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Article by DailyStocks_admin    (07-29-08 07:17 AM)

Filed with the SEC from July 16 to July 23:

Nobel Learning Communities (NLCI)
Oracle (ORCL) CEO Larry Ellison reported liquidating his stake in Nobel. He had held about one million shares of the private-school operator. On July 21, Nobel adopted a plan to protect shareholders in the event of a takeover attempt.

BUSINESS OVERVIEW

General

Nobel Learning Communities, Inc. (collectively with its subsidiaries, the “Company” or “Nobel Learning Communities”) is a national network of over 150 nonsectarian private schools, including preschools, elementary schools, middle schools and specialty high schools in 13 states and the District of Columbia serving approximately 25,000 students. Nobel Learning Communities provides high-quality private education, with small schools and class sizes, qualified teachers and attention to individual learning styles. Nobel Learning Communities also offers an array of supplemental educational services, including before- and after-school programs, the Camp Zone ® summer program, learning support programs and technology camps. These schools operate under various brand names and are located in California, the District of Columbia, Florida, Illinois, Maryland, Nevada, New Jersey, North Carolina, Oregon, Pennsylvania, South Carolina, Texas, Virginia and Washington. As of September 4, 2007, we operated 158 schools.

We have registered various service marks in the United States Patent and Trademark Office, including, but not limited to Chesterbrook Academy ® , Merryhill Country School ® , Discovery Isle, The Honor Roll School ® , Camp Zone ® , Paladin Academy ® , Rocking Horse Child Care Centers ® and Houston Learning Academy ™ . We believe that certain of our service marks have substantial value in our marketing in the respective areas in which our schools operate.

Our corporate office is located at 1615 West Chester Pike, Suite 200, West Chester, PA 19382-6223. Our telephone number is (484) 947-2000. Nobel Learning Communities Inc., a Delaware corporation, was formed on March 30, 1983.

Educational Philosophy and Implementation

Our educational philosophy is based on a foundation of sound research and innovative instructional strategies, along with quality practices and curricula developed by experienced educators. Our programs stress the development of the whole child and are based on concepts of multi-sensory, integrated and age-appropriate learning. Our curricula are not only designed to allow each child to develop according to his or her own abilities and timetable, but also seek to prepare every student for achievement in accordance with national content standards and goals. Our schools monitor student progress against curriculum objectives, as well as the development of cognitive, social, emotional and physical skills. The result is the opportunity for each of our students to develop a strong foundation in academic learning, positive self-esteem and emotional and physical well-being.

We have created developmental goals and curriculum guidelines for each age level, grade level and content area to assist principals and teachers in planning their daily and weekly programs. We maintain that small schools, small classes, clearly articulated curricular guidelines and excellent educational materials, delivered by qualified, innovative and enthusiastic teachers comprise the basic ingredients of a quality education. Our philosophy is based on personalized instruction that leads to a student’s active involvement in learning and understanding. The programs for our schools are skills-based and delivered through a developmentally appropriate, comprehensive curriculum in each developmental program or grade level. We implement each curriculum in ways that stimulate a learner’s curiosity, support a student’s individual learning style and employ processes that contribute to lifelong achievement. Academic areas addressed include reading, writing, spelling, mathematics, science, social studies, visual and graphic arts, music, physical education/wellness and world language (Spanish). Additionally, non-cognitive skills or executive skills, such as perseverance, self-confidence, self-discipline, communication, social responsibility, teamwork and conflict resolution skills are continuously reinforced through curriculum infusion and meta-cognitive dialogue. The critical areas of technology literacy and study skills are integrated into the programs, as appropriate, in most content areas through the use of classroom-based technologies, media centers and computer labs.

Athletic Activities and Supplemental Programs

Our schools offer athletic activities and supplemental programs, which include day field trips coordinated with curriculum to zoos, libraries, museums and theaters and, at the middle schools, overnight trips to such places as national parks and historical locations, and select summer trips to European destinations. Schools arrange classroom presentations by parents, community leaders and other volunteers to supplement instruction. We also organize programs that allow students to present to community groups and organizations. To enhance the child’s physical, social, emotional and intellectual growth, schools may provide extra-curricular experiences (some fee-based) tailored to particular families’ interests. These activities include but are not limited to dance, gymnastics, instrumental music lessons and computer based technology programs. Additionally, students expand their horizons through participation in science fairs, drama clubs and local and regional academic competitions. This past academic year (2006/2007), we instituted a shared, distance learning project on global warming that engaged fourth graders in four of our elementary schools located in the states of Washington, Texas, Illinois and Virginia.

Teachers

We recognize that maintaining the quality of our teachers’ capabilities and professionalism is essential to sustaining our students’ high level of academic achievement and our profitability. We sponsor professional development days covering various aspects of teaching and education, using both internal trainers and external consultants. Our educators serve on Company task forces and committees that review and revise curricular guidelines, programs, support materials and current teaching methods.

Training

School-based leadership teams (Principals and Assistant Principals) also actively engage in professional development and self-improvement. Staff training is provided by our education department and other experts within the education industry. Through participation in our annual National Principals’ Conference, seasoned administrators as well as new recruits are kept abreast of up-to-date research, changing trends and sound pedagogical practices.

Accreditation

We seek to ensure that our schools meet or exceed the standards of appropriate accrediting agencies through an internal quality assurance program. Although not mandated by any governmental or regulatory authority, many of our schools are accredited, or are currently seeking accreditation through the Commission on International and Trans-Regional Accreditation (CITA) with various regional accreditation agencies throughout the United States. Regional accreditation agencies include:

Middle States Association of Colleges and Schools

North Central Association of Colleges and Schools

Northwest Association of Accredited Schools

Western Association of Schools and Colleges

Southern Association of Colleges and Schools

School Operations

Standards

In order to seek to maintain appropriate standards, our schools share consistent educational goals and operating procedures. While we have a national curriculum, principals may tailor curricula, within the standards of Nobel Learning Communities, to meet local and state requirements. Members of our management team visit schools and centers on a regular basis to review program, facility and staff quality. Hiring and retaining quality personnel at our schools and in operational management positions is a critical success factor in driving success in both operational and financial performance.

Our school Principals and Assistant Principals are responsible for all facets of school operations including curriculum implementation, ensuring student achievement and success, personnel and financial management, community outreach, student discipline and implementing local sales and marketing strategies. The Principals and Assistant Principals are supported by our regional educational and human resources teams and our centralized marketing, real estate and finance organizations.

We operate and review our performance based on both geographic cluster and individual school based performance. Our operations have annual budgets and financial and operating information is collected daily. Certain measures of school and cluster performance are reviewed weekly and others monthly or quarterly to budget depending on the significance to meeting operational and financial objectives. For example, net revenue, tuition revenue, certain operating costs and student census information are monitored weekly in relation to our objectives.

Executive Directors

Executive Directors oversee the Principals and schools and report to either a Division Vice President or a Regional Manager. Executive Directors are responsible for ensuring the qualifications of Principals and Assistant Principals, as well as training and development. School Principals and Executive Directors work closely with regional and corporate management, particularly in the regular assessment of program quality and school performance.

We hire qualified candidates and attempt to promote from within when possible. Candidate credentials are reviewed through employment references, criminal background checks and appropriate education verification in order to establish an understanding of the candidates’ skills, professionalism and character. After hiring, it is our policy that employees receive regular performance feedback including a formal annual performance evaluation. All of our Principals and Executive Directors are eligible for incentive compensation based on the performance of their schools.

Private Pay Schools

General Education Schools. Our preschool and elementary/middle school strategy is based on clustering of preschools around an elementary school in order to provide a continuum of education and consistent curriculum for children from infancy through 8 th grade. Clusters of schools are placed in geographic markets where the economy and population meet our demographic profile. In several markets, students from our preschools can easily matriculate into our elementary/middle school programs. In addition, we can potentially convert students from our other specialty programs to our general education programs.

We also operate schools that are not part of a complete geographic cluster. The majority of these schools were built or purchased prior to the implementation of our cluster strategy or may be the initial school in a new market. In some cases, these schools may become part of a cluster if we determine the demographic profile in the market provides a growth opportunity.

We seek to distinguish our schools from our competition with our qualitative and quantitative program outcomes. Our schools generally span a broader range of ages and grades than many of our competitors. At each age and grade level, we support a child’s development with appropriate curriculum-based programs. During the fiscal year ended June 30, 2007, we finished the roll out of a new national preschool curriculum for children between six months and five years of age. This new curriculum, called Links to Learning, not only integrates skills and lessons among its subject matters, but also strongly connects parents to what their children are learning in the classroom. We foster an individualized approach to learning through small schools and small classes and by using multi-sensory, integrated curricula that blend each of the core subjects ( e.g. , reading, language arts, mathematics, science and social studies) with special areas of study such as art, music, technology, physical education/wellness and world language (Spanish). Further, in certain locations, we provide programs and schools for the learning challenged as well as special purpose high schools. We believe that empirical data as well as quantitative results support the quality of our programs. Standardized test results have consistently shown that our students perform at or above national grade performance norms in reading and mathematics.

Many of our preschools and elementary schools allow for early drop-off and late pick-up to accommodate parent schedules. In most preschool locations, programs are available for children starting at six weeks of age. We believe that parents can feel comfortable leaving their children at one of our schools knowing the children will receive both a quality education and engage in well-supervised developmental, recreational and enrichment activities.

Most of our preschools and elementary schools complement their educational programs with enrichment programs, arts programs, before- and after-school programs and summer programs or camps. In addition to those revenue generating programs, our schools seek to improve margins by providing ancillary services and products, such as portrait photos, books and uniform sales.

During Fiscal 2007, the Company was awarded a contract to operate the Esther Peterson Child Development Center at the Department of Labor in Washington, D.C. This school is the Company’s first corporate market model school serving a defined customer base, usually with a common employer, and many times with some revenue or expense subsidy. The second type of this model is our school at the University of Illinois Research Park, which has some portion of the land cost and enrollment slots supported by outside organizations. This school opened August 13, 2007. This differs from the rest of our schools, which serve the general public and do not have a company or organization support and some financial aspect of the school. This delivery model represents a new market opportunity for the Company.

During Fiscal 2006 and Fiscal 2007 the Company entered into franchise agreements with CTWorkshop Licensing USA, Inc. to have the exclusive rights to offer Children’s Technology Workshop products in several of the geographic markets in which the Company operates private schools. The Children’s Technology Workshop operates a children’s education and recreation business specializing in the delivery of interactive, applied technology programs and workshops that operate pursuant to a distinctive proprietary system and proprietary trademarks. The Company currently intends to offer summer camp, after school enrichment and other Children’s Technology Workshop programs through a growing number of its schools. The Company currently operates these programs in parts of California, Virginia, Pennsylvania, North Carolina, Nevada and Illinois. These programs are also offered through other unrelated CTWorkshop franchisees in part of Washington and Texas.

Paladin Academy ® . Our Paladin Academy ® school and programs serve the needs of children with mild to moderate learning challenges from kindergarten through 8 th grade. Our mission is to improve the learning process and achievement levels of children with dyslexia, attention deficit disorder, dysgraphia and other mild learning difficulties through stand-alone schools and school-based programs. We offer developmental testing, full-day clinics and summer programs. The primary goals of our Paladin Academy ® program is to enable students to mainstream back into the general school population.

As of September 7, 2007, we operated one stand-alone Paladin Academy ® school and seven school-based programs or clinics integrated within our elementary schools. Paladin Academy ® schools and/or programs are now located in Florida, North Carolina, Pennsylvania and Virginia.

Houston Learning Academy ™ . Under the name Houston Learning Academy ™ (“HLA”), we operate five special purpose high schools in the Houston metropolitan marketplace. HLA schools, which are fully accredited by the Southern Association of Colleges and Schools, offer a half-day high school program, as well as evening and summer school programs. HLA also provides tutors and special education classes to residential hospitals. HLA schools and programs feature individualized attention, primarily for those students who are at risk of not completing their high school requirements in a more traditional setting and/or are attracted to the schools’ program and flexible hours of service.

Marketing

We generate new enrollments primarily from word-of-mouth recommendations from parents, direct mail campaigns, internet advertising, yellow page listings, print advertisements and public relations programs. We market to our own database of inquirers with ongoing direct mail and email communications. We also have developed a sophisticated search engine marketing program to develop new customer leads that support each individual market and can be customized to the products and programs in each individual school by market.

Marketing efforts are directed by a central marketing team working with school operations’ management and the education team to develop consistent brand positioning and communication strategies, with the goal of continuously improving customer acquisition and retention. Our marketing team conducts enrollment marketing campaigns throughout the year in each of our geographic areas and centrally supports our school clusters and individual schools. These major campaigns are supplemented by community-based activities conducted by our local Executive Directors and principals.

Our annual marketing calendar is synchronized to the typical customer demand cycle for enrollment. We direct marketing resources towards our preschool enrollments during spring and summer and towards our elementary/middle schools during fall and winter. To a lesser degree, there is enrollment activity in the other seasonal periods for all schools.

During Fiscal 2007, the Company implemented a number of marketing communication tools to strengthen our communications with existing customers and increase customer retention and length of stay. These tools include, but are not limited to, e-mail based newsletters, enhanced school specific websites and updated in-school and in-classroom communication materials.

Corporate Development – Strategy and Implementation

Our growth strategy in the private education market includes internal growth of our enrollment at existing schools, expansion of current facilities, new school development in both existing and new markets and strategic acquisitions.

Our recent emphasis has been on increasing occupancy and ancillary program revenue in our existing schools and leveraging the investment in those assets. Management has implemented new training programs designed to strengthen Principals’ and Executive Directors’ sales and customer service skills. In addition, to broaden the potential career path opportunities for employees we have provided employees the ability to move between locations as appropriate opportunities arise. The similar business and education model our schools operate under permits the Company to execute on this career path strategy.

While a significant portion of our efforts have focused on improving the performance of existing schools, during Fiscal 2007, the Company increased its effort to identify opportunities to develop and open new schools and to acquire schools in support of our demographically profiled geographic market cluster strategy, in both existing and new markets.

While we do not currently anticipate exiting any of our geographic markets, we regularly analyze the profitability of our existing school and real estate portfolio to identify schools that are underperforming and/or do not fit our business model or demographic based geographic cluster strategies. We then develop plans either to improve these schools or remove them from our portfolio. This represents an important activity in reallocating capital to the balance of our schools in order to ensure the continued improvement of our program offerings and overall company performance.

New School Development

During the first quarter of Fiscal 2008, the Company opened three additional preschools and has two preschools and one elementary school expansion under construction.

For new school development we typically engage a developer or contractor to build a facility to our specifications. We also look to occupy existing buildings that are appropriate for our schools and that are located in growth areas that meet our demographic requirements.

Our new school development strategy builds upon our practice of clustering of preschools around an elementary school in order to provide a continuum of education and consistent curriculum for children from infancy through 8 th grade. Clusters of schools are placed in geographic markets where the economy and population meet our demographic profile. In several markets, students from our preschools can easily matriculate into our elementary/middle school programs. In addition, we can potentially convert students from our other specialty programs to our general education programs.

During Fiscal 2007, the Company sold seven schools in North Carolina as part of its strategy to focus on private pay markets. These schools were in smaller markets and had a material level of socio-economic based publicly funded revenue.

Acquisitions

We expect to use strategic acquisitions to expand our business. Key acquisition criteria include reputation, location in markets meeting our target demographics, growth prospects, quality of personnel and the ability to integrate into existing market clusters or become the foundation for new market clusters. We expect to focus any near-term acquisitions on schools that fit our demographic and cluster strategy and which serve the preschool and/or elementary school market either directly serving the consumer or supporting a corporation or other entity in providing preschool and other related services to their employees. The Company seeks to identify acquisition opportunities at appropriate prices.

At the end of Fiscal 2006, the Company acquired The Honor Roll School ® , a Preschool and Pre K-eighth grade school located in Sugar Land Texas. During Fiscal 2007, the Company acquired Discovery Isle, a chain of six curriculum-based preschools in San Diego, California. These acquisitions added seven preschools and one Pre K-eighth grade school to the Company’s portfolio.

These were the first acquisitions for the Company in over three years. These acquisitions show two different approaches to implementing the Company’s strategy. The Honor Roll School ® acquisition allowed the Company to enter a new geographic market by purchasing an already successful K-8 program. This acquisition provides the Company the opportunity to expand The Honor Roll School ® brand by developing new preschools in the Houston market to develop a robust feeder system to the K-8 school. The Company also entered a new geographic market with the acquisition of the six Discovery Isle preschools in San Diego, California. In this case, the acquisition provides the Company the opportunity to expand the Discovery Isle preschool brand through the development or acquisition of additional preschools and also add elementary and/or middle school(s) that could utilize the Discovery Isle preschools as a feeder system for elementary school students.

During the first quarter of Fiscal 2008, the Company acquired the assets of four Learning Ladder preschools, three of which will be rebranded under the Chesterbrook Academy brand. The remaining school was closed during the first quarter of 2008. These schools expand our existing market coverage in a geographic market in which the Company currently operates, Lancaster, Pennsylvania.

Seasonality

Our elementary/middle schools historically have lower operating revenues in the summer due to the end of the traditional academic year and seasonally lower enrollment and related fees in summer programs. Summer revenues of preschools are, to a lesser degree, subject to the same seasonality.

Management seeks to reduce the seasonal fluctuations of the Company’s revenue stream by adding to the school a mix of products and services in the lower revenue seasons.

Industry and Competition

Education reform movements in the United States are providing new alternatives to the public schools. These reforms include charter schools, private management of public schools, home schooling, private schools, virtual schools and voucher programs. Our strategy is to provide parents a quality alternative to public schools through our privately owned and operated schools, utilizing proven curriculum in a safe and challenging environment. While our schools do not currently reside in any school voucher markets, we believe voucher programs may be a positive development for our schools, should we choose to accept them. We consider each of these alternatives to be competition for our schools and the expansion or contraction of funding and/or public support of these alternatives may impact the demand for our product, available real estate and our ability to increase or maintain our operating margins.

Furthermore, we compete with other for-profit private schools, charter schools, non-profit schools, sectarian schools and home schooling. We also face competition with respect to preschool services and before- and after-school programs from public schools, government-based providers and religiously affiliated, community-based or other non-profit programs that may offer such services at little or no cost to parents. We anticipate that, given the perceived potential of the education market, well-financed competition may emerge, including possible competition from the large for-profit child care companies. We believe the only large for-profit competitors that integrate preschool, elementary education and school age programs and that currently compete beyond a regional level are Knowledge Learning Corp., a privately held company, Bright Horizons Family Solutions, Inc. (BFAM), ABC Learning (ABS.AX) and Mini-Skools, a privately held company. We also face competition in each of our demographic markets from local operators of individually owned private schools. Finally, public school systems may become stronger competitors at the preschool level if additional states pass or expand universal pre-K legislation that provides public funds for preschool for three and four year olds and do not allow for-profit preschool operators to participate in these programs, or fund payments to for-profit operators at lower than market prices or costs.

While price is an important factor in competing in both the preschool and elementary school markets, we believe that other competitive factors also are important, including professionally developed educational programs, qualified and trained school administrators, well-equipped facilities, trained teachers and a broad range of ancillary services, including before- and after- school programs, transportation and infant care. Some of these services are not offered by some of our competitors. We conduct annual tuition rate surveys and believe we are competitively priced in each of our markets.

Regulation

Our schools are subject to national, state and local regulations and licensing requirements. We have policies and procedures in place to assist in complying with such regulations and requirements. These regulations and the administrative bodies in charge of these regulations vary from jurisdiction to jurisdiction and may apply differently within the same jurisdiction to a preschool, elementary or middle school. The regulatory and licensing requirements tend to be more stringent with respect to preschools, as government agencies generally review the fitness and adequacy of buildings and equipment, the ratio of staff personnel to enrolled children, staff training, record keeping, children’s dietary program, daily curriculum and compliance with health and safety standards. In most jurisdictions, these agencies conduct scheduled and unscheduled inspections of the schools and licenses must be renewed periodically. Most jurisdictions establish requirements for background checks or other clearance procedures for new employees of schools. Repeated failures of a school to comply with applicable regulations can subject the school to sanctions, which might include probation or, in more serious cases, suspension or revocation of the school’s license to operate and could also lead to investigations of our other schools located in the same jurisdiction. In addition, this type of action could lead to negative publicity extending beyond that jurisdiction and potentially affecting our other locations. We believe that our operations are in substantial compliance with all material regulations applicable to our business. However, there is no assurance that a licensing authority will not determine a particular school to be in violation of applicable regulations and take action against that school and possibly other schools in the same jurisdiction. In addition, there may be unforeseen changes in regulations and licensing requirements, such as changes in the required ratio of child center staff personnel to enrolled children that could have a material adverse effect on our operations. States in which we operate routinely review the adequacy of regulatory and licensing requirements and implement changes, which may significantly increase our costs to operate in those states.

Environmental Compliance

We are not aware of any existing environmental conditions that currently or in the future could reasonably be expected to have a material adverse effect on our financial position, operating results or cash flows and we have not incurred material expenditures to address environmental conditions at any school. Although we have periodically conducted limited environmental investigations and remedial activities at some of our schools, we have not undertaken an in-depth environmental review of all of our schools and accordingly, there may be material environmental liabilities of which we are unaware. In addition, no assurances can be given that future laws or regulations will not impose any material environmental liability.

Insurance

We currently maintain comprehensive general liability, workers’ compensation, automobile liability, property, excess umbrella liability, terrorism, student accident insurance and directors’ and officers’ liability insurance. The policies provide a variety of coverages and limits. Companies involved in the education and care of children, however, may not be able to obtain insurance for the total risks inherent in their operations. In particular, general liability coverage can have sublimits per claim for child abuse. Although we believe we have adequate insurance coverage at this time, claims in excess of, or not included within, our coverage may be asserted. In addition, there can be no assurance that in future years we will not become subject to lower limits or substantial increase in insurance premiums.

Employees

As of September 4, 2007, we employed approximately 4,400 persons. None of the Company’s employees are represented by a labor union. We believe that our relationship with our employees is satisfactory.

During Fiscal 2007, the child care industry in general saw an increase in organized labor contacts with child care workers and preschool teachers, especially in states such as Washington and California. While there have been no specific attempts to organize our teachers or employees, there is no assurance that in future years we or the industry will not be subject to some form of labor organization attempt.

CEO BACKGROUND

David Beale. Mr. Beale is the founder and Chief Executive Officer of SuccessLab Learning Centers, Inc., a supplemental education company specializing in cognitive and perceptual skills development. SuccessLab commenced operations in 2004. Prior to establishing SuccessLab, Mr. Beale founded VANTAS (aka Alliance National) in 1986 and served as President, Chief Executive Officer, and Director until May 2000 when the company was merged with HQ Global Workplaces. VANTAS operated business centers that provided furnished office space and business support services on short notice with flexible contract terms. Mr. Beale grew VANTAS from a single location in Washington, DC in 1986 to over 200 locations at the time of the merger with HQ Global Workplaces.

George H. Bernstein. Mr. Bernstein was named the Company’s Chief Executive Officer and Director in July 2003, and currently holds the title of President and Chief Executive Officer. Between 1997 and 2002, Mr. Bernstein was employed in various positions with Cole National Corporation. Between 2000 and 2002, Mr. Bernstein was President of Pearle Vision, Inc., an 840 unit operator and franchiser of optical retail stores. During parts of 1999 and 2000, Mr. Bernstein was Executive Vice President—Strategic Planning and President of Vision Operations for Cole Vision. Between 1997 and 1999, Mr. Bernstein was the Senior Vice President and General Manager at Things Remembered, an 800 store chain of personalized gift stores. Mr. Bernstein started his business career as a consultant with Bain and Company, a leading strategy consulting firm. Mr. Bernstein earned a B.S. degree in Business Administration from Bucknell University, and a J.D. degree from Harvard Law School. Mr. Bernstein was named as a director pursuant to his employment agreement. See “Employment Agreements with Executive Officers.”

Therese Kreig Crane, Ed.D. currently serves in various leadership capacities within the education industry, including as a trustee for the National Education Association Foundation (2003-present) and the Western Governors University (2001-present), as Chairman of the Board of Directors of Nobel Learning Communities, Inc. (2004-present) and as a director of Questia Media, Inc. (2001-present) and Tutor.com (2005-present). From 2003 until June 2005, Dr. Crane served on the board of AlphaSmart, a provider of affordable, portable personal learning solutions for the K-12 classroom. In August 2003, she formed Crane Associates as a sole proprietorship, engaged in the educational technology consulting practice, advising educational technology companies in business strategy, marketing and sales. Dr. Crane was engaged as a retained consultant by Infotech Strategies in 2003 and currently serves as the Senior Education Advisor. From 2000 to 2003, Dr. Crane was Vice President, Information and Education Products at America Online. Prior to that, she was President of Jostens Learning Corporation and its successor company, Compass Learning. Dr. Crane also held various positions with Apple Computer, including Senior Vice President, Education of Americas, and was a corporate officer as Apple computer’s Senior Vice President Worldwide Strategic Market Segments. Dr. Crane started her career as an elementary school classroom teacher. Dr. Crane has a B.S. in elementary education and mathematics from the University of Texas at Austin, and M.Ed. in early childhood education and an Ed.D. in administrative leadership from the University of North Texas.

Steven B. Fink. Mr. Fink has been the Chief Executive Officer of Lawrence Investments, L.L.C., a technology and biotechnology private equity investment firm that is controlled by Lawrence J. Ellison, since May 2000. Mr. Fink also serves as a Vice Chairman of Knowledge Universe (now renamed Krest LLC), a position he has held since 1996. From October 1999 to October 2000, he served as Chief Executive Officer of Nextera Enterprises, Inc., an economic consulting company affiliated with Knowledge Universe. From 1981 to 1986, Mr. Fink served as Chief Executive Officer and Chairman of the board of directors of Anthony Manufacturing Company, a specialty glass and conductive coatings manufacturer. He currently serves as Vice Chairman of Heron International, a European real estate development company, and as a director on the board of Spring Group plc, an information technology services company in the United Kingdom and Chairman of the Board of LeapFrog Enterprises, Inc. He also serves on the board of C-COR Incorporated, the UCLA Foundation and the American College of Physicians Foundation. Mr. Fink also serves on the boards of directors of privately held companies. Mr. Fink has a B.S. from the University of California at Los Angeles and a J.D. and an L.L.M. from New York University.

Peter H. Havens. Mr. Havens has been Chairman of Baldwin Management, LLC, an investment management concern, since July 1999. Previously, he was the Executive Vice President of Bryn Mawr Bank Corporation overseeing the Investment Management and Trust Division. From 1982 through May 1995, Mr. Havens served as manager of Kewanee Enterprises, a private investment firm located in Bryn Mawr, Pennsylvania. He is also chairman of the board of directors of Petroferm, Inc. and Lankenau Hospital Foundation, and a Trustee Emeritus of Ursinus College.

Richard J. Pinola. Mr. Pinola was Chairman and Chief Executive Officer of Right Management Consultants, a global consulting firm specializing in career transition and organizational consulting services. He served as a director of Right since 1990 and as Chief Executive Officer since July of 1992. Prior to joining Right Management Consultants, Mr. Pinola was President and Chief Operating Officer of Penn Mutual Life Insurance Company, a diversified financial services firm. He is a director on the boards of Reading is Fundamental, Inc.; K-Tron International; the Visiting Nurses Association; King’s College; Eric M. Godshalk & Co.; Kenexa Technology and Bankrate.com. Mr. Pinola has been a regular speaker on worldwide workforce issues, and has been a guest lecturer at The Yale School of Management. He has served on the boards of directors of the American Lung Association, Janney Montgomery Scott, LLC, the Life Office Management Association, and the Horsham Clinic. Mr. Pinola was the founder and director of The Living Wills Archive Company and a founder and board member of the Mutual Association for Professional Services.

Michael J. Rosenthal. Since 1986, Mr. Rosenthal has served as chairman and president of M.J. Rosenthal and Associates, Inc., an investment and consulting company. Since 2006, Mr. Rosenthal has been chairman and Chief Executive Officer of Bill Blass New York, a high-end manufacturer of women’s clothing, and is also chairman of Skins, Inc., a manufacturer of men’s and women’s shoes. From 1984 to 1986, Mr. Rosenthal served as a partner and managing director of Wesray Capital Corporation, an investment company, and prior to that was senior vice president and managing director of the Mergers and Acquisitions Department of Donaldson, Lufkin & Jenrette, Inc., an investment banking firm. Mr. Rosenthal also serves as a director and treasurer of the Horticultural Society of New York. Over the last several years, Mr. Rosenthal has also served as chairman, a director and/or Chief Executive Officer of a number of companies including: American Vision Centers, Inc., Northwestern Steel & Wire Company and Wilson Sporting Goods Company. In addition to being a director of Nobel Learning Centers, Inc., he also serves on the board of MAXXAM, Inc. and The Pacific Lumber Company.

Ralph Smith. Mr. Smith is Senior Vice President of The Annie E. Casey Foundation, a private philanthropy dedicated to helping build better futures for disadvantaged children in the United States. From 1975 to 1997, Mr. Smith was a member of the faculty of the Law School of the University of Pennsylvania, teaching corporate law, securities regulations, and education law and policy. Mr. Smith serves on the board of LeapFrog Enterprises, Inc., Venture Philanthropy Partners, a non-profit philanthropic investment organization serving the National Capital Region, and the Center for Responsible Lending, a non-profit research and policy organization protecting home ownership and family wealth. He has served as counsel to the Congressional Black Caucus and as cooperating attorney for the NAACP, the Center for Constitutional Rights, and the National Conference of Black Lawyers. Mr. Smith has also held a number of senior leadership positions for the School District of Philadelphia, including chief of staff and special counsel. Mr. Smith received his undergraduate degree from Loyola University of Los Angeles, a J.D. from the University of California and served as a Teaching Fellow and LLM/SJD candidate at Harvard University.

David L. Warnock is a partner with Camden Partners and co-founded the firm in 1995. He has over 24 years of investment experience and focuses on investments in the education and business and financial services sectors. Mr. Warnock is Chairman and Chief Executive Officer of Camden Learning Corporation. He serves on the boards of directors of American Public Education, Inc., a regionally accredited online post-secondary university, New Horizons Worldwide, Inc., one of the largest global IT training companies, Nobel Learning Communities, Inc., a nationwide provider of pre-K through 8 th grade private schools and Questar Assessment, Inc., formerly Touchstone Applied Science Associates which provides testing and assessment services for standardized testing, all of which are Camden Partners’ portfolio companies. Mr. Warnock served as the Chairman of Nobel from September 2003 through February 2004. Mr. Warnock has previously served on the boards of Concord Career Colleges from 1997 thru 2006 and Children’s Comprehensive Services, Inc. from 1993 to 2000. Previously, Mr. Warnock was President of T. Rowe Price Strategic Partners and T. Rowe Price Strategic Partners II. He was also co-manager of the T. Rowe Price New Horizons Fund. Mr. Warnock was employed by T. Rowe Price Associates from 1983 to 1995. Upon forming Camden Partners (formerly known as Cahill, Warnock & Company) and until December 31, 1997, Mr. Warnock served as a consultant to the advisory committees of T. Rowe Price Strategic Partners and T. Rowe Price Strategic Partners II.

MANAGEMENT DISCUSSION FROM LATEST 10K

The Company has made statements in this report that constitute forward-looking statements as that term is defined in the federal securities laws. These forward-looking statements concern the Company’s operations, economic performance and financial condition and may include statements regarding: opportunities for growth; the number of preschool and elementary schools expected to be added in future years; the profitability of newly opened schools; capital expenditure levels; the ability to incur additional indebtedness; strategic acquisitions, investments and other transactions; and changes in operating systems and policies. The forward-looking statements are subject to various known and unknown risks, uncertainties and other factors. When words such as “believes,” “expects,” “anticipates,” “plans,” “estimates,” “projects” or similar expressions are used in this Annual Report on Form 10-K, the Company is making forward-looking statements.

Although the Company believes that any forward-looking statements are based on reasonable assumptions, expected results may not be achieved. Actual results may differ materially from the Company’s expectations. In addition to the risk factors described in Item IA of this document and that are discussed from time to time in the Company’s other SEC reports and filings, important factors that could cause actual results to differ from expectations include:


•

the Company’s ability to hire and retain qualified executive directors, principals, teachers and teachers’ aides;


•

the Company’s ability to retain key individuals in acquired schools and/or successfully grow and integrate acquired schools’ operations;


•

competitive conditions in the pre-school and elementary school education and services industry, such as the growth of competitors as possible alternatives to the public school system, including virtual charter schools, charter schools and magnet schools;


•

the Company’s ability to find affordable real estate and renew existing locations on terms acceptable to the Company and the impact this may have on enrollment;


•

the Company’s ability to obtain the capital required to implement fully its business and strategic plan;


•

government regulations affecting school operations, including student/teacher ratios, accreditation, and the acceptance of course credits from our special purpose high schools;


•

the establishment of governmental mandated universal pre-K or similar programs or benefits that do not allow for participation by for-profit operators or allows for participation at low reimbursement rates;


•

changing economic conditions;


•

the Company’s inability to defend successfully against or counter negative publicity associated with claims involving alleged incidents at its schools;


•

environmental or health related events that could affect schools in areas impacted by such events;


•

a small number of shareholders control a majority of the outstanding common stock of the Company;


•

our ability to maintain effective controls over financial reporting;


•

the effect of anti-takeover provisions in the Company’s certificate of incorporation, bylaws and Delaware law.

Readers are cautioned that these risks may not be exhaustive. The Company operates in a continually changing business and regulatory environment and new risks and requirements emerge from time to time.

Readers should not rely upon forward-looking statements except as statements of management’s present intentions and expectations that may or may not occur. Readers should read these cautionary statements as being applicable to all forward-looking statements wherever they appear. The Company assumes no obligation to update or revise the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

Introduction

The following discussion should be read in conjunction with “Item 6. Selected Historical Consolidated Financial and Other Data”, the consolidated financial statements and the related notes presented in “Item 8. Financial Statements and Supplementary Data” included elsewhere in this report.

Change in Fiscal Year End

Effective for the fiscal year ended July 3, 2004 (“Fiscal 2004”), the Company changed to a 52-53 week fiscal year ending on the Saturday closest to June 30. The fiscal years ended June 30, 2007 (“Fiscal 2007”), July 1, 2006 (“Fiscal 2006”) and July 2, 2005 (“Fiscal 2005”) each include 52 weeks. Fiscal 2004 includes 53 weeks. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and majority owned subsidiaries.

Reclassifications

As a result of certain school closures in Fiscal 2007, Fiscal 2006 and Fiscal 2005 and the reclassification in Fiscal 2005 of certain schools from held for sale to continuing operations, the Company has conformed amounts reported for Fiscal years 2006 and 2005 in its Annual Report on Form 10-K to the period ended June 30, 2007. Certain other prior period amounts have been reclassified to conform to the current period’s presentation. All significant intercompany balances and transactions have been eliminated.

Results of Operations

Results of Operations – Fiscal 2007 compared to Fiscal 2006

At June 30, 2007, the Company operated 151 schools. Since July 1, 2006, the Company acquired six preschools and opened three new preschools. Comparable schools include 139 schools that operated during the entire period of Fiscal 2007 and Fiscal 2006.

Revenue for comparable schools (those which operated both entire fiscal periods) increased $6,897,000 or 4.4% in Fiscal 2007 as compared to the prior fiscal year.

Revenue from schools opened or acquired during Fiscal 2007 or Fiscal 2006 was $15,254,000 higher during Fiscal 2007 as compared to the same period in the prior fiscal year. Fiscal 2007 included revenues from three new preschools that were opened during Fiscal 2007, one preschool that was opened during the first quarter of Fiscal 2006, one preschool and one elementary school that were acquired in the fourth quarter of Fiscal 2006 and six preschools that were acquired by the Company late in the second quarter of Fiscal 2007.

Revenues from schools that were closed during Fiscal 2007 decreased by $333,000 to $92,000 during Fiscal 2007 as compared to the prior fiscal year.

Other revenues decreased by $758,000 during Fiscal 2007 as compared to the prior fiscal year. This decrease is primarily related to a reduction in back office management services contracts and lease renewals in our charter school management business.

Revenue trends

Comparable private pay schools net revenue increased $6,897,000 or 4.4% for Fiscal 2007 compared to Fiscal 2006. Revenue increases were due primarily to average tuition increases of approximately 3.5% to 4.0% and an increase in average enrollments. The Company maintained an increase in student enrollment during the Fiscal 2007 school year (primarily September through May). The increase in student enrollment was partially influenced by recent investments in people, curriculum and marketing. Management believes it is an industry practice to increase tuition annually and that industry norms in recent years have seen increases in approximately a 3% to 5% range. Management expects this will continue to be the industry trend for the foreseeable future.

Approximately 98% of the Company’s gross revenue comes directly from our customers versus 2% from governmental agencies. During Fiscal 2006, approximately 97% of the Company’s gross revenue came directly from our customers. Management believes this is significantly different from many providers in the education industry where a more significant portion of revenue is generated through government pay sources.

Personnel costs

Personnel costs primarily include wages, payroll taxes, employee benefits and vacation costs. This category of costs is partially variable and primarily affected by incentive compensation, health care benefit rate increases, staffing ratio requirements and changes in enrollment. The category tends to be variable on a step function basis when staffing ratios indicate additional teachers are required without full enrollment in a class. In the case of new schools, a base level of personnel and associated costs are established in the early years of a school’s life which are leveraged as enrollments ramp up.

For Fiscal 2007, personnel cost increased $10,921,000 or 14.4% to $86,822,000 from $75,901,000 for Fiscal 2006. The 14.4% increase was primarily driven by increases of wages and benefits of $7,352,000 from schools opened or acquired during Fiscal 2007 or Fiscal 2006 as compared to Fiscal 2006. Twelve schools were opened or acquired during Fiscal 2007 and Fiscal 2006 as discussed in the Revenue section above. The remaining $3,569,000 increase was primarily driven by increases in total wages, incentive compensation, payroll tax and vacation pay for comparable schools operated by the Company during Fiscal 2007 as compared to Fiscal 2006.

Personnel costs increased to 47.5% of revenue for Fiscal 2007 as compared to 46.9% for Fiscal 2006. This is a result of previously vacant positions being filled and other positions that were added or upgraded at a faster pace than revenue growth. This trend may continue in the near term as the Company continues to implement its strategy to add personnel in key positions and upgrade its school teams. While this trend may continue in the short term, the Company anticipates stronger revenue growth in the future that will ultimately result in leveraging this investment in school personnel and associated payroll expense.

School operating costs

School operating costs primarily include maintenance, janitorial, food, supplies, utilities, transportation, school level marketing and ancillary programs. The category is partially variable with increases in revenue primarily when those revenue increases are driven by additional enrollment. In the case of new schools a base level of costs are established in the early years of a school’s life, which are leveraged in later years as enrollments ramp up.

For Fiscal 2007, school operating costs increased $1,878,000 to $24,815,000 from $22,937,000 for Fiscal 2006. This 8.2% increase was primarily driven by a $1,700,000 increase in operating costs from schools opened or acquired during Fiscal 2007 as compared to Fiscal 2006. Twelve schools were opened or acquired during Fiscal 2007 and Fiscal 2006 as discussed in the Revenue section above.

Operating costs from comparable schools operated by the Company during the entire year for Fiscal 2007 and Fiscal 2006 increased $274,000 to $22,857,000 for Fiscal 2007 as compared to $22,583,000 for Fiscal 2006. This 1.2% increase was the result of increases in food costs of $372,000 and facility maintenance costs of $332,000, which were partially offset by lower bad debt of $339,000 and other reduced operating costs of $91,000.

School operating costs decreased to 13.6% of revenue for Fiscal 2007 as compared to 14.2% for Fiscal 2006. This reduction was the result of the continued focus on improving school operations, cost controls and comparable school revenue growth. The Company’s school operating system provides greater visibility to school billing, collections and expenditure activities.

Rent and other

Rent and other costs primarily include property rent and taxes, the Company’s retention of a portion of claims including worker’s compensation and property damage, depreciation and amortization, marketing, vehicle and equipment rent and pre-opening costs. This category of costs is relatively fixed in nature with increases related to contractual occupancy obligations, changes in marketing initiatives or a ramp up in school openings.

For Fiscal 2007, rent and other expenses increased $3,816,000 or 9.6% to $43,688,000 from $39,872,000 for Fiscal 2006. Rent and other decreased to 23.9% of revenue for Fiscal 2007 from 24.6% of revenue for Fiscal 2006.

The $3,816,000 increase was primarily driven by a $3,363,000 increase in rent and other costs from schools opened or acquired during Fiscal 2007 as compared to Fiscal 2006. Twelve schools were opened or acquired during Fiscal 2007 and Fiscal 2006 as discussed in the Revenue section above.

Rent and other costs from comparable schools operated by the Company during the entire year for Fiscal 2007 and Fiscal 2006 increased $1,050,000 or 2.8%. This increase was the result of increases in occupancy costs of $628,000, marketing costs of $288,000 and depreciation expense of $289,000. These increases were offset by decreases in property damage and workers’ compensation claims retained by the Company of $160,000.

The increase in occupancy costs in comparable schools is mainly due to contractual rent increases driven by the Consumer Price Index (“CPI”), certain lease renewals or extensions and property tax increases. Corporate marketing costs increased due to an increase in overall marketing spending as well as a shift in school based marketing spending that was previously classified as a school operating expense. Property damages decreased, as there were no major hurricanes or other significant weather events during Fiscal 2007, unlike during the first quarter of Fiscal 2006 when certain of the Company’s facilities sustained damage or interruptions from Hurricane Wilma. Rent and other costs decreased by $498,000 or 46.5% for other, non-school items, which consisted of a decrease in rents and depreciation of equipment related to a charter school that subleased a property through the Company. During Fiscal 2007 the lease rights to this property were transferred by the Company to the charter school.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

At March 29, 2008, the Company operated 172 schools. Since June 30, 2007, the Company has opened four new preschools , acquired eighteen preschools and seven before and after program buildings. The Company does not include the before and after programs in its school counts.

Revenue

Revenue for the thirteen weeks ended March 29, 2008 increased $4,110,000 or 8.4% to $53,328,000 from $49,218,000 for the thirteen weeks ended March 31, 2007. Revenue for the thirty-nine weeks ended March 29, 2008 increased $15,286,000 or 11.4% to $149,167,000 from $133,881,000 for the thirty-nine weeks ended March 31, 2007.

Revenue for comparable schools include those schools which operated the entire current and prior year fiscal periods. Revenue for schools opened or acquired subsequent to the fourth quarter of Fiscal 2007 included revenues from a total of thirty schools which were added during Fiscal 2007 and the first thirty-nine weeks of Fiscal 2008 as follows: seventeen preschools acquired during Fiscal 2008, four new preschools opened during Fiscal 2008, six preschools acquired during the second quarter of Fiscal 2007, and three new preschools opened during Fiscal 2007. Of the seventeen schools acquired during Fiscal 2008 twelve were acquired during March 2008 and consequently have not yet reflected a full fiscal quarter result.

Other revenues, primarily related to contracts in our charter school management business, decreased by $178,000 during the thirteen weeks ended March 29, 2008 compared to the respective period in the prior year as several of these contracts expired prior to this fiscal period. Other revenues, primarily related to a reduction in contracts and lease renewals in our charter school management business, decreased by $1,057,000 during the thirty-nine weeks ended March 29, 2008 as compared to the respective period in the prior year as several of these contracts expired early in or prior to this fiscal period.

Revenue trends

Comparable private pay schools’ net revenue increased $1,251,000 or 2.6% to $50,043,000 for the thirteen weeks ended March 29, 2008 from $48,792,000 for the thirteen weeks ended March 31, 2007. Comparable private pay schools’ net revenue increased $5,389,000 or 4.2% to $132,750,000 for the thirty-nine weeks ended March 29, 2008 from $127,361,000 for the thirty-nine weeks ended March 31, 2007.

The revenue increase for the thirteen weeks was due primarily to average tuition increase of approximately 3.8% offset by a decrease in average enrollments at comparable schools as compared to the same period in the prior year. The enrollment decrease was primarily a result of enrollments increasing at slower rate during Fiscal 2008 as compared to Fiscal 2007. We believe this enrollment decrease is due to the current economic environment in some of our markets.

The revenue increase for the thirty-nine weeks was due primarily to average tuition increase of approximately 3.8% and an increase in average enrollments at comparable schools as compared to the same period in the prior year.

Personnel costs

Personnel costs primarily include wages, payroll taxes, employee benefits and vacation costs. This category of costs is partially variable and primarily affected by changes in enrollment, incentive compensation, health care benefit rate increases and state-mandated staffing ratio requirements in our preschools. This category tends to be variable on a step function basis when staffing ratios indicate additional teachers are required without full enrollment in a class. In the case of new schools, a base level of personnel and associated costs are required in the early periods of a school’s life and are expected to leverage in future periods as enrollments ramp up.

For the thirteen weeks ended March 29, 2008, personnel cost increased $2,009,000 to $25,408,000 from $23,399,000 for the thirteen weeks ended March 31, 2007.

The 8.6% increase was primarily driven by wages and salaries of $1,559,000 from thirty schools opened or acquired during Fiscal 2007 and the first thirty-nine weeks of Fiscal 2008. The remaining $460,000 or 2.0% increase from comparable schools was primarily driven by increases in total wages, payroll tax, and vacation pay for comparable schools operated by the Company during the thirteen weeks ended March 29, 2008, as compared to the same period ended March 31, 2007.

Personnel costs increased to 47.6% of revenue for the thirteen week period ended March 29, 2008, as compared to 47.5% for the same period ended March 31, 2007.

For the thirty-nine weeks ended March 29, 2008, personnel cost increased $7,724,000 to $72,043,000 from $64,319,000 for the thirty-nine weeks ended March 31, 2007. The 12.0% increase was primarily driven by wages and salaries of $5,685,000 from thirty schools opened or acquired during Fiscal 2007 and the first thirty-nine weeks of Fiscal 2008. The comparable school portion of the increase of $2,096,000 or 3.4% was primarily driven by increases in total wages, payroll tax, health insurance benefits and vacation pay for comparable schools operated by the Company during the thirty-nine weeks ended March 29, 2008, as compared to the same period ended March 31, 2007.

Personnel costs increased to 48.3% of revenue for the thirty-nine week period ended March 29, 2008, as compared to 48.0% for the same period ended March 31, 2007.

School operating costs

School operating costs primarily include food, utilities, transportation, maintenance, janitorial, supplies, school level marketing spending and ancillary programs. This category is partially variable with increases in revenue primarily when those revenue increases are driven by additional enrollment. In the case of new schools, a base level of costs are incurred in the early period of a school’s life and are expected to leverage in future periods as enrollments ramp up.

For the thirteen weeks ended March 29, 2008, school operating costs increased $388,000 to $6,384,000 from $5,996,000 for the thirteen weeks ended March 31, 2007. The 6.5% increase was primarily driven by an increase in school operating costs of $351,000 from thirty schools opened or acquired during Fiscal 2007 and the first thirty-nine weeks of Fiscal 2008. Operating costs from comparable schools operated by the Company during the thirteen week period ended March 29, 2008 and the thirteen week period ended March 31, 2007 increased $54,000 or 0.9% to $5,995,000 for the thirteen weeks ended March 29, 2008 from $5,941,000 for the thirteen weeks ended March 31, 2007. This 0.9% increase was primarily the result of increases in food costs of $103,000, maintenance costs of $103,000 and other school operating costs of $14,000 offset by a decrease of curriculum costs of $166,000.

For the thirteen weeks ended March 29, 2008, school operating costs as a percentage of revenue decreased to 12.0% from 12.2% as compared to the thirteen weeks ended March 31, 2007. This reduction was primarily the result of continued focus on improving school operations and cost controls.

For the thirty-nine weeks ended March 29, 2008, school operating costs increased $1,334,000 to $19,579,000 from $18,245,000 for the thirty-nine weeks ended March 31, 2007. The 7.3% increase was primarily driven by school operating costs of $1,283,000 from thirty schools opened or acquired during Fiscal 2007 and the first thirty-nine weeks of Fiscal 2008. Operating costs from comparable schools operated by the Company during both the entire thirty-nine week period ended March 29, 2008 and the entire thirty-nine week period ended March 31, 2007 increased $123,000 to $17,746,000 for the thirty-nine weeks ended March 29, 2008 from $17,623,000 for the thirty-nine weeks ended March 31, 2007. This 0.7% increase was primarily the result of increased maintenance costs of $248,000, food costs of $231,000, utility costs of $103,000, and other school operating costs of $60,000 offset by reductions of curriculum costs of $331,000 and bad debt expense of $188,000.

For the thirty-nine weeks ended March 29, 2008, school operating costs as a percentage of revenue decreased to 13.1% from 13.6% as compared to the thirty-nine weeks ended March 31, 2007. This reduction was primarily the result of comparable school revenue growth and continued focus on improving school operations and cost controls.

Rent and other

Rent and other costs primarily include property rent and property taxes, the portion of claims retained by the Company for workers’ compensation and property damage, depreciation and amortization, regional and school marketing, vehicle and equipment rent, and pre-opening costs. This category of costs is relatively fixed in nature with increases related to contractual occupancy obligations, changes in marketing initiatives and the addition of new or acquired schools.

For the thirteen weeks ended March 29, 2008, rent and other costs increased $1,162,000 to $12,549,000 from $11,387,000 for the thirteen weeks ended March 31, 2007. The 10.2% increase was primarily driven by school rent and other costs of $807,000 from thirty schools opened or acquired during Fiscal 2007 and the first thirty-nine weeks of Fiscal 2008.

Rent and other costs from comparable schools operated by the Company during the entire thirteen week period ended March 29, 2008 and the entire thirteen week period ended March 31, 2007 increased $441,000 to $11,629,000 for the thirteen weeks ended March 29, 2008 from $11,188,000 for the thirteen weeks ended March 31, 2007. This 3.9% increase was the result of increased marketing costs of $212,000, occupancy costs of $120,000, an increased estimate in claims retained by the Company for workers’ compensation of $55,000 and other increases of $54,000. The increase in marketing cost was largely the result of a shift in the timing of certain direct mail and school open house campaigns which occurred during the fourth quarter of Fiscal 2007. As a result, fourth quarter of Fiscal 2008 marketing costs are expected to show a favorable variance when compared with fourth quarter Fiscal 2007. The increase in occupancy costs in comparable schools is mainly due to contractual rent increases driven by the Consumer Price Index (“CPI”), certain lease renewals or extensions and property tax increases.

For the thirteen weeks ended March 29, 2008, rent and other costs as a percentage of revenue increased to 23.5%, from 23.1% as compared to the thirteen weeks ended March 31, 2007.

For the thirty-nine weeks ended March 29, 2008, rent and other costs increased $4,112,000 to $36,579,000 from $32,467,000 for the thirty-nine weeks ended March 31, 2007. The 12.7% increase was primarily driven by an increase in school rent and other costs of $3,453,000 from thirty schools opened or acquired during Fiscal 2007 and the first three quarters of Fiscal 2008.

Rent and other costs from comparable schools operated by the Company during the entire thirty-nine week period ended March 29, 2008 and the entire thirty-nine week period ended March 31, 2007 increased $1,235,000 to $31,640,000 for the thirty-nine weeks ended March 29, 2008 from $30,405,000 for the thirty-nine weeks ended March 31, 2007. This 4.1% increase was the result of increased occupancy costs of $572,000 and an increased estimate in claims retention for workers’ compensation and property damages of $472,000, increased marketing and advertising costs of $181,000 and an increase in other costs of $10,000. The increase in occupancy costs in comparable schools is mainly due to contractual rent increases driven by the Consumer Price Index (“CPI”), certain lease renewals or extensions and property tax increases.

For the thirty-nine weeks ended March 29, 2008, rent and other costs as a percentage of revenue increased to 24.5%, from 24.3% as compared to the thirteen weeks ended March 31, 2007.

Gross profit

As a result of the factors described above, gross profit for the thirteen weeks ended March 29, 2008 increased $551,000 or 6.5% to $8,987,000 from $8,436,000 for the thirteen weeks ended March 31, 2007. Gross profit was 16.9% of revenue for the thirteen weeks ended March 29, 2008 compared to 17.1% of revenue for the thirteen weeks ended March 31, 2007. This reduction was primarily related to the higher number of newly opened schools and their normal new school enrollment ramp up period. Four new schools were opened during the first nine months of Fiscal 2008. In addition, higher marketing costs and the reduction of high-margin charter school revenue impacted margin in the quarter versus last year.

Gross profit for the thirty-nine weeks ended March 29, 2008 increased $2,116,000 or 11.2% to $20,966,000 from $18,850,000 for the thirty-nine weeks ended March 31, 2007. Gross profit was 14.1% of revenue for both the thirty-nine weeks ended March 29, 2008 and for the thirty-nine weeks ended March 31, 2007.

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