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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2002
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 1-1003
NOBEL LEARNING COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2465204
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1615 West Chester Pike, West Chester, PA 19382
(Address of principal executive offices) (Zip Code)
(484) 947-2000
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all report(s) 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_____
-----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 6,554,966 shares of Common
Stock outstanding at November 8, 2002.
INDEX TO FORM 10-Q
Nobel Learning Communities, Inc.
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. Financial Statements
Consolidated Balance Sheets,
September 30, 2002 (unaudited) and June 30, 2002 ........................... 2
Consolidated Statements of Income for the
three months ended September 30, 2002 (unaudited)
and 2001 (unaudited) ....................................................... 3
Consolidated Statements of Cash Flows for the
three months ended September 30, 2002 (unaudited)
and 2001 (unaudited) ....................................................... 4
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the three months Ended September 30,
2002 (unaudited) ........................................................... 5
Notes to Consolidated Interim Financial Statements ......................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............................. 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk... .............. 18
Item 4 Controls and Procedures .................................................... 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ........................................... 20
ii
PART I
Financial Information
Recent Developments
Nobel Learning Communities, Inc. ("NLCI" or "the Company") has entered into
an Agreement and Plan of Merger, dated as of August 5, 2002, with Socrates
Acquisition Corporation ("Socrates"), a corporation formed by Gryphon Partners
II, L.P. and Cadigan Investment Partners, Inc. (the "Buying Group"), both of
which are engaged principally in the business of investing in companies. The
Agreement and Plan of Merger (as amended by a First Amendment thereto, dated as
of October 2, 2002, the "Merger Agreement") contemplates that Socrates will be
merged into NLCI, with NLCI as the surviving corporation (the "Merger"). If the
Merger is completed, each issued and outstanding share of NLCI common stock and
preferred stock (calculated on an as-converted basis to the nearest
one-hundredth of a share) will be converted into the right to receive $7.75 in
cash, without interest, except for certain shares and options held by the NLCI
directors and executive officers identified in the Merger Agreement as a
rollover stockholder, which will continue as, or be converted into, equity
interests of the surviving corporation. In addition, if the Merger is completed,
each outstanding option and warrant that is exercisable as of the effective time
of the Merger will be canceled in exchange for (1) the excess, if any, of $7.75
over the per share exercise price of the option or warrant multiplied by (2) the
number of shares of common stock subject to the option or warrant exercisable as
of the effective time of the Merger, net of any applicable withholding taxes.
Following the Merger, NLCI will continue its operations as a privately held
company. The Merger is contingent upon satisfaction of a number of conditions,
including approval of NLCI's stockholders, the receipt of regulatory and other
approvals and consents, the absence of any pending or threatened actions that
would prevent the consummation of the transactions contemplated by the merger
agreement and receipt of financing. There can be no assurance that these or
other conditions to the Merger will be satisfied or that the Merger will be
completed. If the Merger is not completed for any reason, it is expected that
the current management of NLCI, under the direction of the NLCI Board of
Directors, will continue to manage NLCI as an ongoing business.
The Company has received new information regarding the Merger with
Socrates. Under the Merger Agreement, Socrates' obligation to consummate the
Merger is subject to its ability to obtain financing, and at the time the Merger
Agreement was signed, Socrates had received signed commitment letters providing
for the necessary debt and equity financing, subject to certain conditions.
Socrates has advised the special committee of the Company's board of
directors formed in connection with the Merger that Socrates does not believe
the contemplated merger consideration will be financeable at $7.75 per share.
Socrates has not requested that the Company agree to terminate the Merger
Agreement, and has also stated that, in the event the Merger does not take
place, it is considering proposing an alternative equity financing transaction
with the Company.
"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995
Certain statements set forth in this 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements include, without limitation, whether and when the
Merger will be consummated, the Company's outlook for the fiscal year ended June
30, 2003 ("Fiscal 2003"), other statements in this report other than historical
facts relating to the financial conditions, results of operations, plans,
objectives, future performance and business of the Company. In addition, words
such as "believes," "anticipates," "expects," "intends," "estimates," and
similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying such statements. Such statements are
based on management's currently available operating budgets and forecasts, which
are based upon detailed assumptions about many important factors such as market
demand, market conditions and competitive activities. While the Company believe
that its assumptions are reasonable, readers are cautioned that there are
inherent difficulties in predicting the impact of certain factors, especially
those affecting the acceptance of the Company's newly developed schools and
businesses and performance of recently acquired businesses, which could cause
actual results to differ materially from predicted results. Readers are
cautioned that the forward-looking statements reflect management's analysis only
as of the date hereof, and the Company assumes no obligation to update these
statements. Actual future results, events and trends may differ materially from
those expressed in or implied by such statements depending on a variety of
factors set forth throughout this 10-Q. With respect to any forward-looking
statements regarding the Merger, these factors include, but are not limited to,
the risks that stockholder approval, financing and regulatory and other
governmental and third-party clearances and consents may not be obtained in a
timely manner or at all and that other conditions to the Merger may not be
satisfied.
Nobel Learning Communities, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
(unaudited)
Current Assets September 30, 2002 June 30, 2002
- ------------------------------------------- ------------------ -------------
Cash and cash equivalents $ 1,800 $ 1,787
Accounts receivable, less allowance for doubtful accounts
of $509 and $468 at September 2002 and June 2002, respectively 2,712 2,685
Notes receivable 260 251
Prepaid rents 2,227 2,408
Other prepaid expenses 2,257 2,543
------------------ -------------
Total Current Assets 9,256 9,674
------------------ -------------
Property, & equipment at cost 67,956 66,047
Accumulated depreciation (27,831) (26,458)
------------------ -------------
Total property and equipment 40,125 39,589
Goodwill 48,376 48,376
Intangible assets, net 1,046 1,145
Investment 2,600 2,600
Deposits and other assets 1,543 1,596
------------------ -------------
Total Assets $ 102,946 $ 102,980
================== =============
Liabilities and Stockholders' Equity
- -------------------------------------------
Current portion of long-term obligations $ 5,217 $ 4,488
Current portion of swap contract 96 63
Cash overdraft liability 1,122 3,564
Accounts payable and other current liabilities 6,662 7,528
Unearned income 12,714 7,356
------------------ -------------
Total Current Liabilities 25,811 22,999
------------------ -------------
Long-term obligations 24,542 25,411
Long-term subordinated debt 10,228 10,318
Swap contract 478 313
Deferrred gain on sale/leaseback 21 28
Deferred taxes 1,192 1,192
Minority interest in consolidated subsidiary 236 232
------------------ -------------
Total Liabilities 62,508 60,493
Stockholders' Equity:
Preferred Stock, $.001 par value; 10,000,000 shares authorized, issued
and outstanding 4,587,464 at September 30, 2002, and June 30, 2002;
$5,524 aggregate liquidation preference at September 30, 2002 5 5
and June 30, 2002.
Common Stock, $.001 par value, 20,000,000 shares authorized, issued and
outstanding 6,554,966 at September 30, 2002 and 6,544,953 at June 30, 2002. 6 6
Treasury Stock, cost; 230,510 shares (1,375) (1,375)
Additional paid in capital 41,415 41,389
Retained earnings 961 2,838
Accumulated other comprehensive loss (574) (376)
------------------ -------------
Total Stockholders' Equity 40,438 42,487
------------------ -------------
Total Liabilities & Stockholders' Equity $ 102,946 $ 102,980
================== =============
The accompanying notes and the notes in the financial statements included
in the Registrant's Annual Report on Form 10-K are an integral
part of these financial statements.
2
Nobel Learning Communities Inc. and Subsidiaries
Consolidated Statements Of Income
for the three months ended September 30, 2002 and 2001
(Dollars in thousands except per share amounts)
(unaudited)
2002 2001
---------- ----------
Revenues $ 34,813 $ 34,369
Total operating expenses 33,426 31,473
---------- ----------
School operating profit 1,387 2,896
General and administrative expenses 2,711 2,771
---------- ----------
Operating (loss) income (1,324) 125
Interest expense 872 949
Other expense (income) 436 (82)
Minority interest in earnings of consolidated subsidiary 5 10
---------- ----------
Loss before taxes (2,637) (752)
Income tax benefit (1,081) (308)
---------- ----------
Net loss from continuing operations (1,556) (444)
Loss from discontinued operations, net of income tax
benefits of $209 and $67, September 2002 and 2001, respectively (301) (96)
---------- ----------
Net loss $ (1,857) $ (540)
========== ==========
Preferred stock dividends 21 21
---------- ----------
Net loss available to common stockholders $ (1,878) $ (561)
========== ==========
Basic loss per share:
Continuing operations (0.25) (0.07)
Discontinued operations (0.05) (0.02)
========== ==========
Loss per share $ (0.30) $ (0.09)
========== ==========
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of these financial
statements.
3
Nobel Learning Communities, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
for the three months ended September 30, 2002 and 2001
(Dollars in thousands)
(unaudited)
2002 2001
------------- -------------
Net Cash Provided By Operating Activities $ 4,901 $ 6,895
Cash Flows From Investing Activities:
Proceeds from sale of real estate - 531
Capital expenditures (2,147) (2,695)
Cash payments on note receivable (42) (160)
Advance on note receivable - 1,736
-------------- -------------
Net Cash Used In Investing Activities: (2,189) (588)
-------------- -------------
Cash Flows From Financing Activities:
Proceeds from long term debt 541 650
Repayment of long term debt (535) (1,769)
Repayment of subordinated debt (231) (1,137)
Repayment of capital lease obligation (36) -
Proceeds from exercise of stock options and warrants 25 440
Payments of dividends on preferred stock (21) (21)
Cash Overdraft (2,442) (4,355)
-------------- -------------
Net Cash (Used in) Provided by Financing Activities: (2,699) (6,192)
-------------- -------------
Net increase (decrease) in cash and cash equivalents 13 115
Cash and cash equivalents at the beginning of the period 1,787 1,321
-------------- -------------
Cash and cash equivalents at the end of the period $ 1,800 $ 1,436
============== =============
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of these
consolidated financial statements.
4
Nobel Learning Communities, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
For the Year Ended June 30, 2002 and the Three Months Ended September 30, 2002
(Dollars in thousands except share data)
(Unaudited)
Treasury and Retained Accumulated
Additional Common Earnings/ Other
Preferred Stock Common Stock Paid-In Stock Accumulated Comprehensive
--------------- ------------
Shares Amount Shares Amount Capital Issuable Deficit Loss Total
------- ------ --------- ------ ------- -------- ------- ------ --------
June 30, 2002 4,587,464 $ 5 6,544,953 $ 6 $41,389 $ (1,375) $ 2,838 $ (376) $ 42,487
Comprehensive income:
Net income (1,856) $ (1,856)
Swap contract (198) (198)
--------
Total comprehensive income $ (2,054)
Stock options and warrants
exercised and related tax benefit - - 10,013 - 26 - - $ 26
Preferred dividends - - - - - - (21) - (21)
--------- ------ --------- ------ ------- -------- ------- ------ --------
September 30, 2002 4,587,464 $ 5 6,554,966 $ 6 $41,415 $ (1,375) $ 961 $ (574) $ 40,438
========= ====== ========= ====== ======= ======== ======= ====== ========
The accompanying notes and the notes to the financial statements
included in the Registrant's Annual Report on Form
10-K are an integral part of these financial statements
5
NOBEL LEARNING COMMUNITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Interim Financial Statements
for the three months ended September 30, 2002 and 2002
(unaudited)
Note 1 - Basis of Presentation
The consolidated financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC") and, in the opinion of management, include all adjustments, consisting
of normal recurring adjustments, necessary to present fairly the Company's
financial position and results of operations. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules and regulations. It is suggested that these financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended June 30, 2002.
Due to the inherent seasonal nature of the education and child care
businesses, annualization of amounts in these interim financial statements may
not be indicative of the actual operating results for the full year.
Future results of operations of the Company involve a number of risks and
uncertainties. Factors that could affect future operating results and cause
actual results to vary materially from historical results include, but are not
limited to, consumer acceptance of the Company's business strategy with respect
to expansion into new and existing markets, the Company's debt and related
financial covenants, difficulties in managing the Company's growth including
attracting and retaining qualified personnel, a large portion of the Company's
assets represent goodwill, increased competition, changes in government policy
and regulation, ability to obtain additional capital required to fully implement
the Company's business plan, and the Company's investment in Total Education
Solutions, Inc.
Note 2 - Merger Agreement
The Stockholder Rights Plan was amended on August 4, 2002, and August 5,
2002, by Amendment No. 1 and Amendment No. 2, respectively, as part of the
negotiation and execution of the Agreement and Plan of Merger, dated as of
August 5, 2002 (as amended by the First Amendment thereto, dated as of October
2, 2002, the "Merger Agreement"), with Socrates Acquisition Corporation
("Socrates"), a corporation formed by Gryphon Partners II, L.P. and Cadigan
Investment Partners, Inc. (collectively, the "Buying Group"), both of which are
engaged principally in the business of investing in companies.
The Merger Agreement contemplates that, Socrates will be merged into the
Company, with the Company as the surviving corporation (the "Merger"). If the
Merger is completed, each issued and outstanding share of the Company's common
stock and preferred stock (calculated on an as-converted basis to the nearest
one-hundredth of a share) will be converted into the right to receive $7.75 in
cash, without interest, except for certain shares and options held by the
Company's directors and executive officers identified in the Merger Agreement as
a rollover stockholder, which will continue as, or be converted into, equity
interests of the surviving corporation. In addition, if the Merger is completed,
each outstanding option and warrant that is exercisable as of the effective time
of the Merger will be canceled in exchange for (1) the excess, if any, of $7.75
over the per share exercise price of the option or warrant multiplied by (2) the
number of shares of common stock subject to the option or warrant exercisable as
of the effective time of the
6
Merger, net of any applicable withholding taxes. Following the Merger, the
Company will continue its operations as a privately held company. The Merger is
contingent upon satisfaction of a number of conditions, including approval of
the Company's stockholders, the receipt of regulatory and other approvals and
consents, the absence of any pending or threatened actions that would prevent
the consummation of the transactions contemplated by the merger agreement and
receipt of financing. There can be no assurance that these or other conditions
to the Merger will be satisfied or that the Merger will be completed. If the
Merger is not completed for any reason, it is expected that the current
management of the Company, under the direction of the Company's Board of
Directors, will continue to manage the Company as an ongoing business.
It is currently anticipated that the total amount of funds necessary to
complete the Merger and the related transactions is approximately $108,900,000
(assuming that no NLCI stockholders exercise and perfect their appraisal
rights). The Buying Group has received commitments, subject to various
conditions, from financial institutions in an aggregate amount sufficient,
taking into account the amounts to be contributed as equity financing, to fund
these requirements. The receipt of third-party financing is a condition to
completion of the Merger. Of this amount, $47,500,000 is expected from an equity
investment in the Company by Socrates and stockholders who are converting their
shares into equity interests in the surviving corporation and an additional
$50,000,000 is expected to be funded through new credit facilities. These funds
are expected to be used to pay NLCI's stockholders and certain option holders
and warrant holders, other than stockholders who are converting their shares
into equity interests in the surviving corporation, to refinance debt, and to
pay fees and expenses related to the Merger. Assuming completion of the Merger
the senior secured credit facility and the senior subordinated notes are
expected to be repaid through cash flow generated from operations in the
ordinary course of business and/or through refinancing.
The Company's Board of Directors, acting upon the unanimous recommendation
of the Special Committee of the Board comprised of three disinterested
directors, approved the Merger. In reaching its decision, the Special Committee
and the Board received a fairness opinion from the Company's financial advisor,
Legg Mason Wood Walker, Incorporated.
The Company has received new information regarding the Merger with
Socrates. Under the Merger Agreement, Socrates' obligation to consummate the
Merger is subject to its ability to obtain financing, and at the time the Merger
Agreement was signed, Socrates had received signed commitment letters providing
for the necessary debt and equity financing, subject to certain conditions.
Socrates has advised the special committee of the Company's board of
directors formed in connection with the Merger that Socrates does not believe
the contemplated merger consideration will be financeable at $7.75 per share.
Socrates has not requested that the Company agree to terminate the Merger
Agreement, and has also stated that, in the event the Merger does not take
place, it is considering proposing an alternative equity financing transaction
with the Company.
The Company anticipates that it will expense in Fiscal 2003 approximately
$800,000 of legal, professional and other registration fees incurred in
connection with the Merger. During the first quarter ended September 30, 2002,
the Company recorded expenses related to the Merger of $418,000 in other expense
(income).
On August 7, 2002, a civil action was commenced in the Court of Chancery in
the State of Delaware in New Castle County. The plaintiff in that action seeks
to represent a putative class consisting of the public stockholders of the
Company. Named as defendants in the complaint are the Company, members of the
Company Board of Directors and one former member of the Company's Board of
Directors. The plaintiff alleges, among other things, that the Merger is unfair
and that the Company's directors breached their fiduciary duties by failing to
fully disclose material non-public information related to the value of the
Company and by engaging in self-dealing. The complaint seeks an injunction,
damages and other relief. The Company was served with the complaint on August
22, 2002. The Company believes that this lawsuit is without merit and intends
to defend the case vigorously.
7
Note 3 - Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding and common stock equivalents during the period. In the calculation
of dilutive earnings per share, shares outstanding are adjusted to assume
conversion of the Company's non-interest bearing convertible preferred stock if
they are dilutive. In the calculation of basic earnings per share, weighted
average number of shares outstanding are used as the denominator. The Company
was in a loss position for the three months ended September 30, 2002 and 2001,
resulting in the calculation of dilutive earnings per share being antidilutive.
Earnings per share are computed as follows (dollars and average common stock
outstanding in thousands):
For the Three Months September 30,
----------------------------------
2002 2001
----------------------------------
Basic (loss) earnings per share
- -------------------------------
Net loss $ (1,857) $ (540)
Less preferred dividends $ 21 $ 21
----------------------------------
Net loss available for
common stock $ (1,878) $ (561)
==================================
Average common stock
outstanding $ 6,324 $ 6,075
Basic loss per share $ (0.30) $ (0.09)
==================================
Note 4. New Accounting Pronouncements
In April 2002, the FASB issued SFAS 146, "Accounting for cost associated
with exit or disposal activities". SFAS 146 establishes guidelines for the
recognition and measurement of those cost, is effective as of January 1, 2003
and is not expected to have a material impact on our consolidated financial
statements.
Note 5. Sarasota Operations
During the first quarter of Fiscal 2003, the Company discontinued the
operations of a school in Sarasota, Florida. As a result, the Company is
accounting for the closure as a discontinued operation in accordance with SFAS
144, "Accounting for the Impairment of Long-Lived Assets", as the Company does
not have any other schools in the Sarasota area. During the first quarter of
Fiscal Year 2003, the Company recorded $301,000, net of tax for current year
operating losses and the write-off of certain fixed assets. The total loss is
recorded as a loss from discontinued operations as of September 30, 2002. In
addition, the Company has approximately $657,000 of leasehold improvements
remaining which are reflected in the balance sheet as of September 30, 2002.
8
Note 6 - Segment Information
The Company manages its schools based on 4 geographical regions within the
United States. In FY 2000 the Company acquired Houston Learning Academy and The
Activities Club and began managing charter schools. These operations have
different characteristics and are managed separately from the school operations.
These operations do not currently meet the quantification criteria and therefore
are not deemed reportable under Statement of Financial Accounting Standards 131,
"Disclosures about Segments of an Enterprise and Related Information" and are
reflected in the "other" category.
The table below presents information about the reported operating income of
the Company for the nine months and the three months ended September 30, 2002
and 2001. (dollars in thousands):
Private
Schools Other Corporate Total
------------ ------------ --------------- -----------
September 30, 2002
- -------------------------------------
Revenues $ 32,524 2,289 34,813
School operating profit $ 1,288 99 1,387
Depreciation and amortization $ 1,229 221 96 1,546
Goodwill $ 46,428 1,948 - 48,376
Segment assets $ 82,659 14,494 5,793 102,946
September 30, 2001
- -------------------------------------
Revenues $ 32,447 1,922 34,369
School operating profit $ 2,864 32 2,896
Depreciation and amortization $ 1,170 183 100 1,453
Goodwill $ 46,428 1,948 - 48,376
Segment assets $ 81,446 14,253 6,108 101,807
Note 7 - Intangible Assets
Intangible assets include non-compete agreements, trademarks and other
identifiable intangibles acquired in acquisitions. Such intangibles are being
amortized over the life of the intangibles ranging from 3 - 20 years.
At September 30, 2002 and June 30, 2002 the Company's intangibles assets were as
follows (dollars in thousands):
September 30, 2002 June 30, 2002
------------------ -------------
Intangible assets
Non-compete $ 2,493 $ 2,493
Other 901 901
-------- --------
3,394 3,394
Accumulated amortization (2,348) (2,249)
-------- --------
$ 1,046 $ 1,145
======== --------
9
Note 8 - Commitments and Contingenies
The Company is engaged in legal actions arising in the ordinary course of
its business. The Company believes that the ultimate outcome of all such matters
will not have a material adverse effect on the Company's consolidated financial
position. The significance of these matters on the Company's future operating
results and cash flows depends on the level of future results of operations and
cash flows as well as on the timing and amounts, if any, of the ultimate
outcome.
The Company carries fire and other casualty insurance on its schools and
liability insurance in amounts which management believes are adequate for its
operations. As is the case with other entities in the education and preschool
industry, the Company cannot effectively insure itself against certain risks
inherent in its operations. Some forms of child abuse have sublimits per claim
in the general liability coverage.
10
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company has entered into an Agreement and Plan of Merger, dated as
of August 5, 2002, with Socrates Acquisition Corporation ("Socrates"), a
corporation formed by Gryphon Partners II, L.P. and Cadigan Investment Partners,
Inc. (collectively with Gryphon Partners II-A, L.P., the "Buying Group"), both
of which are engaged principally in the business of investing in companies. The
Agreement and Plan of Merger (as amended by a First Amendment thereto, dated as
of October 2, 2002, the "Merger Agreement") contemplates that Socrates will be
merged into NLCI, with NLCI as the surviving corporation (the "Merger"). If the
Merger is completed, each issued and outstanding share of NLCI common stock and
preferred stock (calculated on an as-converted basis to the nearest
one-hundredth of a share) will be converted into the right to receive $7.75 in
cash, without interest, except for certain shares and options held by the NLCI
directors and executive officers identified in the Merger Agreement as a
rollover stockholder, which will continue as, or be converted into, equity
interests of the surviving corporation. In addition, if the Merger is completed,
each outstanding option and warrant that is exercisable as of the effective time
of the Merger will be canceled in exchange for (1) the excess, if any, of $7.75
over the per share exercise price of the option or warrant multiplied by (2) the
number of shares of common stock subject to the option or warrant exercisable as
of the effective time of the Merger, net of any applicable withholding taxes.
Following the Merger, NLCI will continue its operations as a privately held
company. The Merger is contingent upon satisfaction of a number of conditions,
including approval of NLCI's stockholders, the receipt of regulatory and other
approvals and consents, the absence of any pending or threatened actions that
would prevent the consummation of the transactions contemplated by the merger
agreement and receipt of financing. There can be no assurance that these or
other conditions to the Merger will be satisfied or that the Merger will be
completed. If the Merger is not completed for any reason, it is expected that
the current management of NLCI, under the direction of the NLCI Board of
Directors, will continue to manage NLCI as an ongoing business.
It is currently anticipated that the total amount of funds necessary to
complete the Merger and the related transactions is approximately $108,900,000
(assuming that no NLCI stockholders exercise and perfect their appraisal
rights). The Buying Group has received commitments, subject to various
conditions, from financial institutions in an aggregate amount sufficient,
taking into account the amounts to be contributed as equity financing, to fund
these requirements. The receipt of third-party financing is a condition to
completion of the Merger. Of this amount, $47,500,000 is expected to be funded
from an equity investment in the Company by Socrates and stockholders who are
converting their shares into equity interest in the surviving corporation and an
additional $50,000,000 is expected to be funded through new credit facilities
including, senior and subordinated debt. These funds are expected to be used to
pay NLCI's stockholders and certain option holders and warrant holders, other
than stockholders who are converting their shares into equity interests in the
surviving corporation , to refinance debt, and to pay fees and expenses related
to the Merger. Assuming completion of the Merger, the new senior secured credit
facility and the senior subordinated notes are expected to be repaid through
cash flow generated from operations in the ordinary course of business and/or
through refinancing.
The Company has received new information regarding the Merger with
Socrates. Under the Merger Agreement, Socrates' obligation to consummate the
Merger is subject to its ability to obtain financing, and at the time the Merger
Agreement was signed, Socrates had received signed commitment letters providing
for the necessary debt and equity financing, subject to certain conditions.
Socrates has advised the special committee of the Company's board of
directors formed in connection with the Merger that Socrates does not believe
the contemplated merger consideration will be financeable at $7.75 per share.
Socrates has not requested that the Company agree to terminate the Merger
Agreement, and has also stated that, in the event the Merger does not take
place, it is considering proposing an alternative equity financing transaction
with the Company.
The Company anticipates that it will expense in Fiscal 2003
approximately $800,000 of legal, professional and other registration fees
incurred in connection with the Merger. During the first quarter ended September
30, 2002, the Company recorded expenses related to the Merger of $418,000 in
other expense (income).
11
Results of Operations
For the Quarter Ended September 30, 2002 vs. the First Quarter ended September
30, 2001
At September 30, 2002, the Company operated 179 schools. Since September
30, 2001, the Company has opened 10 new schools: two elementary schools, seven
preschools, and one specialty high school. The Company has also closed two
schools during this period. Since June 2002, seven new schools were opened.
Revenues for the first quarter ended September 30, 2002 increased $444,000
or 1.3% to $34,813,000 from $34,369,000 for the first quarter ended September
30, 2001. The increase in revenues is primarily attributable to the increase in
revenue from new schools.
Same school revenue (schools that were opened in both periods) decreased
$375,000 or 0.9% in the first quarter ended September 30, 2002 as compared to
the prior year. This decrease is primarily due to current economic conditions
that are forcing parents to consider the amount of time spent in Company
preschools (i.e. part-time vs. full-time) or choosing public school alternatives
over Company elementary schools. The increase in revenues related to the 10
schools opened totaled $1,030,000. In addition, the decrease in revenues related
to school closings were $211,000.
School operating profit for the first quarter ended September 30, 2002
decreased $1,509,000 or 52.1% to $1,387,000 from $2,896,000 for the first
quarter ended September 30, 2001. Total school operating profit margin decreased
from 8.4% for the quarter ended September 30, 2001 to 4.0% for the quarter ended
September 30, 2002.
Same school operating profit decreased $1,032,000 or 32.8%. Same school
operating profit margin decreased from 9.2% for the first quarter ended
September 30, 2001 to 6.3% for the first quarter ended September 30, 2002. This
decrease is primarily due to decreases in revenue and increases in insurance
cost for health care benefits and property and casualty insurance. For the first
quarter ended September 30, 2002, new schools incurred a loss of $618,000.
School closings positively affected the change in school operating profit by
$141,000.
General and administrative expenses decreased $60,000 or 2.2% from
$2,771,000 for the first quarter ended September 30, 2001 to $2,711,000 for the
first quarter ended September 30, 2002. As a percentage of revenue, general and
administrative expense was 7.8% for the quarter ended September 30, 2002 and
8.0% for the quarter ended September 30, 2001. This decrease in general and
administrative expenses was primarily related to decreases in corporate
personnel cost caused by attrition and reimbursement related to an insurance
claim. These decreases were offset by an increase in corporate rent expense
related to the relocation of the corporate office.
As a result of the factors mentioned above, operating income decreased
$1,449,000 from operating income of $125,000 for the quarter ended September 30,
2001 to a loss of $1,324,000 for the quarter ended September 30, 2002.
During the quarter ending September 30, 2002, the Company expensed $418,000
associated with the Merger which costs are included in Other expense (income).
12
For the first quarter of Fiscal 2003, EBITDA (defined as earnings before
interest, income taxes, depreciation and amortization) totaled $159,000 before
Merger fee expenses of $418,000. This represents a decrease of $1,458,000 over
the comparable period. EBITDA is not a measure of performance under generally
accepted accounting principles. However, the Company and the investment
community consider it an important calculation.
Interest expense decreased $77,000 or 8.1% from $949,000 for the quarter
ended September 30, 2001 to $872,000 for the quarter ended September 30, 2002.
The decrease is due to decreased interest rates on the Company's credit facility
and decreased borrowings on the Company's credit facility.
Income tax benefit totaled $1,081,000 for the quarter ended September 30,
2002, which reflects a 41% effective tax rate.
During the first quarter of Fiscal 2003, the Company discontinued the
operations of a school in Sarasota, Florida. As a result, the Company is
accounting for the closure as a discontinued operation in accordance with SFAS
144, "Accounting for the Impairment of Long-Lived Assets", as the Company does
not have any other schools in the Sarasota area. During the first quarter of
Fiscal 2003, the Company recorded $301,000, net of tax for current year
operating losses and the write-off of certain fixed assets. The total loss is
recorded as a loss from discontinued operations as of September 30, 2002. In
addition, the Company has approximately $657,000 of leasehold improvements
remaining which are reflected in the balance sheet as of September 30, 2002.
Liquidity and Capital Resources
Management is pursuing a four-pronged growth strategy for the Company,
which includes (1) internal growth of existing schools through the expansion of
certain facilities, (2) new school development in both existing and new markets,
(3) strategic acquisitions, and (4) development of new education businesses. The
Company's principal sources of liquidity are (a) cash flow generated from
operations, (b) future borrowings under the Company's $40.0 million Amended and
Restated Loan and Security Agreement, (c) the use of site developers to build
schools and lease them to the Company, and (d) issuance of subordinated
indebtedness or shares of common stock to sellers in acquisition transactions.
The Company identifies growth markets through both extensive demographic studies
and an analysis of the existing educational systems in the area. The Company
seeks to grow through a cluster approach whereby several preschools feed into an
elementary school. In order for the Company to continue its growth strategy, the
Company will continue to seek additional funds through debt and equity
financing.
Fiscal 2003 Cash Flows
Total cash and cash equivalents increased $13,000 from $1,787,000 at June
30, 2002 to $1,800,000 at September 30, 2002. The net increase was primarily
related to cash provided from operations totaling $4,901,000. These sources of
cash were offset by $2,147,000 in capital expenditures, a decrease in cash
overdraft liability of $2,442,000 and repayments of subordinated debt of
$231,000.
The working capital deficit increased $3,230,000 from $13,325,000 at June
30, 2002 to $16,555,000 at September 30, 2002. The increase is primarily the
result of an increase of $729,000 in current maturities of long-term debt and an
increase in unearned income totaling $5,358,000. This increase was offset by an
decrease in the cash overdraft liability of $2,442,000. The increase in
13
unearned income is related to the prepayment of annual and semi-annual tuition
by parents and by registration fees collected at the beginning of the school
year.
The Company anticipates that in the current economic conditions its
existing available principal credit facilities, cash generated from operations,
and continued support of site developers to build and lease schools will be
sufficient to satisfy working capital needs, capital expenditures, and
renovations and the building of new schools during Fiscal 2003. In addition, the
Company is actively marketing approximately $6 million in real estate for a
potential sale.
Long-Term Obligations and Commitments
In May 2001, the Company entered into its current Amended and Restated Loan
and Security Agreement which increased the Company's borrowing capacity to
$40,000,000. Three separate facilities were established under the Amended and
Restated Loan and Security Agreement: (1) $10,000,000 Working Capital Credit
Facility (2) $15,000,000 Acquisition Credit Facility and (3) $15,000,000 Term
Loan. The Term Loan Facility will mature on April 1, 2006 and provides for
$2,143,000 annual interim amortization with the balance paid at maturity. Under
the Acquisition Credit Facility, no principal payments are required until April
2003. At that time, the outstanding principal under the Acquisition Credit
Facility will be converted into a term loan which will require principal
payments in 16 quarterly installments. The Working Capital Credit Facility is
scheduled to terminate on April 1, 2004. In addition, the credit facilities
provide that the Company must meet or exceed defined interest coverage ratios
and must not exceed leverage ratios. The Company is currently in compliance with
such covenants. If the Company were to experience a reduction of $300,000 in
EBITDA (defined as earnings before interest, income taxes, depreciation and
amortization and a key measurement in the credit facilities for covenant
compliance), noncompliance with some of the covenants may result.
In connection with the May 2001 amendment to the Company's Amended and
Restated Loan and Security Agreement, the Company entered an interest rate swap
agreement in June 2002 on the $15,000,000 Term Loan Facility. The Company uses
this derivative financial instrument to manage its exposure to fluctuations in
interest rates. The instrument involves, to varying degrees, market risk, as the
instrument is subject to rate and price fluctuations, and elements of credit
risk in the event the counterparty should default. The Company does not enter
into derivative transactions for trading purposes. At September 30, 2002 the
Company's interest rate swap contract outstanding had a total notional amount of
$12,321,000. Under the interest rate swap contract, the Company agrees to pay a
fixed rate of 5.48% and the counterparty agrees to make payments based on
3-month LIBOR. The market value of the interest rate swap agreement at September
30, 2002 was a liability of $574,000, net of taxes and is included as a
component of Accumulated Other Comprehensive Loss, of which a portion is
expected to be reclassified to the consolidated statement of income within one
year.
14
At September 30, 2002, a total of $28,222,000 was outstanding under the
Amended and Restated Loan Agreement. The Company's loan covenants under its
Amended and Restated Loan Agreement limit the amount of senior debt
borrowings. At September 30, 2002, additional borrowings available under the
Amended and Restated Loan Agreement was $1,125,000. At September 30, 2002,
there was $2,625,000 outstanding under the Working Capital Credit Facility,
$13,276,000 was outstanding under the Acquisition Credit Facility and
$12,321,000 was outstanding under the Term Loan. In addition, the Company has
$11,765,000 outstanding under subordinated debt agreement as well as
significant commitments under operating lease agreements. The following is a
summary of these obligations (dollars in thousands):
Contractual Obligations Less than 2-4 Year 5 and
Total 1 year years after
Long-Term Obligations 39,987 5,217 22,564 12,206
Interest Rate Swap 574 96 478
Operating Leases * 228,682 25,127 69,890 133,665
* - Based on amounts presented in Footnote 14 of our June 30, 2002 financial
statements. These amounts have been updated for new leases entered into in
fiscal year 2003.
The Company announced on August 6, 2002 that it had entered into the
Merger Agreement with Socrates. The Company has incurred, and will continue to
incur, substantial fees for services in connection with the Merger Agreement. If
the Merger is consummated, certain of these fees will be allocated to the equity
and debt financing of the transaction. In the event the Merger is not
consummated, these fees will be expensed at that time. The resulting writeoff
may be material and may be sufficiently large that the Company will find itself
out of compliance with the covenants associated with its existing senior debt.
The Company cannot determine at this time whether any such write off would be
material or would cause the Company to be in default under the credit facility
with its senior lender.
The Company also has significant commitments with certain of its
executives that would be triggered upon a change in control or certain
termination events.
Critical Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Predicting future events is inherently an imprecise
activity and as such requires the use of judgment. Actual results may vary
from estimates in amounts that may be material to the financial statements.
The Company's significant accounting policies are described in note 1 to
the consolidated financial statements included in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2002. The following
accounting policies are considered critical to the preparation of the
Company's financial statements due to the estimation processes and business
judgment involved in their application.
15
Revenue Recognition
Tuition revenues, net of discounts and other revenues are recognized as
services are performed. Any tuition payments received in advance of the time
period for which service is to be performed is recorded as unearned revenue.
Charter school management fees are recognized based on a contractual
relationship with the charter school and do not include any tuition revenue
received by the charter school. Certain fees may be received in advance of
services being rendered, in which case the fee revenue is deferred and
recognized over the appropriate period of service. The Company's net revenues
meet the criteria of SAB No. 101, including the existence of an arrangement, the
rendering of services, a determinable fee and probable collection.
Accounts Receivable
The Company's accounts receivable are comprised primarily of tuition due
from governmental agencies and parents. Accounts receivable are presented at
estimated net realizable value. The Company uses estimates in determining the
collectibility of its accounts receivable and must rely on its evaluation of
historical trends, governmental funding processes, specific customer issues and
current economic trends to arrive at appropriate reserves. Material differences
may result in the amount and timing of bad debt expense if actual experience
differs significantly from management estimates.
The Company provides its services to the parents and guardians of the
children attending the schools. The Company does not extend credit for an
extended period of time, nor does it require collateral. Exposure to losses on
receivables is principally dependent on each person's financial condition. The
Company also has investments in other entities. The collectibility of such
investments is dependent upon the financial performance of these entities. The
Company monitors its exposure for credit losses and maintains allowances for
anticipated losses.
Long-lived and Intangible Assets
Under the requirements of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets, the Company assesses the potential impairment of property and
equipment and identifiable intangibles whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. An
asset's value is impaired if management's estimate of the aggregate future cash
flows, undiscounted and without interest charges, to be generated by the asset
are less than the carrying value of the asset. Such cash flows consider factors
such as expected future operating income and historical trends, as well as the
effects of demand and competition. To the extent impairment has occurred, the
loss will be measured as the excess of the carrying amount of the asset over the
fair value of the asset. Such estimates require the use of judgment and numerous
subjective assumptions, which, if actual experience varies, could result in
material differences in the requirements for impairment charges.
Goodwill
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets,
effective July 1, 2001. Under SFAS No. 142, goodwill is no longer amortized but
reviewed for impairment annually, or more frequently if certain indicators
arise. As a result, the Company ceased amortization of goodwill, the effect of
which was a reduction of $1,677,000 of amortization expense for the year ended
June 30, 2002.
16
The net carrying value of goodwill was $48,376,000 as of July 1, 2001 (the
Company's adoption date of SFAS 142). The Company completed the "first step"
impairment test as required under SFAS 142 at December 31, 2001 and determined
that the recognition of an impairment loss was not necessary. The fair value of
the Company's ten reporting units was estimated using the expected present value
of future cash flows. In estimating the present value the company used
assumptions based on the characteristics of the reporting unit including
discount rates (ranging from 13% to 20%). For two of the reporting units fair
value approximated their carrying value while for the remaining eight reporting
units fair value exceeded carrying value. For the two reporting units where fair
value approximated carrying value, goodwill allocated to these reporting units
totaled $7,806,000 and $4,676,000. Accordingly, the Company updated its analysis
at June 30, 2002 and concluded that no impairment was required for these two
reporting units. Goodwill will be assessed for impairment at least annually or
upon an adverse change in operations. The annual impairment testing required by
SFAS No. 142 will require judgments and estimates and could require us to write
down the carrying value of our goodwill and other intangible assets in future
periods.
Long Term Note Receivable
The Company has a $2,600,000 note receivable pursuant to a Credit Agreement
with Total Education Solutions ("TES") due May 2005, of which $2,250,000 is
convertible into 30.0% ownership of TES. TES, established in 1997, provides
special education services to charter schools and public schools which, because
of lack of internal capabilities or other reasons, wish to out-source their
provision of special education programs (which, under federal law, they are
required to provide to select students). The proceeds received by TES have been
used for the expansion of its product throughout California, and TES plans to
enter other states. Although TES's revenues have grown since the origination of
the credit agreement, TES has also incurred losses as a result of building the
infrastructure to service other regions.
As part of the Company's evaluation of the carrying value of TES, the
Company considered a number of positive and negative factors affecting TES
including:
. Operating results and outlook for TES;
. Expected future cash flows;
. Current conditions and trends in the industry;
. Other industry comparables; and
. The Company's plans and ability to continue to hold this investment.
In evaluating the investment in TES, a discounted cash flow analyses was
prepared for TES based on a recent financing discussion memorandum. The cash
flow analyses indicated that the investment in TES has a value greater than the
Company's current carrying value. In addition, the Company reviewed other
objective evidence including recent comparable transactions similar to TES,
industry publications supporting the market and growth rates and TES's ongoing
discussions with third parties regarding additional financing.
17
Income Taxes
The Company accounts for income taxes using the asset and liability method,
in accordance with FAS 109, Accounting for Income Taxes. Under the asset and
liability method, deferred income taxes are recognized for the tax consequences
of "temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities. The effect on deferred taxes
of a change in tax rate is recognized as income in the period of enactment. A
valuation allowance is recorded based on the uncertainty regarding the ultimate
realizability of deferred tax assets.
The Company files a U.S. federal income tax return and various state income
tax returns, which are subject to examination by tax authorities. This process
involves estimating the actual current tax exposure together with assessing
temporary differences resulting from differing treatment of items for tax and
accounting purposes. The Company's estimated tax liability is subject to change
as examinations of specific tax years are completed in the respective
jurisdictions including possible adjustments related to the nature and timing of
deductions and the local attribution of income.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of the Company. The
Company is exposed to market risk in the areas of interest rates and interest
rate swaps agreements.
Interest Rates
The Company's exposure to market risk for changes in interest rates relate
primarily to debt obligations. The Company has no cash flow exposure due to rate
changes on its 12.0%, $10,000,000 senior subordinated debt at September 30, 2002
and June 30, 2002. The Company also has no cash flow exposure on certain
mortgages, notes payable and subordinate debt agreements aggregating $2,119,000
and $2,386,000 at September 30, 2002 and June 30, 2002, respectively. However,
the Company does have cash flow exposure on two of its credit facilities under
the Amended and Restated Loan and Security Agreement. The Working Capital and
the Acquisition Credit Facility are subject to variable LIBOR or prime base rate
pricing. Accordingly, a 1.0% change in the LIBOR rate and the prime rate would
have resulted in interest expense changing by approximately $37,000 for the
three months ended September 30, 2002 and 2001.
Interest Rate Swap Agreement
In connection with the May 2001 amendment to the Company's Amended and
Restated Loan and Security Agreement, it entered an interest rate swap agreement
on the $15,000,000 Term Loan Facility. The Company uses this derivative
financial instrument to manage its exposure to fluctuations in interest rates.
The instrument involves, to varying degrees, market risk, as the instrument is
subject to rate and price fluctuations and elements of credit risk in the event
the counterparty should default. The Company does not enter into derivative
transactions for trading purposes. At September 30, 2002 the Company's interest
rate swap contract outstanding had a total notional amount of $12,321,000. Under
the interest rate swap contract, the Company agrees to pay a fixed rate of 5.48%
and the counterparty agrees to make payments based on 3-month LIBOR. The market
value of the interest rate swap
18
agreement at September 30, 2002 was a liability of $574,000, net of taxes and is
included as a component of Accumulated Other Comprehensive Loss, of which a
portion is expected to be reclassified to the consolidated statement of income
within one year.
Item 4 Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on an evaluation conducted within 90 days prior to the filing
date of this Quarterly Report on Form 10-Q, that the Company's disclosure
controls and procedures have functioned effectively so as to provide those
officers the information necessary to evaluate whether:
(i) this Quarterly Report on Form 10-Q contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this Quarterly Report on Form
10-Q, and
(ii) the financial statements, and other financial information included in
this Quarterly Report on Form 10-Q, fairly present in all material respects the
financial condition, results of operations and cash flows of the Company as of,
and for, the periods presented in this Quarterly Report on Form 10-Q.
There have been no significant changes in the Company's internal controls or in
other factors since the date of the Chief Executive Officer's and Chief
Financial Officer's evaluation that could significantly affect these internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
19
Part II
Other Information
Item 6. Exhibits and Reports on Form 8-K
None
20
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.
NOBEL LEARNING COMMUNITIES, INC.
Dated: November 14, 2002 By: /s/ Robert E. Zobel
-----------------------------------
Robert E. Zobel
Vice Chairman - Corporate Affairs and
Chief Financial Officer
(duly authorized officer and
principal financial officer)
21
CERTIFICATION
I, A.J. Clegg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Nobel Learning
Communities, Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons fulfilling the equivalent
function):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ A. J. Clegg
--------------------------------------
A. J. Clegg
Chief Executive Officer
22
CERTIFICATION
I, Robert E. Zobel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Nobel Learning
Communities, Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons fulfilling the equivalent
function):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Robert E. Zobel
-----------------------------------
Robert E. Zobel
Chief Financial Officer
23
Exhibits
Exhibit
Number Description of Exhibit
Item 6. Exhibits and Reports on Form 8-K
None
24