---

---

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(MARK ONE)

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JULY 23, 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: 0-27656

LEARNING CARE GROUP, INC.

(Exact Name Of Registrant As Specified In Its Charter)

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

21333 Haggerty Road, Suite 300
Novi, Michigan 48375
(Address of principal executive offices)

(248) 697-9000
(Registrant’s telephone number, including area code)

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

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

The number of shares of Registrant’s Common Stock, no par value per share, outstanding at August 24, 2004, was 19,809,010.

---

---

LEARNING CARE GROUP, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

For the Quarterly Period Ended July 23, 2004

					Page Number
PART I. FINANCIAL INFORMATION
	ITEM 1. Condensed Consolidated Financial Statements
		A.	Condensed Consolidated Balance Sheets July 23, 2004 and April 2, 2004		3
		B.	Condensed Consolidated Statements of Operations 16 weeks ended July 23, 2004 and July 18, 2003		4
		C.	Condensed Consolidated Statements of Cash Flows 16 weeks ended July 23, 2004 and July 18, 2003		5
		D.	Notes to Condensed Consolidated Financial Statements		6-12
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				13-17
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risks				17
	ITEM 4. Controls and Procedures				17
PART II. OTHER INFORMATION
	ITEM 1. Legal Proceedings				18
	ITEM 6. Exhibits, Reports on Form 8-K				18
SIGNATURES					18
EXHIBIT INDEX					19

2

---

PART I: FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

LEARNING CARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

				July 23, 2004			April 2, 2004
				(Unaudited)
				(In thousands)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	472		$	1,377
	Accounts receivable, net				10,692			9,379
	Prepaid expenses and other current assets				6,861			5,435
		Total current assets			18,025			16,191
LAND, BUILDINGS AND EQUIPMENT:
	Land				9,347			9,347
	Buildings				20,463			20,443
	Leasehold improvements				13,703			12,462
	Vehicles, furniture and equipment				13,745			13,599
					57,258			55,851
	Less: accumulated depreciation and amortization				(20,009	)		(19,128	)
					37,249			36,723
OTHER NONCURRENT ASSETS:
	Intangible assets, net				29,836			30,064
	Refundable deposits and other				2,665			2,641
					32,501			32,705
		TOTAL ASSETS		$	87,775		$	85,619
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts and drafts payable			$	5,651		$	6,810
	Accrued wages and benefits				6,707			7,531
	Current portion of long-term debt				8,600			3,328
	Exit and closure expense accrual				357			448
	Other current liabilities				12,382			10,016
		Total current liabilities			33,697			28,133
LONG-TERM DEBT, NET OF CURRENT PORTION					3,661			8,397
DEFERRED RENT LIABILITY & MINORITY INTEREST					2,170			1,945
OBLIGATIONS UNDER SALE LEASEBACK TRANSACTIONS					10,254			10,138
	Total liabilities				49,782			48,613
SHAREHOLDERS’ EQUITY
	Common Stock, 40,000,000 shares authorized, no par value; 19,809,010 issued and outstanding at July 23, 2004 and April 2, 2004				43,810			43,781
	Preferred Stock, 100,000 shares authorized, no par value; no shares issued or outstanding				—			—
	Retained earnings (accumulated deficit)				(5,817	)		(6,775	)
		Total shareholders’ equity			37,993			37,006
		TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	87,775		$	85,619

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

3

---

LEARNING CARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

				16 Weeks Ended
				July 23, 2004					July 18, 2003
				(In thousands, except per share data)
Revenue from Learning Center Operations					$	64,190				$	60,436
Revenue from Franchise Operations						2,335					1,860
Revenue, net						66,525					62,296
Operating expenses of Learning Centers						57,123					54,285
	Gross profit					9,402					8,011
General and administrative expenses						6,397					5,844
Depreciation and amortization expenses						1,324					1,237
Gain on sale of centers						(549	)				—
Provision for doubtful accounts						279					290
Exit and closure expenses						40					—
		OPERATING INCOME				1,911					640
Interest expense, net						644					712
		INCOME (LOSS) BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS				1,267					(72	)
Income tax provision						104					—
		INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS				1,163					(72	)
Discontinued operations, net of taxes						(206	)				(198	)
		NET INCOME (LOSS)			$	957				$	(270	)
INCOME (LOSS) PER SHARE - BASIC:
		Income (loss) before discontinued operations			$	0.06				$	(0.01	)
		Discontinued operations, net of taxes				(0.01	)				(0.01	)
		Net income (loss)			$	0.05				$	(0.02	)
INCOME (LOSS) PER SHARE - DILUTED:
		Income (loss) before discontinued operations			$	0.06				$	(0.01	)
		Discontinued operations, net of taxes				(0.01	)				(0.01	)
		Net income (loss)			$	0.05				$	(0.02	)
Weighted average shares outstanding						19,809					13,347

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

4

---

LEARNING CARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

				16 Weeks Ended
				July 23, 2004					July 18, 2003
				(In thousands)
OPERATING ACTIVITIES:
Net income (loss)					$	957				$	(270	)
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities:
	Depreciation and amortization					1,297					1,240
	Provision for doubtful accounts					280					337