was 4% higher than in the same quarter of the prior fiscal year. However, excluding a 5% effect of changes in exchange rates, Learning Trees
average revenue per attendee declined 1% in its first quarter of fiscal 2005 compared to the same quarter of the prior fiscal year. Excluding the effect of exchange rates, the decline in average revenue per attendee resulted from a change in course
mix which included a greater proportion of courses conducted at customer sites and a lower proportion conducted at Learning Tree education centers. Courses at customer sites generally have lower revenues per attendee than those conducted at Learning
Tree education centers.



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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.



The cost of revenues for the first quarter of fiscal 2005 was $18.8 million compared to $18.4 million for the first quarter of fiscal 2004. This change
primarily reflects the effect of changes in foreign exchange rates and a 1% increase in the number of course events, partially offset by lower instructor-related fees and other cost savings. During the first quarter of fiscal 2005, Learning Tree
presented 1,751 events compared to 1,727 events conducted during the same period in fiscal 2004.



The cost of revenues increased to 47.3% of revenues in the first quarter of fiscal 2005 compared to 46.2% in the first quarter of fiscal 2004. Changes in
foreign exchange rates did not materially affect the gross profit percentage, since exchange rate changes increased Learning Trees cost of revenues by approximately the same percentage as they increased revenues in the quarter.



Excluding the effect of exchange rates, the increase in the cost of revenues
as a percentage of revenues in the first quarter of fiscal 2005 reflects a 7% decrease in average revenue per event partially offset by a 4% decrease in average cost per event compared to the first quarter of fiscal 2004.



The decrease in average revenue per event in the first quarter, excluding the
effect of exchange rates, primarily reflects a lower average number of attendees per event compared to the same quarter of the prior fiscal year. In addition, to a lesser extent, the decrease in average revenue per event reflects the decrease in
average revenue per attendee as discussed above. The improvement in average cost per event, excluding the effect of exchange rates, primarily reflects the effect of lower instructor-related fees and other cost savings.



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.



During the first quarter of fiscal 2005, course
development expenses were 4.5% of revenues compared to 5.0% for the first quarter of the prior year. The decrease primarily reflects lower author-related expenses compared to the first quarter of the prior year.



Learning Trees library of instructor-led courses numbered 136 titles at
the end of the first quarter of fiscal 2005 compared with 151 titles at the end of the first quarter of fiscal 2004. During the first quarter of fiscal 2005, Learning Tree retired twelve titles which no longer generated sufficient gross profit to
warrant their ongoing revision and marketing expense, and introduced two new titles: Introduction to Storage Networks and Oracle Database 10g Administration.



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.



Sales and marketing expenses in the first quarter were 24.6% of revenues,
compared with 26.3% for the same quarter in the prior year. Sales and marketing expenditures were $9.8 million compared with $10.5 million in the first quarter of the prior year. These decreases primarily reflect a decrease in both the



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cost and the number of Learning Tree catalogs mailed in the first quarter of fiscal 2005 compared to the same first quarter of fiscal 2004, as well as lower
expenditures for marketing activities other than the major mailing campaigns. These decreases were partially offset by the effect of changes in foreign exchange rates.



General and Administrative Expenses. General and administrative expenses in the first quarter of fiscal 2005
increased to 16.6% of revenues compared with 14.5% in the same quarter of the prior year. General and administrative expenses in the first quarter were $6.6 million compared to $5.8 million in the first quarter last year. These increases are
primarily due to a $423,000 charge related to Learning Trees United Kingdom UK education center subleases, as well as the effect of changes in exchange rates and annual compensation increases.



Since 1999, Learning Tree has been subletting three floors in its UK
education center to two subtenants. The first of these subleases covered one floor and expired in fiscal 2004. During the fourth quarter of fiscal 2004, Learning Tree recorded a charge of $541,000 which reflected the rent expense for this vacant
floor from July 2, 2004 through March 25, 2005. The second sublease covers the other two floors and expires on March 25, 2005. Because Learning Tree anticipated that in order to rent all three floors it may need to make certain rent concessions,
Learning Tree recorded an additional 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 it anticipated for these three floors and the costs over
the expected sublease period.



Learning Tree is actively
seeking subtenants for these floors, and believes that it is close to executing an agreement for the currently vacant floor. Based upon the prospective lease terms for that floor, Learning Tree recorded an additional provision of $102,000 in the
first quarter of fiscal 2005. In addition, during the first quarter of fiscal 2005 Learning Tree recorded a charge of $321,000 related to the remaining two floors that are expected to become vacant on March 25, 2005. This charge reflects the rent
expense for the other two floors through June 25, 2005. Learning Tree believes that it is unlikely that it will sublet those two floors before that date.



The actual vacancy period(s), the actual sublease rental rate(s), and the actual duration of the sublease(s) may be different from the estimates Learning
Tree used in computing these charges. To the extent that the currently vacant floor is vacant after March 25, 2005, or either of the other two floors is vacant after June 25, 2005, Learning Trees general and administrative expenses will
include a further cost of approximately $186,000 per quarter for each vacant floor. Accordingly, Learning Tree will make further provisions each quarter as necessary.



Other Income (Expense). Other income (expense) is primarily comprised of interest income and foreign currency
transaction gains and losses. In the first quarter of fiscal 2005, Learning Tree recorded foreign exchange losses of $44,000 compared to foreign exchange gains of $123,000 in the same quarter of the prior year. In addition, Learning Tree had
interest income of $508,000 compared to $361,000 in the same period of the prior year. The increase in interest income primarily reflects higher interest rates compared to those in the prior year.



Income Taxes. The income tax provision in the first quarter of fiscal
2005 reflects a 33.3% annual tax rate, which is the same as the fiscal 2004 full year tax rate.



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FLUCTUATIONS IN QUARTERLY RESULTS



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 to Learning Trees Annual Report on Form 10-K.



LIQUIDITY AND CAPITAL RESOURCES



Learning Trees cash and cash equivalents decreased to $82.8 million at
December 31, 2004 from $83.9 million at October 1, 2004. This decrease primarily reflects investments in equipment and facilities, repurchases of Learning Trees Common Stock and cash used in operations, partially offset by the effect of
exchange rates on cash.



During the first quarter of fiscal
2005, Learning Tree repurchased approximately 46,000 shares of its Common Stock for approximately $603,000. Learning Tree may make additional purchases through open-market transactions, but has no commitments to do so.



Cash used in operations for the first quarter of fiscal 2005 was $269,000
compared to cash from operations of $345,000 in the first quarter of fiscal 2004. This decrease primarily reflects the timing of cash receipts and payments. At December 31, 2004, Learning Tree had a net working capital balance of $41.8 million.



During the first quarter of fiscal 2005, Learning Tree
invested $1.9 million in equipment and facilities compared to $742,000 in the first quarter of fiscal 2004. The investments in the first quarter of fiscal 2005 primarily relate to purchases of course equipment. Although Learning Tree expects to
continue to invest in additional equipment in fiscal 2005, Learning Tree had no material future purchase obligations, capital commitments or debt as of December 31, 2004. 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 or other strategic 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.



CRITICAL ACCOUNTING 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



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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 to Learning
Trees Annual Report on Form 10-K. 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 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.



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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 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.



Since 1999, Learning Tree has been subletting three floors in its UK education center to two subtenants. The first of these subleases covered one floor
and expired in fiscal 2004. During the fourth quarter of fiscal 2004, Learning Tree recorded a charge of $541,000 which reflected the rent expense for this vacant floor from July 2, 2004 through March 25, 2005. The second sublease covers the other
two floors and expires on March 25, 2005. Because Learning Tree anticipated that in order to rent all three floors it may need to make certain rent concessions, Learning Tree recorded an additional 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 it anticipated for these three floors and the costs over the expected sublease period.



Learning Tree is actively seeking subtenants for these floors, and believes
that it is close to executing an agreement for the currently vacant floor. Based upon the prospective lease terms for that floor, Learning Tree recorded an additional provision of $102,000 in the first quarter of fiscal 2005. In addition, during the
first quarter of fiscal 2005 Learning Tree recorded a charge of $321,000 related to the remaining two floors that are expected to become vacant on March 25, 2005. This charge reflects the rent expense for the other two floors through June 25, 2005.
Learning Tree believes that it is unlikely that it will sublet those two floors before that date.



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 these charges. If 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



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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 2005 and fiscal 2003 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. See Note 2 of Notes to Consolidated Financial Statements to Learning Trees Annual Report on
Form 10-K.



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, including Learning Trees Annual Report on Form 10-K and the Risk Factors in Exhibit 99.1. 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.



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Recent Trends. Learning Trees customers continue to respond positively to its recent
increase in the breadth and depth of its management course offerings. In the first quarter of fiscal 2005, Learning Tree offered 29 titles in its management curriculum representing 21% of its entire course library, compared to 21 titles, which
represented 14% in the first quarter of fiscal 2004. Learning Tree believes that technical and non-technical managers are becoming increasingly aware of the need for training in project management, personal effectiveness, and other key business
skills. Learning Tree intends to meet this demand by continuing to develop additional management course titles, based on feedback from its customers.



Effect of Exchange Rates. Approximately half of Learning Trees business is conducted in currencies other than US dollars and fluctuations in
exchange rates will affect future revenues and expenses when translated into dollars. If the exchange rates of January 31, 2005 remain stable through the remainder of fiscal 2005, Learning Trees revenues would be favorably affected by
approximately 3% in both the second quarter and for its 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.



Second Quarter 2005 Revenues. A number of factors may
influence Learning Trees revenues in the second fiscal quarter ending April 1, 2005. These include the following:



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



| |  |  | At December 31, 2004, Learning Trees backlog of $27.0 million was about 3% lower than it had been on December 31, 2003. This December 31, 2004 backlog included a 4% favorable
effect from changes in foreign exchange rates. Four weeks later, at January 28, 2005, Learning Trees overall backlog of $30.0 million was approximately the same as it was at January 31, 2004. And, at January 28, 2005, the sum of Learning
Trees revenues for January courses plus its backlog for February and March courses was 6% lower than it had been at January 31, 2004. These January 28, 2005 backlogs each included a 2% favorable effect from changes in foreign exchange rates.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Based upon the above and other factors, Learning
Tree believes that its revenues in the second quarter of fiscal 2005 will be approximately $35.0 million to $37.0 million.



Second Quarter Gross Profit. Learning Tree expects its gross profit percentage to be between 47.0% and 49.0% compared to 48.3% in the second
quarter of fiscal 2005.



Second Quarter Operating
Expenses. Learning Tree expects its overall operating expenses for the second quarter of fiscal 2005 to be approximately $20.5 million, compared to $21.5 million for the same quarter a year earlier. This decrease primarily reflects a reduction
in mail from the elevated quantities Learning Tree mailed in the second quarter of fiscal 2004. Learning Tree expects this savings to be partially offset by the effect on operating expenses of changes in exchange rates and annual compensation
increases.



Learning Trees operating expenses for the
second quarter would be affected, either positively or negatively, by any changes to the provisions it has already made related to the UK education center subleases.



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Second Quarter Interest Income. Interest income reflects changes in interest rates, as well as
changes in Learning Trees cash balances. Learning Tree expects its second quarter interest income to be approximately the same as it was in the first quarter of fiscal 2005.



2005 Tax Rate. Learning Tree estimates that its effective tax rate in fiscal 2005 will be approximately 33.3%.



Future Outlook. Learning Tree remains confident in the
long-term outlook for the technology industry and the need for technology and management training. Learning Tree believes that technology 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 continues to apply its 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 3. 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 20 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 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.



Item 4. 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



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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.



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PART II  OTHER INFORMATION



Item 1. LEGAL PROCEEDINGS



None



Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



LEARNING TREE PURCHASES OF EQUITY SECURITIES



|                                     |  |                                    |  |                            |       |                                                                              |   |                                                                             |  
|------------------------------------ |  | ---------------------------------- |  | -------------------------- | ----- | ---------------------------------------------------------------------------- | - | --------------------------------------------------------------------------- | -
|Period                               |  | Total Numberof SharesPurchased (a) |  | Average PricePaid perShare |       | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms |   | Maximum Number ofShares that May YetBe Purchased Underthe Plans or Programs
|October 2, 2004  October 29, 2004   |  |                                   |  |                            |      |                                                                              |  |                                                                             | 
|October 30, 2004  December 3, 2004  |  |                                   |  |                            |      |                                                                              |  |                                                                             | 
|December 4, 2004  December 31, 2004 |  | 45,750                             |  | $                          | 13.18 |                                                                              |  |                                                                             | 
|Total                                |  | 45,750                             |  | $                          | 13.18 |                                                                              |  |                                                                             | 

---

|(a) | None of the Learning Tree Common Stock repurchases were made pursuant to a publicly announced plan. All Learning Tree Common Stock repurchases were made in open-market transactions.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 3. DEFAULTS UPON SENIOR SECURITIES



Not Applicable



Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS



None



Item 5. OTHER INFORMATION



Not
Applicable



Item 6. EXHIBITS



| | 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)
| | ---- | -------------------------------------------------------------------------------------------------



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SIGNATURES



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



|                        |  |                                   |  |                                 
|----------------------- |  | --------------------------------- |  | --------------------------------
|                        |  | LEARNING TREE INTERNATIONAL, INC.
|                        |  |                                  
|Dated: February 8, 2005 |  | By:                               |  | /s/ NICHOLAS R. SCHACHT         
|                        |  |                                   |  | Nicholas R. Schacht             
|                        |  |                                   |  | President                       
|                        |  |                                   |  | (Principal Financial Officer and
|                        |  |                                   |  | Duly Authorized Officer)        



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