EDUCATIONAL MEDICAL INC, S-1/A, 1996-10-07

EDUCATIONAL MEDICAL INC
S-1/A, 1996-10-07
EDUCATIONAL SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1996

REGISTRATION NO. 333-09777
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------

EDUCATIONAL MEDICAL, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 8222 65-0038445
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>

1327 NORTHMEADOW PARKWAY, SUITE 132
ROSWELL, GEORGIA 30076
(770) 475-9930
(Address including zip code, and telephone number, including area code, of
registrant's principal executive offices)
GARY D. KERBER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1327 NORTHMEADOW PARKWAY, SUITE 132
ROSWELL, GEORGIA 30076
(770) 475-9930
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:

<TABLE>
<S> <C>
MORRIS C. BROWN FREDERICK W. KANNER
GREENBERG, TRAURIG, HOFFMAN DEWEY BALLANTINE
LIPOFF, ROSEN & QUENTEL, P.A. 1301 AVENUE OF THE AMERICAS
777 SOUTH FLAGLER DRIVE NEW YORK, NEW YORK 10019
SUITE 310 EAST (212) 259-8000
WEST PALM BEACH, FLORIDA 33401
(407) 650-7900
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: / /
---------------------
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OFFERING AGGREGATE
OF SECURITIES TO BE AMOUNT TO BE PRICE PER OFFERING AMOUNT OF
REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value...................... 3,105,000 Shares $13.00 $40,365,000 $13,919.06
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>

(1) Includes 405,000 shares subject to over-allotment options granted to the
Underwriters.
(2) Estimated solely for the purposes of calculating the registration fee.

---------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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<PAGE> 2

EDUCATIONAL MEDICAL, INC.

Cross-reference sheet furnished pursuant to Item 501(b) of Registration S-K
showing location in the Prospectus of information required by Part I of Form
S-1.

<TABLE>
<CAPTION>
FORM S-1 ITEM LOCATION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Outside Front Cover Page; Inside Front
Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Outside Front Cover Page; Prospectus
Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Underwriting
6. Dilution................................... Dilution
7. Selling Security Holders................... Principal and Selling Stockholders
8. Plan of Distribution....................... Outside Front Cover Page; Inside Front
Cover Page; Underwriting
9. Description of Securities to be
Registered............................... Dividend Policy; Description of Capital
Stock; Shares Eligible for Future Sale
10. Interests of Named Experts and Counsel..... Not Applicable
11. Information with Respect to the
Registrant............................... Prospectus Summary; Risk Factors; Dividend
Policy; Selected Consolidated Financial
and Other Operating Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Financial Aid and Regulation;
Management; Principal and Selling
Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Underwriting; Index to Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>

<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED OCTOBER 7, 1996

PROSPECTUS

2,700,000 SHARES

[LOGO] EDUCATIONAL MEDICAL, INC.

COMMON STOCK
------------------

Of the 2,700,000 shares of common stock offered hereby (the "Shares"),
2,200,000 Shares are being sold by Educational Medical, Inc. (the "Company") and
500,000 Shares are being sold by certain stockholders of the Company (the
"Primary Selling Stockholders"). The Company will not receive any proceeds from
the sale of the Shares by the Primary Selling Stockholders. See "Principal and
Selling Stockholders."

Prior to this offering (the "Offering"), there has been no public market
for the common stock of the Company (the "Common Stock"). It is currently
estimated that the initial public offering price will be between $11.00 and
$13.00 per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price. Subject to
completion of the Offering, the Common Stock of the Company has been approved
for listing on the Nasdaq National Market System ("NNM") under the symbol
"EDMD."

PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH IN
"RISK FACTORS," BEGINNING ON PAGE 8.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(3)
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<S> <C> <C> <C> <C>
Per Share $ $ $ $
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Total $ $ $ $
- ---------------------------------------------------------------------------------------------------
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</TABLE>

(1) For information regarding indemnification of the Underwriters, see
"Underwriting."

(2) Before deducting expenses estimated at $600,000, which are payable by the
Company.

(3) Certain stockholders of the Company (the "Over-allotment Selling
Stockholders") have granted the Underwriters a 30-day option (the
"Over-allotment Option") to purchase up to 405,000 additional shares of
Common Stock (the "Over-allotment Shares") solely to cover over-allotments,
if any. See "Underwriting." The Company will not receive any proceeds from
the sale of the Over-allotment Shares by the Over-allotment Selling
Stockholders. The Primary Selling Stockholders and the Over-allotment
Selling Stockholders are collectively referred to in this Prospectus as the
"Selling Stockholders." If the Over-allotment Option is exercised in full,
the total Price to Public, Underwriting Discounts and Commissions, Proceeds
to Company and Proceeds to Selling Stockholders will be $ ,
$ , $ and $ , respectively.
------------------

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1996 at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
------------------
SMITH BARNEY INC. MONTGOMERY SECURITIES

, 1996
<PAGE> 4

[A MAP OF THE UNITED STATES SHOWING LOCATIONS OF THE COMPANY'S SCHOOLS
TO BE INSERTED HERE]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NNM OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------

The Company intends to furnish its stockholders annual reports containing
audited consolidated financial statements and quarterly reports containing
unaudited consolidated financial statements.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
Prospective investors should consider carefully the information set forth under
the heading "Risk Factors." Unless otherwise indicated, the information in this
Prospectus (i) assumes no exercise of the Over-allotment Option, (ii) gives
effect to the automatic conversion of all of the outstanding shares of
convertible preferred stock into 1,705,082 shares of Common Stock, (iii) assumes
the issuance of 141,667 shares of Common Stock upon exercise of certain
outstanding warrants, and (iv) assumes the issuance of 1,000,000 shares of
Common Stock upon the cashless exercise of outstanding warrants to purchase
1,333,333 shares of Common Stock. The transactions referred to in (ii), (iii)
and (iv) above are to occur upon the consummation of the Offering and are called
the "Offering Transactions". Unless otherwise indicated, the information in this
Prospectus excludes the three schools in Texas which the Company entered into an
agreement to acquire on September 6, 1996 (see "Texas Acquisition" below).

THE COMPANY

The Company provides diversified career oriented postsecondary education to
more than 4,300 students in 14 schools located in six states. The Company's 14
schools offer diploma and/or associate degree programs designed to provide
students with the knowledge and skills necessary to qualify them for entry level
employment in the fields of healthcare (offered in twelve schools), business
(offered in five schools), fashion and design (offered in three schools), and
photography (offered in one school). The Company's curricula include programs
leading to employment in nine of the 15 fastest growing occupations (measured by
percentage growth from 1994 through 2005) as projected by the U.S. Department of
Labor. At March 31, 1996, approximately 70% of the Company's students were
enrolled in programs in the healthcare field. As of the same date, approximately
27% of the Company's students were enrolled in associate degree programs and the
remainder were enrolled in diploma programs. Due to the diversity of the
programs offered by the Company's schools, graduates of the Company's programs
are employed by a wide variety of employers, including hospitals, physicians,
insurance companies, retailers, corporate graphics departments, photographic
studios and other businesses.

The Company believes the demand for postsecondary career oriented education
will increase over the next several years as a result of recognized trends,
including (i) a projected 21% growth in the number of new high school graduates
from approximately 2.5 million in 1993-94 to approximately 3.0 million in
2005-06, (ii) the increasing enrollment of students over the age of 24 in
postsecondary education institutions as they seek to enhance their skills or
retrain for new technologies, and (iii) the increasing recognition of the income
premium attributable to higher education degrees, with individuals holding
associate degrees earning on average approximately 30% more income during their
lifetimes than individuals holding only high school diplomas.

According to the Department of Education, there were approximately 2,355
accredited, proprietary postsecondary schools that participate in federal
financial student aid programs as of June 1996. The ownership of these schools
is highly fragmented. Management believes that no organization either holds a
significant national market share or owns or operates more than 80 schools.

The Company's goal is to increase its market share in the expanding market
for postsecondary education and improve profitability by (i) acquiring
additional schools, (ii) promoting internal growth at the Company's existing and
any newly acquired schools, and (iii) enhancing operating efficiencies. The
Company has implemented the following strategies to achieve these goals:

Acquisition Strategy

The Company has acquired all of its schools. The Company intends to acquire
additional schools and integrate them into its existing school system. The
Company believes that the fragmentation of the postsecondary education market
provides significant opportunities to consolidate existing independently owned
schools and reduce individual school overhead through centralizing certain home
office functions. In general,

3
<PAGE> 6

the Company's principal acquisition criteria are: historical profitability;
acceptable default rates with respect to federally guaranteed or funded student
loans; established and marketable curricula; and locations with populations in
excess of 100,000. The Company intends to concentrate its acquisition efforts on
schools which satisfy its general acquisition criteria and which offer curricula
in the fields of study currently offered at the Company's schools and selected
other fields of study. The Company expects to utilize a majority of the proceeds
of this Offering in connection with such acquisitions. See "Use of Proceeds."

Internal Growth Strategy

The Company intends to increase student enrollment at its existing and any
newly acquired schools by continuing to enhance local marketing efforts and
increasing the number and variety of program offerings at its schools. The
Company also intends to continue to (i) develop new degree and diploma programs,
(ii) replicate existing programs at schools where such programs were not
previously offered, and (iii) introduce associate degree granting programs at
all of its schools currently offering only diploma programs.

Operating Strategy

The Company provides each of its schools with certain services which the
Company believes can be performed most efficiently and cost effectively by a
centralized office. Such services include marketing analysis, accounting,
information systems, financial aid and regulatory compliance. The Company
intends to continue its strategy of operating with a decentralized management
structure in which local school management is empowered to make most of the
day-to-day operating decisions at each school and is primarily responsible for
the profitability and growth of that school.

TEXAS ACQUISITION

On September 6, 1996, the Company entered into an acquisition agreement
providing for the purchase of three schools located in Texas for $2.5 million
(the "Texas Acquisition"), subject to approval by the Texas Workforce
Commission. As of June 30, 1996, approximately 626 students attended the
schools, which offer healthcare diploma programs and are located in San Antonio,
McAllen and El Paso, Texas. The schools had combined net revenues of
approximately $4.7 million and combined income from operations of approximately
$630,000 for the year ended December 31, 1995. For the six month period ended
June 30, 1996, the schools had combined net revenues of approximately $2.5
million and combined income from operations of approximately $247,000. Based on
the Company's experience in obtaining state regulatory approvals with respect to
its prior acquisitions, the Company believes that it will obtain regulatory
approval from the Texas Workforce Commission. The Company intends to account for
the Texas Acquisition as a purchase, effective September 6, 1996. Therefore, the
results of operations after this date will be included in the consolidated
results of the Company's operations.

COMPANY HISTORY

The Company began business by acquiring seven schools in fiscal 1989 and
1990, all of which offered programs in the healthcare field. In fiscal 1992, the
Company continued to grow by acquisition and also implemented a new strategy to
diversify outside of the healthcare field by acquiring a fashion and design
school. In fiscal 1993 and 1994, the Company acquired seven additional schools
which included schools offering programs in the fields of healthcare, business,
fashion and design, and photography. As a result of its fiscal 1992, 1993 and
1994 acquisitions (1,646 students were attending such schools at the dates of
their respective acquisitions) and increasing enrollment at its existing and
newly acquired schools, the number of students attending the Company's schools
rose 288% from 1,112 at March 31, 1991 to 4,318 at March 31, 1996. During the
same period, the Company's revenue increased 345% from $8.7 million for the year
ended March 31, 1991 to $38.7 million for the year ended March 31, 1996.

The Company is a Delaware corporation incorporated in 1988. The Company
operates the majority of its business through eleven subsidiaries. The Company's
principal executive offices are located at 1327 Northmeadow Parkway, Suite 132,
Roswell, Georgia 30076. Its telephone number is (770) 475-9930.

4
<PAGE> 7

THE OFFERING

Common Stock offered by the
Company............................. 2,200,000 shares

Common Stock offered by the Primary
Selling Stockholders................ 500,000 shares

Common Stock to be outstanding after
the Offering(1)..................... 6,694,411 shares

Use of proceeds by the Company...... To repay certain outstanding
indebtedness of the Company, to acquire
additional schools and for working
capital and other general corporate
purposes. See "Use of Proceeds."

Nasdaq National Market symbol....... "EDMD"
- ---------------

(1) Assumes completion of the Offering Transactions. Excludes at September 1,
1996 up to (i) 961,666 shares reserved for issuance under the Company's
1996 Stock Incentive Plan, of which 361,666 shares are reserved for
issuance pursuant to outstanding stock options previously granted to
certain executive officers of the Company and others, and 275,000 shares
are reserved for issuance pursuant to stock options granted to certain
executive officers and other key employees of the Company contingent upon
completion of the Offering, (ii) 200,000 shares reserved for issuance under
the Company's Non-employee Director Stock Option Plan, of which 100,000
shares are reserved for issuance pursuant to outstanding stock options
granted contingent upon completion of the Offering and (iii) 43,334 shares
which may be purchased upon the exercise of outstanding warrants to
purchase Common Stock. See "Underwriting," "Management -- Stock Option
Plan" and "Description of Capital Stock -- Warrants to Purchase Common
Stock."

5
<PAGE> 8

SUMMARY CONSOLIDATED FINANCIAL AND OTHER OPERATING DATA

The following table sets forth certain consolidated financial and other
operating data for the Company. This information should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Unaudited Pro Forma As Adjusted
Financial Data."

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED THREE MONTHS ENDED JUNE ENDED JUNE
YEAR ENDED MARCH 31, MARCH 31, 1996 30, 30, 1996
----------------------------------------------- PRO FORMA AS ------------------------ PRO FORMA AS
1992 1993 1994 1995 1996 ADJUSTED(1) 1995 1996 ADJUSTED(1)
------- ------- ------- --------- --------- -------------- ---------- --------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $13,256 $19,113 $26,475 $ 32,065 $ 38,652 $ 43,395 $ 8,762 $ 9,203 $ 10,398
Cost of education and
facilities............ 4,624 7,596 12,308 15,081 17,639 19,799 4,236 4,644 5,216
Selling and promotional
expenses.............. 1,764 2,593 4,059 5,400 5,569 5,940 1,352 1,419 1,535
Administrative
expenses.............. 4,489 5,501 8,680 10,030 11,110 12,626 2,720 2,658 3,031
Amortization of goodwill
and intangibles....... 821 1,072 1,235 1,255 883 1,080 256 176 225
------- ------- ------- --------- --------- ---------- ---------- ---------- ----------
Income from operations
before other
expenses.............. 1,558 2,351 193 299 3,451 3,950 198 306 391
Other expenses(2)....... -- -- 1,126 776 1,929 1,929 -- -- --
------- ------- ------- --------- --------- ---------- ---------- ---------- ----------
Income (loss) from
operations............ 1,558 2,351 (933) (477) 1,522 2,021 198 306 391
Interest expense, net... 389 574 798 923 811 31 249 196 3
------- ------- ------- --------- --------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes and
extraordinary credit.. 1,169 1,777 (1,731) (1,400) 711 1,990 (51) 110 388
Provision (benefit) for
income taxes(3)....... 519 749 (170) 28 632 1,142 11 44 155
------- ------- ------- --------- --------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary
credit................ 650 1,028 (1,561) (1,428) 79 $ 848 (62) 66 $ 233
========== ==========
Extraordinary
credit -- utilization
of net operating loss
carryforward(3)....... 435 -- -- -- -- -- --
------- ------- ------- --------- --------- ---------- ----------
Net income (loss)....... $ 1,085 $ 1,028 ($1,561) ($ 1,428) $ 79 $ (62) $ 66
======= ======= ======= ========= ========= ========== ==========
Pro forma net income per
share (unaudited)(4)(5) $ .02 $ .01
========= ==========
Pro forma shares
outstanding
(unaudited)(4)........ 4,788,263 4,788,263
========= ==========
Pro forma as adjusted
income before
extraordinary items
per share
(unaudited)(6)........ $ .12 $ .03
========== ==========
Pro forma as adjusted
shares outstanding
(unaudited)(6)........ 6,988,263 6,988,263
========== ==========
OTHER OPERATING DATA(7):
Number of schools at end
of period............. 8 9 14 14 14 17 14 14 17
Number of students at
end of period......... 2,181 2,374 3,480 4,095 4,318 4,966 3,673 3,796 4,422
Number of new student
starts during
period................ 2,589 3,667 4,668 5,536 5,893 N/A(9) 1,171 1,129 N/A(9)
Monthly withdrawal rate
during period(8)...... 4.9% 4.8% 4.7% 3.8% 3.8% N/A(9) 4.0% 4.0% N/A(9)
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------
PRO FORMA
HISTORICAL AS ADJUSTED(1)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 2,028 $ 21,131
Total current assets................................................................. 6,606 25,725
Total assets......................................................................... 17,118 39,302
Long-term debt, including current portion............................................ 6,738 4,868
Total liabilities.................................................................... 11,523 10,311
Total stockholders' equity........................................................... 5,595 28,991
</TABLE>

See accompanying notes on following page.

6
<PAGE> 9

- ---------------
(1) Pro forma as adjusted to give effect to the Texas Acquisition, the Offering
Transactions and the sale of 2.2 million shares of Common Stock by the
Company pursuant to the Offering and the application of the net proceeds
therefrom as if they had occurred at the beginning of the period. See "Use
of Proceeds."
(2) Other expenses consist of (i) a charge in fiscal 1994 of $1,126 in
connection with the closing of a school purchased in 1989, (ii) charges in
fiscal 1995 of $600 for legal costs associated with the defense of the
class action lawsuit, and $176 for the impairment of other intangible
assets, and (iii) charges in fiscal 1996 of $1,115 for the settlement of
the class action lawsuit (see "Business -- Litigation"), $50 for the cost
of relocating a school, and $764 for the impairment of goodwill and other
intangible assets.
(3) Effective April 1, 1992, the Company adopted the liability method of
accounting for income taxes. Previously, the deferred method was used. The
effect of this change in accounting principle on the 1993 financial
statements was not material.
(4) Computed on the basis described in Note 2 to the Consolidated Financial
Statements of the Company and reflects only the Offering Transactions.
Historical losses per share are not presented here as they are not
meaningful due to the conversion of all outstanding shares of convertible
preferred stock to Common Stock and the exercise of certain Common Stock
purchase warrants, to occur upon consummation of the Offering.

(5) Of the net proceeds from the sale of Common Stock offered by the Company
hereby, approximately $4,800 will be used to repay indebtedness. Assuming
the issuance and sale of 2.2 million shares of Common Stock by the Company
at an initial public offering price of $12.00 per share and assuming that
such indebtedness had been repaid rather than outstanding during fiscal
year 1996, pro forma supplemental net income per share of Common Stock
would have been $0.11 for the year ended March 31, 1996 and $.04 for the
three months ended June 30, 1996.

(6) Gives effect to the Texas Acquisition, the Offering Transactions and the
Offering as if they had occurred at the beginning of the period and is
computed on the same basis as described in Note 4 above.
(7) 1994 Other Operating Data excludes the Company's school located in Albany,
Georgia, which the Company decided to close in fiscal 1994. See Note 2
above.
(8) Represents the percentage calculated by dividing (i) the number of students
who withdrew from the Company's schools in the period by (ii) the sum of
the number of students at each month-end in the period and the number of
students who withdrew in the period.
(9) It is not practicable to determine the information marked "N/A" on a pro
forma basis.

7
<PAGE> 10

RISK FACTORS

The securities offered hereby are speculative and involve a high degree of
risk, including, but not limited to, the risk factors described below. In
addition to the other information contained in this Prospectus, the following
should be considered carefully in evaluating an investment in shares of the
Common Stock.

DEPENDANCE ON TITLE IV FUNDING; REGULATORY COMPLIANCE AS A CONDITION FOR
CONTINUED ELIGIBILITY FOR TITLE IV FUNDING

The Company derives a substantial majority of its revenues from federal
financial aid received by the students of its schools under Title IV programs
("Title IV Programs") administered by the United States Department of Education
("Department of Education") under the Higher Education Act of 1965, as amended
(the "HEA"). Each of the Company's schools participates in Title IV Programs. In
order to participate in Title IV Programs, an institution, such as each of the
schools owned and operated by the Company, must obtain certification by the
Department of Education as an "eligible institution." To obtain such
certification, the institution must satisfy certain eligibility, program, and
general requirements imposed by the HEA and by regulations thereunder (the
"Regulations") promulgated and enforced by the Department of Education.
Generally, a school (a main campus and any additional locations for purposes of
the Regulations) is considered separately for compliance with the Regulations.
Thirteen of the Company's schools are main campuses. One school, located in
Vista, California, is an additional location of the San Marcos main campus. An
institution also must be authorized to offer its programs by the relevant state
agency where it is located and it must be accredited by a nationally recognized
accrediting agency to obtain and maintain such certification. Each of the
Company's schools is licensed and approved in the state where it operates and is
accredited by at least one nationally recognized accrediting agency.

The provisions of the HEA and the Regulations govern many aspects of the
operation of the Company and its schools, including, but not limited to (i) the
maximum acceptable rate of default by a school's students with respect to
federally guaranteed or funded student loans, (ii) the maximum acceptable
proportion of school revenues derived from Title IV Programs, (iii) the school's
satisfaction of certain financial responsibility standards, (iv) the school's
satisfaction of certain administrative capability standards, (v) the ability of
a school to add locations and educational programs, and (vi) the ability of the
Company to engage in transactions involving a change in ownership resulting in a
change in control of the schools or the Company. Generally, each school is
considered separately for purposes of determining compliance with the regulatory
requirements, although certain financial reporting is done on a consolidated
basis. See "Financial Aid and Regulation."

For the fiscal year ended March 31, 1996, the Company derived approximately
76% of its cash receipts from Title IV Programs. The failure of any of the
Company's schools to comply with the requirements of the HEA or the Regulations,
or the requirements of applicable state law or accrediting agencies, could
result in the restriction or loss by such school of its ability to participate
in Title IV Programs, which could have a material adverse effect on the
financial condition and operations of the Company. A more detailed description
of the regulatory environment in which the Company operates and the Company's
experience with applicable regulations is included below under the caption
"Financial Aid and Regulation;" however, the following matters should be
particularly noted:

Financial Responsibility Requirements. The HEA and the Regulations
prescribe specific standards of financial responsibility which the Department of
Education must consider with respect to qualification for participation in the
Title IV Programs ("Financial Responsibility Standards"). These standards are
generally applied on an individual school basis. However, there can be no
assurance that the Department of Education will not attempt to apply such
standards on a consolidated basis. If the Department of Education determines
that any of the Company's schools fails to satisfy the Financial Responsibility
Standards, it may require that such school post an irrevocable letter of credit
(a "Financial Responsibility Bond") in favor of the Secretary of Education in an
amount equal to not less than one-half of Title IV Program funds received by the
school during the last complete award year or, in the Department of Education's
discretion, require some other less onerous demonstration of financial
responsibility (a "Demonstration of Financial Responsibility"). One-half of
Title IV funds received by the Company's individual schools in the most recent
award year ranged from

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$0.2 million to $3.9 million, and one-half of the total Title IV funds received
by all the Company's schools in the most recent award year was $14.1 million.
Pursuant to the Regulations, the Company submits annual audited consolidated
financial statements and unaudited consolidating financial statements to the
Department of Education. For the amount of Title IV funds received by each of
the Company's schools, along with other data relevant to the financial
responsibility requirements, see "Financial Aid and Regulation -- Selected Data
Regarding Cohort Default Rates, Title IV Funds Received and Net Operating
Losses."

Among the principal Financial Responsibility Standards which a school must
satisfy are: (i) an "acid test" ratio (defined as the ratio of the total of
cash, cash equivalents and current accounts receivable to current liabilities)
of at least 1-to-1 at the end of the most recent fiscal year, (ii) a positive
tangible net worth, as defined by the applicable Regulations, at the end of the
most recent fiscal year (the "Tangible Net Worth Standard") and (iii) net
operating results for the two most recent fiscal years, excluding extraordinary
losses or losses from discontinued operations, which do not show an aggregate
net loss in excess of 10% of tangible net worth at the beginning of the two year
period. Primarily because a large portion of the Company's assets consists of
goodwill and other intangibles related to school acquisitions, the Company has
had a negative tangible net worth on a consolidated basis for each of the
Company's three most recent fiscal years, although none of the Company's schools
had a negative tangible net worth on an individual school basis during that
period. For the Company's fiscal year ended March 31, 1996, the Company's
consolidated negative tangible net worth was approximately $581,000. The Company
has filed audited consolidated financial statements with the Department of
Education for each of the last three fiscal years, along with unaudited
consolidating statements. Although the Department of Education has not cited any
of the Company's schools for violation of the Tangible Net Worth Standard, there
can be no assurance that the Department of Education will not attempt to apply
the Tangible Net Worth Standard on a consolidated basis. Assuming completion of
this Offering, the Offering Transactions and consummation of the Texas
Acquisition, the Company will have a positive tangible net worth on a pro forma
consolidated basis of approximately $20.2 million as of June 30, 1996. However,
no assurance can be given that the Department of Education may not make a
request for the Company to post a Financial Responsibility Bond (which, if done
on a consolidated basis for all of the Company's schools, could aggregate $14.1
million) or otherwise make a request for a Demonstration of Financial
Responsibility based on the consolidated negative tangible net worth at March
31, 1996, the end of its most recent fiscal year. If such a request were to be
made, there is no assurance that the Company (i) would be successful in
persuading the Department of Education or a court that such a request is
contrary to law, (ii) could secure the funds to post the Financial
Responsibility Bond which the Department of Education may request, or (iii) that
the Company would be successful in negotiating a more favorable Demonstration of
Financial Responsibility. If the Company were unable to post a Financial
Responsibility Bond or make a satisfactory Demonstration of Financial
Responsibility, it could become ineligible to receive Title IV funding in some
or all of its schools. Ineligibility for Title IV funding would have an
immediate material adverse effect on the Company's operations.

The Company's school located in Roanoke, Virginia (which accounted for 2.7%
of the Company's total net revenue in fiscal 1996) experienced operating losses
in each of the last two fiscal years, which may result in the Department of
Education requiring the posting of a Financial Responsibility Bond in the
approximate amount of $355,000 or otherwise request a Demonstration of Financial
Responsibility with respect to such school. The amount of any such Financial
Responsibility Bond for Roanoke would be funded from the Company's working
capital.

In May 1995, the Department of Education notified the Company (the "Fiscal
1994 Notice") that, based upon a review of the audited consolidated and
unaudited consolidating fiscal 1994 financial statements of the Company, it
determined that (i) the Company's schools located in Staunton and Harrisonburg,
Virginia, did not meet, for fiscal year 1994, the acid test ratio and the
Tangible Net Worth Standard, and (ii) the Company's school located in
Pittsburgh, Pennsylvania did not meet the acid test ratio. The Department of
Education requested that the Company provide letters of credit with regard to
these three schools in the aggregate amount of $2,065,000. In July 1995, after a
meeting with Department of Education officials, the Company submitted its fiscal
1995 audited consolidated financial statements and unaudited consolidating
financial statements (the "1995 Financials") for review by the Department of
Education. The Department of

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<PAGE> 12

Education agreed to suspend its request for letters of credit subject to their
review of the 1995 Financials. The Company believes that the 1995 Financials
demonstrated compliance by the relevant schools with all of the applicable
financial criteria for the fiscal year ended March 31, 1995. As of the date of
this Prospectus, the Department of Education has neither confirmed nor contested
the Company's belief.

Based on its audited consolidated and unaudited consolidating financial
statements for fiscal 1996, which have been submitted to the Department of
Education, except with respect to the operating losses incurred by the Company's
school in Roanoke, the Company believes each of its schools satisfies all
Financial Responsibility Standards. See "Financial Aid and
Regulation -- Selected Data Regarding Cohort Default Rates, Title IV Funds
Received and Net Operating Losses." Because the HEA and the Regulations are
subject to amendment, and because the Department of Education may change its
interpretation of the HEA and the Regulations, there can be no assurance that
the Department of Education will agree in the future with the Company's
interpretation of each such requirement or that such requirements will not
change in the future.

Student Loan Defaults. The HEA provides that a school may lose its
eligibility to participate in some or all Title IV Programs if defaults on the
repayment of federally guaranteed student loans or direct loans exceed certain
rates ("Cohort Default Rates"). Cohort Default Rates are calculated for each
school for each federal fiscal year by determining the rate at which the
school's students entering repayment in that federal fiscal year default on
repayment of their loan by the end of the following federal fiscal year. Cohort
default rates are subject to revision by the Department of Education if new data
becomes available and are subject to appeal by schools contesting the accuracy
of the data or the adequacy of the servicing of the loans by the loan servicer.
A school that is determined to have had Cohort Default Rates of 25% or greater
for the three most recent federal fiscal years for which data is available is
subject to immediate loss of eligibility to participate in substantially all
Title IV Programs, subject to a limited appeal of the determination, including
an appeal based on a claim of exemption from the Cohort Default Rate
requirements by virtue of exceptional mitigating circumstances. The loss of
eligibility lasts for the duration of the federal fiscal year in which the
determination of ineligibility is made, plus the two succeeding federal fiscal
years. However, an institution remains eligible for Title IV funding while an
appeal of such determination is pending.

The federal fiscal 1991, 1992 and 1993 Cohort Default Rates for all of the
students at the Company's schools averaged 19.3%, 20.6%, and 19.9%,
respectively, and ranged from highs of 31.2%, 30.9% and 23.5% to lows of 7.8%,
7.3%, and 2.3% for the respective periods. The federal fiscal 1994 Cohort
Default Rates for all of the students at the Company's schools, which have been
preliminarily announced, averaged 19.7% and ranged from a high of 27.5% to a low
of 3.0%. For the Cohort Default Rates for each of the Company's schools for
federal fiscal years 1991 to 1994, the most recent years for which data is
available, see "Financial Aid and Regulation -- Selected Data Regarding Cohort
Default Rates, Title IV Funds Received and Net Operating Losses." The average
Cohort Default Rate for students at all postsecondary proprietary institutions
in the United States for federal fiscal 1992 and 1993 were 30.2% and 23.9%,
respectively. The average rate for federal fiscal 1994 is not available.

None of the Company's schools had Cohort Default Rates of 25% or more for
each of the three consecutive federal fiscal years ending 1993, or those ending
with federal fiscal 1994 based on 1994 data released by the Department of
Education in May 1996. The Department has designated this 1994 data as
preliminary, reserving the right to issue final 1994 Cohort Default Rates in or
about November 1996. The Company does not expect its final 1994 Cohort Default
Rates to differ materially from the preliminary data. Accordingly, the Company
believes that none of its schools is currently vulnerable to termination of
Title IV eligibility based on three consecutive years of excess Cohort Default
Rates. The Company's schools in Harrisonburg and Staunton, Virginia, had Cohort
Default Rates in excess of 25% for the two consecutive federal fiscal years
ending 1993; however both schools had preliminary Cohort Default Rates of less
than 25% for the federal fiscal year ending in 1994. Only the Company's school
located in Stockton, California had a Cohort Default Rate of 25% or more for
federal fiscal 1994 (based on the preliminary data). Although that school had a
Cohort Default Rate of 27.5% in federal fiscal 1994, it had a Cohort Default
Rate of 19.9% for federal fiscal 1993, and therefore is not vulnerable to
termination of Title IV eligibility unless its rates for the next two federal
fiscal years are 25% or more. The Company's other schools must have Cohort
Default Rates

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<PAGE> 13

of 25% or greater for a consecutive three year period beginning with federal
fiscal 1995 or thereafter in order to become vulnerable to termination of Title
IV eligibility.

The Regulations require that any school which experiences a Cohort Default
Rate in excess of 20% must establish a default reduction program meeting the
standards set forth in the Regulations. The Company has instituted default
reduction programs in each of its schools, including measures to improve student
retention rates, improve student employment rates, and counseling of students on
their responsibilities to repay their loans; however, economic and other factors
outside of the Company's control could adversely effect default rates. The loss
of Title IV eligibility at one or more of the Company schools could have a
material adverse effect on the Company.

CHANGE IN OWNERSHIP RESULTING IN CHANGE IN CONTROL

Upon a change in ownership resulting in a change in control of the Company,
as defined in the HEA and the Regulations, each of the Company's schools would
lose its eligibility to participate in Title IV Programs for an indeterminate
period of time during which it applies to regain eligibility. A change of
control also could have significant regulatory consequences for the Company at
the state level and could affect the accreditation of the Company's schools. If
a corporation, such as the Company, is neither publicly traded nor closely held,
the Regulations provide that a change in ownership resulting in a change of
control occurs when a person's legal or beneficial ownership either rises above
or falls below 25% of the voting stock of the corporation and that person gains
or loses control of the corporation. The Company has been advised by the
Department of Education that, based on the facts pertaining to the Company's
ownership and control which are set forth in this Prospectus, the consummation
of this Offering will not constitute a change in ownership resulting in a change
of control within the meaning of the HEA and the Regulations.

The Department of Education's regulations provide that after a Company
becomes publicly-traded, a change in control occurs when a report on Form 8-K is
required to be filed with the Securities and Exchange Commission disclosing a
change in control. Most states and accrediting agencies have similar
requirements, but they do not provide a uniform definition of change in control.
If the Company were to lose its eligibility to participate in Title IV Programs
for a significant period of time pending an application to regain eligibility,
or if it were determined not to be eligible, its operations would be materially
adversely effected. The possible loss of Title IV eligibility resulting from a
change in control may also discourage or impede a tender offer, proxy contest or
other similar transaction involving control of the Company. See "Risk
Factors -- Antitakeover Provisions and Title IV Change in Control Regulations."

PARTICIPATION IN FEDERAL DIRECT LENDING PROGRAM; RISK OF LEGISLATIVE ACTION

Prior to fiscal 1995, the Company derived all of its Title IV loan funding
from the FFEL loan program. In fiscal 1995 and fiscal 1996, the Company's
schools elected to administer their Title IV loan funding pursuant to the
Federal Direct Student Loan Program ("FDSLP"). As of the date of this
Prospectus, the Company expects to derive all of its Title IV loan funding
pursuant to the FDSLP program in fiscal 1997. General descriptions of the FDSLP
and FFEL programs are contained in "Financial Aid and Regulation -- Title IV
Student Assistance Programs." Funding for the FDSLP, as well as for the FFEL
program, must be appropriated by Congress annually. In fiscal 1996 FDSLP and
FFEL loans amounted to approximately $17.7 million and represented approximately
45.7% of the Company's revenues. In 1996 there was debate in Congress over
whether the Title IV loan programs should be financed entirely through the FFEL
program, or through a combination of the FFEL program and the FDSLP program.
Although no adverse changes were made to the FDSLP program and funding for the
FDSLP program was approved for the award year commencing July 1, 1996, there can
be no assurance that funding will continue at current levels, or that the FDSLP
program itself will be continued. If the FDSLP program were discontinued, or
funding reduced so as to reduce the amount of direct lending funds available to
the Company's schools, the Company would have to rely on loans provided for
pursuant to FFEL. Loans pursuant to FFEL are administered through outside
lenders, such as banking institutions and are federally guaranteed. Although the
Company believes that it would have no difficulty finding lenders for federally
guaranteed student loans to its students under FFEL,

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<PAGE> 14

there can be no assurance that such loans would be available in amounts
sufficient to provide for the Company's schools to operate at current and
anticipated levels, or at all.

Furthermore, there can be no assurance that federal funding for the FFEL
program will be continued at current levels, or at all. Because the Company
derives a substantial majority of its cash receipts from Title IV funding (76%
for the fiscal year ended March 31, 1996), discontinuance or significant
reductions in the FDSLP and, if the FDSLP program is discontinued or reduced,
the FFEL program, would have a material adverse effect on the Company's
operations.

RELIANCE ON ACQUISITIONS

The Company has acquired all of its schools. Several of the schools
acquired by the Company have experienced losses following their acquisition in
connection with their integration into the Company's operations or because of
their failure to perform as anticipated by the Company. Additionally, in fiscal
1994, the Company decided to close a school located in Albany, Georgia (which
was originally purchased in fiscal 1990) because of continuing operating losses
and management's assessment of the future prospects of the relevant market. The
school ceased operations in fiscal 1995. The Company expects that a significant
part of its future growth will be based on its ability to identify, acquire and
profitably operate additional schools. While the Company is continually
searching for acquisition opportunities, there can be no assurance that the
Company will be successful in identifying, acquiring and operating additional
schools. When the Company acquires an existing school, a significant portion of
the purchase price for such school is often allocated to goodwill and
intangibles because most of these acquisitions do not involve the purchase of
significant amounts of tangible property. All of such goodwill and intangibles
must be amortized over a relatively short period of time, which amortization
reduces the Company's reported earnings. If any potential acquisition
opportunities are identified, there can be no assurance that the Company will be
able to consummate the acquisition on terms favorable to the Company and
successfully integrate any such acquisition into its existing operations and
there can be no assurance as to the timing or effect on the business of the
Company of any such acquisitions.

The Company's acquisition of a school constitutes a change in ownership
resulting in a change of control with respect to such school for purposes of
Title IV eligibility, which means that schools must either be acquired subject
to recertification of eligibility by the Department of Education or that the
school will lose its eligibility to participate in Title IV Programs for an
indeterminate period of time during which it applies for recertification of
eligibility. The Company's experience has been that the Department of Education
typically processes such applications for recertification in three to six
months. Since that is less than the minimum enrollment period for each of the
Company's schools, there generally should be no significant interruption of
Title IV funding caused by the need to apply for a recertification of
eligibility as a result of an acquisition. There can be no assurance, however,
that recertification applications will be acted upon on a timely basis by the
Department of Education so as to avoid any significant interruption of Title IV
funding to students at the acquired school. Prior to recertification by the
Department of Education, the Company must also obtain approval of the change in
control from applicable states and accrediting agencies. In the past this
process has taken from three to six months for the Company to complete. The
Company has been recertified for eligibility by the Department of Education with
respect to each of its acquisitions. Although the Company has had no difficulty
in obtaining such recertification and approval in the past, there can be no
assurance that such state, accrediting and Department of Education approvals
(including those approvals required in connection with the Texas Acquisition)
may not be subject to unexpected delays or difficulties which may materially and
adversely effect the Company's operations.

In acquiring a school, the Company becomes liable to the Department of
Education for any liabilities of the seller on account of the seller's failure
to comply with the HEA or the Regulations prior to the date of acquisition. The
Company attempts to minimize the impact of any such liabilities by including
representations as to regulatory compliance and indemnification provisions in
the relevant acquisition agreements. No material amount of Title IV regulatory
liabilities have been asserted against the Company with respect to any of its
prior acquisitions, however, no assurance can be given that any assertions will
not be made in the future, including possible assertions of liabilities in
connection with the Texas Acquisition. See "Business -- Texas Acquisition." In
addition, if available offsets are insufficient, there can be no assurance that
the parties

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<PAGE> 15

responsible for indemnification of the Company from such liabilities will have
the financial resources necessary to indemnify the Company for all or any
portion of such possible liabilities.

NEED FOR ADDITIONAL FINANCING

VARIABILITY IN QUARTERLY OPERATING RESULTS

The Company's quarterly revenues have varied in the past and may vary
significantly in the future as a result of a number of factors, including
fluctuations in the number of new students enrolling in the Company's programs.
New enrollments in the Company's schools tend to be higher in the third and
fourth fiscal quarters because the third and fourth quarters cover periods
associated with the beginning of school semesters. The Company expects these
seasonal trends will continue. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Variations in Quarterly Results
of Operations."

HISTORY OF OPERATING LOSSES

The Company has experienced net losses in two of the last three fiscal
years ($1,561,000 and $1,428,000 in fiscal 1994 and fiscal 1995, respectively).
In addition, the Company's strategy of growth through acquisition exposes it to
potential losses incurred in connection with the integration of newly acquired
schools into its systems, the potential need for additional capital or operating
expenditures to enhance the operations of such schools or their failure to
perform as anticipated. There can be no assurance that the Company will operate
profitably or have positive cash flow from operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

COMPETITION

The postsecondary education market is highly fragmented and competitive
with no private or public institution having a significant market share. The
Company's schools compete for students with not-for-profit public and private
colleges and proprietary institutions which offer degree and/or non-degree
granting programs. Such proprietary institutions include vocational and
technical training schools, continuing education programs and commercial
training programs. Public and private colleges may offer programs similar to
those offered by the Company's schools at lower tuition costs due in part to
government subsidies, foundation grants, tax deductible contributions, or other
financial resources not available to proprietary institutions. Certain of the
Company's competitors in both the public and private sector have greater
financial and other resources than the Company. See "Business -- Competition."

DEPENDENCE ON KEY PERSONNEL

The Company's success depends upon the availability and performance of its
senior management, particularly Gary D. Kerber, the Company's Chairman and
President. Mr. Kerber has entered into an

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<PAGE> 16

employment contract with the Company, however, it may be terminated by him at
any time. Although the Company maintains key man life insurance on Mr. Kerber in
the amount of $1,000,000, the loss of Mr. Kerber's services could have a
material adverse effect on the Company. See "Management."

CONTROL BY INSIDERS

Upon completion of the Offering, Sprout Capital V, Sprout Technology Fund,
L.P. and DLJ Venture Capital Fund II, L.P. (collectively, the "Sprout Group"),
Lawrence, Tyrrell, Ortale & Smith ("LTOS"), and Delaware State Employees'
Retirement Fund (the "Delaware Fund"), Declaration of Trust for Defined Benefit
Plans of ICI American Holding Inc. (the "ICI Trust") and Declaration of Trust
for Defined Benefit Plans of Zeneca Holding Inc. (the "Zeneca Trust") will own,
approximately 14.0%, 14.0%, 9.6%, 2.0% and 1.6%, respectively, of the
outstanding Common Stock of the Company, assuming the Over-allotment Option is
exercised. Mr. Robert T. Cresci, a director of the Company, is a principal of
Pecks Management Partners Ltd. ("Pecks"), an investment management firm which
exercises voting and investment control over the shares of Common Stock owned by
the Delaware Plan, the ICI Trust and the Zeneca Trust. Mr. W. Patrick Ortale and
Mr. Richard E. Kroon, both of whom are directors of the Company, are principals
of LTOS and the Sprout Group, respectively. As a practical matter, Messrs.
Cresci, Kroon and Ortale, or the respective entities they represent, acting
together would be able to elect all of the Company's directors and to control
other actions requiring shareholder approval. In addition, pursuant to a
Coinvestors Agreement (the "Coinvestors Agreement"), dated July 23, 1991, each
of such shareholders and Mr. Gary Kerber, the Chairman of the Company and the
holder of approximately 4.6% of the Company's outstanding Common Stock after the
Offering (assuming the Over-allotment Option is exercised), have agreed to vote
their shares of Common Stock for the election of one director nominated jointly
by the Delaware Plan, the ICI Trust and the Zeneca Trust (collectively, the
"Pecks Managed Entities"). See "Certain Transactions" and "Principal and Selling
Stockholders."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Common
Stock. Subject to notice of issuance, the Common Stock has been approved for
quotation and trading of its Common Stock on the NNM. The initial public
offering price for the Common Stock will be determined by negotiations between
the Company and the representatives of the Underwriters and may not be
indicative of the market price for the Common Stock after the Offering. See
"Underwriting." There can be no assurance that the market price of the Common
Stock prevailing at any time after the Offering will equal or exceed the initial
public offering price. In addition, the stock market has, from time to time,
experienced extreme price and volume fluctuations, which could adversely affect
the market price of the Common Stock without regard to the financial performance
of the Company. The market price of the Common Stock may fluctuate substantially
in response to variations in the Company's results of operations, announcements
by the Company or other developments affecting the Company, as well as by
general economic and other external factors.

ABSENCE OF DIVIDENDS

The Company has not paid any dividends to date. The Company does not
currently intend to declare or pay dividends on its Common Stock in the
foreseeable future, but plans to retain any earnings for use in its business
operations. See "Dividend Policy." In addition, the Proposed Bank Line of Credit
contains restrictions which prohibit the Company from paying dividends while
such credit line is in effect.

IMMEDIATE AND SUBSTANTIAL DILUTION

Based upon an assumed initial public offering price of $12.00 per Share,
purchasers of Shares in the Offering will experience an immediate and
substantial dilution of $8.99 in pro forma net tangible book value per Share.
See "Dilution."

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<PAGE> 17

SHARES ELIGIBLE FOR FUTURE SALE

After the Offering 6,694,411 shares of Common Stock will be outstanding.
The Company has reserved an additional (i) 961,666 shares of Common Stock for
issuance pursuant to the 1996 Stock Incentive Plan, which shares will be
registered under the Securities Act of 1933, as amended (the "Securities Act"),
(ii) 200,000 shares of Common Stock for issuance pursuant to the Company's
Non-employee Director Stock Option Plan, which shares will be registered under
the Securities Act, and (iii) 43,334 shares of Common Stock which may be
purchased upon exercise of outstanding warrants to purchase Common Stock. Any
shares issued pursuant to the 1996 Stock Incentive Plan or the Non-employee
Director Stock Option Plan will be freely transferable upon issuance without
registration under the Securities Act, subject to volume limitations contained
in Rule 144 ("Rule 144") under the Securities Act applicable to affiliates, as
that term is defined in the Securities Act. Of the 6,694,411 outstanding shares,
the 2,700,000 shares sold in the Offering (3,105,000 shares if the
Over-allotment Option is exercised in full) will be freely transferable by
persons other than affiliates of the Company without registration under the
Securities Act. The remaining 3,994,411 shares of Common Stock which will be
beneficially owned by the existing stockholders of the Company upon the
completion of the Offering will be "restricted securities," as defined in Rule
144, and may be resold thereafter in compliance with Rule 144. No prediction can
be made as to the effect that resale of shares of Common Stock, or the
availability of shares of Common Stock for resale, will have on the market price
of the Common Stock prevailing from time to time. The resale of substantial
amounts of Common Stock, or the perception that such resales may occur, could
adversely affect prevailing market prices of the Common Stock and could
impair the Company's ability in the future to raise additional capital through
the sale of its equity securities. The Company has agreed not to issue, and
certain current shareholders of the Company holding substantially all of the
existing shares of Common Stock have agreed not to sell, any shares of Common
Stock or other equity securities of the Company for 180 days after the date of
this Prospectus without the prior written consent of Smith Barney Inc. See
"Underwriting."

ANTITAKEOVER PROVISIONS AND TITLE IV CHANGE IN CONTROL REGULATIONS

Certain provisions of the Company's Certificate of Incorporation and Bylaws
authorize the issuance of "Blank Check" preferred stock and establishing advance
notice requirements for director nominations and actions to be taken at
stockholder meetings. These provisions could discourage or impede a tender
offer, proxy contest or other similar transaction involving control of the
Company, which transactions might be viewed favorably by minority stockholders.
See "Description of Capital Stock -- Delaware Law and Certain Charter and Bylaw
Provisions." Provisions in the applicable Regulations pursuant to which the
Company would lose its Title IV eligibility in the event of a change in
ownership resulting in a change of control could have a similar discouraging
effect. See "Risk Factors -- Potential Adverse Effects of Regulation."

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<PAGE> 18

USE OF PROCEEDS

The net proceeds to the Company from the Offering (after deduction of
estimated underwriting discounts and commissions and Offering expenses) are
estimated to be approximately $24.0 million, assuming an initial public offering
price of $12.00 per Share. The Company will not receive any proceeds from the
sale of Common Stock by the Primary Selling Stockholders or the Over-allotment
Selling Stockholders. The Company expects to use (i) approximately $2.2 million
of the net proceeds of the Offering to repay senior subordinated indebtedness
with a carrying value of approximately $1.9 million, bearing interest at 14% per
annum and maturing in March 2000, and (ii) approximately $2.6 million of the net
proceeds of the Offering to repay senior subordinated indebtedness with a
carrying value of approximately $2.4 million, bearing interest at 13% per annum
and maturing in July 2000 or earlier if the 14% senior subordinated indebtedness
is repaid prior to March 2000. The Company intends to use the remainder of the
net proceeds of the Offering for general corporate purposes, including the
expansion of its operations through the acquisition of additional schools and
adding academic programs at existing Company schools. The Company continually
investigates opportunities to acquire new schools and related businesses. The
Company has entered into an agreement to acquire three schools located in Texas
for an aggregate consideration of $2.5 million (see "Business -- Texas
Acquisition"). No assurance can be given that such acquisition will be
completed. Pending use for the purposes described above, the Company will invest
net proceeds from the Offering in short-term, interest bearing investment-grade
securities.

DIVIDEND POLICY

Following the Offering, the Company anticipates that it will not pay
dividends on the Common Stock for the foreseeable future and that it will retain
its earnings to finance future growth. The declaration and payment of dividends
by the Company are subject to the discretion of its Board of Directors and
applicable corporation law. Any determination as to the payment of dividends in
the future will depend upon, among other things, general business conditions,
the effect of such payment on the Company's financial condition and other
factors the Company's Board of Directors may in the future consider to be
relevant. Prior to 1991, the Company's convertible preferred stock had a
cumulative dividend feature of 8% per annum. This feature was eliminated in 1991
and the dividends due of $1,232,498 were paid by the issuance of 410,833 shares
of Common Stock. Since then, no dividends have been declared or paid on the
convertible preferred stock, which shares are being converted into 1,705,082
shares of Common Stock in connection with the consummation of the Offering. No
dividends have been declared or paid on the Common Stock since the Company's
inception.

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DILUTION

At June 30, 1996, the pro forma net tangible book value (deficit) of the
Company (assuming the consummation of the Offering Transactions and the Texas
Acquisition but before the Offering) was approximately ($3.3 million), or ($.73)
per share of Common Stock. The pro forma net tangible book (deficit) per share
of Common Stock is defined as the Company's total assets excluding goodwill and
other intangibles, less its total liabilities, divided by the number of shares
of Common Stock outstanding. After giving effect to the issuance by the Company
of the 2,200,000 Shares offered hereby (at an assumed initial public offering
price of $12.00 per Share, and after deducting estimated underwriting discounts
and commissions and offering expenses), the pro forma as adjusted net tangible
book value of the Company as of June 30, 1996 would have been approximately
$20.2 million or $3.01 per share of Common Stock. This represents an immediate
dilution of $8.99 per share of Common Stock to new investors purchasing Shares
in the Offering at the assumed initial public offering price. The following
table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $12.00
Pro forma net tangible book value (deficit) per share after
consummation
of the Offering Transactions and the Texas Acquisition and
before the Offering............................................. $ (.73)
Increase attributable to the Offering.............................. 3.74
------
Pro forma as adjusted net tangible book value per share after consummation
of the Offering Transactions, the Texas Acquisition and the Offering....... 3.01
------
Dilution per share to new investors.......................................... $ 8.99
======
</TABLE>

The following table sets forth with respect to existing stockholders and
new investors in this Offering, a comparison of the number of shares of Common
Stock acquired from the Company, the percentage of ownership of such shares, the
total cash consideration paid, the percentage of total cash consideration paid
and the average price per share. It assumes that the Offering Transactions have
been completed and the Over-allotment Option has not been exercised.

<TABLE>
<CAPTION>
TOTAL CASH CONSIDERATION
SHARES PURCHASED PAID
--------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........ 4,494,411 67.1% $ 8,143,193 23.6% $ 1.81
New investors purchasing shares
from the Company.............. 2,200,000 32.9 26,400,000 76.4 $ 12.00
--------- ----- ----------- -----
Total................. 6,694,411 100.0% $34,543,193 100.0%
========= ===== =========== =====
</TABLE>

- ---------------

(1) Shares are net of 29,165 shares of Common Stock held by the Company as
treasury stock and consideration is net of $35,000 related cost.

17
<PAGE> 20

CAPITALIZATION

The following table sets forth as of June 30, 1996 (i) the historical
capitalization of the Company, (ii) pro forma capitalization of the Company,
giving effect to the Offering Transactions and (iii) such pro forma
capitalization, as adjusted to give effect to the Texas Acquisition and the sale
of the Common Stock offered hereby and the application of net proceeds therefrom
as described under "Use of Proceeds."

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED(1)
---------- --------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................................... $ 2,028 $ 2,029 $ 21,131
======= ======= =======
Long-term debt............................................... $ 6,738 $ 6,738 4,868
Stockholders' equity
Preferred stock, $.01 par value -- authorized 5,000,000
shares (pro forma and pro forma as adjusted); none
issued and outstanding.................................. -- -- --
Convertible preferred stock, $.01 par value -- authorized
1,100,000 shares (historical); none (pro forma and pro
forma as adjusted), 1,023,049 shares issued and
outstanding (historical), none (pro forma and pro forma
as adjusted)............................................ 10 -- --
Additional paid-in capital on convertible preferred
stock................................................... 6,732 -- --
Common stock, $.01 par value -- authorized 5,833,333
(historical), 15,000,000 shares (pro forma and pro forma
as adjusted); 1,676,827 shares issued and outstanding
(historical); 4,523,576 shares (pro forma) and 6,723,576
shares (pro forma as adjusted).......................... 17 45 67
Additional paid-in capital on common stock................. -- 9,655 33,585
Common stock purchase warrants............................. 2,940 -- --
Accumulated deficit........................................ (4,069) (4,069) (4,626)
Less treasury stock, at cost (29,165 shares of Common
Stock).................................................. (35) (35) (35)
------- ------- -------
Total stockholders' equity................................... 5,595 5,596 28,991
------- ------- -------
Total capitalization.................................... $ 12,333 $12,334 $ 33,859
======= ======= =======
</TABLE>

- ---------------

(1) For a description of adjustments, see "Unaudited Pro Forma As Adjusted
Condensed Consolidated Balance Sheet."

18
<PAGE> 21

UNAUDITED PRO FORMA AS ADJUSTED FINANCIAL DATA

On September 6, 1996, the Company entered into an acquisition agreement
providing for the purchase of three schools located in Texas for $2.5 million
(the "Texas Acquisition") subject to approval by the Texas Workforce Commission.
The Company financed the Texas Acquisition as follows: $50,000 was paid on
September 6, 1996, $50,000 will be paid upon approval by the Texas Workforce
Commission, $1,150,000 will be paid upon approval by the Department of Education
and the remaining $1,250,000 is payable in the form of a five year promissory
note bearing interest at 8% per annum and due in five equal annual principal
payments. The Company intends to account for the business combination as a
purchase, effective September 6, 1996.

The Unaudited Pro Forma As Adjusted Condensed Consolidated Statement of
Operations set forth below for the year ended March 31, 1996 has been derived
from the Company's consolidated historical statement of operations for the
fiscal year ended March 31, 1996 and from the Texas Acquisition's combined
statement of operations for the year ended December 31, 1995, and gives effect
to the Texas Acquisition, the Offering Transactions and the Offering as if they
had occurred on April 1, 1995.

The Unaudited Pro Forma As Adjusted Condensed Consolidated Statement of
Operations set forth below for the three months ended June 30, 1996 has been
derived from the Company's unaudited consolidated historical statement of
operations for the three months ended June 30, 1996 and from the Texas
Acquisition's unaudited combined historical statement of operations for the same
three month period, and gives effect to the Texas Acquisition, the Offering
Transactions and the Offering, as if they had occurred on April 1, 1996.
Although the Company and the Texas Acquisition used different fiscal years, the
pro forma as adjusted data for the three months ended June 30, 1996 uses the
same calendar quarter, in order to match seasonality.

The Unaudited As Adjusted Condensed Consolidated Balance Sheet as of June
30, 1996 has been derived from the unaudited interim financial statements. The
Unaudited As Adjusted Condensed Consolidated Balance Sheet has been adjusted to
reflect the Texas Acquisition, the Offering Transactions and the Offering, as if
they had occurred on June 30, 1996.

THE UNAUDITED PRO FORMA AS ADJUSTED FINANCIAL DATA ARE PROVIDED FOR
COMPARATIVE PURPOSES ONLY AND DO NOT PURPORT TO BE INDICATIVE OF THE RESULTS
WHICH ACTUALLY WOULD HAVE BEEN OBTAINED IF THE ABOVE-MENTIONED TRANSACTIONS HAD
BEEN EFFECTED ON THE DATES INDICATED OR OF THE RESULTS WHICH MAY BE OBTAINED IN
THE FUTURE. THE INFORMATION PROVIDED IN THE UNAUDITED PRO FORMA AS ADJUSTED
FINANCIAL DATA IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND
RELATED NOTES THERETO, THE UNAUDITED INTERIM FINANCIAL STATEMENTS OF THE COMPANY
AND RELATED NOTES THERETO AND THE SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL
ASSISTANTS, INC. AND CAREER CENTERS OF TEXAS -- EL PASO, INC.'S COMBINED
FINANCIAL STATEMENTS AND RELATED NOTES THERETO.

19
<PAGE> 22

UNAUDITED PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
EDUCATIONAL EDUCATIONAL
EDUCATIONAL TEXAS MEDICAL, INC. PRO FORMA MEDICAL, INC.
MEDICAL, INC. ACQUISITION MARCH 31, OFFERING YEAR ENDED
YEAR ENDED YEAR ENDED 1996 AND MARCH 31,
MARCH 31, DECEMBER 31, PRO FORMA PRO FORMA OFFERING 1996
1996 1995 ACQUISITION FOR TEXAS TRANSACTION PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS ACQUISITION ADJUSTMENTS AS ADJUSTED
------------- ------------ ----------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues....................... $ 38,652 $4,743 $ -- $43,395 $ -- $ 43,395
Cost of education and facilities... 17,639 2,225 (65)(1) 19,799 -- 19,799
Selling and promotional expenses... 5,569 371 -- 5,940 -- 5,940
Administrative expenses............ 11,110 1,516 -- 12,626 -- 12,626
Amortization of goodwill and
intangibles...................... 883 1 196(2) 1,080 -- 1,080
------- ------ ---- -------
Income (loss) from operations
before other expenses............ 3,451 630 (131) 3,950 -- 3,950
Other expenses..................... 1,929 -- -- 1,929 -- 1,929
------- ------ ---- -------
Income (loss) from operations...... 1,522 630 (131) 2,021 -- 2,021
Interest expense (income), net..... 811 (49) 100(3) 862 (831)(4) 31
------- ------ ---- -------
Income (loss) before income taxes
and extraordinary loss........... 711 679 (231) 1,159 831 1,990
Provision for income taxes......... 632 -- 153(5) 785 357(6) 1,142
------- ------ ---- -------
Income (loss) before extraordinary
loss(7).......................... $ 79 $ 679 $(384) $ 374 $ 474 $ 848
======= ====== ==== =======
Income before extraordinary loss
per share(8)..................... $ .02
=======
Weighted average number of shares
used in computing income before
extraordinary loss per share..... 4,426,311
=======
Pro forma as adjusted income before
extraordinary loss per
share(9)......................... $ .12
===========
Pro forma as adjusted weighted
average number of shares used in
computing pro forma as adjusted
income before extraordinary loss
per share........................ 6,988,263
===========
</TABLE>

- ---------------

(1) Represents a negotiated reduction in lease expense for property leased from
the former owner.

(2) Represents additional amortization of goodwill recorded in connection with
the purchase price allocation of the Texas Acquisition. Goodwill is
amortized over a fifteen year period.

(3) Represents additional interest expense recorded in connection with the
long-term debt recorded in connection with the Texas Acquisition.

(4) Represents interest expense reduction recorded in connection with the
anticipated use of net proceeds to repay $4.8 million of long-term debt.

(5) Represents a provision for income taxes as the Texas Acquisition operated as
subchapter S Corporations and all federal income taxes were the
responsibility of the individual stockholders.

(6) Represents increase in provision for income taxes due to a reduction in
interest expense in connection with the anticipated use of net proceeds to
repay $4.8 million of long-term debt.

(7) Upon consummation of the Offering, approximately $480,000 of long-term debt
discount and approximately $77,000 of deferred debt issuance costs will be
written off and be reported as an extraordinary loss.

(8) Historical income before extraordinary loss per share was computed by
dividing income before extraordinary loss by the weighted average number of
shares of common stock and common stock equivalents outstanding plus cheap
stock using the treasury stock method at the estimated market prices at each
applicable date.

(9) Pro forma as adjusted income before extraordinary loss per share was
computed by dividing income before extraordinary loss by the weighted
average number of shares of Common Stock outstanding after giving
retroactive effect to the mandatory conversion of all of the Company's
Convertible Preferred Stock into 1,705,082 shares and the exercise of
warrants to purchase 1,141,667 shares, all of which will occur upon the
consummation of the Offering, plus cheap stock and the issuance of 2,200,000
shares of Common Stock upon the consummation of the Offering. Retroactive
restatement has been made to share and per share amounts for a
five-for-three stock split. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common stock and common stock
equivalents issued at prices below the assumed initial public offering price
per share ("cheap stock") during the twelve month period immediately
preceding the initial filing date of the Company's Registration Statement
for its public offering have been included as outstanding for all periods
presented (using the treasury stock method at the assumed initial public
offering price) even though the effect is to reduce the loss per share.

20
<PAGE> 23

UNAUDITED PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
EDUCATIONAL
EDUCATIONAL MEDICAL,
MEDICAL, TEXAS INC.
INC. ACQUISITION EDUCATIONAL PRO FORMA THREE MONTHS
THREE MONTHS THREE MONTHS MEDICAL, INC. OFFERING ENDED
ENDED ENDED PRO JUNE 30, 1996 AND JUNE 30,
JUNE 30, JUNE 30, FORMA PRO FORMA FOR OFFERING 1996
1996 1996 ACQUISITION TEXAS TRANSACTION PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS ACQUISITION ADJUSTMENTS AS ADJUSTED
------------ ------------ ----------- ------------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............... $ 9,203 $ 1,195 $ -- $10,398 -- $ 10,398
Cost of education and
facilities............... 4,644 588 (16)(1) 5,216 -- 5,216
Selling and promotional
expenses................. 1,419 116 -- 1,535 -- 1,535
Administrative expenses.... 2,658 373 -- 3,031 -- 3,031
Amortization of goodwill
and intangibles.......... 176 -- 49(2) 225 -- 225
------- ------- ------- ------- ----- -------
Income (loss) from
operations before other
expenses................. 306 118 (33) 391 -- 391
Other expenses............. -- -- -- -- -- --
------- ------- ------- ------- ----- -------
Income (loss) from
operations............... 306 118 (33) 391 -- 391
Interest expense (income),
net...................... 196 (10) 25(3) 211 (208)(4) 3
------- ------- ------- ------- ----- -------
Income (loss) before income
taxes and extraordinary
loss..................... 110 128 (58) 180 208 388
Provision for income
taxes.................... 44 -- 22(5) 66 89(6) 155
------- ------- ------- ------- ----- -------
Income (loss) before
extraordinary loss(7).... $ 66 $ 128 $ (80) $ 114 $ 119 $ 233
======= ======= ======= ======= ===== =======
Income before extraordinary
loss per share(8)........ $ .01
=======
Weighted average number of
shares used in computing
income before
extraordinary loss per
share.................... 4,801,095
=========
Pro forma as adjusted
income before
extraordinary loss per
share(9)................. $ .03
=======
Pro forma as adjusted
weighted average number
of shares used in
computing pro forma as
adjusted income before
extraordinary loss per
share.................... 6,988,263
=========
</TABLE>

- ---------------

(1) Represents a negotiated reduction in lease expense for property leased from
the former owner.

(2) Represents additional amortization of goodwill recorded in connection with
the purchase price allocation of the Texas Acquisition. Goodwill is
amortized over a fifteen year period.

(3) Represents additional interest expense recorded in connection with the
long-term debt recorded in connection with the Texas Acquisition.

(4) Represents interest expense reduction recorded in connection with the
anticipated use of proceeds to repay $4.8 million of debt.

(5) Represents a provision for income taxes as the Texas Acquisition operated as
subchapter S corporations and all federal income taxes were the
responsibility of the individual stockholders.

(6) Represents increase in provision for income taxes due to a reduction in
interest expense in connection with the anticipated use of net proceeds to
repay $4.8 million of long-term debt.

(9) Pro forma as adjusted per share was computed by dividing income before
extraordinary loss by the weighted average number of shares of Common Stock
outstanding after giving retroactive effect to the mandatory conversion of
all of the Company's Convertible Preferred Stock into 1,705,082 shares and
the exercise of warrants to purchase 1,141,667 shares, all of which will
occur upon the consummation of the Offering, plus cheap stock and the
issuance of 2,200,000 shares of Common Stock upon the consummation of the
Offering. Retroactive restatement has been made to share and per share
amounts for a five-for-three stock split. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletin No. 83, common stock and
common stock equivalents issued at prices below the assumed initial public
offering price per share ("cheap stock") during the twelve month period
immediately preceding the initial filing date of the Company's Registration
Statement for its public offering have been included as outstanding for all
periods presented (using the treasury stock method at the assumed initial
public offering price) even though the effect is to reduce the loss per
share.

21
<PAGE> 24

UNAUDITED PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
EDUCATIONAL PRO FORMA
MEDICAL, INC. OFFERING EDUCATIONAL
EDUCATIONAL TEXAS JUNE 30, 1996 AND MEDICAL, INC.
MEDICAL, INC. ACQUISITION PRO FORMA PRO FORMA FOR OFFERING JUNE 30, 1996
JUNE 30, 1996 JUNE 30, 1996 ACQUISITION TEXAS TRANSACTIONS PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS ACQUISITION ADJUSTMENTS AS ADJUSTED
------------- ------------- ----------- ------------- ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents............ $ 2,027,990 $ 1,835,459 $ (50,000)(1) $ 1,977,990 $ 850(4) $ 21,130,840
(1,835,459)(2) 19,152,000(5)
Restricted cash.......... 617,428 -- -- 617,428 -- 617,428
Trade accounts
receivable, net........ 2,962,930 -- -- 2,962,930 -- 2,962,930
Prepaid expenses......... 997,333 66,404 (49,695)(2) 1,014,042 -- 1,014,042
----------- ---------- -------- ------------ ---------- ------------
Total current
assets........... 6,605,681 1,901,863 (1,935,154) 6,572,390 19,152,850 25,725,240
Property and equipment,
net.................... 4,348,380 180,036 -- 4,528,416 -- 4,528,416
Deferred debt issuance
costs, net............. 76,918 -- -- 76,918 (76,918)(5) --
Covenants not to compete,
net.................... 913,497 -- -- 913,497 -- 913,497
Goodwill and other
intangibles, net....... 4,944,613 11,516 2,939,074(3) 7,895,203 -- 7,895,203
Other assets............. 229,213 9,942 -- 239,155 -- 239,155
----------- ---------- -------- ------------ ---------- ------------
Total Assets....... $17,118,302 $ 2,103,357 $ 1,003,920 $20,225,579 $19,075,932 $ 39,301,511
=========== ========== ======== ============ ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable......... $ 230,571 $ 108,544 $ (108,544)(2) $ 230,571 -- $ 230,571
Accrued compensation..... 591,211 -- -- 591,211 -- 591,211
Accrued income taxes..... 85,182 -- -- 85,182 -- 85,182
Accrued expenses......... 655,427 265,920 (265,920)(2) 655,427 -- 655,427
Deferred tuition
income................. 2,141,247 657,277 -- 2,798,524 -- 2,798,524
Current portion of
long-term debt......... 1,059,277 -- 1,450,000(1) 2,509,277 (400,000)(5) 2,109,277
----------- ---------- -------- ------------ ---------- ------------
Total current
liabilities...... 4,762,915 1,031,741 1,075,536 6,870,192 (400,000) 6,470,192
Long-term debt........... 5,678,640 -- 1,000,000(1) 6,678,640 (4,400,000)(5) 2,758,339
479,699(5)
Other liabilities........ 1,081,675 -- -- 1,081,675 -- 1,081,675
----------- ---------- -------- ------------ ---------- ------------
Total
liabilities...... 11,523,230 1,031,741 2,075,536 14,630,507 (4,320,301) 10,310,206
Stockholders' Equity:
Preferred stock.......... -- -- -- -- -- --
Convertible preferred
stock.................. 10,230 -- -- 10,230 (10,230)(6)
Additional paid-in
capital on convertible
preferred stock........ 6,732,160 -- -- 6,732,160 (6,732,160)(6) --
Common stock............. 16,768 11,000 (11,000)(3) 16,768 17,050(6) 67,235
10,000(7)
1,417(4)
22,000(5)
Additional paid-in
capital on common
stock.................. 35 104,074 (104,074)(3) 35 6,725,340(6) 33,584,542
2,561,584(7)
367,583(4)
23,930,000(5)
Common stock purchase
warrants............... 2,939,734 -- -- 2,939,734 (2,571,584)(7) --
(368,150)(4)
Retained earnings
(accumulated
deficit)............... (4,068,855) 1,442,219 (1,442,219)(3) (4,068,855) (556,617)(8) (4,625,472)
Less treasury stock...... (35,000) (485,677) 485,677(3) (35,000) -- (35,000)
----------- ---------- -------- ------------ ---------- ------------
Total stockholders'
equity........... 5,595,072 1,071,616 (1,071,616) 5,595,072 23,396,233 28,991,305
----------- ---------- -------- ------------ ---------- ------------
Total liabilities
and stockholders'
equity........... $17,118,302 $ 2,103,357 $ 1,003,920 $20,225,579 $19,075,932 $ 39,301,511
=========== ========== ======== ============ ========== ============
</TABLE>

- ---------------

(1) To reflect the purchase of the Texas Acquisition and related financing.
(2) The terms of the Texas Acquisition excluded these assets and liabilities.
(3) To reflect the Company's purchase price allocation of the Texas Acquisition.
(4) To reflect the exercise of stock purchase warrants to purchase 141,667
shares.
(5) To reflect the sale of 2,200,000 shares of Common Stock by the Company and
the resulting use of the net proceeds of the Offering.
(6) To reflect the mandatory conversion of the convertible preferred stock upon
consummation of the Offering Transactions.

(7) To reflect the cashless exercise of certain stock purchase warrants to
purchase 1,000,000 shares.

(8) Upon consummation of the Offering, approximately $480,000 of long-term debt
discount and approximately $77,000 of deferred debt issuance costs will be
written off and be reported as an extraordinary loss.

22
<PAGE> 25

SELECTED CONSOLIDATED FINANCIAL AND OTHER OPERATING DATA

The following selected consolidated and other operating data of the Company
are qualified by reference to, and should be read in conjunction with, the
Consolidated Financial Statements and Notes thereto and other financial data
included elsewhere in this Prospectus. The financial data set forth below for
each of the three years in the period ended March 31, 1996 and as of March 31,
1996 and 1995, have been derived from the audited Consolidated Financial
Statements of the Company included elsewhere in this Prospectus. The financial
data for each of the two years in the period ended March 31, 1993 and as of
March 31, 1994, 1993, and 1992 have been derived from audited consolidated
financial statements of the Company not included in this Prospectus. The
information at June 30, 1996 and June 30, 1995 and for the three month periods
then ended is unaudited, but in the opinion of the Company reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of operations for such periods. These
historical results are not necessarily indicative of the results that may be
expected in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
-------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............... $13,256 $19,113 $26,475 $32,065 $ 38,652 $ 8,762 $ 9,203
Cost of education and
facilities............... 4,624 7,596 12,308 15,081 17,639 4,236 4,644
Selling and promotional
expenses................. 1,764 2,593 4,059 5,400 5,569 1,352 1,419
Administrative expenses.... 4,489 5,501 8,680 10,030 11,110 2,720 2,658
Amortization of goodwill
and intangibles.......... 821 1,072 1,235 1,255 883 256 176
------- ------- ------- -------- ------- -------- ----------
Income from operations
before other expenses.... 1,558 2,351 193 299 3,451 198 306
Other expenses(1):
Legal defense and
settlement costs...... -- -- -- 600 1,115 -- --
Loss on closure or
relocation of
school................ -- -- 1,126 -- 50 -- --
Impairment of goodwill
and intangibles....... -- -- -- 176 764 -- --
------- ------- ------- -------- ------- -------- ----------
Total other
expenses....... -- -- 1,126 776 1,929 -- --
------- ------- ------- -------- ------- -------- ----------
Income (loss) from
operations............... 1,558 2,351 (933) (477) 1,522 198 306
Interest expense, net...... 389 574 798 923 811 249 196
------- ------- ------- -------- ------- -------- ----------
Income (loss) before income
taxes and extraordinary
credit................... 1,169 1,777 (1,731) (1,400) 711 (51) 110
Provision (benefit) for
income taxes (2)......... 519 749 (170) 28 632 11 44
------- ------- ------- -------- ------- -------- ----------
Income (loss) before
extraordinary credit..... 650 1,028 (1,561) (1,428) 79 (62) 66
Extraordinary credit --
utilization of net
operating loss
carryforward(2).......... 435 -- -- -- -- -- --
------- ------- ------- -------- ------- -------- ----------
Net income (loss).......... $ 1,085 $ 1,028 $(1,561) $(1,428) $ 79 $ (62) $ 66
======= ======= ======= ========== ======= ======== ==========
Pro forma net income per
share (unaudited)(3)(4).. $ .02 $ .01
========== ==========
Pro forma shares
outstanding
(unaudited)(3)........... 4,788,263 4,788,263
========= ==========
</TABLE>

23
<PAGE> 26

<TABLE>
<CAPTION> THREE MONTHS ENDED
JUNE 30,
YEAR ENDED MARCH 31, ------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ----- -----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA(5):
Number of schools at end of
period................... 8 9 14 14 14 14 14
Number of students at end
of period................ 2,181 2,374 3,480 4,095 4,318 3,673 3,796
Number of new student
starts during period..... 2,589 3,667 4,668 5,536 5,893 1,171 1,129
Monthly withdrawal rate
during period(6)......... 4.9% 4.8% 4.7% 3.8% 3.8% 4.0% 4.0%
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
--------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 4,850 $ 6,533 $ 2,745 $ 2,480 $ 3,033 $ 1,603 $ 2,028
Total current assets...... 6,521 8,784 6,394 7,151 7,636 5,448 6,606
Total assets.............. 13,151 16,300 18,441 19,253 18,360 17,219 17,118
Long-term debt, including
current portion......... 3,447 4,609 7,302 8,525 7,140 7,550 6,738
Total liabilities......... 6,128 8,228 11,931 13,803 12,831 11,831 11,523
Total stockholders'
equity.................. 7,023 8,072 6,510 5,450 5,529 5,388 5,595
</TABLE>

- ---------------

(1) Other expenses consist of (i) a charge in fiscal 1994 of $1,126 in
connection with the closing of a school purchased in 1989, (ii) charges in
fiscal 1995 of $600 for legal costs associated with the defense of the
class action lawsuit, and $176 for the impairment of other intangible
assets, and (iii) charges in fiscal 1996 of $1,115 for the settlement of
the class action lawsuit (see "Business -- Litigation"), $50 for the cost
of relocating a school, and $764 for the impairment of goodwill and other
intangible assets.
(2) Effective April 1, 1992, the Company adopted the liability method of
accounting for income taxes. Previously, the deferred method was used. The
effect of this change in accounting principle on the 1993 financial
statements was not material.
(3) Computed on the basis described in Note 2 to the Consolidated Financial
Statements of the Company and reflects only the Offering Transactions.
Historical losses per share are not presented here as they are not
meaningful due to the conversion of all outstanding shares of convertible
preferred stock to Common Stock and the exercise of certain Common Stock
purchase warrants, to occur upon consummation of the Offering.

(4) Of the net proceeds from the sale of Common Stock offered by the Company
hereby, approximately $4,800 will be used to repay indebtedness. Assuming
the issuance and sale of 2.2 million shares of Common Stock by the Company
at an initial public offering price of $12.00 per share and assuming that
such indebtedness had been repaid rather than outstanding during fiscal
year 1996, pro forma supplemental net income per share of Common Stock
would have been $0.11 for the year ended March 31, 1996 and $.04 for the
three months ended June 30, 1996.

(5) 1994 Other Operating Data excludes the Company's school located in Albany,
Georgia, which the Company decided to close in fiscal 1994. See Note 1
above.
(6) Represents the percentage calculated by dividing (i) the number of students
who withdrew from the Company's schools in the period by (ii) the sum of
the number of students at each month-end in the period and the number of
students who withdrew in the period.

24
<PAGE> 27

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

The following discussion of the Company's results of operations and
financial condition should be read in conjunction with "Selected Consolidated
Financial and Other Operating Data" and the Consolidated Financial Statements of
the Company and the Notes thereto appearing elsewhere in this Prospectus.

GENERAL

The Company owns and operates 14 schools in six states which together
provide diversified career oriented postsecondary education to over 4,300
students. The Company derives its revenue almost entirely from tuition, fees and
charges paid by, or on behalf of, its students. Most students at the Company's
schools rely on funds received under various government-sponsored student
financial aid programs, especially Title IV Programs, to pay a substantial
portion of their tuition and other education-related expenses. During fiscal
1996, approximately 75.9% of the Company's cash receipts were indirectly derived
from Title IV Programs. Cash receipts represented approximately 96.5% of the
Company's net revenue in fiscal 1996. See "Financial Aid and Regulation."

The Company's revenue varies based on the aggregate student population,
which is influenced by the number of students attending the Company's schools at
the beginning of a fiscal period, by the number of new students entering the
Company's schools during such period, and by student retention rates. New
students enter the Company's schools' degree granting programs four times a year
and diploma courses every four-to-six weeks. The Company believes that the size
of its student population is affected to some extent by general economic
conditions, and that, in the absence of countervailing factors, student
enrollments and retention rates would tend to increase as opportunities for
immediate employment for high school graduates decline and decrease as such
opportunities increase. The purchase of new Company schools and the introduction
of additional program offerings at existing Company schools have been
significant factors in increasing the aggregate student population in recent
years.

In fiscal 1996, the Company derived approximately 87.7% of its net revenue
from tuition. The Company recognizes tuition revenue on each student contract as
earned on a pro rata monthly basis over the term of the contract. Refunds are
due if a student withdraws from school prior to completion of the program and
are computed using methods required by accrediting agencies or state and federal
regulations. As of the time of withdrawal, the total earnings on the contract
mandated by the applicable formula are compared to the revenue previously
recognized by the Company. This comparison can result in either an increase or
decrease in final revenue recognition, which is recorded for accounting purposes
at the time of the applicable student's withdrawal. Historically, these net
adjustments have not been material. Other educational revenue is comprised of
fees and textbook sales.

The Company incurs expenses throughout a fiscal period in connection with
the operation of its schools. The cost of education and facilities includes
faculty salaries and benefits, cost of books sold, occupancy costs, depreciation
and amortization of equipment costs and leasehold improvements, and certain
other educational and facility costs incurred by the Company's schools.

Selling and promotional expenses include admission representatives'
salaries and benefits, direct and indirect marketing expenses and advertising
expenses.

Administrative expenses include schools', regional offices' and home
office's salaries and benefits, an allowance for doubtful accounts, and other
direct and indirect costs of the schools, regional offices, and home office.

Since its inception, the Company has pursued a strategy of growth through
acquisition. All of the Company's schools have been acquired. The Company
records as goodwill and intangibles the difference between the purchase price of
a school and its tangible net assets. Since inception, the Company has allocated
approximately $15.1 million of its purchase prices of acquired schools to
goodwill and intangibles. Goodwill is amortized over 15 years. Other intangibles
are amortized over two to 15 years. The Company also frequently

25
<PAGE> 28

enters into non-competition agreements with the owners or employees of the
schools it acquires and generally records the cost of such non-competition
agreements as intangible assets which are amortized over their respective lives
which range from two to ten years. Effective July 1993, such amortization is tax
deductible; however, amortization related to acquisitions consummated prior to
that date is only partially tax deductible on a current basis.

VARIATIONS IN QUARTERLY RESULTS OF OPERATIONS

The following table sets forth unaudited quarterly financial data for each
of the eight fiscal quarters in the two years ended March 31, 1996 and the first
quarter of the fiscal year ending March 31, 1997 and such data expressed as a
percentage of the Company's totals with respect to such information for the
applicable fiscal year. The Company believes that this information includes all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of such quarterly information when read in conjunction with
the consolidated financial statements included elsewhere herein. The operating
results for any quarter are not necessarily indicative of the results for any
future period.

<TABLE>
<CAPTION>
FISCAL YEAR
ENDED MARCH
FISCAL YEAR ENDED MARCH 31, 1995 FISCAL YEAR ENDED MARCH 31, 1996 31, 1997
----------------------------------------- ------------------------------------- --------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR
------- ------- ------- ------- ------- ------- ------- ------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue:
Amount............... $ 6,927 $ 7,434 $ 8,397 $ 9,307 $ 8,762 $ 9,167 $10,164 $10,559 $9,203
Percentage of fiscal
year total......... 21.6% 23.2% 26.2% 29.0% 22.7% 23.7% 26.3% 27.3% --
Income (loss) from
operations before
other expenses:
Amount............... $ (271) $ (142) $ (152) $ 864 $ 198 $ 704 $ 1,238 $ 1,311 $ 306
Percentage of fiscal
year total......... (90.6)% (47.5)% (50.8)% 288.9% 5.7% 20.4% 35.9% 38.0% --
</TABLE>

The Company's quarterly revenues have fluctuated in the past and may
fluctuate significantly in the future as a result of a number of factors,
principally due to the number and timing of new students enrolling in the
Company's programs. New enrollments in the Company's schools tend to be higher
in the third and fourth fiscal quarters because the third and fourth quarters
cover periods traditionally associated with the beginning of school semesters.
The Company believes it is less affected by this seasonal pattern than many
other educational institutions because it permits students to enroll in and
begin programs in any month of the year at most of its schools. In addition, the
impact of seasonality in new enrollments on results of operations has been
moderated to some extent by growth in the number of students attending programs
and the varying lengths of those programs. In addition, other factors affecting
quarterly revenue include student withdrawals, the termination of programs, the
introduction of new programs, the upgrading or lengthening of programs, changes
in tuition rates (including changes in response to pricing actions by
competitors), changes in government-supported financial aid programs,
modification of applicable government regulations or interpretations, regulatory
audits or other actions by regulatory authorities. The Company has not
experienced any material resistance to raising its tuition rates in the past
and, based on such prior experience, anticipates that tuition increases will
keep pace with inflation for the foreseeable future. Because certain of the
Company's expenses do not vary with student enrollment, quarterly variations in
net revenue are amplified at the income (loss) from operations level.

26
<PAGE> 29

RESULTS OF OPERATIONS

The following table sets forth the percentage relationship of certain
statement of operations data to net revenue for the periods indicated.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
----------------------- --------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of education and facilities....................... 46.5 47.0 45.6 48.4 50.5
Selling and promotional expenses....................... 15.3 16.8 14.4 15.4 15.4
Administrative expenses................................ 32.8 31.3 28.8 31.0 28.9
Amortization of goodwill and intangibles............... 4.7 3.9 2.3 3.1 1.9
----- ----- ----- ----- -----
Income before other expenses......................... .7 1.0 8.9 2.1 3.3
Other expenses......................................... 4.3 2.5 5.0 -- --
----- ----- ----- ----- -----
Income (loss) from operations........................ (3.6) (1.5) 3.9 2.1 3.3
Interest expense, net.................................. 3.0 2.9 2.1 2.7 2.1
----- ----- ----- ----- -----
Income (loss) before income taxes.................... (6.6) (4.4) 1.8 (.6) 1.2
Provision (benefit) for income taxes................... (.6) .1 1.6 .1 .5
----- ----- ----- ----- -----
Net income (loss).................................... (6.0)% (4.5)% .2% (.7)% .7%
===== ===== ===== ===== =====
</TABLE>

Three Months Ended June 30, 1996 Compared With Three Months Ended June 30, 1995

Net Revenue. Net revenue increased by $441, or 5.0%, to $9,203 for the
three months ended June 30, 1996 from $8,762 for the three months ended June 30,
1995. Factors contributing to revenue growth included an increase in the number
of students attending the Company's schools and an approximate 4.0% increase in
tuition rates. The number of students attending the Company's schools at the
beginning of fiscal 1997 increased 5.4% from the beginning of fiscal 1996. The
number of new student starts at the Company's schools during the three months
ended June 30, 1996 decreased to 1,129 from 1,171 for the corresponding three
months of the prior year, a 3.6% decrease. This decrease in new student starts
is due to the reduction in starts in the Company's medical assistant and medical
administration programs in the three San Diego area schools from 417 to 265 for
the three months ended June 30, 1996. The Company believes the decline in starts
is attributable to several factors in the San Diego area, including a shift in
employer requirements for medical assistants, a continued decline in military
personnel, and an increase in employment opportunities. The Company believes
that these factors may continue to adversely impact the Company's operations in
the San Diego area. These reductions were offset by an increasing number of new
student starts in other schools and the introduction of two new programs,
Patient Care Services and Occupational Therapy Assistant at the San Diego
school, which accounted for 52 new starts for the three months ended June 30,
1996. These new programs were developed during the 1996 fiscal year in response
to the above mentioned shift in employer requirements for medical assistants. In
addition, the Company recently determined to relocate its Staunton, Virginia
school and has discontinued new student starts at this location. As a result,
there were no new student starts at Staunton for the three month period ended
June 30, 1996 compared to 32 in the corresponding prior period. Student
withdrawal rates did not change materially compared to withdrawal rates
experienced by the Company during the corresponding three months of the prior
year.

Cost of Education and Facilities. Cost of education and facilities
increased by $408, or 9.6%, to $4,644 for the three months ended June 30, 1996
from $4,236 for the three months ended June 30, 1995 principally as a result of
increased student count at the Company's schools, the introduction of new
programs, and facility expansions. The cost of education and facilities as a
percentage of net revenue was 50.5% in 1996 compared with 48.4% in 1995,
principally as a result of costs associated with the addition of the new
programs in 1996 at the Company's San Diego, California location.

27
<PAGE> 30

Selling and Promotional. Selling and promotional expenses increased by
$67, or 5.0%, to $1,419 for the three months ended June 30, 1996 from $1,352 for
the three months ended June 30, 1995. Selling and promotional expenses as a
percentage of net revenue was 15.4% in 1996 compared with 15.4% in 1995.

Administrative. Administrative expenses decreased by $62, or 2.3%, to
$2,658 for the three months ended June 30, 1996 from $2,720 for the three months
ended June 30, 1995 principally as a result of improved collections which
reduced the Company's bad debt expense. Administrative expense as a percentage
of net revenue declined to 28.9% in 1996 compared with 31.0% in 1995 as a result
of the reduction in bad debt expense.

Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles declined $80, or 31.3%, to $176 for the three months ended June 30,
1996 from $256 for the three months ended June 30, 1995. The decline was a
result of fully amortizing certain intangible assets acquired in connection with
the purchase of schools in fiscal 1992 and prior.

Interest Expense, Net. Net interest expense decreased $53, or 21.3%, to
$196 for the three months ended June 30, 1996 from $249 for the three months
ended June 30, 1995 principally as a result of lower debt levels during the
three months ended June 30, 1996.

Income Taxes. Income taxes increased by $33 to $44 for the three months
ended June 30, 1996 from $11 for the three months ended June 30, 1995 due to the
increase in income before income taxes of $161. The effective income tax rate
for the three months ended June 30, 1996 was 40.0%.

Net Income. Net income increased to $66 for the three months ended June
30, 1996 from a loss of $62 for the three months ended June 30, 1995 principally
as a result of increased net revenues and reduced expenses as a percentage of
revenue.

Year Ended March 31, 1996 Compared With Year Ended March 31, 1995

Net Revenue. Net revenue increased by $6,587, or 20.5%, to $38,652 for the
year ended March 31, 1996 from $32,065 for the year ended March 31, 1995.
Factors contributing to revenue growth included an increase in the number of
students attending the Company's schools and an approximate 5% increase in
tuition rates during fiscal 1996. The number of students attending the Company's
schools increased 17.7% from the beginning of fiscal 1995 to the beginning of
fiscal 1996. The number of new student starts at the Company's schools during
the year increased to 5,893 in fiscal 1996 from 5,536 in fiscal 1995, a 6.4%
increase. The seven new schools acquired in fiscal 1994 accounted for 2,032 new
student starts in fiscal 1996 compared with 1,798 in fiscal 1995 representing a
13.0% increase. Student withdrawal rates did not change materially compared to
withdrawal rates experienced by the Company during fiscal 1995.

Cost of Education and Facilities. Cost of education and facilities
increased by $2,558, or 17.0%, to $17,639 in fiscal 1996 from $15,081 in fiscal
1995 principally as a result of increased student count at the Company's
schools. The cost of education and facilities as a percentage of net revenue was
45.6% in fiscal 1996 compared with 47.0% in fiscal 1995, reflecting the
Company's ability to serve a greater student population without a corresponding
proportional increase in faculty and facilities costs.

Selling and Promotional. Selling and promotional expenses increased by
$169, or 3.1%, to $5,569 in fiscal 1996 from $5,400 in fiscal 1995. Selling and
promotional expense as a percentage of net revenue was 14.4% in fiscal 1996
compared with 16.8% in fiscal 1995, due to an increased percentage of new
student starts resulting from student referrals.

Administrative. Administrative expenses increased by $1,080, or 10.8%, to
$11,110 in fiscal 1996 from $10,030 in fiscal 1995 principally as a result of an
increase in the number of administrative personnel at the schools. Such increase
in personnel was necessary to service the increased student population.
Administrative expense as a percentage of net revenue declined to 28.8% in
fiscal 1996 compared with 31.3% in fiscal 1995 resulting from the Company's
ability to leverage fixed costs at the home office, regional and school level.

28
<PAGE> 31

Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles declined $372, or 29.6%, to $883 in fiscal 1996 from $1,255 in
fiscal 1995. The decline was a result of fully amortizing certain intangible
assets acquired in connection with the purchase of schools in fiscal 1992 and
prior.

Other Expenses. Other expenses in fiscal 1996 consisted of a charge of
$1,115 for the settlement of a class action lawsuit and a $50 charge related to
the relocation of one of the Company's schools, and $764 for the impairment of
goodwill and intangibles due to operating losses at the Company's Roanoke,
Virginia school. See "Business -- Litigation."

Interest Expense, Net. Net interest expense decreased $112, or 12.1%, to
$811 in fiscal 1996 from $923 in fiscal 1995 principally as a result of lower
debt levels during fiscal 1996.

Income Taxes. Income taxes increased by $604 to $632 in fiscal 1996 from
$28 in fiscal 1995 due principally to not recognizing a tax benefit for the
impairment of goodwill and intangibles and a portion of the legal settlement. As
a result, the effective income tax rate in fiscal 1996 was substantially higher
than in fiscal 1995.

Net Income. Net income increased to $79 in fiscal 1996 from a loss of
$1,428 in fiscal 1995 principally as a result of increased net revenues and
reduced expenses as a percentage of revenue.

Year Ended March 31, 1995 Compared With Year Ended March 31, 1994

During the period from March 1993 to August 1994, the Company acquired
seven schools (the "Acquired Schools") whose results are included in the
Company's financial statements from the dates of acquisition. As a result, net
revenue and expenses for the fiscal year ended March 31, 1995 compared with the
fiscal year ended March 31, 1994 are significantly impacted by the Acquired
Schools' results which do not reflect a full year's results in fiscal 1994.

Net Revenue. Net revenue increased by $5,590, or 21.1%, to $32,065 for the
year ended March 31, 1995 from $26,475 for the year ended March 31, 1994.
Factors contributing to revenue growth included the impact of the Acquired
Schools, an increase in the number of students at existing Company schools and
an approximate 5% increase in tuition rates. The Acquired Schools' revenue was
$10,630 in fiscal 1995 compared to a partial year amount of $7,189 in fiscal
1994. The existing seven schools showed revenue growth of 11.1% to $21,435 in
fiscal 1995 compared to $19,286 in fiscal 1994. Student population at the seven
existing schools grew 15.7% to 2,649 at March 31, 1995 from 2,289 at March 31,
1994 as a result of an 8.6% increase in new student starts (which included the
transfer of 127 students to the Company's San Diego school from a competing
school that ceased operations) and a 19.2% improvement in student retention as
the monthly withdrawal rate declined from 4.7% to 3.8%. Retention improved as a
result of a company-wide initiative to reduce student withdrawal rates by
improving student counseling, revising curriculum, and improving school
facilities and equipment.

Cost of Education and Facilities. Cost of education and facilities
increased by $2,773, or 22.5%, to $15,081 in fiscal 1995 from $12,308 in fiscal
1994 principally as a result of the acquisition of the Acquired Schools whose
education and facility costs totaled $5,920 compared to $4,134 for fiscal 1994,
a 43.2% increase. The remainder of the cost increase occurred as a result of
increased student count and facility expansions at the existing schools. These
costs as a percentage of net revenue increased from 46.5% in fiscal 1994 to
47.0% in fiscal 1995.

Selling and Promotional. Selling and promotional expenses increased by
$1,341, or 33.0%, to $5,400 in fiscal 1995 from $4,059 in fiscal 1994
principally due to the Acquired Schools. The Acquired Schools' selling and
promotional expenses increased by $1,000 to $2,364 in fiscal 1995 compared to
$1,364 in fiscal 1994. Selling and promotional expenses increased as a
percentage of net revenue from 15.3% in fiscal 1994 to 16.8% in fiscal 1995 due
to the addition of directors of admissions to seven schools which previously did
not have such a position and an increase in advertising expenditures at the
Acquired Schools as a strategy to increase their enrollments.

29
<PAGE> 32

Administrative. Administrative expenses increased by $1,350, or $15.6%, to
$10,030 in fiscal 1995 from $8,680 in fiscal 1994 principally as a result of the
acquisition of the Acquired Schools whose school administration expenses
increased by $641, or 34.0%, to $2,524 in fiscal 1995 compared to $1,883 in
fiscal 1994. Home office and regional costs increased $390 to $3,298 in fiscal
1995 from $2,908 in fiscal 1994 as a result of establishing internal MIS and
accreditation departments and expansion of the Company's regional management
structure. Administrative expenses as a percentage of net revenue declined from
32.8% in fiscal 1994 to 31.3% in fiscal 1995 as the Company recognized certain
economies of scale.

Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles increased as a result of a full year's amortization of goodwill and
intangible costs for the Acquired Schools compared to a partial year in fiscal
1994.

Other Expenses. Other expenses in fiscal 1995 consisted of a $600 charge
for legal costs associated with the defense of the class action lawsuit and $176
for the write down of intangibles due to changes in governmental regulations
related to student referrals. Other expenses in fiscal 1994 consisted of a
$1,126 charge for closing costs and writing off goodwill and intangibles of the
Company's Albany, Georgia school which was closed due to operating losses and
management's assessment of the future prospects in the Albany, Georgia market.

Interest Expense, Net. Net interest expense increased by $125 to $923 in
fiscal 1995 from $798 in fiscal 1994 as a result of the full year effect of the
increase in debt incurred to purchase the Acquired Schools, and reduced interest
income as a result of less cash on hand.

Income Taxes. Income taxes increased by $198 to $28 in fiscal 1995 from a
benefit of $170 in fiscal 1994 due to the carryback of net operating losses
incurred in fiscal 1994; net operating losses in fiscal 1995 created
carryforwards.

Net Loss. Net loss decreased from $1,561 to $1,428, a $133 decrease, as a
result of an improvement in existing schools' operations of $502, and a
reduction in other expenses of $350, offset by an increase in home office and
regional costs of $390, an increase in amortization of goodwill and intangibles
of $20, and an increase in interest expense of $125.

LIQUIDITY AND CAPITAL RESOURCES

During the last three fiscal years, the Company financed its operating
activities and capital requirements, including debt repayments, principally from
cash provided by operating activities and by a $2.2 million subordinated debt
borrowing in March, 1995. Cash provided by (used in) operating activities for
the quarters ended June 30, 1995 and 1996 was $287 and $(358), respectively, and
for fiscal 1995 and fiscal 1996 was $511 and $3,281, respectively. The use of
cash experienced for the quarter ended June 30, 1996 was as a result of
seasonality in the first quarter combined with federal and state income tax
payments and larger payments of employee bonuses as compared to the first
quarter of the previous year. In fiscal 1994 the Company's net cash used in
operations was $94, principally as a result of the operating losses before other
expenses at the Acquired Schools. The Company's principal sources of funds at
June 30, 1996 were cash and cash equivalents of $2,028 and accounts receivable
of $2,963.

Historically, the Company's investment activity has primarily consisted of
capital asset purchases and the purchase of schools. Capital expenditures,
excluding capital leases, totaled $109 and $234 for the quarters ended June 30,
1995 and 1996, respectively, and $678, $2,090, $785 for fiscal 1994, 1995, and
1996, respectively, as a result of purchasing additional equipment and upgrading
and replacing existing equipment such as computers and medical equipment, for
school programs, and expanding facilities at five schools. Purchases of
businesses, including goodwill and intangibles, totaled $1,047 in fiscal 1994.

The Company's capital assets consist primarily of classroom and laboratory
equipment (such as computers and medical devices), classroom and office
furniture, and leasehold improvements. All building facilities are leased, with
the exception of the land and building owned by the Company in Dayton, Ohio. The
Company plans to continue to expand current facilities, upgrade and replace
equipment, and open new schools. The Company expects fiscal 1997 capital
expenditures for its existing schools to be approximately

30
<PAGE> 33

$1.7 million. The Company expects that its fiscal 1997 operations and planned
capital expenditures can be funded through cash to be generated from existing
operations.

Cash flow from operations on a long-term basis is highly dependent on the
receipt of funds from Title IV Programs, and presently a majority of the
Company's net revenues are derived from Title IV programs. Disbursement of Title
IV Program funds is dictated by federal regulations. For students enrolled in
"non-term" programs, (i.e., not divided into quarters or semesters), payments
are generally made in two equal installments, one in the first 30 days following
the student's first day of class and the second when the student reaches the
midpoint of the program. For students enrolled in term programs (i.e., quarters
or semesters) payments are made at the beginning of each term, with the
exception of the initial disbursement which is made 30 days following the
student's first day of class. In addition, the Title IV regulations set forth
other financial standards for the Company and its schools including restrictions
for (i) positive tangible net worth, (ii) an "acid" test ratio of at least
1-to-1, (iii) a 10% limitation on losses as a percentage of tangible net worth
and (iv) the maintenance of a minimum cash reserve equal to 25% of prior year
school refunds. Except with respect to the operating losses incurred at the
Company's Roanoke school, the Company believes each of its schools satisfies the
financial responsibility standards. Because the HEA and the Regulations are
subject to amendment, and because the Department of Education may change its
interpretation of the HEA and the Regulations, there can be no assurance that
the Department of Education will agree in the future with the Company's
interpretation of each such requirement or that such requirements will not
change in the future. See "Financial Aid and Regulation."

In connection with the Texas Acquisition, the Company will make payments of
approximately $1,250,000 to the sellers in fiscal 1996 and note payments of
approximately $250,000 in fiscal 1997. In addition, the Company's Title IV
funding from its Texas Acquisition will be suspended pending Department of
Education recertification.

The Company anticipates that it will need additional debt or equity
financing, in addition to the proceeds of this Offering, in order to carry out
its strategy of growth through acquisitions. The amount of financing which the
Company may need will vary depending on the timing and size of acquisitions and
the sellers' willingness to provide financing. In August, 1996 the Company
received a loan commitment from a major U.S. bank for $17.5 million of which $5
million is for a three year revolving line of credit and the remainder a three
year term loan (the "Proposed Bank Line of Credit"). Subject to certain
financial conditions of the Company and the use of all the net proceeds received
by the Company from this Offering, the term loan commitment begins at $5 million
in the first year, increasing to $7.5 million in the second year and then to
$12.5 million in the third year. Interest will be charged on borrowings at
different floating rates above LIBOR depending on certain financial conditions
of the Company and depending on whether drawn under the revolving line of credit
or the term loan. In addition, the Proposed Bank Line of Credit requires fees
for the borrowing commitment. The commitment contains restrictions on the
payment of dividends and incurrence of additional debt, contains various
financial covenants and is subject to the successful completion of the Offering
and signing of a definitive agreement thereafter. The loan will be secured by
substantially all of the assets of the Company. In addition, the Company must
pay a $200,000 fee to a third party for securing the commitment, when the
definitive agreement is signed. To the extent that the Company requires
additional financing in the future and is unable to obtain such additional
financing, it may not be able to implement fully its growth strategy. The
Company believes this Proposed Bank Line of Credit will be adequate to financing
needs for at least the next twelve months. However, the commitment is subject to
the execution of definitive agreements. There can be no assurance that such
agreements will be entered into. If the Proposed Bank Line of Credit is not
available, there can be no assurance that any necessary additional financing,
whether debt or equity, will be obtainable on terms favorable to, or affordable
by, the Company.

Effect of Inflation. The Company does not believe its operations have been
materially affected by inflation.

31
<PAGE> 34

BUSINESS

OVERVIEW

The Company provides diversified career oriented postsecondary education to
more than 4,300 students in 14 schools located in six states. The Company's 14
schools offer diploma and/or associate degree programs designed to provide
students with the knowledge and skills necessary to qualify them for entry level
employment in the fields of healthcare (offered in twelve schools), business
(offered in five schools), fashion and design (offered in three schools), and
photography (offered in one school). The Company's curricula include programs
leading to employment in nine of the 15 fastest growing occupations (measured by
percentage growth from 1994 through 2005) as projected by the U.S. Department of
Labor. At March 31, 1996, approximately 70% of the Company's students were
enrolled in programs in the healthcare field. As of the same date, approximately
27% of the Company's students were enrolled in associate degree programs and the
remainder were enrolled in diploma programs. Nine of the Company's schools award
only diplomas, three of the Company's schools award both diplomas and associate
degrees and two of the Company's fashion and design schools award only associate
degrees. In addition, three of the Company's schools currently awarding only
diplomas have been approved to offer associate degree programs. Due to the
diversity of the programs offered by the Company's schools, graduates of the
Company's programs are employed by a wide variety of employers, including
hospitals, physicians, insurance companies, retailers, corporate graphics
departments, photographic studios and other businesses.

According to the Department of Education, there were approximately 2,355
accredited, proprietary postsecondary schools that participate in Title IV
programs as of June 1996. The ownership of these schools is highly fragmented.
Management believes that no organization either holds a significant national
market share or owns or operates more than 80 schools.

Acquisition Strategy

The Company has acquired all of its schools. The Company intends to acquire
additional schools and integrate them into its existing school system. The
Company believes that the fragmentation of the postsecondary education market
provides significant opportunities to consolidate existing independently owned
schools. The Company expects to utilize a majority of the proceeds of this
Offering in connection with such acquisitions. See "Use of Proceeds."

In general, the Company's principal acquisition criteria are: historical
profitability; acceptable default rates with respect to federally guaranteed or
funded student loans; established and marketable curricula; and locations with
populations in excess of 100,000. The Company intends to concentrate its
acquisition efforts on schools which satisfy its general eligibility criteria
regardless of whether they offer programs in the fields of study in which
programs are currently being offered at the Company's schools. However, the
Company will consider other school acquisitions which it believes will further
its long-term goals. The Company believes that newly acquired schools can
benefit from its marketing analysis, accounting, information systems, financial
aid and regulatory compliance systems to increase enrollment and enhance
operating efficiencies. The Company

32
<PAGE> 35

also believes that both new and existing schools will benefit from the ability
to replicate successful programs among the schools.

The Company believes its acquisition strategy and the increased liquidity
provided by the proceeds of this Offering will encourage acquisition candidates
to consider the Company as a leading potential acquirer. The Company's
experience with acquiring and integrating schools offering diverse curricula
provides it with the ability to consider a wide variety of potential school
candidates. The Company believes that its decentralized management strategy,
which in many cases will enable existing management to remain involved in the
operations of acquired schools, also will enhance its ability to attract
acquisition candidates.

Internal Growth Strategy

The Company's ability to increase enrollment is limited by the capacity of
its facilities and its ability to attract teachers to maintain appropriate
student/teacher ratios. In the past, the Company has not had any difficulty in
expanding its facilities to accommodate increased enrollment or relocating
facilities if expansion was not feasible. The Company has also been able to
maintain appropriate student/teacher ratios by offering its existing teachers
the opportunity to work additional hours and by recruiting additional teachers.
Based on its experience, the Company anticipates that neither facilities nor
faculty will constitute a significant barrier to increasing enrollment.

The Company's decentralized marketing strategy makes use of centralized
marketing data which tracks among other things, lead sources, media expenditures
and individual school enrollments on a weekly basis. Individual schools utilize
these statistics to monitor their own marketing efforts. These statistics,
combined with placement statistics, allow the individual schools to respond
quickly to changing employment markets by developing new programs or changing
the emphasis placed on existing programs, and to identify new populations of
student candidates. The constant monitoring of enrollment activity also allows
the Company to determine whether it is appropriate to increase its capital
commitment to additional marketing efforts either to improve unsatisfactory
performance or to take advantage of successfully marketed programs.

The Company intends to continue to increase the number and variety of
programs offered at its schools by (i) developing new diploma and degree
programs, (ii) replicating existing programs at schools where such programs were
not previously offered, and (iii) introducing associate degree granting programs
at all of its schools currently offering only diploma programs. These programs
are developed and replicated internally at the Company's schools and at the
regional offices. The Company does not anticipate that it will incur significant
additional costs or third party expenses in the near future in executing this
strategy.

33
<PAGE> 36

During the two years ended June 30, 1996, the Company's schools have
implemented newly developed programs and replicated such programs as follows:

<TABLE>
<CAPTION>
DEVELOPING SCHOOL REPLICATING SCHOOL
NEW PROGRAM AWARD LOCATION LOCATION
- ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Professional Image Diploma Dayton, OH
Technology
Professional Image Associate Degree Dayton, OH
Technology
Professional Image Diploma Dayton, OH
Technology --
Desktop Media
Paralegal Diploma Roanoke, VA
Nursing (RN) Associate Degree San Diego, CA
Medical Insurance Diploma San Diego, CA San Marcos Campus --
Coding Vista, CA
Occupational Therapy Associate Degree San Diego, CA
Assistant
Patient Care Diploma San Diego, CA San Marcos Campus --
Vista, CA
</TABLE>

In addition, the following existing programs have been replicated by other
Company schools as follows:

<TABLE>
<CAPTION>
PROGRAM AWARD REPLICATING SCHOOL
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
Business Administration Associate Degree Atlanta, GA
Medical Assistant Diploma Dayton, OH
Staunton, VA
Medical Assistant Associate Degree Dayton, OH
</TABLE>

The Company intends to continue to create new programs at individual
schools and to replicate its new and existing programs for introduction into
additional schools on a market-selected basis to increase student enrollment and
revenue at its existing schools.

The Company intends to continue to increase the number of associate degree
programs at those schools already approved to grant degrees and to introduce
degree granting programs at all of its other schools. Associate degree programs
generally generate greater revenue to the Company on a per student basis than
diploma programs because generally they take longer to complete and are more
expensive than diploma programs. In addition, the Company believes the ability
of its individual schools to offer one or more associate degree programs enables
the schools to attract additional students from market segments with different
academic goals. The Company also believes such programs attract diploma students
because of the increased prestige the associate degree programs bring to the
diploma programs. Furthermore, the continued participation in the schools'
associate degree program by students desiring to continue their studies beyond
the diploma level has the same economic impact as a newly enrolled degree
student. In order to introduce additional degree programs, the Company must
secure approval from relevant state and accrediting agencies. After receiving
such approval, in order to receive Title IV funding, the schools must apply to
the Department of Education for certification of the new degree program for
eligibility under Title IV. The time to complete this process varies from state
to state, and the entire process has taken the Company up to one year to
complete.

Operating Strategy

The Company provides each of its schools with certain services which the
Company believes can be performed most efficiently and cost effectively by a
centralized office. Such services include marketing analysis, accounting,
information systems, financial aid and regulatory compliance. The Company
believes this will enable it to achieve significant economies of scale during
its planned expansion by combining a number of general and administrative
functions at the home office and regional levels. The Company believes that this
leaves local management the flexibility to react to the needs of its students
and changing job markets both

34
<PAGE> 37

promptly and effectively. The Company has implemented a program to enhance its
existing management information systems, which includes the planned addition of
an in-house program design staff and increased utilization of systems networking
among the schools and the home office, the costs of which the Company does not
believe will be material.

Although the Company provides centralized services to its schools, it
operates through a decentralized management structure to manage them. The
Company manages its schools with experienced local managers that have a valuable
understanding of their respective local markets and businesses. The Company
intends to continue its strategy of operating with a decentralized management
structure in which local school management is empowered to make most of the
day-to-day operating decisions at each school and are primarily responsible for
the profitability and growth of that school.

COMPANY HISTORY

The Company was founded and incorporated in Delaware in 1988 by Gary D.
Kerber, the Chairman of the Board and President of the Company. The Company
began business by acquiring seven schools in fiscal 1989 and 1990, all of which
offered programs solely in the healthcare field. In fiscal 1992 the Company
continued to grow by acquisition and implemented a new strategy to diversify
outside of the healthcare field by acquiring a fashion and design school. In
fiscal 1993 and 1994, the Company acquired seven additional schools which
included schools offering programs in the fields of healthcare, business,
fashion and design, and photography. As a result of its fiscal 1992, 1993 and
1994 acquisitions (1,646 students were attending such schools at the date of
their respective acquisitions) and increasing enrollment at its existing and
newly acquired schools, the number of students attending the Company's schools
rose 288% from 1,112 at March 31, 1991 to 4,318 at March 31, 1996. During the
same period, the Company's revenue increased 345% from $8.7 million for the year
ended March 31, 1991 to $38.7 million for the year ended March 31, 1996.

SCHOOLS

The following table shows the location of each of the Company's schools,
the name under which it operates, the date of its acquisition, the fields of
study in which it offers its programs, its degree granting status, and the
number of students attending the school at March 31, 1996, and at the time of
its acquisition.

<TABLE>
<CAPTION>
APPROXIMATE STUDENT
STUDENT POPULATION
ASSOCIATE INSTITUTIONAL POPULATION AT
DEGREE ACCREDITING AT DATE OF MARCH 31,
INSTITUTION DATE ACQUIRED CURRICULUM GRANTING(1) AGENCY(2) ACQUISITION 1996
--------------------------------------------------------------- ------------ ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Maric College of Medical Careers 4/88 Healthcare Yes ACCSCT 135 909
San Diego, California
Maric College of Medical Careers -- 4/88 Healthcare Yes(3) ACCSCT 91 245
San Marcos Campus
Vista, California
Maric College of Medical Careers 4/88 Healthcare Yes(3) ACCSCT 14 311
Vista, California(4)
Long Medical Institute 4/88 Healthcare Yes(5) ACCSCT 129 233
Phoenix, Arizona
Andon College 11/89 Healthcare No ABHES 150 332
Stockton, California
Andon College 11/89 Healthcare Preliminary ABHES 123 242
Modesto, California Approval(5)
Bauder College 3/92 Fashion and Yes ACCSCT 440 429
Atlanta, Georgia Design/Business SACS/COC
Modern Technology School 3/93 Healthcare Preliminary ACCSCT 221 359
of X-ray Approval(5)
North Hollywood, California
Dominion Business School 5/93 Business/ Preliminary ACICS 129 155
Roanoke, Virginia Healthcare Approval(5)
</TABLE>

35
<PAGE> 38

<TABLE>
<CAPTION>
APPROXIMATE STUDENT
STUDENT POPULATION
ASSOCIATE INSTITUTIONAL POPULATION AT
DEGREE ACCREDITING AT DATE OF MARCH 31,
INSTITUTION DATE ACQUIRED CURRICULUM GRANTING(1) AGENCY(2) ACQUISITION 1996
--------------------------------------------------------------- ------------ ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dominion Business School 5/93 Business/ Yes(3) ACICS 254 204
Harrisonburg, Virginia Healthcare
Dominion Business School 5/93 Business/ Yes(3) ACICS 154 95
Staunton, Virginia(6) Healthcare
ICM School of Business 7/93 Business/ Yes ACICS 376 422
Pittsburgh, Pennsylvania Healthcare/
Fashion and
Design
Ohio Institute of Photography 7/93 Photography/ Yes ACCSCT 67 273
& Technology Healthcare
Dayton, Ohio
California Institute of 8/93 Fashion and Yes ACICS 5 109
Merchandising, Art, & Design Design
Sacramento, California
----- -----
Total 2,288 4,318
========== ========
</TABLE>

- ---------------

(1) In order for a school to grant associate degrees, it must be accredited by
the applicable accrediting agency and approved by the relevant state
agency. After receiving accreditation and state authorization, the
Department of Education must recertify the school when it becomes degree
granting in order for Title IV funding to be available for the new degree
programs.

(2) Accrediting Commission of Career Schools and Colleges of Technology
("ACCSCT"), Accrediting Council for Independent Colleges and Schools
("ACICS"), Accrediting Bureau of Health Education Schools ("ABHES"),
Southern Association of Colleges and Schools/Commission on Colleges
("SACS/COC"). All schools were accredited at their time of acquisition
other than Maric College of Medical Careers in Vista, California, which was
accredited in fiscal 1989. See "Financial Aid and Regulation -- State
Authorization and Accreditation."

(3) Degree granting status has been approved; however, programs have not yet
been implemented.
(4) This school is an additional location of the San Marcos main campus.
(5) These schools have received approval from the relevant accrediting agency
and state for authorization to grant associate degrees. Each school is in
the process of preparing applications for recertification which will be
submitted to the Department of Education for final approval with respect to
their associate degree status.
(6) The Company recently determined that there is a substantial overlap in the
Harrisonburg and Staunton, Virginia markets, and decided to relocate its
Staunton school. The Company has ceased enrolling new students at the
Staunton school and is considering various rental facilities in which to
relocate. The relocated school will teach substantially the same curriculum
as the existing school. Depending on its location, it may utilize some of
the existing school's faculty, but the Company anticipates it will be
necessary to hire new faculty and administrative personnel to operate the
relocated school. The Company anticipates relocating the Staunton school
within the next twelve months.

TEXAS ACQUISITION

On September 6, 1996, the Company entered into an acquisition agreement
providing for the purchase of three schools located in Texas for $2.5 million
(the "Texas Acquisition") subject to approval by the Texas Workforce Commission.
As of June 30, 1996, approximately 626 students attended the schools, which
offer healthcare diploma programs and are located in San Antonio, McAllen and El
Paso, Texas. The McAllen school is a branch of the San Antonio school. The
schools had combined net revenues of approximately $4.7 million and combined
income from operations of approximately $630,000 for the year ended December 31,
1995. For the six month period ended June 30, 1996, the schools had combined net
revenues of approximately $2.5 million and combined income from operations of
approximately $247,000.

36
<PAGE> 39

The following table sets forth information with respect to the programs
offered by the three Texas schools, as of June 30, 1996:

<TABLE>
<CAPTION>
NUMBER NUMBER LENGTH OF
OF OF PROGRAMS
HEALTH CARE DIPLOMA PROGRAMS SCHOOLS STUDENTS (IN MONTHS)
---------------------------------------------------------- ------- -------- -----------
<S> <C> <C> <C>
Medical Assistant....................................... 3 344 8-15
Dental Assistant........................................ 3 108 8-15
All Others(1)........................................... 2 174 6-15
</TABLE>

- ---------------

(1) Includes the following programs: Medical Administrative Assistant, Medical
Computer Specialist, Phlebotomy/EKG Technician, Insurance Processor,
Ophthalmic Technician, and Insurance Coding Specialist.

The Texas schools are accredited by two agencies, one of which also
accredits certain of the Company's other schools. These two agencies are the
Accrediting Commission of Career Schools and Colleges of Technology ("ACCSCT")
and the Council on Occupational Educational Institutions ("COEI"). Each of the
Texas schools participates in the following Title IV programs: Pell and FSEOG
Grants, Federal Direct Loans, including Stafford and PLUS Loans, and Federal
Work-Study. None of the Texas schools had cohort default rates of 25% or greater
for the 1991, 1992 and 1993 and preliminary 1994 federal fiscal years, and are
therefore not vulnerable to termination of the Title IV eligibility based on
three consecutive years of cohort default rates of 25% or more. Approximately
83.7% and 73.9% of cash receipts are derived from Title IV programs for the San
Antonio Campus and its McAllen branch combined, and the El Paso school,
respectively. The schools have not received any notification of non-compliance
from the Department of Education under the Title IV programs.

The Company financed the purchase of the Texas schools as follows: $50,000
was paid on September 6, 1996, $50,000 will be paid upon approval by the Texas
Workforce Commission, $1,150,000 will be paid upon approval by the Department of
Education and the remaining $1,250,000 is payable in the form of a five-year
promissory note bearing interest at 8% per annum and due in five equal annual
principal payments. The state and federal approvals are required due to the
change in ownership resulting in a change in control, as defined by applicable
regulations. The Company expects to receive the approval of the Texas Workforce
Commission by November 1996 and does not expect any difficulty in receiving
Department of Education approval. In the Company's past experience, such federal
approval has been obtained within three to six months. If the Department of
Education does not approve the Texas Acquisition within six months following
receipt of the Texas Workforce Commission approval because of actions taken by
the sellers in violation of applicable regulations or laws, the acquisition may
be rescinded by the Company. The acquisition agreement provides for the sellers
to indemnify the Company for any liabilities imposed on the Company with respect
to any instances of regulatory non-compliance on the part of the sellers prior
to the acquisition of the schools by the Company. In addition to the Company's
right to set off any payments due to the seller against any such liabilities,
the seller has deposited $250,000 in escrow for the purpose of satisfying any
such liabilities.

Based on the Company's experience in obtaining state regulatory approvals
with respect to its prior acquisitions, the Company believes that it will obtain
regulatory approval from the Texas Workforce Commission. The Company intends to
account for the business combination as a purchase, effective September 6, 1996.
Therefore the results of operations after this date will be included in the
consolidated results of operations of the Company.

PROGRAMS OF STUDY

The Company's programs are intended to provide students with the specific
knowledge and job skills required to prepare them for entry-level positions in a
chosen career field. The Company's programs, which generally provide for
internships or include business simulation instruction, are designed after
consultation with employers and advisory committees, which are composed of
business and educational professionals that assist the Company in assessing and
updating curricula and other aspects of relevant programs.

37
<PAGE> 40

The Company offers both associate degree and diploma programs in three
areas: healthcare, business and photography and offers associate degree programs
in fashion and design. The healthcare programs are designed to prepare students
for occupations associated with the medical and healthcare industry, such as
nursing, medical and dental assisting, home health aid, patient care services
and medical and dental office management. Fashion and design programs prepare
students for positions associated with fashion merchandising, fashion design and
interior design, such as buyers, display directors, fashion coordinators,
pattern makers, fashion designers and interior designers. The photography
programs provide education in photography, video, desktop media and computer
graphics and are designed to prepare students for such occupations as
professional photographer, videographer, photographic laboratory technician,
computer graphic technician and desktop publisher. The business programs provide
education in areas such as accounting, business management, computer operations,
secretarial skills, paralegal skills and travel and are designed to prepare
students for entry level positions in such areas.

The Company provides healthcare programs at twelve of its schools, business
programs at five of its schools, fashion and design at three of its schools and
photography at one of its schools. Tuition and fees vary depending on the
program offered and the location of the school. As of March 31, 1996, tuition
and fees for an entire program for a new student entering the Company's diploma
programs ranged from a high of $17,656 for an 18 month photography program, to a
low of $4,155 for a five month medical administration program. As of March 31,
1996, tuition and fees for an entire program for a student entering a degree
granting program ranged from a high of $23,779 for a 24 month fashion
merchandising program, to a low of $13,054 for a 15 month computer management
program. As of March 31, 1996, the average student program cost (tuition and
fees) for the Company's diploma and degree programs on an academic year basis
(i.e., a nine month basis) were as follows: healthcare -- $6,310 for diploma
programs, $8,690 for degree programs; business -- $5,197 for diploma programs,
$9,006 for degree programs; fashion and design -- $7,707 for degree programs;
photography -- $8,682 for diploma programs, $7,502 for degree programs.

The following table provides information at March 31, 1996 with respect to
the programs offered by the Company's schools in each of the four major fields
described above:

<TABLE>
<CAPTION>
DIPLOMA DEGREE
-------------------------------- -----------------------------------
LENGTH OF LENGTH OF
NO. OF NO. OF PROGRAM NO. OF NO. OF PROGRAM TOTAL NO.
SCHOOLS STUDENTS (IN MONTHS) SCHOOLS STUDENTS (IN MONTHS)(1) OF STUDENTS
------- -------- ----------- ------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
HEALTHCARE PROGRAMS
Medical Assistant......... 10 1,145 8-14 1 42 18-20 1,187
Medical Administration.... 9 716 5-21 1 82 15 798
Patient Care.............. 2 144 8-10 -- -- -- 144
Nursing................... 2 260 12-18 1 107 12 367
X-Ray Technician.......... 1 249 10-15 -- -- -- 249
All Others(2)............. 3 291 8-12 -- -- -- 291
----- ----- -----
Total.............. 2,805 231 3,036
BUSINESS PROGRAMS
Accounting................ 4 84 9-15 1 55 15 139
Computer Management....... 1 35 9-12 1 81 15 116
Computer Ops.
Specialist.............. 3 64 12-15 -- -- -- 64
Paralegal................. 1 52 18-24 -- -- -- 52
All Others(3)............. 4 78 7-21 2 139 15-18 217
----- ----- -----
Total.............. 313 275 588
</TABLE>

38
<PAGE> 41

<TABLE>
<CAPTION>
DIPLOMA DEGREE
-------------------------------- ---------------------------------
LENGTH OF LENGTH OF
NO. OF NO. OF PROGRAM NO. OF NO. OF PROGRAM (IN TOTAL NO.
SCHOOLS STUDENTS IN MONTHS) SCHOOLS STUDENTS MONTHS)(1) OF STUDENTS
------- ----- --------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FASHION AND DESIGN PROGRAMS
Fashion Design............ -- -- -- 1 135 18 135
Fashion Merchandising..... -- -- -- 2 230 18-24 230
Interior Design........... -- -- -- 2 127 18-24 127
All Others(4)............. -- -- -- 1 18 18-24 18
----- -----
Total.............. 510 510
PHOTOGRAPHY PROGRAMS
All(5).................... 1 42 12-18 1 142 24-27 184
----- ----- -----
Company Total...... 3,160 1,158 4,318
===== ===== =====
</TABLE>

- ---------------

(1) In certain instances assumes completion of prerequisite programs.
(2) Includes the following programs: Dental Assistant, Pharmacy Technician,
Physical Therapy Technician, Respiratory Therapy Technician, Sports
Medicine, Veterinary Assistant and Ultrasound.
(3) Includes the following programs: Diploma Programs -- Automated Office
Systems, Business Management, Computer Programming, Legal Secretary,
Secretarial Sciences and Travel; Degree Programs -- Business
Administration -- Marketing, Business Fashion, Business Management,
Secretarial Sciences and Travel.
(4) Includes the following programs: Fine Arts, Management Merchandising and
Visual Merchandising.
(5) Includes the following programs: Biomedical Photography, Commercial
Photography, General Applied Photography, Portraiture, Professional Image
Technology and Professional Image Technology -- Desktop Media.

As of March 31, 1996, approximately 70%, 14%, 12% and 4% of students were
enrolled in programs in the fields of healthcare, business, fashion and design,
and photography, respectively. All of the Company's programs are designed to
prepare graduates to perform effectively in a variety of entry-level positions
by providing the student with practical experience both in the classroom and, in
the case of most programs in the healthcare and fashion and design fields,
through the use of internships. The internships constitute a graded portion of
the curricula and provide hands-on experience in the work place as well as a
source of job opportunities. In addition, most of the Company's business
programs provide for a significant amount of education in a simulated business
environment with a view toward preparing the student for participation in actual
business situations.

The academic schedule of the Company's schools varies depending on the
programs offered by the individual schools. Degree programs, which currently are
offered at five of the Company's schools, begin four times a year. Diploma
programs, which are offered at twelve of the Company's schools, begin every four
to six weeks. Diploma courses are typically offered mornings, afternoons, and
evenings, and degree programs are principally offered during day-time hours. The
schools generally have classes operating year round and are generally open five
days per week. The Company believes that its diversified curricula provide it
with an extensive library of programs and experience in various fields enabling
it to meet changing demands in the areas served by each of its schools and to
expand offerings at each of the schools when justified by student and employer
demand.

Programs which lead to similar occupational outcomes have the same general
content. However, modifications are made to conform each program to the
requirements of the particular market as well as to state and accrediting
regulations. In addition to courses directly related to a student's program of
study, degree programs may also include general education courses such as
English, Psychology or Mathematics. The programs in each field are reviewed
periodically by the regional managers and the schools' directors in order to
respond to changes in the job market and technology. Each school also has
established advisory committees, comprised of local business executives and
academics, to assist it in assessing and updating curricula and other aspects of
the relevant programs.

39
<PAGE> 42

STUDENT RECRUITMENT

The Company endeavors to recruit motivated students with the ability to
complete the programs offered by the Company's schools and to secure entry-level
employment in the field for which their program is designed to prepare them. To
attract potential students, the Company engages in several activities to inform
them, and in some instances their parents, about the Company's programs. In
fiscal 1996, the Company incurred approximately $2.2 million in advertising
expenses. These expenditures vary from school to school, depending on the
desired audience, and include television advertising, direct mailings, newspaper
advertising and yellow pages advertising, which accounted for approximately 40%,
18%, 15% and 8%, respectively, of total advertising costs during fiscal 1996.
The Company also engages in high school visits to attract potential students.

The Company's television advertising is coordinated and developed locally,
and budgeted on a centralized basis. It is tailored to and directed at the local
market in which each school is located and is intended to create recognition for
the name under which the applicable school operates. Responses to direct mail
campaigns are received and followed up on a local basis; however, all marketing
activities are tracked and analyzed on a centralized system and the results
forwarded to the individual schools for use in evaluating the effectiveness of
their marketing programs.

Each of the Company's schools, other than the Sacramento school, employs a
director of admissions who generally reports to the school director. The
director of admissions for each school is responsible for, among other things,
coordinating the efforts of the school to recruit qualified students to the
school. The director of admissions also determines recruiting policies and
procedures and standards for hiring and training admissions representatives;
however, such policies, procedures and standards are reviewed at the regional or
national level.

Admissions representatives contact potential students who have indicated an
interest in the schools' programs and arrange for interviews which generally
take place at the school, although occasionally such interviews take place at
the prospective student's home. The interview is designed to establish the
student's qualifications, academic background and employment goals. Prospective
students are generally given a school catalogue which describes the applicable
school's programs, a tour of the campus and an explanation of the programs
offered and the types of employment opportunities typically available to
graduates of the Company's schools. The Company employs approximately 55
admissions representatives who generally perform their services in recruitment
offices located at each school, but who, in some instances, make visits and
presentations at high schools or other sources from which students may likely be
recruited.

The Company's central marketing system monitors the effectiveness of each
school's marketing efforts to gauge the extent to which such efforts result in
student enrollment. The results of such monitoring are communicated to each of
the Company's schools allowing each school to more efficiently utilize its
marketing resources. Also, when a particular school has developed a successful
marketing program, the Company makes such program available to the other schools
for incorporation into such other schools' marketing programs as appropriate. In
the year ended March 31, 1996, the Company estimates that referrals, television
advertising, newspaper advertising and yellow pages advertising accounted for
approximately 46%, 15%, 9% and 9%, respectively, of new student starts.

ADMISSION AND RETENTION

In order to apply for admission to any of the Company's programs, a
candidate is required to have a high school diploma, a recognized equivalent, or
pass an admissions test specifically approved by the Department of Education. At
March 31, 1996, 88% of the students were high school graduates or held
recognized equivalent certification. Approximately 20% of enrolled students were
under 20 years of age, 39% were between 20 and 24 years of age, and 41% were 25
years of age or older. At March 31, 1996, 84% of the students attending the
Company's schools were women.

In an attempt to minimize student withdrawals prior to the completion of
their program, each of the Company's schools provides staff and other resources
to assist and advise its students regarding academic and financial matters, and
employment. Each of the schools also provides tutoring, and encourages help
sessions

40
<PAGE> 43

between individual students and instructors when students are experiencing
academic difficulties. For those students who were scheduled to graduate in
calendar years 1994 and 1995, 68.4% and 65.1%, respectively, completed their
course of study. The Company is obligated to provide refunds to those students
who withdraw from school prior to completion of the program based on formulas
required by applicable accrediting agencies or by state and federal regulations.
The refund formula in California, where the Company's largest schools are
located, provides for pro rata refunds based on the number of days a student is
in attendance compared to the total number of days in the program. In other
states, the Company is generally allowed to retain a greater percentage of
tuition than that provided for by the California formula.

GRADUATE PLACEMENT

Each of the Company's schools employs placement personnel to provide
placement assistance services to students and graduates and to solicit
appropriate employment opportunities from employers. In addition, the Company's
schools utilize their externship programs to develop job opportunities and
referrals. During the course of each program, students receive instruction on
job-search and interviewing skills and have available reference materials and
assistance with the composition of resumes.

Since their respective acquisition by the Company, the Company's schools
have graduated approximately 17,000 students. Based on data obtained by the
Company from its students and their employers, the Company believes that
students graduating from programs offered by the Company's schools during the
prior two calendar years who did not go on to further education obtained
employment in a field related to their program of study as of June 30 or earlier
of the calendar year following graduation as follows:

<TABLE>
<CAPTION>
PERCENT OF GRADUATES WHO
OBTAINED EMPLOYMENT
GRADUATING CLASSES NUMBER OF GRADUATES RELATED TO PROGRAM OF STUDY
- ------------------ ------------------- ---------------------------
<S> <C> <C>
1994 2,816 71%
1995 3,069 77%
</TABLE>

FACULTY

Faculty members are hired locally in accordance with criteria established
by the school, applicable accreditation organizations, and applicable state
regulatory authorities. Members of a school's faculty are hired based on
academic background, prior educational experience, and prior work experience. A
significant portion of the Company's faculty were previously employed in fields
related to their area of instruction. The Company believes that such faculty
members provide a "real world" perspective to the students. At most of the
Company's schools, instructors are supervised by the school director and an
academic dean. At the remaining schools, faculty members are supervised by lead
instructors with respect to particular areas of instruction, subject to review
by the school director. As of June 30, 1996, the Company's schools employed
approximately 238 full-time faculty members (defined as those faculty members
spending at least 20 hours per week teaching classes at the Company's schools)
and 250 part-time faculty members.

ADMINISTRATION AND EMPLOYEES

Each of the Company's schools is managed by a school director.
Additionally, the staff of each school includes a director of placement, a
financial aid administrator, and a director or assistant director of admissions
(except for the Sacramento school where the school director performs certain of
these functions). Seven schools also employ a director of education. In the
other schools, lead instructors are appointed to oversee instruction in their
areas of expertise, subject to the overall supervision of the school director.
As of June 30, 1996 the Company had approximately 882 full and part-time
employees, including 35 people employed at its home office in Roswell, Georgia
and its regional offices in Tampa, Florida and San Diego, California and the 488
full and part-time faculty members. It also employed 56 students under the
federal Work-Study program. None of the Company's employees is represented by a
labor union or is subject to a collective bargaining agreement. The Company has
never experienced a work stoppage and believes that its employee relations are
satisfactory.

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<PAGE> 44

From its home office and its two regional offices, the Company provides
each of its schools with financial aid services, oversees regulatory compliance,
assists in the development and addition of programs to existing curricula,
implements and supports management information systems and provides accounting
services and financial resources. The Company's eastern and western region
offices, each with a regional manager and staff who manage the individual school
directors and provide expertise in the area of operations, curriculum
development, and sales and marketing. These centralized services relieve the
local school management of tasks which the Company believes can be performed
most efficiently and cost effectively by a centralized office. However, because
of the Company's belief that each of the markets served by its schools is
unique, and that by offering programs specifically targeted at each market it
can maximize its long-term ability to enroll and place students in an
appropriate outcome, local school management has the responsibility and
authority to schedule the school's programs, hire its teachers, and originate
new program development or propose the addition of programs from the existing
curricula library.

COMPETITION

The postsecondary education market is highly fragmented and competitive
with no private or public institution having a significant market share. The
Company's schools compete for students with not-for-profit public and private
colleges and proprietary institutions which offer degree and/or non-degree
granting programs. Such proprietary institutions include vocational and
technical training schools, continuing education programs and commercial
training programs. Competition among educational institutions is believed to be
based on the quality of the program, perceived reputation of the institution,
the cost of the program, and the employability of graduates. Public and private
colleges may offer programs similar to those offered by the Company's schools at
lower tuition costs due in part to government subsidies, foundation grants, tax
deductible contributions, or other financial resources not available to
proprietary institutions. Certain of the Company's competitors in both the
public and private sector have greater financial and other resources than the
Company.

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<PAGE> 45

FACILITIES

All of the Company's facilities are leased by the Company, except for the
facility in Dayton, Ohio, which is owned by the Company. The table below sets
forth certain information regarding these facilities as of June 30, 1996.

<TABLE>
<CAPTION>
APPROXIMATE
OFFICE/SCHOOL LOCATION SQUARE FOOTAGE
- -------------------------------------------------------- -------------------- --------------
<S> <C> <C>
Home Office Roswell, GA 8,850
Western Region Office San Diego, CA 2,001
Eastern Region Office Tampa, FL 715
WEST REGION SCHOOLS
Andon College Modesto, CA 6,136
Andon College Stockton, CA 8,532
California Academy of Merchandising, Art, and Design Sacramento, CA 5,080
Long Medical Institute Phoenix, AZ 11,423
Maric College of Medical Careers San Diego, CA 39,092
Maric College of Medical Careers, San Marcos Campus Vista, CA 14,600
Maric College of Medical Careers Vista, CA 13,500
Modern Technology School of X-ray North Hollywood, CA 13,377
EAST REGION SCHOOLS
Bauder College Atlanta, GA 26,722
Dominion Business School Harrisonburg, VA 9,400
Dominion Business School Roanoke, VA 12,500
Dominion Business School(1) Staunton, VA 9,000
ICM School of Business Pittsburgh, PA 47,833
Ohio Institute of Photography and Technology(2) Dayton, OH 24,200
</TABLE>

- ---------------

(1) The Company recently determined that there was a substantial overlap in its
markets in Harrisonburg and Staunton, Virginia, and decided to relocate its
Staunton school. Consequently, it has ceased enrolling new students at the
Staunton school and is considering various rental facilities in which to
relocate.
(2) The Dayton, Ohio facility was purchased in connection with the acquisition
of the school in fiscal 1994. It is owned subject to a mortgage with an
aggregate principal amount outstanding of $646,695 at June 30, 1996.

LITIGATION

In September 1995, the Company filed suit in the California Superior Court
in connection with its 1993 purchase of its North Hollywood, California school.
The suit alleges that the sellers made significant financial and operational
misrepresentations to the Company, principally with respect to the number of
active earning students enrolled at the school and that these misrepresentations
inflated the perceived value of the school. The Company is seeking damages from
the sellers, and, pending the resolution of the case, is making payments due to
the sellers in connection with the acquisition into an escrow account. The
Sellers have denied the Company's allegations and filed a Cross-Complaint
against the Company seeking an indeterminate amount of damages and alleging
among other things, breach of contract and fraud. The matter is in the initial
stages of discovery and is expected to be set for trial in the first calendar
quarter of 1997. The Company is unable to predict the outcome of this matter at
this time.

On June 24, 1994, eight students enrolled in one of the Company's programs
at its schools in the San Diego, California area filed a class action lawsuit
against the Company in state court in San Diego, California. In substance, the
suit alleged that there were material misrepresentations made with respect to
the context of the program and the potential jobs available to the students who
graduated from it. The suit was certified as a class action in the fall of 1994.
Although the Company believes that it accurately described the course content
and the jobs to which the course could lead, in order to avoid further legal
expense and because of the

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<PAGE> 46

uncertainty and risks inherent in any litigation, the Company settled the
lawsuit in March 1996. Pursuant to the terms of the settlement, the Company will
pay the plaintiffs $1,000,000, of which $600,000 has been paid, and $400,000 of
which is payable on April 1, 1997. In addition, the Company made available
tuition credits of $1,150,000 to class members of which $25,725 has been
claimed. The remaining $1,124,275 of tuition credits will be redeemed by the
Company for $112,427. The involved program was discontinued in the summer of
1994 for reasons unrelated to the lawsuit.

In order to reduce the risk of any similar actions, the Company has
reviewed all of its catalogs and admission materials and, where the Company
believes appropriate, taken steps to further disclose to students in writing
that placement rates are based on multiple outcomes and the course is not
represented to lead to any one particular outcome, including the course title.

The Company is also a party to routine litigation incidental to its
business, including ordinary course employment litigation. Management does not
believe that the resolution of any or all of such routine litigation is likely
to have a material adverse effect on the Company's financial condition or
results of operations.

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<PAGE> 47

FINANCIAL AID AND REGULATION

TITLE IV STUDENT FINANCIAL ASSISTANCE PROGRAMS

A substantial majority of the students attending the Company's schools
finance all or a part of their education through grants or loans under Title IV
Programs. Revenues from Title IV funding provide most of the Company's tuition
revenues (approximately 75.9% of cash receipts in fiscal 1996). The maximum
amount of a student's available Title IV program assistance is generally based
on the student's financial need. The Company determines a student's financial
need based on the national standard need analysis system established by the HEA.
If there is a difference between the amount of Title IV program funding a
student is entitled to receive (combined with other outside assistance) and the
student's tuition, the student is responsible for the difference.

Students at the Company's schools participate in the following Title IV
Programs:

Pell and FSEOG Grants

The Federal Pell Grant Program provides for grants to help financially
needy undergraduate students meet the costs of their postsecondary education.
The amount of an eligible student's Pell grant award currently ranges from $400
to $2,470 annually, depending on the student's financial need, as determined by
a formula set by the HEA and the Regulations. The HEA guarantees that all of the
eligible students at a school receive Pell grants in the amounts to which they
are entitled. In fiscal 1996, the average Pell award per student enrolled in the
Company's schools receiving such awards was approximately $1,400. Pell grants to
students represented approximately $7 million, or 17.4%, of the Company's
revenues, in fiscal 1996.

The Federal Supplemental Educational Opportunity Grant program ("FSEOG")
provides for awards to exceptionally needy undergraduate students. The amount of
an FSEOG award currently ranges from $100 to $4,000, depending on the student's
financial need and the availability of funds. The availability of federal
funding for FSEOG awards is restricted. In fiscal 1996, the average FSEOG award
to students enrolled in the Company's schools receiving such grants was $350.
The Company, or another outside source, is required to make a 25% matching
contribution for FSEOG program funds it disburses. The Company made matching
contributions of approximately $110,000 in fiscal 1996. FSEOG awards made to the
Company's students (net of matching contributions) amounted to approximately
$544,000 and represented approximately 1.4% of the Company's revenues in fiscal
1996.

Federal Family Education Loans and Federal Direct Student Loans

The Federal Family Education Loan ("FFEL") programs include the Federal
Stafford Loan Program ("Stafford Loan"), and the Federal PLUS Program ("PLUS"),
pursuant to which private lenders make loans to enable a student or his or her
parents to pay the cost of attendance at a postsecondary school.

The FFEL Program is administered through state and private nonprofit
guarantee agencies that insure loans directly, collect defaulted loans and
provide various services to lenders. The federal government provides interest
subsidies in some cases and reinsurance payments for borrower default, death,
disability, and bankruptcy.

The Federal Direct Student Loan Program ("FDSLP") is substantially the same
as the FFEL program in providing Stafford and PLUS loans. Under the FDSLP,
however, funds are provided directly by the federal government to the students,
and the loans are administered through the school. For schools electing to
participate, the FDSLP replaces the FFEL program, although loans are made on the
same general terms and conditions. The Company was one of the initial
participants in the FDSLP.

Stafford Loan Program

Students may borrow an aggregate of $2,625 for their first undergraduate
academic year and $3,500 for their second academic year under the FFEL Stafford
Loan or FDSLP Stafford Loan program. If the student qualifies for a subsidized
loan, based on financial need, the federal government pays interest on the loan
while

45
<PAGE> 48

the student is attending school and during certain grace and deferment periods.
If the student does not qualify for a subsidized Stafford Loan, the interest
accruing on the loans must be paid by the student. In addition, independent
students may qualify for an additional $4,000 a year in unsubsidized Stafford
loans.

In fiscal 1996, all but one of the Company's schools participated
exclusively in the FDSLP program, and the remaining school has been recently
approved to participate. FDSLP and FFEL Stafford loans amounted to approximately
$17.7 million, or approximately 45.7% of the Company's revenues, in fiscal 1996.

PLUS Loan Program

Parents of dependent students may receive loans under the FFEL PLUS Program
or the FDSLP PLUS Program on an academic year basis. The maximum amount of any
PLUS loan is the total cost of a student's education for each relevant academic
year less other financial aid received by the student attributable to such year.
PLUS loans carry a maximum interest rate of 9%. These loans are repayable
commencing 60 days following the last disbursement made with respect to the
relevant academic year, with flexible payment schedules over a 10 year period.
The FFEL PLUS loans are made by lending institutions and guaranteed by the
federal government. The FDSLP PLUS Program, which has replaced the FFEL PLUS
loan program at all of the Company's schools, provides PLUS loans by the federal
government on the same general terms as the FFEL PLUS loans. FDSLP PLUS loans
and FFEL PLUS loans amounted to approximately $3.2 million, or approximately
8.2% of the Company's revenues, in fiscal 1996.

Perkins Loans

Students who demonstrate financial need may borrow up to $3,000 per
academic year under the Federal Perkins Loan ("Perkins") program, subject to the
availability of Perkins funds at the institution. Repayment of loans under the
Perkins program is delayed until nine months after graduation or the termination
of studies. Funding for a school's Perkins program is made by the Department of
Education into a fund maintained by the participating school for that purpose.
The participating school is required to make a matching contribution into the
fund of 25% of the total loans made from the fund and to deposit all repayments
into the fund.

Only two of the Company's schools participate in the Perkins program. The
Company made no matching contributions in fiscal 1996 because the Company did
not receive any Perkins funding from the Department of Education and utilized
only funds received from borrower repayments. A school will not receive
continued federal funding for Perkins loans if the school's Cohort Default Rate
for Perkins loans rate exceeds 30%. One of the Company's schools receiving
Perkins loan funding had a cohort default rate in excess of 30% in the last
fiscal year and is therefore ineligible to receive additional funds from the
government for the subsequent fiscal year. The school will, however, remain able
to make Perkins loans to students through funds repaid by previous borrowers.
Perkins loans amounted to approximately $144,000, or approximately 0.4% of the
Company's revenues, in fiscal 1996.

Federal Work-Study

Pursuant to the Federal Work-Study ("FWS") program, federal funds are made
available to provide part-time employment to eligible students based on
financial need. The Company's schools provide a limited number of on-campus and
off-campus jobs to eligible students participating in the FWS program. During
the 1995-96 award year, the Company's schools employed 141 students pursuant to
this program. The Company, or another outside source, is required to pay 25% of
the gross earnings for each participant in the FWS program.

TITLE IV REGULATION

To obtain and maintain eligibility to participate in the programs described
above, the Company's schools must comply with the rules and regulations set
forth in the HEA and the Regulations thereunder. An institution must obtain
certification by the Department of Education as an "eligible institution" to
participate in Title IV Programs. Certification as an "eligible institution"
requires, among other things, that the institution

46
<PAGE> 49

be authorized to offer its educational programs by the state in which it
operates. It must also be accredited by an accrediting agency recognized by the
Department of Education.

The HEA provides standards for institutional eligibility to participate in
the Title IV Programs. The standards are designed, among other things, to limit
dependence on Title IV funds, prevent schools with unacceptable student loan
default rates from participating in Title IV Programs and, in general, require
institutions to satisfy certain criteria intended to protect the integrity of
the federal programs, including criteria regarding administrative capability and
financial responsibility.

Generally, a school (a main campus and any additional locations for
purposes of the Regulations) is considered separately for compliance with the
Regulations. Thirteen of the Company's schools are main campuses. One school,
located in Vista, California, is an additional location of the San Marcos,
California main campus.

A school that has been certified as eligible to participate in the Title IV
Programs continues to remain eligible for the period of its certification, which
is generally four years. A school must apply for a renewal of its certification
prior to its expiration, and must demonstrate compliance with the eligibility
requirements in its application.

Under certain circumstances, the Department of Education may provisionally
certify a school to participate in Title IV programs. Provisional certification
may be imposed, when a school is reapplying for certification or when a school
undergoes a change of ownership resulting in a change in control, if the school
(i) does not satisfy all the financial responsibility standards, (ii) has a
Cohort Default Rate of 25% or more in any single fiscal year of the three most
recent federal fiscal years for which data is available, and (iii) under other
circumstances determined by the Secretary of Education. Provisional
certification may last no longer than three years. Provisional certification
differs from certification in that a provisionally certified school may be
terminated from eligibility to participate in the Title IV Programs without the
same opportunity for a hearing before an independent hearing officer and an
appeal to the Secretary of Education afforded to a fully certified school.
Additionally, the Department of Education may impose additional conditions on a
provisionally certified institution's eligibility to continue participating in
the Title IV Programs.

Student Loan Defaults

Under the HEA, an institution may lose its eligibility to participate in
some or all Title IV Programs if student defaults on the repayment of federally
guaranteed student loans exceed specified Cohort Default Rates. Similar rules
regarding default rates apply to Federal Direct Loans made pursuant to the
FDSLP, commencing with those loans entering into repayment for the first time in
the 12 month period ending September 30, 1995. Under existing regulations these
rates are based on the repayment history of current and former students for
loans provided under the Stafford Loan program and the SLS program. A Cohort
Default Rate is calculated for each school on a federal fiscal year basis by
determining the rate at which the school's students entering repayment in that
federal fiscal year default by the end of the following federal fiscal year.
Cohort Default Rates are subject to revision by the Department of Education if
new data becomes available and is subject to appeal by schools contesting the
accuracy of the data or the adequacy of the servicing of the loans by the loan
servicer.

An institution whose Cohort Default Rate exceeds 40% for any single federal
fiscal year may have its eligibility to participate in all Title IV Programs
limited, suspended or terminated. If the Department of Education elects to take
such action due to a single-year Cohort Default Rate in excess of the regulatory
level, it must afford the institution a hearing before an independent Department
of Education hearing officer and an opportunity to appeal any decision to the
Secretary of Education before the limitation, suspension, or termination may
take effect. Except for its school located in Albany, Georgia, which was closed
in fiscal 1995, none of the Company's schools has, or has had, a Cohort Default
Rate in excess of 40%.

An institution whose Cohort Default Rate is 25% or more for the three most
recent federal fiscal years for which data is available is subject to immediate
loss of eligibility to participate in Title IV Programs, subject to an appeal
(on the bases stated in the next prior paragraph) of the determination,
including an appeal based on

47
<PAGE> 50

a claim of exemption from the Cohort Default Rate requirements by virtue of
exceptional mitigating circumstances. The loss of eligibility lasts for the
duration of the fiscal year in which the determination of ineligibility is made,
plus the two succeeding fiscal years. However, an institution remains eligible
for Title IV funding while the appeal is pending.

The federal fiscal 1991, 1992 and 1993 Cohort Default Rates for all of the
students at the Company's schools averaged 19.3%, 20.6% and 19.9%, respectively,
and ranged from highs of 31.2%, 30.9% and 23.5% to lows of 7.8%, 7.3% and 2.3%
for the respective periods. The federal fiscal 1994 Cohort Default Rates for all
of the students at the Company's schools, which have been preliminarily
announced, averaged 19.7% and ranged from a high of 27.5% to a low of 3.0%. For
the Cohort Default Rates for each of the Company's schools for federal fiscal
years 1991 to 1994, the most recent years for which data is available, see
"-- Selected Data Regarding Cohort Default Rates, Title IV Funds Received and
Net Operating Losses. " The average Cohort Default Rate for students at all
postsecondary proprietary institutions in the United States for federal fiscal
1992 and 1993 were 30.2% and 23.9%, respectively. The average rate for federal
fiscal 1994 is not available.

None of the Company's schools had Cohort Default Rates of 25% or more for
either each of the three consecutive federal fiscal years ending 1993, or those
ending with federal fiscal 1994 based on 1994 data released by the Department of
Education in May 1996. The Department of Education has designated this 1994 data
as preliminary, reserving the right to issue final 1994 Cohort Default Rates in
or about November 1996. The Company does not expect its final 1994 Cohort
Default Rates to differ materially from the preliminary data. Accordingly, the
Company believes that none of the schools is currently vulnerable to termination
of Title IV eligibility based on three consecutive years of excess default
rates. The Company's schools in Harrisonburg and Staunton, Virginia, had Cohort
Default Rates in excess of 25% for the two consecutive federal fiscal years
ending 1993; however both schools had preliminary Cohort Default Rates of less
than 25% for the federal fiscal year ending in 1994. Only the Company's school
located in Stockton, California had a Cohort Default Rate of 25% or more for
federal fiscal 1994 (based on the preliminary data). Although that school had a
Cohort Default rate of 27.5% in federal fiscal 1994, it had a Cohort Default
Rate of 19.9% for federal fiscal 1993 and therefore is not vulnerable to
termination of Title IV eligibility unless its rates for the next two federal
fiscal years are 25% or more. The Company's other schools must have Cohort
Default Rates of 25% or more for consecutive three year periods beginning with
federal fiscal 1995 and thereafter in order to become vulnerable to termination
of Title IV eligibility.

The Regulations require that any school which experiences a Cohort Default
Rate in excess of 20% must establish a default management plan in compliance
with the federally mandated plan included in the Regulations. This plan includes
measures to reduce student withdrawal rates, improve student employment rates
and counseling of students on their responsibility to repay their loans. The
Company has instituted default reduction programs in each of its schools;
however, economic and other factors outside of the Company's control could
adversely effect default rates.

The 85/15 Rule

The "85/15" rule, which applies to for-profit institutions such as the
schools owned and operated by the Company, became applicable to the Company's
schools beginning with the fiscal year ending March 31, 1996. It requires that
no more than 85% of the school's applicable cash receipts may be derived from
Title IV Programs. A school whose annual certified financial statement or Title
IV compliance audit report to the Department of Education does not reflect
compliance with the 85/15 rule is subject to immediate termination of its Title
IV eligibility. The Company believes that each of its schools was in compliance
with the 85/15 rule with respect to fiscal 1995 and 1996, and has taken steps to
help ensure on-going compliance with the 85/15 Rule.

Change in Control

Upon a change in ownership resulting in a change in control of the Company,
as defined in the HEA and Regulations, each of the Company's schools would lose
its eligibility to participate in Title IV Programs for an indeterminate period
of time during which it applies to regain eligibility. A change of control also
could have

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<PAGE> 51

significant regulatory consequences for the Company at the state level and could
affect the accreditation of the Company's schools. If a corporation, such as the
Company prior to the consummation of the Offering, is neither publicly traded
nor closely held, the Regulations provide that a change in ownership resulting
in a change of control occurs when a person's legal or beneficial ownership
either rises above or falls below 25% of the voting stock of the corporation and
that person gains or loses control of the corporation. The Company has been
advised by the Department of Education that, based on the facts pertaining to
the Company's ownership and control which are set forth in this Prospectus, the
consummation of this Offering will not constitute a change in ownership
resulting in a change of control within the meaning of the HEA and the
Regulations.

Administrative Capability

The Regulations set certain standards of "administrative capability" which
a school must satisfy to participate in the Title IV Programs. These criteria
require, among other things, that the school comply with all applicable Title IV
Regulations, have capable and sufficient personnel to administer the Title IV
Programs, have acceptable methods of defining and measuring the satisfactory
academic progress of its students, provide financial aid counselling to its
students, timely submit all reports and financial statements required by the
Regulations, and that the school's Cohort Default Rate not equal or exceed 25%
for any single fiscal year.

Failure to satisfy any of the criteria may lead the Department of Education
to determine that the school lacks the requisite administrative capability and
may subject the school to provisional certification when it seeks to renew its
certification as an eligible institution, or may subject it to a fine or to a
proceeding for the limitation, suspension, or termination of its participation
in Title IV Programs. Proceedings to fine, limit, suspend, or terminate an
institution are conducted before an independent hearing officer of the
Department of Education and are subject to appeal to the Secretary of Education,
prior to any sanction taking effect. Thereafter, judicial review may be sought
in the federal courts pursuant to the federal Administrative Procedures Act.

Six of the Company's schools are provisionally certified to participate in
the Title IV Programs. The conditions imposed on them as a result of such
provisional certification include reporting requirements relating to each
school. The material violation of such requirements, or any of the requirements
of the HEA or the Regulations, would subject the school to a loss of its
provisional eligibility.

A school also may be found to lack administrative capability if its cohort
default rate for Perkins loans exceeds 15% for any federal award year (i.e.,
July 1 through June 30). The Company's schools in Atlanta, Georgia and
Pittsburgh, Pennsylvania (the only two schools participating in the Perkins loan
program) had published Cohort Default Rates for Perkins loans of 28.6% and
23.3%, respectively, for the 1994-1995 award year and 23.1% and 33.0%,
respectively, in the prior year. Perkins loans amounted to approximately $72,000
at each of the schools for the fiscal year ended March 31, 1996, and were funded
from repayments of prior Perkins loans. Based on the modest level of the
schools' participation in the Perkins program and inability to request funding
in excess of repayments, the Company does not believe that the Perkins Cohort
Default Rate will have a material effect on the Department of Education's
assessment of administrative capacity.

Financial Responsibility Requirements

The HEA and the Regulations prescribe specific standards of financial
responsibility which the Department of Education must consider with respect to
qualification for participation in the Title IV Programs

49
<PAGE> 52

("Financial Responsibility Standards"). These standards are generally applied on
an individual school basis. However, there can be no assurance that the
Department of Education will not apply such standards on a consolidated basis.
If the Department of Education determines that any of the Company's schools
fails to satisfy the Financial Responsibility Standards, the Department may
require that such school post an irrevocable letter of credit (a "Financial
Responsibility Bond") in favor of the Secretary of Education in an amount equal
to not less than one-half of Title IV Program funds received by the school
during the last complete award year or, in the Department of Education's
discretion, require some other less onerous demonstration of financial
responsibility (a "Demonstration of Financial Responsibility"). One-half of
Title IV funds received by the Company's individual schools in the most recent
award year ranged from $0.2 million to $3.9 million, and one-half of the total
Title IV funds received by all the Company's schools in the most recent award
year was $14.1 million. Pursuant to the Regulations, the Company submits annual
audited consolidated financial statements and unaudited consolidating financial
statements to the Department of Education. For the amount of Title IV funds
received by each of the Company's schools, along with other data relevant to the
financial responsibility requirements, see "-- Selected Data Regarding Cohort
Default Rates, Title IV Funds Received and Net Operating Losses".

Among the principal Financial Responsibility Standards which a school must
satisfy are: (i) an "acid test" ratio (defined as the ratio of the total of
cash, cash equivalents and current accounts receivable to current liabilities)
of at least 1-to-1 at the end of the most recent fiscal year, (ii) a positive
tangible net worth, as defined by the applicable Regulations, at the end of the
most recent fiscal year (the "Tangible Net Worth Standard") and (iii) net
operating results for the two most recent fiscal years, excluding extraordinary
losses or losses from discontinued operations, which do not show an aggregate
net loss in excess of 10% of tangible net worth at the beginning of the two year
period. Primarily because a large portion of the Company's assets consists of
goodwill and other intangibles related to school acquisitions, the Company has
had a negative tangible net worth on a consolidated basis for each of the
Company's three most recent fiscal years, although none of the Company's schools
had a negative tangible net worth on an individual school basis during that
period. For the Company's fiscal year ended March 31, 1996, the Company's
consolidated negative tangible net worth was $581,000. The Company has filed
audited consolidated financial statements with the Department of Education for
each of the last three fiscal years, along with unaudited consolidating
statements. Although the Department of Education has not cited any of the
Company's schools for violation of the Tangible Net Worth Standard, there can be
no assurance that the Department of Education will not attempt to apply the
Tangible Net Worth Standard on a consolidated basis. Assuming completion of this
Offering, the Offering Transactions and consummation of the Texas Acquisition,
the Company will have a positive tangible net worth on a pro forma as adjusted
consolidated basis of approximately $20.2 million as of June 30, 1996. However,
no assurance can be given that the Department of Education may not make a
request for the Company to post a Financial Responsibility Bond (which, if done
on a consolidated basis for all of the Company's schools, could aggregate $14.1
million) or otherwise make a request for a Demonstration of Financial
Responsibility based on the consolidated negative tangible net worth at March
31, 1996, the end of its most recent fiscal year. If such a request were to be
made, there is no assurance that the Company (i) would be successful in
persuading the Department of Education or a court that such a request is
contrary to law, (ii) could secure the funds to post the Financial
Responsibility Bond which the Department of Education may request, or (iii) that
the Company would be successful in negotiating a more favorable Demonstration of
Financial Responsibility. If the Company were unable to post a Financial
Responsibility Bond or make a satisfactory Demonstration of Financial
Responsibility, it could become ineligible to receive Title IV funding in some
or all of its schools. Ineligibility for Title IV funding would have an
immediate material adverse effect on the Company's operations.

The Company's school located in Roanoke, Virginia (which accounted for 2.7%
of the Company's total net revenue in fiscal 1996) experienced losses in each of
the last two fiscal years, which may result in the Department of Education
requiring the posting of a Financial Responsibility Bond in the approximate
amount of $355,000 or otherwise request a Demonstration of Financial
Responsibility with respect to such school. In May 1995, the Department of
Education notified the Company (the "Fiscal 1994 Notice") that, based upon a
review of the audited consolidated and unaudited consolidating fiscal 1994
financial statements of the Company, it determined that (i) the Company's
schools located in Staunton and Harrisonburg, Virginia, did

50
<PAGE> 53

not meet, for fiscal year 1994, the acid test ratio and the Tangible Net Worth
Standard, and (ii) the Company's school located in Pittsburgh, Pennsylvania did
not meet the acid test ratio. The Department of Education requested that the
Company provide letters of credit with regard to these three schools in the
aggregate amount of $2,065,000. In July 1995, after a meeting with Department of
Education officials, the Company submitted its fiscal 1995 audited consolidated
financial statements and unaudited consolidating financial statements (the "1995
Financials") for review by the Department of Education. The Department of
Education agreed to suspend its request for letters of credit subject to their
review of the 1995 Financials. The Company believes that the 1995 Financials
demonstrated compliance by the relevant schools with all of the applicable
financial criteria for fiscal year ended March 31, 1995. As of the date of this
Prospectus, the Department of Education has neither confirmed nor contested the
Company's belief.

Based on its audited consolidated and unaudited consolidating financial
statements for fiscal 1996, which have been submitted to the Department of
Education, except with respect to the operating losses incurred by the Company's
school in Roanoke, the Company believes each of its schools satisfies the
Financial Responsibility Standards. However, because the Department of Education
periodically revises its regulations and changes its interpretation of existing
laws and regulations, there can be no assurance that the Department of Education
will agree in the future with the Company's interpretation of each such
requirement or that such requirements will not change in the future.

Selected Data Regarding Cohort Default Rates, Title IV Funds Received and Net
Operating Losses

The table below sets forth certain detailed information relative to the
Company's schools with respect to certain of the regulatory criteria discussed
above.

<TABLE>
<CAPTION>
COHORT DEFAULT RATE(1) TITLE IV FUNDS
-------------------------------------- RECEIVED
1994 FISCAL 1996
SCHOOL LOCATION 1991 1992 1993 PRELIMINARY --------------
- ----------------------------------------------- ---- ---- ---- ----------- (DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C>
Vista, CA...................................... 18.7% 21.6% 21.8% 20.1% $2,615
San Diego, CA.................................. 17.3 19.5 23.0 20.2 7,845
San Marcos Campus -- Vista, CA................. 18.7 21.6 21.8 20.1 1,732
Phoenix, AZ.................................... 29.9 24.9 19.5 24.3 1,533
Stockton, CA................................... 31.2 30.9 19.9 27.5 1,534
Modesto, CA.................................... 23.8 27.0 23.5 19.3 1,110
Atlanta, GA.................................... 12.1 8.6 14.2 15.4 3,147
North Hollywood, CA............................ 19.0 17.4 14.5 18.9 2,328
Roanoke, VA.................................... 22.0 23.3 22.9(2) 23.0 710
Harrisonburg, VA............................... 22.0 23.3 25.2(2) 13.9 999
Staunton, VA................................... 22.0 23.3 25.0(2) 20.6 376
Pittsburgh, VA................................. 13.4 16.2 18.5 13.7 2,463
Dayton, OH..................................... 7.8 7.3 2.3 3.0 1,503
Sacramento, CA................................. 9.4 11.4 7.8(2) N/A(3) 528
</TABLE>

- ---------------

(1) The Company has filed appeals with the Department of Education challenging
the accuracy of the underlying data with regard to many of these Cohort
Default Rates.
(2) The Department of Education has informed the Company that it is continuing
to review these preliminary rates.
(3) Such data is not available.

None of the Company's schools had operating losses in fiscal 1995 or fiscal
1996, except for the Company's school in Roanoke which had operating losses of
approximately $341,000 and $400,000 in fiscal 1995 and 1996, respectively, and
the Company's school in Sacramento which had an operating loss of approximately
$179,000 in fiscal 1995.

51
<PAGE> 54

Incentive Compensation

Schools participating in Title IV Programs are prohibited from providing
any commission, bonus or other incentive payment based directly or indirectly on
success in securing enrollments or financial aid to persons engaged in any
student recruitment, admission or financial aid awarding activity (the
"Incentive Compensation Rule"). The Department of Education has not provided
specific regulations with respect to this requirement. If the Department of
Education were to determine that the Company's methods of compensation do not
comply with the Incentive Compensation Rule, the Company could be required to
modify its compensation system, repay certain previously disbursed Title IV
Program funds, pay administrative fines or lose its eligibility to participate
in Title IV Programs. The Company believes its compensation policies do not
violate the Incentive Compensation Rule.

Restrictions on Adding Locations and Educational Programs

Proprietary educational institutions must be in full operation for two
years before they can be certified by the Department of Education to participate
in Title IV Programs. However, an institution that is already qualified to
participate in Title IV Programs may establish, with approval of the Department
of Education, an additional location that immediately qualifies for
participation in such programs without satisfying the two-year requirement if
such location satisfies all other applicable requirements for institutional
eligibility, including approval of the additional location by the applicable
accrediting agency and the relevant state authorizing agency.

Generally, if a school which is eligible to participate in Title IV
Programs adds an educational program, it must apply to the Department of
Education to have such program designated as eligible. However, if it adds an
additional degree program or a program which prepares students for employment in
the same or related occupations as those which have previously been designated
as eligible, it is not obligated to obtain the Department of Education's
approval of such program. The Company does not believe that the Department of
Education requirements will hinder its ability to plan and add new degree and
diploma programs to its schools' curricula.

STATE AUTHORIZATION AND ACCREDITATION

The Company's schools must be authorized by the applicable agency or
agencies of the state in which they are located to operate and grant degrees or
diplomas. State authorization is also required for eligibility to participate in
Title IV Programs. Each of the Company's schools is authorized to operate its
educational programs in the state where it is located. Each of the six states in
which the Company operates is subject to extensive and varying regulation, which
may parallel or exceed federal regulations.

All of the Company's schools are accredited by at least one accrediting
body recognized by the Department of Education. Accreditation signifies that the
schools have been reviewed and determined to meet minimum criteria in terms of
administration, faculty, curriculum, physical plant, facilities and equipment,
and financial stability. Accreditation by an accrediting body recognized by the
Department of Education is a requirement for participation in Title IV Programs.
Seven of the Company's schools are accredited by the Accrediting Commission of
Career Schools and Colleges of Technology ("ACCSCT"), five by the Accrediting
Council for Independent Colleges and Schools ("ACICS"), two by the Accrediting
Bureau of Health Education Schools ("ABHES") and one by the Southern Association
of Colleges and Schools/Commission on Colleges ("SACS/COC"). The Atlanta,
Georgia school is accredited by both ACCSCT and SACS/COC. See the table at
"Business -- Schools" for information with respect to specific accreditations
for each of the Company's schools.

52
<PAGE> 55

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table provides information regarding the executive officers
and directors of the Company. Biographical information for each of the persons
set forth in the table is presented below.

<TABLE>
<CAPTION>
NAME AGE TITLE
- ---------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Gary D. Kerber.................... 57 Chairman, President, Chief Executive Officer and a Director
Vince Pisano...................... 42 Vice President and Chief Financial Officer
Gerry M. Taylor................... 52 Director of Operations -- Western Region
Ellen L. Bernhardt................ 45 Director of Operations -- Eastern Region
Elaine Neely-Eacona............... 43 Director of Financial Aid
K. Terry Guthrie.................. 53 Director of Accreditation
A. William Benham, Jr............. 34 Controller
Robert T. Cresci.................. 52 Director
Carl S. Hutman.................... 62 Director
W. Patrick Ortale, III............ 43 Director
Richard E. Kroon.................. 54 Director
</TABLE>

Gary D. Kerber has been President, Chief Executive Officer and a Director
of the Company since March 1988. From 1971 to 1983 he was employed by American
Hospital Supply Company in various sales and executive positions. From 1983 to
1986, Mr. Kerber was the chief executive officer for Kimberly Services, Inc.

Vince Pisano has been Vice President of Finance and Chief Financial Officer
of the Company since March 1990. From 1978 to 1990 he was employed by National
Education Corporation, a provider of postsecondary education, as corporate
controller and subsequently as the vice president of finance of its educational
centers division.

Gerry M. Taylor has been Director of Operations -- Western Region of the
Company since July 1991. From 1989 to 1991 she was employed as Executive
Director of the Company's three schools in the San Diego, California area.

Ellen L. Bernhardt has been Director of Operations -- Eastern Region of the
Company since August 1993. From 1985 to 1993 she was employed by National
Education Corporation, a provider of postsecondary education, most recently as
southeast regional director of operations.

Elaine Neely-Eacona has been Director of Financial Aid of the Company since
March 1990. From 1976 to 1990 she was employed in various financial aid
positions by Education Management Corporation, a provider of postsecondary
education.

K. Terry Guthrie has been Director of Accreditation of the Company since
July 1993. From 1971 to July 1993 he was employed as president of Ohio Institute
of Photography and Technology, which he co-founded. The school was acquired by
the Company in July 1993.

A. William Benham, Jr. has been Controller of the Company since May 1995.
From 1989 to May 1995, Mr. Benham was Assistant Controller of the Company.

Carl S. Hutman has been a Director of the Company since 1988. Since 1996,
he has also been managing director of Fundamental Management Corporation, an
investment management firm. Since 1981, he has been president of Anlyn Advisers,
Inc., an investment advisory company. From 1981 to 1991 he was a general partner
of Investech, L.P., a venture capital partnership which purchased convertible
preferred stock and Common Stock of the Company in 1988 and 1989 and distributed
all of its holdings to its general and limited partners in 1991. Mr. Hutman is a
member of the Board of Directors of Canadian General Investments, Limited,
Canadian World Fund Limited and Third Canadian General Investment Trust Limited,
all of which are investment funds.

53
<PAGE> 56

W. Patrick Ortale, III has been a Director of the Company since 1988. Since
1985, Mr. Ortale has been a general partner of Lawrence Venture Partners, the
general partner of Lawrence, Tyrrell, Ortale & Smith, a private venture capital
limited partnership, which is a principal stockholder of the Company. Since 1990
and 1994, respectively, Mr. Ortale has been a general partner of the general
partnerships which control Lawrence, Tyrrell, Ortale & Smith II, L.P., and
Richland Ventures, L.P., private venture capital limited partnerships.

Robert T. Cresci has been a Director of the Company since 1991. Since
September 1990, Mr. Cresci has been a managing director of Pecks Management
Partners Ltd., an investment management firm. Mr. Cresci is a member of the
boards of directors of Bridgeport Machines, Inc., Serv-Tech, Inc., EIS
International, Inc., Sepracor, Inc., Vestro Natural Foods, Inc., Olympic
Financial, Ltd., Geo Waste, Inc., Hitox, Inc., Natures Elements, Inc., Garnet
Resources Corporation, HarCor Energy, Inc., Meris Laboratories, Inc. and several
private companies.

Richard E. Kroon has been a Director of the Company since 1994. Since 1981,
Mr. Kroon has been managing partner of the Sprout Group and President and Chief
Executive Officer of DLJ Capital Corp. Mr. Kroon is a director of Loehmann's,
Inc., a clothing retailer, and other private companies.

BOARD OF DIRECTORS

Pursuant to the Restated Certificate of Incorporation (the "Certificate of
Incorporation") and the Bylaws (the "Bylaws") of the Company, the Company's
Board of Directors consists of five directors or such greater or lesser number
as may be fixed from time to time by a majority of the total number of directors
which the Company would have if there were no vacancies on the Company's Board
of Directors.

The Company's Board of Directors has a Compensation Committee and an Audit
Committee. The responsibilities and membership requirements of each of the
Committees after the Offering are described below.

The Compensation Committee consists of three directors. The Compensation
Committee is responsible for policies, procedures and other matters relating to
employee benefit and compensation plans, including compensation of the executive
officers as a group and the chief executive officer individually. The
Compensation Committee is also responsible for administering and making awards
under the stock based compensation plans, policies, procedures and other matters
relating to management development and for reviewing, monitoring and
recommending (for approval by the Company's Board of Directors) plans with
respect to succession of the chief executive officer.

The Audit Committee consists of two directors. The Audit Committee will be
responsible for policies, procedures and other matters relating to accounting,
internal financial controls and financial reporting, including the engagement of
independent auditors and the planning, scope, timing and cost of any audit and
any other services they may be asked to perform, and will review with the
auditors their report on the financial statements following completion of each
such audit. In addition, the Audit Committee will be responsible for policies,
procedures and other matters relating to business integrity, ethics and
conflicts of interests.

The members of the Compensation Committee are Messrs. Kroon (Chairman),
Cresci and Ortale, and the members of the Audit Committee are Messrs. Cresci
(Chairman) and Hutman.

COMPENSATION OF THE BOARD OF DIRECTORS

Directors who are not employees of the Company will receive an annual
directors' fee of $6,000 and directors' fees of $1,000 for each Board meeting
attended and $500 for each Committee meeting attended. In addition, such
directors will also be granted options to purchase shares of Common Stock of the
Company as described below. The Company will also reimburse directors for their
expenses incurred in connection with their activities as directors of the
Company. Directors who are also employees of the Company receive no compensation
for serving on the Board of Directors.

54
<PAGE> 57

Non-employee Director Stock Option Plan

On June 20, 1996, the Company adopted and its stockholders approved a
Non-employee Director Stock Option Plan (the "Directors' Plan") to attract and
retain the services of non-employee members of the Board of Directors and to
provide them with increased motivation and incentive to exert their best efforts
on behalf of the Company by enlarging their personal stake in the Company. The
maximum number of shares of Common Stock with respect to which options may be
granted under the Directors' Plan is 200,000 shares.

Each member of the Board of Directors of the Company who otherwise (i) is
not currently an employee of the Company, (ii) is not a former employee still
receiving compensation for prior services (other than benefits under a
tax-qualified pension plan), and (iii) is not currently receiving remuneration
from the Company in any capacity other than as a director shall be eligible for
the grant of stock options under the Directors' Plan ("Participant"). Currently,
all directors other than Mr. Kerber are eligible to participate in the
Directors' Plan.

On the date the Directors' Plan was adopted, each of the four existing
non-employee directors were each granted contingent upon completion of the
Offering options to purchase 25,000 shares of Common Stock of the Company at the
per share initial public offering price. These options vest immediately upon
consummation of the Offering. Upon the election of any new member to the Board
of Directors, such member will be granted an option to purchase 25,000 shares of
Common Stock at the fair market value at date of grant, vesting in five equal
annual installments beginning on the first anniversary of the date of grant.
Beginning with the next annual meeting of the stockholders of the Company and
provided that a sufficient number of shares remain available under the
Directors' Plan, each year immediately following the date of the annual meeting
of the Company there automatically will be granted to each non-employee director
who is then serving on the Board an option to purchase 3,000 shares of the
Common Stock of the Company, which options will be immediately vested. The
options to be granted under the Directors' Plan shall be nonqualified stock
options (stock options which do not constitute "incentive stock options" within
the meaning of Section 422A of the Code).

EXECUTIVE COMPENSATION

Set forth below is information for the fiscal year ended March 31, 1996
concerning the services of the Chief Executive Officer and the Company's
executive officers who earned compensation greater than $100,000 in such year.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
----------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY BONUS COMPENSATION COMPENSATION
- ------------------------------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Gary D. Kerber................................... $187,124 $155,606 -- $4,720(2)
Chairman, President and Chief Executive Officer
Vince Pisano..................................... $140,595 $116,915 -- --
Vice President of Finance and Chief Financial
Officer
Gerry M. Taylor.................................. $109,283 $101,615 -- --
Director of Operations -- Western Region
Ellen L. Bernhardt............................... $107,744 $ 66,006 -- --
Director of Operations -- Eastern Region
</TABLE>

- ---------------

(1) Does not include the dollar value of perquisites and other personal
benefits.
(2) Consists solely of premiums paid by the Company for a life insurance policy
for Mr. Kerber. Upon Mr. Kerber's death, the Company will receive no
proceeds from such policy.

55
<PAGE> 58

The following table discloses options granted during fiscal 1996, to each
of the named executive officers.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
---------------------------------------------------- ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------
NAME/TITLE GRANTED FISCAL YEAR (PER SHARE) DATE 5%(1) 10%(1)
- ------------------------------- ---------- ------------ ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary D. Kerber................. 16,667 9.5% $3.60 12/13/05 $225,335 $354,879
President and Chief Executive
Officer
Vince Pisano................... 13,333 7.6% $3.60 12/13/05 $180,260 $283,889
Vice President of Finance and
Chief Financial Officer
Gerry M. Taylor................ 25,000 14.3% $3.60 12/13/05 $337,996 $532,307
Director of Operations --
Western Region
Ellen L. Bernhardt............. 10,000 5.7% $3.60 12/13/05 $135,198 $212,923
Director of
Operations -- Eastern Region
</TABLE>

- ---------------

(1) The dollar amounts under these columns represent the potential tangible
value, before income taxes, of each option assuming that the market price
of the Common Stock appreciates in value from fair market value at the date
of grant to the end of the option term at 5% and 10% annual rates and
therefore are not intended to forecast possible future appreciation, if
any, of the price of the Common Stock. All grants of options have been made
with exercise prices equal to fair value at date of grant.

STOCK OPTION PLAN

In June 1996, the Board of Directors of the Company (the "Board")
authorized, and the stockholders of the Company approved, the 1996 Stock
Incentive Plan for executive and other employees of the Company, including a
limited number of outside consultants and advisors, effective as of the
completion of the Offering (the "Stock Option Plan"). Under the Stock Option
Plan, employees, outside consultants and advisors (the "Participants") of the
Company (as defined in the Stock Option Plan) may receive awards of stock
options (both Nonqualified Options and Incentive Options, as defined in the
Stock Option Plan), stock appreciation rights or restricted stock. A maximum of
961,666 shares of Common Stock will be subject to the Stock Option Plan. The
Company intends to exchange stock options covering an aggregate of 361,666
shares of Common Stock previously granted to certain executive officers of the
Company and others for similar stock options to be granted under the Stock
Option Plan. The Company has granted stock options contingent upon completion of
the offering covering an aggregate of 275,000 shares of Common Stock to certain
executive officers and other employees of the Company at the per share initial
public offering price. The purpose of the Stock Option Plan is to provide
employees (including officers and directors who are also employees) and
non-employee consultants and advisors of the Company ("employees") with an
increased incentive to make significant and extraordinary contributions to the
long-term performance and growth of the Company, to join their interests with
the interests of the shareholders of the Company, and to facilitate attracting
and retaining employees of exceptional ability.

Administration. The Stock Option plan may be administered by the Board, or
in the Board's sole discretion by the Compensation Committee of the Board (the
"Committee", and with the Board "the Administrator") or such other committee as
may be specified by the Board to perform the functions and duties of the
Committee under the Stock Option Plan. Subject to the provisions of the Stock
Option Plan, the Administrator shall determine, from those eligible to be
Participants, the persons to be granted stock options, stock appreciation rights
and restricted stock, the amount of stock or rights to be optioned or granted to
each such person, and the terms and conditions of any stock option, stock
appreciation rights and restricted stock.

56
<PAGE> 59

Subject to the provisions of the Stock Option Plan, the Administrator is
authorized to interpret the Stock Option Plan, to make, amend and rescind rules
and regulations relating to the Stock Option Plan and to make all the
determinations necessary or advisable for the Stock Option Plan's
administration.

Participants. The Participants in the Stock Option Plan are those
employees, consultants and advisors of the Company who in the judgment of the
Administrator are or will become responsible for the direction and financial
success of the Company. Employees include officers and directors who are also
employees of the Company.

Shares to Subject to Plan. The maximum number of shares with respect to
which stock options or stock appreciation rights may be granted or which may be
awarded as restricted stock under the Stock Option Plan is 961,666 shares of
Common Stock. Shares covered by expired or terminated stock options or stock
appreciation rights or forfeited restricted stock awards will again become
available for grant or award under the Stock Option Plan. The number of shares
subject to each outstanding stock option, stock appreciation right or restricted
stock award, the option price with respect to outstanding stock options, the
grant value with respect to outstanding stock appreciation rights and the
aggregate number of shares remaining available under the Stock Option Plan will
be subject to such adjustment as the Administrator, in its discretion, deems
appropriate to reflect such events as stock dividends, stock splits,
recapitalizations, mergers, consolidations or reorganizations of or by the
Company.

Stock Options and Stock Appreciation Rights. Subject to the terms of the
Stock Option Plan, the Administrator may grant to Participants either Incentive
Options meeting the definition of an incentive stock option under Section 422 of
the Code or Nonqualified Options not meeting such definition, or any combination
thereof. The exercise price for an Incentive Option may not be less than 100% of
the fair market value of the stock on the date of grant; however, the exercise
price for an Incentive Option granted to an employee who owns more than 10% of
the voting stock of the Company or any subsidiary may not be less than 110% of
the fair market value of the stock on the date of grant.

Subject to the terms of the Stock Option Plan, the Administrator may grant
stock appreciation rights to Participants either in conjunction with, or
independently of, any stock options. Stock appreciation rights may be granted in
conjunction with stock options as an alternative right or as an additional
right. Upon exercise of a stock appreciation right, a Participant will generally
be entitled to receive an amount equal to the difference between the fair market
value of the shares at the time of grant and the fair market value of the shares
at the time of exercise. This amount may be payable in cash, shares of Common
Stock or a promissory note from the Participant, or any combination thereof, as
determined in the discretion of the Administrator.

The exercise period for stock options and stock appreciation rights will be
determined by the Administrator, but no stock option or stock appreciation right
may be exercisable prior to the expiration of six months from the date of grant
or after 10 years from the date of grant, subject to certain conditions and
limitations.

Incentive option and related stock appreciation rights are not transferable
by a Participant other than by will or by the laws of descent and distribution,
and incentive options and related stock appreciation rights are exercisable,
during the lifetime of the Participant, only by the Participant.

If the employment or consultancy of a Participant by the Company
terminates, the Administrator may, in its discretion, permit the exercise of
stock options and stock appreciation rights granted to such Participant (i) for
a period not to exceed three months following termination of employment with
respect to Incentive Options or related stock appreciation rights if termination
of employment is not due to death or permanent disability of the Participant,
(ii) for a period not to exceed one year following termination of employment
with respect to Incentive Options or related stock appreciation rights if
termination of employment is due to the death or permanent disability of the
Participant, and (iii) for a period not to extend beyond the expiration date
with respect to Nonqualified Options or related or independently granted stock
appreciation rights.

Restricted Stock Awards. Subject to the terms of the Stock Option Plan,
the Administrator may award shares of restricted stock to Participants. All
shares of restricted stock will be subject to the following terms and
conditions, among others: (i) at the time of each award of restricted shares, a
restricted period of no less than six months and no greater than five years,
will be established for the shares. The restricted period may

57
<PAGE> 60

differ among Participants and may have different expiration dates with respect
to portions of shares covered by the same award; (ii) shares of restricted stock
awarded to Participants may not be sold, assigned, transferred, pledged,
hypothecated or otherwise encumbered during the restricted period applicable to
such shares. Except for such restrictions on transfer, a Participant will have
all of the rights of a shareholder in respect of restricted shares awarded to
him or her including the right to receive any dividends on, and the right to
vote, the shares; and (iii) if a Participant ceases to be an employee or
consultant of the Company for any reason other than death or permanent
disability, all shares theretofore awarded to the Participant which are still
subject to the restrictions imposed by provision (ii) above will upon such
termination of employment or consultancy be forfeited and transferred back to
the Company. If such employment or consultancy is terminated by action of the
Company without cause or by agreement between the Company and the Participant,
the Administrator may, in its discretion, release some or all of the shares from
the restrictions; (iv) if a Participant ceases to be an employee or consultant
of the Company by reason of death or permanent disability, the restrictions will
lapse with respect to shares then subject to such restrictions, unless otherwise
determined by the Administrator.

Termination, Duration and Amendments of Plan. The Stock Option Plan may be
abandoned or terminated at any time by the Board. Unless sooner terminated, the
Stock Option Plan will terminate on the date ten years after its adoption by the
Board. The termination of the Stock Option Plan will not affect the validity of
any stock option, stock appreciation right or restricted stock outstanding on
the date of termination.

For the purpose of conforming to any changes in applicable law or
governmental regulation, or for any other lawful purpose, the Board will have
the right, with or without approval of the shareholders of the Company, to amend
or revise the terms of the Stock Option Plan at any time, however, no such
amendment or revision will, without the consent of the holder thereof, change
the stock option price (other than anti-dilution adjustments) or alter or impair
any stock option, stock appreciation right or restricted stock which has been
previously granted or awarded under the Stock Option Plan.

Federal Income Tax Consequences. The rules governing the tax treatment of
stock options, stock appreciation rights, restricted stock and shares acquired
upon the exercise of stock options and stock appreciation rights are technical.
Therefore, the description of federal income tax consequences set forth below is
necessarily general in nature and does not purport to be complete. Moreover,
statutory provisions are subject to change, as are their interpretations, and
their application may vary in individual circumstances. Finally, the tax
consequences under applicable state and local income tax laws may not be the
same as under the federal income tax laws.

Incentive Options. Incentive Options granted pursuant to the Plan are
intended to qualify as "Incentive Options" within the meaning of Section 422 of
the Code. If the Participant makes no disposition of the shares acquired
pursuant to exercise of an Incentive Option within one year after the transfer
of shares to such Participant and within two years from grant of the option,
such Participant will realize no taxable income as a result of the grant or
exercise of such option, and any gain or loss that is subsequently realized may
be treated as long-term capital gain or loss, as the case may be. Under these
circumstances, the Company will not be entitled to a deduction for federal
income tax purposes with respect to either the issuance of such Incentive
Options or the transfer of shares upon their exercise. However, the exercise of
an Incentive Option is an item of tax preference and a Participant may have
alternative minimum tax liability.

If shares acquired upon exercise of Incentive Options are disposed of prior
to the expiration of the above time periods, the Participant will recognize
ordinary income in the year in which the disqualifying disposition occurs, the
amount of which will generally be the lesser of (i) the excess of the market
value of the shares on the date of exercise over the option price, or (ii) the
gain recognized on such disposition. Such amount will ordinarily be deductible
by the Company for federal income tax purposes in the same year, provided that
the amount constitutes reasonable compensation. In addition, the excess, if any,
of the amount realized on a disqualifying disposition over the market value of
the shares on the date of exercise will be treated as capital gain.

Nonqualified Options. A Participant who acquires shares by exercise of a
Nonqualified Option generally realizes as taxable ordinary income, at the time
of exercise, the difference between the exercise price and the

58
<PAGE> 61

fair market value of the shares on the date of exercise. Such amount will
ordinarily be deductible by the Company in the same year, provided that the
amount constitutes reasonable compensation. Subsequent appreciation or decline
in the value of the shares on the sale or other disposition of the shares will
generally be treated as capital gain or loss.

Stock Appreciation Rights. A Participant generally will recognize income
upon the exercise of a stock appreciation right in an amount equal to the amount
of cash received and the fair market value of any shares received at the time of
exercise, plus the amount of any taxes withheld. Such amount will ordinarily be
deductible by the Company in the same year, provided that the amount constitutes
reasonable compensation.

Restricted Stock. A Participant granted shares of restricted stock under
the Plan is not required to include the value of such shares in ordinary income
until the first time such Participant's rights in the shares are transferable or
are not subject to substantial risk of forfeiture, whichever occurs earlier,
unless such Participant timely files an election under Section 83(b) of the Code
to be taxed on the receipt of the shares. In either case, the amount of such
income will be equal to the excess of the fair market value of the stock at the
time the income is recognized over the amount (if any) paid for the stock. The
Company will ordinarily be entitled to a deduction, in the amount of the
ordinary income recognized by the Participant, for the Company's taxable year in
which the Participant recognizes such income, provided that the amount
constitutes reasonable compensation.

Withholding Payments. If, upon exercise of a Nonqualified Option or stock
appreciation right, or upon the award of restricted stock or the expiration of
restrictions applicable to restricted stock, or upon a disqualifying disposition
of shares acquired upon exercise of an Incentive Option, the Company must pay
amounts for income tax withholding, then in the committee's sole discretion,
either the Company will appropriately reduce the amount of stock or cash to be
delivered or paid to the Participant or the Participant must pay such amount to
the Company to reimburse the Company for such payment. The Committee may permit
a Participant to satisfy such withholding obligations by electing to reduce the
number of shares of Common Stock delivered or deliverable to the Participant
upon exercise of a stock option or stock appreciation right or award restricted
stock or by electing to tender an appropriate number of shares of Common Stock
back to the Company subsequent to exercise of a stock option or stock
appreciation right or award of restricted stock (with such restrictions as the
Committee may adopt).

EMPLOYMENT AGREEMENTS

On December 31, 1992, the Company entered into an Employment Agreement with
Gary D. Kerber as President and Chief Executive Officer. The Employment
Agreement provides for a base salary of $160,000 per year as of March 21, 1992,
which salary is reviewed on an annual basis by the Board of Directors of the
Company prior to the end of each fiscal year. The Employment Agreement also
provides that Mr. Kerber will prepare, on an annual basis for each fiscal year,
an appropriate incentive compensation plan for himself and other executive
officers of the Company, which plan may be implemented only with the consent of
the Board of Directors of the Company. In reviewing such plans, the Compensation
Committee of the Board of Directors has considered the appropriateness of the
goals presented in light of the Company's past performance and prospects and the
reasonableness of the projected compensation in light of the Company's size and
potential income levels. The term of the Employment Agreement continues until
terminated by either Mr. Kerber or the Company, with or without cause; provided,
however, that if the Company terminates the Employment Agreement without cause,
the Company will be obligated to pay Mr. Kerber termination pay equal to the
greater of $160,000 or an amount based upon a specified fraction of Mr. Kerber's
most recent annual fiscal year base compensation (net of incentive or bonus
compensation), as determined under the Employment Agreement.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In July 1991, the Company entered into a Securities Purchase Agreement,
dated July 21, 1991, as amended (the "Securities Purchase Agreement"), among the
Company and the Pecks Managed Entities, pursuant to which the Delaware Plan, the
ICI Trust and the Zeneca Trust loaned $2,900,000, $603,000 and

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<PAGE> 62

$497,000, respectively, to the Company on a senior subordinated basis in
exchange for 13% Senior Subordinated Notes (the "Notes") originally due July 23,
1996 issued by the Company in the aggregate principal face amount of $4,000,000
and warrants (the "Warrants") to purchase an aggregate of 1,333,333 shares of
Common Stock at a purchase price equal to the lesser of (i) $3.00 per share or
(ii) 70% of the cash purchase price per share of Common Stock in an initial
public offering without regard to deductions for underwriting discounts and
commissions. In May 1996, the terms of the Warrants were amended to provide for
a cashless exercise based on the initial public offering price in the event of a
public offering of the Company's Common Stock. In return, the holders agreed to
exercise the Warrants simultaneously with the commencement of this Offering and
to terminate certain "put" provisions originally contained in the Warrants. The
modifications were approved by all of the members of the Company's Board of
Directors, with Mr. Cressi abstaining. Assuming completion of the Offering, the
Pecks Managed Entities beneficially own more than five percent of the issued and
outstanding Common Stock of the Company. In addition, Robert T. Cresci, who is a
director of the Company, is a managing director of Pecks, which serves as
investment advisor for each of the Pecks Managed Entities. In fiscal 1996, Mr.
Cresci served as a member of the Compensation Committee of the Board of
Directors of the Company. In connection with this Offering, the Pecks Managed
Entities will exercise, on a cashless basis, the Warrants to purchase 1,333,333
shares of Common Stock at $3.00 per share, which will result in the issuance of
1,000,000 shares of Common Stock in respect of such Warrants. In fiscal years
1994, 1995 and 1996, the Company incurred interest expense on the Notes to the
Delaware Plan in the amounts of $362,901, $253,610 and $364,941, respectively,
to the ICI Trust in the amounts of $75,458, $52,733 and $75,883, respectively,
and to the Zeneca Trust in the amounts of $62,194, $43,464 and $62,543,
respectively. At June 30, 1996, approximately $2.7 million of principal remained
outstanding on the Notes. Upon consummation of the Offering, the Company intends
to use $2.7 million of the proceeds of this Offering to repay the entire
outstanding amount of principal and accrued interest on the Notes. See "Use of
Proceeds."

In connection with the transactions contemplated by the Securities Purchase
Agreement, the Company, the Pecks Managed Entities, the Sprout Group, LTOS and
Gary D. Kerber entered into a Coinvestors Agreement (the "Coinvestors
Agreement"), dated July 23, 1991, pursuant to which the parties thereto agreed
to vote their respective shares of Common Stock of the Company for the election
to the Board of Directors of the Company of one person designated by the Pecks
Managed Entities, so long as the Pecks Managed Entities collectively hold or
beneficially own (i) $750,000 aggregate principal amount of Notes or (ii)
250,000 shares of Common Stock issued or issuable upon exercise of the Warrants.

In addition, pursuant to a Registration Rights Agreement, dated as of July
23, 1991, as amended (the "Registration Rights Agreement"), the Pecks Managed
Entities have been granted certain demand registration rights with respect to
shares of Common Stock issued or issuable to them upon exercise of the Warrants.
Pursuant thereto, upon request of Pecks Managed Entities holding at least 50%
(by voting power) of the Warrants (assuming conversion of the Warrants into
shares of Common Stock), the Company shall use its best efforts to effect the
registration under the Securities Act of Common Stock at such holders' request.
The Company is only required to undertake two such registrations. In the event
of a registration initiated by the Company or by any other stockholder of the
Company holding registration rights, the Company has granted certain
"piggy-back" registration rights to the Pecks Managed Entities and must notify
the Pecks Managed Entities of such registration and permit the inclusion of any
of the Pecks Managed Entities' Common Stock in any such registration if so
requested. The number of shares of Common Stock held by the Pecks Managed
Entities that must be included in a registration will be determined by the
managing underwriter selected by the Company, and Pecks Managed Entities'
participation will be subject to a priority cut-back as provided for in the
Registration Rights Agreement. The Company has agreed to pay all expenses in
connection with such registrations. The Company has been advised that Pecks
Managed Entities have waived their registration rights with regard to the
Offering.

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<PAGE> 63

CERTAIN TRANSACTIONS

For information regarding transactions among the Company, the Pecks Managed
Entities and Robert T. Cresci, who is a director of the Company, see "Management
- -- Compensation Committee Interlocks and Insider Participation."

In March 1995, the Company entered into a Loan Agreement with Sirrom
Capital Corporation ("Sirrom"), pursuant to which Sirrom loaned $2,200,000 to
the Company, less expenses of the transaction and a processing fee of $44,000.
Upon completion of the Offering, Sirrom will own less than one percent of the
Company's outstanding Common Stock. The loan is evidenced by a secured
promissory note (the "Secured Note") which matures on March 31, 2000, bears
interest at a rate of 14.0% per annum on the unpaid principal amount, and is
secured by a blanket security interest in the Company's assets. In fiscal 1996,
the Company incurred interest expense on the Secured Note of approximately
$309,771. The Secured Note is expected to be paid with a portion of the net
proceeds of the Offering. See "Use of Proceeds."

In connection with the issuance of the Secured Note, the Company issued
warrants (the "Sirrom Warrants") to Sirrom to acquire up to 141,667 shares of
Common Stock, for a purchase price of $.006 per share. If the Secured Note is
not repaid before March 30, 1999, or March 31, 2000, the number of shares
purchasable under the Sirrom Warrants will be increased to 225,000 and 308,333
shares of Common Stock, respectively. The Sirrom Warrants expire on April 30,
2000. In connection with this Offering, the Sirrom Warrants will be exercised
for 141,667 shares of Common Stock. Pursuant to the Loan Agreement, Sirrom was
also made a party to the Registration Rights Agreement, and was granted rights
pari passu with the Pecks Managed Entities for purposes of determining its
registration rights under such Registration Rights Agreement. The Company has
been advised that Sirrom has waived its registration rights with regard to the
Offering.

In July 1993, the Company acquired the Ohio Institute of Photography and
Technology, which was previously partially-owned by K. Terry Guthrie, who is an
executive officer of the Company. The purchase price for the school was
$1,236,000, including amounts paid for covenants not to compete and real estate.
Mr. Guthrie received cash of $132,127. In addition, Mr. Guthrie and the Company
entered into a three year consulting agreement pursuant to which Mr. Guthrie
receives a consulting fee of $23,807 per year. Mr. Guthrie also entered into a
noncompetition agreement pursuant to which Mr. Guthrie receives $35,000 per year
for a five year term. Pursuant to the consulting agreement and the
noncompetition agreement, the Company paid Mr. Guthrie $29,403, $58,806 and
$58,806 in fiscal years 1994, 1995 and 1996, respectively.

In September 1991, the Company made a loan to Vince Pisano and Mr. Pisano's
wife, Gail Pisano, in the amount of $75,000 pursuant to an Employee Loan
Agreement, as amended. The loan does not bear interest and must be repaid upon
the earlier to occur of (a) December 31, 1996, (b) the tenth business day
following the date Mr. Pisano's employment with the Company is terminated,
provided Mr. Pisano terminates such employment, (c) 180 days following the date
Mr. Pisano's employment with the Company is terminated, provided the Company
terminates such employment or (d) upon the sale of certain property owned by Mr.
Pisano, which secures the loan. The loan is secured by certain real property
owned by Mr. Pisano and Gail Pisano. If the loan is paid at or prior to its
stated maturity, $10,000 of the loan will be cancelled. Mr. Pisano is a Vice
President and Chief Financial Officer of the Company. The Company and Mr. Pisano
have entered into an agreement that will permit Mr. Pisano to repay the loan on
its maturity date with Common Stock of the Company owned by Mr. Pisano which
will be valued at its fair market value on the date of repayment.

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<PAGE> 64

PRINCIPAL AND SELLING STOCKHOLDERS

The following tables sets forth, as of September 1, 1996, certain
information regarding beneficial ownership of the shares of Common Stock of the
Company (assuming consummation of the Offering Transactions) and as adjusted to
reflect the sale of the Shares offered hereby, (i) by each person who is known
by the Company to own beneficially more than 5% of the shares of Common Stock
(including the Selling Stockholders), (ii) by each of the Company's directors,
(iii) by each of the executive officers of the Company named in the table
contained in "Executive Compensation" above, (iv) by all executive officers and
directors, as a group and (v) by each of the Selling Stockholders:

<TABLE>
<CAPTION>
SHARES TO BE OWNED
AFTER THE OFFERING
NUMBER OF ASSUMING EXERCISE
SHARES TO BE OF THE
SHARES OWNED SOLD PURSUANT OVER-ALLOTMENT
PRIOR TO OFFERING NUMBER OF TO THE OPTION
------------------- SHARES TO BE OVER-ALLOTMENT -------------------
NAME(1) NUMBER PERCENT SOLD IN OFFERING OPTION NUMBER PERCENT
- --------------------------------------- --------- ------- ---------------- -------------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Sprout Capital V(2)(3)(17)............. 977,215 21.7% -- 108,499 868,716 13.0%
Sprout Technology Fund(2)(3)(17)....... 21,126 * -- 2,346 18,780 *
DLJ Venture Capital Fund II,
L.P.(2)(3)(17)....................... 58,336 1.3 -- 6,477 51,859 *
Lawrence, Tyrrell, Ortale &
Smith(3)(4)(16)...................... 1,057,200 23.5 -- 117,379 939,821 14.0
Delaware State Employees' Retirement
Fund(3)(5)(6)........................ 725,000 16.1 -- 80,495 644,505 9.6
Declaration of Trust for Defined
Benefit Plans of ICI American Holding
Inc.(3)(5)(6)........................ 150,750 3.4 -- 16,737 134,013 2.0
Declaration of Trust for Defined
Benefit Plans of Zeneca Holding
Inc.(3)(5)(6)........................ 124,250 2.8 -- 13,795 110,455 1.6
Pecks Management Partners Ltd.(5)(6)... 1,000,000 22.2 -- 111,027 888,973 13.3
Sirrom Capital Corporation(7).......... 141,667 3.2 83,674 -- 57,993 *
Gary D. Kerber(3)(8)................... 349,845 7.7 -- 38,843 311,002 4.6
Vince Pisano(9)........................ 184,001 4.1 -- 20,429 163,572 2.4
Gerry M. Taylor(10).................... 35,416 * -- -- 35,416 *
Ellen L. Bernhardt(11)................. 25,000 * -- -- 25,000 *
Elaine Neely-Eacona(12)................ 12,500 * -- -- 12,500 *
K. Terry Guthrie....................... -- -- -- -- -- --
A. William Benham, Jr.(13)............. 4,166 * -- -- 4,166 *
Robert T. Cresci(6)(14)................ -- -- -- -- 25,000(15) *
Carl S. Hutman......................... 135 * -- -- 25,135(15) *
W. Patrick Ortale, III(16)............. -- -- -- -- 25,000(15) *
Richard E. Kroon(17)................... -- -- -- -- 25,000(15) *
Investech Distributees(18)............. 704,873 15.7 416,326 288,547 4.3
All directors and executive officers as
a group (11 persons)................. 611,063 13.2% -- 59,272 651,791 9.4%
</TABLE>

- ---------------

* Less than one percent.

(1) Unless otherwise noted, the Company believes that all persons and entities
named in the table have sole voting and investment power over the shares of
Common Stock listed opposite his, her or its name.
(2) The address of such entity is 277 Park Avenue, 21st Floor, New York, New
York 10172.
(3) Pursuant to a Coinvestors Agreement, such entity has agreed to vote its
shares of Common Stock along with the other parties to such agreement for
the election of one director jointly designated by the Pecks Managed
Entities.
(4) The address of such entity is 3100 West End Avenue, Suite 400, Nashville,
Tennessee 37203.
(5) The address of such entity is c/o Pecks Management Partners Ltd., 1
Rockefeller Plaza, New York, New York 10020.
(6) Pecks Management Partners Ltd. ("Pecks") is an investment advisor to
Delaware State Employees' Retirement Fund, Declaration of Trust for Defined
Benefit Plans of ICI American Holding Inc. and Declaration of Trust for
Defined Benefit Plans of Zeneca Holding Inc. As such, Pecks has sole

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investment and voting power with respect to the shares beneficially owned
by such entities. Mr. Cresci, a director of the Company, is a managing
partner of Pecks. Pecks disclaims beneficial ownership of such shares.
(7) The address of such entity is 511 Union Street, Nashville, Tennessee 37219.
(8) Includes 41,666 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days from the date of
this table.
(9) Includes 25,000 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days from the date of
this table.
(10) Includes 33,333 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days from the date of
this table.
(11) Includes 25,000 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days from the date of
this table.
(12) Includes 12,500 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days from the date of
this table.
(13) Includes 4,166 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days from the date of
this table.

(14) Excludes 1,000,000 shares of Common Stock held by pension trusts and a
pension fund which are managed by Pecks and for which Mr. Cresci disclaims
any beneficial ownership.

(15) Includes 25,000 shares of Common Stock which may be purchased upon the
exercise of options which have been granted contingent upon completion of
this Offering and are exerciseable within 60 days from the date of
completion of this Offering.
(16) Mr. Ortale is a general partner of Lawrence Venture Partners, the general
partner of Lawrence, Tyrrell, Ortale & Smith ("LTOS"). Excludes 1,057,200
shares of Common Stock beneficially owned by LTOS and for which Mr. Ortale
disclaims any beneficial ownership.
(17) Mr. Kroon is the general partner of the general partner of Sprout Capital
V, Sprout Technology Fund, and DLJ Venture Capital Fund II, L.P. Excludes
1,056,677 shares of Common Stock owned, in the aggregate, by such entities.
Mr. Kroon disclaims any beneficial ownership.

(18) Eighty-four individuals and entities who received shares of Common Stock
and convertible preferred stock upon the winding-up of Investech, L.P., one
of the original investors in the Company, of which 48, holding an aggregate
of 435,530 shares of Common Stock, are participating on a pro-rata basis in
the Offering.

Assuming the Over-allotment Option is exercised in full, the Over-allotment
Selling Stockholders, consisting of the Pecks Managed Entities, LTOS, the Sprout
Group, Gary D. Kerber and Vince Pisano, will sell an aggregate of 405,000 shares
of Common Stock in the Offering. Mr. Robert T. Cresci, a director of the
Company, is a principal of Pecks, an investment management firm which exercises
voting and investment control over the shares of Common Stock owned by the Pecks
Managed Entities. Mr. W. Patrick Ortale and Mr. Richard E. Kroon, both of whom
are directors of the Company, are principals of LTOS and the Sprout Group,
respectively. Mr. Kerber is a director and an executive officer of the Company
and Mr. Pisano is an executive officer of the Company. The beneficial ownership
of each of the Over-allotment Selling Stockholders assuming the exercise of the
Over-allotment Option is set forth on the Principal and Selling Stockholders
Table under the heading "Shares to be Owned After the Offering Assuming Exercise
of the Over-allotment Option."

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<PAGE> 66

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 15 million shares
of Common Stock, par value $.01 per share, and five million shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). As of the date of this
Prospectus and after giving effect to the Offering Transactions, there are 103
holders of record of the Common Stock, no holders of record of the Preferred
Stock and two holders of warrants to purchase Common Stock. Upon consummation of
the Offering, there will be 6,694,411 shares of Common Stock outstanding and no
shares of Preferred Stock outstanding.

The following summary description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by this reference to the
Company's Certificate of Incorporation and By-laws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.

COMMON STOCK

The holders of the Common Stock are entitled to one vote per share of
record on all matters to be voted upon by stockholders. At a meeting of
stockholders at which a quorum is present, a majority of the votes cast decides
all questions, unless the matter is one upon which a different vote is required
by express provision of law or the Company's Certificate of Incorporation or
Bylaws. There is no cumulative voting with respect to the election of directors
(or any other matter).

The holders of Common Stock have no preemptive rights and have no rights to
convert their Common Stock into any other securities. Subject to the rights of
holders of Preferred Stock, if any, in the event of a liquidation, dissolution
or winding up of the Company, holders of Common Stock are entitled to
participate equally, share for share, in all assets remaining after payment of
liabilities.

The holders of Common Stock are entitled to receive ratably such dividends
as the Board of Directors may declare out of funds legally available therefor,
when and if so declared. The payment by the Company of dividends, if any, rests
within the discretion of its Board of Directors and will depend upon the
Company's results of operations, financial condition and capital expenditure
plans, as well as other factors considered relevant by the Board of Directors.

PREFERRED STOCK

Upon completion of the Offering, no shares of Preferred Stock will be
outstanding. The Company's Certificate of Incorporation authorizes the Board of
Directors to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to establish such relative voting, dividend, redemption, liquidation,
conversion and other powers, preferences, rights, qualifications, limitations
and restrictions as the Board of Directors may determine without further
approval of the stockholders of the Company. The issuance of Preferred Stock by
the Board of Directors could, among other things, adversely affect the voting
power of the holders of Common Stock and, under certain circumstances, make it
more difficult for a person or group to gain control of the Company.

The issuance of any series of Preferred Stock, and the relative powers,
preferences, rights, qualifications, limitations and restrictions of such
series, if and when established, will depend upon, among other things, the
future capital needs of the Company, the then-existing market conditions and
other factors that, in the judgment of the Board of Directors, might warrant the
issuance of Preferred Stock. At the date of this Prospectus, there are no plans,
agreements or understandings relative to the issuance of any share of Preferred
Stock.

WARRANTS TO PURCHASE COMMON STOCK

In July 1991, the Company issued a warrant (the "Equitable Warrant") to
purchase 26,667 shares of Common Stock to Equitable Securities Corporation
("Equitable"). The Equitable Warrant has an exercise price of $3.60 per share
and expires on July 31, 1999. The Company issued the warrant to Equitable in

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<PAGE> 67

connection with assistance provided by Equitable to the Company in issuing
certain convertible preferred stock by the Company.

In November 1988, the Company granted an option to Robert L. Heidrick to
purchase 16,667 shares of Common Stock at a purchase price equal to the offering
price of the Company's Common Stock in an initial public offering. The option
becomes exercisable upon the effective date of an initial public offering of the
Company's Common Stock and expires on the tenth anniversary of such date. This
option was granted to Mr. Heidrick as partial compensation for certain executive
search services provided by Mr. Heidrick to the Company.

REGISTRATION RIGHTS

Following consummation of the Offering, 3,994,411 shares of Common Stock
will be "restricted" securities within the meaning of the Securities Act, and
may not be sold in the absence of registration under the Securities Act, or an
exemption therefrom, including the exemptions combined in Rule 144 under the
Securities Act. Pursuant to the Registration Rights Agreement, the Company has
granted the Sprout Group, LTOS, the Pecks Managed Entities and Sirrom demand
registration rights covering up to 3,240,286 shares of Common Stock and covering
up to a maximum of four demand registrations. In addition, such parties have
been granted "piggy-back" registration rights, pursuant to which the Company
must notify such parties of any registration of Common Stock under the
Securities Act, and must include shares of Common Stock held by such parties in
such registration. In addition, upon qualification for registration under the
Securities Act on Form S-2 and/or S-3, such parties have demand registration
rights; provided, that the amount of Common Stock proposed to be registered
pursuant to a demand registration must have an aggregate offering price of at
least $500,000. The Company has agreed to pay all expenses in connection with
the demand and "piggy-back" registrations described above. See "Certain
Transactions," and "Risk Factors-Shares Eligible for Future Sale."

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

Certain provisions of the General Corporation Law of the State of Delaware
and of the Company's Certificate of Incorporation and By-laws, summarized in the
following paragraphs, may be considered to have an anti-takeover effect and may
delay, deter or prevent a tender offer, proxy contest or other takeover attempt
that a stockholder might consider to be in such stockholder's best interest,
including such an attempt as might result in payment of a premium over the
market price for shares held by stockholders.

DELAWARE ANTI-TAKEOVER LAW

The Company, a Delaware corporation, is subject to the provisions of the
General Corporation Law of the State of Delaware, including Section 203 thereof.
In general, Section 203 prohibits a public Delaware corporation from engaging in
a "business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which such person became an
interested stockholder unless (i) prior to such date, the Board of Directors
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, or (ii) upon becoming an
interested stockholder the stockholder then owned at least 85% of the voting
stock, as defined in Section 203; or (iii) subsequent to such date, the business
combination is approved by both the Board of Directors and by at least 66 2/3%
of the corporation's outstanding voting stock, excluding shares owned by the
interested stockholder. For these purposes, the term "business combination"
includes mergers, asset sales and other similar transactions with an "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or, within the prior three years, did own) 15%
or more of the corporation's voting stock. Although Section 203 permits a
corporation to elect not to be governed by its provisions, the Company to date
has not made this election.

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SPECIAL MEETINGS OF STOCKHOLDERS; NO ACTION WITHOUT MEETING

The Company's Bylaws provide that special meetings of stockholders may be
called only by the Chairman or by the Secretary or any Assistant Secretary at
the request in writing of a majority of the Board of Directors of the Company.
The Company's Certificate of Incorporation and Bylaws also provide that no
action required to be taken or that may be taken at any annual or special
meeting of stockholders may be taken without a meeting; the power of
stockholders to consent in writing, without a meeting, to the taking of any
action is specifically denied. These provisions may make it more difficult for
stockholders to take action opposed by the Board of Directors.

ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDERS PROPOSALS AND DIRECTOR NOMINATIONS

The Company's Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or a special meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive office of the
Company, (i) in the case of an annual meeting that is called for a date that is
within 30 days before or after the anniversary date of the immediately preceding
annual meeting of stockholders, not less than 60 days nor more than 90 days
prior to such anniversary date, and (ii) in the case of an annual meeting that
is called for a date that is not within 30 days before or after the anniversary
date of the immediately preceding annual meeting, or in the case of a special
meeting of stockholders called for the purpose of electing directors, not later
than the close of business on the tenth day following the day on which notice of
the date of the meeting was mailed or public disclosure of the date of the
meeting was made, whichever occurs first. The Bylaws also specify certain
requirements for a stockholder's notice to be in proper written form. These
provisions may preclude some stockholders from making nominations for directors
at an annual or special meeting or from bringing other matters before the
stockholders at a meeting.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is First Union
National Bank of North Carolina, N.A.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
6,694,411 shares of Common Stock. The Company has reserved an additional (i)
961,666 shares of Common Stock for issuance pursuant to the Stock Option Plan,
which shares will be registered under the Securities Act, (ii) 200,000 shares of
Common Stock for issuance pursuant to the Directors' Plan, which shares will be
registered under the Securities Act, and (iii) 43,334 shares of Common Stock
which may be purchased upon exercise of outstanding warrants to purchase Common
Stock. Any shares issued pursuant to the Stock Option Plan or the Director's
Plan will be freely transferable upon issuance without registration under the
Securities Act, subject to volume limitations contained in Rule 144 under the
Securities Act applicable to affiliates, as that term is defined in the
Securities Act. Of such outstanding shares, the 2,700,000 shares (3,105,000
shares if the over-allotment option is exercised in full) to be sold in the
Offering will be freely transferable without restriction under the Securities
Act by person other than "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act. The remaining 3,994,411 shares of Common
Stock (the "Restricted Shares") were acquired in transactions exempt from
registration under the Securities Act and, accordingly, are "restricted
securities" as that term is defined in Rule 144. Restricted Shares may not be
resold unless they are registered under the Securities Act or are sold pursuant
to an applicable exemption from such registration, such as is contained in Rule
144.

In general, Rule 144 currently provides that a person (or persons whose
shares are aggregated) who satisfies a two-year holding period with respect to
"restricted securities" will be entitled to sell, in brokers' transactions and
within any three-month period, a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock or (ii) the
average weekly trading volume in Common Stock

66
<PAGE> 69

during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to manner of sale and notice requirements and the availability of
current public information about the Company. After "restricted securities" that
are held by persons who are no longer "affiliates" of the Company have satisfied
a three-year holding period, such shares may be sold without regard to such
volume limitation, current public information, manner of sale or notice
requirements. However, under Rule 144, "restricted securities" held by
"affiliates" must continue, after the three-year holding period, to be sold in
brokers' transactions or to market makers subject to the volume limitations
described above. The requirements described above (except the holding period
requirements) also apply to non-restricted securities of the Company held by
affiliates of the Company. Such shares are required, under Rule 144, to be sold
in brokers' transactions subject to the volume limitations described above.
Shares properly sold in reliance upon Rule 144 to persons who are not
"affiliates" are thereafter freely tradeable without restrictions or
registration requirements under the Securities Act. The foregoing discussion is
only a summary of Rule 144 and is not intended to be a complete description of
the rule.

The Company, its officers and Directors, the Selling Stockholders and
certain other stockholders and warrantholders, holding in the aggregate
substantially all of the Company's currently outstanding equity securities, have
agreed not to sell, assign or transfer any of their shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior consent
of Smith Barney Inc. After expiration of this 180 day period, 3,994,411 shares
of Common Stock will be immediately eligible for sale under Rule 144, subject to
the volume and manner of sale restrictions imposed by that Rule. The Company is
unable to predict the effect that sales of Common stock may have on the then
prevailing market price of the shares of the Common Stock, but such sales may
have a substantial depressing effect on such market price.

The Company intends to file registration statements under the Securities
Act to register for offer and sale Common Stock reserved for issuance pursuant
to the award of restricted stock or the exercise of stock options granted under
the Company's Stock Option Plan and Directors' Plan. See
"Management -- Compensation of Board of Directors" and "-- Stock Option Plan."

67
<PAGE> 70

UNDERWRITING

Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Stockholders have agreed to
sell to such Underwriter, shares of Common Stock which equal the number of
shares set forth opposite the name of such Underwriter below.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------- ---------
<S> <C>
Smith Barney Inc...................................................
Montgomery Securities..............................................

---------
TOTAL......................................................... 2,700,000
========
</TABLE>

The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.

The Underwriters for whom Smith Barney Inc., and Montgomery Securities are
acting as Representatives, propose initially to offer part of the shares of
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering
price. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to other Underwriters or to certain other
dealers. After the initial public offering, the public offering price and such
concessions may be changed by the Underwriters. The Representatives have
informed the Company that the Underwriters do not intend to confirm sales to
accounts over which they exercise discretionary authority.

The Over-allotment Selling Stockholders have granted to the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase up
to an aggregate of 405,000 additional shares of Common Stock at the public
offering price set forth on the cover page hereof less underwriting discounts
and commissions. Each of the respective Over-allotment Selling Shareholders
participating in the Over-allotment Option will participate on a pro rata basis
according to the number of shares held by each such Selling Shareholder as
compared to the aggregate number of shares of Common Stock held by all such
Over-allotment Selling Shareholders prior to the exercise of the Over-allotment
Option. The Underwriters may exercise such option to purchase additional shares
solely for the purpose of covering over-allotments, if any, incurred in
connection with the sale of the shares offered hereby. To the extent such option
is exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriter's name in the preceding
table bears to the total number of shares in such table.

The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.

The Company, its officers and Directors, the Selling Stockholders and
certain other stockholders and warrantholders, holding in the aggregate
substantially all of the Company's currently outstanding equity securities, have
agreed that for a period of 180 days after the date of this Prospectus, they
will not, without the prior written consent of Smith Barney Inc., offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for Common Stock.

Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives of
the Underwriters. Among the factors considered in determining the initial public
offering price were the history of, and the prospects for, the Company's
business and the industry in which it competes, an assessment of the Company's
management, its past and present operations, its past and present earnings and
the trend of such earnings, the prospects for earnings of the Company, the
present state of the Company's development, the general condition of the
securities market at the time of the offering and the market prices and earnings
of similar securities of comparable companies at the time of the offering.

68
<PAGE> 71

LEGAL MATTERS

The validity of the Common Stock being offered hereby will be passed upon
for the Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.,
West Palm Beach, Florida, and for the Underwriters by Dewey Ballantine, New
York, New York.

EXPERTS

The consolidated financial statements and schedule of Educational Medical,
Inc. at March 31, 1995 and 1996 and for each of the three years in the period
ended March 31, 1996 appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon also appearing elsewhere herein and the Registration
Statement and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.

The combined financial statements of the San Antonio College of Medical and
Dental Assistants, Inc. and Career Centers of Texas -- El Paso, Inc. at December
31, 1995 and for the year then ended appearing in this Prospectus and
Registration Statement have been audited by Tsakopulos Brown Schott & Anchors,
independent auditors, as set forth in their report thereon also appearing
elsewhere herein and in the Registration Statement and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), in Washington, D.C., a Registration Statement on Form S-1,
together with all amendments and exhibits thereto (the "Registration Statement")
under the Securities Act, with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the Rules and
Regulations of the Commission. Statements made in the Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete; with respect to each such contract, agreement or other
document files as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirely by such reference. The
Registration Statement, including exhibits and schedules filed therewith, may be
inspected and copies at the public reference facilities maintained by the
Commission at 450 Fifth Street, Suite 1400, Chicago, Illinois 60661; and 7 World
Trade Center (13th Floor), New York, New York 10048. Copies of such material may
be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W. Room 1024, Washington, D.C. 20549. The
Commission also maintains a Web site at http://www.sec.gov which contains
reports, proxy statements and other information regarding registrants that file
electronically with the Commission.

The Company is not currently subject to the information requirements of the
Security Exchange Act of 1934, as amended (the "Exchange Act"). As a result of
the Offering, the Company will become subject to the informational requirements
of the Exchange Act. The Company will fulfill its obligations with respect to
the requirements of the Exchange Act by filing periodic reports and other
information with the Commission.

69
<PAGE> 72

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
Report of Independent Auditors........................................................ F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1995 and 1996 and June 30, 1996
(unaudited) and June 30, 1996 Pro Forma (unaudited)................................. F-3
Consolidated Statements of Operations for the years ended March 31, 1994, 1995 and
1996 and the three month period ended June 30, 1995 (unaudited) and June 30, 1996
(unaudited)......................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1994,
1995, 1996 and the three month period ended June 30, 1996 (unaudited)............... F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1994, 1995, 1996
and the three month period ended June 30, 1995 (unaudited) and June 30, 1996
(unaudited)......................................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC. AND CAREER CENTERS OF
TEXAS -- EL PASO, INC.
Independent Auditors' Report.......................................................... F-19
Combined Financial Statements:
Combined Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
(unaudited)......................................................................... F-20
Combined Statement of Operations for the year ended December 31, 1995................. F-21
Combined Statements of Operations for the year ended December 31, 1994 and the six
month periods ended June 30, 1995 (unaudited) and June 30, 1996 (unaudited)......... F-22
Combined Statement of Retained Earnings for the years ended December 31, 1994 and 1995
and for the six month period ended June 30, 1996 (unaudited)........................ F-23
Combined Statements of Cash Flows for the years ended December 31, 1994 and 1995...... F-24
Combined Statements of Cash Flows for the six month period ended June 30, 1995
(unaudited) and June 30, 1996 (unaudited)........................................... F-25
Notes to Combined Financial Statements................................................ F-26
</TABLE>

F-1
<PAGE> 73

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Educational Medical, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Educational
Medical, Inc. and subsidiaries as of March 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Educational
Medical, Inc. and subsidiaries at March 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles.

/s/ Ernst & Young LLP
--------------------------------------

Atlanta, Georgia
May 24, 1996, except as to the first
paragraph in Note 7 as to which
the date is June 20, 1996.

F-2
<PAGE> 74

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
------------------------- -------------------------
1995 1996 1996 PRO FORMA
----------- ----------- ----------- 1996
(unaudited) -----------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 2,479,676 $ 3,033,383 $ 2,027,990 $ 2,028,840
Restricted cash..................................... 375,000 610,000 617,428 617,428
Trade accounts receivable, less allowance for
doubtful accounts of $820,733, $784,381, $773,750
and $773,750, respectively........................ 3,431,444 3,051,266 2,962,930 2,962,930
Prepaid expenses.................................... 864,727 941,327 997,333 997,333
----------- ----------- ----------- -----------
Total current assets......................... 7,150,847 7,635,976 6,605,681 6,606,531
Property and equipment, net........................... 4,195,592 4,384,081 4,348,380 4,348,380
Deferred debt issuance costs, net of accumulated
amortization of $254,401, $286,402, $305,592 and
$305,592, respectively.............................. 151,330 96,109 76,918 76,918
Covenants not to compete, net of accumulated
amortization of $627,829, $958,780, $963,727 and
$963,727, respectively.............................. 1,249,396 918,445 913,497 913,497
Goodwill and other intangible assets, net of
accumulated amortization of $5,213,539, $6,432,863,
$6,584,660 and $6,584,660, respectively............. 6,319,092 5,096,410 4,944,613 4,944,613
Other assets.......................................... 186,290 229,210 229,213 229,213
----------- ----------- ----------- -----------
Total assets................................. $19,252,547 $18,360,231 $17,118,302 $17,119,152
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 1,224,068 $ 213,018 $ 230,571 $ 230,571
Accrued compensation................................ 381,963 1,152,547 591,211 591,211
Accrued income taxes................................ 11,445 232,252 85,182 85,182
Accrued expenses.................................... 1,013,634 881,486 655,427 655,427
Deferred tuition income............................. 2,017,370 2,277,919 2,141,247 2,141,247
Current portion of long-term debt................... 1,494,653 1,080,085 1,059,277 1,059,277
----------- ----------- ----------- -----------
Total current liabilities.................... 6,143,133 5,837,307 4,762,915 4,762,915
Long-term debt, less current portion.................. 7,030,413 6,059,858 5,678,640 5,678,640
Other liabilities..................................... 628,864 933,505 1,081,675 1,081,675
----------- ----------- ----------- -----------
Total liabilities............................ 13,802,410 12,830,670 11,523,230 11,523,230
Stockholders' equity:
Preferred stock, $.01 par value -- authorized
5,000,000 shares pro forma; none issued and
outstanding....................................... -- -- -- --
Convertible preferred stock, $.01 par
value -- authorized 1,100,000 shares; 1,023,049
shares issued and outstanding (historical), none
in pro forma (liquidation preference of $6.66 per
share)............................................ 10,230 10,230 10,230 --
Additional paid-in capital on convertible preferred
stock............................................. 6,732,160 6,732,160 6,732,160 --
Common stock, $.01 par value -- authorized 5,833,333
shares (historical), 15,000,000 shares (pro
forma); 1,676,827 shares issued and outstanding
(historical), 4,523,576 shares (pro forma)........ 16,768 16,768 16,768 45,235
Additional paid-in capital on common stock.......... 35 35 35 9,654,542
Common stock purchase warrants...................... 2,431,802 2,838,148 2,939,734 --
Accumulated deficit................................. (3,705,858) (4,032,780) (4,068,855) (4,068,855)
Less treasury stock, at cost (29,165 common
shares)........................................... (35,000) (35,000) (35,000) (35,000)
----------- ----------- ----------- -----------
Total stockholders' equity................... 5,450,137 5,529,561 5,595,072 5,595,922
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity... $19,252,547 $18,360,231 $17,118,302 $17,119,152
============ ============ ============ ============
</TABLE>

See accompanying notes.

F-3
<PAGE> 75

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes.

F-4
<PAGE> 76

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL ADDITIONAL
PAID-IN PAID-IN COMMON
CONVERTIBLE CAPITAL ON CAPITAL ON STOCK
PREFERRED PREFERRED COMMON COMMON PURCHASE ACCUMULATED TREASURY
STOCK STOCK STOCK STOCK WARRANTS DEFICIT STOCK TOTAL
----------- ---------- ------- ---------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993... $10,230 $6,732,075 $16,768 $ -- $1,441,124 $ (93,649) $(35,000) $8,071,548
Accretion of value of
common stock purchase
warrants................ -- -- -- -- 283,276 (283,276) -- --
Conversion of common stock
purchase warrants....... -- 85 -- 35 -- -- -- 120
Net loss.................. -- -- -- -- -- (1,561,305) -- (1,561,305)
------- ---------- ------- --- ---------- ----------- -------- ----------
Balance at March 31, 1994... 10,230 6,732,160 16,768 35 1,724,400 (1,938,230) (35,000) 6,510,363
Accretion of value of
common stock purchase
warrants................ -- -- -- -- 339,252 (339,252) -- --
Issuance of common stock
purchase warrants....... -- -- -- -- 368,150 -- -- 368,150
Net loss.................. -- -- -- -- -- (1,428,376) -- (1,428,376)
------- ---------- ------- --- ---------- ----------- -------- ----------
Balance at March 31, 1995... 10,230 6,732,160 16,768 35 2,431,802 (3,705,858) (35,000) 5,450,137
Accretion of value of
common stock purchase
warrants................ -- -- -- -- 406,346 (406,346) -- --
Net income................ -- -- -- -- -- 79,424 -- 79,424
------- ---------- ------- --- ---------- ----------- -------- ----------
Balance at March 31, 1996... 10,230 6,732,160 16,768 35 2,838,148 (4,032,780) (35,000) 5,529,561
Accretion of value of
common stock purchase
warrants (unaudited).... -- -- -- -- 101,586 (101,586) -- --
Net income (unaudited).... -- -- -- -- -- 65,511 -- 65,511
------- ---------- ------- --- ---------- ----------- -------- ----------
Balance at June 30, 1996
(unaudited)............... $10,230 $6,732,160 $16,768 $ 35 $2,939,734 $(4,068,855) $(35,000) $5,595,072
======= ========== ======= === ========== =========== ======== ==========
</TABLE>

See accompanying notes.

F-5
<PAGE> 77

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, THREE MONTHS ENDED JUNE
--------------------------------------- 30,
1994 1995 1996 -------------------------
----------- ----------- ----------- 1995 1996
----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................... $(1,561,305) $(1,428,376) $ 79,424 $ (62,119) $ 65,511
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation............................ 649,171 724,880 943,634 210,590 269,717
Amortization of other assets............ 1,255,106 1,284,043 931,076 244,208 175,936
Loss on closure or relocation of
school................................ 1,125,518 -- 50,000 -- (35,187)
Impairment of goodwill and
intangibles........................... -- 176,042 764,000 -- --
Provision for losses on accounts
receivable............................ 1,144,361 1,238,287 1,082,408 285,849 217,158
Deferred income taxes................... 177,548 -- -- -- --
Amortization of discount on long-term
debt.................................. 212,445 212,445 123,567 54,129 30,877
Changes in operating assets and
liabilities, net of assets acquired
and liabilities assumed:
Restricted cash....................... -- (375,000) (235,000) 5,258 (7,428)
Accounts receivable................... (2,520,951) (1,697,456) (702,230) 568,154 (128,822)
Prepaid expenses...................... (141,327) (188,063) (76,600) (22,444) (56,006)
Other assets.......................... (79,332) (83,766) (42,920) (5) (3)
Accounts payable and accrued
expenses............................ 159,038 876,968 (422,614) (769,745) (734,655)
Deferred tuition income............... 202,707 (393,928) 260,549 (231,910) (136,672)
Accrued income taxes.................. (972,476) -- 220,807 47,403 (147,070)
Other liabilities..................... 255,528 165,212 304,641 (41,886) 148,170
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities........... (93,969) 511,288 3,280,742 287,482 (338,474)
INVESTING ACTIVITIES
Purchase of businesses, net of cash
acquired................................ (1,046,779) -- -- -- --
Purchases of property and equipment, net.. (678,125) (2,089,783) (785,193) (109,294) (234,016)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities..................... (1,724,904) (2,089,783) (785,193) (109,294) (234,016)
FINANCING ACTIVITIES
Issuance of common stock.................. 35 -- -- -- --
Issuance of convertible preferred stock... 85 -- -- -- --
Issuance of common stock purchase
warrants................................ -- 368,150 -- -- --
Proceeds from notes payable and long-term
debt.................................... 178,979 2,460,199 -- -- --
Principal payments on notes payable....... (1,684,228) (1,149,366) (1,355,620) (829,338) (332,903)
Principal payments on senior subordinated
debt.................................... (401,588) (300,000) (500,000) (200,000) (100,000)
Decrease (increase) in deferred debt
issuance costs.......................... (62,128) (66,100) (86,222) (15,265) --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities........... (1,968,845) 1,312,883 (1,941,842) (1,044,603) (432,903)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents............................. (3,787,718) (265,612) 553,707 (866,415) (1,005,393)
Cash and cash equivalents at beginning of
period.................................. 6,533,006 2,745,288 2,479,676 2,479,676 3,033,383
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period.................................. $ 2,745,288 $ 2,479,676 $ 3,033,383 $ 1,613,261 $ 2,027,990
============ ============ ============ ============ ============
</TABLE>

See accompanying notes.

F-6
<PAGE> 78

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996

1. ORGANIZATION AND NATURE OF BUSINESS

Educational Medical, Inc. (the "Company") operates diversified
career-oriented postsecondary education schools. The Company offers diploma and,
in certain locations, degree programs through its fourteen schools located in
six states. The Company's fourteen schools offer programs designed to provide
enrolled students with the knowledge and skills necessary for entry level
employment in the fields of healthcare (twelve schools), business (five
schools), fashion and design (two schools), and photography (one school).

Approximately 57% of the Company's fiscal 1996 net revenues were derived
from its schools in California. Approximately 76% of the Company's cash receipts
were derived from Title IV programs as provided for by the Higher Education Act
of 1965, as amended. Cash receipts approximated 97% of the Company's net
revenues in fiscal 1996.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in accordance with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

CASH EQUIVALENTS

Cash equivalents includes overnight investments in a bank. These
investments are recorded at cost, which approximates market. The Company
considers investments with maturities of three months or less at the date of
purchase to be cash equivalents for purposes of the statements of cash flows.

RESTRICTED CASH

Restricted cash represents 25% of the Company's Title IV program refunds
made in the previous fiscal year, as required by such programs. See Note 3.

LONG-LIVED ASSETS

In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"), the Company records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.

Property and Equipment

Property and equipment are stated at cost. Depreciation, including that
related to assets under capital leases is computed using the straight-line
method over the estimated useful lives of the related assets or the remaining
lease term for leasehold improvements, if shorter.

F-7
<PAGE> 79

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Covenants Not to Compete

Non-compete agreements obtained from the sellers of certain acquired
schools are being amortized on the straight-line basis over the life of the
agreement, generally from two to 15 years.

Goodwill and Other Intangible Assets

Goodwill is amortized over a fifteen year period. Effective April 1, 1993,
the Company changed its estimate of the life of goodwill from 40 years to 15
years. The effect of the change was not material.

Other intangible assets, which are similar in character to goodwill
(acquired student contracts, program curriculum, favorable leases assumed,
accreditation and acquired tradenames) are being amortized using the
straight-line method over periods ranging generally from two to ten years.

During the fiscal year ended March 31, 1995, the Company wrote-off
approximately $176,000 of unamortized intangible assets, due to changes in
federal regulations regarding student referrals. During the fiscal year ended
March 31, 1996, the Company wrote-off approximately $764,000 of unamortized
goodwill related to one of its schools due to estimated impairment in value (see
Note 11).

LONG-TERM DEBT

Outstanding principal amounts are carried net of unamortized debt discount,
when applicable. The debt discount is being amortized over the period until
maturity of the underlying debt, using the straight-line method. Such
amortization is included in interest expense.

REVENUE RECOGNITION

Tuition revenue is recognized monthly on a straight-line basis over the
term of the course of study. Certain nonrefundable fees and charges are fully
recognized as revenue at the time a student begins classes.

The Company is generally required to refund a portion of a student's
unearned tuition who withdraws from a Company school. The amount of tuition, if
any, that may be retained by the Company after payment of any potential refund
is immediately recognized in the Company's statement of operations.

Deferred tuition income represents the portion of student tuitions received
in advance of the course of study's completion.

INCOME TAXES

The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

STATEMENTS OF CASH FLOWS

As discussed in Note 4, the Company has acquired certain assets and assumed
certain liabilities of various schools. In fiscal year 1994, the Company issued
$3,873,000 in notes payable and long-term debt in conjunction with these
acquisitions. In addition, the Company entered into capital lease agreements
aggregating $145,000, $623,000, and $347,000 during the years ended March 31,
1994, 1995 and 1996, respectively. These non-cash transactions are excluded from
the consolidated statements of cash flows.

F-8
<PAGE> 80

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE

Pro forma net income (loss) per share was computed by dividing net income
(loss) by the weighted average number of shares of Common Stock outstanding
after giving retroactive effect to the mandatory conversion of all of the
Company's Convertible Preferred Stock into 1,705,082 shares and the exercise of
warrants to purchase 1,141,667 shares, all of which will occur upon the
consummation of the Company's initial public offering, plus cheap stock as
defined below. Retroactive restatement has been made to share and per share
amounts for the stock split (see Note 7). Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletin No. 83, common stock and common
stock equivalents issued at prices below the assumed initial public offering
price per share ("cheap stock") during the twelve month period immediately
preceding the initial filing date of the Company's Registration Statement for
its public offering have been included as outstanding for all periods presented
(using the treasury stock method at the assumed initial public offering price)
even though the effect is to reduce the loss per share.

Assuming the repayment of certain long-term debt outstanding at March 31,
1996 ($4,800,000) as if repaid on the date incurred or the beginning of the
period, whichever is later, with the proceeds of the sale of Common Stock
(assumed to be $12 per share) and supplemental net income and pro forma
supplemental net income for 1996 would have been $.11 and $.11 per share of
Common Stock, respectively.

Historical net income (loss) per share presented in accordance with GAAP is
as follows:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE
30, 1996
1994 1995 1996 -------------
--------- --------- --------- (unaudited)
<S> <C> <C> <C> <C>
Net income (loss) per share......... $ (.94) $ (.87) $ .02 $ .01
Weighted average number of shares
used in computing net income
(loss) per share.................. 1,660,291 1,647,662 4,426,311 4,801,095
</TABLE>

Historical net income (loss) per share was computed by dividing net income
(loss) by the weighted average number of shares of common stock and common stock
equivalents outstanding plus cheap stock using the treasury stock method at the
estimated market prices at each applicable date. In 1994 and 1995, common stock
equivalents were antidilutive, therefore they were not included in the
computation of weighted average shares outstanding for such periods. Cheap stock
is included as outstanding for all periods even though the effect is to reduce
loss per share in 1994 and 1995.

The amounts computed for primary and fully diluted historical net income
(loss) per share of common stock are the same.

PRO FORMA BALANCE SHEET (UNAUDITED)

In conjunction with an initial public offering of the Company's Common
Stock, all outstanding shares of Convertible Preferred Stock automatically
convert into shares of Common Stock, warrants to purchase 141,667 shares of
common stock will be exercised at $.01 per share, and warrants to purchase
1,333,333 shares of common stock will be exercised under the cashless feature at
the initial public offering price per share (assumed to be $12 per share)
yielding 1,000,000 shares. As such, the effect of the conversion and exercises
has been reflected in the unaudited pro forma balance sheet. Each share of the
Convertible Preferred Stock is convertible into 1.67 shares of Common Stock.

F-9
<PAGE> 81

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS

In 1995, the Financial Accounting Standards Board issued Statement No. 123
"Accounting and Disclosure of Stock-based Compensation" ("SFAS 123") which the
Company will adopt in the quarter ended June 30, 1996. As permitted under SFAS
123, the Company will continue accounting for its stock compensation activity
using the intrinsic value method and will provide the pro forma disclosure using
the fair value method. Therefore, the Company does not expect the effect of
adopting SFAS 123 to have any impact on its statement of operations.

RECLASSIFICATIONS

Certain reclassifications were made to the 1994 and 1995 consolidated
financial statements to conform to the 1996 presentation.

INTERIM STATEMENTS

The interim financial data for the three months ended June 30, 1996 and
1995 is unaudited; however, in the opinion of management, the interim data
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods, on a
consistent basis.

3. REGULATORY MATTERS

The Company derives a substantial portion of its revenues from financial
aid received by its students under Title IV programs ("Title IV Programs")
administered by the United States Department of Education pursuant to the
federal Higher Education Act of 1965, ("HEA"), as amended. In order to continue
to participate in Title IV Programs, the Company and its schools must comply
with complex standards set forth in the HEA and the regulations promulgated
thereunder (the "Regulations"). Among other things these Regulations require the
Company's schools to exercise due diligence in approving and disbursing funds
and servicing loans, limit the proportion of cash receipts by the Company's
schools derived from Title IV Programs to no more than 85% of the total revenue
derived from the school's students in its Title IV eligible educational
programs, and to exercise financial responsibility related to maintaining
certain financial covenants (including cash reserve for refunds, an "acid test"
ratio, a positive tangible net worth test and limitations on the amount of
operating losses in comparison to tangible net worth, as defined). All of the
Company's schools participate in Title IV Programs.

The failure of any of the Company's schools to comply with the requirements
of the HEA or the Regulations could result in the restriction or loss by the
Company or such school of its ability to participate in Title IV Programs. If
the Department of Education ("Department") determines that any of the Company's
schools is not financially responsible, the Department may require that the
Company or such school post an irrevocable letter of credit in an amount equal
to not less than one-half of Title IV Program funds received by the relevant
school during the last complete award year or, at the Department's discretion,
require some other less onerous demonstration of financial responsibility.
One-half of Title IV funds received by the Company's individual schools in the
most recent award year ranged from $.2 million to $3.9 million and one-half of
the aggregate Title IV funds received by all of the Company's schools in the
most recent award year equaled $14.1 million.

Many of the financial responsibility standards are new, difficult to
interpret, and subject to the interpretation of the Department for
implementation. Further, the process for resolving lack of compliance with such
Regulations is also subject to interpretation and, in some cases, negotiation
with the Department. The Company believes each of its schools satisfies the
financial responsibility standards for fiscal 1996 except with respect to the
operating losses incurred by the Company's school located in Roanoke, Virginia.

F-10
<PAGE> 82

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. ACQUISITIONS

During the fiscal year ended March 31, 1994, the Company acquired certain
assets and assumed certain liabilities of four businesses operating a total of
six schools. Each of the acquisitions was accounted for as a purchase and
included in the accompanying results of operations beginning with the month of
acquisition. The following summarizes key information relevant to these
transactions:

<TABLE>
<CAPTION>
OHIO
INSTITUTE OF CALIFORNIA
DOMINION ICM PHOTOGRAPHY ACADEMY OF
BUSINESS SCHOOL OF AND MERCHANDISING,
SCHOOLS BUSINESS TECHNOLOGY ART AND DESIGN
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Acquisition Date............... May 29, 1993 July 3, 1993 July 14, 1993 Aug. 5, 1993
Number of schools.............. 3 1 1 1
Purchase price allocation:
Tangible assets.............. $ 13,000 $ 49,000 $ 1,286,000 $ --
Covenants not to compete..... 400,000 100,000 62,000 25,000
Goodwill..................... 2,712,000 932,000 -- 71,000
Liabilities assumed.......... (725,000) (481,000) (112,000) (46,000)
------------ ------------ ------------- --------------
$ 2,400,000 $ 600,000 $ 1,236,000 $ 50,000
============ =========== ============ ===========
</TABLE>

5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Land........................................................ $ 208,100 $ 208,100
Buildings................................................... 1,074,199 1,159,171
Equipment, furniture and fixtures........................... 3,591,997 4,387,529
Leasehold improvements...................................... 1,233,751 1,272,871
----------- -----------
6,108,047 7,027,671
Less accumulated depreciation and amortization.............. (1,912,455) (2,643,590)
----------- -----------
$ 4,195,592 $ 4,384,081
========== ==========
</TABLE>

6. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
14% senior subordinated debt ("14% Notes"), $2,200,000
principal, quarterly interest-only payments through March
31, 2000, principal due March 31, 2000. Outstanding
principal amounts are net of unamortized discount of
$368,150 and $294,520, respectively(a).................... $ 1,831,850 $ 1,905,480
</TABLE>

F-11
<PAGE> 83

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
</TABLE>

6. LONG-TERM DEBT (CONTINUED)
<TABLE>
<S> <C> <C>
13% senior subordinated debt, ("13% Notes") $4,000,000
principal, quarterly interest-only payments through March
31, 1993, quarterly principal payments of $100,000 plus
interest beginning June 30, 1993 through the repayment of
the 14% notes. One month after repayment in full of the
14% Notes, 15% of unpaid principal is due. The remaining
balance is then payable in three monthly installments of
20%, 25% and remaining principal balance, respectively.
Outstanding principal amounts are net of unamortized debt
discount of $265,992 and $216,056, respectively(b)........ 3,034,008 2,583,944
8.75% mortgage payable, adjustable in 1998 up to prime plus
1.25%, to a bank due in monthly installments of principal
and interest, secured by land and building of one
school.................................................... 681,360 653,527
8% to 11% unsecured promissory notes payable to sellers of
various schools acquired, principal and interest payable
periodically through July 1999............................ 1,355,000 810,000
Various unsecured, non-interest bearing notes payable for
non-competition agreements, payable periodically through
July 1999................................................. 960,000 702,500
8% to 12% capital leases, payable periodically through
October 1999; secured by equipment........................ 662,848 484,492
----------- -----------
8,525,066 7,139,943
Less current portion........................................ (1,494,653) (1,080,085)
----------- -----------
$ 7,030,413 $ 6,059,858
=========== ===========
</TABLE>

- ---------------

(a) On March 31, 1995, the Company issued $2,200,000 of 14% Senior Subordinated
Debt and warrants to purchase a total of up to 308,333 shares of Common
Stock. Pursuant to this transaction, $368,150 was recorded as debt discount
and attributed to the warrants (see Note 7). Amortization of this discount
totaled $-0- and $73,630 in the year ended March 31, 1995 and 1996. The 14%
Notes are secured by substantially all the assets of the Company.
(b) In 1991, the Company issued $4,000,000 of 13% Senior Subordinated Debt Notes
and warrants to purchase a total of 1,333,333 shares of common stock.
Pursuant to this transaction, $1,050,000 was recorded as debt discount and
attributed to the warrants (see Note 7). Amortization of the discount
totaled $212,000 for each of the two years in the period ended March 31,
1994 and 1995, and $50,000 in the year ended March 31, 1996. In 1995, the
13% Notes were amended to extend the maturity date from 1996 to dates
correlated to the repayment of the 14% Notes. The 13% Notes are secured by
substantially all the assets of the Company. Such security is subordinate to
all senior debt, as defined, including the 14% Notes.

Under the terms of the Agreement, the Company must meet certain restrictive
covenants including specified levels of net worth, total debt to shareholders'
equity and a fixed charge coverage ratio. The Company is also restricted as to
the incurrence of certain other debt and restricted payments, as defined. In
addition, without the approval of a majority of the 13% Note holders the Company
is restricted as to: the consolidation, merger or sale of the Company; the
issuance of indebtedness subordinate to the 14% Notes and senior to the 13%
Notes as amended; the amendment of its articles of incorporation or bylaws; the
increase in the number of authorized directors; the redemption or repurchase of
outstanding stock (except as in employment contracts); and the payment of any
dividends on Common Stock.

F-12
<PAGE> 84

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LONG-TERM DEBT (CONTINUED)
The Company, the Preferred Shareholders, and the holders of the 13% Notes
have entered into an Agreement which, among other things, entitles the holders
of the 13% Notes to select one representative on the Company's Board of
Directors as long as a certain minimum investment amount is maintained by the
holders of 13% Notes.

Aggregate maturities of long-term debt at March 31, 1996 are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING MARCH 31,
-------------------------------------------------------------------------------
<S> <C>
1997.................................................................... $1,080,085
1998.................................................................... 1,098,118
1999.................................................................... 1,043,696
2000.................................................................... 2,708,806
2001.................................................................... 1,248,698
Thereafter.............................................................. 471,116
----------
7,650,519
Less unamortized discount on senior subordinated debt................... (510,576)
----------
$7,139,943
==========
</TABLE>

Interest paid during the years ended March 31, 1994, 1995, and 1996 was
approximately $733,000, $980,000 and $1,299,000, respectively.

The fair values of the Company's long-term debt are estimated using
discounted cash flow analyses, based on the Company's estimate of current
borrowing rates for credit facilities with maturities which approximate the
weighted average maturities for its existing long-term debt. At March 31, 1996
the estimated fair value of the Company's long-term debt approximated
$8,000,000. At March 31, 1995 the estimated fair value of the Company's
long-term debt approximated its carrying amounts.

The Company is committed to pay a third party a maximum of $200,000 in
connection with sourcing additional debt financing, if consummated.

7. STOCKHOLDERS' EQUITY

On June 20, 1996, the Company amended its certificate of incorporation to
increase the authorized Common Stock to 15,000,000 shares, retain the par value
of .01 per share, and to provide a five-for-three Common Stock split. Such
amendment will be effective upon consummation of the Offering. All common share
and per common share amounts have been adjusted for all periods to reflect the
stock split. In addition, the Company authorized 5,000,000 shares of Preferred
Stock; terms will be set upon issuance.

CONVERTIBLE PREFERRED STOCK

The Company has issued and outstanding 1,023,049 shares of Convertible
Preferred Stock, $.01 par value. At the option of the holder, shares of
Convertible Preferred Stock may be converted into 1.67 shares of Common Stock
and previously, was mandatorily redeemable at $6.66 per share, subject to
certain antidilution adjustments (1,705,082 shares at March 31, 1996).

Through July 22, 1991, the shares of Convertible Preferred Stock accrued
dividends at an annual rate of 8%. In 1991, pursuant to the issuance of the 13%
Notes (see Note 6), the terms of the Convertible Preferred Stock were amended to
eliminate the cumulative dividends feature and the mandatory redemption
requirement except in the event of an initial public offering of common stock
and certain other circumstances. The Company issued 410,833 shares of Common
Stock in 1991 in full payment of accrued dividends through

F-13
<PAGE> 85

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. STOCKHOLDERS' EQUITY (CONTINUED)
July 22, 1991 totaling $1,232,498. In March 1996, the terms were further amended
to eliminate the mandatory redemption in all circumstances, but still permitting
conversion at the option of the holder. In May 1996, terms were again amended to
require automatic conversion of all outstanding shares of Convertible Preferred
Stock in the event of an initial public offering of common stock.

Except for the election of directors, the holders of Convertible Preferred
Stock and Common Stock shall vote as one class, with each share of Convertible
Preferred Stock entitled to one vote for each share of Common Stock issuable
upon conversion. The Convertible Preferred Stockholders voting separately as a
class, may elect three of the five members of the Board of Directors.

COMMON STOCK

As of March 31, 1996, the Company has reserved the following shares of
Common Stock for future issuance by the following:

<TABLE>
<S> <C>
Convertible Preferred Stock....................................... 1,705,082
Common Stock purchase warrants.................................... 1,518,334
Stock options..................................................... 361,666
---------
3,585,082
=========
</TABLE>

COMMON STOCK PURCHASE WARRANTS

As described in Note 6, the holders of the 14% Notes were granted stock
purchase warrants allowing for the purchase of at least 141,667 and up to
308,333 shares, depending on the date of repayment of the 14% Notes, of Common
Stock at $.006 per share. The warrants were assigned a value of $368,150 and
expire on April 30, 2000. These warrants do not include put or call features.

As also described in Note 3, the holders of the 13% Notes were granted
stock purchase warrants allowing the purchase of up to 1,333,333 shares of
Common Stock at $3 per share (the "$3 Warrants"), for a total amount of
$4,000,000. The $3 exercise price of the warrants is subject to adjustment for
any future issuances of equity or equity related securities at a per share price
less than the exercise price.

At any time after March 31, 1998, but on or before March 31, 1999, the
holders of the $3 warrants had the right to "put" to the Company warrants
representing 50% of total warrants then outstanding. At any time after March 31,
1999, the holders had the right to "put" to the Company all then outstanding $3
warrants. The Company may "call" the warrants at the later of two years from
closing (July 23, 1991) or after the Company's stock has been publicly traded
for six months. The put/call price is $3 per share. The warrants expire June 30,
2001. In May 1996, the terms of the warrants were amended to provide for a
cashless exercise based on the initial public offering price per share, in the
event of an initial public offering of the Company's common stock and to
eliminate the "put" feature.

The $3 warrants were assigned a value of $1,050,000. The difference between
the $1,050,000 and the exercise price of $4,000,000 is being accreted, using a
method which approximates the effective interest rate method, through the date
of earliest exercise (50% through March 31, 1998 and 50% through March 31,
1999). Accretion of $283,276, $339,252 and $406,346 was charged to accumulated
deficit during the years ended March 31, 1994, 1995 and 1996, respectively.

In connection with the issuance of the Convertible Preferred Stock in 1991,
a third party was granted warrants to purchase 26,667 shares of Common Stock
exercisable at $3.60 per share. These warrants expire July 31, 1999.

F-14
<PAGE> 86

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. STOCKHOLDERS' EQUITY (CONTINUED)
The Company has also agreed in the event of an Initial Public Offering to
issue to a third party, warrants to purchase 16,667 shares of Common Stock at
the offering price of such shares in an initial public offering. These warrants
will expire 5 years from the date of such initial public offering.

STOCK OPTIONS

The Company has granted options to purchase its Common Stock. The options
vest incrementally over periods ranging from four to five years and expire five
years after vesting.

A summary of option transactions follows:

<TABLE>
<CAPTION>
NUMBER OF OPTIONS
---------------------------
EXERCISE YEAR ENDED MARCH 31,
PRICES PER ---------------------------
SHARES 1994 1995 1996
------------- ------- ------- -------
<S> <C> <C> <C> <C>
Outstanding at beginning of year:............. $2.40 - 4.00 170,000 199,166 190,833
Granted..................................... $2.40 - 4.00 33,333 -- 175,000
Cancelled/forfeited......................... $2.40 (4,167) (8,333) (4,167)
------------ ------- ------- -------
Outstanding at March 31....................... $2.40 - 4.00 199,166 190,833 361,666
============ ======= ======= =======
Exercisable at March 31....................... $2.40 - 4.00 80,000 130,833 156,667
============ ======= ======= =======
</TABLE>

INITIAL PUBLIC OFFERING

In April 1996, the Company commenced plans to offer up to 2,200,000 of
newly issued shares of Common Stock in an initial public offering.

8. INCOME TAXES

The components of income tax expense (benefit) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1994 1995 1996
--------- ------- --------
<S> <C> <C> <C>
Current:
Federal.............................................. $(584,479) $ -- $484,376
State................................................ (166,618) 27,982 147,809
Deferred:
Federal.............................................. 580,868 -- --
State................................................ 263 -- --
--------- ------- --------
$(169,966) $27,982 $632,185
========= ======= ========
</TABLE>

F-15
<PAGE> 87

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. INCOME TAXES (CONTINUED)
A reconciliation of income tax expense (benefit) computed at the statutory
federal income tax rate to the Company's effective income tax rate follows:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1994 1995 1996
--------- --------- --------
<S> <C> <C> <C>
Federal.............................................. $(597,442) $(486,334) $241,947
State, net of federal tax benefit.................... 109,967 -- 97,554
Permanent differences................................ 15,985 49,988 55,436
Increase in deferred tax asset valuation allowance... 304,748 465,497 308,584
Utilization of AMT credit............................ -- -- (56,000)
Other, net........................................... (3,224) (1,169) (15,336)
--------- --------- --------
$(169,966) $ 27,982 $632,185
========= ========= ========
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Deferred income tax liabilities:
Prepaid expenses.......................................... $ (145,116) $ (192,974)
----------- -----------
Total deferred income tax liabilities............. (145,116) (192,974)
Deferred income tax assets:
Federal and state net operating loss carryforwards........ 61,634 --
Tradenames and other intangibles.......................... 447,778 868,393
Property and equipment.................................... 120,707 8,419
Allowance for doubtful accounts........................... 314,750 339,637
Accrued expenses and other liabilities.................... 174,905 264,166
Other, net................................................ 36,745 32,346
----------- -----------
Total deferred income tax assets.................. 1,156,519 1,512,961
Valuation allowance......................................... (1,011,403) (1,319,987)
----------- -----------
Net deferred income taxes......................... $ -- $ --
=========== ===========
</TABLE>

Based on its history of recurring losses, the Company has recorded a
valuation allowance against all of its net deferred income tax assets.

The Company paid approximately $383,500, $17,000 and $360,000 of income
taxes in the years ended March 31, 1994, 1995 and 1996, respectively. The
Company received approximately $733,000 of income tax refunds during the year
ended March 31, 1995.

9. LEASES

The Company leases office, classroom and dormitory space under operating
lease agreements expiring through 2004. Rent expense totaled approximately
$2,330,000, $3,104,000 and $2,873,000 for the years ended March 31, 1994, 1995
and 1996, respectively.

F-16
<PAGE> 88

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. LEASES (CONTINUED)
Future minimum lease payments under noncancelable operating leases in
effect at March 31, 1996 are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING MARCH 31:
----------------------------------------------------------------
<S> <C>
1997....................................................... $ 2,513,093
1998....................................................... 2,141,752
1999....................................................... 1,549,867
2000....................................................... 1,056,021
2001....................................................... 942,107
Thereafter................................................. 2,101,133
-----------
$10,303,973
===========
</TABLE>

10. EMPLOYEE BENEFIT PLAN

The Company sponsors a defined contribution plan covering substantially all
employees; the plan is qualified under Section 401(k) of the Internal Revenue
Code. Under the provisions of the plan, eligible participating employees may
elect to contribute up to the maximum amount of tax deferred contribution
allowed by the Internal Revenue Code. The Company matches a portion of such
contributions up to a maximum percentage of the employees' compensation. The
Company's contributions to the plan were approximately $45,600, $57,500 and
$55,600 for the years ended March 31, 1994, 1995 and 1996, respectively.

11. OTHER EXPENSES

IMPAIRMENT OF LONG-LIVED ASSETS

The Company's Roanoke, Virginia school has incurred significant operating
losses since its acquisition. Accordingly, the Company evaluated the
recoverability of the school's long-lived assets including its identifiable
intangible assets and goodwill. Based on the Company's expectation of future
cash flows, the Company determined that assets with a carrying amount of
$764,000 were impaired and recorded an impairment loss to record such assets at
management's estimate of the net present value of such future cash flows. This
estimate was based on estimated undiscounted future cash flows to be generated
by such assets and is a subjectively determined amount subject to change based
upon actual results. This impairment loss is reflected in the 1996 consolidated
statement of operations.

CONTINGENCIES

In September 1995, the Company filed suit in the California Superior Court
in connection with its 1993 purchase of its Hollywood, California school. The
suit alleges that the sellers made significant financial and operational
misrepresentations to the Company. The Company is seeking damages from the
sellers, and, pending the resolution of the case, is making payments due to the
sellers in connection with the acquisition into an escrow account. The Sellers
have denied the Company's allegations and filed a Cross-Complaint against the
Company alleging among other things, breach of contract and fraud. The matter is
in the initial stages of discovery and is expected to be set for trial in the
first calendar quarter of 1997. No amounts have been accrued.

On June 24, 1994, eight students enrolled in one of the Company's programs
at its schools in the San Diego, California area filed a lawsuit against the
Company in the state court in California. In substance, the suit alleged that
there were material misrepresentations made with respect to the content of the
program and the potential outcomes achieved by the students who graduated from
it. The suit was certified as a class action in the fall of 1994. Although the
Company believes that it accurately described the course content and

F-17
<PAGE> 89

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. OTHER EXPENSES (CONTINUED)
the multiple outcomes to which the course could lead, in order to avoid further
legal expense and because of the uncertainty and risks inherent in any
litigation, the Company determined that it was desirable to settle the lawsuit.
A final settlement was approved in March 1996. Pursuant to the terms of the
settlement, the Company paid the plaintiffs $600,000 in the fiscal year ended
March 31, 1996 and have agreed to pay an additional $400,000 on April 1, 1997.
In addition, the Company agreed to make available tuition credits of $1,150,000
to class members, provided that students elect to utilize such tuition credits
by July 17, 1996. Any unused tuition credits will be redeemed in cash by the
Company for 10% of the credit and $115,000 has been accrued for these credits,
as of March 31, 1996. This settlement expense is reflected in the 1996
consolidated statement of operations.

The Company incurred $600,000 and $1,115,000 in expenses in the fiscal
years ended March 31, 1995 and 1996, respectively (of which $362,000 and
$515,000 was accrued at March 31, 1995 and 1996, respectively) related to legal
costs to defend the class action lawsuit and the settlement related to such
suit.

LOSS ON CLOSURE OF SCHOOL

In September 1993, the Company decided to close its school in Albany,
Georgia due to continued operating losses and the anticipation that such losses
would continue. A loss of $1,125,518 is included in the accompanying 1994
consolidated statement of operations and relates primarily to the write-off of
the related goodwill and other costs from September 1993 to September 1994 when
the school closed.

F-18
<PAGE> 90

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
San Antonio College of Medical
and Dental Assistants, Inc.
and Career Centers of Texas -- El Paso, Inc.

We have audited the accompanying combined balance sheets of San Antonio
College of Medical and Dental Assistants, Inc. and Career Centers of Texas -- El
Paso, Inc. (S corporations) as of December 31, 1995 and 1994, and the related
combined statements of operations, retained earnings, and cash flows for the
years then ended. The combined financial statements are the responsibility of
the Institution's management. Our responsibility is to express an opinion on
these combined financial statements based on our audits.

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

In our opinion, the combined financial statements referred to in the first
paragraph present fairly, in all material respects, the combined financial
position of San Antonio College of Medical and Dental Assistants, Inc. and
Career Centers of Texas -- El Paso, Inc. as of December 31, 1995 and 1994 and
the results of their combined operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.

/s/ Tsakopulos Brown Schott & Anchors
--------------------------------------

San Antonio, Texas
March 12, 1996, except for
Note 1, which is August 2, 1996

F-19
<PAGE> 91

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, DECEMBER 31, ------------
1994 1995
------------ ------------ (unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash.................................................... $1,358,394 $1,315,967 $ 1,336,260
Certificates of deposit................................. -- 415,227 473,438
Short-term investment................................... -- 25,761 25,761
Grant and loan program cash............................. 3,326 280 --
Due from Department of Education........................ -- -- 49,695
Accounts receivable from students....................... 898,650 1,127,003 966,877
Less: Deferred tuition income........................... -- (978,016) (884,843)
Allowance for uncollectible accounts.............. (145,460) (148,987) (82,034)
Note receivable, current portion........................ -- 4,683 2,858
Other................................................... 13,632 13,885 13,851
---------- ---------- ----------
Total Current Assets............................ 2,128,542 1,775,803 1,901,863
Property and equipment
Furniture, fixtures and equipment....................... 969,230 950,431 966,299
Leasehold improvements.................................. 82,947 88,725 88,725
---------- ---------- ----------
1,052,177 1,039,156 1,055,024
Less accumulated depreciation........................... (797,340) (833,338) (874,988)
---------- ---------- ----------
Total Property and Equipment.................... 254,837 205,818 180,036
Other assets
Goodwill, less $24,884 accumulated amortization......... 12,898 11,976 11,516
Unsecured note receivable, less current portion......... -- 9,942 9,942
---------- ---------- ----------
Total Other Assets.............................. 12,898 21,918 21,458
---------- ---------- ----------
Total assets.................................. $2,396,277 $2,003,539 $ 2,103,357
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable........................................ 49,001 $ 45,851 $ 108,544
7% unsecured note payable to stockholder................ 83,226 -- --
Accrued expenses........................................ 21,064 36,227 216,225
Grant and loan program payable.......................... 3,326 280 --
---------- ---------- ----------
Grant and loan program overdraft........................ 49,695
Deferred tuition income................................. 1,454,483 1,595,010 1,542,120
Less amount to offset receivable from students....... -- (978,016) (884,843)
---------- ---------- ----------
Total Current Liabilities....................... 1,611,100 699,352 1,031,741
Stockholder's equity
Capital stock........................................... 11,000 11,000 11,000
Capital in excess of par value.......................... 104,074 104,074 104,074
Retained earnings....................................... 1,155,780 1,674,790 1,442,219
---------- ---------- ----------
1,270,854 1,789,864 1,557,293
Less treasury stock, at cost.................... (485,677) (485,677) (485,677)
---------- ---------- ----------
Total stockholder's equity.................... 785,177 1,304,187 1,071,616
---------- ---------- ----------
Total liabilities and stockholder's equity.... $2,396,277 $2,003,539 $ 2,103,357
========== ========== ==========
</TABLE>

The Accompanying Notes Are an Integral Part of These Combined Financial
Statements.

F-20
<PAGE> 92

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

COMBINED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net revenues.................................................................... $4,743,058
School operating costs:
Cost of education and facilities.............................................. 2,225,106
Selling and promotional....................................................... 371,511
General and administrative expenses........................................... 1,515,594
Amortization of goodwill and intangibles........................................ 922
----------
Income from operations.......................................................... 629,925
Interest income................................................................. 49,085
----------
Income before pro forma provision for income taxes.............................. 679,010
Pro forma provision for income taxes (unaudited)................................ 272,000
----------
Pro forma net income (unaudited)................................................ $ 407,010
==========
</TABLE>

The Accompanying Notes Are an Integral Part of These Combined Financial
Statements.

F-21
<PAGE> 93

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------ SIX MONTHS ENDED JUNE
30,
-----------------------
1995
----------
(unaudited) 1996
----------
(unaudited)
<S> <C> <C> <C>
Revenues
Tuition income.......................................... $4,478,288 $2,249,178 $2,615,641
Student expenses........................................ (119,850) (38,484) (23,214)
Tuition refunds......................................... (333,435) (153,750) (141,183)
---------- ---------- ----------
Net tuition revenues............................ 4,025,003 2,056,944 2,451,244
Operating Expenses
Employee expense 1,954,660 1,033,979 1,146,486
Occupancy............................................... 424,147 207,204 221,474
Advertising and sales promotion......................... 187,262 118,102 152,936
Bad debts............................................... 147,337 116,950 106,700
Supplies................................................ 159,879 37,233 81,685
Depreciation............................................ 86,519 82,615 41,650
Books................................................... 115,943 65,670 34,796
Professional services................................... 59,509 41,141 34,607
Other................................................... 742,520 354,985 383,663
---------- ---------- ----------
Total operating expenses........................ 3,877,776 2,056,979 2,203,997
---------- ---------- ----------
Operating income (loss)................................. 147,227 (35) 247,247
Other income
Interest income......................................... 35,010 17,289 27,205
Miscellaneous........................................... 17,379 7,020 14,223
Vending................................................. 11,366 4,569 3,754
Interest Expense........................................ (10,062) (1,821) --
---------- ---------- ----------
Total other income.............................. 53,693 27,057 45,182
---------- ---------- ----------
Income before pro forma provision for income taxes........ 200,920 27,022 292,429
Pro forma provision for income taxes (unaudited).......... 80,000 11,000 117,000
---------- ---------- ----------
Pro forma net income (unaudited).......................... $ 120,920 $ 16,022 $ 175,429
========== ========== ==========
</TABLE>

The Accompanying Notes Are an Integral Part of These Combined Financial
Statements.

F-22
<PAGE> 94

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.

AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

COMBINED STATEMENT OF RETAINED EARNINGS

<TABLE>
<S> <C>
Retained earnings at December 31, 1993........................................... $1,244,583
Distribution to stockholder...................................................... (289,723)
Net income....................................................................... 200,920
----------
Retained earnings at December 31, 1994........................................... 1,155,780
Distribution to stockholder...................................................... (160,000)
Net income....................................................................... 679,010
----------
Retained earnings at December 31, 1995........................................... 1,674,790
Distribution to stockholder (unaudited).......................................... (525,000)
Net income (unaudited)........................................................... 292,429
----------
Retained earnings at June 30, 1996 (unaudited)................................... $1,442,219
==========
</TABLE>

F-23
<PAGE> 95

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

COMBINED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Inflows
Cash received from students..................................... $4,097,092 $4,467,065
----------
Interest income................................................. 35,010 52,707
---------- ----------
4,132,102 4,519,772
Outflows
Cash paid to suppliers and employees............................ 3,625,764 3,837,357
Interest expense................................................ 10,062 3,622
---------- ----------
3,635,826 3,840,979
---------- ----------
Net cash provided by operating activities.................. 496,276 678,793
Cash flows from investing activities
Outflows
Purchase certificates of deposit and short-term investment...... -- 440,988
Purchase property and equipment................................. 100,160 22,381
Loans to employees.............................................. -- 14,625
---------- ----------
Net cash (used) by investing activities.................... (100,160) (477,994)
Cash flows from financing activities
Outflows
Debt payments to stockholder.................................... 76,774 83,226
Distribution to stockholder..................................... 289,723 160,000
---------- ----------
Net cash (used) by financing activities.................... (366,497) (243,226)
---------- ----------
Net increase (decrease) in cash...................................... 29,619 (42,427)
Cash, beginning of year.............................................. 1,328,775 1,358,394
---------- ----------
Cash, end of year.................................................... $1,358,394 $1,315,967
========== ==========
</TABLE>

The Accompanying Notes are an Integral Part of these Combined Financial
Statements.

F-24
<PAGE> 96

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1996
----------
1995 (unaudited)
----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income.......................................................... $ 27,022 $ 292,429
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense............................ 66,130 42,110
Bad debt expense................................................. 116,950 106,700
(Increase) in current assets
Accounts receivable............................................ (3,503) 66,870
Other current assets........................................... 2,267 (2,441)
Increase in current liabilities
Accounts payable............................................... 6,076 62,693
Accrued liabilities............................................ 132,929 180,192
Deferred tuition income........................................ (4,111) (126,543)
---------- ----------
Net cash provided by operating activities................... 343,760 622,010
Cash flows from investing activities
Outflows
Purchase certificate of deposit.................................. -- 58,211
Purchase property and equipment.................................. 6,517 15,867
Inflows -- payments on notes receivable............................. -- (1,824)
---------- ----------
Net cash (used) by investing activities..................... (6,517) (72,254)
Cash flows from financing activities
Outflows
Repayments on loan from stockholder.............................. 43,419 --
Distribution to stockholder...................................... 135,000 525,000
---------- ----------
Net cash (used) by financing activities..................... (178,419) (525,000)
---------- ----------
Net decrease in cash.................................................. 158,824 24,756
Cash, beginning of period............................................. 1,358,392 1,311,504
---------- ----------
Cash, end of period................................................... $1,517,216 $1,336,260
========== ==========
</TABLE>

The Accompanying Notes are an Integral Part of these Combined Financial
Statements.

F-25
<PAGE> 97

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

NOTES TO THE COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND DECEMBER 31, 1995

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Organization

The accompanying combined financial statements include the financial
position, results of operations and cash flows of San Antonio College of Medical
and Dental Assistants, Inc. and Career Centers of Texas -- El Paso, Inc.
(collectively, the "Institution"). The Institution's outstanding common stock is
owned by the same individual who is also an officer of both corporations. The
Institution's management believes that combined financial statements fairly
present the financial position, results of operations and cash flows of the
related entities. Intercompany transactions and balances have been eliminated in
the accompanying combined financial statements.

The Institution was organized to provide training to medical and dental
technicians in the San Antonio, McAllen and El Paso, Texas areas. A substantial
portion of the Institution's tuition income is derived from students who qualify
under government tuition assistance programs. Such programs are subject to
continued approval by the U.S. Congress. The Institution is also subject to
programmatic and financial audits by the Department of Education and other
regulatory agencies. Beginning in 1993, the Institution conducted a portion of
its training in an additional location (the "Additional Location") in El Paso,
Texas. Although the school received approvals for the Additional Location prior
to its opening from the applicable state regulatory authority and its
accrediting agency, it inadvertently failed to notify the Department of
Education of commencement of operations of the Additional Location until August
2, 1996, at which time the Department verbally approved the location.

Although the Company does not believe that its inadvertent failure to
notify the Department of its operations at the Additional Location will be
considered a significant failure to comply with relevant Department of Education
Regulations, the Department of Education could take the position that the
Additional Location was ineligible for Title IV funding pending its approval and
that all Title IV funding received by the Additional Location prior to the
August 1996 verbal approval (approximately $1,100,000 unaudited) is subject to
refund, repayment and applicable penalties. The Institution has not received
notice of any such claim from the Department, and does not believe that the
Department will take such a position.

The Institution has entered into an Asset Purchase Agreement dated
September 6, 1996 with an unrelated entity to sell substantially all of its
student receivables and property and equipment.

Use of Estimates

The Institution uses estimates and assumptions in preparing combined
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the estimates
that were used.

Fair Values of Financial Instruments

The Institution's financial instruments consist of cash, certificates of
deposit, short-term investment, accounts receivable, note receivable and
accounts payable. The carrying amounts of these items reported in the combined
balance sheet approximate fair values due to the short maturity of those
instruments.

F-26
<PAGE> 98

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Cash Equivalents

For purposes of the combined statement of cash flows, the Institution
considers all short-term debt securities purchased with a maturity of three
months or less to be cash equivalents. There were no cash equivalents at
December 31, 1995 and December 31, 1994.

Short-term Investment

The Institution's short-term investment is classified as available-for-sale
and is a highly liquid debt security. Market value approximated cost at December
31, 1995.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives principally on the straight-line method.

The cost of major additions and improvements is capitalized; expenditures
for maintenance and repairs are expensed as incurred. When assets are sold,
retired or otherwise disposed of, cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is included in current
operations.

Goodwill

Goodwill is amortized over forty years using the straight-line method.

Deferred Tuition Income

Deferred tuition income represents the amount of tuition for which course
instruction has not been provided and is calculated on a monthly pro-rata basis.
In 1995, the institution decided for financial reporting purposes, that the
related deferred tuition should be shown as an offset against student
receivables. Amounts in excess of student receivables are presented as a current
liability in the accompanying combined balance sheet. Deferred tuition income
will be amortized ratably to future operations as educational services are
rendered.

Advertising Costs

All costs related to marketing and advertising the Institution's services
are expensed in the year incurred.

Interim Statements

The interim financial data for the six months ended June 30, 1996 and 1995
is unaudited; however, in the opinion of management, the interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair statement of the results for the interim periods, on a consistent basis.

F-27
<PAGE> 99

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Institution's financial
instruments at December 31, 1995 are summarized as follows:

<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
Cash and certificates of deposit.............................. $1,731,474 $1,731,474
Short-term investment......................................... 25,761 25,761
Accounts receivable........................................... 1,127,003 1,127,003
Note receivable............................................... 14,625 14,625
Accounts payable.............................................. 45,851 45,851
</TABLE>

NOTE 3. CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Institution to
concentrations of credit risk consist principally of cash, certificates of
deposit and accounts receivable from students. The Institution places its
depository accounts and certificates of deposit with high-quality financial
institutions and, by policy, limits the amounts of credit exposure to any one
financial institution. As of December 31, 1994 and 1995, aggregate deposits
exceeded the insuring governmental agency's limit by $271,000 and $477,000,
respectively. The concentration of credit risk with respect to student accounts
receivable is limited due to the significant large number of students comprising
the Institution's student base, their dispersion across San Antonio, McAllen and
El Paso, Texas and their qualification for governmental financial assistance
(Note 1). The Institution continually monitors student academic performance and
maintains allowances for anticipated withdrawals.

NOTE 4. GRANT PROGRAMS

The Institution participates in the Pell Grant and Supplemental Educational
Opportunity Grant programs. A separate bank account is maintained for the
administration of these grants which entails receipt of grant monies and
disbursement thereof to eligible students. The ending cash balance represents
receipts that are either payable to the students or refundable back to the grant
programs if the students do not complete the required program.

NOTE 5. SHORT-TERM INVESTMENT

The Institution adopted Statement of Financial Accounting Standards
Statement No. 115, "Accounting for Certain Debt and Equity Securities," at
December 31, 1995 and has classified its investment as available-for-sale. The
investment was purchased in 1995.

NOTE 6. CAPITAL STOCK

Capital stock at December 31, 1995 and December 31, 1994 are summarized as
follows:

<TABLE>
<S> <C>
San Antonio College of Medical and Dental Assistants, Inc.
Class A Common Stock -- $1 par value, 50,000 shares authorized; none
issued................................................................ $ --
Class B Common Stock -- $1 par value, 10,000 shares authorized and
issued; 3,534 shares outstanding...................................... 10,000
Career Centers of Texas -- El Paso, Inc.
Common Stock -- $1 par value, 500,000 shares authorized; 1,000 shares
issued and outstanding................................................ 1,000
-------
$11,000
=======
</TABLE>

F-28
<PAGE> 100

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Treasury stock represents 6,466 shares of Class B common stock issued by
San Antonio College of Medical and Dental Assistants, Inc.

NOTE 7. NET TUITION REVENUES

Net tuition revenues for each campus for the year ended December 31, 1994
and 1995 is summarized as follows:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
San Antonio -- Central........................................ $1,106,343 $1,356,148
----------
San Antonio -- Medical Center................................. 893,797 775,650
McAllen....................................................... 854,710 1,116,558
El Paso....................................................... 1,170,153 1,494,702
---------- ----------
Total Net Tuition Revenues.......................... $4,025,003 $4,743,058
========== ==========
</TABLE>

NOTE 8. PROFIT SHARING PLAN

The Institution has a qualified profit sharing plan for the benefit of its
eligible employees. Contributions are made at the discretion of the Board of
Directors. Profit sharing expense for the years ended December 31, 1994 and 1995
was $14,091 and $20,986, respectively.

NOTE 9. RELATED PARTY TRANSACTIONS

During 1993, the Institution's stockholder purchased the facility currently
occupied by the San Antonio -- Central campus from its owner. The Institution
has guaranteed the related debt to the bank which financed the purchase of the
property and it must also meet certain financial ratios. The stockholder also
owns the facility occupied by the McAllen campus.

During 1995, the Institution's stockholder purchased the facility currently
occupied by the main El Paso campus. Previously, the facility was owned by a
partnership partially owned by the Institution's stockholder (see Note 13). The
Institution has guaranteed the related debt to the bank which financed the
purchase of the property, and it must also meet certain financial ratios.

Operating lease payments aggregating $271,000 and $288,000 for the San
Antonio -- Central, McAllen and El Paso campuses were paid to the stockholder in
1994 and 1995, respectively.

NOTE 10. FEDERAL INCOME TAXES

Pursuant to applicable provisions of the Internal Revenue Code, the
Institution has received permission to be treated as an "S Corporation" for
income tax purposes. Under such provisions, the Institution is not responsible
for the federal income tax liability attributable to its taxable income. The
Institution's taxable income will be reported on its stockholder's individual
income tax return and the related tax liability, if any, will be the
responsibility of the stockholder.

The pro forma provision for income taxes represents a provision for income
taxes as if the Institution had operated as subchapter C Corporations.

NOTE 11. EMPLOYEE EXPENSE

The Institution "leases" its employees from an unrelated company.
Consequently, salaries, wages, payroll taxes and other related employee benefit
costs are included in the appropriate expense category.

F-29
<PAGE> 101

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12. CASH FLOWS

A reconciliation of net income to net cash provided by operating activities
for the year ended December 31, 1994 and 1995 is summarized as follows:

<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Net income..................................................... $ 200,920 $ 679,010
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense........................ 87,441 72,241
Bad debt expense............................................. 147,337 223,797
(Increase) in current assets
Accounts receivables...................................... (175,212) (428,204)
Other current assets...................................... 7,039 (173)
Increase (decrease) in current liabilities
Accounts payable.......................................... (17,065) (3,150)
Accrued expenses.......................................... (2,207) 15,163
Deferred tuition income................................... 248,023 120,109
---------- ----------
Net cash provided by operating activities...................... $ 496,276 $ 678,793
========== ==========
</TABLE>

NOTE 13. COMMITMENTS

The Institution conducts its operations in facilities pursuant to lease
agreements which are classified as operating leases. The following is a schedule
by years of minimum rental payments under such operating leases which expire at
various dates through 2009:

<TABLE>
<CAPTION>
LEASED FROM
FOR THE YEARS -------------------------
ENDING INSTITUTION'S UNRELATED
DECEMBER 31, TOTAL STOCKHOLDER 3RD PARTIES
---------------------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
1996................................................ $ 417,700 $ 286,000 $ 131,700
1997................................................ 417,700 286,000 131,700
1998................................................ 402,800 286,000 116,800
1999................................................ 402,300 286,000 116,300
2000................................................ 381,100 286,000 95,100
Remaining rentals................................... 2,088,000 2,088,000 --
---------- ---------- --------
$4,109,600 $ 3,518,000 $ 591,600
========== ========== ========
</TABLE>

Total rent expense for the years ended December 31, 1994 and 1995 was
$389,003 and $427,054, respectively, of which $271,000 and $288,000 was paid to
the Institution's stockholder, respectively.

As indicated in Note 9 to the combined financial statements, the
Institution has guaranteed the related debt which financed the stockholder's
purchase of the San Antonio -- Central and El Paso facilities.

The Institution is from time to time subject to routine litigation
incidental to its business. While the ultimate results of these matters cannot
be determined at this time, the Institution believes that it has meritorious
defenses with respect to such matters and does not expect them to have a
material adverse impact on the Institution's financial condition.

F-30
<PAGE> 102

- ------------------------------------------------------
- ------------------------------------------------------

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN IN
THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 8
Use of Proceeds......................... 16
Dividend Policy......................... 16
Dilution................................ 17
Capitalization.......................... 18
Unaudited Pro Forma As Adjusted
Financial Data........................ 19
Selected Consolidated Financial and
Other Operating Data.................. 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 25
Business................................ 32
Financial Aid and Regulation............ 45
Management.............................. 53
Certain Transactions.................... 61
Principal and Selling Stockholders...... 62
Description of Capital Stock............ 64
Shares Eligible for Future Sale......... 66
Underwriting............................ 68
Legal Matters........................... 69
Experts................................. 69
Additional Information.................. 69
Index to Financial Statements........... F-1
</TABLE>

------------------

Until , 1996 (25 calendar days after the date of this Prospectus) all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------

2,700,000 SHARES

EDUCATIONAL
MEDICAL, INC.

COMMON STOCK

[LOGO] EDUCATIONAL MEDICAL, INC.
------------

PROSPECTUS

, 1996

------------

SMITH BARNEY INC.

MONTGOMERY SECURITIES
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 103

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses to be borne by the Registrant
in connection with the issuance and distribution of the securities being
registered hereby other than underwriting discounts and commissions. All
expenses other than the SEC registration fee and the NASD filing fee are
estimated.

<TABLE>
<S> <C>
SEC registration fee............................................................ $ 13,919.06
NASD filing fee................................................................. *
Nasdaq National Market filing fee............................................... *
Transfer agent's fee and expenses............................................... *
Accounting fees and expenses.................................................... *
Legal fees and expenses......................................................... *
"Blue Sky" fees and expenses (including legal fees)............................. *
Costs of printing and engraving................................................. *
Miscellaneous................................................................... *
-----------
Total................................................................. $ 600,000
==========
</TABLE>

- ---------------

* To be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Registrant's Bylaws effectively provide that the Registrant shall, to
the full extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as amended from time to time ("Section 145"), indemnify all
persons whom it may indemnify pursuant thereto. In addition, the Registrant's
Certificate of Incorporation eliminates personal liability of its directors to
the full extent permitted by Section 102(b)(7) of the General Corporation Law of
the State of Delaware, as amended from time to time ("Section 102(b)(7)").

Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by a third party if such directors or
officers acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit and only with respect to a matter
as to which they shall have acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interest of the corporation, except
that no indemnification shall be made if such person shall have been adjudged
liable to the corporation, unless and only to the extent that the court in which
the action or suit was brought shall determine upon application that the
defendant officers or directors are reasonably entitled to indemnity for such
expenses despite such adjudication of liability.

Section 102(b)(7) provides that a corporation may eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for willful or negligent conduct
in paying dividends or repurchasing stock out of other than lawfully available
funds or (iv) for any transaction from which the director derived an improper
personal benefit. No such provisions shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date when such provision
becomes effective.

II-1
<PAGE> 104

The Company intends to obtain, prior to the effective date of the
Registration Statement, insurance against liabilities under the Securities Act
of 1933 for the benefit of its officers and directors.

Section of the Underwriting Agreement (filed as Exhibit 1.1 to this
Registration Statement) provides that the Underwriters severally and not jointly
will indemnify and hold harmless the Registrant and each director, officer and
controlling person of the Registrant from and against any liability caused by
any statement or omission in the Registration Statement, in the Prospectus, in
any Preliminary Prospectus or in any amendment of supplement thereto, in each
case to the extent that the statement or omission was made in reliance upon and
in conformity with written information furnished to the Registrant by the
Underwriters expressly for use therein.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

There have been no sales of unregistered securities by the Registrant
within the past three years, except as follows:

In March 1995, the Company issued warrants (the "Sirrom Warrants") to
Sirrom to acquire up to 141,667 shares of Common Stock for a purchase price of
$.006 per share. The Sirrom Warrants expire on April 30, 2000. In connection
with this Offering, the Sirrom Warrants will be exercised in full.

In connection with this Offering, the Company is issuing 1,000,000 shares
of Common Stock to the Pecks Managed Entities upon the cashless exercise of
warrants to purchase 1,333,333 shares of Common Stock based on the initial
public offering price.

In each such transaction, the securities were not registered under the
Securities Act of 1933, as amended, in reliance upon the exemption from
registration provided by Section 4(2) of the Act. The factors that assured the
availability of that exemption for each such transaction included the
sophistication of the offerees and of the purchasers, their access to material
information, the disclosures actually made to them by the Registrant and the
absence of any general solicitation or advertising.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS.

II-2
<PAGE> 105

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
**10.11 First Amendment to Securities Purchase Agreement, dated as of March 31, 1995, by
and among the Company and the Pecks Managed Entities.
*10.12 Loan Agreement, dated as of March 31, 1995, by and between the Company, each of
its subsidiaries, and Sirrom.
**10.13 Letter Addendum to Loan Agreement, dated as of March 31, 1995, between the
Company, each of its subsidiaries, and Sirrom.
*10.14 Secured Promissory Note, dated as of March 31, 1995, in the principal amount of
$2,200,000, issued by the Company and each of its subsidiaries in favor of Sirrom.
*10.15 Security Agreement, dated as of March 31, 1995, among the Company, each of its
subsidiaries, and Sirrom.
**10.16 Stock Purchase Warrant to purchase Common Stock of the Company issued to Sirrom,
dated as of March 31, 1995.
**10.17 Pledge Agreement, dated as of March 31, 1995, between the Company and Sirrom.
**10.18 Agreement in Respect of Warrant, dated as of March 31, 1995, among NAP & Company,
the Company and Sirrom.
**10.19 Agreement in Respect of Warrant, dated as of March 31, 1995, among Fuelship &
Company, the Company and Sirrom.
**10.20 Registration Rights Agreement, dated as of July 23, 1991, by and among the
Company, the Sprout Group, LTOS, and the Pecks Managed Entities.
**10.21 First Amendment to Registration Rights Agreement, dated as of March 31, 1995, by
and among the Company, the Sprout Group, LTOS, the Pecks Managed Entities and
Sirrom.
**10.22 Coinvestors Agreement, dated as of July 23, 1991, by and among the Company, the
Sprout Group, LTOS, the Pecks Managed Entities and Investech, L.P.
**10.23 Letter Agreement, dated as of July 23, 1991, by and among the Company, the Sprout
Group, LTOS and Investech, L.P.
**10.24 Business Loan Agreement, dated as of July 14, 1993, between Bank One, Dayton, N.A.
and OIOPT Acquisition Corp.
**10.25 Business Purpose Promissory Note, dated as of July 14, 1993, in the principal
amount of $720,000 issued by OIOPT Acquisition Corp. in favor of Bank One, Dayton,
N.A., and guaranteed by the Company.
**10.26 Mortgage, dated as of July 14, 1993, by OIOPT Acquisition Corp., (Mortgagor), to
Bank One, Dayton, N.A., (Mortgagee), guaranteed by the Company.
**10.27 Pledge Agreement, dated as of July 14, 1993, among the Company, Ohio Institute of
Photography and Technology, Inc. and OIOPT Acquisition Corp.
**10.28 Asset Purchase Agreement, dated as of June 23, 1993, among the Company, OIOPT
Acquisition Corp., Ohio Institute of Photography and Technology, Inc., K. Terry
Guthrie, Richard L. Cretcher, Stephen T. McLain, Gerald D. Guthrie and James R.
Madden.
**10.29 Amendment to Business Loan Agreement, dated as of August 28, 1995, by and between
OIOPT Acquisition Corp. and Bank One, Dayton, N.A., with the Company as guarantor.
**10.30 Promissory Note Modification Agreement, dated as of August 28, 1995, by and
between OIOPT Acquisition Corp. and Bank One, Dayton, N.A., with the Company as
guarantor.
**10.31 Asset Purchase Agreement, dated as of April 30, 1993, among the Company, DBS
Acquisition Corp., Beta Services, Inc. d/b/a Dominion Business Schools, Kenneth C.
Horne, Ann S. Horne, Craig H. Miller and Diane S. Clower.
**10.32 Purchase Money Promissory Note, dated as of May 28, 1993, in the principal amount
of $900,000 issued by the Company and DBS Acquisition Corp. in favor of Beta
Services, Inc.
**10.33 Pledge Agreement, dated as of May 28, 1993, among the Company, DBS Acquisition
Corp. and Beta Services, Inc.
**10.34 Amendment One to Pledge Agreement, dated as of July 23, 1993, among the Company,
DBS Acquisition Corp. and Beta Services, Inc.
</TABLE>

II-3
<PAGE> 106

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
**10.35 Asset Purchase Agreement, dated as of March 12, 1993, among the Company, MTSX
Acquisition Corp., M.T. School of X-Ray, Inc., Jerome Caplan, Donna Caplan and
Harvey Caplan.
**10.36 Purchase Money Promissory Note in the principal amount of $450,000 issued by the
Company and MTSX Acquisition Corp. in favor of M.T. X-Ray, Inc.
**10.37 Second Payment Promissory Note in the principal amount of $500,000 issued by the
Company and MTSX Acquisition Corp. in favor of M.T. X-Ray, Inc.
*10.38 Pledge Agreement, dated as of July 22, 1993, among the Company, MTSX Acquisition
Corp. and M.T. X-Ray, Inc.
*10.39 Consent to Business Loan Agreement, dated as of August 28, 1995, by and between
OIOPT Acquisition Corp. and Bank One, Dayton, N.A., and the Company as guarantor.
*10.40 Guaranty Agreement, dated as of June 22, 1993, between the Company and Vandab
Associates.
**10.41 Assumption Agreement, dated as of June 22, 1993, between Institute of Computer
Management of Baltimore, Inc. and ICM Acquisition Corp., with the Company as
guarantor.
**10.42 Employment Agreement, dated as of December 31, 1992, between the Company and Gary
D. Kerber.
**10.43 Consulting Agreement, dated as of July 14, 1993, by and between the Company and K.
Terry Guthrie.
**10.44 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
Richard L. Cretcher.
**10.45 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
Stephen T. McLain.
**10.46 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
Gerald D. Guthrie.
**10.47 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
James R. Madden.
*10.48 Employee Loan Agreement, dated as of September 20, 1991, by and between the
Company, Vince Pisano and Gail Pisano.
**10.49 First Amendment to Employee Loan Agreement, dated as of September 12, 1994, by and
between the Company, Vince Pisano and Gail Pisano.
*10.50 Mortgage Loan Promissory Note, dated as of September 20, 1991, by and between the
Company, Vince Pisano and Gail Pisano.
**10.51 Amendment to Mortgage Loan Promissory Note, dated as of September 12, 1994, by and
between the Company and Vince and Gail Pisano.
**10.52 Letter Agreement, dated November 21, 1988 between the Company and Robert L.
Heidrich concerning the granting of options.
**10.53 1996 Stock Incentive Plan of the Company.
**10.54 Non-employee Director Stock Option Plan of the Company.
**10.55 Letter Agreement, dated April 6, 1995 between the Company and Equitable Securities
Corporation amending the maturity date of Warrant No. E-007.
**10.56 Asset Purchase Agreement, dated as of September 6, 1996, among the Company, SACMD
Acquisition Corp., San Antonio College of Medical and Dental Assistants, Inc.,
Career Centers of Texas -- El Paso, Inc. and Mr. Comer Alden.
**10.57 Letter of Commitment, dated August 22, 1996, from Bank of America to the Company
concerning the Proposed Bank Line of Credit.
***11.1 Statement regarding computation of pro forma net income (loss) per share.
***11.2 Statement regarding computation of pro forma supplemental net income per share.
***11.3 Statement regarding computation of historical net income (loss) per share.
***11.4 Statement regarding computation of supplemental net income per share.
</TABLE>

II-4
<PAGE> 107

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
***11.5 Statement regarding computation of pro forma as adjusted income before
extraordinary loss per share.
**21.1 List of Registrant's Subsidiaries.
***23.1 Consent of Ernst & Young LLP.
23.2 Consent of Greenberg Traurig (included in the opinion filed as Exhibit 5.1 to this
Registration Statement).
***23.3 Consent of Tsakopulos Brown Schott & Anchors.
**24.1 Power of Attorney (contained on signature page of the Registration Statement).
**27.1 Financial Data Schedule (for SEC use only).
</TABLE>

- ---------------
* To be filed by Amendment.
** Previously filed.
*** Filed with this Amendment.

(B) INDEX TO FINANCIAL STATEMENT SCHEDULES

The following financial statement schedule is included in this Registration
Statement:

Report of Independent Auditors

Schedule II -- Valuation and Qualifying Accounts

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing or closings specified in the Underwriting
Agreement, certificates in such denominations and registered in such names as
may be required by the Underwriters in order to permit prompt delivery to each
purchaser.

The undersigned Registrant hereby further undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities assigned under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

II-5
<PAGE> 108

SIGNATURES

Pursuant to the requirement of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Atlanta, Georgia on
October 7, 1996.

EDUCATIONAL MEDICAL, INC.

By: /s/ GARY D. KERBER
------------------------------------
Gary D. Kerber
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the date indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- -------------------
<C> <S> <C>
/s/ GARY D. KERBER Chairman of the Board, October 7, 1996
- --------------------------------------------- President and Chief
Gary D. Kerber Executive Officer
(Principal executive
officer)

/s/ VINCE PISANO Vice President and Chief October 7, 1996
- --------------------------------------------- Financial Officer
Vince Pisano (Principal financial and
accounting officer)

/s/ ROBERT T. CRESCI* Director October 7, 1996
- ---------------------------------------------
Robert T. Cresci

/s/ CARL S. HUTMAN* Director October 7, 1996
- ---------------------------------------------
Carl S. Hutman

/s/ W. PATRICK ORTALE, III* Director October 7, 1996
- ---------------------------------------------
W. Patrick Ortale, III

/s/ RICHARD E. KROON* Director October 7, 1996
- ---------------------------------------------
Richard E. Kroon

*By: /s/ GARY D. KERBER
- ---------------------------------------------
Gary D. Kerber
Attorney-in-fact
</TABLE>

II-6
<PAGE> 109

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Educational Medical, Inc.

We have audited the consolidated financial statements of Educational
Medical, Inc. as of March 31, 1996 and 1995, and for each of the three years in
the period ended March 31, 1996, and have issued our report thereon dated May
24, 1996 except as to the first paragraph in Note 7 as to which the date is June
20, 1996 (included elsewhere in this Registration Statement). Our audit also
included the financial statement schedule listed in Item 16(a) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audit.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Atlanta, Georgia
May 24, 1996

II-7
<PAGE> 110

SCHEDULE II

EDUCATIONAL MEDICAL, INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND NET AT END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
For the year ended March 31, 1994............. $ 874,961 $1,144,361 $1,239,134 $ 780,188
========= ========= ========= =========
For the year ended March 31, 1995............. $ 780,188 $1,238,287 $1,197,742 $ 820,733
========= ========= ========= =========
For the year ended March 31, 1996............. $ 820,733 $1,082,408 $1,118,760 $ 784,381
========= ========= ========= =========
Deferred tax asset valuation allowance:
For the year ended March 31, 1994............. $ 241,158 $ 304,748 $ -- $ 545,906
========= ========= ========= =========
For the year ended March 31, 1995............. $ 545,906 $ 465,497 $ -- $1,011,403
========= ========= ========= =========
For the year ended March 31, 1996............. $1,011,403 $ 308,584 $ -- $1,319,987
========= ========= ========= =========
</TABLE>

II-8
<PAGE> 111

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of the Company.
*3.2 Restated By-Laws of the Company.
*4.1 Form of Common Stock Certificate.
*5.1 Opinion of Greenberg Traurig.
**10.1 Securities Purchase Agreement, dated as of July 23, 1991, by and among the Company
and the Pecks Managed Entities.
*10.2 Promissory Note R-002, dated as of July 16, 1991, in the principal amount of
$2,900,000 issued by the Company in favor of NAP & Company.
**10.3 Promissory Note R-003, dated as of July 23, 1991, in the principal amount of
$603,000 issued by the Company in favor of Fuelship & Company.
**10.4 Promissory Note R-004, dated as of July 23, 1991, in the principal amount of
$497,000 issued by the Company in favor of Fuelship & Company.
**10.5 Allonge to Promissory Note R-002, dated as of March 31, 1995.
**10.6 Allonge to Promissory Note R-003, dated as of March 31, 1995.
**10.7 Allonge to Promissory Note R-004, dated as of March 31, 1995.
**10.8 Warrant No. R-001 to purchase Common Stock issued to Fuelship & Company.
**10.9 Warrant No. R-002 to purchase Common Stock issued to NAP & Company.
*10.10 Warrant No. E-007 to purchase Common Stock issued to Equitable Securities
Corporation.
**10.11 First Amendment to Securities Purchase Agreement, dated as of March 31, 1995, by
and among the Company and the Pecks Managed Entities.
*10.12 Loan Agreement, dated as of March 31, 1995, by and between the Company, each of
its subsidiaries, and Sirrom.
**10.13 Letter Addendum to Loan Agreement, dated as of March 31, 1995, between the
Company, each of its subsidiaries, and Sirrom.
*10.14 Secured Promissory Note, dated as of March 31, 1995, in the principal amount of
$2,200,000, issued by the Company and each of its subsidiaries in favor of Sirrom.
*10.15 Security Agreement, dated as of March 31, 1995, among the Company, each of its
subsidiaries, and Sirrom.
**10.16 Stock Purchase Warrant to purchase Common Stock of the Company issued to Sirrom,
dated as of March 31, 1995.
**10.17 Pledge Agreement, dated as of March 31, 1995, between the Company and Sirrom.
**10.18 Agreement in Respect of Warrant, dated as of March 31, 1995, among NAP & Company,
the Company and Sirrom.
**10.19 Agreement in Respect of Warrant, dated as of March 31, 1995, among Fuelship &
Company, the Company and Sirrom.
**10.20 Registration Rights Agreement, dated as of July 23, 1991, by and among the
Company, the Sprout Group, LTOS, and the Pecks Managed Entities.
**10.21 First Amendment to Registration Rights Agreement, dated as of March 31, 1995, by
and among the Company, the Sprout Group, LTOS, the Pecks Managed Entities and
Sirrom.
**10.22 Coinvestors Agreement, dated as of July 23, 1991, by and among the Company, the
Sprout Group, LTOS, the Pecks Managed Entities and Investech, L.P.
**10.23 Letter Agreement, dated as of July 23, 1991, by and among the Company, the Sprout
Group, LTOS and Investech, L.P.
**10.24 Business Loan Agreement, dated as of July 14, 1993, between Bank One, Dayton, N.A.
and OIOPT Acquisition Corp.
**10.25 Business Purpose Promissory Note, dated as of July 14, 1993, in the principal
amount of $720,000 issued by OIOPT Acquisition Corp. in favor of Bank One, Dayton,
N.A., and guaranteed by the Company.
</TABLE>

<PAGE> 112

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
**10.26 Mortgage, dated as of July 14, 1993, by OIOPT Acquisition Corp., (Mortgagor), to
Bank One, Dayton, N.A., (Mortgagee), guaranteed by the Company.
**10.27 Pledge Agreement, dated as of July 14, 1993, among the Company, Ohio Institute of
Photography and Technology, Inc. and OIOPT Acquisition Corp.
**10.28 Asset Purchase Agreement, dated as of June 23, 1993, among the Company, OIOPT
Acquisition Corp., Ohio Institute of Photography and Technology, Inc., K. Terry
Guthrie, Richard L. Cretcher, Stephen T. McLain, Gerald D. Guthrie and James R.
Madden.
**10.29 Amendment to Business Loan Agreement, dated as of August 28, 1995, by and between
OIOPT Acquisition Corp. and Bank One, Dayton, N.A., with the Company as guarantor.
**10.30 Promissory Note Modification Agreement, dated as of August 28, 1995, by and
between OIOPT Acquisition Corp. and Bank One, Dayton, N.A., with the Company as
guarantor.
**10.31 Asset Purchase Agreement, dated as of April 30, 1993, among the Company, DBS
Acquisition Corp., Beta Services, Inc. d/b/a Dominion Business Schools, Kenneth C.
Horne, Ann S. Horne, Craig H. Miller and Diane S. Clower.
**10.32 Purchase Money Promissory Note, dated as of May 28, 1993, in the principal amount
of $900,000 issued by the Company and DBS Acquisition Corp. in favor of Beta
Services, Inc.
**10.33 Pledge Agreement, dated as of May 28, 1993, among the Company, DBS Acquisition
Corp. and Beta Services, Inc.
**10.34 Amendment One to Pledge Agreement, dated as of July 23, 1993, among the Company,
DBS Acquisition Corp. and Beta Services, Inc.
**10.35 Asset Purchase Agreement, dated as of March 12, 1993, among the Company, MTSX
Acquisition Corp., M.T. School of X-Ray, Inc., Jerome Caplan, Donna Caplan and
Harvey Caplan.
**10.36 Purchase Money Promissory Note in the principal amount of $450,000 issued by the
Company and MTSX Acquisition Corp. in favor of M.T. X-Ray, Inc.
**10.37 Second Payment Promissory Note in the principal amount of $500,000 issued by the
Company and MTSX Acquisition Corp. in favor of M.T. X-Ray, Inc.
*10.38 Pledge Agreement, dated as of July 22, 1993, among the Company, MTSX Acquisition
Corp. and M.T. X-Ray, Inc.
*10.39 Consent to Business Loan Agreement, dated as of August 28, 1995, by and between
OIOPT Acquisition Corp. and Bank One, Dayton, N.A., and the Company as guarantor.
*10.40 Guaranty Agreement, dated as of June 22, 1993, between the Company and Vandab
Associates.
**10.41 Assumption Agreement, dated as of June 22, 1993, between Institute of Computer
Management of Baltimore, Inc. and ICM Acquisition Corp., with the Company as
guarantor.
**10.42 Employment Agreement, dated as of December 31, 1992, between the Company and Gary
D. Kerber.
**10.43 Consulting Agreement, dated as of July 14, 1993, by and between the Company and K.
Terry Guthrie.
**10.44 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
Richard L. Cretcher.
**10.45 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
Stephen T. McLain.
**10.46 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
Gerald D. Guthrie.
**10.47 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
James R. Madden.
*10.48 Employee Loan Agreement, dated as of September 20, 1991, by and between the
Company, Vince Pisano and Gail Pisano.
**10.49 First Amendment to Employee Loan Agreement, dated as of September 12, 1994, by and
between the Company, Vince Pisano and Gail Pisano.
</TABLE>
<PAGE> 113

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
*10.50 Mortgage Loan Promissory Note, dated as of September 20, 1991, by and between the
Company, Vince Pisano and Gail Pisano.
**10.51 Amendment to Mortgage Loan Promissory Note, dated as of September 12, 1994, by and
between the Company and Vince and Gail Pisano.
**10.52 Letter Agreement, dated November 21, 1988 between the Company and Robert L.
Heidrich concerning the granting of options.
**10.53 1996 Stock Incentive Plan of the Company.
**10.54 Non-employee Director Stock Option Plan of the Company.
**10.55 Letter Agreement, dated April 6, 1995 between the Company and Equitable Securities
Corporation amending the maturity date of Warrant No. E-007.
**10.56 Asset Purchase Agreement, dated as of September 6, 1996, among the Company, SACMD
Acquisition Corp., San Antonio College of Medical and Dental Assistants, Inc.,
Career Centers of Texas -- El Paso, Inc. and Mr. Comer Alden.
**10.57 Letter of Commitment, dated August 22, 1996, from Bank of America to the Company
concerning the Proposed Bank Line of Credit.
***11.1 Statement regarding computation of pro forma net income (loss) per share.
***11.2 Statement regarding computation of pro forma supplemental net income per share.
***11.3 Statement regarding computation of historical net income (loss) per share.
***11.4 Statement regarding computation of supplemental net income per share.
***11.5 Statement regarding computation of pro forma as adjusted income before
extraordinary loss per share.
**21.1 List of Registrant's Subsidiaries.
***23.1 Consent of Ernst & Young LLP.
23.2 Consent of Greenberg Traurig (included in the opinion filed as Exhibit 5.1 to this
Registration Statement).
***23.3 Consent of Tsakopulos Brown Schott & Anchors.
**24.1 Power of Attorney (contained on signature page of the Registration Statement).
**27.1 Financial Data Schedule (for SEC use only).
</TABLE>

- ---------------
* To be filed by Amendment.
** Previously filed.
*** Filed with this Amendment.

<PAGE> 1

EXHIBIT 11.1

EDUCATIONAL MEDICAL, INC.

COMPUTATION OF PRO FORMA NET INCOME (LOSS) PER SHARE

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
MARCH 31, ENDED
1996 June 30, 1996
---------- -------------
<S> <C> <C>
Primary and fully diluted:
Weighted average common stock and common stock equivalents
outstanding during the period................................... 1,815,042 $1,815,042
Convertible preferred stock converted into common stock upon
consummation of initial public offering(1)...................... 1,705,082 1,705,082
Exercise of common stock purchase warrants upon consummation of
initial public offering(1)...................................... 1,141,601 1,141,601
Effect of common stock equivalents issued subsequent to August 7,
1995 computed in accordance with the treasury stock method as
required by the SEC(2).......................................... 126,538 126,538
---------- ----------
Total...................................................... 4,788,263 4,788,263
========== ==========
Net income (loss).................................................... $ 79,424 $ 65,511
========== ==========
Pro forma net income (loss) per share of common stock................ $ .02 $ .01
========== ==========
</TABLE>

- ---------------

(1) Pro forma income (loss) per share reflects preferred stock automatically
converted into Common Stock and warrants to be exercised upon consummation
of the initial public offering as if such conversion and exercises had
occurred at the beginning of fiscal 1995.

(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, Common Stock equivalents issued at prices below the assumed initial
public offering price per share ("cheap stock") during the twelve month
period immediately preceding the initial filing date of the Company's
Registration Statement for its public offering have been included as
outstanding for all periods presented prior to the initial public offering.

<PAGE> 1

EXHIBIT 11.2

EDUCATIONAL MEDICAL, INC.

COMPUTATION OF PRO FORMA SUPPLEMENTAL NET INCOME PER SHARE

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
MARCH 31, 1996 JUNE 30, 1996
-------------- -------------
<S> <C> <C>
Primary and fully diluted:
Weighted average common stock and common stock equivalents
outstanding during the period(3)............................ 2,215,042 2,215,042
Convertible preferred stock converted into common stock upon
consummation of initial public offering(1).................. 1,705,082 1,705,082
Exercise of common stock purchase warrants upon consummation of
initial public offering(1).................................. 1,141,601 1,141,601
Effect of common stock equivalents issued subsequent to August
7, 1995 computed in accordance with the treasury stock
method as required by the SEC(2)............................ 126,538 126,538
---------- ----------
Total.................................................. 5,188,263 5,188,263
========== ==========
Net income....................................................... $ 79,424 $ 65,511
Plus: Reduction in interest expense from repayment of long-term
notes payable, net of income taxes(3).......................... 473,593 124,630
---------- ----------
Pro forma supplemental net income................................ $ 553,017 $ 190,141
========== ==========
Pro forma supplemental net income per share of common stock(3)... $ .11 $ .04
========== ==========
</TABLE>

- ---------------

(1) Pro forma supplemental net income per share reflects preferred stock
automatically converted into Common Stock and warrants to be exercised upon
consummation of the initial public offering as if such conversion and
exercises had occurred at the beginning of the fiscal year.

(3) Pro forma supplemental net income per share reflects the number of shares of
Common Stock issued upon consummation of the initial public offering used
to repay $4.8 million in current and long-term debt as if such issuance had
occurred at the beginning of the period (or date of issuance of the notes
payable, if later) and the related reduction in interest expense.

<PAGE> 1

EXHIBIT 11.3

EDUCATIONAL MEDICAL, INC.

COMPUTATION OF HISTORICAL NET INCOME (LOSS) PER SHARE

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED JUNE 30,
-------------------------------------- -------------------------
1994 1995 1996 1995 1996
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Primary and fully diluted:
Weighted average common stock and
common stock equivalents
outstanding during the
period(1)..................... 1,647,662 1,647,662 4,346,477 1,647,662 4,674,557
Effect of common stock
equivalents issued subsequent
to August 7, 1995 computed in
accordance with the treasury
stock method as required by
the SEC(2).................... 12,629 -- 79,834 -- 126,538
----------- ----------- ---------- ----------- -----------
1,660,291 1,647,662 4,426,311 1,647,662 4,801,095
=========== =========== ========== =========== ===========
Net income (loss).................. $(1,561,305) $(1,428,376) $ 79,424 $ (62,119) $ 65,511
=========== =========== ========== =========== ===========
Net income (loss) per share of
common stock..................... $ (.94) $ (.87) $ .02 $ (.04) $ .01
=========== =========== ========== =========== ===========
</TABLE>

- ---------------

(1) Common stock equivalents were antidilutive in 1994 and 1995, therefore, they
were not included in the computation of weighted average shares outstanding
for such periods. Cheap stock is included as outstanding for all periods
even though the effect is to reduce loss per share in 1994 and 1995.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, Common Stock equivalents issued at prices below the assumed initial
public offering price per share ("cheap stock") during the twelve month
period immediately preceding the initial filing date of the Company's
Registration Statement for its public offering have been included as
outstanding for all periods presented prior to the initial public offering.

<PAGE> 1

EXHIBIT 11.4

EDUCATIONAL MEDICAL, INC.

COMPUTATION OF HISTORICAL SUPPLEMENTAL NET INCOME PER SHARE

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
MARCH 31, 1996 JUNE 30, 1996
-------------- --------------
<S> <C> <C>
Primary and fully diluted:
Weighted average common stock and common stock equivalents
outstanding during the period(2)............................. 4,746,477 4,746,477
Effect of common stock equivalents issued subsequent to August
7, 1995 computed in accordance with the treasury stock method
as required by the SEC(1).................................... 79,834 126,538
---------- ----------
Total................................................... 4,826,311 4,873,015
========== ==========
Net income........................................................ $ 79,424 $ 65,511
Plus: Reduction in interest expense from repayment of long-term
notes payable, net of income taxes(2)........................... 473,593 124,630
---------- ----------
Supplemental net income........................................... $ 553,017 $ 190,141
========== ==========
Historical supplemental net income per share of common stock(2)... $ .11 $ .04
========== ==========
</TABLE>

- ---------------

(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common stock equivalents issued at prices below the assumed initial
public offering price per share ("cheap stock") during the twelve month
period immediately preceding the initial filing date of the Company's
Registration Statement for its public offering have been included as
outstanding for all periods presented prior to the initial public offering.

(2) Historical supplemental net income per share reflects the number of shares
of common stock issued upon consummation of the initial public offering used
to repay $4.8 million in current and long-term debt as if such issuance had
occurred at the beginning of the period (or date of issuance of notes
payable, if later) and the related reduction in interest expense.

<PAGE> 1

EXHIBIT 11.5

EDUCATIONAL MEDICAL, INC.

COMPUTATION OF PRO FORMA AS ADJUSTED INCOME
BEFORE EXTRAORDINARY LOSS PER SHARE

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
MARCH 31, JUNE 30,
1996 1996
---------- ------------
<S> <C> <C>
Primary and fully diluted:
Weighted average common stock and common stock equivalents
outstanding during the period................................... 1,815,042 $1,815,042
Convertible preferred stock converted into common stock upon
consummation of initial public offering(2)...................... 1,705,082 1,705,082
Exercise of common stock purchase warrants upon consummation of
initial public offering(1)...................................... 1,141,601 1,141,601
Issuance of common stock in connection with initial public
offering........................................................ 2,200,000 2,200,000
Effect of common stock equivalents issued subsequent to August 7,
1995 computed in accordance with the treasury stock method as
required by the SEC(2).......................................... 126,538 126,538
---------- ----------
Total...................................................... 6,988,263 6,988,263
========== ==========
Pro forma as adjusted income before extraordinary loss............... $ 848,000 $ 233,000
========== ==========
Pro forma as adjusted income before extraordinary loss per share of
common stock....................................................... $ .12 $ .03
========== ==========
</TABLE>

- ---------------

(1) Reflects preferred stock automatically converted into common stock and
warrants to be exercised upon consummation of the initial public offering
as if such conversion and exercises had occurred at the beginning of the
fiscal year.

(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common stock equivalents issued at prices below the assumed initial
public offering price per share ("cheap stock") during the twelve month
period immediately preceding the initial filing date of the Company's
Registration Statement for its initial public offering have been included
as outstanding for all periods presented prior to the initial public
offering.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated May 24, 1996 (except as to the first paragraph of
Note 7, as to which the date is June 20, 1996), in Amendment No. 2 to the
Registration Statement (Form S-1 No. 333-09777) and the related Prospectus of
Educational Medical, Inc. for the registration of 3,105,000 shares of its common
stock.

/s/ Ernst & Young LLP
--------------------------------------

Atlanta, Georgia

October 7, 1996

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 12, 1996, except for Note 1, which is August
2, 1996, in Amendment No. 2 to the Registration Statement (Form S-1 No.
333-09777) and related Prospectus of Educational Medical, Inc. for the
registration of 3,105,000 shares of its common stock.

Tsakopulos Brown Schott & Anchors

San Antonio, Texas

October 7, 1996