CORINTHIAN COLLEGES INC, S-1/A, 1998-08-31

CORINTHIAN COLLEGES INC
S-1/A, 1998-08-31
EDUCATIONAL SERVICES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1998

REGISTRATION NO. 333-59505
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 1

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

---------------
CORINTHIAN COLLEGES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 824 33-0717312
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION
NUMBER)

6 HUTTON CENTRE DRIVE, SUITE 400
SANTA ANA, CALIFORNIA 92707-5765
(714) 427-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

---------------
DAVID G. MOORE
CORINTHIAN COLLEGES, INC.
6 HUTTON CENTRE DRIVE, SUITE 400
SANTA ANA, CALIFORNIA 92707-5765
(714) 427-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:
DAVID A. KRINSKY JONATHAN LAYNE
O'MELVENY & MYERS LLP GIBSON, DUNN & CRUTCHER LLP
610 NEWPORT CENTER DRIVE, SUITE 1700 333 SOUTH GRAND AVENUE, 46TH FLOOR
NEWPORT BEACH, CALIFORNIA 92660 LOS ANGELES, CALIFORNIA 90071
(714) 760-9600 (213) 229-7000

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

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

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, please 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. [_]

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

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.

===============================================================================
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 AUGUST 28, 1998

PROSPECTUS

3,000,000 SHARES

[LOGO OF CORINTHIAN COLLEGES, INC.]

COMMON STOCK

--------

All of the 3,000,000 shares of Common Stock offered hereby (the "Offering")
are being sold by Corinthian Colleges, Inc. ("CCi" or the "Company"). Prior to
the Offering, there has not been a public market for the Common Stock of the
Company. It is currently estimated that the initial public offering price of
the Common Stock will be between $14.00 and $16.00 per share. See
"Underwriting" for a discussion of factors to be considered in determining the
initial public offering price. Application has been made to have the Common
Stock approved for quotation on the Nasdaq Stock Market's National Market under
the symbol "COCO."

A portion of the proceeds will be used to repay $5.0 million of subordinated
debt and redeem preferred stock in the approximate amount of $2.2 million held
by Primus Capital Fund III Limited Partnership ("Primus") and Banc One Capital
Partners LLC ("Banc One"), both of whom are significant holders of Company
Common Stock.

--------

SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF MATERIAL RISKS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

--------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HASTHE 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
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -------------------------------------------------------------------------
Total(3) $ $ $
</TABLE>
===============================================================================
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."

(2) Before deducting expenses estimated at $2,000,000, all of which is
payable by the Company.

(3) Certain stockholders of the Company have granted the Underwriters a 30-
day option to purchase up to an aggregate of 450,000 additional shares of
Common Stock, solely to cover over-allotments, if any. See
"Underwriting." If such options are exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Securityholders 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 the certificates for the
shares of Common Stock offered hereby will be available for delivery on or
about , 1998, at the office of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001.

--------

SALOMON SMITH BARNEY

CREDIT SUISSE FIRST BOSTON

PIPER JAFFRAY INC.

, 1998
<PAGE>

EDGAR DESCRIPTION OF PROSPECTUS COLORWORK IFC]1

[CCi LOGO] Bryman College (10)

Florida Metropolitan University (8)

National Institute of Technology (4)

Western Business College (2)

Parks College (2)

Blair College

Bryman Institute

Duff's Business Institute

Kee Business College

Las Vegas College

Mountain West College

Rochester Business Institute

Skadron College

Springfield College

Two Corinthian Colleges students at graduation

The Company intends to furnish its stockholders annual reports containing
audited financial statements and, upon request, will make available copies of
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING BY OVER-ALLOTMENT, ENTERING INTO STABILIZING BIDS,
EFFECTING SYNDICATE COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>

EDGAR DESCRIPTION OF
PROSPECTUS COLORWORK GATE]1

DIPLOMA COLLEGES

With a principal focus on health-care and
electronics, the Company's Corinthian
Schools, Inc. (CSi) division operates 17
colleges in 8 states. CSi students prepare for
entry level careers in the medical, dental,
business and technology fields.

According to the U.S, Department of Labor,
these fields are likely to experience rapid
growth over the next several years. Graduates
receive a diploma upon successful comple-
tion of their program of study.

Photograph of front of Bryman College building.

Photograph of medical assisting student
checking the blood pressure of a patient.

Photograph of dental assisting student
performing dental checkup.

Photograph of student performing an eye exam
on patient.

Photograph of student studying X-rays.

Photograph of students looking through
microscopes.

Photograph of electronics technician student.

CORE CURRICULUM

More than 5,500 students are currently train-
ing at CSi campuses for rewarding careers as
medical assistants, dental assistants, medical
office managers, electronic technicians and
business operation specialists.

Most programs can be completed in less
than one year allowing students to transition
from the classroom to the workplace with the
knowledge and skills today's employers expect.

<PAGE>

EDGAR DESCRIPTION OF
PROSPECTUS COLORWORK GATE]2

DEGREE GRANTING COLLEGES

Degree programs in accounting, business,
computers and healthcare are offered at
the Company's Rhodes Colleges, Inc.
(RCi) division, operating 18 colleges
nationwide. The current robust U.S.
economy has fueled the demand for skilled
professionals who possess the requisite
knowledge to function effectively in the
rapidly changing business environment.
Graduates earn associate, baccalaureate
or master's degrees upon successful
completion of their program of study.

Photograph of front of FMU-Orlando College.

Photograph of students in a computer class.

Photograph of two students in a film
production studio.

Photograph of woman in presentation
pointing at information on easel.

Photograph of two men looking at book
in library.

CORE CURRICULUM

More than 8,500 students are
currently pursuing degree
programs in accounting, business
administration, computer
information systems, travel and
tourism, medical assisting and
paralegal.

Many of these students are
working adults and attend
classes in the evening in order
to advance in their current
careers.

Photograph of front of Parks College
building.

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information, including "Risk Factors" and
Consolidated Financial Statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus (i) reflects the consummation of the Transactions, including a
44.094522 for 1 stock split of the Common Stock (as defined in "The
Transactions") and (ii) assumes that the Underwriters' over-allotment options
are not exercised. Throughout this Prospectus, except where the context
otherwise requires, the term "Company" refers collectively to Corinthian
Colleges, Inc. and its subsidiaries, including all of their schools and
campuses; the terms "school," "college" or "campus" refer to a single location.
The Company's fiscal year ends on June 30.

THE COMPANY

The Company is one of the largest private, for-profit post-secondary
education companies in the United States, with more than 14,200 students as of
July 31, 1998. The Company operates 35 colleges in 16 states, including nine in
California and eight in Florida, and services the large and growing segment of
the population seeking to acquire career-oriented education to become qualified
and marketable in today's increasingly demanding workplace environment. The
Company's schools generally enjoy long operating histories and strong franchise
value in their local markets. The median operating history for the Company's
colleges is 36 years, including nine colleges with operating histories over 80
years. For the year ended June 30, 1998, the Company had net revenues of $106.5
million.

The Company offers a variety of master's, bachelor's and associate's degrees
and diploma programs through two operating divisions. The Company's Corinthian
Schools division ("CSi") operates diploma-granting schools in the allied
healthcare and electronics technology fields and seeks to provide its students
a solid base of training for a variety of entry-level positions. The Company's
Rhodes Colleges division ("RCi") operates degree-granting schools principally
in the business area and provides its students with professional education to
succeed in today's increasingly competitive workplace. Both divisions receive
strategic direction and operational support from senior management and
headquarters staff.

The Company's management team is led by David Moore, Paul St. Pierre, Frank
McCord, Lloyd Holland and Dennis Devereux, who have 21, 20, 4, 11 and 10 years
of experience in post-secondary education. See "Management." Since its founding
in 1995, the Company has grown rapidly and improved enrollments and
profitability. In order to capitalize on management's extensive industry
experience, the Company has implemented a regional management structure
supported by the Company's proprietary management information system (the
Schools Automation System, or "SAS"). SAS provides regional managers with real
time access to key information from any location and links all the colleges and
regional offices to corporate headquarters, providing senior management with
daily access to marketing reports, lead tracking, academic records, grades,
transcripts and placement information. Due to the Company's effective
management of leads and other marketing resources, the Company's colleges have
experienced a combined enrollment growth of 18% since their respective
acquisitions by the Company.

THE POST-SECONDARY EDUCATION INDUSTRY

The market for post-secondary education is large and growing, exceeding $220
billion and 14 million students in the 1996-97 school year. The Company
believes that the demand for career-oriented post-secondary education will
increase during the next several years as a result of certain demographic,
economic and social trends, including: (i) an increased demand for skilled
labor, with an expected 36 million jobs requiring skilled labor projected to be
created between 1991 and 2000; (ii) a projected 17% growth in the annual number
of high school graduates from 1995 to 2005 (from 2.5 million to 3.0 million);
(iii) an expanded number of adults

1
<PAGE>

(persons aged 25 and older) enrolling in post-secondary education, with a
projected increase to 6.4 million by 2007; (iv) the significant and measurable
income premium attributable to post-secondary education; and (v) budgetary
constraints at traditional colleges and universities.

OPERATING STRATEGY

The Company has improved the enrollment and profitability of its schools
through the application of its operating strategy developed through
management's extensive industry experience. The Company believes that its
ability to continue to effectively and professionally manage its schools
provides it with an important competitive advantage. Key elements of the
Company's strategy include:

FOCUS ON ATTRACTIVE MARKETS. The Company selects its schools and designs its
educational programs to exploit favorable demographic and economic trends. The
Company offers programs in the rapidly growing fields of healthcare, business
and technology and seeks to locate its colleges to achieve operating
efficiencies and strong competitive positions in attractive and growing local
markets.

EMPHASIZING STUDENT OUTCOMES. The Company believes that strong student
outcomes are a critical driver of its long term success. The Company devotes
substantial resources to maintaining and improving its retention and placement
rates, including implementing a variety of student services such as tutoring,
counselling and extensive placement assistance. As a result of the Company's
efforts, 83% of the Company's graduates who were available for placement in
fiscal 1997 were placed in jobs within six months of their graduation date.

CREATING A SUPPORTIVE AND FRIENDLY ENVIRONMENT. The Company views its
students as customers and seeks to provide a supportive and convenient learning
environment. The Company operates its colleges year-round, offers flexible
scheduling, and encourages personal interaction between faculty and students.

GROWTH STRATEGY

The Company intends to strengthen its position as a leading provider of
private, for-profit career-oriented post-secondary education in the United
States. To accomplish this objective, the Company will pursue the following
growth strategies:

ENHANCE GROWTH AT EXISTING CAMPUSES. The Company intends to enhance growth at
existing campuses by (i) continuing to develop and expand its curriculum based
on market research and the recommendations of its faculty, employees and
industry advisory board members, (ii) employing an integrated marketing program
utilizing an extensive direct response advertising campaign delivered through
television, radio, newspaper, direct mail and the Internet, and (iii)
continuing to systematically relocate selected colleges that are capacity
constrained to larger, enhanced facilities upon lease expiration.

ESTABLISH ADDITIONAL LOCATIONS. The Company anticipates creating "Additional
Locations" of its existing institutions to enter new geographic markets and to
create additional capacity in existing markets. The Company seeks markets with
a high enrollment potential and significant placement opportunities that will
enable it to effectively leverage its existing curriculum, management and
marketing infrastructure.

EXPAND SERVICE AREAS AND DELIVERY MODELS. The Company seeks to expand its
presence in the government and corporate training market and to pursue distance
learning opportunities.

2
<PAGE>

SELECTIVELY ACQUIRE ACCREDITED PROPRIETARY COLLEGES. The Company is
selectively seeking to acquire additional institutions that can benefit from
its operational expertise. The Company will generally seek to acquire schools
that possess: (i) complementary or attractive new curricula, (ii) locations in
or near metropolitan areas, and (iii) strong franchise value (name recognition
or marketability).

COMPANY HISTORY

The Company was founded in February 1995 by David Moore, Paul St. Pierre,
Frank McCord, Dennis Devereux and Lloyd Holland, the five senior managers of
what was then National Education Centers, Inc., ("NECI"), a subsidiary of
National Education Corporation ("NEC"), to capitalize on opportunities in
career- oriented post-secondary education. Between June and December 1995, the
Company acquired 16 of NECI's colleges, each of which was a diploma granting
school with a focus in healthcare (the "NEC Acquisition"). In July and
September 1996, the Company completed two single campus acquisitions of
additional diploma granting schools. 17 of these 18 colleges (one has since
been closed) today comprise the Company's CSi division.

In October of 1996, the Company completed its second multi-campus acquisition
through the purchase of 18 campuses from Phillips Colleges, Inc. (the "Phillips
Acquisition"). Each of these colleges is a degree granting school with a
primary focus on degrees in business. These colleges currently comprise the
Company's RCi division.

The Company's principal executive offices are located at 6 Hutton Centre
Drive, Suite 400, Santa Ana, California 92707 and its telephone number is (714)
427-3000.

THE OFFERING

<TABLE>
<C> <S>
Common Stock offered by the Company..... 3,000,000 shares
Common stock to be outstanding after the
Offering............................... 10,645,627 shares
Use of proceeds......................... Repayment of certain indebtedness of
approximately $32.8 million;
redemption of outstanding preferred
stock of approximately $2.5 million;
and cash of approximately $4.5
million for general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.. "COCO"
Risk factors............................ See "Risk Factors" for a discussion
of material risks which should be
considered in evaluating an
investment in the Common Stock
offered by this Prospectus.
</TABLE>

3
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following table sets forth certain consolidated financial and other
operating data for the Company. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," the Company's Consolidated Financial Statements and notes
thereto and other financial information included elsewhere in this Prospectus.
See "Selected Historical Consolidated Financial and Other Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1).............................. $ 31,498 $ 77,201 $ 106,486
Operating expenses:
Educational services........................ 18,594 50,568 65,927
General and administrative.................. 3,298 8,101 10,777
Marketing and advertising................... 7,562 19,000 24,268
--------- --------- ---------
Total operating expenses.................... 29,454 77,669 100,972
--------- --------- ---------
Income (loss) from operations................ 2,044 (468) 5,514
Interest expense, net........................ 274 2,524 3,305
--------- --------- ---------
Income (loss) before income taxes............ 1,770 (2,992) 2,209
Provision (benefit) for income taxes......... 722 (1,107) 988
--------- --------- ---------
Net income (loss)............................ $ 1,048 $ (1,885) $ 1,221
========= ========= =========
Income (loss) attributable to common
stockholders:
Net income (loss)........................... $ 1,048 $ (1,885) $ 1,221
Accrued dividends on preferred stock........ (111) (118) (365)
--------- --------- ---------
Income (loss) attributable to common
stockholders............................. $ 937 $ (2,003) $ 856
========= ========= =========
Net income (loss) per common share:
Basic ...................................... $ 0.21 $ (0.41) $ 0.16
========= ========= =========
Diluted..................................... $ 0.15 $ (0.41) $ 0.12
========= ========= =========
Weighted average number of common shares
outstanding:
Basic....................................... 4,409,452 4,895,682 5,236,224
========= ========= =========
Diluted..................................... 6,338,588 4,895,682 7,107,248
========= ========= =========
OTHER DATA:
EBITDA(2).................................... $ 2,726 $ 1,602 $ 8,573
Cash flow provided by (used in):
Operating activities........................ 997 995 (3,373)
Investing activities........................ (4,295) (30,973) (1,677)
Financing activities........................ 3,903 30,975 4,630
Capital expenditures, net(3)................. 1,046 5,936 1,927
Number of colleges at end of period.......... 16 36 35
Student population at end of period.......... 5,030 12,820 13,992
Starts during the period(4).................. 8,106 13,077 18,261
</TABLE>

4
<PAGE>

<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------
PRO FORMA
ACTUAL AS ADJUSTED(6)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and restricted cash(5).......... $ 3,162 $ 7,783
Working capital........................................ 606 7,727
Total assets........................................... 59,905 63,726
Long-term debt, net of current maturities.............. 31,535 3,535
Redeemable Preferred Stock............................. 2,167 --
Convertible Preferred Stock............................ 5,174 --
Total stockholders' equity............................. 977 43,888
</TABLE>
- --------
(1) Represents student tuition and fees and book store sales, net of refunds.
Year ended June 30, 1996 includes a non-recurring management fee of
approximately $2.1 million earned by the Company for managing certain
colleges owned by NECI during the first six months of that year.

(2) EBITDA equals earnings before interest expense, taxes, depreciation and
amortization (including amortization of deferred financing costs). EBITDA
is presented because the Company believes it allows for a more complete
analysis of the Company's results of operations. EBITDA should not be
considered as an alternative to, nor is there any implication that it is
more meaningful than, any measure of performance or liquidity as
promulgated under GAAP.

(3) Year ended June 30, 1997 includes approximately $3.4 million for real
estate acquired in connection with the Phillips Acquisition.

(4) Represents the new students starting school during the periods presented.

(5) Includes $760,000 of restricted cash at June 30, 1998.

(6) Pro forma as adjusted gives effect to the Transactions, the Offering and
the application of the net proceeds thereof, prepayment premium of
approximately $1,393,000 and the write-off of deferred financing costs of
approximately $480,000, net of income tax benefit of approximately
$1,249,000.

5
<PAGE>

RISK FACTORS

Investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information contained in this
Prospectus, prospective investors should consider carefully the following risk
factors in evaluating the Company and its business before purchasing any
Common Stock offered hereby. This Prospectus contains certain forward-looking
statements that are based on the beliefs of, as well as assumptions made by
and current information available to, the Company's management. Words such as
"believe," "anticipate," "intend," "estimate," "expect" and other similar
expressions are intended to identify such forward-looking statements, but are
not the exclusive means of identifying such statements. The cautionary
statements made in this Prospectus should be read as being applicable to
related forward-looking statements whenever they appear on this Prospectus.
The Company's results could differ materially from those discussed here should
one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove to be incorrect. Factors that could cause or
contribute to such differences include those discussed below as well as those
discussed elsewhere herein.

SUBSTANTIAL DEPENDENCE ON STUDENT FINANCIAL AID; POTENTIAL ADVERSE EFFECTS OF
GOVERNMENTAL REGULATION

Students attending the Company's schools finance their education through a
combination of family contributions, individual resources (including earnings
from full or part-time employment) and government-sponsored financial aid. The
Company estimates that approximately 77% of its students, as of June 30, 1998,
received some federal Title IV financial aid (as defined herein). For fiscal
1998, approximately 72% of the Company's revenue (on a cash basis) was derived
from federal Title IV Programs (as defined herein).

In connection with the receipt by its students of government-sponsored
financial aid, the Company is subject to extensive regulation by governmental
agencies and licensing and accrediting bodies. In particular, the Higher
Education Act of 1965, as amended (the "HEA"), and the regulations issued
thereunder by the United States Department of Education (the "DOE"), subject
the Company to significant regulatory scrutiny in the form of numerous
standards that schools must satisfy in order to participate in the various
federal student financial aid programs under Title IV of the HEA (the "Title
IV Programs"). Under the HEA, regulatory authority is divided among each of
the following three components: (i) the federal government, which acts through
the DOE; (ii) the accrediting agencies recognized by the DOE; and (iii) state
higher education regulatory bodies. Among other things, the HEA and its
implementing regulations require the Company's institutions to: (i) maintain a
rate of default by its students on federally guaranteed or funded student
loans that is below a specified rate, (ii) limit the proportion of its revenue
derived from the Title IV Programs, (iii) establish certain financial
responsibility and administrative capability standards, (iv) prohibit the
payment of certain incentives to personnel engaged in student recruiting and
admissions activities and (v) achieve stringent completion and placement
outcomes for short-term programs.

Certain of the foregoing standards must be complied with on an institutional
basis. For purposes of those standards, the regulations define an institution
as a main campus and its additional locations, if any. Under this definition,
each of the Company's campuses is a separate institution with the following
exceptions: Bryman College in New Orleans, Louisiana is an additional location
of Bryman College (South) in San Jose, California; the Florida Metropolitan
University ("FMU") Campuses in Melbourne, Florida and Orlando, Florida (South)
are additional locations of FMU, Orlando (North); FMU in Brandon, Florida is
an additional location of FMU in Tampa, Florida; FMU in Lakeland, Florida is
an additional location of FMU in Pinellas, Florida; Parks College (South) in
Denver, Colorado is an additional location of Parks College (North) in Denver;
and Western Business College in Vancouver, Washington is an additional
location of Western Business College in Portland, Oregon (the Western Business
College, Vancouver campus, albeit an additional location, is not accounted for
separately from the main campus in Portland; unique to the Vancouver campus,
all students must complete part of their course of study at the main campus in
Portland).

The regulations, standards and policies of the regulatory agencies
frequently change, and changes in, or new interpretations of, applicable laws,
regulations or standards could have a material adverse effect on the

6
<PAGE>

Company's accreditation, authorization to operate in various states,
permissible activities, receipt of funds under Title IV Programs and/or costs
of doing business. The Company's failure to maintain or renew any required
regulatory approvals, accreditations or authorizations would have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Financial Aid and Regulations--Federal Oversight of the Title
IV Programs."

Certain significant regulatory factors that could adversely affect the
Company are discussed below:

STUDENT LOAN DEFAULTS. Under the HEA, an institution may lose its
eligibility to participate in some or all Title IV Programs if its current or
former students default on the repayment of their federally guaranteed student
loans (known as "Cohort Default Rates" or "CDR") at a rate exceeding certain
levels. Under the Federal Family Education Loan (the "FFEL," formerly the
Guaranteed Student Loan) program, any institution that has Cohort Default
Rates of 25% or greater for three consecutive fiscal years will no longer be
eligible to participate in the FFEL program or the William D. Ford Federal
Direct Loan Program (the "FDL") for the remainder of the federal fiscal year
in which the determination of ineligibility is made and for the two subsequent
federal fiscal years. In addition, if an institution's default rate for loans
under the FFEL program is 25% or greater in any fiscal year or exceeds 15% for
the Federal Perkins Loan ("Perkins") program for any federal award year, the
DOE may determine that the institution lacks administrative capability and
place the institution on provisional certification status for up to three
years. See "Financial Aid and Regulations--Federal Oversight of the Title IV
Programs--Cohort Default Rates" and "--Regulatory Consequences of a Change in
Ownership Resulting in a Change of Control."

At the time the Company purchased the CSi schools from NEC in 1995, 11
schools (one of which was closed by the Company after acquisition) had Cohort
Default Rates exceeding 25% for three consecutive years. Subsequent to the
publication of the fiscal 1994 CDR's, three of the eleven schools received
1994 rates below 25% as a result of the Company's appeals and default
management efforts. Those schools never lost eligibility for FFEL funding. As
a result of the Cohort Default Rate at the remaining schools, the DOE
terminated FFEL funding for six of those schools in 1997 (a seventh college,
Skadron College in San Bernardino, California, had lost eligibility to
participate in FFEL in June 1994). Pursuant to extended negotiations with the
DOE regarding reinstatement of eligibility for these campuses, the Company
received notice in June 1998 that the DOE proposed to reinstate three of the
seven colleges provided that the Company agree not to pursue remedies for
reinstatement for the remaining four campuses. The Company has agreed to the
terms of the proposal and the DOE has reinstated eligibility to participate in
the FFEL program for the three campuses. Of the remaining four campuses, NIT
in Wyoming, Michigan will be eligible for reinstatement in 1999 and the other
three campuses (Skadron College in San Bernardino, California; Bryman College
in New Orleans, Louisiana; and Bryman College in San Jose (South), California)
will be eligible for reinstatement in 2000, based on published rates for
fiscal 1995 and prepublished rates for fiscal 1996, respectively. As soon as
the six schools were terminated from the FFEL program in 1997, the Company
expanded its internal loan program to fund internally (through installment
tuition contracts) part of the tuition of students at those schools. During
the 1997-98 award year (the most recent year in which default rates have been
pre-published), only one of the Company's institutions (and none of the four
remaining suspended schools) had a Cohort Default Rate in excess of 25%.
Including the fiscal 1996 pre-published rate, only one of the Company's
colleges (Gardena) has a Cohort Default Rate in excess of 25% for each of the
last two reporting years. Although the Company has instituted a default
management strategy, there can be no guarantee that the Company or its
institutions will be able to maintain their Cohort Default Rates at, or below,
their current level, or that the Cohort Default Rates will never exceed 25%.
Should a material number of the Company's schools lose FFEL funds due to their
Cohort Default Rate, it would have a material adverse effect on the Company's
business, results of operations and financial condition. See "Financial Aid
and Regulations--Federal Oversight of Title IV Schools Program."

SIGNIFICANT SCHOOL REVENUES FROM TITLE IV PROGRAMS. Under what is commonly
referred to as the "85/15 Rule," an institution would be disqualified from
participation in Title IV Programs if more than 85% of its revenues in any
year was derived from Title IV Programs. For fiscal 1998, nine of the
Company's current institutions derived more than 80% of their revenue from
Title IV Programs, but no school's revenue from

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Title IV Programs was more than 85% of its total revenue. Since the DOE
adopted the 85/15 Rule in 1994, none of the Company's individual institutions
have exceeded the 85% threshold. Should any material number of the Company's
institutions be deemed ineligible to participate in Title IV Programs because
their revenues from such programs exceed 85%, it would have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Financial Aid and Regulations--Federal Oversight of Title IV
Program."

FAILURE TO DEMONSTRATE ADMINISTRATIVE CAPABILITY. DOE regulations specify
extensive criteria an institution must satisfy to establish that it has the
requisite "administrative capability" to participate in Title IV Programs.
These criteria require, among other things, that the institution comply with
all applicable Title IV Program 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, and timely submit all
reports and financial statements required by the regulations. The failure by
an institution to satisfy any of these criteria may lead the DOE to determine
that the institution lacks administrative capability and, therefore, (i)
require the repayment of Title IV Program funds, (ii) transfer the institution
from the "advance" system of payment of Title IV Program funds to the
"reimbursement" system of payment or cash monitoring; (iii) place the
institution on provisional certification status; or (iv) commence a proceeding
to impose a fine or to limit, suspend or terminate the participation of the
institution in Title IV Programs. Should any material number of the Company's
institutions be limited in their access to, or lose, Title IV Program funds
due to their failure to demonstrate administrative capability, it would have a
material adverse effect on the Company's business and its financial condition.
See "Financial Aid and Regulations--Federal Oversight of Title IV Program."

POTENTIAL LOSS OF STUDENT FINANCIAL AID DUE TO FAILURE TO MEET FINANCIAL
RESPONSIBILITY STANDARDS. The HEA and its implementing regulations establish
specific standards of financial responsibility that must be satisfied in order
to participate in the Title IV Programs. Under such standards, an institution
must: (i) satisfy an acid test ratio (defined as the ratio of cash, cash
equivalents and current accounts receivable to current liabilities) of at
least 1:1 at the end of each fiscal year, (ii) have a positive tangible net
worth at the end of each fiscal year, and (iii) not have a cumulative net
operating loss during its two most recent fiscal years that results in a
decline of more than 10% of the institution's tangible net worth at the
beginning of that two-year period. In order to make this determination, the
DOE requires an institution to annually submit audited financial statements.
An institution that is determined by the DOE not to meet any one of the
standards of financial responsibility is nonetheless entitled to participate
in the Title IV Programs if it can demonstrate that it is financially
responsible on an alternative basis (including by posting a surety or an
irrevocable letter of credit). See "Financial Aid and Regulations--Federal
Oversight of the Title IV Programs--Financial Responsibility Standards."

In reviewing the Company's two major acquisitions, the DOE has measured
financial responsibility differently for each acquisition. In the NEC
Acquisition in 1995, the DOE reviewed the financial statements of the acquired
institutions only, while in the Phillips Acquisition in 1996, the DOE reviewed
the financial statements of both the acquired institutions and the Company. At
the time of the NEC Acquisition, and subsequently, at the time of the
acquisitions of Repose, Inc. (the "Repose Acquisition") and Concorde Career
Colleges, Inc. (the "Concorde Acquisition"), all of the CSi colleges met the
financial responsibility requirements set forth by the DOE. At the time of the
Phillips Acquisition, the DOE elected to review the financial statements of
both the institutions and the Company and, as a result of the intangibles
associated with the purchase of the colleges, determined that the Company did
not meet the tangible net worth requirement. As a result of negotiations with
the DOE prior to the Phillips Acquisition, the DOE and the Company agreed to
the posting of an irrevocable letter of credit in favor of the DOE in the
amount of $1.0 million. In addition, the 18 colleges would remain on the
reimbursement program (they had been placed on reimbursement under prior
ownership). The need for and sufficiency of the letter of credit are scheduled
to be reviewed annually in connection with the Company's submission to the DOE
of its annual audited financial statements. Subsequent to the submission of
the Company's 1997 annual audited financial statements, the letter of credit
was increased to $1.5 million.

Although the above letter of credit is the only outstanding alternative
financial responsibility requirement currently in effect, the DOE has not yet
responded to the annual audited financial statements submitted by the

8
<PAGE>

Company for fiscal 1997. Based on these audits, eight of the Company's
colleges fail to meet one or more of the financial responsibility tests. Three
of the colleges fail to meet the acid test ratio (Blair College in Colorado
Springs, Colorado; FMU in Melbourne, Florida; and FMU in Fort Lauderdale,
Florida) and five of the colleges fail to meet the profitability test (Bryman
College in Seatac, Washington; NIT in Wyoming, Michigan; Bryman College
(North) in San Jose, California; Parks College in Aurora, Colorado; and
Springfield College in Springfield, Missouri). In addition, the Company, on a
consolidated basis, fails to meet the financial responsibility tests. However,
at the CSi operating company level, and at the RCi operating company level,
all financial responsibility tests were met. There can be no assurance at this
time that the DOE, upon review of fiscal 1997 audited financial statements,
will not require that the Company post additional letters of credit in
accordance with its regulations. Since RCi is already on reimbursement, and
since the Company has posted a letter of credit as required by the
regulations, by definition the Company believes that it currently meets
financial responsibility standards as set forth by the DOE. There is no
assurance, however, that the DOE will not impose additional requirements for
letters of credit based upon its review of the Company's fiscal 1997 financial
statements. Such actions, or other similar actions, could have a material
adverse effect on the Company's business, results of operations and financial
condition, and on its ability to generate sufficient liquidity to continue to
fund growth in its operations and purchase other institutions. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources").

In accordance with applicable law, the DOE will be required to rescind the
letter of credit and any related requirements if the Company and its colleges
demonstrate that they satisfy the standards of financial responsibility, using
accounting treatments acceptable to the DOE. Further, the Company believes
that in the conduct of its next review of the financial responsibility of the
Company and its colleges, the DOE will consider the financial information
reflecting the results of this Offering, as well as the 1998 fiscal year
audited financial statements of each entity. The Company expects to receive
net proceeds from the Offering of approximately $39.9 million (at an assumed
Offering price of $15.00 per share). (See "Use of Proceeds".) Management
believes that the Company's post-Offering financial position will enable the
Company to satisfy the DOE's standards of financial responsibility on a
Company-wide basis. However, there can be no assurance that all of the
Company's colleges will meet each financial responsibility test in the future
or that the DOE would not require the Company to post a letter of credit or
take other similar action with respect to an individual college which did not
meet those tests.

In November 1997, the DOE published new regulations regarding financial
responsibility that are scheduled to take effect on July 1, 1998. The
regulations provide a transition year alternative which will permit
institutions to have their financial responsibility for the 1998 fiscal year
measured on the basis of either the new regulations or the current
regulations, whichever are more favorable to the Company. Under the new
regulations, the DOE will calculate three financial ratios for an institution,
each of which will be scored separately and which will then be combined to
determine the institution's financial responsibility. If an institution's
composite score is below the minimum requirement for unconditional approval
but above a designated threshold level (the "Intermediate Zone"), such
institution may take advantage of an alternative that allows it to continue to
participate in the Title IV Programs for up to three years under additional
monitoring and reporting procedures. If an institution's composite score falls
below this threshold level or is in the Intermediate Zone for more than three
consecutive years, the institution will be required to post a letter of credit
in favor of the DOE.

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<PAGE>

The Company's two operating divisions both meet the financial responsibility
criteria under the new regulations, but the Company, on a consolidated basis,
does not meet the standards for 1997.

While the Company's 1998 audited financial statements have not yet been
submitted to the DOE, the Company's calculations show that all of its schools
exceed the requirements for financial responsibility on an individual basis.
Also, the Company's two operating divisions both meet the requirements.
However, as in 1997, the Company, on a consolidated basis, does not meet the
new standards. The Company expects to meet the new standards on a consolidated
basis after giving effect to the Offering and the Company currently meets such
standards on an alternative basis by having previously posted a letter of
credit with the DOE.

Under a separate standard of financial responsibility, if an institution has
made late refunds to students in its prior two years, the institution is
required to post a letter of credit in favor of the DOE in an amount equal to
25% of the total Title IV Program refunds paid by the institution in its prior
fiscal year. As of July 1, 1997, this standard has been modified to exempt an
institution if it has not been found to make late refunds to 5% or more of its
students in either of the two most recent fiscal years and has not been cited
for a reportable condition or material weakness in its internal controls
related to late refunds in either of its two most recent fiscal years. Based
on this standard, the Company currently has two outstanding letters of credit
on behalf of CSi institutions in the amounts of $12,000 and $18,000. Seven
additional RCi colleges have been cited for late refunds in their annual
audits. The Company believes that the existing $1.5 million letter of credit
issued in favor of the DOE on behalf of the RCi colleges satisfies this
standard of financial responsibility. The DOE, however, may require additional
letters of credit for these institutions in accordance with the regulation.
(See "Business--Title IV Regulation".)

REGULATORY CONSEQUENCES OF A CHANGE IN OWNERSHIP RESULTING IN A CHANGE OF
CONTROL. Upon a "change of ownership" of an institution resulting in a "change
in control," as defined in the HEA and applicable regulations, that
institution becomes ineligible to participate in Title IV Programs. In such
event, an institution may receive and disburse only previously committed Title
IV Program funds to its students until it has applied for and received
recertification from the DOE to participate under such institution's new
ownership. Approval of an application for recertification must be based upon a
determination by the DOE that the institution under its new ownership is in
compliance with the requirements for institutional eligibility. The time
required to act on such an application can vary substantially and may take
several months. As a result of the change in ownership at the time of the NEC
Acquisition and the Phillips Acquisition, all of the Company's schools are
currently under provisional certification status pursuant to standard DOE
procedure when an institution undergoes a change of control. Provisional
certification does not limit an institution's access to Title IV Program
funds, but does subject the institution to closer review by the DOE and may
subject the institution to summary adverse action if it violates other Title
IV Program requirements.

Under the HEA and its implementing regulations, a change of ownership
resulting in a change in control would occur upon the transfer of a
controlling interest in the voting stock of an institution or such
institution's parent corporation. 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 the person loses or gains the ability to
direct the management and policies of the institutions. With respect to a
publicly traded corporation, which the Company will be following consummation
of the Offering, a change of ownership resulting in a change in control occurs
when there is an event that would obligate that corporation to file a Current
Report on Form 8-K with the Securities and Exchange Commission (the "SEC")
disclosing a change of control. A change of ownership and control also could
require an institution to reaffirm its state authorization and accreditation.
The requirements of state and accrediting agencies with jurisdiction over the
Company's schools vary widely in this regard. Based upon its review of the HEA
and applicable federal regulations, the Company does not believe the Offering
will constitute a change of ownership resulting in a change in control under
federal law.

Once the Company is deemed to be publicly traded, the potential adverse
implications of a change of ownership resulting in a change in control could
influence future decisions by the Company and its stockholders

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<PAGE>

regarding the sale, purchase, transfer, issuance or redemption of the
Company's capital stock. However, the Company believes that any such future
transaction having an adverse effect on state authorization, accreditation or
participation in Title IV Programs of any of the Company's schools is not
likely to occur without the consent of the Company's Board of Directors (the
"Board of Directors"). See "--Certain Anti-Takeover Provisions," "--Control by
Certain Stockholders," "Description of Capital Stock" and "Business--
Accreditation."

LOSS OF STATE AUTHORIZATION AND ACCREDITATION. The Company is dependent on
the authorization of the applicable agency of each state where the Company is
offering educational programs to allow it to operate and to grant degrees or
diplomas. State authorization and accreditation by an accrediting agency
recognized by the DOE is also required in order for an institution to become
and remain eligible to participate in Title IV Programs. Accrediting agencies
primarily examine the academic quality of the instructional programs offered
at the institution, including retention and placement rates, and also review
the administrative and financial operations of the institution to insure that
it has the academic and financial resources to achieve its educational
mission. The loss of accreditation would, among other things, render that
institution ineligible to participate in Title IV Programs and would have a
material adverse effect on the Company's business, results of operation and
financial condition if one or more material institutions lost accreditation.
Similarly, the loss of state authorization by the Company or an existing
campus would, among other things, render the Company ineligible to participate
in Title IV Programs for students in that state or at that location and would
have a material adverse effect on the Company's business, results of
operations and financial condition.

POSSIBLE INVESTIGATIONS OR CLAIMS BY REGULATORY AGENCIES OR THIRD
PARTIES. Because the Company operates in a highly regulated industry, it, like
other industry participants, may be subject from time to time to
investigations, claims of non-compliance, or lawsuits by governmental agencies
or third parties which allege statutory violations, regulatory infractions or
common law causes of action. The Company believes that it has taken effective
steps to monitor compliance with governmental regulations and other legal
requirements. However, there can be no assurance that regulatory agencies or
third parties will not undertake investigations or make claims against the
Company, or that such claims, if made, will not have a material adverse effect
on the Company's business, results of operations or financial condition.

RISK THAT LEGISLATIVE ACTION WILL REDUCE FINANCIAL AID FUNDING OR INCREASE
REGULATORY BURDEN

The Title IV Programs are subject to significant political and budgetary
pressures. The process of reauthorizing the student financial assistance
programs of the HEA by the U.S. Congress, which takes place approximately
every five years, has begun and is expected to be completed in 1998. It is not
possible to predict the outcome of the reauthorization process. Although
Congress has not declined to reauthorize the Title IV Programs, there can be
no assurance that government funding for the Title IV Programs will continue
to be available or maintained at current levels. A reduction in government
funding levels could lead to lower enrollments at the Company's schools and
require the Company to seek alternative sources of financial aid for students
enrolled in its schools. Given the significant percentage of the Company's
revenue that is derived from the Title IV Programs, the loss of or reduction
in Title IV Program funds available to students at the Company's schools would
have a material adverse effect on the Company's business, results of
operations and financial condition.

In addition, there can be no assurance that the current requirements for
student and institutional participation in the Title IV Programs will not
change or that one or more of the present Title IV Programs will not be
replaced with other programs with materially different student or
institutional eligibility requirements. The DOE and other parties have
proposed numerous changes to the HEA. Thus, the reauthorization process could
result in revisions to the HEA that increase the compliance burden on the
Company's institutions. If the Company cannot comply with the provisions of
the HEA, as revised during the reauthorization process, or if the cost of such
compliance is excessive, the Company's business, results of operations and
financial condition would be materially adversely affected. The DOE has also
circulated proposals concerning guaranty agencies and lenders which could
impact

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<PAGE>

the access of the Company's institutions and their students to FFEL program
loans. There can be no assurance that any legislation will not include
statutory language that is different from, or in addition to, that which is
currently being proposed by the DOE or that in the future there will not be
enacted other different legislation amending the HEA or otherwise impacting
institutions, guaranty agencies or lenders. The DOE may also impose additional
regulations based on its interpretation of HEA.

RISKS RELATING TO INTERNAL LOAN PROGRAM

The Company has routinely afforded relatively short-term installment payment
plans to many of its students to supplement their financial aid. The terms of
this program required the student to make monthly payments throughout their
in-school period, plus a period generally not exceeding six months after
graduation. In late 1997, the Company expanded the internal loan program to
assist students in those colleges which lost access to FFEL loans during that
year. The loans to these students are intended to replace the loss of the FFEL
loans, and thus are generally for greater amounts (averaging $3,200) and
longer periods of time (ranging typically from 6-84 months) than the shorter
term installment payment plans mentioned earlier. In an effort to minimize the
financial impact on new students, the Company elected to match, as closely as
possible, the standards of eligibility for the FFEL loan program. For example,
in order to qualify for an FFEL loan, a student must meet all admissions
requirements and be admitted into one of the college's programs. In addition,
the prospective student must meet with a financial aid officer at the college
and complete all the appropriate applications required by the Title IV
regulations. At the colleges that are ineligible to participate in the
FFEL program, prospective students who meet all eligibility requirements are
offered an internal loan. As with the FFEL loan program, no independent credit
evaluations are performed. However, students participating in the Company's
internal loan program are required to make monthly payments while in school
and may be dropped from school for failing to remain current in their
payments.

As of June 30, 1998, the combined internal loan programs were assisting more
than 5,600 students (approximately 61% were active students and approximately
39% were graduates or dropped students). The earned balances were
approximately $8.5 million, of which $2.3 million, or 27%, was reserved for
bad debts. While these internal loans are unsecured, the Company believes it
has adequate reserves against these loan balances, given that the loans are
earned over the student's in-school period, during which time a payment
pattern is established. The Company believes that the payment pattern
established by the student while in school is a reasonable predictor of future
collectibility. The loss rates on the shorter-term loans are similar to the
Company's loss rates on accounts receivable in general. The Company has
relatively limited repayment history on the longer-term loans, but preliminary
information indicates that the risk of loss is greater on these longer-term
loans and the Company has adjusted its reserve levels accordingly. While the
Company believes it has adequate reserves against these loan balances, there
can be no assurance that losses will not exceed reserves. Losses in excess of
reserves could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Loan Program."

RELIANCE ON AND RISKS OF ACQUISITION STRATEGY, INCLUDING LACK OF AVAILABLE
FINANCING

The Company expects to continue to rely on acquisitions as a component of
its strategy for growth. The Company regularly engages in evaluations of
possible acquisition candidates, including evaluations relating to
acquisitions that may be material in size and/or scope. However, the Company
currently has no agreements or commitments with respect to any acquisitions.
There can be no assurance that the Company will continue to be able to
identify educational institutions that provide suitable acquisition
opportunities or to acquire any such institutions on favorable terms.
Furthermore, there can be no assurance that any acquired institutions can be
successfully integrated into the Company's operations or be operated
profitably. Acquisitions involve a number of special risks and challenges,
including the diversion of management's attention, assimilation of the
operations and personnel of acquired companies, adverse short-term effects on
reported operating results, possible loss of key employees and difficulty of
presenting a unified corporate image. Continued growth through acquisition may
also subject the Company to unanticipated business or regulatory uncertainties
or liabilities. No assurance can be given

12
<PAGE>

that the Company will be able to obtain adequate funding to complete any
potential acquisition or that such an acquisition will succeed in enhancing
the Company's business and will not ultimately have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Business--Growth Strategy."

The Company's acquisition of a school would constitute a change in
ownership, resulting in a change of control with respect to such school for
purposes of eligibility to participate in the Title IV Programs. Generally,
the Company intends to acquire schools subject to the condition that they be
recertified promptly for such eligibility by the DOE. The failure of the
Company to manage its acquisition program effectively could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "--Potential Adverse Regulatory Consequences of a Change of
Ownership or Control," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Financial Aid and Regulations--
Federal Oversight of the Title IV Programs--Restrictions on Acquiring or
Opening Additional Schools and Adding Educational Programs."

The Company anticipates that it may need additional debt or equity
financing, in addition to the proceeds of this Offering, in order to finance
any future acquisitions. The amount and timing of financing which the Company
may need will vary principally depending on the timing and size of
acquisitions and the sellers' or other lenders' willingness to provide
financing. 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 fully implement its growth strategy. The Company has received a bank loan
commitment for a $10.0 million line of credit (the "Proposed Bank Line of
Credit") from Union Bank of California. However, the commitment is subject to
the completion of this Offering and the negotiation and execution of
definitive agreements thereafter. 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 to, the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

RISKS ASSOCIATED WITH EXPANSION PLANS

Although to date the Company has added new schools only through
acquisitions, in the future the Company expects to develop, open and operate
new schools, most likely as additional locations of existing schools.
Establishing additional locations would pose unique challenges and require the
Company to make investments in management, capital expenditures, marketing
expenses and other resources. Because the Company has not yet established any
new additional locations, there can be no certainty as to the Company's
ability to be successful in any such endeavor. Additionally, while the Company
expects that its career-oriented school business will continue to provide the
substantial majority of its revenue in the near term, the Company plans to
expand its contract training business, currently only offered to a limited
extent by one of the Company's schools, and may also decide to provide other
education-related services, such as distance learning. There can be no
assurance as to the Company's ability to succeed in markets beyond its current
career-oriented school business. Any failure of the Company to effectively
manage the operations of newly established schools or service areas could have
a material adverse effect on the Company's business, results of operations and
financial condition. See "Business--Growth Strategy" and "Financial Aid and
Regulations--Federal Oversight of the Title IV Programs--Restrictions on
Acquiring or Opening Additional Schools and Adding Educational Programs."

LIMITED HISTORY OF OPERATIONS; HISTORY OF LOSSES

While the Company's colleges generally have been in operation for many years
and the Company's management has extensive industry experience, the Company
itself did not commence operations until 1995. Since that time, the Company
has periodically acquired and integrated several colleges, and, accordingly,
the Company in its present structure has a relatively limited history of
operations on which to base an evaluation of its business and prospects.
Included in this operating history are periods of net and operating losses.
For instance,

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<PAGE>

in the period ended June 30, 1997, the Company experienced an operating loss
of $468,000 and a net loss of $1.9 million. The limited operating history of
the Company makes any prediction of future operating results, including
factors such as student retention, difficult, and there can be no assurance
that the Company will maintain profitability.

YEAR 2000 COMPLIANCE

INTRODUCTION. In the next year and a half, most large companies will face a
potentially serious information systems problem because many software
applications and operational programs written in the past may not properly
recognize calendar dates beginning in the year 2000. This problem could force
information systems to either shut down or provide incorrect data or
information. The Company began the process of identifying the necessary
changes to its computer programs and hardware as well as assessing the
progress of its significant vendors in their remediation efforts in 1997. The
discussion below details the Company's efforts to ensure Year 2000 compliance.

STATE OF READINESS. The Company has identified and evaluated the readiness
of its internal and third party information technology and non-information
technology systems which, if not Year 2000 compliant, could have a direct
major impact to the Company. This evaluation identified the following areas of
concern: (i) the Company's accounting and financial reporting system, (ii) the
Company's proprietary student database system (School's Automation System or
"SAS"), (iii) the systems of third party vendors which process student
financial aid applications and loans for the Company, and (iv) the DOE's
systems for processing and disbursing student financial aid.

The Company's accounting and financial reporting system has already been
upgraded with the provider's latest release which is certified to be Year 2000
compliant. The Company's SAS system is not compliant and the updates to this
system are not yet complete. To date, a detailed assessment of the system has
been completed wherein each date occurrence has been identified and
documented, and a detailed plan has been developed to complete the necessary
remedial work. The remediation project has begun and the Company expects that
the corrections to this system will be completed and tested by mid-year 1999.

The Company has also assessed the state of readiness of its major servers
and shared hardware devices. It has determined that its hardware systems are
either already Year 2000 compliant or can be made so through upgrades of
operating system software. Where necessary, these upgrades will be completed
by mid-year 1999.

Based on its assessment and its vendors' representations, the Company
believes that the systems of its significant third party vendors which provide
student financial aid and loan processing are already Year 2000 compliant.

The Company is highly dependent on student funding provided through Title IV
programs. Processing of student applications for this funding and actual
disbursement of a significant portion of these funds are accomplished through
the DOE's computer systems. According to the DOE, their systems should be
brought into certifiable compliance in early 1999. However, the Company is not
able to reliably assess the DOE's progress to date, and any problems in the
DOE's systems could result in interruption of funding for the Company's
students.

YEAR 2000 COSTS. In fiscal 1998, the Company expensed approximately $150,000
on the assessment and evaluation phase of its Year 2000 initiatives and
estimates that it will expense approximately $750,000 in fiscal 1999 to
complete the remediation efforts. These efforts have been, and are expected to
continue to be, funded through cash from operations. The Year 2000 compliance
project has not resulted in the deferral of any significant information
systems initiatives by the Company.

RISKS FROM YEAR 2000 ISSUES. The Company believes the greatest Year 2000
compliance risk, in terms of magnitude of risk, is that the DOE may fail to
complete its remediation efforts in a timely manner and Title IV

14
<PAGE>

funding for its students could be interrupted for a period of time. Other than
public comments provided by the DOE, the Company is unable to predict the
likelihood of this risk occurring. Any significant interruption of this
funding could have a material adverse effect on the Company's results of
operations, liquidity or financial condition. As mentioned earlier, the
Company is dependent upon DOE assertions as to their progress to date and
timetable for completion of their remediation efforts.

CONTINGENCY PLANS. At this time, the Company fully expects to be Year 2000
compliant and is satisfied that its significant vendors are already compliant.
As such, the Company has not developed any specific contingency plan in the
event it fails to complete its Year 2000 projects. The Company also has not
developed a contingency plan to handle the scenario in which the DOE does not
complete its internal systems remediation projects as planned. The Company
will continue to monitor DOE communications on its progress, and, if such a
scenario appears likely to occur, will develop a contingency plan. Any such
contingency plan to deal with an interruption in student funding will need to
address such factors as the length of the interruption and alternative sources
of funding (both internal and external) to bridge the interruption.

DEPENDENCE ON A LIMITED NUMBER OF KEY PERSONNEL

The Company's success to date has depended in large part on the skills and
efforts of David G. Moore (President and Chief Executive Officer), Paul R. St.
Pierre (Executive Vice President of Marketing), Frank J. McCord (Executive
Vice President and Chief Financial Officer), Dennis L. Devereux (Executive
Vice President of Human Resources), Lloyd W. Holland (Executive Vice President
of Business Analysis and Financial Aid) and the Company's other key personnel.
Additionally, the Company's success depends, in large part, upon its ability
to attract and retain highly qualified faculty, school presidents and
administrators and corporate management. Due to the nature of the Company's
business, it may be difficult to locate and hire qualified personnel, and to
retain such personnel once hired. None of the Company's employees is subject
to an employment or noncompetition agreement. The Company maintains key man
life insurance on Mr. Moore and Mr. St. Pierre. The loss of the services of
any of the foregoing individuals or any of the Company's other key personnel,
or the failure of the Company to attract and retain other qualified and
experienced personnel on acceptable terms, could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Management--Directors, Executive Officers and Key Employees."

ANTI-TAKEOVER PROVISIONS

The Company's Certificate of Incorporation (the "Certificate of
Incorporation") and its Bylaws (the "Bylaws") contain certain provisions that
could delay, defer or prevent a takeover attempt that may be in the best
interest of stockholders. Certain of such provisions impose various procedural
and other requirements that could make it more difficult for stockholders to
effect certain corporate actions. Such provisions include (i) a requirement
that stockholder action be taken only at stockholder meetings, (ii) notice
requirements relating to nominations to the Board of Directors and to the
raising of business matters at stockholders meetings, and (iii) the
classification of the Board of Directors into three classes, each serving for
staggered three-year terms. Each of these provisions may have the effect of
discouraging a takeover attempt by either (i) making the processes of gaining
control of the Board of Directors more difficult, or (ii) preventing the
acquisition of outstanding Company Common Stock through a hostile tender
offer. Also, Delaware corporate law provides that an "interested stockholder,"
defined as a person who owns 15% or more of the outstanding voting stock of
the corporation, may not enter into any merger, asset sale or other
transaction resulting in financial benefit to the interested stockholder
within three years of becoming an interested stockholder, unless such
transaction is approved by the Board of Directors of the corporation. This
provision may have the effect of providing a legal barrier to hostile or
unwanted takeovers. See "Description of Capital Stock."

Upon consummation of the Offering, the Company's Board of Directors will
have the authority to issue up to 500,000 shares of undesignated preferred
stock and to determine the price, rights, preferences, privileges and

15
<PAGE>

restrictions, including voting rights, of those shares without any further
vote or action by the Company's stockholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any preferred stock that may be issued in the future. The
issuance of preferred stock, while providing desirable flexibility in
connection with possible financings, acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of the outstanding voting stock of the Company. The
Company has no present plans to issue such shares of preferred stock. See
"Description of Capital Stock."

CONTROL BY CERTAIN STOCKHOLDERS

Upon completion of the Offering, the existing stockholders of the Company
will beneficially own an aggregate of approximately 71.8% of the outstanding
shares of common stock (approximately 67.6% assuming the exercise of the
Underwriters' over-allotment options in full). The existing stockholders
include members of senior management of the Company (David G. Moore, Paul R.
St. Pierre, Frank J. McCord, Dennis L. Devereux and Lloyd W. Holland) and two
of the current directors of the Company. Loyal Wilson is also a director of
the Company and is a Managing Director of Primus Venture Partners, Inc., the
sole general partner of Primus Venture Partners III Limited Partnership, the
sole general partner of Primus Capital Fund III Limited Partnership, a
significant stockholder of the Company. Accordingly, such persons, if they
were to act in concert, would have majority control of the Company, with the
ability to approve certain fundamental corporate transactions (including
mergers, consolidations and sales of assets) and to elect all members of the
Board of Directors. See "Beneficial Ownership of Securities and Selling
Stockholders" and "Management--Board of Directors."

In connection with the Offering, the Company plans to use a portion of the
proceeds from the Offering to repay indebtedness in an aggregate principal
amount of $1.0 million owed to Primus Capital Fund III Limited Partnership
("Primus"). Primus has also indicated that it plans to exercise its rights
under a contingent stock warrant issued by the Company, which will allow it to
purchase 14,441 shares of Common Stock at an exercise price of $.0002 per
share.

HIGHLY COMPETITIVE MARKET

The post-secondary education market is highly competitive. The Company's
schools compete for students and faculty with traditional public and private
two-year and four-year colleges and universities and other proprietary
schools, many of which have greater financial resources than the Company.
Certain public and private colleges and universities, as well as other private
career-oriented schools, may offer programs similar to those of the Company's
schools, as well as programs not currently offered by the Company. Although
tuition at private nonprofit institutions is, on average, higher than tuition
at the Company's schools, most public institutions are able to charge lower
tuition than the Company's schools, due in part to government subsidies,
government and foundation grants, tax-deductible contributions and other
financial sources not available to proprietary schools. See "Business--
Competition."

GEOGRAPHIC CONCENTRATION

While the Company's 35 colleges are dispersed among 16 states, 17 of those
colleges are located in the states of Florida and California (eight in Florida
and nine in California). As a result of this geographic concentration, any
material change in general economic conditions in California or Florida could
have a material adverse effect on the Company's business, results of
operations or financial conditions. In addition, the legislatures in the
states of Florida and California could change the law in those states or adopt
regulations regarding private, for-profit post-secondary education
institutions which could place significant additional burdens on the Company.
If the Company were unable to meet those burdens, it could have a material
adverse effect on the Company's business, results of the operations or
financial condition.

ABSENCE OF PUBLIC MARKET

There is currently no trading market for the Common Stock and there can be
no assurance that an active trading market for the Common Stock will develop.
Although an application has been made for the Common Stock for

16
<PAGE>

quotation on Nasdaq, there can be no assurance that an active public trading
market for the Common Stock will develop after the Offering or that, if
developed, it will be sustained. The public offering price of the Common Stock
offered hereby was determined by negotiations between the Company and the
Underwriters and may not be indicative of the price at which the Common Stock
will trade after the Offering. See "Underwriting." Consequently, there can be
no assurance that the market price for the Common Stock will not fall below
the public offering price. After consummation of the Offering, the market
price of the Common Stock will be subject to fluctuations in response to a
variety of factors, including quarterly variations in the Company's operating
results, announcements of acquisitions by the Company or its competitors, new
regulations or interpretations of regulations applicable to the Company's
schools, changes in accounting treatments or principles and changes in
earnings estimates by securities analysts, as well as general political,
economic and market conditions. The market price for the Common Stock may also
be affected by the Company's ability to meet or exceed analysts' earnings
expectations, and any failure to meet such expectations, even if minor, could
have a material adverse effect on the market price of the Common Stock. In
addition, the stock market has, from time to time, experienced significant
price and volume fluctuations which could adversely affect the market price of
the Common Stock without regard to the financial performance of the Company.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. Any such litigation initiated against the
Company could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on the
Company's business, results of operations and financial condition.

SHARES ELIGIBLE FOR FUTURE SALE

The sale of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock. Upon consummation of the Offering, the
Company will have a total of 10,645,627 shares of Common Stock and Nonvoting
Common Stock outstanding, of which the 3,000,000 shares offered hereby will be
eligible for immediate sale in the public market without restriction unless
such shares are held by "affiliates" of the Company within the meaning of Rule
144 under the Securities Act of 1933, as amended (the "Securities Act"). The
remaining 7,645,627 shares of Common Stock and Nonvoting Common Stock
outstanding upon completion of the Offering will be "restricted securities"
within the meaning of Rule 144 under the Securities Act (the "Restricted
Shares"), all of which Restricted Shares will be subject to lock-up agreements
(the "Lock-Up Agreements") under which the holders of such shares agree that
they will not, directly or indirectly, sell or otherwise dispose of any shares
of Common Stock, or securities or other rights convertible into or
exchangeable or exercisable for any shares of Common Stock, for 180 days after
the date of the Offering without the prior written consent of Smith Barney
Inc. An additional 121,039 shares of Common Stock are issuable at various
dates upon exercise of options heretofore granted to certain employees,
officers and directors of the Company pursuant to stock option agreements.
Upon expiration of the Lock-Up Agreements, all of the currently outstanding
Restricted Shares will be eligible for sale under Rule 144, subject to volume
and other limitations (other than the holding period requirement) of such
rule. Subject to the Lock-Up Agreements, the holders of all of such Restricted
Shares of common stock also have been accorded registration rights under the
Securities Act. No prediction can be made as to the effect, if any, that
future sales of shares, or the availability of shares for future sales, will
have on the market price of the common stock prevailing from time to time or
on the Company's ability to raise capital through an offering of its equity
securities. See "Description of Capital Stock" and "Underwriting."

SEASONALITY

The Company's revenues normally fluctuate as a result of seasonal variations
in its business, principally in its total student population. Student
population varies as a result of new student enrollments and student
attrition. Historically, the Company's colleges have had lower student
populations in the first fiscal quarter than in the remainder of the year. The
Company's expenses, however, do not vary as significantly as student
population and revenue. The Company expects quarterly fluctuations in
operating results to continue as a result of seasonal enrollment patterns.
Such patterns may change, however, as a result of acquisitions, new school
openings, new program introductions and increased high school enrollments and
there can be no assurances that such changes

17
<PAGE>

may not have a material adverse effect on the Company. The operating results
for any quarter are not necessarily indicative of the results for any future
period.

SUBSTANTIAL AND IMMEDIATE DILUTION

The initial public offering price is substantially higher than the net
tangible book value per share of common stock. Investors purchasing shares of
Common Stock in the Offering will be subject to immediate dilution of $12.74
per share in net tangible book value (assuming an initial offering price of
$15.00 per share). See "Dilution."

ABSENCE OF DIVIDENDS

The Company does not anticipate declaring or paying any cash dividends on
the common stock following the Offering. Future dividend policy will depend on
the Company's earnings, capital requirements, financial condition and other
factors considered relevant by the Board of Directors. See "Dividend Policy"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operation--Liquidity and Capital Resources."

FORWARD-LOOKING STATEMENTS

This Prospectus contains forward-looking statements that can be identified
by the use of forward-looking terminology such as "may," "will," "should,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. The matters set forth
under "Risk Factors" constitute cautionary statements identifying important
factors with respect to such forward-looking statements, including certain
risks and uncertainties, that could cause actual results to differ materially
from those in such forward-looking statements.

18
<PAGE>

THE TRANSACTIONS

Prior to the consummation of the Offering, the Company will undertake a
series of transactions that will result in the Company having 6,469,067 shares
of Common Stock, 1,176,560 shares of Nonvoting Common Stock and 18,125 shares
of Redeemable Preferred Stock outstanding prior to the Offering; the
Redeemable Preferred will be redeemed with the proceeds of the Offering. The
Company's outstanding capital stock currently consists of (i) Common Stock,
$0.0001 par value (the "Common Stock"), (ii) Nonvoting Common Stock, $0.0001
par value (the "Nonvoting Common Stock") (the Common Stock and Nonvoting
Common Stock are collectively referred to as the "Existing Common Stock"); and
(iii) one class of Preferred Stock consisting of three series: Class A Series
1 Preferred Stock, $1.00 par value (the "Redeemable Preferred"); Class A
Series 2 Preferred Stock, $1.00 par value (the "Series 2 Convertible
Preferred"); and Class A Series 3 Preferred Stock, $1.00 par value (the
"Series 3 Convertible Preferred") (the Redeemable Preferred, Series 2
Convertible Preferred and Series 3 Convertible Preferred are collectively
referred to as the "Existing Preferred Stock" and the Series 2 Preferred and
Series 3 Preferred are collectively referred to as the "Convertible
Preferred").

Prior to the consummation of the Offering, the Second Restated Certificate
of Incorporation of the Company (the "Existing Certificate") will be amended
(the "Certificate Amendment") to provide for, among other things, (i) an
increase in the authorized capital stock of the Company to 40,000,000 shares,
(ii) a 44.094522 for 1 split of all shares of Existing Common Stock, and (iii)
change in par value for Common Stock and Nonvoting Common Stock to $0.0001 per
share. The Company will then cause the conversion of all Existing Series 2
Convertible Preferred into 388,334 shares of Nonvoting Common Stock and all
Existing Series 3 Convertible Preferred into 388,334 shares of Common Stock
(the "Preferred Stock Conversion"). The Company has been informed by the
holders of 826,773 shares of Nonvoting Common Stock that, pursuant to
contractual obligations of the Company to such holders, they will exercise
their rights to exchange all such shares of Nonvoting Common Stock for an
equal number of shares of Common Stock in connection with the Offering (the
"Nonvoting Exchange"). The Company has been informed by the holders of all
currently outstanding exercisable warrants to purchase Common Stock and
Nonvoting Common Stock (excluding certain warrants which will terminate prior
to becoming exercisable) (collectively, the "Warrants") that they will
exercise such warrants (the "Warrant Exercise" and, together with the
Certificate Amendment, the Preferred Stock Conversion and the Nonvoting
Exchange, the "Transactions") for an aggregate of 330,366 shares of Common
Stock and 200,005 shares of Nonvoting Common Stock. The consummation of the
Offering and the Transactions are conditioned upon one another. See "Certain
Relationships and Transactions" and "Description of Capital Stock."

19
<PAGE>

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby (after deducting the estimated underwriting discounts and
expenses payable by the Company) are estimated to be $39.8 million, assuming
an initial public offering price of $15.00 per share. The Company intends to
apply the net proceeds from the Offering in the following manner: (i)
repayment of senior indebtedness of approximately $24.8 million, including
prepayment premiums of approximately $2.3 million; (ii) repayment of
subordinated indebtedness of $5.0 million; (iii) repayment of outstanding
revolving credit facility borrowings of approximately $3.0 million; (iv)
redemption of the Company's redeemable preferred stock in the approximate
amount of $2.2 million, including payment of cumulative dividends thereon; (v)
payment of cumulative dividends on the Company's convertible preferred stock
in the approximate amount of $0.3 million; and (vi) the remaining approximate
$4.5 million for working capital and general corporate purposes. Until the
time that such proceeds are utilized, the net proceeds will be invested in
high quality, short-term investment instruments such as short-term corporate
investment grade or United States Government interest-bearing securities.

The outstanding senior indebtedness was incurred by the Company in
connection with the Phillips Acquisition, bears interest at a rate of 11.02%
per annum and matures on October 17, 2004. The subordinated indebtedness was
incurred by the Company in connection with both the NEC Acquisition and the
Phillips Acquisition, bears interest at a rate of 12.0% per annum and matures
on October 17, 2005. The outstanding borrowings under the revolving credit
facility were incurred by the Company for working capital needs, bear interest
at LIBOR plus 3.5% (9.25% at June 30, 1998) and mature on October 17, 2000.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources".

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its common
stock. The Company currently intends to retain any earnings for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future.

20
<PAGE>

DILUTION

As of June 30, 1998, the Company had a net tangible book value of
$(15,842,735), or $(2.07) per share of common stock. Net tangible book value
per share is determined by dividing the net tangible book value of the Company
(total tangible assets less total liabilities, excluding the liquidation value
of Preferred Stock) by the number of shares of common stock outstanding as of
June 30, 1998. After giving effect to the sale by the Company of the shares of
Common Stock offered hereby, assuming an initial public offering price per
share of $15.00 and after deducting the estimated underwriting discounts and
expenses payable by the Company, the Company's net tangible book value as of
June 30, 1998 would have been $24,007,265, or $2.26 per share of common stock.
This represents an immediate increase in net tangible book value of $4.33 per
share to existing stockholders and an immediate dilution of $12.74 per share
to new investors purchasing shares in the Offering. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $15.00
Pro forma net tangible book value per share before the
Offering................................................... $(2.07)
Increase per share attributable to new investors............ 4.33
------
Pro forma net tangible book value per share after the
Offering..................................................... 2.26
------
Dilution per share to new investors(1)........................ $12.74
======
</TABLE>

The following table sets forth on a pro forma basis, as adjusted, as of
March 31, 1998, the relative investments of all existing stockholders and new
investors purchasing shares of Common Stock from the Company in the Offering.
The calculations are based on an assumed initial public offering price of
$15.00 per share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 7,645,627(1) 71.8% $ 6,375,480 12.4% $ 0.83
New investors........... 3,000,000 28.2% 45,000,000 87.6% $15.00
---------- ----- ----------- -----
Total................. 10,645,627 100.0% $51,375,480 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Includes: (i) certain warrants to purchase 530,371 shares of common stock
which are expected to be exercised prior to the Offering, and (ii) 776,668
shares of common stock issuable upon the conversion of Convertible
Preferred Stock. Excludes 121,039 shares of Common Stock issuable upon the
exercise of unvested Common Stock options granted June 30, 1998. See "The
Transactions."

21
<PAGE>

CAPITALIZATION

The following table sets forth the Company's cash, cash equivalents and
restricted cash, current portion of long-term debt and capitalization (long-
term debt, preferred stock and stockholders' equity) (i) as of June 30, 1998,
(ii) pro forma to reflect the Transactions and (iii) pro forma as adjusted to
reflect the Transactions and the completion of the Offering, assuming an
initial public offering price of $15.00 per share, after deducting estimated
underwriting discounts and commissions and offering expenses payable by the
Company, the write-off of deferred financing costs, and the application of the
net proceeds therefrom to repay certain indebtedness, prepayment penalties and
redeemable preferred stock as described under "Use of Proceeds." The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and the related notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and restricted cash.... $ 3,162 $ 3,162 $ 7,783
======= ======= =======
Current portion of long-term debt............. $ 4,634 $ 4,634 $ 2,134
======= ======= =======
Long-term debt, net of current maturities..... $31,535 $31,535 $ 3,535
------- ------- -------
Preferred Stock, $1.00 par value, 500,000
shares authorized:
Redeemable Preferred Stock, 18,125 shares
outstanding, at redemption value, including
$322,532 of accumulated dividends, actual
and pro forma; none outstanding, pro forma
as adjusted................................ 2,167 2,167 --
------- ------- -------
Convertible Preferred Stock, 50,000 shares
issued and outstanding, including
25,000 shares of Series 2 Convertible
Preferred and 25,000 shares of Series 3
Convertible Preferred, actual; none
outstanding, pro forma and pro forma as
adjusted................................... 5,174 240(1) --
------- ------- -------
Stockholders' equity:
Common Stock and Nonvoting Common Stock,
$0.0001 par value, 40,000,000 shares of
Common Stock and 2,500,000 shares of
Nonvoting Common Stock authorized;
6,338,588 shares issued and outstanding,
including 4,923,594 shares of Common Stock
and 1,414,994 shares of Nonvoting Common
Stock, actual; 7,645,627 shares issued and
outstanding, including 6,469,067 shares of
Common Stock and 1,176,560 shares of
Nonvoting Common Stock, pro forma; and
10,645,627 shares issued and outstanding,
including 9,469,067 shares of Common Stock
and 1,176,560 shares of Nonvoting Common
Stock, pro forma as adjusted............... -- 1 1
Additional paid-in capital.................. 1,375 6,308 46,158
Notes receivable for stock.................. (187) (187) (187)
Accumulated deficit......................... (211) (211) (2,084)
------- ------- -------
Total stockholders' equity ............... 977 5,911 43,888
------- ------- -------
Total capitalization...................... $39,853 $39,853 $47,423
======= ======= =======
</TABLE>
- --------

(1) Represents accrued but unpaid dividends which will be paid from the
proceeds of the Offering.

22
<PAGE>

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

The following selected historical consolidated financial and other data are
qualified by reference to, and should be read in conjunction with, the
Company's consolidated financial statements and the related notes thereto
appearing elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The selected
statement of operations data and the balance sheet data set forth below for
the Company are derived from the audited consolidated financial statements of
the Company included elsewhere in this Prospectus. These historical results
are not necessarily indicative of the results that may be expected in the
future.

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------
1996 1997 1998
--------- --------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1).......................... $ 31,498 $ 77,201 $ 106,486
Operating expenses:
Educational services................... 18,594 50,568 65,927
General and administrative............. 3,298 8,101 10,777
Marketing and advertising.............. 7,562 19,000 24,268
--------- --------- ---------
Total operating expenses............... 29,454 77,669 100,972
--------- --------- ---------
Income (loss) from operations............ 2,044 (468) 5,514
Interest expense, net.................... 274 2,524 3,305
--------- --------- ---------
Income (loss) before income taxes........ 1,770 (2,992) 2,209
Provision (benefit) for income taxes..... 722 (1,107) 988
--------- --------- ---------
Net income (loss)........................ $ 1,048 $ (1,885) $ 1,221
========= ========= =========
Income (loss) attributable to common
stockholders:
Net income (loss)...................... $ 1,048 $ (1,885) $ 1,221
Accrued dividends on preferred stock... (111) (118) (365)
--------- --------- ---------
Income (loss) attributable to common
stockholders........................ $ 937 $ (2,003) $ 856
========= ========= =========
Net income (loss) per common share:
Basic ................................. $ 0.21 $ (0.41) $ 0.16
========= ========= =========
Diluted................................ $ 0.15 $ (0.41) $ 0.12
========= ========= =========
Weighted average number of common shares
outstanding:
Basic.................................. 4,409,452 4,895,682 5,236,224
========= ========= =========
Diluted................................ 6,338,588 4,895,682 7,107,248
========= ========= =========
OTHER DATA:
EBITDA(2)................................ $ 2,726 $ 1,602 $ 8,573
Cash flow provided by (used in):
Operating activities................... 997 995 (3,373)
Investing activities................... (4,295) (30,973) (1,677)
Financing activities................... 3,903 30,975 4,630
Capital expenditures, net(3)............. 1,046 5,936 1,927
Number of colleges at end of period...... 16 36 35
Student population at end of period...... 5,030 12,820 13,992
Starts during the period(4).............. 8,106 13,077 18,261
</TABLE>

23
<PAGE>

<TABLE>
<CAPTION>
AS OF JUNE 30,
-----------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and restricted cash(5)......... $ 2,024 $ 3,831 $ 3,162
Working capital....................................... 2,306 1,844 606
Total assets.......................................... 13,487 53,809 59,905
Long-term debt, net of current maturities............. 2,537 36,168 31,535
Redeemable preferred stock............................ 1,924 2,042 2,167
Convertible preferred stock........................... -- -- 5,174
Total stockholders' equity............................ 2,124 121 977
</TABLE>
- --------
(1) Represents student tuition and fees and book store sales, net of refunds.
Year ended June 30, 1996 includes a non-recurring management fee of
approximately $2.1 million earned by the Company for managing certain
colleges owned by NECI during the first six months of that year.

(3) Year ended June 30, 1997 includes approximately $3.4 million for real
estate acquired in connection with the Phillips Acquisition.

(4) Represents the new students starting school during the periods presented.

(5) Includes approximately $200,000, $1.0 million and $760,000 of restricted
cash at June 30, 1996, 1997 and 1998, respectively.

24
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
Selected Historical Consolidated Financial and Other Data and the Company's
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.

BACKGROUND AND OVERVIEW

The Company's revenue consists principally of student tuition, enrollment
fees and bookstore sales, and is presented as net revenue after deducting
refunds. Net revenue increased 38% to $106.5 million in 1998 from $77.2
million in 1997 mainly as a result of the inclusion of operating results from
the 18 schools acquired in the Phillips Acquisition for the full year in 1998
compared to approximately eight and one half months for 1997.

Tuition revenue, which represented 93.3% of fiscal 1998 total net revenue,
fluctuates with the aggregate enrolled student population and the average
program or credit hour charge. The student population varies depending on,
among other factors, the number of (i) continuing students at the beginning of
a fiscal period, (ii) new student enrollments during the fiscal period, (iii)
students who have previously withdrawn but who reenter during the fiscal
period, and (iv) graduations and withdrawals during the fiscal period. New
student starts occur on a monthly basis in the CSi colleges. In the RCi
colleges, the majority of new student starts occur in the first month of each
calendar quarter with an additional "mini-start" in the second month of each
quarter in most colleges. The tuition charges vary by college depending on the
local market, the program level (i.e., diploma, or associate's, bachelor's or
master degree) and the specific curriculum.

The majority of students at the Company's colleges rely on funds received
under various government sponsored student financial programs, especially
Title IV Programs, to pay a substantial portion of their tuition and other
education-related expenses. In fiscal 1998, approximately 72% of the Company's
net revenue (on a cash basis) was indirectly derived from Title IV Programs.

The Company categorizes its expenses as educational services, general and
administrative, and marketing and advertising. Educational services expense is
primarily comprised of those costs incurred to deliver and administer the
education programs at the colleges, including faculty and college
administration compensation; education materials and supplies; college
facility rent and other occupancy costs; bad debt expense; depreciation and
amortization of college property, equipment and goodwill; and default
management and financial aid processing costs.

General and administrative expense consists principally of those costs
incurred at the corporate and regional level in support of college operations,
except for marketing and advertising related costs. Included in general and
administrative costs are Company executive management, corporate staff and
regional operations management compensation; rent and other occupancy costs
for corporate headquarters; depreciation and amortization of corporate
property, equipment and intangibles; and other expenses incurred at corporate
headquarters.

Marketing and advertising expense includes compensation for college
admissions staff, regional admissions directors, corporate marketing and
advertising executive management, and staff and all advertising and production
costs.

25
<PAGE>

ACQUISITIONS

Since its inception, the Company has completed the following acquisitions,
each of which was accounted for as an asset purchase using purchase
accounting:

On June 30, 1995, the Company acquired five colleges from National Education
Centers, Inc. ("NECI"). As part of the same transaction, the Company
subsequently acquired from NECI a second group of five colleges on September
30, 1995 and an additional six colleges on December 31, 1995. The adjusted
purchase price for all 16 colleges was approximately $4.7 million.

On July 1, 1996, the Company acquired one college from Repose, Inc. (the
"Repose Acquisition") for a purchase price of $0.3 million.

On August 31, 1996, the Company acquired one college from Concorde Career
Colleges, Inc. (the "Concorde Acquisition") for a purchase price of $0.4
million.

On October 17, 1996, the Company acquired 18 colleges from Phillips
Colleges, Inc. ("Phillips") for an adjusted purchase price of approximately
$23.6 million.

RESULTS OF OPERATIONS

The following table summarizes the Company's operating results as a
percentage of net revenue for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE
30,
--------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.......................................... 100.0% 100.0 % 100.0%
Operating expenses:
Educational services............................... 59.0 65.5 61.9
General and administrative......................... 10.5 10.5 10.1
Marketing and advertising.......................... 24.0 24.6 22.8
----- ----- -----
Total operating expenses......................... 93.5 100.6 94.8
----- ----- -----
Income (loss) from operations........................ 6.5 (0.6) 5.2
Interest expense, net................................ 0.9 3.2 3.1
----- ----- -----
Income (loss) before income taxes.................... 5.6 (3.8) 2.1
Provision (benefit) for income taxes................. 2.3 (1.4) 0.9
----- ----- -----
Net income (loss).................................... 3.3% (2.4)% 1.2%
===== ===== =====
</TABLE>

YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997

Net Revenue. Net revenue increased $29.3 million, or 38%, from $77.2 million
in fiscal 1997 to $106.5 million in fiscal 1998. The increase was due
primarily to the inclusion of operating results related to the Phillips
Acquisition for the entire year in fiscal 1998 compared to approximately eight
and one half months for fiscal 1997. The schools acquired in the Phillips
Acquisition contributed revenues of $61.2 million in fiscal 1998 compared to
$34.6 million in the prior year. Also contributing to the increase was a 9%
increase in the student population from 12,820 at June 30, 1997 to 13,992 at
June 30, 1998, and the implementation of tuition increases averaging 3% to 7%
in most colleges during fiscal 1998.

26
<PAGE>

Educational Services. Educational services expense increased $15.4 million,
or 30%, from $50.6 million in fiscal 1997 to $65.9 million in fiscal 1998. The
increase was primarily due to the inclusion of the operating results related
to the Phillips Acquisition for the entire year in fiscal 1998, versus only
eight and one half months for fiscal 1997. The schools acquired in the
Phillips Acquisition contributed educational services costs of $37.5 million
in fiscal 1998 compared to $22.4 million in the prior year. A portion of the
increase also resulted from the increase in the average student population and
wage increases for employees. As a percentage of net revenue, educational
services expense decreased from 65.5% to 61.9%.

General and Administrative. General and administrative expense increased
$2.7 million, or 33%, from $8.1 million in fiscal 1997 to $10.8 million in
fiscal 1998, due principally to the increased headquarters and regional
operations staff and infrastructure necessary to support the colleges acquired
in the Phillips Acquisition. As a percentage of net revenue, general and
administrative expense decreased from 10.5% to 10.1%.

Marketing and Advertising. Marketing and advertising expense increased $5.3
million, or 28%, from $19.0 million in fiscal 1997 to $24.3 million in fiscal
1998. The increase was due primarily to the inclusion of the operating results
related to the Phillips Acquisition for the entire year in fiscal 1998, versus
eight and one half months for fiscal 1997. The schools acquired in the
Phillips Acquisition contributed marketing and advertising costs of $10.9
million in fiscal 1998 compared to $6.6 million in the prior year. Also
contributing to the increase was additional spending on the production of
updated television commercials and printed advertising materials. As a
percentage of net revenues, marketing and advertising expense decreased from
$24.6% to 22.8%.

Interest Expense, net. Interest expense increased $0.8 million, or 31%, from
$2.5 million in fiscal 1997 to $3.3 million in fiscal 1998, primarily due to
interest expense on increased borrowings used to finance the Phillips
Acquisition in October 1996.

Provision (Benefit) for Income Taxes. The provision for income taxes
increased $2.1 million from a benefit of $1.1 million in fiscal 1997 to a
provision of $1.0 million in fiscal 1998.

Net Income (Loss). Net income increased $3.1 million from a loss of $1.9
million in fiscal 1997 to income of $1.2 million in fiscal 1998.

YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996

Net Revenue. Net revenue increased $45.7 million, or 145%, from $31.5
million in fiscal 1996 to $77.2 million in fiscal 1997, primarily due to $35.9
million generated from acquisitions made in fiscal 1997 and $11.8 million
generated from having all acquisitions made in fiscal 1996 for the entire
year. Student population increased more than 7.0%, from 11,977 students at the
beginning of fiscal year 1997 (or on the acquisition date of a particular
college, if later) to 12,820 students at the end of the fiscal year and
tuition increases were implemented averaging over 4.5% at most of the CSi
division colleges. The revenue increase was partially offset by a non-
recurring management fee of $2.1 million in 1996 for managing several of
NECI's schools during the first half of that year. Revenue was also negatively
impacted during 1997 due to the DOE's change in admissions testing
requirements for non-high school graduates in late December 1996 (See
"Financial Aid and Regulations--Ability to Benefit Regulations"). In the 12
month period immediately following this change, the Company's 12 colleges
which accept non-high school graduates started 1,105 such students, compared
to 1,795 started in the 12 month period immediately preceding the change.

Education Services. Education services expense increased $32.0 million, or
172%, from $18.6 million in fiscal 1996 to $50.6 million in fiscal 1997. Of
this increase, $24.4 million was attributable to acquisitions made in fiscal
1997 and $7.0 million was due to having all acquisitions made in fiscal year
1996 for the entire year. The remainder of the increase was due primarily to
wage increases and additional headquarters curriculum development costs. As a
percentage of net revenue, educational services expense increased from 59.0%
to 65.5%.

General and Administrative. General and administrative expense increased
$4.8 million, or 146%, from $3.3 million in fiscal year 1996 to $8.1 million
in 1997, primarily as a result of (i) increased headquarters and

27
<PAGE>

regional management staffing and infrastructure necessary to support the
increased number of colleges of $4.1 million, and (ii) increased amortization
expense due to intangibles (curriculum and trade names) resulting from the
Phillips Acquisitions of $0.7 million. The headquarters staff and related
expenses benefited during the first six months of fiscal year 1996 from a
favorable services agreement negotiated by the Company with NEC as part of the
NEC Acquisition. Under this agreement, NEC provided accounting, payroll,
office services, human resources services, office space, MIS services, etc. at
a nominal charge for several months. As a percentage of net revenue, general
and administrative expense remained constant at 10.5%.

Marketing and Advertising. Marketing and advertising expense increased $11.4
million, or 151%, from $7.6 million in fiscal year 1996 to $19.0 million in
fiscal year 1997. The acquisitions made in fiscal 1997 accounted for $7.2
million of this increase; having all the acquisitions made in fiscal 1996 for
the entire year accounted for $3.1 million; and advertising cost and wage
inflation, new advertising development, and the additional regional management
staff supporting acquisitions accounted for $1.1 million. As a percentage of
net revenue, marketing and advertising expense increased from 24.0% to 24.6%.

Interest Expense, net. Interest expense increased $2.2 million, or 821% from
$0.3 million in fiscal 1996 to $2.5 million in fiscal 1997 due primarily to
interest expense on increased borrowings to finance the acquisitions made in
fiscal 1997.

Provision (Benefit) for Income Taxes. The income tax provision of $0.7
million in fiscal year 1996 decreased $1.8 million to a benefit of $1.1
million in fiscal year 1997 due to the loss before income taxes in fiscal year
1997.

Net Income (Loss). Net income of $1.0 million in fiscal year 1996 decreased
$2.9 million, or 280% to a net loss of $1.9 million in fiscal year 1997. The
decrease was due to the decrease in operating income and the increase in
interest expense year to year.

SEASONALITY

The following table sets forth unaudited quarterly financial data for each
of the four fiscal quarters in the year ended June 30, 1998 (the only year in
which the Company owned all the schools for the entire year) and such data
expressed as a percentage of the Company's totals with respect to such
information for the 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.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1998
----------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenue:
Amount.................................. $24,346 $26,440 $27,841 $27,859
Percentage of fiscal year total......... 22.9% 24.8% 26.1% 26.2%
Income from operations before interest and
income taxes:
Amount.................................. $ 70 $ 2,075 $ 1,833 $ 1,536
Percentage of fiscal year total......... 1.3% 37.6% 33.2% 27.9%
</TABLE>

The Company's revenues normally fluctuate as a result of seasonal variations
in its business, principally in its total student population. Student
population varies as a result of new student enrollments and student
attrition. Historically, the Company's colleges have had lower student
populations in the first fiscal quarter than in the remainder of the year. The
Company's expenses, however, do not vary as significantly as student
population and revenue. the Company expects quarterly fluctuations in
operating results to continue as a result of seasonal enrollment patterns.
Such patterns may change, however, as a result of acquisitions, new school
openings, new program introductions and increased high school enrollments. The
operating results for any quarter are not necessarily indicative of the
results for any future period.

28
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

During fiscal years 1996 and 1997, the Company financed its operating
activities and routine capital expenditures (not including acquisitions and
real estate) principally from cash provided by operating activities. In fiscal
year 1998, the Company received an equity investment of approximately $5.0
million in the form of convertible preferred stock. The convertible preferred
stock was issued in anticipation of the increased working capital requirements
to fund the Company's internal loan program and other operating needs. Cash
provided by (used in) operating activities for fiscal 1996, 1997 and 1998 was
$1.0 million, $1.0 million and ($3.4 million), respectively.

The Company had $1.8 million of working capital as of June 30, 1997,
compared to $2.3 million as of June 30, 1996. The decrease in working capital
in 1997 was due primarily to an increase in routine capital expenditures from
period to period. Working capital as of June 30, 1998 was $0.6 million,
compared to $1.8 million as of June 30, 1997. The decrease in 1998 was due
primarily to a significant portion of long term debt becoming short term
during the period and the increase in internally funded longer term student
loans as a result of the loss of Title IV loans in seven of the CSi schools.
This decrease was significantly offset by the increase in cash resulting from
the sale of Convertible Preferred Stock in November 1997. The Company closed
one of those seven schools in December 1997. The use of working capital to
fund these longer term loans amounted to approximately $5.0 million from
inception in May 1997 until June 30, 1998. With the reinstatement of three of
the seven schools (representing over 50% of the combined total student
population in all seven schools) to the Title IV Loan Program, the Company
expects the working capital needed to fund these internal loans to decrease
significantly in the immediate future. The Company also expects reinstatement
of Title IV loans to one of the remaining ineligible schools in 1999 and the
two others, along with one additional school which has been ineligible since
1994, in 2000. With the reinstatement of these four schools, the working
capital needs should decrease in the longer term. See "Risk Factors--
Substantial Dependence on Student Financial Aid; Potential Adverse Effects of
Governmental Regulation--Student Loan Defaults." Included in working capital
at June 30, 1997 is $1.0 million of restricted cash, which secures a letter of
credit to the DOE. See "Financial Aid and Regulations--Federal Oversight of
the Title IV Programs--Financial Responsibility Standards." Included in
working capital at June 30, 1998 is $760,000 of restricted cash, of which
$750,000 secures a letter of credit to the DOE.

Routine capital expenditures increased from $1.0 million in 1996 to $2.5
million in 1997 and decreased from $2.5 million in 1997 to $1.9 million in
1998. The 1996 to 1997 increase was primarily due to accelerated investments
in upgrading computers and other equipment in the classrooms and upgrading the
Company's administrative computers and networking capability to accommodate
the Phillips Acquisition. The decrease from 1997 to 1998 was the result of a
return to a more normal rate of capital improvement versus the accelerated
spending pace needed to upgrade the colleges acquired in October 1996. In
addition to the routine capital expenditures during 1997, the Company also
purchased the real estate associated with five of the colleges acquired in the
Phillips Acquisition for a purchase price of $3.4 million. The Company leases
the rest of its operating facilities along with various equipment under
noncancellable operating leases expiring at various dates through 2017. The
Company's future minimum payments under these noncancellable leases total
approximately $39.5 million.

The Company's capital assets, other than the real estate mentioned above,
consist primarily of classroom and laboratory equipment (such as computers,
medical and dental devices, and film and video equipment), classroom and
office furniture, and leasehold improvements. Capital expenditures are
expected to increase as the Company continues to upgrade and expand current
equipment and facilities along with the anticipated growth in student
population and campuses. The Company expects to be able to fund these routine
capital expenditures with cash generated from operations. At the current time
the Company has no material commitments for capital expenditures.

In addition to the capital expenditures mentioned above, the Company's
investment activity over the past three fiscal years has primarily consisted
of acquisitions of colleges. Purchases of colleges, including goodwill

29
<PAGE>

and other intangibles, in 1996 and 1997 totaled approximately $3.0 million and
$24.2 million, respectively. The Company's growth strategy includes continuing
to pursue selective acquisitions in the future. To the extent that potential
acquisitions are large enough to require financing beyond cash from operations
and the Company's proposed bank line of credit, the Company could incur
additional debt, resulting in increased interest expense.

The Company currently has a revolving credit facility with The Prudential
Insurance Company of America ("Prudential") under which it can borrow up to
$5.0 million. The revolving credit facility matures on October 17, 2000;
however, under terms of the credit facility, availability under this facility
will be reduced to $3.0 million on October 17, 1998. At June 30, 1998, the
Company had outstanding borrowings of $5.0 million under this revolving credit
facility. Borrowings under the revolving credit facility bear interest at
LIBOR plus 3.5%. The Company also has a $22.5 million term note with
Prudential which matures on October 17, 2004, with interest at 11.02% payable
quarterly in January, April, July, and October. The Prudential term note
requires a $2.5 million and a $5.0 million principal payment on October 17,
1998 and October 17, 1999, respectively. After these two principal payments,
the remaining $15.0 million due on the note is amortized quarterly over the
next five years. The Company has an aggregate of $5.0 million in subordinated
term notes with Primus Capital Fund III Limited Partnership ("Primus") and
Banc One Capital Partners II, LLC ("Banc One") which mature on October 17,
2005. These subordinated notes bear interest at 12%, payable quarterly, and
the unpaid principal is due and payable in quarterly installments of $281,250
beginning October 17, 2001 until the maturity date, at which time any
remaining outstanding balance is due and payable. A mortgage note secured by
the real estate of five colleges in the amount of approximately $3.7 million
matures in April 2007. The mortgage note bears interest at 10.95% and is being
amortized monthly. These note agreements contain various financial and non-
financial covenants. At June 30, 1997, the Company was not in compliance with
certain covenant requirements of these notes. However, on November 7, 1997,
the Company entered into agreements amending the terms of these note
agreements. Among other things, the amended agreements waived all covenant
violations through September 30, 1997, extended the principal payment dates,
adjusted certain interest rates and reset the financial ratios to be
consistent with the Company's current operating plan. As of June 30, 1998 the
Company was in compliance with all the covenant requirements of these note
agreements except for a 1998 minimum annual cash flow requirement from
operating activities which has been waived by the lenders.

The Company plans to use approximately $32.8 million of the net proceeds
from this Offering to repay all the outstanding indebtedness under the
revolving credit facility and notes mentioned above, except for the real
estate mortgages which will remain outstanding after the Offering. As a
result, the Company expects its interest expense in the period following the
Offering, assuming no material acquisitions during this period, will be
significantly lower and have a lesser impact on the Company's net income, as
compared to the period prior to the Offering. In addition, the early
extinguishment of indebtedness will include a prepayment premium of
approximately $2.3 million and will cause the Company to write off
approximately $0.8 million of associated deferred loan fees. In connection
with this debt extinguishment and associated write-off, the Company expects to
record a one-time extraordinary loss, net of tax benefit, of approximately
$1.9 million in the period immediately following the Offering.

In order to ensure adequate working capital and availability of funds for
capital expenditures and growth plans, the Company has negotiated the Proposed
Bank Line of Credit with Union Bank of California which will go into effect
concurrent with this Offering. This $10.0 million line of credit will be for a
period of one year, bears interest at LIBOR plus 200 basis points and includes
a non-usage fee of 1/8% per year on the unused portion. At maturity, any
acquisition advances will convert to a three year fully amortizing term loan.
Under this line of credit the Company will be required to maintain certain
financial and other covenants. Borrowings under this line of credit will be
secured by substantially all personal property of the Company. The Company
believes that the cash flow from operations, supplemented by borrowings under
the line of credit, will provide adequate funds for ongoing operations,
planned capital expenditures, and planned expansion to new locations in the
near future.

Cash flow from operations on a long-term basis is highly dependent on the
receipt of funds from Title IV Programs. Title IV regulations require that
institutions meet certain "financial responsibility" tests to be eligible

30
<PAGE>

to participate in Title IV Programs (See "Risk Factors"). If an institution
fails to meet one or more of these tests, it can still be considered
financially responsible by posting a letter of credit or going into the
"reimbursement" program and posting a smaller letter of credit. As a result of
acquiring the former Phillips colleges through debt financing and the large
amount of intangibles associated with the purchase, the Company did not meet
the tangible net worth financial responsibility test and was required to
continue the 18 colleges acquired on the reimbursement program (which they
were already on) and to post a letter of credit (now totaling $1.5 million).
By doing so, the Company was deemed financially responsible under the
regulations. As a result of, and subsequent to, this Offering, the Company
expects to meet the tangible net worth test and plans to immediately petition
the DOE for release from the reimbursement program and the letter of credit
requirement.

YEAR 2000 COMPLIANCE

Introduction. In the next year and a half, most large companies will face a
potentially serious information systems problem because many software
applications and operational programs written in the past may not properly
recognize calendar dates beginning in the year 2000. This problem could force
information systems to either shut down or provide incorrect data or
information. The Company began the process of identifying the necessary
changes to its computer programs and hardware as well as assessing the
progress of its significant vendors in their remediation efforts in 1997. The
discussion below details the Company's efforts to ensure Year 2000 compliance.

State of Readiness. The Company has identified and evaluated the readiness
of its internal and third party information technology and non-information
technology systems which, if not Year 2000 compliant, could have a direct
major impact to the Company. This evaluation identified the following areas of
concern: (i) the Company's accounting and financial reporting system, (ii) the
Company's proprietary student database system (School's Automation System or
"SAS"), (iii) the systems of third party vendors which process student
financial aid applications and loans for the Company, and (iv) the DOE's
systems for processing and disbursing student financial aid.

The Company's accounting and financial reporting system has already been
upgraded with the provider's latest release which is certified to be Year 2000
compliant. The Company's SAS system is not compliant and the updates to this
system are not yet complete. To date, a detailed assessment of the system has
been completed wherein each date occurrence has been identified and
documented, and a detailed plan has been developed to complete the necessary
remedial work. The remediation project has just begun, and the Company expects
the corrections to this system will be completed and tested by mid-year 1999.

Based on its assessment and the vendors' representations, the Company
believes that the systems of its significant third party vendors which provide
student financial aid and loan processing are already Year 2000 compliant.

The Company is highly dependent on student funding provided through Title IV
programs. Processing of student applications for this funding and actual
disbursement of a significant portion of these funds are accomplished through
the DOE's computer systems. According to the DOE, their systems should be
brought into certifiable compliance in early 1999. However, the Company is not
able to reliably assess their progress to date, and any problems in the DOE's
systems could result in interruption of funding for the Company's students.

Year 2000 Costs. In fiscal 1998, the Company expensed approximately $150,000
on the assessment and evaluation phase of its Year 2000 initiatives and
estimates that it will expense approximately $750,000 in fiscal 1999 to
complete the remediation efforts. These efforts have been, and are expected to
continue to be, funded through cash from operations. The Year 2000 compliance
project has not resulted in the deferral of any significant information
systems initiatives by the Company.

31
<PAGE>

Risks from Year 2000 Issues. The Company believes the greatest Year 2000
compliance risk, in terms of magnitude of risk, is that the DOE may fail to
complete its remediation efforts in a timely manner and Title IV funding for
its students could be interrupted for a period of time. Other than public
comments provided by the DOE, the Company is unable to predict the likelihood
of this risk occurring. Any significant interruption of this funding could
have a material adverse effect on the Company's results of operations,
liquidity or financial condition. As mentioned earlier, the Company is
dependent upon DOE assertions as to their progress to date and timetable for
completion of their remediation efforts.

Contingency Plans. At this time, the Company fully expects to be Year 2000
compliant and is satisfied that its significant vendors are already compliant.
As such, the Company has not developed any specific contingency plan in the
event it fails to complete its Year 2000 projects. The Company also has not
developed a contingency plan to handle the scenario in which the DOE does not
complete its internal systems remediation projects as planned. The Company
will continue to monitor DOE communications on its progress, and, if such a
scenario appears likely to occur, will develop a contingency plan. Any such
contingency plan to deal with an interruption in student funding will need to
address such factors as the length of the interruption and alternative sources
of funding (both internal and external) to bridge the interruption.

INFLATION

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

NEW ACCOUNTING STANDARDS

Recent pronouncements of the Financial Accounting Standards Board ("FASB")
include Statement of Financial Accounting Standards ("SFAS") No. 133
"Accounting for Derivatives Instruments and for Hedging Activities" SFAS No.
132, "Employers' Disclosures about Pension and Other Post Retirement
Benefits", SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information", SFAS No. 130, "Reporting Comprehensive Income", SFAS No.
129, "Disclosure of Information about Capital Structure" ("SFAS No. 129"), and
SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS Nos. 129 and 128
specify guidelines as to the method of computation of, as well as presentation
and disclosure requirements for, earnings per share. The Company adopted SFAS
No. 128 for all periods presented in this Registration Statement. The other
Statements discussed above are effective for fiscal years beginning after
December 15, 1997 and earlier application is not permitted. The adoption of
the Statements is not expected to have a material effect on the Company's
consolidated financial position or results of operations. The impact of these
pronouncements on the disclosures in the financial statements has not been
determined.

32
<PAGE>

BUSINESS

OVERVIEW

The Company is one of the largest private, for-profit post-secondary
education companies in the United States, with more than 14,200 students as of
July 31, 1998. The Company operates 35 colleges in 16 states, including nine
in California and eight in Florida, and services the large and growing segment
of the population seeking to acquire career-oriented education to become more
qualified and marketable in today's increasingly demanding workplace
environment. The Company's schools generally enjoy long operating histories
and strong franchise value in their local markets. The median operating
history for the Company's colleges is 36 years, including nine colleges with
operating histories over 80 years. For the fiscal year ended June 30, 1998,
the Company had net revenues of $106.5 million.

The Company offers a variety of master's, bachelor's and associate's degree
and diploma programs through two operating divisions. The Company's CSi
division operates diploma-granting schools in the allied healthcare and
electronics technology fields and seeks to provide its students a solid base
of training for a variety of entry-level positions. The Company's RCi division
operates degree-granting schools principally in the business area and provides
its students with professional education to succeed in today's increasingly
competitive workplace. Both divisions receive strategic direction and
operational support from senior management and headquarters staff.

The Company's management team is led by David Moore, Paul St. Pierre, Frank
McCord, Lloyd Holland and Dennis Devereux, who together have more than 60
years of experience in post-secondary education. Since its founding in 1995,
the Company has grown rapidly and has improved enrollments and profitability.
See "Selected Historical Consolidated Financial and Other Data." In order to
capitalize on management's extensive industry experience, the Company has
implemented a regional management structure supported by the Company's
proprietary management information system (the Schools Automation System, or
"SAS"). SAS provides regional managers with real time access to key
information from any location and links all the colleges and regional offices
to corporate headquarters, providing senior management with daily access to
marketing reports, lead tracking, academic records, grades, transcripts and
placement information. Due to the Company's effective management of leads and
other marketing resources, the Company's colleges have experienced a combined
enrollment growth of 18% since their respective acquisitions by the Company.

INDUSTRY BACKGROUND

The market for post-secondary education is large and growing, exceeding $220
billion and 14 million students in the 1996-97 school year. The private, for-
profit post-secondary education industry is highly fragmented. Of the
approximately 6,000 post-secondary institutions that are eligible to
participate in Federal Financial Aid programs, approximately one-third are
private, for-profit institutions. The Company believes that the growing demand
for skilled labor, positive demographic trends, the economic value of post-
secondary education to students and budgetary constraints at public colleges
will combine to broaden the market for the Company's services over the next
decade.

GROWING DEMAND FOR SKILLED LABOR. According to the U.S. Department of Labor,
demand for skilled labor in the United States continues to grow. The
percentage of jobs requiring skilled labor grew from 20% in 1954 to 45% in
1991, and is projected to grow to approximately 65% by the year 2000. The
total number of jobs requiring skilled labor in the year 2000 is projected to
equal approximately 92.3 million, an increase of approximately 36 million jobs
from 1991. Growth in certain sectors of the economy is expected to be
particularly high. The Department of Labor projects that job growth in the
healthcare and technology fields will significantly outpace the growth of the
overall labor market over the next several years. The demand for entry level
Medical Assistants, for instance, is expected to grow more than 70% from 1996
to 2006. The Company believes the economy is also generating increased demand
for business professionals. According to the Bureau of Labor Statistics,
employment in service-producing industries will increase faster than the
average, with growth near 30% between 1996 and 2006. Business, health and
education services will account for 70% of the growth within the service
industry.

33
<PAGE>

POSITIVE DEMOGRAPHIC TRENDS. Favorable demographic shifts are expected to
occur over the next decade as children of "baby boomers" reach adulthood and
seek post-secondary education. For the first time in more than 25 years, the
number of new high school graduates is increasing. The DOE projects a 17%
increase in annual high school graduates by the year 2005 (from 2.5 million in
1995 to 3.0 million in 2005) and high school graduates are pursuing post-
secondary education at higher rates. In 1996, 65% of new high school graduates
pursued post-secondary education, compared with 53% in 1986. The number of
young adults that do not graduate high school is also growing and these non-
high school graduates can also benefit from career oriented education,
including training for entry level skilled positions in healthcare and other
growing industries. According to the DOE's National Center for Educational
Statistics ("NCES"), the number of adult enrollments (persons aged 25 and
older) is also expected to grow, reaching 6.4 million by 2007.

ECONOMIC VALUE OF POST-SECONDARY EDUCATION. Post-secondary education leads
to significant and measurable improvements in a person's financial prospects
and the Company believes that the public is increasingly aware of this
relationship. On average, a person with an associate's degree earns 25% more
than a high school graduate, while a person with a bachelor's degree earns 54%
more than a high school graduate. Independent research studies have
demonstrated that prospective students consider these benefits in making their
education decisions.

BUDGETARY CONSTRAINTS AT PUBLIC COLLEGES. Limited recent growth in federal,
state and local budgets for post-secondary education has caused budgetary
constraints among traditional colleges and made additional facility expansion
difficult. At the same time, the number of private, for-profit post-secondary
institutions has remained relatively constant over the last three years. The
Company believes that these factors, combined with significant barriers to
entry for new proprietary education companies, create significant
opportunities for well-capitalized, proprietary institutions.

OPERATING STRATEGY

The Company has improved enrollment and profitability through the
application of its operating strategy which management developed through its
extensive industry experience. The Company believes that its ability to
continue to effectively and professionally manage its schools provides it with
an important competitive advantage. Key elements of the Company's operating
strategy include:

FOCUS ON ATTRACTIVE MARKETS. The Company selects its schools and designs its
educational programs to exploit favorable demographic and economic trends. The
Company's CSi division provides diploma programs in healthcare and technology
related fields, allowing the Company to capitalize on the growth in entry-
level positions in these industries which is expected to significantly outpace
the growth of the overall labor market over the next several years. The RCi
division's degree programs, with their business focus and the modern equipment
and resources of their facilities, also seek to provide students with specific
knowledge and skills necessary to advance in business and industry. The
Company's geographic strategy is to build a strong competitive position in
attractive and growing local markets where the Company can take advantage of
operating efficiencies and benefit from demographic shifts. For example, the
Company is well positioned, with nine schools in California and eight schools
in Florida, to benefit from the population growth in these states which is
expected to significantly exceed the national average over the next several
years.

CENTRALIZATION OF KEY FUNCTIONS. In order to capitalize on the experience of
its senior management, the Company has established a regional management
organization to divide responsibilities among school administrators, regional
administrators and senior management. Local school administrators retain
control of, and accountability for, the day-to-day academic, operational and
financial performance of their individual schools and receive appropriate
financial incentives. The corporate management team controls key operational
functions such as financial aid management, marketing, curriculum development,
staff training, human resources and centralized purchasing, which the Company
believes enable it to achieve significant operating efficiencies. For example,
the Company controls the advertising function at the corporate level by
utilizing its SAS system to

34
<PAGE>

analyze the effectiveness of its marketing efforts and make timely and
efficient decisions regarding the allocation of marketing resources at
individual colleges.

EMPHASIZING STUDENT OUTCOMES. The Company believes that strong student
outcomes are a critical driver of its long-term success and devotes
substantial resources to maintaining and improving its retention and placement
rates. Modest increases in student retention can have a significant impact on
the Company's profitability and high graduation and placement rates enhance a
school's reputation and marketability, increase referrals and improve cohort
default rates. The Company has studied attrition patterns and implemented a
variety of programs including tutoring, counseling, ride-sharing and referral
programs, all of which are designed to improve student retention. The Company
utilizes a curriculum development team and advisory boards comprised of local
business professionals to help maintain its current, market driven curricula
that provide the foundation of its placement effort. The Company additionally
maintains dedicated, full-time placement personnel at each school that
undertake extensive placement efforts, including recruiting prospective
employers, helping students prepare resumes, conducting practice interviews,
establishing internship programs and tracking students' placement success on a
monthly basis. As a result of the Company's efforts in this area, 83% of its
graduates in 1997 who were searching for employment were placed in a job for
which they had trained within six months after graduation.

CREATING A SUPPORTIVE LEARNING ENVIRONMENT. The Company views its students
as customers and seeks to provide a supportive and convenient learning
environment where student satisfaction is achieved. The Company offers a
flexible schedule of classes, providing its students with the opportunity to
attend classes throughout the day, as well as nights and weekends. Schools
operate year-round, permitting students to complete their course of study more
quickly. The Company limits class sizes and focuses the efforts of its faculty
on teaching students rather than research. Personal interaction between
students and faculty is encouraged and the Company offers several support
programs, such as on-campus counseling and tutoring, which are designed to
help students successfully complete their course of study. The Company also
maintains a toll-free student hotline to address and help resolve student
concerns. The Company believes these efforts help attract new students,
enhance students' probability of success and maintain competitive retention
rates.

GROWTH STRATEGY

The Company intends to strengthen its position as a leading provider of
career-oriented private, for-profit post-secondary education in the United
States. To accomplish this objective, the Company will pursue the following
growth strategies:

ENHANCE GROWTH AT EXISTING CAMPUSES. The Company intends to enhance growth
at existing campuses through the following measures:

Curriculum Expansion and Development. The Company intends to continue
developing and expanding its curricula based on market research and the
recommendations of its faculty, employees, industry advisory board members
and a dedicated curriculum development team. The Company believes
considerable opportunities exist for curriculum expansion in both operating
divisions and expects to continue developing and adding new curricula and
selectively replicating existing programs at new locations, including
introducing its longer-term programs more broadly. In fiscal 1998, the
Company replicated existing programs at five new locations and initiated
new programs at three locations. For example, the RCi division launched a
master's of science in criminal justice and an executive MBA program in
1997 and is developing additional new programs such as healthcare
administration.

Integrated and Centralized Marketing Program. The Company believes that
it can increase student enrollment at its existing and newly opened or
acquired schools by employing an integrated marketing program utilizing an
extensive direct response advertising campaign delivered through
television, radio, newspaper, direct mail and the internet. In addition,
the Company has recently begun a significant sales and marketing effort
directed at high school guidance counselors and has also begun to directly
target potential government and corporate clients. A professional marketing
staff at the Company's headquarters coordinates

35
<PAGE>

marketing efforts through an in-bound call center and the sophisticated
real-time leads tracking capability of its SAS system.

Facilities Enhancement and Expansion. Due to increased enrollments, the
Company has faced temporary physical plant limitations at a number of its
colleges, particularly the CSi campuses. In order to expand capacity, as
well as to improve the location and appearance of its facilities, the
Company has relocated, and will continue to systematically relocate,
selected colleges within their respective markets to larger, enhanced
facilities upon lease expiration. Eleven colleges have been relocated since
1995 and several additional colleges are scheduled for relocation during
fiscal 1999. Since the Company acquired its various colleges, it has
increased the total square footage of leased space by approximately 36,000
square feet over that existing at the time the various schools were
acquired.

ESTABLISH ADDITIONAL LOCATIONS. The Company anticipates creating "Additional
Locations" of its existing institutions to enter new geographic markets and to
create additional capacity in existing markets. Opening additional locations
will enable the Company to effectively leverage its infrastructure and
curriculum library. Establishing additional locations rather than opening new
colleges also allows the Company to become eligible for Title IV funding and
accreditation more expeditiously. The Company has considerable experience in
operating Additional Locations of its existing colleges and is currently
considering opening additional locations in Dallas, Texas and Norfolk,
Virginia, subject to contingencies such as identifying suitable facilities,
negotiating acceptable lease terms, and retaining qualified personnel to
manage and staff those locations. The Company has also established demographic
and market criteria to evaluate other cities as potential sites for additional
locations.

EXPAND SERVICE AREAS AND DELIVERY MODELS. The Company seeks to enhance its
growth by more aggressively pursuing contract training and distance learning
opportunities.

Contract Training. The Company seeks to expand its presence in the
government and corporate training markets. The Company's CSi division
employs a full-time contracts administrator and actively pursues training
opportunities through the Job Training Partnership Act (the "JTPA") and
other state and federal programs. To date, nine of the Company's schools
have obtained contracts under these programs. The Company believes that
corporate training is an attractive market and that its curriculum and
national market presence address the needs of a variety of employers.

Distance Learning. The Company anticipates that distance learning will
become an increasingly important component of the higher education market.
The Company is actively pursuing relationships with technology providers
which will allow the Company's colleges to capitalize on distance learning
opportunities.

SELECTIVELY ACQUIRE ACCREDITED PROPRIETARY COLLEGES. Since its formation the
Company has completed and integrated several acquisitions, including two
multicampus acquisitions, and is selectively seeking to acquire additional
institutions that can benefit from its operational expertise. The Company will
seek to acquire schools that generally possess: (i) complimentary or
attractive new curricula, (ii) locations in or near metropolitan areas, and
(iii) strong franchise value (name recognition or marketability).

PROGRAMS OF STUDY

The Company's diploma programs are intended to provide students with the
requisite knowledge and job skills for entry-level positions in their chosen
career field. The Company's degree programs are primarily designed to help
career-oriented adults advance in business and industry. The Company's
curriculum development team has responsibility for maintaining high quality,
market driven curricula. Each college also utilizes advisory boards to help
evaluate and improve the curriculum for each program offered. These advisory
boards meet at least twice a year and are comprised of local industry and
business professionals. Board members provide valuable input regarding changes
in the discipline, new technologies and any other factors that require
curriculum adjustments. The Company believes its advisory boards give it the
ability to adapt quickly to market changes and provide a distinct competitive
advantage for the Company. For this reason, the Company is committed to
maintaining its strong and proactive advisory boards.

36
<PAGE>

Among the CSi colleges, the curriculum principally includes medical
assisting, dental assisting, medical office management, ophthalmic technician,
business operation, medical administrative assistant, respiratory therapy
technician, and electronics and computer technology. Medical assisting is the
most popular program of study, often accounting for 60% or more of the student
body at any given CSi campus. The four National Institute of Technology
("NIT") colleges within the CSi division also offer electronics technology. At
these colleges, the student population is generally split between electronics
and medical assisting. The RCi curriculum includes accounting, business
administration, computer information technology, hospitality management,
marketing, criminal justice, medical assisting, paralegal, commercial art,
court reporting, film and video and travel and tourism. Most programs lead to
an associate's degree, while at the Florida Metropolitan University campuses
most programs also lead to a bachelor's degree. Master's degrees are also
offered at FMU in business administration and criminal justice.

Diploma programs generally have a duration of 8-15 months, however, the
electronics and computer technology programs last 13-19 months. Associate's
degree programs have a duration of 18-24 months, bachelor's degree programs
last 36-48 months and master's degree programs have a duration of 24 months
(except for the executive MBA, which is 12 months). As of June 19, 1998, 6,160
students were enrolled in associate's programs, 1,588 were enrolled in
bachelor's programs, 482 were enrolled in master's programs and 5,796 were
enrolled in diploma programs.

37
<PAGE>

The following chart reflects the general courses of study at the Company's
colleges, along with the number of locations that offer those courses and the
student population for each, as of June 19, 1998.

STUDENT POPULATION BY AREAS OF STUDY

<TABLE>
<CAPTION>
NUMBER OF STUDENT
LOCATIONS POPULATION
--------- ----------
<S> <C> <C>
DIPLOMA PROGRAMS
Business Operations....................................... 4 566
Electronics & Computer Technology......................... 4 389
Dental Assisting.......................................... 8 615
Medical Assisting......................................... 17 3,414
Medical Office Management................................. 9 634
Ophthalmic Technician..................................... 3 62
Respiratory Therapy Technology............................ 1 56
General................................................... 18 60
------
TOTAL................................................... 5,796

ASSOCIATE'S DEGREE PROGRAMS
Business Administration (includes criminal justice and
paralegal)............................................... 16 2,658
Court Reporting........................................... 3 176
Commercial Art............................................ 2 171
Computer Information Systems.............................. 13 841
Film & Video.............................................. 2 129
Hotel/Restaurant Management............................... 4 34
Medical Assisting......................................... 11 1,059
Secretarial/Legal Assistant............................... 7 426
Travel & Tourism.......................................... 6 215
Electronics............................................... 1 146
General................................................... 17 305
------
TOTAL................................................... 6,160

BACHELOR'S DEGREE PROGRAMS
Business Administration (includes criminal justice and
paralegal)............................................... 8 1,266
Computer Information Science/Programming.................. 7 304
Hospitality Management.................................... 1 18
------
TOTAL................................................... 1,588

MASTER'S DEGREE PROGRAMS
Business Administration (MBA)............................. 8 472
Criminal Justice.......................................... 1 10
------
TOTAL................................................... 482

COMPANY TOTAL........................................... 14,026
======
</TABLE>

38
<PAGE>

MARKETING AND RECRUITMENT

The Company employs a variety of methods to attract qualified applicants who
will benefit from the Company's programs and achieve success in their chosen
career fields. The Company believes that one of the principal attractions for
prospective students is the excellent reputation which the Company's schools
enjoy in their respective communities, where nine have been operating for more
than 100 years and all but two have been operating for more than 15 years. The
Company believes that the franchise value of these schools enhances their
marketability within their respective communities. This franchise value, along
with the quality of the programs offered, has enabled the Company to generate
significant new student enrollments from referrals. For the year ended June
30, 1998, the Company generated approximately 31% of its new student
enrollments from referrals.

The Company also employs a variety of direct response advertising techniques
to generate leads on candidates for its schools. The Company's advertising
department generates approximately 200,000 leads per year through television,
direct mail, newspaper, and yellow pages. The effectiveness of this
advertising campaign is dependent on timely and accurate lead tracking. To
that end, the Company operates a Call Center at its headquarters, staffed by a
team of operators who receive incoming lead calls generated by all television
and newspaper media sources. These trained operators enter data on each
prospect into the SAS computer system during the call and immediately transmit
the lead to the appropriate college. The college admissions department
receives the lead instantaneously and the local admissions representative
phones the prospect to begin the admissions process.

This leads tracking capability allows the Company to identify leads
generated by specific commercials and spot time. The Company's three
advertising agencies are networked into the Company's SAS data base and are
provided with real time information on the effectiveness of individual
commercials as well as the effectiveness of the media "buy." The agencies
consult with the Company's advertising department to adjust schedules for ads
depending on the Company's needs and the effectiveness of particular ads.
Since nearly 78% of the Company's advertising budget is spent on television
and newspaper ads, the availability of timely and accurate lead information is
critical to management of the leads generation process. For the year ended
June 30, 1998, 49% of the Company's new student enrollments were generated
through television, newspaper and yellow pages advertising, 31% were generated
through referrals, 10% were generated through direct mail, and 10% were
generated through a variety of other methods. Television and referrals
combined generate nearly two thirds of all the Company's new student
enrollments. The Company has recently initiated a significant marketing effort
directed at the high school market.

ADMISSIONS

The Company employs approximately 170 admissions representatives who work
directly with prospective students to facilitate the enrollment process. These
representatives interview and advise students interested in specific careers
to determine the likelihood of their success and are a key component of the
Company's effort to generate interest in its educational services. In
satisfaction surveys conducted quarterly, students have consistently given
high marks to the Company's admissions personnel for helpfulness, courtesy and
accuracy of information. Because the Company's success is highly dependent on
the efficiency and effectiveness of its admissions process, the Company spends
considerable time and energy training its representatives to improve their
product knowledge and customer service. The Company also employs various
supervisory and monitoring efforts (including a survey of students to solicit
their views of the "truthfulness" of the admissions process) to help ensure
compliance by its staff with government regulations and Company policy.

The Company seeks to identify students that have appropriate qualifications
to succeed in its schools. All candidates for admission to colleges in the
Company's RCi division must have a high school diploma or a GED and must pass
a standardized admissions test. Students with these credentials can also
attend colleges in the Company's CSi division. In addition, thirteen colleges
in the CSi division accept non-high school graduates that can demonstrate an
ability to benefit ("ATB") from the program by passing certain tests required
by the DOE.

39
<PAGE>

The Company believes that ATB students can successfully complete many of its
diploma programs and the Company's colleges have demonstrated success in
graduating and placing these students over the years. As of June 30, 1998, ATB
students accounted for approximately 4.9% of total enrollments in the
Company's schools. See "Financial Aid and Regulation--Federal Oversight of the
Title IV Programs--Ability to Benefit Regulations."

PLACEMENT

One of the primary reasons students decide to attend a particular college is
its placement success, which is critical to a college's reputation and its
ability to continue successfully recruiting new students. The Company
maintains a dedicated placement department at each college and, in the
aggregate, employs approximately 60 professionals in this capacity. Placement
staff work with students from the time they begin their courses of study to
prepare them for the job search they will conduct at the end of their
programs. The Company views its placement departments as essentially in-house
employment agencies, assisting students with resumes, conducting practice
interview sessions, and recruiting prospective employers for the colleges'
graduates.

The efforts devoted by the Company's colleges to place their students have
achieved excellent results, with most colleges achieving and maintaining high
placement rates for their graduates. Based on information received from
graduating students and employers for fiscal year 1997, 83% of the Company's
graduates who were "available for placement" were placed within six months
after their graduation date. In accordance with industry practice, the term
"available for placement" includes all graduates except those who are
continuing their education, are in active military service or are deceased or
disabled, and foreign students who are ineligible to work in the United States
after graduation.

TUITION

Typical tuition for the Company's diploma programs range from $4,700 to
$13,000, depending upon the nature and length of the program. Tuition for
degree programs is charged on a credit hour basis and varies by college,
ranging from $158 to $189 per undergraduate credit hour, depending upon the
program of study and the number of courses taken per quarter. Tuition for
graduate programs is $263 per credit hour (except for the executive MBA
program, which is $457 per credit hour.). On average, an undergraduate degree
candidate can expect tuition of approximately $6,000 per academic year, while
a master's degree candidate can expect tuition of approximately $6,300 per
academic year. In addition to tuition, students at the Company's schools must
also typically purchase textbooks and other supplies as part of their
educational programs. The Company anticipates increasing tuition based on the
market conditions prevailing at its individual colleges. Over the last three
years the Company has initiated tuition increases typically ranging from 3% to
7% per year on an individual college basis. The Company's tuition ranges are
competitive with similar institutions, but like many proprietary institutions,
are somewhat higher than public institutions such as community colleges and
state universities. See "Business--Competition."

Under DOE regulations, if a student fails to complete the initial period of
enrollment (i.e., quarter, trimester, semester, academic year, or program, as
applicable), the institution must pay the largest refund under the federal pro
rata refund policy (calculated through 60% of the period of enrollment), state
refund policy (in California, a pro rata refund may be required for the
duration of the program), or the accrediting agency refund policy. If the
student terminates after the initial period, the institution must pay the
refund for such subsequent period under the state refund policy or, if no such
policy applies, the larger of the amount required by additional federal refund
policy requirements or the institution's own policy.

FACULTY

Faculty at all of the Company's colleges are expected to be industry
professionals and hold appropriate credentials in their respective
disciplines. The Company chooses faculty carefully and provides support for
these professionals to pursue professional development activities. The Company
believes the skill and dedication of its

40
<PAGE>

faculty have the single greatest impact on the placement and success of its
students following their graduation. As of June 30, 1998, the Company employed
1,127 faculty, 273 of whom were full time employees. Faculty represent 56% of
all employees in the Company.

CAMPUS ADMINISTRATION

The Company sets policy for all of the schools and implements these policies
through the coordination of two Regional Operations Directors in each
division. The college presidents, in consultation with their respective
management teams, have the responsibility for the day-to-day operation of the
schools. Each college employs the following management personnel which report
to the College President: (i) an academic dean or education director, (ii) an
admissions director, (iii) a placement director and (iv) a finance or business
director. Corporate personnel at headquarters manage several key functions,
including financial aid, MIS, finance, marketing and advertising, purchasing,
human resources, payroll, curriculum development, leads management, staff
training and development, and internal compliance audit. Among the principal
oversight functions performed by the Company, in cooperation with regional and
college managers, is the annual budget process. The budget process establishes
goals for each college and sets performance incentives for achieving targeted
results. The Company's senior management have daily access to operational data
through its SAS system and conduct weekly conference calls with the school
presidents to review results of operations and set or reorder priorities for
the coming week.

MANAGEMENT AND EMPLOYEES

The Company's management is led by David Moore, Paul St. Pierre, Frank
McCord, Lloyd Holland and Dennis Devereux, each of whom has significant
experience in the private, for-profit post-secondary education industry, and
who together have over 60 years experience in the industry. See "Management."
The Company believes the extensive experience of its executives is a
significant factor in the rapid growth of the Company.

Beyond the senior management level, the Company structure includes four
regional operations directors and four regional admissions directors.
Currently, the Company has approximately 2,000 employees, of whom
approximately 85 are employed at the Company's headquarters. Neither the
Company nor any of its colleges has any collective bargaining agreements with
its employees. All regular full-time employees who are scheduled to work at
least 30 hours per week (20 hours for instructors) are eligible to participate
in the Company's benefit programs so long as they have satisfied the
eligibility waiting period. The Company's benefits include comprehensive
healthcare (which is a co-pay program), life insurance, disability insurance
and a 401(k) program. The Company considers its relations with its employees
to be good.

LOAN PROGRAM

In 1997, the Company expanded its internal loan program to assist eligible
students in those seven colleges that lost eligibility to participate in the
FFEL program due to Cohort Default Rates in excess of 25% for three
consecutive years prior to their acquisition by the Company. The Company
extends loans to these students based on the same qualifying criteria as the
FFEL Program. For example, in order to qualify for an FFEL loan, a student
must meet all admissions requirements and be admitted into one of the
college's programs. In addition, the prospective student must meet with a
financial aid officer at the college and complete all the appropriate
applications required by the Title IV regulations. At the colleges that are
ineligible to participate in the FFEL program, prospective students who meet
all eligibility requirements are offered an internal loan. As with the FFEL
loan program, no independent credit evaluations are performed. The loans
generally have maturities ranging from 6 to 84 months after graduation and
bear interest at a fixed rate that is competitive with rates under Title IV
Programs. Monthly loan payments begin the first month after the loan date and
generally vary between $60 and $150, including loan principal as well as
interest. Student borrowers are required to make payments while still
enrolled, thereby reducing the debt they otherwise would assume upon
completion of their studies. The aggregate amount of loans outstanding to
students at these schools as of June 30, 1998, was approximately $5.8 million,
with an average individual loan balance of approximately $3,100. Loans under
the Company's internal financing program are unsecured.

41
<PAGE>

TECHNOLOGY

The Company is committed to providing its students with access to the
technology necessary for developing the skills required to succeed in their
chosen career. In order to ensure that programs of study remain current and
effective, classrooms and laboratories must be properly equipped with modern
equipment appropriate to the course of study. To that end, the Company has
established a purchasing department which manages the capital expenditure
requests of all of its colleges and establishes national contracts for cost
effective acquisition of equipment. Computers, medical laboratory equipment,
dental laboratory equipment, optical laboratory equipment, software and all
related instructional materials are coordinated with, and purchased by, the
Company's Purchasing Manager. This national purchasing power has enabled the
Company to furnish its computer labs with modern computers at reasonable
prices. Purchasing decisions are prioritized among and within colleges through
the annual budget preparation process. Based on recent experience, the Company
plans annual routine capital expenditures of approximately 2% of revenue.

COMPETITION

The post-secondary education market, consisting of approximately 6,000
accredited institutions, is highly fragmented and competitive, with no
institution having a significant market share. Many of the programs offered by
the Company's colleges are also offered by public and private non-profit
institutions, as well as by many of the approximately 2,000 private, for-
profit colleges and schools. Typically, the tuition charged by public
institutions is less than tuition charged by the Company for comparable
programs because public institutions receive state tax subsidies, donations,
and government grants that are not available to the Company's colleges.
However, tuition at private non-profit institutions is typically higher than
that at the Company's colleges. In either case, the Company believes its
colleges compete effectively with other education alternatives for several
reasons: (i) the Company's colleges provide instruction that immediately
prepares students to enter careers; (ii) many of the Company's programs are
not offered at public institutions and are the only way students can train for
particular careers, (iii) the Company's educational programs are designed to
promote on-schedule completion, allowing students to move from the classroom
to the workplace within a finite period; (iv) more flexible schedules and
greater availability of required courses, resulting in shorter completion time
and higher completion rates and (v) placement services offered by the Company
are generally superior to those offered by private and public non-profit
colleges and universities.

The Company competes in most markets with other private, for-profit
institutions offering similar programs. The Company believes that the strong
franchise value of its colleges, the qualifications of its faculty, its
facilities, and its emphasis on student services allow the Company to compete
effectively. In addition, most of the Company's colleges have been operating
in their markets for 36 or more years, which has led to a substantial number
of graduates who are working in the market and validating the quality of the
colleges' programs. For example, the Bryman Colleges have been a commanding
presence in the healthcare education field in California for over 35 years.
Many physicians and dentists in California have hired Bryman graduates and
continue to view Bryman as a source of qualified Medical and Dental
Assistants.

42
<PAGE>

FACILITIES

The Company's 35 colleges are located in metropolitan and suburban areas in
16 states. Facilities among the colleges vary considerably in both size and
type. The Company's headquarters and 30 of its schools are located in leased
facilities; five of the Company's schools are located in facilities owned by
the Company. As lease expirations approach in its various facilities, the
Company assesses the existing space in terms of current needs, prospects for
future growth, condition of the facility, desirability of the location and
financial terms. Based on the above criteria, the Company decides whether or
not to relocate its schools. Since acquiring the colleges, the Company has
relocated eleven colleges and anticipates relocating several additional
colleges prior to the end of calendar 1998. Square footage of the Company's
colleges varies significantly based upon the type of programs offered and the
market being served. The following table reflects square footage by location
as of June 30, 1998:

<TABLE>
<CAPTION>
APPROX
SQUARE
COLLEGE FOOTAGE
------- -------
<S> <C>
RCI DIVISION
Blair College, Colorado Springs,
CO*............................. 22,300
Duff's, Pittsburgh, PA........... 40,000
FMU, Brandon, FL ................ 35,250
FMU, Ft. Lauderdale, FL ......... 34,500
FMU, Lakeland, FL................ 23,717
FMU, Melbourne, FL*.............. 16,500
FMU, Orlando, FL North .......... 39,424
FMU, Orlando, FL South........... 31,680
FMU, Pinellas, FL................ 30,344
FMU, Tampa, FL*.................. 30,000
Las Vegas College, Las Vegas, NV. 17,863
Mountain West College, Salt Lake
City, UT........................ 19,620
Parks College, Thornton, CO
North*.......................... 24,000
Parks College, Aurora, CO South*. 30,000
RBI, Rochester, NY............... 29,300
Springfield College, Springfield,
MO.............................. 23,012
Western Business College,
Vancouver, WA................... 10,243
Western Business College,
Portland OR..................... 26,800
Corporate Offices
Santa Ana, CA................... 21,957
Gulfport, MS.................... 1,580
</TABLE>
<TABLE>
<CAPTION>
APPROX
SQUARE
COLLEGE FOOTAGE
------- -------
<S> <C>
CSI DIVISION
Bryman, Brookline, MA............ 6,700
Bryman, El Monte, CA............. 16,943
Bryman, Gardena, CA.............. 14,356
Bryman, Los Angeles, CA.......... 13,824
Bryman, New Orleans, LA.......... 14,443
Bryman, Orange, CA............... 11,081
Bryman, San Francisco, CA........ 18,500
Bryman, San Jose, CA North....... 14,624
Bryman, San Jose, CA South....... 3,054
Bryman, Reseda, CA............... 14,200
Bryman, Sea Tac, WA.............. 12,239
Kee Business College, Newport
News, VA........................ 16,126
NIT, Cross Lanes, WV............. 18,000
NIT, San Antonio, TX............. 29,500
NIT, Southfield, MT.............. 22,260
NIT, Wyoming, MI................. 24,000
Skadron College, San Bernardino,
CA.............................. 21,600
</TABLE>
- --------
*Indicates owned property.

COMPANY HISTORY

The Company was founded in February of 1995 by David Moore, Paul St. Pierre,
Frank McCord, Dennis Devereux and Lloyd Holland, the five senior managers of
what was then NECI, a subsidiary of NEC, to capitalize on opportunities in
career oriented post-secondary education. Between June and December of 1995,
the Company acquired 16 of NECI's colleges, each of which was a diploma
granting school with a focus in healthcare. In July and September of 1996, the
Company completed two single campus acquisitions of additional diploma
granting schools. These 18 colleges (one of which has since been closed) today
comprise the Company's CSi division.

In October of 1996, the Company completed its second multi-campus
acquisition through the purchase of 18 campuses from Phillips Colleges, Inc.
Each of these colleges are degree granting schools with a primary focus on
degrees in business. These colleges comprise the Company's RCi division. Since
this most recent acquisition, the Company has focused on improving the
operations and profitability of its schools.

LEGAL PROCEEDINGS

From time to time, the Company has been involved in legal proceedings
arising in the ordinary course of business. None of the matters in which the
Company is currently involved is expected to have a material adverse effect on
the Company's business or financial condition.

43
<PAGE>

FINANCIAL AID AND REGULATIONS

ACCREDITATION

Accreditation is a voluntary non-governmental process by which institutions
submit themselves to qualitative review by an organization of peer
institutions. There are three types of accrediting agencies: (i) national
accrediting agencies, which accredit institutions on the basis of the overall
nature of the institutions without regard to geographical location; (ii)
regional accrediting agencies, which accredit institutions within their
geographic areas; and (iii) programmatic accrediting agencies, which accredit
specific educational programs offered by institutions. Accrediting agencies
primarily examine the academic quality of the instructional programs offered
at the institution, including retention and placement rates, and also review
the administrative and financial operations of the institution to insure that
it has the academic and financial resources to achieve its educational
mission. A grant of accreditation is generally viewed as certification that an
institution and its programs meet generally accepted academic standards.

Pursuant to provisions of the HEA, the DOE relies on accrediting agencies to
determine whether an institution and its educational programs are of
sufficient quality to permit it to participate in Title IV Programs. The HEA
specifies certain standards that all recognized accrediting agencies must
adopt in connection with their review of post-secondary institutions and
requires accrediting agencies to submit to a periodic review by the DOE as a
condition of their continued recognition. All of the Company's 35 colleges are
accredited by an accrediting agency recognized by the DOE. Twenty of the
Company's schools are accredited by the Accrediting Council for Independent
Colleges and Schools ("ACICS") and the remaining fifteen are accredited by the
Accrediting Commission of Career Schools and Colleges of Technology
("ACCSCT").

The following table specifies the accrediting agency and the expiration of
accreditation for each college:

<TABLE>
<CAPTION>
ACCREDITING
COLLEGE LOCATION AGENCY EXPIRATION
------- -------- ----------- ----------
<S> <C> <C> <C>
RCi DIVISION
Blair College................... Colorado Springs, CO ACICS 12/31/2002
Duff's Business Institute....... Pittsburgh, PA ACICS 12/31/2000
FMU--Ft. Lauderdale College..... Fort Lauderdale, FL ACICS 12/31/1999
FMU--Orlando College, North..... Orlando, FL ACICS 12/31/2001
FMU--Orlando College, South..... Orlando, FL ACICS 12/31/2001
FMU--Orlando, Melbourne......... Melbourne, FL ACICS 12/31/2001
FMU--Tampa College.............. Tampa, FL ACICS 12/31/2001
FMU--Tampa College, Brandon..... Tampa, FL ACICS 12/31/2001
FMU--Tampa College, Lakeland.... Lakeland, FL ACICS 12/31/1999
FMU--Tampa College, Pinellas.... Clearwater, FL ACICS 12/31/1999
Las Vegas College............... Las Vegas, NV ACICS 12/31/2000
Mountain West College........... Salt Lake City, UT ACICS 12/31/2000
Parks College North............. Thorton, CO ACICS 12/31/2000
Parks College South............. Aurora, CO ACICS 12/31/2000
Rochester Business Institute.... Rochester, NY ACICS 12/31/2000
Springfield College............. Springfield, MO ACICS 12/31/2000
Western Business College,
Portland....................... Portland, OR ACICS 12/31/2001
Western Business College,
Vancouver...................... Vancouver, WA ACICS 12/31/2001
CSi DIVISION
Bryman College.................. Los Angeles, CA ACCSCT 12/31/2000
Bryman College.................. New Orleans, LA ACCSCT 12/31/2001
Bryman Institute................ Brookline, MA ACCSCT 12/31/2002
National Institute of
Technology..................... Cross Lanes, WV ACCSCT 12/31/2001
Bryman College.................. Orange, CA ACCSCT 12/31/2002
Bryman College.................. El Monte, CA ACCSCT 12/31/1999
</TABLE>

44
<PAGE>

<TABLE>
<CAPTION>
ACCREDITING
COLLEGE LOCATION AGENCY EXPIRATION
------- -------- ----------- ----------
<S> <C> <C> <C>
Bryman College.......... San Francisco, CA ACCSCT 12/31/2001
Bryman College.......... SeaTac, WA ACCSCT 12/31/2002
Bryman College.......... Gardena, CA ACCSCT 12/31/2002
Bryman College.......... Reseda, CA ACCSCT 12/31/2001
Bryman College North.... San Jose, CA ACCSCT 12/31/2003
Bryman College South.... San Jose, CA ACCSCT 12/31/2001
Kee Business College.... Newport News, VA ACICS 12/31/2004
National Institute of
Technology............. San Antonio, TX ACCSCT 12/31/2001
National Institute of
Technology............. Southfield, MI ACCSCT 12/31/2003
National Institute of
Technology............. Wyoming, MI ACCSCT 12/31/2002
Skadron College......... San Bernardino, CA ACICS 12/31/2001
</TABLE>

The HEA requires accrediting agencies recognized by the DOE to review many
aspects of an institution's operations in order to ensure that the education
or training offered is of sufficient quality to achieve, for the duration of
the accreditation period, the stated objectives of the education or training
offered. Under the HEA, recognized accrediting agencies must conduct regular
inspections and reviews of the institutions they accredit, including
unannounced site visits to institutions that perform career oriented education
and training. In addition to periodic accreditation reviews, institutions
undergoing a change of ownership must be reviewed by the accrediting agency.
All of the Company's colleges have been visited and reviewed by their
respective accrediting agencies subsequent to the date of acquisition by the
Company. Accrediting agencies also monitor institutions' compliance during the
term of their accreditation. If an accrediting agency believes that an
institution may be out of compliance with accrediting standards, it may place
the institution on probation or a similar warning status or direct the
institution to show cause why its accreditation should not be revoked. An
accrediting agency may also place an institution on "reporting" status in
order to monitor one or more specific areas of the institution's performance.
An institution placed on reporting status is required to report periodically
to its accrediting agency on that institution's performance in specific areas.
Failure to demonstrate compliance with accrediting standards in any of these
instances could result in loss of accreditation. While on probation, show
cause or reporting status, an institution may be required to seek permission
of its accrediting agency to open and commence instruction at new locations.
Only one of the Company's colleges, located in Gardena, California, is on
reporting status and was required to file a report on timeliness of refunds in
July 1998.

STUDENT FINANCIAL ASSISTANCE

Students attending the Company's schools finance their education through a
combination of family contributions, individual resources, government-
sponsored financial aid (including Title IV loan programs and those sponsored
by the Company) and tuition reimbursement from employers. The Company
estimates that over 77% of its students receive financial aid from Title IV
Programs. For the 1998 fiscal year, approximately 72% of the Company's tuition
and fee revenue (on a cash basis) was derived from Title IV Programs.

To provide students access to financial assistance available through the
Title IV Programs, an institution must be (i) authorized to offer its programs
of instruction by the relevant agencies of the state in which it and its
additional campuses, if any, are located, (ii) accredited by an accrediting
agency recognized by the DOE, and (iii) certified as eligible by the DOE. In
addition, the institution must comply with strict accounting and disbursement
standards regarding Title IV Program funds.

Under HEA and its implementing regulations, each of the Company's colleges
that participate in Title IV Programs must comply with certain standards on an
institutional basis. For purposes of these standards, the regulations define
an institution as a main campus and its additional locations (formerly called
"branch" campuses), if any. Under this definition, each of the Company's
colleges is a separate institution, except for the following: Bryman College
in New Orleans, Louisiana is an additional location of Bryman College (South)
in

45
<PAGE>

San Jose, California; the FMU Campuses in Melbourne, Florida and Orlando,
Florida (South) are additional locations of FMU, Orlando, Florida (North); FMU
in Brandon, Florida is an additional location of FMU, Tampa, Florida; FMU,
Lakeland is an additional location of FMU, Pinellas, Florida; Parks College
(South) in Denver, Colorado is an additional location of Parks College (North)
in Denver; and Western Business College in Vancouver, Washington is an
additional location of Western Business College in Portland, Oregon. (Note:
The Western Business College, Vancouver campus, albeit an additional location,
is not accounted for separately from the main campus in Portland. Unique to
the Vancouver campus, all students must complete part of their course of study
at the main campus in Portland).

All of the Company's colleges participate in Title IV Programs. Currently,
four of the CSi colleges are ineligible to participate in the federal student
loan program (FFEL) as a result of previous Cohort Default Rates relating to
fiscal years prior to the acquisition of the schools by the Company. In 1997,
the Company expanded its internal loan program to assist students in those
seven colleges which lost access to FFEL loans during that year. The internal
loans to these students essentially replace the loss of the FFEL loans, and
thus are generally for greater amounts (average of approximately $3,200) and
longer periods of time (average of approximately 4 years) than the normal
installment payment plans routinely afforded to many of the Company's students
to supplement their financial aid. Therefore, the risk of loss is also
greater. While the Company believes it has adequate reserves against these
loan balances, there can be no assurance that losses will not exceed reserves.
Losses in excess of reserves could have a material adverse effect on the
Company's business, results of operations and financial condition. The terms
of the internal loan program are similar in most respects to the FFEL.
However, unlike the FFEL, students participating in the internal loan program
are required to make monthly payments while in school and there is no grace
period. The interest rate and repayment period are identical to the FFEL
program.

The loss of eligibility to participate in FFEL has not had a material
adverse effect on new student enrollments at the four colleges. The Company
has, however, increased its bad debt reserves for the internal loans and has
been negatively affected by the reduced cash flow resulting from the loss of
FFEL. With the reinstatement of three of the seven schools (representing over
50% of the combined total student population in all seven schools) to the
Title IV Loan Program, the Company expects the working capital needed to fund
these internal loans to decrease significantly in the future. See "--Federal
Support for Post-secondary Education--Cohort Default Rates," "Risk Factors--
Potential Adverse Effects of Regulation," and "Management's Discussion and
Analysis--Liquidity and Capital Resources".

FEDERAL SUPPORT FOR POST-SECONDARY EDUCATION

While many of states support their public colleges and universities through
direct state subsidies, the federal government provides a substantial part of
its support for post-secondary education by way of grants and loans to
students who can use this money at any institution certified as eligible by
the DOE. Since 1972, Congress has expanded the scope of the HEA by, among
other things, (i) providing that students at proprietary institutions, such as
the Company's institutions, are eligible for assistance under the Title IV
Programs, (ii) establishing a program for loans to parents of eligible
students, (iii) opening the Title IV Programs to part-time students, and (iv)
increasing maximum loan limits and in some cases eliminating the requirement
that students demonstrate financial need to obtain federally guaranteed loans.
Most recently, the FDL program was enacted, enabling students to obtain loans
directly from the federal government rather than from commercial lenders.

Congress reauthorizes the student financial assistance programs of the HEA
approximately every five years. In connection with the current reauthorization
process, which is expected to be completed in 1998, numerous changes to the
HEA have been proposed by the DOE and other parties. See "Risk Factors--Risk
That Legislative Action Will Reduce Financial Aid Funding or Increase
Regulatory Burden."

46
<PAGE>

Students at the Company's institutions receive grants, loans and work
opportunities to fund their education under several of the Title IV Programs,
of which the two largest are the FFEL program and the Federal Pell Grant
("Pell") program. The Company's institutions also participate in the Federal
Supplemental Educational Opportunity Grant ("FSEOG") program, and some of them
participate in the Perkins program and the Federal Work-Study ("FWS") program.
None of the Company's institutions is an active participant in the William D.
Ford Federal Direct Loan ("FDL") program.

Most aid under the Title IV Programs is awarded on the basis of financial
need, generally defined under the HEA as the difference between the cost of
attending an educational institution and the amount a student can reasonably
contribute to that cost. All recipients of Title IV Program funds must
maintain a satisfactory grade point average and progress in a timely manner
toward completion of their program of study.

Pell. Pell grants are the primary component of the Title IV Programs under
which the DOE makes grants to students who demonstrate financial need. Every
eligible student is entitled to receive a Pell grant; there is no
institutional allocation or limit. For the 1997-98 award year, Pell grants
range from $400 to $2,700 per year. Amounts received by students enrolled in
the Company's institutions in the 1997-98 award year under the Pell program
equaled approximately 21% of the Company's net revenue.

FSEOG. FSEOG awards are designed to supplement Pell grants for the neediest
students. FSEOG grants generally range in amount from $100 to $4,000 per year;
however, the availability of FSEOG awards is limited by the amount of those
funds allocated to an institution under a formula that takes into account the
size of the institution, its costs and the income levels of its students. The
Company is required to make a 25% matching contribution for all FSEOG program
funds disbursed. Resources for this institutional contribution may include
institutional grants, scholarships and other eligible funds (i.e., funds from
foundations and other charitable organizations) and, in certain states,
portions of state scholarships and grants. During the 1997-98 award year, the
Company's required 25% institutional match was met by approximately $491,237
in funds from its institutions and approximately $49,339 in funds from state
scholarships and grants and from foundations and other charitable
organizations. Amounts received by students in the Company's institutions
under the federal share of the FSEOG programs in the 1997-98 award year
equaled approximately 1.0% of the Company's net revenue.

FFEL and FDL. The FFEL program consists of two types of loans, Stafford
loans, which are made available to students, and PLUS loans, which are made
available to parents of students classified as dependents. Under the FDL
program, students may obtain loans directly from the DOE rather than
commercial lenders. The conditions on FDL loans are generally the same as on
loans made under the FFEL program. None of the Company's institutions have
elected to participate in the FDL program. Under the Stafford loan program, a
student may borrow up to $2,625 for the first academic year, $3,500 for the
second academic year and, in some educational programs, $5,500 for each of the
third and fourth academic years. Students with financial need qualify for
interest subsidies while in school and during grace periods. Students who are
classified as independent can increase their borrowing limits and receive
additional unsubsidized Stafford loans. Such students can obtain an additional
$4,000 for each of the first and second academic years and, depending upon the
educational program, an additional $5,000 for each of the third and fourth
academic years. The obligation to begin repaying Stafford loans does not
commence until six months after a student ceases enrollment as at least a
half-time student. Amounts received by students in the Company's institutions
under the Stafford program in the 1997-98 award year equaled approximately
40.5% of the Company's net revenue. PLUS loans may be obtained by the parents
of a dependent student in an amount not to exceed the difference between the
total cost of that student's education (including allowable expenses) and
other aid to which that student is entitled. Amounts received by students in
the Company's institutions under the PLUS program in the 1997-98 award year
equaled approximately 1.3% of the Company's net revenue.

The Company's schools and their students use a wide variety of lenders and
guaranty agencies and have generally not experienced difficulties in
identifying lenders and guaranty agencies willing to make federal student
loans. Four of the Company's colleges are currently ineligible to participate
in FFEL and PLUS loan programs

47
<PAGE>

as a result of past Cohort Default Rates that exceeded federal standards. One
of these colleges will be eligible to reapply for participation in October
1999 and the remaining three colleges will be eligible to reapply in October
2000. Additionally, the HEA requires the establishment of lenders of last
resort in every state to ensure that students at any institution that cannot
identify such lenders will have access to the FFEL program loans. One of the
Company's colleges, Bryman College in Gardena, California, uses a lender of
last resort.

Perkins. Eligible undergraduate students may borrow up to $3,000 under the
Perkins program during each academic year, with an aggregate maximum of
$15,000, at a 5% interest rate and with repayment delayed until nine months
after the borrower ceases to be enrolled on at least a half-time basis.
Perkins loans are made available to those students who demonstrate the
greatest financial need. Perkins loans are made from a revolving account, 75%
of which was initially capitalized by the DOE. Subsequent federal capital
contributions, with an institutional match in the same proportion, may be
received if an institution meets certain requirements. Each institution
collects payments on Perkins loans from its former students and loans those
funds to currently enrolled students. Collection and disbursement of Perkins
loans is the responsibility of each participating institution. During the
1997-98 award year, the Company collected approximately $638,426 from its
former students in repayment of Perkins loans. In the 1997-98 award year, the
Company had no required matching contribution. The Perkins loans disbursed to
students in the Company's institutions in the 1997-98 award year equaled
approximately 1.0% of the Company's net revenue. In 1995, the Company's RCi
colleges voluntarily chose to discontinue participating in the Perkins
program. Bryman College in SeaTac, Washington also does not participate in the
Perkins program.

FWS. Under the FWS program, federal funds are made available to pay up to
75% of the cost of part-time employment of eligible students, based on their
financial need, to perform work for the institution or for off-campus public
or non-profit organizations. During the 1997-98 award year, the Company's
institutions and other organizations provided matching contributions totaling
approximately $156,147. At least 5% of an institution's FWS allocation must be
used to fund student employment in community service positions. FWS earnings
are not used for tuition and fees. However, in the 1997-98 award year, the
federal share of FWS earnings equalled .049% of the Company's net revenue.

FEDERAL OVERSIGHT OF THE TITLE IV PROGRAMS

The substantial amount of federal funds disbursed through the Title IV
Programs coupled with the large numbers of students and institutions
participating in those programs have led to instances of fraud, waste and
abuse. As a result, the United States Congress has required the DOE to
increase its level of regulatory oversight of institutions to ensure that
public funds are properly used. Each institution which participates in the
Title IV Programs must annually submit to the DOE an audit by an independent
accounting firm of that institution's compliance with the Title IV Program
requirements, as well as audited financial statements. The DOE also conducts
compliance reviews, which include on-site evaluations, of several hundred
institutions each year, and directs student loan guaranty agencies to conduct
additional reviews relating to the FFEL programs. In addition, the Office of
the Inspector General of the DOE conducts audits and investigations of
institutions in certain circumstances. Under the HEA, accrediting agencies and
state licensing agencies also have responsibilities for overseeing
institutions' compliance with Title IV Program requirements. As a result, each
participating institution, including each of the Company's institutions, is
subject to frequent and detailed oversight and must comply with a complex
framework of laws and regulations or risk being required to repay funds or
becoming ineligible to participate in the Title IV Programs. In addition, the
DOE periodically revises its regulations (e.g., in November 1997, the DOE
published new regulations with respect to financial responsibility standards
to take effect July 1, 1998) and changes its interpretation of existing laws
and regulations. See "--Financial Responsibility Standards."

Cohort Default Rates. A significant component of the Congressional
initiative aimed at reducing fraud, waste and abuse was the imposition of
limitations on participation in the Title IV Programs by institutions whose
former students defaulted on the repayment of federally guaranteed or funded
student loans at an "excessive" rate ("Cohort Default Rates"). Since the DOE
began to impose sanctions on institutions with Cohort Default

48
<PAGE>

Rates above certain levels, the DOE has reported that more than 600
institutions have lost their eligibility to participate in some or all of the
Title IV Programs. However, many institutions, including all of the Company's
institutions, have responded by implementing aggressive student loan default
management programs aimed at reducing the likelihood of students failing to
repay their loans in a timely manner. An institution's Cohort Default Rates
under the FFEL and FDL programs are calculated on an annual basis as the rate
at which student borrowers scheduled to begin repayment on their loans in one
federal fiscal year default on those loans by the end of the next federal
fiscal year. An institution that participates in both the FFEL and FDL
programs, including any of the Company's institutions, receives a single
"weighted average" cohort default rate in place of an FFEL or FDL cohort
default rate. Any institution whose cohort default rate equals or exceeds 25%
for any one of the three most recent federal fiscal years may be found by the
DOE to lack administrative capability and, on that basis, placed on
provisional certification status for up to three years. Provisional
certification status does not limit an institution's access to Title IV
Program funds but does subject that institution to closer review by the DOE
and possible summary adverse action if that institution commits violations of
the Title IV Program requirements. Any institution whose Cohort Default Rates
equal or exceed 25% for three consecutive years will no longer be eligible to
participate in the FFEL or FDL programs for the remainder of the federal
fiscal year in which the DOE determines that such institution has lost its
eligibility and for the two subsequent federal fiscal years. In addition, an
institution whose cohort default rate for any federal fiscal year exceeds 40%
may have its eligibility to participate in all of the Title IV Programs
limited, suspended or terminated. Since the calculation of Cohort Default
Rates involves the collection of data from many non-governmental agencies
(i.e., lenders, private guarantors or servicers), as well as the DOE, the HEA
provides a formal process for the review and appeal of the accuracy of Cohort
Default Rates before the DOE takes any action against an institution based on
such rates.

The Company proactively manages its students and has engaged two
professional default management firms to assist the Company in reducing the
Cohort Default Rates at its colleges. To date the two firms have favorably
impacted the Cohort Default Rates at the Company's colleges, lowering
historical default rates at certain colleges by ten percentage points or more.
The Company believes that professional default management services can
continue to materially improve the Cohort Default Rates at its colleges.

For federal fiscal year 1995, the published Cohort Default Rates for the
Company's CSi institutions ranged from a low of 2.6% to a high of 32.6%. For
the RCi colleges, the 1995 Cohort Default Rates ranged from a low of 15.5% to
a high of 28.8%. The average Cohort Default Rates for proprietary institutions
nationally were 23.9%, 21.1% and 19.9% in federal fiscal years 1993, 1994 and
1995, respectively. None of the RCi colleges has had a published cohort
default rate of 25% or greater for three consecutive years. Twelve of the RCi
colleges had fiscal 1993 Cohort Default Rates above 25%. However, none of the
RCi colleges had fiscal 1994 cohort default rates at or above 25%, and only
one of the RCi colleges, Las Vegas College, had a 1995 Cohort Default Rate
above 25%.

Four of the Company's CSi institutions have default rates in excess of 25%
for the most recent three consecutive federal fiscal years published (1993,
1994, 1995). The published 1995 rate for Bryman College, Los Angeles was
25.1%; the 1995 rate for Bryman College, El Monte was 26.2%; and the rate for
Skadron College in San Bernardino was 25.1%. These colleges, along with two
additional campuses, NIT in Wyoming, Michigan and Bryman Institute in
Brookline, Massachusetts, also had default rates in excess of 25% for the
1992, 1993, and 1994 federal fiscal years. As a result, six of these colleges
became ineligible to participate in the FFEL programs beginning in May 1997.
The seventh, Skadron College in San Bernardino, California, had lost its
eligibility to participate in the FFEL program in June of 1994.

Through the Company's aggressive default management efforts, two of the
seven colleges had fiscal 1995 published default rates below 25%: Bryman
College in Brookline, Massachusetts had a default rate of 23.4% and NIT in
Wyoming, Michigan had a default rate of 22.1%. Pursuant to extended
negotiations with the DOE regarding reinstatement of eligibility for these
seven campuses, the Company received notice in June 1998 that the DOE proposed
to reinstate three of the seven colleges, provided that the Company agree not
to pursue remedies for reinstatement of the remaining four campuses. The
Company has agreed to the terms of the proposal

49
<PAGE>

and the eligibility of the three campuses to participate in the FFEL Programs
has been reinstated. Of the remaining four, NIT in Wyoming, Michigan will be
eligible for reinstatement in 1999 and the other three will be eligible for
reinstatement in 2000, based on published rates for fiscal 1995 and
prepublished rates in for fiscal 1996, respectively.

The following table sets forth the Cohort Default Rates for the Company's
institutions for federal fiscal years 1993, 1994 and 1995, and the pre-
published Cohort Default Rate for federal fiscal 1996:

<TABLE>
<CAPTION>
COHORT DEFAULT RATE
---------------------------------
1996
INSTITUTION 1993 1994 1995 (PRE-PUBLISHED)
----------- ---- ---- ---- ---------------
<S> <C> <C> <C> <C>
RCi DIVISION
Blair College, Colorado Springs, CO........... 15.0% 13.3% 15.5% 13.3%
Duff's Business Institute, Pittsburgh......... 30.8% 24.5% 17.1% 20.1%
FMU--Orlando (North, South, Melbourne)*....... 26.8% 18.8% 16.7% 19.1%
FMU--Pinellas (Lakeland)*..................... 27.8% 24.1% 21.5% 20.4%
FMU--Tampa (Brandon)*......................... 24.9% 19.9% 17.4% 19.0%
Ft. Lauderdale College........................ 28.4% 23.9% 19.8% 17.6%
Las Vegas College............................. 25.2% 23.7% 28.8% 18.9%
Mountain West College, Salt Lake City, UT..... 24.3% 18.0% 14.8% 16.4%
Parks College North and South, CO*............ 30.1% 21.8% 19.3% 15.8%
Rochester Business Institute, Rochester, NY... 21.3% 24.4% 24.6% 22.9%
Springfield College, Springfield, MO.......... 21.7% 14.8% 16.5% 19.2%
Western Bus. Col. (Portland, Vancouver)*...... 27.2% 23.0% 24.8% 22.4%

CSi DIVISION
Bryman College, Brookline, MA................. 37.9% 29.5% 23.4% 24.2%
Bryman College, El Monte, CA.................. 39.4% 31.5% 26.2% 14.7%
Bryman College, Gardena, CA................... 30.6% 23.9% 25.8% 29.2%
Bryman College, Los Angeles, CA............... 35.3% 33.6% 25.1% 19.1%
Bryman College, Orange CA..................... 24.9% 18.0% 19.5% 18.2%
Bryman College, San Francisco, CA............. 21.6% 22.6% 21.0% 24.3%
Bryman College, San Jose No. ................. 23.0% 22.5% 30.5% 22.3%
Bryman Col., San Jose South (New Orleans)*.... 35.3% 31.1% 32.6% 20.1%
Bryman College, Sea Tac, WA................... 15.0% 8.5% 7.5% 4.9%
Bryman College, Reseda, CA.................... 28.3% 24.2% 21.4% 18.8%
Kee Business College, Newport News, VA........ 20.6% 15.4% 2.6% 8.0%
NIT, Cross Lanes, WV.......................... 28.3% 11.7% 20.7% 18.8%
NIT, San Antonio, TX.......................... 31.4% 24.3% 24.5% 17.5%
NIT, Southfield, MI........................... 32.2% 23.6% 18.9% 17.8%
NIT, Wyoming, MI.............................. 30.1% 25.9% 22.1% 14.5%
Skadron College, San Bernardino, CA........... 30.3% 28.2% 25.1% 16.6%
</TABLE>
- --------
* Indicates additional location wherein cohort default rates are blended with
the main campus. Pre-published federal fiscal 1996 default rates were issued
by the Department of Education on May 5, 1998, and may be appealed by the
colleges.

In addition, if an institution's cohort default rate for loans under the
Perkins Program exceeds 15% for any federal award year (i.e., July 1 through
June 30), that institution may be placed on provisional certification status
for up to three years. Fifteen of the Company's institutions have Perkins
Cohort Default Rates in excess of 15% for students who were scheduled to begin
repayment in the 1997 federal award year, the most recent year for which such
rates have been calculated. The Perkins Program Cohort Default Rates for these
institutions ranged from 36.7% to 81.6%. Default rates in excess of 15% could
result in provisional certification status.

50
<PAGE>

Beyond the efforts of the professional default management firms, each of the
Company's colleges has adopted an internal student loan default management
plan. Those plans emphasize the importance of meeting loan repayment
requirements and provide for extensive loan counseling, along with methods to
increase student persistence and completion rates and graduate employment
(placement) rates. Immediately upon a student's cessation of enrollment, the
professional default management firm initiates regular contact with the
student, and maintains regular contact throughout the grace period, and
continues this activity through the entire cohort period. The colleges
continue to work with the default management firm to maintain accurate and up-
to-date information on address changes, marital status changes, or changes in
circumstance that may allow the student to apply for additional deferments.
These activities are all in addition to the loan servicing and collection
activities of FFEL lenders and guarantee agencies.

Increased Regulatory Scrutiny. The HEA provides for a three-part initiative,
referred to as the Program Integrity Triad, intended to increase regulatory
scrutiny of post-secondary education institutions. One part of the Program
Integrity Triad expands the role of accrediting agencies in the oversight of
institutions participating in the Title IV Programs. As a result, the
accrediting agencies which review and accredit the Company's campuses have
increased the breadth of such reviews and have expanded their examinations in
such areas as financial responsibility and timeliness of student refunds. The
Program Integrity Triad provisions also require each accrediting agency
recognized by the DOE to undergo comprehensive periodic reviews by the DOE to
ascertain whether such accrediting agency is adhering to required standards.

A second part of the Program Integrity Triad tightened the standards to be
applied by the DOE in evaluating the financial responsibility and
administrative capability of institutions participating in the Title IV
Programs. In addition, the Program Integrity Triad mandated that the DOE
periodically reviews the eligibility and certification to participate in the
Title IV Programs of every such eligible institution. By law, all institutions
were required to undergo such a recertification review by the DOE by 1997 and
are required to undergo such a recertification review every four years
thereafter. Under these standards, each of the Company's institutions will be
evaluated by the DOE more frequently than in the past. A denial of
recertification would preclude an institution from continuing to participate
in the Title IV Programs.

A third part of the Program Integrity Triad required each state to establish
a State Post-Secondary Review Entity ("SPRE") to review certain institutions
within that state to determine their eligibility to continue participating in
the Title IV Programs. However, no SPREs are actively functioning. The United
States Congress has declined to provide funding for the SPREs. Nevertheless,
state requirements are important to an institution's eligibility to
participate in the Title IV Programs since an institution must be licensed or
otherwise authorized to operate in the state in which it offers education or
training services in order to be certified as eligible. See "State
Authorization."

Financial Responsibility Standards. All institutions participating in the
Title IV Programs must satisfy a series of specific standards of financial
responsibility. Institutions are evaluated for compliance with those
requirements in several circumstances, including as part of the DOE's
quadrennial recertification process and also annually as each institution
submits its audited financial statements to the DOE. One standard requires
each institution to demonstrate an acid test ratio (defined as the ratio of
cash, cash equivalents and current accounts receivable to current liabilities)
of at least 1:1 at the end of each fiscal year. Another standard requires that
each institution have a positive tangible net worth at the end of each fiscal
year. A third standard prohibits any institution from having a cumulative net
operating loss during its two most recent fiscal years that results in a
decline of more than 10% of that institution's tangible net worth as measured
at the beginning of that two-year period. The DOE may measure an institution's
financial responsibility on the basis of the financial statements of the
institution itself or the financial statements of the institution's parent
company, and may also consider the financial condition of any other entity
related to the institution.

An institution that is determined by the DOE not to meet any one of the
standards of financial responsibility is nonetheless entitled to participate
in the Title IV Programs if it can demonstrate to the DOE that it is
financially responsible on an alternative basis. An institution may do so by
posting surety either in an amount equal to 50%

51
<PAGE>

(or greater, as the DOE may require) of the total Title IV Program funds
received by students enrolled at such institution during the prior year or in
an amount equal to 10% (or greater, as the DOE may require) of such prior
year's funds if the institution also agrees to provisional certification and
to transfer to the reimbursement or cash monitoring system of payment for its
Title IV Program funds. The DOE has interpreted this surety condition to
require the posting of an irrevocable letter of credit in favor of the DOE.
Alternatively, an institution may demonstrate, with the support of a statement
from a certified public accountant and other information specified in the
regulations, that it was previously in compliance with the numeric standards
and that its continued operation is not jeopardized by its financial
condition.

In reviewing the Company's two major acquisitions, the DOE has measured
financial responsibility differently for each acquisition. In the NEC
Acquisition in 1995, the DOE reviewed the financial statements of the
institutions only, while in the Phillips Acquisition in 1996, the DOE reviewed
the financial statements of both the institutions and the Company. At the time
of the NEC Acquisition, (and subsequently, at the time of the Repose
Acquisition and Concorde Acquisitions) all of the CSi colleges met the
financial responsibility requirements set forth by the DOE. At the time of the
Phillips Acquisition, the DOE elected to review the financial statements of
both the institutions and the Company and, as a result of the debt incurred to
purchase the colleges, determined that the Company did not meet the tangible
net worth requirement. As a result of negotiations with the DOE prior to the
acquisition, the DOE and the Company agreed to the posting of an irrevocable
letter of credit in favor of the DOE in the amount of $1.0 million. In
addition, the 18 colleges would remain on the reimbursement program (they had
been placed on reimbursement under prior ownership). Although the $1.0 million
letter of credit is less than the amount normally required under such
circumstances, the DOE agreed to these terms in order to facilitate the sale
of the colleges to CCi. The need for and sufficiency of the letter of credit
are scheduled to be reviewed annually subsequent to receipt of the Company's
annual audited financial statements.

Although the above letter of credit is the only outstanding financial
responsibility requirement currently in effect, the DOE has not yet responded
to the annual audited financial statements submitted by the Company for the
1997 fiscal year. Based on these audits, eight of the Company's colleges fail
to meet one or more of the financial responsibility tests. Three of the
colleges fail to meet the acid test ratio and five of the colleges fail to
meet the profitability test. In addition, the Company, on a consolidated
basis, fails to meet the financial responsibility tests. However, at the CSi
operating company level, and at the RCi operating company level, all financial
responsibility tests were met. There can be no assurance at this time that the
DOE, upon review of the 1997 fiscal year audited financial statements, will
not require that the Company post additional letters of credit in accordance
with its regulations. Since the RCi colleges are already on reimbursement, the
Company is not aware of any additional requirements that may be imposed beyond
the posting of letters of credit. Moreover, since RCi is already on
reimbursement, and since the Company has posted a letter of credit as required
by the regulations, by definition the Company believes that it currently meets
financial responsibility standards as set forth by the DOE. There is no
assurance, however, that the DOE may not impose additional requirements for
letters of credit based upon review of the Company's fiscal 1997 financial
statements, and such actions could have a material adverse effect on the
Company's business, results of operations and financial condition, and on its
ability to generate sufficient liquidity to continue to fund growth in its
operations and purchase other institutions. (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources").

In accordance with applicable law, the DOE will be required to rescind the
letter of credit and any related requirements if the Company and its colleges
demonstrate that they satisfy the standards of financial responsibility, using
accounting treatments that are acceptable to the DOE. Further, the Company
believes that in the conduct of its next review of the financial
responsibility of the Company and its colleges, the DOE will consider
financial information reflecting the results of the offering, as well as the
1998 fiscal year audited financial statements of each entity. The Company
expects to receive net proceeds from the Offering of approximately $39.9
million (assuming an initial public offering price of $15.00 per share). (See
"Use of Proceeds"). Management believes that the Company's post-Offering
financial position will enable the Company

52
<PAGE>

to satisfy the DOE's standards of financial responsibility on a Company basis.
However, there can be no assurance that all of the Company's colleges will
meet each financial responsibility test in the future or that the DOE would
not require the Company to post a letter of credit or take other similar
action with respect to an individual college which did not meet those tests.

In November 1997, the DOE published new regulations regarding financial
responsibility that are scheduled to take effect on July 1, 1998. The
regulations provide a transition year alternative which will permit
institutions to have their financial responsibility for the 1998 fiscal year
measured on the basis of either the new regulations or the current
regulations, whichever are more favorable to the Company. Under the new
regulations, the DOE will calculate three financial ratios for an institution,
each of which will be scored separately and which will then be combined to
determine the institution's financial responsibility. If an institution's
composite score is below the minimum requirement for unconditional approval
but above a designated threshold level, such institution may take advantage of
an alternative that allows it to continue to participate in the Title IV
Programs for up to three years under additional monitoring and reporting
procedures. If an institution's composite score falls below this threshold
level or is between the minimum for unconditional approval and the threshold
for more than three consecutive years, the institution will be required to
post a letter of credit in favor of the DOE. The Company does not believe that
these new regulations will have a material effect on the Company's compliance
with the DOE's financial responsibility standards.

The Company believes that the DOE will consider the new financial
responsibility regulations or the current regulations, whichever are more
favorable to the Company, for audited financial statements filed with the DOE
subsequent to publication of the new regulations in November 1997. The Company
filed its 1997 audited financial statements with the DOE in December 1997 and
thus believes the DOE will apply such new regulations to the Company if they
prove more favorable. Under the new regulations, only one of the Company's
schools (FMU--Ft. Lauderdale College) would not be considered to be
financially responsible based on the new required calculations. However, this
college would nevertheless be considered financially responsible by virtue of
being on the reimbursement program and being covered by the existing letter of
credit for RCi. Two of the Company's schools (Blair College in Aurora,
Colorado and NIT in Wyoming, Michigan) are in the Intermediate Zone and thus
meet financial responsibility tests under additional monitoring and reporting
procedures for up to three years. The Company's two operating divisions both
meet the financial responsibility criteria under the new regulations, but the
Company, on a consolidated basis, does not meet the standards in 1997. While
the Company's 1998 audited financial statements have not yet been submitted to
the DOE, the Company's calculations show that all of its schools exceed the
requirements for financial responsibility on an individual basis. Also, the
Company's two operating divisions both meet the requirements. However, as in
1997, the Company, on a consolidated basis, does not meet the new standards.
The Company expects to meet such new standards on a consolidated basis after
giving effect to the Offering and currently meets such standards in any event
by having previously post a letter of credit.

Under a separate standard of financial responsibility, if an institution has
made late Title IV refunds to students in its prior two years, the institution
is required to post a letter of credit in favor of the DOE in an amount equal
to 25% of the total Title IV Program refunds paid by the institution in its
prior fiscal year. As of July 1, 1997, this standard has been modified to
exempt an institution if it has not been found to make late refunds to 5% or
more of its students in either of the two most recent fiscal years and has not
been cited for a reportable condition or material weakness in its internal
controls related to late refunds in either of its two most recent fiscal
years. Based on this standard, the Company currently has no outstanding
letters of credit related to late refunds. However, seven of the Company's
colleges have been cited for late refunds in their annual audits. Although
there are no citations for material weaknesses in the Company's nor its
colleges' internal controls, there can be no assurance that, upon review by
the DOE, that the Company may be required to post letters of credit in favor
of the DOE on behalf of the affected colleges.

Restrictions on Acquiring or Opening Additional Schools and Adding
Educational Programs. An institution which undergoes a change of ownership
resulting in a change in control, including all the institutions the Company
has acquired or will acquire, must be reviewed and recertified for
participation in the Title IV

53
<PAGE>

Programs under its new ownership. Pending recertification, the DOE suspends
Title IV Program funding to that institution's students except for certain
Title IV Program funds that were committed under the prior owner. If an
institution is recertified following a change of ownership, it will be on a
provisional basis. During the time an institution is provisionally certified,
it may be subject to closer review by the DOE and to summary adverse action
for violations of Title IV Program requirements, but provisional certification
does not otherwise limit an institution's access to Title IV Program funds.
All of the Company's schools have been provisionally certified.

In addition, the HEA generally requires that proprietary institutions be
fully operational for two years before applying to participate in the Title IV
Programs. However, under the HEA and applicable regulations, an institution
that is certified to participate in the Title IV Programs may establish an
additional location and apply to participate in the Title IV Programs at that
location without reference to the two-year requirement, if such additional
location satisfies all other applicable eligibility requirements. The
Company's expansion plans are based, in part, on its ability to acquire
schools that can be recertified and to open additional locations as part of
its existing institutions.

Generally, if an institution eligible to participate in the Title IV
Programs adds an educational program after it has been designated as an
eligible institution, the institution must apply to the DOE to have the
additional program designated as eligible. However, an institution is not
obligated to obtain DOE approval of an additional program that leads to an
associate's, bachelor's, professional or graduate degree or which prepares
students for gainful employment in the same or related recognized occupation
as an educational program that has previously been designated as an eligible
program at that institution and meets certain minimum length requirements.
Furthermore, short-term educational programs, which generally consist of those
programs that provide at least 300 but less than 600 clock hours of
instruction, are eligible only for FFEL funding and only if they have been
offered for a year and the institution can demonstrate, based on an
attestation by its independent auditor, that 70% of all students who enroll in
such programs complete them within a prescribed time and 70% of those students
who graduate from such programs obtain employment in the recognized occupation
for which they were trained within a prescribed time. Certain of the CSi
colleges offer such short term programs, but students enrolled in such
programs represent a small percentage of the total enrollment of the Company's
colleges. In the event that an institution erroneously determines that an
educational program is eligible for purposes of the Title IV Programs without
the DOE's express approval, the institution would likely be liable for
repayment of the Title IV Program funds provided to students in that
educational program. The Company does not believe that the DOE's regulations
will create significant obstacles to its plans to add new programs.

Certain of the state authorizing agencies and accrediting agencies with
jurisdiction over the Company's campuses also have requirements that may, in
certain instances, limit the ability of the Company to open a new campus,
acquire an existing campus or establish an additional location of an existing
institution or begin offering a new educational program. The Company does not
believe that those standards will have a material adverse effect on the
Company or its expansion plans.

Ability to Benefit Regulations. Under certain circumstances, an institution
may elect to admit non-high school graduates into certain of its programs of
study. In such instances, the institution must demonstrate that the student
has the "ability to benefit" from the program of study ("ATB"). Historically,
the basic evaluation method to determine that a student has the ability to
benefit from the program has been the student's achievement of a minimum score
on a test approved by the DOE. On December 25, 1996, the DOE tightened its
regulations regarding ATB testing, reducing the list of approved tests to
eight, and requiring institutions to institute cut off scores that were
determined solely by the test developers.

Twelve of the Company's CSi colleges admit ATB students into their programs.
The twelve colleges had been successful in evaluating ATB students through the
use of the CPAT test, a nationally recognized test which is used by many
institutions. Prior to the December 25, 1996 regulation, the twelve colleges
applied a composite cutoff score of 125 to the three part test. The integrity
of this scoring was validated over the years by the completion and placement
success of ATB students admitted into the Company's colleges. The new
regulation required that the cut-off score for the CPAT test be increased to
129 and that a minimum score be achieved in

54
<PAGE>

each of the three sections of the test, in lieu of using a composite score.
The ATB testing regulations imposed by the DOE have had a negative effect on
pass rates and new enrollments by ATB students. The pass rate dropped,
subsequent to the implementation of the new regulation, to 40%, down from 70%
before December 25, 1996. The Company's twelve colleges experienced declining
enrollments among the ATB population during the January 1997 to June 1997
period.

In addition to the testing requirements, the DOE regulations also prohibit
enrollment of ATB students from constituting 50% or more of the total
enrollment of the institution. None of the Company's colleges that accept ATB
students has an ATB enrollment population that exceeds 50% of the total
enrolled population.

The Company initiated an intensive tutorial and test preparation program at
the affected colleges beginning in February 1997. Over the next few months,
pass rates began to increase and ultimately reached a high of 65%. Currently,
the pass rate for the ATB test at the twelve affected CSi colleges ranges
between 55% and 65%. The Company believes that at these pass rates, the
colleges' enrollment of ATB students can continue to grow for the foreseeable
future.

The "85/15 Rule." Under a provision of the HEA commonly referred to as the
"85/15 Rule," a private, for-profit institution, such as each of the Company's
institutions, would cease being eligible to participate in the Title IV
Programs if, on a cash accounting basis, more than 85% of its revenue for the
prior fiscal year was derived from the Title IV Programs. Any institution that
violates the 85/15 Rule immediately becomes ineligible to participate in the
Title IV Programs and is unable to apply to regain its eligibility until the
following fiscal year. The Company has calculated that, since this requirement
took effect in 1995, none of the Company's institutions have derived more than
84.5% of its revenue from the Title IV Programs for any fiscal year, and that
for 1998 the range for the Company's institutions was from approximately 20.3%
to approximately 81.6%. The Company regularly monitors compliance with this
requirement in order to minimize the risk that any of its institutions would
derive more than 85% of its revenue from the Title IV Programs for any fiscal
year. If an institution appears likely to approach the 85% threshold, the
Company would evaluate the appropriateness of making changes in student
funding and financing to ensure compliance with the 85/15 Rule.

Restrictions on Payment of Bonuses, Commissions or Other Incentives. The HEA
prohibits an institution from providing any commission, bonus or other
incentive payment based directly or indirectly on success in securing
enrollments or financial aid to any person or entity engaged in any student
recruitment, admission or financial aid awarding activity for programs
eligible for Title IV Program funds. The Company believes that its current
compensation plans are in compliance with HEA standards.

STATE AUTHORIZATION

Each of the Company's campuses is authorized to offer educational programs
and grant degrees or diplomas by the state in which such campus is located.
The level of regulatory oversight varies substantially from state to state. In
some states, the campuses are subject to licensure by the state education
agency and also by a separate higher education agency. State laws establish
standards for instruction, qualifications of faculty, location and nature of
facilities, financial policies and responsibility and other operational
matters. State laws and regulations may limit the ability of the Company to
obtain authorization to operate in certain states or to award degrees or
diplomas or offer new degree programs. Certain states prescribe standards of
financial responsibility that are different from those prescribed by the DOE.
The Company believes that each of its campuses is in substantial compliance
with state authorizing and licensure laws.

55
<PAGE>

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table sets forth certain information with respect to the
Company's executive officers, directors and selected key employees:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
President, Chief Executive Officer,
David G. Moore.............. 59 Director
Paul R. St. Pierre.......... 53 Executive Vice President, Marketing and
Admissions, Secretary, Director
Frank J. McCord............. 55 Executive Vice President and Chief
Financial Officer, Treasurer
Lloyd W. Holland............ 60 Executive Vice President, Business
Analysis and Financial Aid, Assistant
Treasurer
Dennis L. Devereux.......... 51 Executive Vice President, Human Resources,
Assistant Secretary
Loyal Wilson................ 50 Director
Nominee..................... Director
Nominee..................... Director
Nominee..................... Director
Nominee..................... Director
Mary H. Barry............... 49 Vice President, Education
Beth A. Wilson.............. 46 Vice President, Operations
</TABLE>

DAVID G. MOORE has served as President and Chief Executive Officer and a
Director of the Company since its inception in July 1995. Immediately prior to
forming the Company, he was President of National Education Centers, Inc., a
subsidiary of National Education Corporation. From 1992 to 1994, Mr. Moore
served as President of DeVry Institute of Technology in Los Angeles, where he
developed DeVry's West Coast operation and its growth strategy for the 11
western states. From 1980 to 1992 he was employed by Mott Community College in
Flint, Michigan, where he was President from 1984 to 1992. Mr. Moore served as
Dean, Management from 1982 to 1984 and Dean, Management Information Systems
from 1980 to 1982. From 1960 to 1980 Mr. Moore served a distinguished career
in the U. S. Army, retiring at the rank of Colonel. Mr. Moore received a
Bachelor of Arts in Political Science from Seattle University and Master of
Business Administration from the University of Puget Sound. He has also
completed the Management of Higher Education Program at Harvard University,
post graduate studies in Higher Education Management at the University of
Michigan and graduate study and research in Computer Science at Kansas State
University.

PAUL R. ST. PIERRE has served as Vice President, Marketing & Admissions and
a Director of the Company since its inception in July 1995. He was promoted to
Executive Vice President in April 1998. He was employed by National Education
Centers, Inc. from 1991 to 1995. His first assignment at NECI was as School
President for its San Bernardino, California campus. Subsequently, he held
corporate assignments as Director of Special Projects, Vice President of
Operations for the Learning Institutes Group (the largest colleges owned by
NEC) and as Vice President, Marketing & Admissions for NEC. From 1986 to 1991,
Mr. St. Pierre was employed by Allied Education Corporation, initially as
School Director, but the majority of the period as Regional Operations
Manager. He was employed as School Director at Watterson College in 1985. From
1982 to 1985, Mr. St. Pierre was Executive Vice President and Partner for
University Consulting Associates, principally responsible for the marketing
and sales of education services, on a contract basis, to institutions of
higher education. He was previously employed, from 1980 to 1982 as Division
Manager for the Institute for Professional Development, a division of Apollo
Group. Mr. St. Pierre received a Bachelor of Arts in Philosophy from Stonehill
College, a Master of Arts in Philosophy from Villanova University and is a
Ph.D. candidate in Philosophy at Marquette University.

56
<PAGE>

FRANK J. McCORD has served as Vice President & Chief Financial Officer for
the Company since its inception in July 1995. He was promoted to Executive
Vice President in April 1998. He was employed by National Education Centers,
Inc. as Vice President, Finance & Administration from 1994 to 1995. From 1980
to 1994, Mr. McCord was employed by Atlantic Richfield Company ("ARCO"). From
1989 to 1994, he was Business Manager/Controller and Director for ARCO Marine,
Inc. During the period 1980 to 1989 his assignments at ARCO ranged from Senior
Internal Auditor to Audit Manager. From 1976 to 1980, Mr. McCord served in the
U. S. Army as Management Analyst, Internal Review Officer and Budget Officer,
attaining the rank of Captain. He received a Bachelor's Degree in Business
Administration (Accounting) from North Texas State University. Mr. McCord is
also a Certified Public Accountant and Certified Internal Auditor.

LLOYD W. HOLLAND has served as Vice President, Business Analysis & Financial
Aid for the Company since its inception in July 1995. He was promoted to
Executive Vice President in April 1998. He was employed by National Education
Centers, Inc. from 1987 to 1995 in financial positions including Regional
Controller, Group Controller, Vice President, Finance & Administration and
Director of Finance. Mr. Holland was employed by Bonney Forge Corporation from
1984 to 1987 as Division Controller, then Corporate Controller. From 1978 to
1979, he was Controller for SMC Corporation. Mr. Holland was employed by
Rockwell International Corporation at various Midwest plant locations during
the period 1969 to 1978, in positions ranging from Manager, General Accounting
to Division Controller. From 1963 to 1969, he was employed in various
accounting and cost accounting positions. Mr. Holland received a Bachelor of
Science in Accounting from Point Park College in Pittsburgh, Pennsylvania.

DENNIS L. DEVEREUX has served as Vice President, Human Resources for the
Company since its inception in July 1995. He was promoted to Executive Vice
President in April 1998. He was employed by National Education Centers, Inc.
as its Vice President, Human Resources from 1988 to 1995. From 1987 to 1988 he
was Director, Human Resources for Jacobs Engineering Group, Inc. He was
employed by American Diversified Companies, Inc. as its Director, Human
Resources from 1985 to 1987. From 1973 to 1984, Mr. Devereux was employed by
Bechtel Group, Inc. in a variety of human resources management positions,
including Personnel Manager for a subsidiary company and Personnel Supervisor
for a major construction site and within a large regional operation.
Previously, he was employed in a compensation assignment with Frito-Lay, Inc.
and as Personnel Manager and Personnel Assistant with Anaconda Wire & Cable
Company from 1969 to 1973. Mr. Devereux received a Bachelor of Science in
Business Administration (Industrial Relations) from California State
University, Long Beach.

LOYAL WILSON has served as a Director of the Company since its inception in
July 1995. He has been a Managing General Partner of Primus Venture Partners
since 1983 and a Managing Director of Primus Venture Partners, Inc. since
1983. In those capacities, Mr. Wilson has overseen investments by various
venture funds controlled by those entities in numerous private companies. From
1975 to 1983, Mr. Wilson was employed by First Chicago Corporation. He is also
a Director of STERIS Corporation and was formerly a former Director of DeVRY,
Inc. He received a Bachelor of Arts in Economics from the University of North
Carolina and a Masters in Business Administration from Indiana University.

MARY H. BARRY has served as Vice President, Education for the Company since
April 1998. She was previously employed by University of Phoenix from 1992
through April 1998, where her assignments included Director of Academic
Affairs, Director of Administration and Director of the California Center for
Professional Education. From 1990 to 1991, Ms. Barry was Director of National
College. During the period 1980 to 1990, she was employed in the banking
industry as Senior Vice President of Marquette Banks, Director for Citibank,
South Dakota and Vice President of First National Bank, Chicago. Ms. Barry
served as a public affairs officer in the U.S. Marine Corps from 1971 to 1979,
achieving the rank of Major. Ms. Barry earned a Bachelor of Science in
Speech/Drama from Bowling Green State University, a Master of Management from
Northwestern University and a Juris Doctorate from Western State University.

BETH A. WILSON has been employed by the Company since its inception in July
1995. She is currently Vice President, Operations for Corinthian Colleges,
Inc. Previously, she was Regional Operations Director for

57
<PAGE>

the College Region of Rhodes Colleges, Inc. from May 1997 to June 1998. From
July 1995 to May 1997 she was Operations Director and Regional Operations
Director for Corinthian Schools, Inc. Ms. Wilson was employed by National
Education Centers, Inc. from 1991 to 1995, initially as Executive Director of
its Capital Hill campus, then as Area Operations Manager. From 1990 to 1991,
she was Vice President, Branch Operations for National College. She was
employed by United Education and Software from 1984 to 1990, initially as
Executive Director of a business school, then as Group Manager for four to
fifteen locations and finally as Vice President, Administration. She was
Scholarship Administrator for National University from 1982 to 1984 and
Assistant Director of American Business College from 1976 to 1981. Ms. Wilson
earned an MBA from National University and a Bachelor of Arts degree from
California State College, Sonoma.

BOARD OF DIRECTORS

The Company's Board of Directors is divided into three classes with
staggered three-year terms. The terms of Mr. Wilson and one nominee expire at
the annual meeting of the Company's Stockholders in fiscal year 2000, the
terms of Mr. St. Pierre and another nominee expire at the annual meeting of
the Company's Stockholders in fiscal year 2001, and the terms of Mr. Moore and
two other nominees expire at the annual meeting of the Company's Stockholders
in fiscal year 2002. At each annual meeting of the Company's Stockholders, the
successors to the directors whose terms expire at such annual meeting will be
elected for a three-year term.

BOARD COMMITTEES

Concurrent with the Offering, the Board of Directors will establish an Audit
Committee and a Compensation Committee. Both the Audit Committee and the
Compensation Committee will be composed entirely of directors who are not
officers or employees of the Company.

The Audit Committee will generally have responsibility for recommending
independent auditors to the Board of Directors for selection, reviewing the
plan and scope of the annual audit, reviewing the Company's audit and control
functions and reporting to the full Board of Directors regarding all of the
foregoing.

The Compensation Committee will generally have the responsibility for
recommending to the Board guidelines and standards relating to the
determination of executive compensation, reviewing the Company's executive
compensation policies and reporting to the Board of Directors regarding the
foregoing. The Compensation Committee will also have responsibility for
administering the Company's incentive compensation plans, determining the
number of options to be granted to the Company's executive officers pursuant
to such plans and reporting to the Board of Directors regarding the foregoing.

COMPENSATION OF DIRECTORS

Subsequent to the closing of the Offering, all directors who are not
employees of the Company will be paid an annual fee of $10,000 and will be
paid $1,000 for each Board meeting attended and $500 for each Board committee
meeting attended. Non-employee directors are also reimbursed for their
reasonable out-of-pocket expenses incurred in attending Board and committee
meetings. The Company has adopted the 1998 Performance Award Plan, providing
for annual option grants to each director who is not an employee of the
Company. See "Benefit Plans--Performance Award Plan."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Upon consummation of the Offering, the Compensation Committee will consist
of two non-employee directors. During the year ended June 30, 1998, the
Company did not have a Compensation Committee. David Moore, the Chief
Executive Officer, and Loyal Wilson, a non-employee director, made all
decisions concerning executive compensation during the year ended June 30,
1998.

58
<PAGE>

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company has adopted a provision in its Second Amended and Restated
Certificate of Incorporation (the "Certificate") that limits the liability of
its directors for monetary damages arising from a breach of their fiduciary
duties as directors. The Company's Bylaws provide that the Company must
indemnify its directors and officers to the fullest extent permitted by the
Delaware General Corporation Law. The Company also has officer and director
liability insurance with respect to certain liabilities. See "Description of
Capital Stock--Limitation of Liability of Directors and Indemnification of
Directors and Officers."

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth certain information with respect to
compensation paid to the named executive officers during the fiscal year ended
June 30, 1998.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
ALL OTHER
NAME AND PRINCIPAL SALARY OTHER ANNUAL COMPENSATION
POSITION ($) BONUS ($) COMPENSATION ($)(1) ($)(2)
------------------ ------- --------- ------------------- ------------
<S> <C> <C> <C> <C>
David G. Moore......... 232,356 -- 14,256 3,189
President and Chief
Executive Officer
Paul St. Pierre........ 191,048 -- 20,142 3,748
Executive Vice
President, Marketing
Frank J. McCord........ 180,721 -- 21,158 --
Executive Vice
President and Chief
Financial Officer
Dennis L. Devereux..... 170,394 -- 21,995 3,169
Executive Vice
President, Human
Resources
Lloyd W. Holland....... 170,394 -- 18,451 3,652
Executive Vice
President, Business
Analysis and
Financial Aid
</TABLE>
- --------

(1) Includes $12,220 for auto allowance for each of the named executive
officers.

(2) Represents the Company's matching contribution to the employees' 401(k)
Plan. This benefit is provided to all eligible Company employees on a 100%
matching basis up to 2% of each employee's annual salary.

59
<PAGE>

OPTION GRANTS IN FISCAL 1998

The following table contains information concerning the grant of stock
options by the Company to the named executive officers during fiscal 1998.

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION
PERCENTAGE OF TOTAL FOR OPTION
NUMBER OF OPTIONS GRANTED TO EXERCISE TERM(1)
SHARES UNDERLYING EMPLOYEES IN FISCAL PRICE EXPIRATION --------------
NAME OPTIONS GRANTED YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------------- ------------------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
David G. Moore.......... 11,068(2) 9.1 12.47(3) 6/30/2008 86,799 219,965
Paul St. Pierre......... 11,068(2) 9.1 12.47(3) 6/30/2008 86,799 219,965
Frank J. McCord......... 11,068(2) 9.1 12.47(3) 6/30/2008 86,799 219,965
Lloyd W. Holland........ 11,068(2) 9.1 12.47(3) 6/30/2008 86,799 219,965
Dennis L. Devereux...... 11,068(2) 9.1 12.47(3) 6/30/2008 86,799 219,965
</TABLE>
- --------
(1) Potential realizable value is presented net of the option exercise price,
but before any federal or state income taxes associated with exercise, and
is calculated assuming that the fair market value on the date of the grant
appreciates at the indicated annual rate (set by the SEC), compounded
annually, for the term of the option. The 5% and 10% rates of appreciation
are mandated by the rules of the SEC and do not represent the Company's
estimate or projection of future increases in the price of the Common
Stock.

(2) The Options were granted under the Company's 1998 Performance Award Plan
and are each incentive stock options that vest in four equal annual
installments on each of the first four anniversaries of the award date.

(3) The exercise price of these options equals the fair market value of the
option shares on the date of grant as determined by the Company's Board of
Directors based upon the evaluation of Houlihan Valuation Advisors, an
independent appraisal firm.

FISCAL YEAR-END OPTION VALUES

The following table contains information regarding the Named Executive
Officers' unexercised options as of June 30, 1998. None of the named executive
officers exercised any options during fiscal 1998.

<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AS OF AS OF JUNE 30,
NAME JUNE 30, 1998(1) 1998(2)
---- ---------------------- --------------------
<S> <C> <C>
David G. Moore...................... 11,068 $28,002
Paul St. Pierre..................... 11,068 $28,002
Frank J. McCord..................... 11,068 $28,002
Lloyd W. Holland.................... 11,068 $28,002
Dennis L. Devereux.................. 11,068 $28,002
</TABLE>
- --------
(1) All of the options were granted as of June 30, 1998 and none of the
options are currently exercisable.

(2) The value per option is calculated by subtracting the exercise price of
the option from the assumed public offering price of the Common Stock of
$15.00.

60
<PAGE>

BENEFIT PLANS

Performance Award Plan

The Company's 1998 Performance Award Plan (the "Plan") provides for the
grant of Options and stock appreciation rights ("SARs"), Restricted Stock
Awards, Performance Share Awards and Stock Bonuses (collectively "Awards").
While only Options are contemplated at this time, the other forms of Awards
allow the Company flexibility to incentivize and reward employees of the
Company in the future. Employees, officers, directors, and consultants of the
Company and its Subsidiaries may be selected for Plan participation. Only
persons selected by the Board can receive Awards under the Plan. A maximum of
529,134 shares of Common Stock may be issued under the Plan (subject to
adjustment upon the occurrence of certain events which affect the Common
Stock) or approximately 6.92% of the outstanding shares prior to the Offering.
The aggregate number of shares subject to Options and SARs granted under the
Plan to any one person in a calendar year can not exceed 22,047 shares. The
aggregate number of shares subject to all Awards granted under the Plan to any
one person in a calendar year can not exceed 22,047 shares.

Each of the Awards under the Plan accelerate and become immediately vested
and exercisable (subject to the right of the Board of Directors to limit such
acceleration) upon a Change of Control of the Company. A Change of Control
would occur upon the approval by the stockholders of the Company of (i) the
dissolution or liquidation of the Company, (ii) an agreement to merge or
consolidate the Company into another entity where the stockholders of the
Company immediately prior to such merger or consolidation would have less than
50% of the outstanding voting securities of the surviving entity, or (iii) the
sale of all or substantially all of the assets of the Company to an entity
that is not a subsidiary or affiliate.

401(k) Profit Sharing Plan

The Company provides a 401(k) retirement savings plan to employees who have
completed 1,000 hours of service in 12 months of employment. The plan allows
eligible employees to defer up to 16% of their compensation or the statutory
limit each year, whichever is less. The Company matches a portion of the
compensation deferred by the employee at a level which is established by the
Company at its discretion from time to time. The Company currently matches
100% of the first 2% of compensation deferred by the employee. In addition,
the plan also allows a discretionary Company contribution to participating
employee accounts from the Company's net profit. In the fiscal year ending
June 30, 1998, the Company contributed $292,572 in basic company match to
employee accounts in this program. No discretionary additional contribution
was made by the Company in the fiscal year ending June 30, 1998.

61
<PAGE>

CERTAIN RELATIONSHIPS AND TRANSACTIONS

The Company has entered into the following arrangements with certain of its
executive officers, directors, and beneficial holders of more than five
percent of its voting stock.

Transactions Between the Company and Certain Executive Officers

On November 24, 1997, the Company entered into a separate Amended and
Restated Executive Stock Agreement with each of David Moore, Paul St. Pierre,
Frank McCord, Lloyd Holland and Dennis Devereux (collectively, the
"Executives") (the "Amended Stock Agreements"). Each Amended Stock Agreement
amended and restated an earlier Executive Stock Agreement between the Company
and each of the Executives dated as of June 30, 1995, (hereinafter
collectively, the "Original Executive Stock Agreements", and together with the
Amended Stock Agreements, the "Executive Stock Agreements").

Pursuant to the Executive Stock Agreements, on June 30, 1995 each Executive
purchased 440,945 shares of Common Stock and between 110,236 and 275,591
shares of Nonvoting Common Stock, each at a price of $0.2268 per share. Each
Executive paid for the Common Stock by delivering (i) $80,025 in cash, and
(ii) shares of common stock in the Company's predecessor which the Executive
had previously purchased, and with respect to which each Executive had made
previous capital contributions of $20,000. Each Executive borrowed money from
the Company to purchase their respective shares of Nonvoting Common Stock.

Each of the Executive Stock Agreements provide for a vesting schedule for
the Executives' Common Stock and Nonvoting Common Stock. The Common Stock and
Nonvoting Common Stock vests over time, and as of June 30, 1998, 87.5% of each
of the Executives' Common Stock was vested and none of the Executives'
Nonvoting Common Stock was vested. Pursuant to the Executive Stock Agreements,
all Executive Common Stock will vest upon a "Qualified Public Offering" (as
defined therein). The Company anticipates that the Offering will constitute a
"Qualified Public Offering" and that the Executives' Common Stock will
completely vest upon completion of the Offering. Upon vesting, the Company
will lose certain repurchase rights with respect to the unvested Executive
Common Stock. The Executive Nonvoting Common Stock vests either (i) on June
30, 2005 if the Executive is still employed by the Company, or (ii) upon the
occurrence of a "Trigger Event" (as defined in the Executive Stock Agreements)
which includes an initial public offering of a specified size. The Company
anticipates that the Offering will be of sufficient size that all of the
Executives' Nonvoting Common Stock will vest concurrently with the Offering.
The Company also anticipates that, upon vesting, each of the Executives will
exercise their rights under the Executive Stock Agreements to require the
Company to exchange each share of the Executives' Nonvoting Common Stock for
an identical number of shares of Common Stock.

Each of the Executive Stock Agreements provides for a severance benefit for
each of the Executives in the event he is terminated by the Company, other
than for Cause, in an amount equal to the Executive's base salary (excluding
bonuses) during the preceding 12 months, payable on a monthly basis in equal
installments for each of the twelve succeeding months following the
Executive's termination. Cause is defined as (i) the commission of a felony or
a crime of moral turpitude or any act involving dishonesty, disloyalty or
fraud, (ii) conduct that brings the Company into public disgrace or disrepute,
(iii) substantial or repeated failure to perform duties directed by the Board
of Directors, (iv) gross negligence or willful misconduct relating to the
Company, or (v) any material breach of the Executive Stock Agreement.

The money borrowed by the Executives from the Company to purchase their
Nonvoting Common Stock is evidenced by Promissory Notes (collectively, the
"Executive Notes") entered into on June 30, 1995 between each of the
Executives and the Company. The Executive Notes are payable on demand and bear
interest at the lesser of (i) 7.07% per annum, or (ii) the highest rate
allowed by applicable law, payable when the principal becomes due and payable.
Each Executive Note is secured by a pledge to the Company of the respective
Executive's Nonvoting Common Shares. Mr. Moore's Executive Note is in the
aggregate principal amount of $62,437 and, as of June 30, 1998, the accrued
interest on such note was $14,201. Mr. St. Pierre's Executive Note is in the
aggregate principal amount of $49,950 and, as of June 30, 1998, the accrued
interest on such note was $11,361. Each of Messrs. McCord, Holland and
Devereux have Executive Notes in the principal amount of $24,975 and, as of
June 30, 1998, the accrued interest on each of such notes was $5,681.

62
<PAGE>

Transactions Between the Company and Certain Directors and Security Holders

Loyal Wilson has served as a Director of the Company since its inception in
1995. Mr. Wilson is also a Managing Director of Primus Venture Partners, Inc.,
the sole general partner of Primus Venture Partners III Limited Partnership,
the sole general partner of Primus Capital Fund III Limited Partnership, which
holds more than 5% of the Common Stock of the Company. On October 17, 1996,
Primus and Banc One entered into a Subordinated Note and Warrant Purchase
Agreement with the Company (as subsequently amended on November 24, 1997, the
"Subordinated Note Agreement"). Pursuant to the Subordinated Note Agreement,
the Company incurred indebtedness to Primus and Banc One evidenced by
Subordinated Notes (the "Subordinated Notes") in an aggregate principal amount
of $1.0 million and $4.0 million, respectively. The Subordinated Notes have an
interest rate of 12% per annum, a maturity date of October 2005 and are
subordinate to the Company's obligations under a Note Purchase and Revolving
Credit Agreement (the "Note and Credit Agreement") between the Company and
Prudential, dated as of October 17, 1996, and as amended November 24, 1997.
The Company plans to use a portion of the proceeds from the Offering to repay
the Subordinated Notes and the Note and Credit Agreement. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

Pursuant to the Subordinated Note Agreement, Primus received a warrant to
purchase 35,560 shares of Common Stock and Banc One received a Warrant to
purchase 142,241 shares of Nonvoting Common Stock, each for an aggregate
exercise price of $100 (the "Warrants"). Primus and Banc One also received
contingent stock warrants (the "Contingent Warrants") designed to prevent
possible dilution of the Warrants in connection with the vesting of the
Executive Nonvoting Common Stock. In connection with the Offering and the
concurrent vesting of the Executives' Nonvoting Common Stock, Primus's
Contingent Warrant will allow it to purchase 14,441 additional shares of
Common Stock and Banc One's Contingent Warrant will allow it to purchase
57,765 additional shares of Nonvoting Common Stock, all at an exercise price
of $.0002 per share. Primus and Banc One have informed the Company that, prior
to and contingent upon the Offering, they will exercise their Warrants and
Contingent Warrants.

On November 24, 1997, the Company, Primus and Banc One entered into an
amendment to the Subordinated Note Agreement which extended the maturity of
the Subordinated Notes from October 2004 to October 2005 (the "Subordinated
Note Amendment"). Pursuant to the Subordinated Note Amendment, Primus, Banc
One, and the Company also entered into a Purchase Agreement (the "Purchase
Agreement") dated November 7, 1997 whereby Primus purchased 25,000 shares of
Series 3 Preferred and Banc One purchased 25,000 shares of Series 2 Preferred
from the Company, all at a price of $100 per share. It is expected that all
Series 3 Preferred will be converted to Common Stock and all Series 2
Preferred Stock will be converted to Nonvoting Common Stock in connection with
the Offering. See "Description of Capital Stock--Preferred Stock--Conversion
of the Convertible Preferred" and "The Transactions."

In connection with the Subordinated Note Amendment, Primus received an
additional Warrant to purchase 186,467 shares of Common Stock and Banc One
received an additional Warrant to purchase 88,632 shares of Nonvoting Common
Stock, each at an exercise price of $.0002 per share, ("New Warrants"). The
New Warrants have terms which cause them to terminate prior to becoming
exercisable if certain conditions are satisfied; the Company anticipates that
in connection with the Offering the New Warrants will terminate.

The Executives, Primus, Banc One, Prudential, and the Company are parties to
the Registration Rights Agreement which was amended on November 24, 1997. See
"Description of Capital Stock--Registration Rights."

The Company intends that any future transactions between the Company,
Primus, Banc One and the Executives will be on terms no less favorable to the
Company than can be obtained on an arm's length basis from unaffiliated third
parties.

63
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table (including the Notes thereto) sets forth certain
information regarding the beneficial ownership of the Common Stock as of June
30, 1998 (after giving effect to the Transactions) and as adjusted to reflect
the sale of the shares of Common Stock being offered hereby by: (i) each
person (or group of affiliated persons) known by the Company to beneficially
own more than 5% of the outstanding shares of Common Stock, (ii) each director
of the Company, (iii) each of the Named Executive Officers and (iv) all of the
Company's directors and executive officers as a group. Unless otherwise
indicated below, the persons in the table have sole voting and investment
power with respect to all shares shown as beneficially owned by them.

<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK
BENEFICIALLY PERCENTAGE OF
OWNED PRIOR TO OUTSTANDING
THE OFFERING(1) SHARES OWNED
---------------- --------------------
BEFORE AFTER
NAME NUMBER OFFERING OFFERING(2)
---- ---------------- -------- -----------
<S> <C> <C> <C>
Primus Capital Fund III Limited
Partnership.......................... 2,918,652 38.2 27.4
5900 Landerbrook Drive
Suite 200
Cleveland, OH 44124
Banc One Capital Partners LLC(3)...... 1,415,112 18.5 13.3
300 Crescent Court
Suite 1600
Dallas, TX 75201
The Prudential Insurance Company of
America(4)........................... 280,365 3.7 2.6
4 Embarcadero Center
Suite 2700
San Francisco, CA 94111
David Moore(5)........................ 716,536 9.4 6.7
Paul St. Pierre(6).................... 661,418 8.7 6.2
Frank McCord(7)....................... 551,182 7.2 5.2
Lloyd Holland(8)...................... 551,181 7.2 5.2
Dennis Devereux(9).................... 551,181 7.2 5.2
Loyal Wilson(10)...................... 2,918,652 38.2 27.4
All directors and executive officers
as a group
(6 persons)(5)(6)(7)(8)(9)(10)....... 5,950,152 77.8 55.9
</TABLE>
- --------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. The number of shares beneficially owned by a person and the
percentage ownership of that person includes shares of common stock
subject to options or warrants held by that person that are currently
exercisable or exercisable within 60 days of June 30, 1998 (including
options that will become exercisable upon consummation of the Offering).
Assuming consummation of the Transactions, there will be issued and
outstanding 7,645,627 shares of Common Stock immediately prior to the
Offering, which includes 1,176,561 shares of Nonvoting Common Stock which
is convertible into Common Stock upon a sale of such Nonvoting Common
Stock after the Offering.

(2) Assumes no exercise of the Underwriters' over-allotment option.

(3) Includes 1,176,561 shares of Nonvoting Common Stock that will be
convertible into Common Stock on a share for share basis upon the sale of
such stock at any time following the Offering.

64
<PAGE>

(4) Prudential has granted the Underwriters an option to purchase 280,365
shares of its Common Stock pursuant to the Underwriters' over-allotment
option. Assuming such option is exercised in full, Prudential will own no
Common Stock or Nonvoting Common Stock outstanding upon consummation of
the Offering.

(5) Includes 275,591 shares of Nonvoting Common Stock that will be exchanged
for Common Stock on a share for share basis as part of the Transactions.
Mr. Moore, who is President, Chief Executive Officer and a Director of
the Company, has granted the Underwriters an option to purchase 33,927
shares of his Common Stock pursuant to the Underwriters' over-allotment
option. Assuming such option is exercised in full, Mr. Moore will own
682,609 shares, or approximately 6.4%, of the Common Stock (including
Nonvoting Common Stock) upon consummation of the Offering.

(6) Includes 220,473 shares of Nonvoting Common Stock that will be exchanged
for Common Stock on a share for share basis as part of the Transactions.
Mr. St. Pierre, who is Executive Vice President, Secretary and a Director
of the Company, has granted the Underwriters an option to purchase 33,927
shares of his Common Stock pursuant to the Underwriters' over-allotment
option. Assuming such option is exercised in full, Mr. St. Pierre will
own 527,491 shares, or approximately 5.9%, of the Common Stock (including
Nonvoting Common Stock) upon consummation of the Offering.

(7) Includes 110,236 shares of Nonvoting Common Stock that will be exchanged
for Common Stock on a share for share basis as part of the Transactions.
Mr. McCord, who is Executive Vice President, Chief Financial Officer and
Treasurer of the Company, has granted the Underwriters an option to
purchase 33,927 shares of his Common Stock pursuant to the Underwriters'
over-allotment option. Assuming such option is exercised in full, Mr.
McCord will own 517,255 shares, or approximately 4.9%, of the Common
Stock (including Nonvoting Common Stock) upon consummation of the
Offering.

(8) Includes 110,236 shares of Nonvoting Common Stock that will be exchanged
for Common Stock on a share for share basis as part of the Transactions.
Mr. Holland, who is Executive Vice President and Assistant Treasurer of
the Company, has granted the Underwriters an option to purchase 33,927
shares of his Common Stock pursuant to the Underwriters' over-allotment
option. Assuming such option is exercised in full, Mr. Holland will own
517,254 shares, or approximately 4.9%, of the Common Stock (including
Nonvoting Common Stock) upon consummation of the Offering.

(9) Includes 110,236 shares of Nonvoting Common Stock that will be exchanged
for Common Stock on a share for share basis as part of the Transactions.
Mr. Devereux, who is Executive Vice President and Assistant Secretary of
the Company, has granted the Underwriters an option to purchase 33,927
shares of his Common Stock pursuant to the Underwriters' over-allotment
option. Assuming such option is exercised in full, Mr. Devereux will own
517,254 shares, or approximately 4.9%, of the Common Stock (including
Nonvoting Common Stock) upon consummation of the Offering.

(10) Mr. Wilson, a director of the Company, is a managing director of Primus
Venture Partners, Inc., the sole general partner of Primus Venture
Partners III Limited Partnership, the sole general partner of Primus
Capital Fund III Limited Partnership. Mr. Wilson shares voting and
investment power with respect to such shares with four other directors of
Primus Venture Partners, Inc. Mr. Wilson disclaims beneficial ownership
of the shares held by Primus Capital Fund III Limited Partnership, except
to the extent of his pecuniary interest therein.

65
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Upon consummation of the Offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $0.0001 par value
per share, 2,500,000 shares of Nonvoting Common Stock, $0.0001 par value per
share, and 500,000 shares of Preferred Stock, $1.00 par value per stock (the
"Preferred Stock"), of which shares of Preferred Stock, 18,125 shares are
Redeemable Preferred, 25,000 shares are Series 2 Convertible Preferred, and
25,000 shares are Series 3 Convertible Preferred (the Series 2 Preferred and
the Series 3 Preferred are collectively referred to herein as the "Convertible
Preferred"). See "The Transactions."

The following summary of certain provisions relating to the Common Stock,
the Nonvoting Common Stock and the Preferred Stock does not purport to be
complete and is subject to, and qualified in its entirety by, provisions of
applicable law and the provisions of the Company's Second Restated Certificate
of Incorporation (the "Certificate") and the Bylaws (the "Bylaws") that are
included as exhibits to the Registration Statement of which this Prospectus is
a part.

COMMON STOCK

Upon consummation of the Transactions, there will be 6,469,067 shares of
Common Stock and 1,176,561 shares of Nonvoting Common Stock outstanding. As of
June 30, 1998 (giving effect to the stock split but not to any of the other
Transactions), 4,923,594 shares of Common Stock and 1,414,994 shares of
Nonvoting Common Stock were outstanding and were held by eight and one
stockholders of record, respectively. Each holder of Nonvoting Common Stock
is entitled to convert any or all of such holder's Nonvoting Common Stock into
an equal number of shares of Common Stock as will be distributed, disposed of
or sold in connection with a Conversion Event. A Conversion Event includes a
public offering such as the Offering wherein such Nonvoting Common Stock is
proposed to be sold, or any sale of such Nonvoting Common Stock pursuant to
Rule 144 of the Securities Act following a public offering. Upon consummation
of the Offering, the holder of all Nonvoting Common Stock will be entitled to
convert and sell such stock as Common Stock, subject to the volume and holding
requirements of Rule 144.

Voting. Holders of Common Stock are entitled to one vote per share on all
matters to be voted on by the stockholders of the Company. Holders of
Nonvoting Common Stock have no right to vote, except that holders of Nonvoting
Common Stock are entitled to one vote per share together with the Common Stock
as one class on (i) any merger or consolidation of the Company with or into
another entity or entity, (ii) any sale of all or substantially all of the
Company's assets, and (iii) any amendment to the Certificate. The Certificate
does not provide for cumulative voting in the election of directors.

Dividends. Dividends on the Common Stock and Nonvoting Common Stock of the
Company may be declared by the Board of Directors at any regular or special
meeting, pursuant to law, and may be paid in cash, in property, or in
securities of the Company. When dividends are paid, subject to the provisions
of the Preferred Stock, the holders of Common Stock and the holders of
Nonvoting Common Stock are entitled to receive such dividends pro rata at the
same rate per share; provided that dividends paid in stock will be paid in
Common Stock to the holders of Common Stock and in Nonvoting Common Stock to
the holders of Nonvoting Common stock and that dividends consisting of other
voting securities will be paid in equivalent nonvoting securities to holders
of Nonvoting Common Stock. The Company does not anticipate paying any cash
dividends in the foreseeable future. See "Risk Factors--Absence of Dividends"
and "Dividend Policy."

Liquidation. Subject to the rights of holders of the Preferred Stock, the
holders of the Common Stock shall be entitled to participate pro rata upon any
liquidation, dissolution, or winding up of the Corporation.

Amendment and Waiver. The Certificate limits the Company's authority to
amend or waive the rights, preferences, and powers given to the holders of
Common Stock and Nonvoting Common Stock under the Certificate. Any such
amendment to or waiver of the Certificate must be approved by the holders of a
majority of the outstanding Common Stock voting as a separate class and the
holders of a majority of the then outstanding Nonvoting Common Stock voting as
a separate class.

66
<PAGE>

The rights, preferences, and privileges of holders of Common Stock and
Nonvoting Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock currently
outstanding and which the Company may designate and issue in the future. For
example, if the Company issues a series of preferred stock which grants a
liquidation preference to the holders of such preferred stock, the rights of
holders of Common Stock and Nonvoting Common Stock upon liquidation would be
adversely affected.

PREFERRED STOCK

As of June 30, 1998, 18,125, 25,000 and 25,000 shares of Redeemable
Preferred, Series 2 Convertible Preferred and Series 3 Convertible Preferred,
respectively, were outstanding, all of which was held by Primus and Banc One.

New Series of Preferred Stock. The Board of Directors of the Company is
authorized to issue up to 500,000 shares of preferred stock in one or more
series and to determine and alter all rights (including voting rights),
preferences, privileges and qualifications, limitations, and restrictions
granted to or imposed upon any wholly unissued series of stock. The Board of
Directors is also authorized to determine the number of shares constituting
any such series and to increase or decrease (but not below the number of
shares of such series then outstanding) the number of shares of any series.

Redemption of Redeemable Preferred. The Company may at any time, and by vote
of the majority of the holder of Redeemable Preferred after the Offering is
required to, redeem all or any portion of the Redeemable Preferred then
outstanding. In connection with any such redemption, the Company shall pay a
price equal to the liquidation value of the shares (plus all accrued and
unpaid dividends thereon). The Company intends to use a portion of the
proceeds from the Offering to redeem all of the Redeemable Preferred at an
aggregate redemption price including accrued dividends of $2.2 million.

Conversion of the Convertible Preferred. At the time of, and subject to, the
Offering, Company may, at its option and with 10 days' prior written notice to
the holders of the Convertible Preferred, require the conversion of all shares
of the Convertible Preferred into Common Stock and Nonvoting Common Stock.
Series 2 Convertible Preferred will be converted into Nonvoting Common Stock;
Series 3 Convertible Preferred will be converted into Common Stock
(collectively, the "Conversion Stock"). The Company plans to effectuate the
conversion of all of the Convertible Preferred in connection with the
Offering. At any time, holders of the Convertible Preferred may convert any or
all of their Convertible Preferred to Conversion Stock. The number of shares
of Conversion Stock received in a conversion of Convertible Preferred Stock is
computed by multiplying the number of shares to be converted by $100 and
dividing by the Conversion Price then in effect. The Conversion Price at the
time of the Offering is expected to be $283.87 ($6.40 on a post-split basis),
and based on the terms of the Convertible Preferred, the Company will earn
back some of the Convertible Preferred. In connection with the Offering, each
share of Series 3 Convertible Preferred will be converted into 15.53 shares of
Common Stock, and a total of 388,334 shares of Common Stock will be issued in
connection with the conversion. Each share of Series 2 Convertible Preferred
will be converted into 15.53 shares of Nonvoting Common Stock, and a total of
388,334 shares of Nonvoting Common Stock will be issued in connection with the
conversion. See "Description of Capital Stock--Common Stock." After all
conversions of Preferred Stock into Common Stock and Nonvoting Common Stock,
and all conversions of Nonvoting Common Stock into Common Stock, a total of
7,645,627 shares of Common Stock and Nonvoting Common Stock will be
outstanding prior to the Offering.

Dividends. Until redeemed, Redeemable Preferred accrues preferential
dividends at an annual rate of 6% of their liquidation value (plus all
accumulated and unpaid dividends thereon) until June 30, 2002, and a rate of
12% thereafter. Until redeemed, the Convertible Preferred accrue preferential
dividends at an annual rate of 8% of their liquidation value (plus all
accumulated and unpaid dividends thereon). Holders of the Convertible and
Redeemable Preferred also participate in dividends, other than dividends paid
solely in Common Stock and Nonvoting Common Stock, paid to holders of the
Common Stock and Nonvoting Common Stock.

67
<PAGE>

Liquidation. Until redeemed, holders of the Preferred Stock have priority in
any liquidation, dissolution, or winding up of the Company. Holders of the
Redeemable Preferred are entitled to the liquidation value of their shares, in
cash. Holders of the Convertible Preferred are entitled to the greater of the
liquidation value of their shares and the amount they would receive on an "as
if" converted basis as holders of the Common Stock. If the Company's assets to
be distributed are insufficient to permit full payment to all Existing
Preferred Stockholders, then all such assets will be distributed ratably to
such holders based upon the liquidation value (plus all accrued and unpaid
dividends thereon) of their Existing Preferred Shares.

Voting. Except as required by law, holders of the Existing Preferred Stock
have no right to vote on any matters to be voted on by the stockholders of
Company; however, holders of the Existing Preferred Stock have the right to
vote as a separate class on any amendment to the Certificate or any equivalent
action by the Company which alters the terms of the Existing Preferred Stock.

CERTAIN PROVISIONS OF THE CERTIFICATE AND BYLAWS

Limitation of Directors' Liability and Indemnification. The Certificate
eliminates, to the fullest extent permitted by the Delaware General
Corporation Law (the "DGCL") or other applicable law, liability of a director
of the Company to the Company or its stockholders for money damages for breach
of fiduciary duty as a director. The Certificate requires, and the Bylaws
provide, that the Company will, to the fullest extent permitted by law,
indemnify its directors and officers against any liabilities, losses, or
related expenses which they may incur by reason of serving or having served as
directors or officers of the Company or at the request of the Company in an
entity in which Company has an interest.

Under the DGCL, liability of a director may not be limited (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases and (iv) for any
transaction from which the director derives an improper personal benefit. The
effect of the provisions of the Company's Certificate of Incorporation is to
eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of the fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior), except as provided in the Company's Certificate of Incorporation
and in the situations described in clauses (i) through (iv) above. This
provision does not limit or eliminate the rights of the Company or any
stockholder to seek nonmonetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care.

Anti-takeover Provisions. The Company's Certificate and Bylaws contain a
number of provisions related to corporate governance and to the rights of
stockholders. Certain of these provisions may be deemed to have a potential
"anti-takeover" effect in that such provisions may delay, defer, or prevent a
change of control of the Company. These provisions include (i) a requirement
that stockholder action be taken only at stockholder meetings, (ii) notice
requirements relating to nominations to the Board of Directors and to the
raising of business matters at stockholders meetings, and (iii) the
classification of the Board of Directors into three classes, each serving for
staggered three year terms.

Delaware Antitakeover Law. The Company is subject to the provisions of
Section 203 of the DGCL. Section 203 provides, with certain exceptions, that a
Delaware corporation may not engage in certain business combinations with a
person or affiliate or associate of such person who is an "interested
stockholder" for a period of three years from the date such person became an
interested stockholder, unless: (1) the transaction resulting in the acquiring
person's becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person
becomes an interested stockholder, (ii) the interested stockholder acquires
85% or more of the outstanding voting stock of the corporation in the same
transaction that makes it an interested stockholder, excluding (a) shares held
by directors who are also officers, or (b) shares held in certain employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer,

68
<PAGE>

or (iii) on or after the date the person becomes an interested stockholder,
the business combination is approved by the corporation's board of directors
and by the holders of at least two-thirds of the corporation's outstanding
voting stock, at an annual or special meeting (excluding shares held by an
interested stockholder). Except as otherwise specified in Section 203, an
"interested stockholder" is defined as: (a) any person that is the owner of
15% or more of the outstanding voting stock of the corporation, (b) any person
that is an affiliate or associate of the corporation and was the owner of 15%
or more of the outstanding voting stock of the corporation at any time within
the three-year period immediately prior to the date on which it is sought to
be determined whether such person is the interested stockholder, or (c) the
affiliates and associates of any such person. By restricting the ability of
the Company to engage in business combinations with an interested person, the
application of Section 203 to the Company may provide a barrier to hostile or
unwanted takeovers.

A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to such interested stockholder. For purposes
of Section 203, an "interested" stockholder is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock

Authorized but Unissued Shares. Upon completion of the Offering, there will
be approximately 30,531,000 shares of Common Stock, 1,323,000 shares of
Nonvoting Common Stock and 500,000 shares of Preferred Stock available for
further issuance. Delaware law does not require stockholder approval for the
issuance of authorized shares, or to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of the Preferred Stock.
The additional shares may be used for a variety of corporate purposes. The
issuance of Common Stock, Nonvoting Common Stock or Preferred Stock may have
the effect of delaying, deferring, or preventing a change in control of the
Company by making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company.

REGISTRATION RIGHTS

The following shareholders are parties to an Amended and Restated
Registration Rights Agreement dated October 17, 1996 (as amended November 24,
1997, the "Registration Rights Agreement"): Primus and Banc One (collectively,
the "Investors"), David Moore, Paul St. Pierre, Frank McCord, Dennis Devereux,
and Lloyd Holland (collectively, the "Executives"), Prudential, and the
Company. Pursuant to the Registration Rights Agreement, the parties thereto
have certain rights with respect to the registration under the Securities Act
of shares of Common Stock owned by them (including Common Stock received upon
the conversion of Nonvoting Common Stock, upon the exercise of warrants, or
upon the conversion of Convertible Preferred Stock) (the "Registrable
Securities").

"Demand" Registration Rights. The Investors and Prudential are entitled to
certain "demand" registration rights as follows.

At any time the holders of a majority of the Investors' Registrable
Securities (the "Investor Registrable Securities") may demand registration on
Form S-1 (subject to the Lock-up Agreements) of all or any portion of their
Registrable Securities, and the holders of at least 10% of the Investor
Registrable Securities may demand registration on Form S-2, Form S-3, or any
similar short-form registration ("Short-Form Registration"), if available, of
all or any portion of their Registrable Securities. For the first two such
registrations on Form S-1, the holders of the Investor Registrable Securities
are entitled to have the Company pay all registration expenses, except
underwriting discounts and commissions ("Company-Paid Long-Form
Registrations"); such holders may also demand an unlimited number of
registrations on Form S-1 in which the holders pay their pro rata share of the
registration expenses ("Holder-Paid Long-Form Registrations"), provided that
the aggregate offering value of the Registrable Securities in each case must
be at least $1,000,000. The holders of the Investor Registrable Securities are
entitled to request an unlimited number of Short-Form Registrations in which
the Company pays all registration expenses, except underwriting discounts and
commissions, provided that the aggregate offering value of the Registrable
Securities requested to be registered must be at least $500,000. Demand
registrations will be Short-Form Registrations whenever the Company is
permitted to use any applicable short-form.

69
<PAGE>

At any time after October 17, 1998, Prudential will have demand registration
rights (subject to the Lock-up Agreements) with respect to its Registrable
Securities (the "Prudential Registrable Securities") under the same terms as
the Investors, except that (i) if after two Company-Paid Long-Form
Registrations one-third or more of the aggregate number of shares of
Prudential Registrable Securities initially issuable have not been sold
pursuant to such Registrations, the holders of the Prudential Registrable
Securities are entitled to request one additional Company-Paid Long-Form
Registration, provided that the aggregate offering value of the Registrable
Securities requested to be registered in each case is at least $1,000,000, and
(ii) holders of the Prudential Registrable Securities are not entitled to
demand additional Holder-Paid Long-Form Registrations. See "Description of
Capital Stock--Registration Rights--Investors."

"Piggyback" Registration Rights. The Investors, Prudential, and the
Executives are entitled to the following "piggyback" registration rights.
Whenever the Company proposes to register any of its securities under the
Securities Act (other than pursuant to a demand registration), the Company
must notify all holders of Registrable Securities of the registration, and
must include in the registration all Registrable Securities whose holders so
request. If a "piggyback" registration is underwritten, and the managing
underwriters advise the Company that the number of securities requested to be
included exceeds the number which can be sold at an acceptable price, priority
in the registration is as follows: (i) the securities the Company proposes to
sell, (ii) the Investor Registrable Securities and the Prudential Registrable
Securities requested to be included, and (iii) the Registrable Securities held
by the Executives (the "Executive Registrable Securities") requested to be
included. The Company will pay all registration expenses, except underwriting
discounts and commissions, in connection with any "piggyback" registration.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is U.S. Stock Transfer
Corporation.

70
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have an aggregate of
10,645,627 outstanding shares of Common Stock and Nonvoting Common Stock. Of
the outstanding shares, the 3,000,000 shares issued in this Offering will be
freely tradeable without restriction or further registration under the
Securities Act unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act.

The remaining 7,645,627 shares of Common Stock and Nonvoting Common Stock
outstanding are "restricted securities" as that term is defined in Rule 144
promulgated under the Securities Act and are eligible for sale subject to
holding period, volume and other limitations imposed by that rule. As
described below, Rule 144 permits resales of restricted securities subject to
certain restrictions. In addition, stock options for an additional 121,039
shares of Common Stock have been granted to certain non-employee directors and
employees of the Company under the Stock Option Plan. An additional 408,095
shares of Common Stock are reserved for future issuance under the Stock Option
Plan. The Company and certain stockholders have agreed, subject to certain
conditions, that they will not offer, sell or otherwise dispose of any of the
shares of Common Stock or securities convertible into Common Stock owned by
them for 180 days from the date of this Prospectus and the commencement of the
Offering, respectively, without the prior written consent of Smith Barney Inc.
on behalf of the Underwriters.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, will be entitled to sell in any three-month period a
number of shares that does not exceed the greater of: (i) 1% of the number of
shares of Common Stock then outstanding (approximately 106,456 shares
immediately after the Offering) or (ii) the average weekly trading volume of
the Company's Common Stock on Nasdaq during the four calendar weeks
immediately preceding the date on which the notice of sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned restricted securities for at least three years is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations and requirements described above.

The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under its 1998
Performance Award Plan, thus permitting the resales of such shares by non-
affiliates in the public market without restriction under the Securities Act.
Such registration statement is expected to be filed shortly after the date of
this Prospectus. As of this date of this Prospectus, options to purchase an
aggregate of 121,039 shares of Common Stock were outstanding under the Stock
Option Plan.

71
<PAGE>

UNDERWRITING

Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
the number of shares of Common Stock set forth opposite the name of such
Underwriter.

<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
---- ------
<S> <C>
Smith Barney Inc. .................................................
Credit Suisse First Boston Corporation.............................
Piper Jaffray Inc..................................................
------
Total............................................................
======
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
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., Credit Suisse First Boston
Corporation and Piper Jaffray Inc. are acting as the Representatives, propose
to offer part of the shares directly to the public at the public offering
price set forth on the cover page of this Prospectus and part of the shares to
certain dealers at a price which 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
certain other dealers. After the initial offering of the shares to the public,
the public offering price and such concessions may be changed by the
Representatives. The Representatives of the Underwriters have advised the
Company that the Underwriters do not intend to confirm any Shares to any
accounts over which they exercise discretionary authority.

Primus, Banc One, Prudential, David Moore, Paul St. Pierre, Frank McCord,
Lloyd Holland and Dennis Devereux have granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
aggregate of 450,000 additional shares of Common Stock at the price to public
set forth on the cover page of this Prospectus minus the underwriting
discounts and commissions. The Underwriters may exercise such option solely
for the purpose of covering over-allotments, if any, in connection with the
offering of the shares offered hereby. To the extent such option is exercised,
each Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite each Underwriter's name in the preceding table bears
to the total number of shares listed in such table.

In connection with this offering and in compliance with applicable law, the
Underwriters may over-allot (i.e., sell more shares of Common Stock than the
total amount shown on the list of Underwriters and participations which appear
above) and may effect transactions which stabilize, maintain or otherwise
affect the market price of the shares of Common Stock at levels above those
which might otherwise prevail in the open market. Such transactions may
include placing bids for the shares of Common Stock or effecting purchases of
the shares of Common Stock for the purpose of pegging, fixing or maintaining
the price of the shares of Common Stock or for the purpose of reducing a
syndicate short position created in connection with this Offering. A syndicate
short position may be covered by exercise of the option described above in
lieu of or in addition to open market purchases. In addition, the contractual
arrangements among the Underwriters include a provision whereby, if the
Underwriters purchase shares of Common Stock in the open market for the
account of the underwriting syndicate and the securities purchased can be
traced to a particular Underwriter or member of the selling group, the
underwriting syndicate may require the Underwriter or selling group member in
question to purchase the shares of Common Stock in question at the cost price
to the syndicate or may recover from (or decline to pay to) the Underwriter or
selling group member in question the selling concession applicable to the
securities in question. The Underwriters are not required to engage in any of
these activities and such activities, if commenced, may be discontinued at any
time.

72
<PAGE>

The Company, its officers and directors, and Primus, Banc One and Prudential
have agreed that, for a period of 180 days from 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 of
the Company or any securities convertible into, or exercisable or exchangeable
for, Common Stock of the Company.

Prior to this offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Shares of Common Stock included in this offering has been determined by
negotiations between the Company and the Representatives. Among the factors
considered in determining such price were the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for
growth of the Company's revenues and earnings, the current state of the
economy in the United States and the current level of economic activity in the
industry in which the Company competes and in related or comparable
industries, and currently prevailing conditions in the securities markets,
including current market valuations of publicly traded companies which are
comparable to the Company.

The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933.

LEGAL MATTERS

Certain matters relating to this Offering are being passed upon for the
Company by O'Melveny & Myers LLP, Newport Beach, California. Gibson, Dunn &
Crutcher LLP, Los Angeles, California will act as counsel for the
Underwriters.

EXPERTS

The consolidated financial statements and schedule of the Company and the
combined statement of revenue and expenses for National Education Centers,
Inc., to the extent and for the periods indicated in their reports, have been
audited by Arthur Andersen, LLP, independent public accountants, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.

The combined financial statements of the Seventeen Operating Companies owned
by Phillips Colleges, Inc. to the extent and for the periods indicated in
their reports have been audited by PricewaterhouseCoopers LLP, independent
accountants, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.

73
<PAGE>

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"SEC"), in Washington, D.C., a Registration Statement on Form S-1 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 and the exhibits thereto. Certain items are omitted in
accordance with the rules and regulations of the SEC. For further information
with respect to the Company and the Common Stock offered hereby, reference is
made to the Registration Statement and the exhibits filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement are, in each
case, qualified in all respects by reference to such exhibit. Upon completion
of the Offering, the Company will be subject to the informational requirements
of the Securities Exchange Act of 1934, as amended, and in accordance
therewith, will file reports and other information with the SEC. The
Registration Statement, including exhibits thereto, as well as the reports and
other information filed by the Company with the SEC, may be inspected without
charge at the Public Reference Room of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can also be obtained at prescribed rates from the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Electronic filings
made through the Electronic Data Gathering Analysis and Retrieval System are
publicly available through the SEC's Web Site (http://www.sec.gov).

The Company will issue to its stockholders annual reports and unaudited
quarterly reports for the first three quarters of each fiscal year. Annual
reports will include audited financial statements and reports of its
independent auditors with respect to the examination of such financial
statements.

74
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES:
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of June 30, 1997 and 1998................ F-3
Consolidated Statement of Operations for the years ended June 30, 1996,
1997 and 1998 ......................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended June
30, 1996, 1997 and 1998................................................ F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1996,
1997 and 1998.......................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
COMBINED FINANCIAL STATEMENTS OF PHILLIPS COLLEGES, INC.:
Report of Independent Accountants....................................... F-19
Combined Balance Sheets as of December 31, 1995 and October 16, 1996.... F-20
Combined Statements of Income for the year ended October 31, 1995 and
for the period ended October 16, 1996.................................. F-21
Combined Statements of Stockholders' Equity for the year ended December
31, 1995 and for the period ended October 16, 1996..................... F-22
Combined Statements of Cash Flows for the year ended December 31, 1995
and for the period ended October 16, 1996.............................. F-23
Notes to Combined Financial Statements.................................. F-24
COMBINED FINANCIAL STATEMENT OF ELEVEN CAREER COLLEGES OWNED BY NATIONAL
EDUCATION CENTERS, INC.:
Report of Independent Public Accountants................................ F-30
Combined Statement of Revenues and Direct Expenses for the year ended
December 31, 1995...................................................... F-31
Notes to Combined Financial Statement................................... F-32
</TABLE>

F-1
<PAGE>

To Corinthian Colleges, Inc:

After the completion of the planned stock split and increase in authorized
shares discussed in Note 11, we expect to be in a position to render the
following audit report and the report on schedules included elsewhere in this
Registration Statement.

/s/ Arthur Andersen LLP

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Corinthian Colleges, Inc.:

We have audited the accompanying consolidated balance sheets of CORINTHIAN
COLLEGES, INC. (a Delaware corporation) and subsidiaries as of June 30, 1997
and 1998 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended June 30,
1998. These consolidated 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 audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Corinthian
Colleges, Inc. and subsidiaries, as of June 30, 1997 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1998 in conformity with generally accepted accounting
principles.

Orange County, California

August 28, 1998

F-2
<PAGE>

CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
JUNE 30, EQUITY
------------------------ AT JUNE 30,
1997 1998 1998
----------- ----------- -------------
(UNAUDITED)
(NOTE 6)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ 2,820,831 $ 2,401,527
Restricted cash....................... 1,010,000 760,000
Accounts receivable, net of allowance
for doubtful accounts of $2,762,577
and $3,518,804 at June 30, 1997 and
1998, respectively................... 9,256,935 10,077,221
Student notes receivable, net of
allowance for doubtful accounts of
$106,949 and $457,290 at June 30,
1997 and 1998, respectively.......... 904,636 1,776,320
Income tax refund receivable.......... 195,507 --
Deferred income taxes................. 1,463,962 2,395,564
Prepaid expenses and other current
assets............................... 1,397,078 3,126,238
----------- -----------
Total current assets................ 17,048,949 20,536,870
PROPERTY AND EQUIPMENT, net............ 10,174,959 10,331,623
OTHER ASSETS:
Intangibles, net of accumulated
amortization of $890,144 and
$2,010,423 at June 30, 1997 and
1998, respectively................... 23,839,246 22,718,967
Student notes receivable, net of
allowance for doubtful accounts of
$754,118 and $1,829,162 at June 30,
1997 and 1998, respectively.......... 1,312,818 4,407,615
Deposits and other assets............. 1,433,298 1,909,552
----------- -----------
TOTAL ASSETS........................ $53,809,270 $59,904,627
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................... $ 5,147,116 $ 4,727,242
Accrued compensation and related
liabilities.......................... 3,220,922 3,703,678
Accrued expenses...................... 707,582 880,087
Accrued interest...................... 743,314 1,295,408
Income tax payable.................... -- 1,739,277
Prepaid tuition....................... 5,264,176 2,951,442
Current portion of long-term debt..... 121,472 4,633,659
----------- -----------
Total current liabilities........... 15,204,582 19,930,793
----------- -----------
LONG-TERM DEBT, net of current portion. 36,168,324 31,534,666
----------- -----------
DEFERRED INCOME TAXES.................. 273,284 121,334
----------- -----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK............. 2,041,767 2,167,058
----------- -----------
CONVERTIBLE PREFERRED STOCK............ -- 5,173,860 $ 240,000
----------- ----------- ----------
STOCKHOLDERS' EQUITY:
Common Stock, $0.0001 par value:
Common Stock, 40,000,000 shares
authorized, 4,923,594 shares issued
and outstanding at June 30, 1997
and 1998........................... 492 492 531
Nonvoting Common Stock, 2,500,000
shares authorized, 1,414,994 issued
and outstanding at June 30, 1997
and 1998........................... 141 141 180
Additional paid-in capital.......... 1,374,567 1,374,567 6,308,349
Notes receivable for stock............ (187,312) (187,312) (187,312)
Accumulated deficit................... (1,066,575) (210,972) (210,972)
----------- ----------- ----------
Total stockholders' equity.......... 121,313 976,916 5,910,776
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................. $53,809,270 $59,904,627
=========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE>

CORINTHIAN COLLEGES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
NET REVENUES........................... $31,498,352 $77,201,176 $106,485,912
----------- ----------- ------------
OPERATING EXPENSES:
Educational services (including a
provision for bad debt expense of
$978,997, $3,554,232 and $5,962,885
for the years ended June 30, 1996,
1997 and 1998, respectively)........ 18,593,569 50,567,978 65,927,247
General and administrative........... 3,298,332 8,101,177 10,776,708
Marketing and advertising............ 7,562,504 18,999,560 24,268,303
----------- ----------- ------------
Total operating expenses........... 29,454,405 77,668,715 100,972,258
----------- ----------- ------------
Income (loss) from operations...... 2,043,947 (467,539) 5,513,654
INTEREST EXPENSE, net.................. 273,802 2,524,984 3,304,350
----------- ----------- ------------
Income (loss) before provision for
income taxes...................... 1,770,145 (2,992,523) 2,209,304
PROVISION (BENEFIT) FOR INCOME TAXES... 722,130 (1,107,200) 988,410
----------- ----------- ------------
NET INCOME (LOSS)...................... $ 1,048,015 $(1,885,323) $ 1,220,894
=========== =========== ============
INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS:
Net income (loss).................... $ 1,048,015 $(1,885,323) $ 1,220,894
Less preferred stock dividends ...... (111,221) (118,046) (365,291)
----------- ----------- ------------
Income (loss) attributable to
common stockholders............... $ 936,794 $(2,003,369) $ 855,603
=========== =========== ============
Net income (loss) per common share:
Basic ............................... $ 0.21 $ (0.41) $ 0.16
=========== =========== ============
Diluted.............................. $ 0.15 $ (0.41) $ 0.12
=========== =========== ============
Weighted average number of common
shares outstanding:
Basic................................ 4,409,452 4,895,682 5,236,224
=========== =========== ============
Diluted.............................. 6,338,588 4,895,682 7,107,248
=========== =========== ============
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-4
<PAGE>

CORINTHIAN COLLEGES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
NONVOTING COMMON RETAINED
COMMON STOCK STOCK ADDITIONAL EARNINGS TOTAL
------------------- ------------------- PAID-IN NOTES (ACCUMULATED STOCKHOLDERS
SHARES PAR VALUE SHARES PAR VALUE CAPITAL RECEIVABLE DEFICIT) EQUITY
--------- --------- --------- --------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1995................... 4,868,476 $487 1,194,521 $119 $1,374,394 $(187,312) $ -- $ 1,187,688
Redeemable Preferred
Stock dividend
accrual.............. -- -- -- -- -- -- (111,221) (111,221)
Net income............ -- -- -- -- -- -- 1,048,015 1,048,015
--------- ---- --------- ---- ---------- --------- ----------- -----------
Balance at June 30,
1996................... 4,868,476 487 1,194,521 119 1,374,394 (187,312) 936,794 2,124,482
Exercise of warrants
for Common Stock..... 55,118 5 -- -- 95 -- -- 100
Exercise of warrants
for Nonvoting Common
Stock................ -- -- 220,473 22 78 -- -- 100
Redeemable Preferred
Stock dividend
accrual.............. -- -- -- -- -- -- (118,046) (118,046)
Net loss.............. -- -- -- -- -- -- (1,885,323) (1,885,323)
--------- ---- --------- ---- ---------- --------- ----------- -----------
Balance at June 30,
1997................... 4,923,594 492 1,414,994 141 1,374,567 (187,312) (1,066,575) 121,313
Redeemable Preferred
Stock dividend
accrual.............. -- -- -- -- -- -- (125,291) (125,291)
Convertible Preferred
Stock dividend
accrual.............. -- -- -- -- -- -- (240,000) (240,000)
Net income............ -- -- -- -- -- -- 1,220,894 1,220,894
--------- ---- --------- ---- ---------- --------- ----------- -----------
Balance at June 30,
1998................... 4,923,594 $492 1,414,994 $141 $1,374,567 $(187,312) $ (210,972) $ 976,916
========= ==== ========= ==== ========== ========= =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-5
<PAGE>

CORINTHIAN COLLEGES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ 1,048,015 $ (1,885,323) $ 1,220,984
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities--
Depreciation and amortization........ 681,903 2,070,015 3,051,023
Deferred income taxes................ (141,514) (1,049,164) (1,083,552)
Changes in assets and liabilities,
net of effects from acquisitions:
Accounts receivable................. (1,896,000) (1,505,078) (820,286)
Student notes receivable............ -- (476,337) (3,966,481)
Income tax refund receivable........ (746,356) 550,849 195,507
Prepaid expenses and other assets... (315,435) 176,118 (2,183,931)
Accounts payable.................... 1,217,000 2,859,383 (419,874)
Accrued expenses.................... 1,561,000 2,085,426 1,207,355
Income tax payable.................. -- -- 1,739,277
Prepaid tuition..................... (412,000) (1,830,464) (2,312,734)
----------- ------------ -----------
Net cash provided by (used in)
operating activities................ 996,613 995,425 (3,372,712)
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of schools and colleges,
net of cash acquired................. (3,048,616) (24,227,318) --
Change in restricted cash............. (200,000) (810,000) 250,000
Capital expenditures.................. (1,046,000) (5,936,073) (1,926,580)
----------- ------------ -----------
Net cash used in investing
activities.......................... (4,294,616) (30,973,391) (1,676,580)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of convertible
preferred stock...................... -- -- 4,933,860
Proceeds from exercise of warrants.... -- 200 --
Increase in deferred financing costs.. -- (962,950) (182,400)
Borrowings under long-term debt....... 4,300,000 36,251,692 3,000,000
Principal repayments on long-term
debt................................. (397,000) (4,314,096) (3,121,472)
----------- ------------ -----------
Net cash provided by financing
activities.......................... 3,903,000 30,974,846 4,629,988
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS...................... 604,997 996,880 (419,304)
CASH AND CASH EQUIVALENTS, beginning of
year.................................. 1,218,954 1,823,951 2,820,831
----------- ------------ -----------
CASH AND CASH EQUIVALENTS, end of year. $ 1,823,951 $ 2,820,831 $ 2,401,527
=========== ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes......................... $ 1,610,000 $ -- $ 334,479
=========== ============ ===========
Interest............................. $ 198,581 $ 1,754,981 $ 3,192,152
=========== ============ ===========
SUPPLEMENTAL DISCLOSURE OF NON CASH
INVESTING AND FINANCING ACTIVITIES:
Software acquired under a capital
lease arrangement.................... $ 62,641 $ -- $ --
=========== ============ ===========
Preferred stock dividend accrual...... $ 111,221 $ 118,046 $ 365,291
=========== ============ ===========
Acquisitions of various schools and
colleges--
Fair value of assets acquired........ $ 4,661,380 $ 31,147,526 $ --
Net cash used in acquisitions........ (3,048,616) (24,227,318) --
----------- ------------ -----------
Liabilities assumed or incurred..... $ 1,612,764 $ 6,920,208 $ --
=========== ============ ===========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-6
<PAGE>

CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Description of the Business

Corinthian Schools, Inc. ("CSi"), a Delaware corporation, was formed in
February 1995 for the purpose of acquiring certain schools from National
Education Centers, Inc., and until July 1995 its operations were not
significant (see Note 4--CSi Acquisitions). In September 1996, Corinthian
Colleges, Inc. ("CCi"), a Delaware corporation, was formed as a wholly owned
subsidiary of CSi. Concurrently, CCi formed a wholly owned subsidiary, Rhodes
Colleges, Inc. ("RCi"), for the purpose of acquiring certain colleges from
Phillips Colleges, Inc. ("Phillips") (see Note 4--RCi acquisitions). In
October 1996, CCi and CSi completed a reorganization transaction whereby CSi
became a wholly-owned subsidiary of CCi. This transaction was accounted for as
a recapitalization. Corinthian Property Group, Inc. ("CPGI"), a Delaware
Corporation, was formed in April 1997 to hold certain real properties
previously acquired by CCi. These entities are collectively referred to as the
"Company."

The Company's primary business is the operation of degree and non-degree
granting private, for-profit post-secondary schools devoted to career program
training primarily in the medical, technical and business fields. The Company
operates a total of 35 private colleges located in 16 states: Virginia, West
Virginia, Texas, Michigan, Massachusetts, Louisiana, California, Oregon,
Colorado, Nevada, Utah, Missouri, Pennsylvania, New York, Washington and
Florida. Revenues generated from these schools consist primarily of tuition
and fees paid by students. To pay for a substantial portion of their tuition,
the majority of students rely on funds received from federal financial aid
programs under Title IV ("Title IV Programs") of the Higher Education Act of
1965, as amended ("HEA"). For further discussion see Concentration of Risk
below and Note 10--Governmental Regulation.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
CCi and each of its wholly owned subsidiaries, CSi, RCi and CPGI. All
intercompany activity has been eliminated in consolidation.

Financial Statement Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from
estimated amounts.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

Restricted Cash

Restricted cash primarily consists of amounts to secure a letter of credit
in favor of the U.S. Department of Education ("DOE").

F-7
<PAGE>

CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Revenue Recognition

Revenues consist primarily of tuition derived from courses taught in the
Company's career colleges. Tuition revenues are recognized on a straight-line
basis over the term of the applicable course. If a student withdraws from a
course or program, the paid but unearned portion of the student tuition is
refunded. Textbook sales and other revenues are recognized as sales occur or
services are performed and represent less then 10 percent of total revenues.
Prepaid tuition is the portion of payments received but not earned and is
reflected as a current liability in the accompanying consolidated balance
sheet as such amount is expected to be earned within the next year.

Educational Services

Educational services include direct operating expenses of the schools
consisting primarily of payroll and payroll related, occupancy and supplies
costs, as well as amortization of goodwill.

Marketing and Advertising

Marketing and advertising consists primarily of payroll and payroll related,
direct-response and other advertising, promotional materials and other related
marketing costs. All marketing and advertising costs are expensed as incurred.

Property and Equipment

Property and equipment are stated at cost and are being depreciated or
amortized utilizing the straight-line method over the following estimated
useful lives:

<TABLE>
<S> <C>
Furniture and equipment................ 7 years
Computer hardware and software......... 3-5 years
Leasehold improvements................. Shorter of 7 years or term of lease
Buildings.............................. 39 years
</TABLE>

Deferred Financing Costs

Costs incurred in connection with obtaining financing are capitalized and
amortized over the maturity period of the debt and are included in deposits
and other assets in the accompanying consolidated balance sheets.

Intangible Assets

Intangible assets consist of goodwill, trade names and course curriculum.
Goodwill represents the excess of cost over the fair market value of net
assets acquired, including identified intangible assets. Goodwill is amortized
using the straight-line method over 40 years. Course curriculum represents the
cost of acquiring such curriculum and is amortized using the straight-line
method over 15 years. Trade names represents the cost to acquire and use the
names of the colleges acquired and are amortized using the straight line
method over 40 years. Amortization of curriculum and tradenames is included in
general and administrative expenses in the accompanying consolidated
statements of operations. Management evaluates the realizability of
intangibles periodically as events or circumstances indicate a possible
inability to recover the carrying amount. If such events or changes in
circumstances occur, the Company will recognize an impairment loss if the
undiscounted future cash flows expected to be generated by the asset (or
acquired business) are less than the carrying value of the related asset. The
impairment loss would adjust the asset to its fair value.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, restricted cash,
receivables and accounts payable approximates the fair value. In addition, the
carrying value of all borrowings approximate fair value based on interest
rates currently available to the Company.

F-8
<PAGE>

CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Income Taxes

The Company accounts for income taxes as prescribed by the Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." SFAS No. 109 prescribes the use of the asset and liability method to
compute the differences between the tax basis of assets and liabilities and
the related financial amounts, using currently enacted tax laws. Valuation
allowances are established, when necessary, to reduce deferred tax assets to
the amount that more likely than not will be realized.

Stock-Based Compensation

In accordance with SFAS No. 123 "Accounting for Stock-Based Compensation",
the Company accounts for stock option grants in accordance with Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and has adopted the "disclosure only" alternative allowed under
SFAS No. 123.

Net Income (Loss) Per Common Share

The Company accounts for net income per common share in accordance with SFAS
No. 128 "Earnings Per Share" and SFAS No. 129, "Disclosure of Information
about Capital Structure." Basic net income (loss) per common share is computed
by dividing income (loss) available to common stockholders by the weighted
average number of common shares outstanding. Diluted net income (loss) per
common share is computed by dividing income (loss) available to common
stockholders by the weighted average number of common shares outstanding plus
the effect of any dilutive stock options, common stock warrants and
convertible preferred stock, utilizing the treasury stock method.

The basic net income per common share computation includes all vested common
stock outstanding for each year presented. For the years ended June 30, 1996
and 1998, 275,591 and 768,660, respectively, of dilutive warrants and
1,377,954 and 1,102,364, respectively, of dilutive non-vested executive Common
and Nonvoting Common Stock (see Note 6) were included in the computation of
diluted net income per common share. For the year ended June 30, 1997, the
effect of all common stock warrants and non-vested executive Common and
Nonvoting Common Stock was excluded from the computation of diluted loss per
common share as the effect of such inclusion would be antidilutive.
Additionally, the computation of diluted net income per common share for the
year ended June 30, 1998 did not assume the conversion of the Convertible
Preferred Stock as it would have been antidilutive.

New Accounting Pronouncements

Recent pronouncements of the Financial Accounting Standards Board ("FASB")
include SFAS No. 133 "Accounting for Derivatives Instruments and for Hedging
Activities", SFAS No. 132, "Employers Disclosures about Pension and Other Post
Retirement Benefits", SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information", and SFAS No. 130, "Reporting
Comprehensive Income". The Statements are effective for fiscal years beginning
after December 15, 1997 and earlier application is not permitted. The adoption
of these Statements is not expected to have a material effect on the Company's
consolidated financial position or results of operations. The impact of these
pronouncements on the disclosures in the consolidated financial statements has
not been determined.

Concentration of Risk

The Company extends credit for tuition to a majority of the students. A
substantial portion is repaid through the student's participation in federally
funded financial aid programs. Transfers of funds from the financial aid
programs to the Company are made in accordance with the DOE requirements.
Approximately 73 percent 75 percent and 72 percent of the Company's revenues
(on a cash basis) were collected from funds distributed under Title IV
Programs of the HEA for the years ended June 30, 1996, 1997 and 1998,
respectively. The

F-9
<PAGE>

CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

financial aid and assistance programs are subject to political and budgetary
considerations. There is no assurance that such funding will be maintained at
current levels. Extensive and complex regulations in the U.S. govern all the
government financial assistance programs in which the Company's students
participate. The Company's administration of these programs is periodically
reviewed by various regulatory agencies. Any regulatory violation could be the
basis for the initiation of a suspension, limitation or termination proceeding
which could have a material adverse effect to the Company.

The Company has routinely afforded relatively short-term installment payment
plans to many of its students to supplement their federally funded financial
aid. During fiscal 1998, the Company expanded the internal loan program to
assist students in those colleges that lost access to FFEL loans (see Note
10). While these loans are unsecured, the Company believes it has adequate
reserves against these loan balances. However, there can be no assurance that
losses will not exceed reserves. Losses in excess of reserves could have a
material adverse effect on the Company's business.

NOTE 2--DETAIL OF SELECTED BALANCE SHEET ACCOUNTS

Prepaid expenses and other current assets consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1998
---------- ----------
<S> <C> <C>
Course materials, net................................ $1,086,913 $1,463,176
Prepaids and other................................... 310,165 1,663,062
---------- ----------
$1,397,078 $3,126,238
========== ==========
</TABLE>

Property and equipment consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Furniture and equipment........................ $ 5,932,564 $ 6,461,720
Computer hardware and software................. 2,157,149 2,956,045
Leasehold improvements......................... 381,644 980,172
Land........................................... 2,248,792 2,248,792
Buildings...................................... 1,178,558 1,178,558
----------- -----------
11,898,707 13,825,287
Less--accumulated depreciation and
amortization.................................. (1,723,748) (3,493,664)
----------- -----------
$10,174,959 $10,331,623
=========== ===========
</TABLE>

Depreciation and amortization expense associated with property and equipment
was $524,643, $1,199,105 and $1,778,446 for the years ended June 30, 1996,
1997 and 1998, respectively.

Intangible assets consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Goodwill........................................ $ 8,285,445 $ 8,285,445
Curriculum...................................... 11,405,140 11,405,140
Trade names..................................... 5,038,805 5,038,805
----------- -----------
24,729,390 24,729,390
Less--accumulated amortization.................. (890,144) (2,010,423)
----------- -----------
$23,839,246 $22,718,967
=========== ===========
</TABLE>

F-10
<PAGE>

CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Amortization expense associated with intangibles was $126,817, $763,327 and
$1,120,282 for the years ended June 30, 1996, 1997 and 1998, respectively.

NOTE 3--STUDENT NOTES RECEIVABLE

Student notes receivable represent loans which have maturity dates of 6
months to 84 months from the loan origination date. The interest charged on
the notes ranges from 8.25 to 15.00 percent per annum.

<TABLE>
<CAPTION>
NET
STUDENT ALLOWANCE GROSS
NOTES FOR DOUBTFUL STUDENT NOTES
RECEIVABLE ACCOUNTS RECEIVABLE
---------- ------------ -------------
<S> <C> <C> <C>
Current................................ $1,776,320 $ 457,290 $ 2,233,610
Long-term.............................. 4,407,615 1,829,162 6,236,777
Add-unearned portion................. 6,163,166
Add-unrecorded interest.............. 3,713,282
-----------
Total.................................. $18,346,835
===========
</TABLE>

Payments due under student notes receivable are as follows:

<TABLE>
<CAPTION>
YEARS ENDING
JUNE 30,
------------
<S> <C>
1999......................................................... $ 5,449,887
2000......................................................... 3,872,286
2001......................................................... 3,695,337
2002......................................................... 2,791,560
2003......................................................... 1,494,850
Thereafter................................................... 1,042,915
-----------
Total........................................................ $18,346,835
===========
</TABLE>

NOTE 4--BUSINESS ACQUISITIONS

CSi Acquisitions

In June 1995, the Company entered into an asset purchase agreement with
National Education Centers, Inc. to purchase certain assets and assume certain
liabilities of 16 career colleges for approximately $4.7 million in cash. The
acquisitions of these colleges occurred in three ownership transfers
effectively completed in June 1995 for approximately $1.7 million and in
September and December of 1995 for approximately $3.0 million.

In the first quarter of fiscal 1997, the Company entered into asset purchase
agreements with Repose, Inc. and Concorde Career Colleges, Inc. to purchase
certain assets and assume certain liabilities of the Bryman Colleges, in
Bellevue, Washington and San Jose, California for $600,000 in cash. The
colleges currently offer career training in the medical and technical fields.
Subsequent to the acquisition, the Bellevue location moved to SeaTac,
Washington.

RCi Acquisitions

Effective October 1996, the Company entered into an asset purchase agreement
with Phillips Colleges, Inc. ("Phillips") to purchase certain assets and
assume certain liabilities of 17 colleges currently operating under the names
of Rhodes Colleges, Inc., and Florida Metropolitan University, Inc., for $6.0
million in cash. Additionally, the Company entered into a separate transaction
with Phillips to purchase certain curriculum and trade names. The cost to
purchase the curriculum, trade names and other intangibles was approximately
$17.6 million.

F-11
<PAGE>

CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Accounting for Acquisitions

All acquisitions have been accounted for under the purchase method of
accounting. Accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair market values
at the dates of the acquisitions. The results of operations of each
acquisition are included in the consolidated results of the Company beginning
on the effective date of the acquisitions.

The purchase price of the CSi and RCi transactions were allocated as follows
during fiscal 1996 and 1997, respectively:
<TABLE>
<CAPTION>
CSI RCI
---------- -----------
<S> <C> <C>
Tangible assets.................................. $4,540,764 $ 7,052,287
Identified intangible assets..................... -- 16,443,945
Goodwill......................................... 120,616 7,651,294
Liabilities assumed.............................. (758,003) (772,703)
Prepaid tuition.................................. (854,761) (6,147,505)
---------- -----------
Net assets acquired............................ $3,048,616 $24,227,318
========== ===========
</TABLE>

NOTE 5--LONG-TERM DEBT

Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Senior Secured Notes, as amended, due October 2004,
with interest at 11.02 percent per annum payable
quarterly in January, April, July and October of
each year beginning January 1997, secured by
substantially all assets, excluding real estate. A
$2.5 million and $5.0 million principal payment is
due October 1998 and 1999, respectively. The
remaining $15 million is amortized quarterly
through October 2004............................... $22,500,000 $22,500,000
Senior Secured Revolving Note, as amended due
October 2000, with interest at the lenders' libor
rate, as defined, plus 3.50 percent (9.25 percent
at June 30, 1998), secured by substantially all
assets, excluding real estate. Available borrowing
under this facility reduces to $3.0 million
effective October 1998 with the remaining balance
due October 2000................................... 5,000,000 5,000,000
Subordinated Notes, as amended, due October 2005,
interest at 12.00 percent per annum payable
quarterly, principal payable in quarterly
installments of $281,250 beginning October 2001,
subordinated to the Senior Secured Notes and
Revolving Note shown above......................... 5,000,000 5,000,000
Promissory note due April 2007, with interest at
10.95 percent per annum, secured by certain land
and improvements................................... 3,751,692 3,645,880
Other............................................... 38,104 22,445
----------- -----------
36,289,796 36,168,325
Less--current portion............................... (121,472) (4,633,659)
----------- -----------
$36,168,324 $31,534,666
=========== ===========
</TABLE>

The Senior Secured Notes and Senior Secured Revolving Note, pursuant to the
Senior Credit Agreement, as well as the Subordinated Notes (collectively
referred to as "the Notes"), contain various financial and non-financial
covenants. At June 30, 1997, the Company was not in compliance with certain
covenant requirements of these Notes. However, on November 7, 1997, the
Company entered into agreements amending the terms of these Notes (the
"Amended Notes"). The Amended Notes waived all covenant violations through
September 30, 1997, extended the principal payment dates, adjusted certain
interest rates and reset the financial ratios to be consistent with the
Company's current operating plan. The Company is required to maintain certain
financial ratios throughout the term of the Amended Notes. Examples of such
ratios are a quick ratio of 60 percent increasing to 100 percent by September
2000, certain levels of senior debt to adjusted cash flows, various measures
of debt to equity, minimum levels of cash flows and operating lease payments
to fixed charges. Pursuant to the terms of the Amended Notes and the
promissory note, the Company is restricted from paying dividends, as defined,
selling or disposing of certain assets or subsidiaries and issuing
subordinated debt.

F-12
<PAGE>

CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At June 30, 1998, the Company was in compliance with all covenant
requirements except for a minimum annual cash flow from operations requirement
which was subsequently waived by the lenders.

Principal payments due under the long-term debt arrangements discussed above
are as follows:

<TABLE>
<CAPTION>
YEARS ENDING
JUNE 30,
------------
<S> <C>
1999......................................................... $ 4,633,659
2000......................................................... 6,313,000
2001......................................................... 5,698,000
2002......................................................... 3,830,000
2003......................................................... 4,431,880
Thereafter................................................... 11,261,786
-----------
$36,168,325
===========
</TABLE>

NOTE 6--PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY

The Company is authorized to issue 500,000 shares of preferred stock.
Preferred stock outstanding consists of Series 1 Preferred Stock, $1.00 par
value ("Redeemable Preferred Stock"), Series 2 Preferred Stock, $1.00 par
value ("Series 2 Convertible Preferred Stock") and Series 3 Preferred Stock,
$1.00 par value ("Series 3 Convertible Preferred Stock").

Redeemable Preferred Stock

There are 18,125 shares of Redeemable Preferred Stock issued and outstanding
at June 30, 1997 and 1998. CSi issued the shares on June 30, 1995 for $100 per
share. In connection with the reorganization transaction described in Note 1,
the Redeemable Preferred Stock became an outstanding security of CCi. The
Redeemable Preferred stockholders are entitled to dividends that accrue daily
at 6 percent per annum until June 30, 2002 and 12 percent thereafter. These
shares have a defined liquidation value of $100 per share plus all accrued and
unpaid dividends. Accrued dividends on the Redeemable Preferred Stock at June
30, 1997 and 1998 are $229,267 and $354,558, respectively, and are included in
Redeemable Preferred Stock in the accompanying consolidated balance sheets.
Upon the completion of a Qualified Initial Public Offering, as defined, or at
any time after June 30, 2001, the holders may require the shares be redeemed
provided that such redemption would not constitute a default under the Senior
Credit Agreement. The Company shall redeem all outstanding Redeemable
Preferred Shares on October 31, 2005. As long as the Redeemable Preferred
Stock is outstanding, the Company shall not redeem, purchase or otherwise
acquire any other shares of stock.

Convertible Preferred Stock

There are 25,000 shares each of Series 2 and Series 3 Convertible Preferred
Stock outstanding at June 30, 1998. The shares were issued in November 1997
for $100 per share. The Series 2 and Series 3 Convertible Preferred
Stockholders are entitled to dividends that accrue daily at 8 percent per
annum. These shares have a defined Liquidation value of $100 per shares plus
all accrued and unpaid dividends. Accrued dividends on the Convertible
Preferred Stock are 240,000 and are included in Convertible Preferred Stock in
the accompanying consolidated balance sheets. The Series 2 and Series 3
Convertible Preferred Stock is convertible into Nonvoting Common Stock and
Common Stock, respectively.

F-13
<PAGE>

CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At any time after June 30, 2001, the holders of the Series 2 and Series 3
Convertible Preferred Stock may require that the Company redeem a portion of
the shares that have a liquidation value not in excess of $4,000,000, or in
any amount after October 17, 2004, provided that such redemption would not
constitute a default under the Senior Credit Agreement. Additionally, the
Company may require conversion upon the results of a Qualified Initial Public
Offering, as defined. The conversion to common stock is computed by
multiplying the number of shares to be converted by $100 and dividing the
result by the Conversion Price then in effect. The initial Conversion Price is
$5.783, subject to adjustment to prevent dilution of the conversion rights.
The Company must pay dividends quarterly beginning December 1998, or upon
certain events of noncompliance, as defined. If such payments are not made,
the holders of the preferred stock may demand immediate redemption, except in
the event such redemption results in a default under the Senior Credit
Agreement.

Unaudited Pro Forma Stockholders' Equity

Concurrent with the consummation of the Initial Public Offering of the
Company's common stock (see Note 11), the Company will cause the conversion of
all existing Series 2 and Series 3 Convertible Preferred Stock into 388,334
shares of Nonvoting Common Stock and 388,344 shares of Common Stock. The
unaudited pro forma stockholders' equity at June 30, 1998 gives effect to this
conversion.

Common Stock

On June 30, 1995, CSi sold for cash 4,868,476 and 367,748 shares of Class A
and Class B common stock, respectively. In connection with the reorganization
transaction described in Note 1, the Class A and Class B common stock became
an outstanding security of CCi. Class A common stock (referred to herein as
the "Common Stock") is entitled to one vote per share on all matters. Class B
common stock (referred to herein as the "Nonvoting Common Stock") has no
voting rights, except the Nonvoting Common Stock together with Common Stock,
as one class, has the right to vote on (i) any merger or consolidation of the
Company with or into another company, (ii) any sale of all or substantially
all of the Company's assets and (iii) any amendment to the Company's
Certificate of Incorporation.

In connection with 2,204,726 of the 4,868,476 shares of Common Stock issued
on June 30, 1995, the Company entered into various Executive Stock Agreements
(the "Agreements"), as amended, with each of its principal executives. Under
the terms of these Agreements, the shares of Common Stock acquired by the
executives vest over time or based on certain qualifying events as defined. At
June 30, 1997 and 1998, 75.0 percent (1,653,545 shares) and 87.5 percent
(1,929,135 shares), respectively, were vested. The remaining shares vest on
June 30, 1999.

On June 30, 1995, the Company also sold 826,773 shares of Nonvoting Common
Stock at $0.2268 per share to certain executives. Subject to the Agreements,
the executives paid cash of $0.00023 per share, for total consideration of
$188, with the remaining balance of $187,312 included in notes receivable for
stock on the accompanying consolidated balance sheets. These shares vest at
the earlier occurrence of a Qualifying Initial Public Offering of the
Company's common stock or sale of the Company, as defined, or the passage of
time. At June 30, 1996, 1997 and 1998, none of these shares were vested.

Warrants

The following represents a summary of the warrant activity:

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------------------
1996 1997 1998
--------------- ------------------ ---------------
WTD AVG WTD AVG
EX WTD AVG EX
SHARES PRICE SHARES EX PRICE SHARES PRICE
------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
the year.................. 275,591 $0.0007 275,591 $ 0.0007 525,328 $0.0005
Granted.................... -- -- 525,328 0.0005 442,556 0.0002
Exercised.................. -- -- (275,591) (0.0007) -- --
------- ------- -------- -------- ------- -------
Outstanding, end of the
year...................... 275,591 $0.0007 525,328 $ 0.0005 967,884 $0.0004
======= ======= ======== ======== ======= =======
</TABLE>

F-14
<PAGE>

CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The warrants outstanding at June 30, 1995 and the warrants granted during
fiscal 1997 were issued to lenders in conjunction with loans made to the
Company (See Note 5--Long-Term Debt). No amount was allocated to these
warrants because management believes the effect would not be material to the
consolidated results of operations. In November 1997, in connection with the
amended Senior Credit Agreement, the lenders received additional warrants
equivalent to two percent of the Company on a fully diluted basis, exercisable
at $0.0002 per share. These warrants are subject to forfeiture by the lenders
if the Company attains certain performance criteria, as defined. As a result,
management believes the fair value of these warrants is nominal and therefore
no amount has been allocated to the warrants. Outstanding warrants at June 30,
1998 include 679,247 Common Stock warrants exercisable into Common Stock and
288,637 Nonvoting Common Stock warrants exercisable into Nonvoting Common
Stock. 525,328 warrants outstanding at June 30, 1998 are exercisable and the
remaining average contractual life of all warrants is approximately 6.3 years.

Stock options

On April 28, 1998, the Board of Directors adopted the 1998 Performance Award
Plan (the Plan). Under the Plan, 529,134 options, stock appreciation rights or
other common stock based securities may be granted to directors, officers,
employees and other eligible persons. On June 30, 1998, the Company granted
121,134 stock options to various officers and employees. The options vest 25
percent each year and expire ten years from the date of grant. The exercise
price of all options granted was $12.47, which represented the fair value of
the Company's common stock as determined by an independent valuation firm.
Accordingly, no compensation expense was recorded pursuant to APB Opinion No.
25.

Pursuant to SFAS No. 123, the fair value of each option granted on June 30,
1998 was $4.01. The fair value was estimated using the Black-Scholes option
pricing model using the following assumptions: no dividend yield, nominal
factor for volatility, weighted-average risk-free rate of 5.54 percent and
expected life of seven years. As discussed in Note 1, the Company elected the
"disclosure alternative" allowed under SFAS No. 123. Accordingly, the Company
is required to disclose pro forma net income over the vesting period of the
options. As all options were granted on the last day of the fiscal year, the
pro forma effect for 1998 is immaterial.

NOTE 7--INCOME TAXES

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

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Current provision:
Federal.................................. $ 671,627 $ (172,736) $ 1,561,791
State.................................... 192,017 114,700 510,171
--------- ----------- -----------
863,644 (58,036) 2,071,962
--------- ----------- -----------
Deferred provision:
Federal.................................. (116,815) (806,964) (856,499)
State.................................... (24,699) (242,200) (227,053)
--------- ----------- -----------
(141,514) (1,049,164) (1,083,552)
--------- ----------- -----------
Total provision (benefit) for income
taxes................................. $ 722,130 $(1,107,200) $ 988,410
========= =========== ===========
</TABLE>

F-15
<PAGE>

CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Actual income tax provision (benefit) differs from the income tax provision
(benefit) computed by applying the U.S. federal statutory tax rate of 34
percent to income (loss) before provision for income taxes as follows:

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1996 1997 1998
-------- ----------- --------
<S> <C> <C> <C>
Provision (benefit) at the statutory rate....... $601,849 $(1,017,458) $751,163
State income tax provision (benefit), net of
federal benefit................................ 88,507 (149,626) 186,858
Other........................................... 31,774 59,884 50,389
-------- ----------- --------
$722,130 $(1,107,200) $988,410
======== =========== ========
</TABLE>

The components of the Company's deferred tax asset and liability are as
follows:

<TABLE>
<CAPTION>
JUNE 30,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Current deferred tax asset:
Accounts receivable allowance for doubtful accounts... $ 181,072 $1,196,105
Accrued vacation...................................... 302,221 373,890
Accrued bonuses....................................... 35,972 112,200
Other accrued liabilities............................. -- 244,800
State taxes........................................... 224,697 468,569
Net operating loss carryforward....................... 720,000 --
---------- ----------
Current deferred tax asset.......................... 1,463,962 2,395,564
---------- ----------
Non-current deferred tax liability:
Notes receivable allowance for doubtful accounts...... -- 564,263
Depreciation.......................................... (84,660) (303,433)
Amortization.......................................... (188,624) (382,164)
---------- ----------
Non-current deferred tax liability.................. (273,284) (121,334)
---------- ----------
$1,190,678 $2,274,230
========== ==========
</TABLE>

NOTE 8--COMMITMENTS AND CONTINGENCIES

Leases

The Company leases most of its operating facilities and various equipment
under noncancellable operating leases expiring at various dates through 2017.
The facilities leases require the Company to pay various operating expenses of
the facilities in addition to base monthly lease payments.

Future minimum lease payments under operating leases are as follows:

<TABLE>
<CAPTION>
YEARS
ENDING
JUNE 30,
--------
<S> <C>
1999....................................................... $ 8,398,539
2000....................................................... 7,486,671
2001....................................................... 6,250,188
2002....................................................... 5,143,471
2003....................................................... 3,175,104
Thereafter................................................. 9,013,919
-----------
$39,467,892
===========
</TABLE>

F-16
<PAGE>

CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Rent expense for the years ended June 30, 1996, 1997 and 1998 amounted to
$2,200,657, $7,835,384 and $9,077,764, respectively, and is reflected in
educational services and general and administrative expense in the
accompanying consolidated statements of operations.

Legal Matters

The Company is involved in various legal proceedings which have been routine
litigation, in the normal course of business. In the opinion of management,
after consultation with legal counsel, the resolution of these matters will
not have a material adverse impact on the Company's financial position or
results of operations.

NOTE 9--EMPLOYEE SAVINGS PLAN

The Company has established an employee savings plan under Section 401(k) of
the Internal Revenue Code. All employees with at least one year and 1,000
hours of employment are eligible to participate. Contributions to the plan by
the Company are discretionary. The plan provides for vesting of Company
contributions over a five-year period. Employees previously employed by each
of the sellers (see Note 4) shall vest in the plan based on total service
time. Company contributions to the plan were $131,309, $243,570 and $292,572
for the years ended June 30, 1996, 1997 and 1998, respectively.

NOTE 10--GOVERNMENTAL REGULATION

The Company and each school is subject to extensive regulation by
governmental agencies and accrediting bodies. In particular, the HEA and the
regulations promulgated thereunder by the DOE subject the Company's operations
to regulatory scrutiny. Schools must satisfy certain criteria in order to
participate in various financial assistance programs under Title IV of the
HEA. For example, each school must (i) have an acid test ratio (defined as the
ratio of cash, cash equivalents, and current accounts receivable to current
liabilities) of at least 1:1 at the end of each fiscal year, (ii) have a
positive tangible net worth at the end of each fiscal year, (iii) not have a
cumulative net operating loss during its two most recent fiscal years that
results in a decline of more than 10 percent of the schools tangible net
worth, (iv) collect no more than 85 percent of its cash revenues from Title IV
Program funds in any fiscal year and (v) not have cohort default rates ("CDR")
on federally funded or federally guaranteed student loans in excess of 25
percent for each of the most recent three federal fiscal years. Any regulatory
violation could be the basis for the initiation of a suspension, limitation or
termination proceeding against the Company or any of its schools.

Based on the audit as of June 30, 1997, eight of the Company's colleges fail
to meet one or more of the financial responsibility tests. Three of the
colleges fail to meet the acid test ratio (Blair College in Colorado Springs,
Colorado; FMU in Melbourne, Florida; and FMU in Fort Lauderdale, Florida) and
five of the colleges fail to meet the profitability test (Bryman College in
Seatac, Washington; NIT in Wyoming, Michigan; Bryman College (North) in San
Jose, California; Parks College in Aurora, Colorado; and Springfield College
in Springfield, Missouri). In addition, the Company, on a consolidated basis,
fails to meet the financial responsibility tests. However, at the CSi
operating company level, and at the RCi operating company level, all financial
responsibility tests were met. Based on the audit as of June 30, 1998, only
the Company on a consolidated basis failed to meet the financial
responsibility test. There can be no assurance at this time that the DOE, upon
review of fiscal 1997 and 1998 audited financial statements, will not require
that the Company post additional letters of credit in accordance with its
regulations. Since RCi is already on reimbursement, and since the Company has
posted a letter of credit as required by the regulations, by definition the
Company believes that it currently meets financial responsibility standards as
set forth by the DOE. There is no assurance, however, that the DOE will not
impose additional requirements for letters of credit based upon its review of
the Company's fiscal 1997 and 1998 financial statements. Such actions, or
other similar actions, could have a material adverse effect on the Company's
business, results of operations and financial condition, and on its ability to
generate sufficient liquidity to continue to fund growth in its operations and
purchase other institutions.

F-17
<PAGE>

CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

As of June 30, 1998, all schools except for seven (Bryman in El Monte,
California; Bryman in Los Angeles, California; Bryman in Brookline,
Massachusetts; NIT in Wyoming, Michigan; Bryman in New Orleans, Louisiana;
Bryman in San Jose South, California; and Skadron College in San Bernardino,
California) were eligible to receive federal funding, including loan funds.
These schools were ineligible for federal loan funds as they exceeded the CDR
threshold. On June 3, 1998, the DOE proposed to reinstate three of the seven
colleges provided that the Company agree not to pursue remedies for
reinstatement for the remaining four campuses. The Company has agreed to the
terms of the proposal and the DOE has reinstated eligibility to participate in
the FFEL program for the three campuses. Of the remaining four campuses, NIT
in Wyoming, Michigan will be eligible for reinstatement in 1999 and the other
three campuses (Skadron College in San Bernardino, California; Bryman in New
Orleans, Louisiana; and Bryman in San Jose South, California) will be eligible
for reinstatement in 2000.

In order to operate and award degrees, diplomas and certificates and to
participate in the Title IV Programs, a campus must be licensed or authorized
to offer its programs by the state agency in which it operates. Additionally,
each institution must be accredited by an agency recognized by the DOE. As of
June 30, 1998, all of the Company's schools meet these requirements.

The financial aid and assistance programs, in which most of the Company's
students participate, are subject to political and budgetary considerations.
There is no assurance that such funding will be maintained at current levels.
The Company's administration of these programs is periodically reviewed by
various regulatory agencies. The failure by the Company and its colleges and
schools to comply with applicable, federal, state or accrediting agency
requirements could result in the limitation, suspension or termination of the
ability to participate in Title IV Programs or the loss of state licensure or
accreditation. The loss of or a significant reduction in Title IV Program
funds would have a material adverse effect on the Company's revenues and cash
flows because the college's and school's student enrollment would likely
decline as a result of its students' inability to finance their education
without the availability of Title IV Program funds. Additionally, if
alternative financing was made available to students it would be on longer
terms which could have a material adverse effect on the Company's cash flows.

NOTE 11--INITIAL PUBLIC OFFERING

On July 21, 1998, the Company's Board of Directors authorized management to
pursue an Initial Public Offering of the Company's common stock ("IPO"). An S-
1 Registration Statement was filed with the Securities and Exchange Commission
to sell common stock to the public. The proceeds of the IPO will be used, in
part to repay debt and a prepayment penalty of approximately $2.3 million.
Prior to the IPO, the Company intends to complete a 44.094522 for one stock
split and increase the number of authorized shares from 9,000,000 to
40,000,000 and 500,000 to 2,500,000 for Common Stock and Nonvoting Common
Stock, respectively. Additionally, the Company intends to change the par value
of its Common Stock and Nonvoting Common Stock from $0.01 to $0.0001 per
share. All share and per share amounts shown in the accompanying consolidated
financial statements have been retroactively adjusted to reflect this stock
split, increase in authorized shares and change in par value.

F-18
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Phillips Colleges, Inc.

We have audited the accompanying combined balance sheets of the Seventeen
Operating Companies owned by Phillips Colleges, Inc. (the "Companies"), as of
December 31, 1995 and October 16, 1996, and the related combined statements of
income, stockholders' equity and cash flows for the year ended December 31,
1995 and for the period January 1, 1996 to October 16, 1996. These combined
financial statements are the responsibility of the Companies' 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis,
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.

As discussed in Note 9 to the combined financial statements, certain
operating assets and liabilities of the Companies were sold to an independent
third party on October 17, 1996.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Companies as of December 31, 1995 and October 16, 1996, and the combined
results of their operations and their cash flows for the year ended December
31, 1995 and for the period January 1, 1996 to October 16, 1996 in conformity
with generally accepted accounting principles.

/s/ PricewaterhouseCoopers LLP

Jacksonville, Florida
August 15, 1997

F-19
<PAGE>

SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.

COMBINED BALANCE SHEETS

DECEMBER 31, 1995 AND OCTOBER 16, 1996

<TABLE>
<CAPTION>
1995 1996
------------ ------------
ASSETS
------
<S> <C> <C>
Current assets:
Cash.............................................. $ 314,561 $ 339,159
Accounts receivable--students, current portion,
net of allowance for doubtful accounts of
$525,232 and $703,271 in 1995 and 1996,
respectively..................................... 8,378,236 16,467,436
Accounts receivable--other........................ 341,611 15,349
Inventories and prepaid expenses.................. 1,158,145 1,505,927
Refundable income taxes........................... 86,626 150,587
Deferred income taxes............................. 144,105 120,000
------------ ------------
Total current assets............................ 10,423,284 18,598,458
------------ ------------
Property and equipment:
Land.............................................. 3,610,839 3,624,414
Buildings......................................... 7,672,989 7,672,989
Leasehold improvements............................ 1,878,542 1,878,372
Furniture and equipment........................... 8,983,903 9,098,281
------------ ------------
22,146,273 22,274,056
Less accumulated depreciation and amortization.... (11,629,279) (12,286,294)
------------ ------------
10,516,994 9,987,762
------------ ------------
Other assets:
Accounts receivable--students, net of current
portion.......................................... 2,532,646 2,617,893
Deferred income taxes............................. 275,130 190,380
Intangible assets, net of accumulated
amortization of $1,307,304 and $1,433,114 in
1995 and 1996, respectively...................... 5,276,726 5,150,916
Investment in Perkins loan, net of allowances for
unrecoverable investment of $593,194 and
$587,386 in 1995 and 1996, respectively.......... -- --
Other assets...................................... 230,574 100,527
------------ ------------
Total other assets.............................. 8,315,076 8,059,716
------------ ------------
$ 29,255,354 $ 36,645,936
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable.................................. $ 2,500,730 $ 1,291,271
Accrued expenses.................................. 682,899 672,008
Advance student payments.......................... 336,711 113,116
Current portion of deferred tuition............... 9,524,119 20,817,733
Current maturities of long-term debt.............. 318,014 2,326,183
Current maturities of capital lease obligation.... 219,345 28,081
------------ ------------
Total current liabilities....................... 13,581,818 25,248,392
------------ ------------
Deferred tuition, less current portion............. 59,130 --
Long-term debt, less current portion............... 2,409,854 73,660
Capital lease obligation, less current maturities.. 1,342 --
Deferred income taxes.............................. 61,366 45,654
------------ ------------
16,113,510 25,367,706
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, 153,800 stocks authorized; 28,950
stocks issued and outstanding.................... 123,550 123,550
Non-cumulative preferred stock, $100 par value,
100 stocks authorized, 50 stocks issued and
outstanding...................................... 5,000 5,000
Additional paid-in capital........................ 11,279,408 9,147,294
Retained earnings................................. 1,733,886 2,002,386
------------ ------------
13,141,844 11,278,230
------------ ------------
$ 29,255,354 $ 36,645,936
============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-20
<PAGE>

SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.

COMBINED STATEMENTS OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD ENDED OCTOBER 16, 1996

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Revenue:
Tuition.............................................. $43,323,794 $32,889,855
Other................................................ 1,381,293 1,109,629
----------- -----------
44,705,087 33,999,484
----------- -----------
Expenses:
Academic............................................. 11,043,931 9,423,602
Admissions........................................... 3,398,202 2,718,943
Advertising.......................................... 2,249,106 2,187,789
Administrative....................................... 15,404,790 11,792,855
Depreciation and amortization........................ 939,130 709,326
Amortization of intangibles.......................... 158,088 125,810
Interest............................................. 439,185 260,351
Bad debts............................................ 2,328,561 1,696,360
Management fees...................................... 8,152,448 4,587,625
----------- -----------
44,113,441 33,502,661
----------- -----------
Income from operations................................. 591,646 496,823
Income tax expense..................................... 280,030 228,323
----------- -----------
Net income............................................. $ 311,616 $ 268,500
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-21
<PAGE>

SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD ENDED OCTOBER 16, 1996

<TABLE>
<CAPTION>
NONCUMULATIVE ADDITIONAL
COMMON PREFERRED PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
-------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... $123,550 $5,000 $10,231,718 $1,422,270 $11,782,538
Contributions of land,
building, and
furniture and
equipment by parent
company.............. -- -- 1,884,057 -- 1,884,057
Increase in
intercompany net
receivable........... -- -- (836,367) -- (836,367)
Net income............ -- -- -- 311,616 311,616
-------- ------ ----------- ---------- -----------
Balance at December 31,
1995................... 123,550 5,000 11,279,408 1,733,886 13,141,844
Increase in
intercompany net
receivable........... -- -- (2,132,114) -- (2,132,114)
Net income............ -- -- -- 268,500 268,500
-------- ------ ----------- ---------- -----------
Balance at October 16,
1996................... $123,550 $5,000 $ 9,147,294 $2,002,386 $11,278,230
======== ====== =========== ========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-22
<PAGE>

SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.

COMBINED STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD ENDED OCTOBER 16, 1996

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 311,616 $ 268,500
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 939,130 709,326
Amortization of intangibles..................... 158,088 125,810
Allowance for doubtful accounts................. 158,275 178,039
Loss on disposal of property and equipment...... 6,922 --
Allowance for Perkins Loan Program.............. 284 (5,808)
Deferred income taxes........................... 121,025 (93,144)
Changes in assets and liabilities:
Accounts receivable........................... 1,485,432 (8,174,447)
Inventories and prepaid expenses.............. (25,816) (347,782)
Refundable income taxes....................... (59,330) (63,961)
Other assets.................................. (16,066) 412,244
Accounts payable.............................. 547,004 (1,209,459)
Accrued expenses.............................. (168,071) (10,891)
Advance student payments...................... (489,416) (223,595)
Deferred tuition.............................. (1,853,808) 11,234,484
----------- -----------
Net cash provided by operating activities... 1,115,269 2,799,316
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment................ (124,677) (127,781)
Proceeds from sale of property and equipment...... 1,060 --
Proceeds from Perkins liquidation................. 45,109 5,808
----------- -----------
Net cash used in investing activities....... (78,508) (121,973)
----------- -----------
Cash flows from financing long-term activities:
Proceeds from issuance of long-term debt.......... 282,101 --
Principal payments on debt........................ (218,006) (328,025)
Principal payments under capital lease
obligations...................................... (233,059) (192,606)
Intercompany advances............................. (922,183) (2,132,114)
----------- -----------
Net cash used in financing activities....... (1,091,147) (2,652,745)
----------- -----------
Net increase (decrease) in cash..................... (54,386) 24,598
Cash at beginning of year........................... 368,947 314,561
----------- -----------
Cash at end of year................................. 314,561 339,159
=========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest........................................ $ 429,356 $ 273,574
=========== ===========
Income taxes.................................... $ 74,801 $ 60,925
=========== ===========
</TABLE>
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During 1995, the Parent Company contributed land, building, and furniture and
equipment to the Companies with a net book value of $1,884,057.

The accompanying notes are an integral part of these financial statements.

F-23
<PAGE>

SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

1. GENERAL:

The seventeen operating companies owned by Phillips Colleges, Inc. and
combined in these financial statements (the "Companies") are engaged in the
business of conducting general academic and vocational/technical instruction
programs leading toward degrees or certificates of higher education. The
Companies are wholly owned subsidiaries of Phillips Colleges, Inc. (the
"Parent Company") and operate 18 colleges located in various cities in the
United States. The colleges are: Western Business College, Portland, Oregon
and Vancouver, Washington; Blair Junior College, Colorado Springs, Colorado;
Parks College, Denver, Colorado; Parks College, Aurora, Colorado; Phillips
College, Las Vegas, Nevada; Phillips Junior College of Salt Lake City, Salt
Lake City, Utah; Phillips Junior College, Springfield, Missouri; Duff's
Business Institute, Pittsburgh, Pennsylvania; Rochester Business Institute,
Rochester, New York; Ft. Lauderdale College, Ft. Lauderdale, Florida; Orlando
College--North, Orlando, Florida; Orlando College--South Orlando, Florida;
Orlando College, Melbourne, Florida; Tampa College--Main, Tampa, Florida;
Tampa College--Brandon, Tampa, Florida; Tampa College--Pinellas, Clearwater,
Florida; and Tampa College, Lakeland, Florida.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INVENTORIES--Inventories consist primarily of textbooks and media materials
and are stated at the lower of cost (first-in, first-out) or market.

PROPERTY AND EQUIPMENT--Land is recorded at cost. Buildings are recorded at
cost and are depreciated by the straight-line method over the estimated useful
lives of the assets, ranging from 25 to 35 years.

Furniture and equipment are recorded at cost and are depreciated principally
by the straight-line method over the estimated useful lives of the assets,
ranging from 3 to 10 years.

Leasehold improvements are recorded at cost and are amortized using the
straight-line method over the shorter of the estimated useful life of the
asset or the term of the noncancelable lease.

Major renewals and betterments are capitalized while replacements,
maintenance and repairs which do not improve or extend the useful lives of the
respective assets are expensed as incurred. Gains and losses on the retirement
or disposal of individual assets are recorded as income or expense.

TUITION REVENUE--Tuition for a student's program is recorded at the
beginning of each academic year and is deferred and recognized ratably over
the number of months in the program.

INTANGIBLE ASSETS--Intangible assets remaining at October 16, 1996 consist
of excess of costs over net assets acquired and are amortized using the
straight-line method based on a 40-year life.

INCOME TAXES--The Companies recognize the future tax consequences of
transactions or events in the period the transactions or events are recognized
in the financial statements. Deferred tax assets and liabilities are recorded
for temporary differences by applying enacted statutory tax rates applicable
to the future years to differences between financial statement carrying
amounts and the tax bases of existing assets and liabilities. Valuation
allowances required for the consolidated group are recorded by the Parent
Company to reduce net deferred tax assets to amounts that are more likely than
not to be realized.

STOCK--Common stock is recorded at par or stated value. Par values of common
stock issued and outstanding range between no par and $100. Preferred stock is
noncumulative and is recorded at par value.

SIGNIFICANT ESTIMATES, RISKS AND UNCERTAINTIES--The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that

F-24
<PAGE>

SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

RECOVERABILITY OF LONG-LIVED ASSETS--The Companies record losses on
impairment of property and equipment and intangible assets whenever events or
changes in circumstances indicate that the carrying amount of these assets may
not be recoverable.

3. INCOME TAXES:

The income tax expense for the year ended December 31, 1995 and the period
ended October 31, 1996 includes the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Federal income tax expense.............................. $255,070 $201,349
State income tax expense................................ 24,960 26,974
-------- --------
Income tax expense...................................... $280,030 $228,323
======== ========
</TABLE>

The Companies file consolidated federal income tax returns with the Parent
Company. Current and deferred taxes are allocated to the Companies as if they
were separate taxpayers. The Companies' use of federal net operating losses
generated by other members of the consolidated group resulted in an
intercompany payable to the Parent Company of $1,768,332 and $2,062,824 at
December 31, 1995 and October 16, 1996, respectively. Such amounts are netted
with the intercompany receivable from the Parent Company reflected as a
reduction or increase of contributed capital.

For the year ended December 31, 1995 and period ended October 16, 1996, the
differences between the federal income tax expense and the amount calculated
by applying the 34% statutory rate to pre-tax earnings result primarily from
state income taxes and miscellaneous non-deductible items are as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Income tax expense at a statutory rate of 34%.......... $201,160 $168,920
Amortization of intangibles............................ 58,950 39,100
State income tax benefit............................... (8,486) (9,171)
Miscellaneous other.................................... 3,446 2,500
-------- --------
Federal income tax expense............................. 255,070 201,349
State income taxes..................................... 24,960 26,974
-------- --------
$280,030 $228,323
======== ========
</TABLE>

At December 31, 1995 and October 16, 1996 the components of net deferred
taxes recognized in the Companies' balance sheets were:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current deferred tax assets........................... $144,105 $120,000
======== ========
Non-current deferred tax assets....................... $280,617 $190,380
Non-current deferred tax liabilities.................. (5,487) --
-------- --------
Net non-current deferred tax assets................... $275,130 $190,380
======== ========
Non-current deferred tax assets....................... $ 12,874 $ --
Non-current deferred tax liabilities.................. (74,240) (45,654)
-------- --------
Net non-current deferred tax liabilities.............. $(61,366) $(45,654)
======== ========
</TABLE>

F-25
<PAGE>

SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Deferred tax assets result primarily from allowances recorded for doubtful
accounts and capitalized leases. Deferred tax liabilities result primarily
from depreciation.

At December 31, 1995, the Companies had state net operating loss
carryforwards of approximately $1,000,000 expiring in tax years 1996 through
1998.

4. RETIREMENT PLANS:

In 1991, the Parent Company established the Phillips Colleges, Inc. Employee
Retirement Savings Plan (the "Plan"), a defined contribution plan [Section
401(k) plan] covering all eligible employees. Employees are eligible to
participate after one year of service and upon attaining the age of 21.

The Parent Company did not provide contributions to the Plan in 1995 or
1996. The Plan was terminated with an effective termination date of January
31, 1996.

The Plan was fully funded at termination. Plan assets were paid out to
participants upon receipt of a determination letter from the Internal Revenue
Service.

5. LEASES:

The Companies lease administrative and classroom facilities and certain
equipment. In 1992, the Companies entered into several leases for computer
equipment which qualified as capitalized leases. All noncancelable facility
leases are operating leases and contain various renewal options and escalation
clauses and require that the Companies pay for utilities, taxes, insurance and
maintenance expenses.

As of October 16, 1996, future minimum rental payments on all noncancelable
capital and operating leases, along with the present value of the net minimum
capital lease payments are:

<TABLE>
<CAPTION>
OPERATING CAPITAL
----------- --------
<S> <C> <C>
Remainder of 1996................................... $ 1,114,991 $ 28,957
1997................................................ 3,343,962 --
1998................................................ 2,609,254 --
1999................................................ 1,662,591 --
2000................................................ 1,019,273 --
Thereafter.......................................... 1,259,700 --
----------- --------
Total minimum lease payments........................ $11,009,771 28,957
===========
Less amount representing interest................... (876)
--------
28,081
--------
Less current maturities of obligation under capital
leases............................................. (28,081)
--------
Long-term obligation under capital leases........... $ --
========
</TABLE>

The cost and accumulated depreciation of equipment under capital leases were
$1,122,957 and $974,558, respectively, as of December 31, 1995 and $1,122,957
and $1,094,610, respectively, as of October 16, 1996.

Rent expense charged to operations in 1995 and 1996 was $5,238,106 and
$4,204,142, respectively.

Certain of the Companies lease housing facilities which are in turn
subleased to students. Sublease income in 1995 and 1996 was $191,452 and
$46,931, respectively.

F-26
<PAGE>

SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

6. INTANGIBLES:

Details relating to costs of intangibles and their amortization are as
follows:

<TABLE>
<CAPTION>
AMORTIZATION
--------------------
COST EXPENSE ACCUMULATED
---------- -------- -----------
<S> <C> <C> <C>
December 31, 1995
Excess of costs over net assets acquired... $6,584,030 $158,088 $1,307,304
========== ======== ==========
Period ended October 16, 1996
Excess of costs over net assets acquired... $6,584,000 $125,810 $1,433,114
========== ======== ==========
</TABLE>

7. LONG-TERM DEBT:

Long-term debt consists of the following as of December 31, 1995 and October
16, 1996:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Prime rate plus 2% note payable to a financial
institution, with monthly installments of $11,556
principal and accrued interest; remaining principal
due January 2, 1997; collateralized by real property
located at Tampa, Florida........................... $2,009,783 $1,663,528
Uncollateralized note payable dated July 15, 1993,
due in 30 monthly installments, including interest
at 8%, beginning November 30, 1994.................. 79,904 23,134
Uncollateralized note payable dated May 14, 1996, due
in 27 monthly installments, including interest at
8%, beginning June 15, 1996......................... -- 157,999
Uncollateralized note payable dated July 14, 1995,
due in 18 monthly installments, including interest
at 8%, beginning January 10, 1996................... 136,332 73,563
Uncollateralized note payable dated March 15, 1982,
with monthly installments of $8,093 principal and
accrued interest at 14.875%, remaining principal due
March 15, 1997...................................... 501,849 481,619
---------- ----------
2,727,868 2,399,843
Less current maturities.............................. 318,014 2,326,183
---------- ----------
$2,409,854 $ 73,660
========== ==========
</TABLE>

Scheduled repayment of debt for the next five years and thereafter is as
follows:

<TABLE>
<S> <C>
Remainder of 1996............................................. $ 57,776
1997.......................................................... 2,282,771
1998.......................................................... 59,296
1999.......................................................... --
2000.......................................................... --
Thereafter.................................................... --
----------
$2,399,843
----------
</TABLE>

Subsequent to the transaction described in Note 9 to these financial
statements, all long-term debt obligations were settled by the Parent Company
using some of the proceeds from the sale of the Companies (Note 9).

F-27
<PAGE>

SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

8. RELATED PARTY TRANSACTIONS:

At December 31, 1995 and October 16, 1996, the Companies had intercompany
receivables from the Parent Company of $11,134,374 and $13,011,312,
respectively, which are reclassified as reductions of additional paid-in
capital.

At December 31, 1995 and October 16, 1996, the Companies had intercompany
payables due to the Parent Company of $2,131,711 and $1,876,535, respectively,
which are reclassified as additions to additional paid-in capital. The Parent
Company and the Companies have not executed a formal note agreement;
therefore, no interest income or expense has been recorded pursuant to this
arrangement for the year ended December 31, 1995 and the period ended October
16, 1996.

The Parent Company's management services agreement with the Companies
stipulates that management fees charged to subsidiaries are calculated based
upon the Companies' gross revenues and operating profit (defined by the
agreement as gross revenue less operating expenses except for amortization,
management fees and income taxes). The Parent Company will not charge
management fees beyond defined maximum limits. Therefore, management fees will
not cause the Companies to have a loss after considering all income statement
items except for income taxes.

9. COMMITMENTS AND CONTINGENCIES:

The Federal Regulations, as amended in 1994, (34 CFR, section 600.5)
implemented the statutory requirement that an institution eligible for Title
IV student aid funding must not receive more than 85% of its total revenue
from Title IV sources. This requirement is calculated on an annual basis, and
the Companies were in compliance with this requirement at December 31, 1995.

In the ordinary course of business, the Companies' federal financial
assistance programs are subject to ongoing program reviews by the Department
of Education ("ED") and Title IV program audits by external auditors. The
Parent Company and the Companies are parties to various pending or threatened
legal proceedings generally incidental to its business. Management of the
Parent Company does not believe that the results of these matters will have a
material impact on the financial statements.

At October 16, 1996, all assets of the Companies are pledged as collateral
under various debt arrangements entered into by the Parent Company.

During 1995, the Companies' Parent recorded a reserve for regulatory
assessments payable to the ED in an amount greatly exceeding the resources of
the Parent and all subsidiaries of the Parent, including the Companies. As a
result of the assessment, the Companies, the Parent Company, the ED and the
Companies' bankers agreed upon a plan of voluntary liquidation in which the
Parent Company was obligated to sell all of the assets of the Companies. The
proceeds would then be used by the Parent Company to satisfy its
aforementioned obligation. Due to the terms of this agreement, the regulatory
assessment was not recorded on an individual company basis. In accordance with
the Plan, all assets of the Parent and the Companies were sold with net
proceeds of the sale distributed to the bankers and the ED. Additionally,
pursuant to the terms of the Plan, purchasers of the assets of the Companies
were not required to assume any part of the regulatory assessment liability.

On October 17, 1996, the Parent Company entered into a transaction at a gain
in which substantially all of the Companies' operating assets were bought and
certain liabilities assumed (principally the Companies' contractual liability
to perform its educational obligation related to tuition collected or tuition
receivable and the assumption of building and equipment leases beginning
October 17, 1996) by an independent third party.

F-28
<PAGE>

SEVENTEEN OPERATING COMPANIES OWNED BY PHILLIPS COLLEGES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

10. CONCENTRATION OF CREDIT RISK:

Substantially all of the Companies' business is with students who rely to
varying degrees on student financial assistance of the ED. Collection from the
ED is reasonably assured provided the Companies have complied with the ED
student financial assistance requirements. Changes in the ED funding levels
could have a significant impact on the Companies' ability to attract students.
The receivables from students and the ED are not collateralized.

The Companies maintain their cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Companies have not experienced any
losses in such accounts.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS:

In the normal course of business, the Companies use various financial
instruments to manage their interest rate risk, for purposes other than
trading. By nature all such instruments involve risk, including the credit
risk of nonperformance by counterparties, and the maximum potential loss may
exceed the amount recognized in the balance sheet. However, at October 16,
1996, in management's opinion there was no significant risk of loss in the
event of nonperformance of the counterparties to these financial instruments.

The following methods and assumptions were uses to estimate the fair value
of each class of financial instruments held or issued for purposes other than
trading.

<TABLE>
<CAPTION>
FINANCIAL INSTRUMENT VALUATION METHOD
-------------------- ----------------
<S> <C>
Accounts receivable--students... Carrying amounts
Accounts receivable--other...... Carrying amounts
Long-term debt.................. Carrying amounts which approximate market
</TABLE>

F-29
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Corinthian Colleges, Inc.:

We have audited the accompanying combined statement of revenues and direct
expenses of eleven career colleges purchased from National Education Centers,
Inc. (see Note 1) for the year ended December 31, 1995, respectively. This
statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this statement based on our audit.

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

In our opinion, the combined statement referred to above presents fairly, in
all material respects, the revenue and direct expenses of eleven career
colleges purchased from National Education Centers, Inc, for the year ended
December 31, 1995, in conformity with generally accepted accounting
principles.

/s/ Arthur Andersen LLP

Orange County, California
July 15, 1997

F-30
<PAGE>

ELEVEN CAREER COLLEGES

NATIONAL EDUCATION CENTERS, INC.

COMBINED STATEMENT OF REVENUES AND DIRECT EXPENSES

FOR TIER 2 AND TIER 3 SCHOOLS (SEE NOTE 1)

<TABLE>
<CAPTION>
FROM JANUARY 1995
THROUGH THE DATES
OF THE
ACQUISITIONS
(SEE NOTE 1)
-----------------
<S> <C>
REVENUES:
Tuition revenue............................................. $22,230,293
-----------
DIRECT OPERATING EXPENSES:
Course materials, services and instruction.................. 13,251,585
Marketing and advertising................................... 3,999,879
Total direct operating expenses........................... 17,251,464
-----------
EXCESS OF REVENUES OVER DIRECT OPERATING EXPENSES............. $ 4,978,829
===========
</TABLE>

The accompanying notes are an integral part of this statement.

F-31
<PAGE>

NATIONAL EDUCATION CENTERS, INC.

NOTES TO COMBINED FINANCIAL STATEMENT

DECEMBER 31, 1995

1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

a. Operations

Corinthian Schools, Inc. ("CSi"), a Delaware corporation, was incorporated
in February 1995 to acquire and operate non-degree granting proprietary
schools devoted to career program training primarily in the medical,
technical, and business fields. In September 1996, Corinthian Colleges, Inc.
(the "Company") completed a reorganization transaction whereby CSi became a
wholly owned subsidiary of the Company. The Company's corporate headquarters
are located in Santa Ana, California.

In June 1995 (amended August 30, 1995 and September 27, 1995), CSi entered
into an asset purchase agreement with National Education Centers, Inc.
("NECI") to purchase certain assets and assume certain liabilities of 16
career colleges for approximately $4.7 million. Department of Education
("DOE") approval was required for the transfer of ownership; thus the Company
staged the acquisition date on all 16 schools over a period of six months. The
school, location and date acquired for each school are as follows:

<TABLE>
<CAPTION>
SCHOOL LOCATION DATE ACQUIRED
------ -------- -------------
<S> <C> <C>
TIER 1
National Institute of Technology....... San Antonio, TX June 30, 1995
National Institute of Technology....... Cross Lanes, WV
Bryman College......................... Orange, CA
Bryman College......................... Winnetka, CA
Skadron College........................ San Bernardino, CA

TIER 2
National Institute of Technology....... Wyoming, MI September 30, 1995
Bryman College......................... San Francisco, CA
Bryman College......................... San Jose, CA
Bryman College......................... New Orleans, LA
Kee Business College................... Newport News, VA

TIER 3
National Institute of Technology....... Livonia, MI December 31, 1995
Bryman Institute....................... Brookline, MA
Bryman College......................... Los Angeles, CA
Bryman College......................... Rosemead, CA
Bryman College......................... Torrance, CA
Sawyer College......................... Sacramento, CA
</TABLE>

The accompanying combined statement of revenues and direct expenses includes
the operating results of only the tier 2 and tier 3 schools from January 1,
1995 through the date of acquisition.

b. Basis of Statements

The combined statement of revenues and direct expenses has been prepared on
a basis permitted by the Securities and Exchange Commission in a letter dated
April 8, 1997. In accordance with the terms of that letter, the balance sheet
of NECI as of December 31, 1995, and the statement of cash flows for the year
ended December 31, 1995 have been omitted. Additionally, certain indirect
expenses (interest and corporate overhead) were omitted. Management believes
it would have been extremely impractical to include such statements and

F-32
<PAGE>

NATIONAL EDUCATION CENTERS, INC.

NOTES TO COMBINED FINANCIAL STATEMENT--(CONTINUED)

expense items because such statements and expense items would have required
many assumptions and estimates which are subject to a high degree of
inaccuracy. Consequently, the combined statement of revenues and direct
expenses is not intended to be a complete presentation of operations.

2. REVENUE RECOGNITION

Revenues are derived primarily from tuition on courses taught in the
Company's colleges. Revenues are recognized on a straight-line basis over the
length of the applicable course. If a student withdraws from a course, the
unearned tuition that the student has paid is refunded in accordance with
federal, state and accrediting agency standards.

3. MARKETING AND ADVERTISING

Marketing and advertising costs include primarily marketing salaries,
direct-response and other advertising, promotional materials and other related
marketing costs. All advertising costs are expensed as incurred.

4. GOVERNMENTAL REGULATION

The Company and each school are subject to extensive regulation by
governmental agencies and accrediting bodies. In particular, TITLE IV of the
Higher Education Act of 1965, as amended ("HEA") and the regulations
promulgated thereunder by the DOE subject the Company's operations to
regulatory scrutiny. Schools must satisfy certain criteria in order to
participate in programs under Title IV of the HEA. For example, each school
must (i) have an acid test ratio (defined as the ratio of cash, cash
equivalents, and current accounts receivable to current liabilities) of at
least 1:1 at the end of each fiscal year, (ii) have a positive tangible net
worth at the end of each fiscal year, (iii) not have a cumulative net
operating loss during its two most recent fiscal years that results in a
decline of more than 10 percent of the schools tangible net worth, (iv)
collect no more than 85 percent of its revenues from Title IV Program funds in
any fiscal year, and (v) not have cohort default rates ("CDR") on federally
funded or federally guaranteed student loans in excess of 25 percent for each
of the most recent three federal fiscal years. Any regulatory violation could
be the basis for the initiation of a suspension, limitation or termination
proceeding against the Company or any of its schools.

The financial aid and assistance programs are subject to political and
budgetary considerations. There is no assurance that such funding will be
maintained at current levels. The Company's administration of these programs
is periodically reviewed by various regulatory agencies. Any regulatory
violation could be the basis for the initiation of a suspension, limitation or
termination proceeding against the Company, which could have a material
adverse effect on the Company.

5. CONCENTRATION OF RISK

A substantial portion of the revenues and accounts receivable reflected in
the accompanying financial statement are a direct result of the Company's
participation in Government student financial assistance programs for the
payment of student tuition. The loss of Title IV funding by a number of
schools would have a material adverse impact on the Company.

F-33
<PAGE>

EDGAR DESCRIPTION OF

PROSPECTUS COLORWORK IBC]1

Graphic of the United States, indicating the geographic distribution
of the Corinthian Colleges campuses.

CORINTHIAN COLLEGES, INC.

CAMPUSES
<TABLE>
<CAPTION>
<S> <C> <C>
CALIFORNIA LOUISIANA PENNSYLVANIA
Bryman College Bryman College Duff's Business Institute
El Monte New Orleans Pittsburgh
Gardena TEXAS
Los Angeles MASSACHUSETTS National Institute of
Orange Bryman Institute Technology
Reseda Brookline San Antonio
San Francisco
San Jose North MICHIGAN
San Jose South National Institute of Technology UTAH
Skadron College Southfield Mountain West College
San Bernardino Wyoming Salt Lake City

COLORADO MISSOURI VIRGINIA
Blair College Springfield College Kee Business College
Colorado Springs Springfield Newport News
Parks College
Denver NEVADA WASHINGTON
Aurora Las Vegas College Bryman College
Las Vegas SeaTac
FLORIDA Western Business College
Florida Metropolitan University NEW YORK Vancouver
Fort Lauderdale Rochester Business Institute
Melbourne Rochester
Orlando-North WEST VIRGINIA
Orlando-South OREGON National Institute of Technology
Brandon Western Business College Cross Lanes
Tampa Portland
Lakeland
Pinellas
</TABLE>

<PAGE>

================================================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, 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........................................................ 1
Risk Factors.............................................................. 6
The Transactions.......................................................... 19
Use of Proceeds........................................................... 20
Dividend Policy........................................................... 20
Dilution.................................................................. 21
Capitalization............................................................ 22
Selected Historical Consolidated Financial and Other Data................. 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations .............................................................. 25
Business.................................................................. 33
Financial Aid and Regulations............................................. 44
Management................................................................ 56
Certain Relationships and Transactions.................................... 62
Security Ownership of Certain Beneficial Owners and Management............ 64
Description of Capital Stock.............................................. 66
Shares Eligible for Future Sale........................................... 71
Underwriting.............................................................. 72
Legal Matters............................................................. 73
Experts................................................................... 73
Additional Information.................................................... 74
Index to Consolidated Financial Statements................................ F-1
</TABLE>

Until , 1998 (25 days after the commencement of the offering), all dealers
effecting transactions in the Common Stock, whether or not participating in
the 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.

===============================================================================

3,000,000 SHARES

CORINTHIAN
COLLEGES, INC.

COMMON STOCK

[LOGO OF CORINTHIAN COLLEGES, INC.]

--------
PROSPECTUS

, 1998
--------

SALOMON SMITH BARNEY

CREDIT SUISSE FIRST BOSTON

PIPER JAFFRAY INC.

================================================================================
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the expenses, other than the underwriting
discount, payable by the Company in connection with the issuance and
distribution of the Common Stock being registered. All amounts are estimates
except the Securities and Exchange Commission registration fee, the NASD
filing fee and the Nasdaq listing fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 15,267
NASD filing fee.................................................. 5,675
Nasdaq listing fee............................................... 75,625
Accounting fees and expenses..................................... 750,000
Legal fees and expenses.......................................... 700,000
Blue Sky qualification fees and expenses......................... 7,500
Printing and engraving expenses.................................. 300,000
Transfer agent and registrar fees................................ 15,000
Miscellaneous.................................................... 130,933
----------
Total.......................................................... $2,000,000
==========
</TABLE>

The Company intends to pay all expenses of registration, issuance and
distribution, excluding the underwriters' discount and commissions, with
respect to the shares being sold by the Selling Stockholders.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Certificate of Incorporation provides that a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director except to the extent
provided by applicable law for any breach of the director's duty of loyalty to
the Corporation or its stockholders, for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law,
pursuant to Section 174 of the Delaware General Corporation Law (the "DGCL")
or for any transaction from which such director derived an improper personal
benefit. Under the DGCL, liability of a director may not be limited (i) for
any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper personal
benefit. The effect of the provisions of the Company's Certificate of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care
as a director (including breaches resulting from negligent or grossly
negligent behavior), except as provided in the Company's Certificate of
Incorporation and in the situations described in clauses (i) through (iv)
above. This provision does not limit or eliminate the rights of the Company or
any stockholder to seek nonmonetary relief such as an injunction or rescission
in the event of a breach of a director's duty of care. The Bylaws of the
Company (the "Bylaws") provide that the Company will indemnify its directors
and officers to the fullest extent permitted by the DGCL.

The Form of Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its directors and officers for certain liabilities arising under the
Securities Act or otherwise.

II-1
<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following is a summary of transactions by the Company since its
incorporation involving sales of the Company's securities that were not
registered under the Securities Act:

On June 30, 1995, Corinthian Schools, Inc. ("CSi"), the predecessor to the
Company, issued the following stock:

(1) 10,000 shares of Class A Common Stock to each of David Moore, Paul St.
Pierre, Frank McCord, Lloyd Holland, and Dennis Devereux at $10 per share.
Payment for the stock by each consisted of $80,000 cash, plus the surrender
of previous stock and a credit for a previous capital contribution in the
total amount of $20,000;

(2) 55,000 shares of Class A Common Stock to Primus Capital Fund III
Limited Partnership ("Primus") at $10 per share, for a total payment of
$55,000 cash;

(3) 5,410 shares of Class A Common Stock to Banc One Capital Partners
("Banc One") at $10 per share, for a total payment of $54,100 cash;

(4) 6,250 shares of Class B Common Stock to David Moore at $10 per share,
for a total purchase price of $62,500 (payment consisted of $62.50 cash
plus a note in the amount of $62,437.50 for the balance);

(5) 5,000 shares of Class B Common Stock to Paul St. Pierre at $10 per
share, for a total purchase price of $50,000 (payment consisted of $50 cash
plus a note in the amount of $49,950 for the balance);

(6) 2,500 shares of Class B Common Stock to each of Frank McCord, Lloyd
Holland, and Dennis Devereux at $10 per share, for an aggregate price by
all three of $75,000 (payment for each consisted of $25 cash plus a note in
the amount of $24,975 for the balance); (Earnback shares)

(7) 8,340 shares of Class B Common Stock to Banc One at $10 per share, for
a total payment of $83,400 cash;

(8) 14,500 shares of Class A Series Preferred Stock (the "Redeemable
Preferred") to Primus and 3,625 shares of Redeemable Preferred to Banc One
at $100 per share, for a total payment of $1,812,500 cash; and

(9) Warrants to Primus and Banc One to purchase 1,250 shares of Class A
Common Stock and 5,000 shares of Class B Common Stock, respectively, each
at an aggregate exercise price of $100.

On October 3, 1996, the Company underwent a reverse triangular merger with
CSi whereby CSi became a subsidiary of the Company and all previously issued
and outstanding shares of CSi were canceled in exchange for Company equivalent
stock. Each of the previously issued shares of CSi thus became shares of the
Company. On that same date, Primus and Banc One exercised their warrants and
the Company issued 1,250 shares of Class A Common Stock to Primus and 5,000
shares of Class B Common Stock to Banc One, each at an aggregate exercise
price of $100 cash.

On October 17, 1996, the Company issued the following stock:

(1) A $22.5 million senior term note (together with a $5.0 million
revolving credit facility) to Prudential Insurance Company of America
("Prudential"), maturing on October 17, 2004;

(2) A $4.0 million subordinated term note maturing on October 17, 2005 to
Banc One;

(3) A $1.0 million subordinated term note maturing on October 17, 2005 to
Primus;

(4) A warrant to Primus to purchase 806.45 shares of Class A Common Stock
and a warrant to Banc One to purchase 3,225.81 shares of Class B Common
Stock, each at an aggregate exercise price of $100, together with a
Contingent Warrant to each of Primus and Banc One to purchase a certain
number of shares of Class A Common Stock and Class B Common Stock,
respectively, depending on the vesting of Common Stock held by certain
executives of the Company (the "Management Earnback"); and

II-2
<PAGE>

(5) A warrant to Prudential to purchase 5,376.34 shares of Class A Common
Stock, together with a Contingent Warrant to purchase a certain number of
shares of Class A Common Stock, depending on the Management Earnback.

On November 24, 1997, the Company issued the following stock:

(1) 25,000 shares of Series 2 Class A Convertible Preferred Stock to Banc
One at $100 per share, for a total payment of $2,500,000 cash;

(2) 25,000 shares of Series 3 Class convertible Preferred Stock to Primus
at $100 per share, for a total payment of $2,500,000 cash;

(3) A warrant to Prudential to purchase 3,683.28 shares of Class A Common
Stock (contains a claw-back feature that will result in the early
termination of the warrant upon the occurrence of certain events);

(4) A warrant to Primus to purchase 4,228.8 shares of Class A Common Stock
(contains a claw-back feature that will result in the early termination of
the warrant upon the occurrence of certain events); and

(5) A warrant to Banc One to purchase 2,010.04 shares of Class B Common
Stock (contains a claw-back feature that will result in the early
termination of the warrant upon the occurrence of certain events).

None of the foregoing transactions involved any public offering, and the
Company believes that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof. The
recipients in such transactions represented their intention to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates and instruments issued in such transactions. All
recipients had adequate access to information about the Company.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits.

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.1* Promissory Note, dated as of July 1, 1996, by Corinthian Schools, Inc.
in favor of Repose, Inc., in the amount of $50,000.
4.2* Promissory Note, dated as of August 31, 1996, made by Corinthian
Schools, Inc. in favor of Concorde Career Colleges, Inc. in the
amount of $300,000.
4.3* 10.27% Senior Secured Term Note dated October 17, 1996 in the original
principal amount of $22,500,000 registered in the name of The
Prudential Insurance Company of America.
4.4* Senior Secured Revolving Note dated October 17, 1996 in the original
principal amount of $5,000,000 registered in the name of The
Prudential Insurance Company of America.
4.5* Subordinated Note dated October 17, 1996, in the principal amount of
$1,000,000 registered in the name of Primus Capital Fund III Limited
Partnership.
4.6* Subordinated Note, dated October 17, 1996, in the principal amount of
$4,000,000, from the Company to Banc One Capital Partners II, Ltd.
4.7* Promissory Note (Secured) dated April 30, 1997, by Corinthian Property
Group, Inc. in favor of Banc One Capital Partners VI, Ltd. in the
amount of $3,760,000.
4.8* Senior Secured Note, dated October 17, 1997, in the principal amount
of $22,500,000 from the Company to The Prudential Insurance Company
of America.
4.9 Specimen Common Stock Certificate of the Company.
5.1++ Opinion of O'Melveny & Myers LLP.
10.1* Promissory Note from David Moore to the Company, dated as of June 30,
1995, in the principal amount of $62,437.50.
10.2* Promissory Note from Paul St. Pierre to the Company, dated as of June
30, 1995, in the principal amount of $49,950.
10.3* Promissory Note from Frank McCord to the Company, dated as of June 30,
1995, in the principal amount of $24,975.
10.4* Promissory Note from Dennis Devereux to the Company, dated as of June
30, 1995, in the principal amount of $24,975.
10.5* Promissory Noted from Lloyd Holland to the Company, dated as of June
30, 1995, in the principal amount of $24,975.
10.6* Subordinated Secured Note and Warrant Purchase Agreement, dated as of
June 30, 1995, by and among Corinthian Schools, Inc., Primus Capital
Fund III Limited Partnership and Banc One Capital Partners II,
Limited Partnership.
10.7* Credit Facility Agreement, dated as of June 30, 1995, by and between
Corinthian Schools, Inc. and Banc One Capital Partners II, Limited
Partnership.
10.8* Warrant Certificate for 5,000 shares of Class B Non-Voting Common
Stock, dated as of June 30, 1995, issued to Banc One Capital Partners
II, Limited Partnership by Corinthian Schools, Inc.
10.9* Warrant Certificate for 1,250 shares of Class A Voting Common Stock,
dated as of June 30, 1995, issued to Primus Capital Fund III Limited
Partnership by Corinthian Schools, Inc.
10.10* Security Agreement, dated as of June 30, 1995, by Corinthian Schools,
Inc. for the benefit of Primus Capital Fund III Limited Partnership
and Banc One Capital Partners II, Limited Partnership, and UCC-1
Financing Statements.
10.11* Purchase Agreement, dated June 30, 1995, between Corinthian Schools,
Inc., Primus Capital Fund III Limited Partnership and Banc One
Capital Partners II, Limited Partnership, and schedules thereto.
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.12* Amended and Restated Registration Agreement dated October 17, 1996, by
and between the Company, Primus Capital Fund III Limited Partnership,
The Prudential Insurance Company of America, Banc One Capital
Partners II, LLC, Banc One Capital Partners II, Limited Partnership,
David G. Moore, Paul St. Pierre, Frank J. McCord, Dennis L. Devereux
and Lloyd W. Holland.
10.13* First Amendment to the Amended and Restated Registration Agreement,
dated as of November 24, 1997, by and between the Company, Primus
Capital Fund III Limited Partnership, BOCP II Limited Liability
Company, Banc One Capital Partners II, LLC, David G. Moore, Paul St.
Pierre, Frank J. McCord, Dennis L. Devereux, Lloyd W. Holland and The
Prudential Insurance Company of America.
10.14* Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Dennis L. Devereux.
10.15* Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Lloyd W. Holland.
10.16* Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Frank J. McCord.
10.17* Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and David G. Moore.
10.18* Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Paul St. Pierre.
10.19* Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and Lloyd W. Holland.
10.20* Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and Dennis L. Devereux.
10.21* Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and David G. Moore.
10.22* Executive Stock Pledge Agreement, dated as of June 30, 1995 between
Corinthian Schools, Inc. and Frank J. McCord.
10.23* Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and Paul St. Pierre.
10.24* Escrow Agreement, dated as of March 20, 1996, by and between
Corinthian Schools, Inc., Repose, Inc. and Key Trust Company, as
escrow agent.
10.25* Certificate of Merger of Corinthian Schools, Inc., dated as of
September 30, 1996.
10.26* Revolving Loan Request dated October 17, 1996 from Corinthian
Colleges, Inc. to The Prudential Insurance Company of America.
10.27* Contingent Stock Warrant dated October 17, 1996, for The Prudential
Insurance Company of America.
10.28* Subordinated Note and Warrant Purchase Agreement dated October 17,
1996 by and between Corinthian Colleges, Inc., Primus Capital
Fund III Limited Partnership and Banc One Capital Partners II, LLC.
10.29* Amendment dated November , 1997, to the Subordinated Note and
Warrant Purchase Agreement dated October 17, 1996, by and between the
Company, Primus Capital Fund III Limited Partnership, and Banc One
Capital Partners II, LLC.
10.30* Warrant Certificate for Class A Common Stock, dated October 17, 1996
for Primus Capital Fund III Limited Partnership.
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.31* Warrant Certificate for Class B Common Stock, dated October 17, 1996
for Banc One Capital Partners II, Limited Partnership.
10.32* Contingent Stock Warrant, dated October 17, 1996, for Primus Capital
Fund III Limited Partnership.
10.33* Contingent Stock Warrant, dated October 17, 1996, for Banc One Capital
Partners II, Limited Partnership.
10.34* Contingent Stock Warrant, dated October 17, 1996, for BOCP II, Limited
Liability Company.
10.35* Rights Agreement dated October 17, 1996 between the Company,
Corinthian Schools, Inc., Primus Capital Fund III Limited
Partnership, BOCP II, Limited Liability Company, Banc One Capital
Partners II, Limited Partnership and David G. Moore, Paul St. Pierre,
Frank J. McCord, Dennis L. Devereux and Lloyd W. Holland.
10.36* Amendment to the Rights Agreement, dated November 24, 1997, by and
between the Company, Primus Capital Fund III Limited Partnership,
BOCP II Limited Liability Company, Banc One Capital Partners II, LLC,
David G. Moore, Paul St. Pierre, Frank J. McCord, Dennis L. Devereux
and Lloyd W. Holland.
10.37* Pledge Agreement, dated as of October 17, 1996, by and between the
Company and Rhodes Colleges, Inc., in favor of The Prudential
Insurance Company of America.
10.38* Escrow Agreement, dated as of October 17, 1996, by and between the
Company, Phillips Colleges, Inc. and Wells Fargo Bank, N.A. as escrow
agent.
10.39* Guaranty, dated as of October 17, 1996, by the Company in favor of
Phillips Colleges, Inc.
10.40* Escrow Funding Note, dated as of October 17, 1996, made by the Company
in favor of Phillips Colleges, Inc. in the amount of $2,900,000.
10.41* Interim Promissory Note, dated as of October 17, 1996, made by the
Company in favor of Phillips Colleges, Inc., in the amount of
$1,100,000.
10.42* Note Purchase and Revolving Credit Agreement dated October 17, 1996,
by and between the Company and The Prudential Insurance Company of
America, in the amount of $22,500,000.
10.43* Security Agreement, dated October 17, 1996, by and between the
Company, Corinthian Schools, Inc., Rhodes Colleges, Inc., Rhodes
Business Group, Inc., Florida Metropolitan University, Inc. and the
Prudential Insurance Company of America.
10.44* Stock Subscription Warrant, dated October 17, 1996, to The Prudential
Insurance Company of America for Class A Common Stock.
10.45* Loan Agreement dated April 30, 1997 by and between Corinthian Property
Group, Inc. and Banc One Capital Partners VI, Ltd., in the amount of
$3,760,000.
10.46* Limited Guaranty and Indemnity Agreement dated as of April 30, 1997 by
the Company in favor of Banc One Capital Partners VI, Ltd.
10.47* Default Waiver and Third Amendment, dated October 31, 1997, under Note
Purchase and Revolving Credit Agreement dated October 17, 1996, from
The Prudential Insurance Company of America to the Company.
10.48* Purchase Agreement, dated as of November 7, 1997, by and between the
Company, Primus Capital Fund III Limited Partnership and Banc One
Capital Partners II, LLC.
10.49* Stock Subscription Warrant, dated November 24, 1997, to purchase Class
B Common Stock, issued to Banc One Capital Partners II, LLC.
10.50* Stock Subscription Warrant, dated November 24, 1997, to purchase Class
A Common Stock, issued to Primus Capital Fund III Limited
Partnership.
</TABLE>

II-6
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.51* Stock Subscription Warrant, dated November 25, 1997, to purchase Class
A Common Stock, issued to the Prudential Insurance Company of
America.
10.52* 1998 Performance Award Plan of the Company.
23.1 Consent of Arthur Andersen, LLP.
23.2* Consent of PricewaterhouseCoopers LLP.
23.3++ Consent of O'Melveny & Myers LLP (included in Exhibit 5.1).
24.1* Power of Attorney (contained on page II-4).
99.1 Consent of Houlihan Valuation Advisors
</TABLE>
- --------

* Previously filed

++To be filed by amendment

(b) Financial Statement Schedules.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in the denominations and registered in the names as required by
the Underwriters to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, 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 whether the indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus filed
as part of a 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 Act shall be deemed to be part of the
registration statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Act, 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 those securities at that time shall be deemed to be the
initial bona fide offering thereof.

II-7
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Santa Ana, County of Orange, State of California, on the 28th day of
August, 1998.

CORINTHIAN COLLEGES, INC.

By: /s/ David G. Moore*
----------------------------------
David G. Moore
President, Chief Executive
Officer and Director

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David G. Moore* President, Chief Executive August 28, 1998
____________________________________ Officer and Director
David G. Moore
/s/ Paul St. Pierre* Executive Vice President, August 28, 1998
____________________________________ Marketing and Director
Paul St. Pierre
/s/ Frank J. McCord Executive Vice President and August 28, 1998
____________________________________ Chief Financial Officer
Frank J. McCord
/s/ Loyal Wilson* Director August 28, 1998
____________________________________
Loyal Wilson
</TABLE>

*By:

/s/ Frank J. McCord
----------------------------

Frank J. McCord,

Attorney-in fact

II-8
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Corinthian Colleges, Inc.

We have audited in accordance with generally accepted auditing standards,
the financial statements of Corinthian Colleges, Inc. (a Delaware corporation)
and subsidiaries included in this Form S-1 Registration Statement and have
issued our report thereon dated August 28, 1998. Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in the index above is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.

/s/ Arthur Andersen LLP

Orange County, California

August 28, 1998

S-1
<PAGE>

CORINTHIAN COLLEGES, INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD
---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts
Accounts receivable:
Year ended June 30,
1996............... $ -- $ 978,997 $1,345,858 $ (739,426) $1,585,429
Year ended June 30,
1997............... 1,585,429 3,665,071 126,019 (2,613,942) 2,762,577
Year ended June 30,
1998............... 2,762,577 4,254,694 -- (3,498,467) 3,518,804
Student notes
receivable:
Year ended June 30,
1996............... -- -- -- -- --
Year ended June 30,
1997............... -- (110,839) 1,634,400 (662,494) 861,067
Year ended June 30,
1998............... 861,067 1,708,191 -- (282,806) 2,286,452
</TABLE>
- --------

(1) Represents allowances assumed from acquisitions

(2) Represents accounts written off

S-2
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1++ Form of Underwriting Agreement.
2.1* Asset Purchase Agreement, dated as of June 28, 1995, among Corinthian
Schools, Inc., National Education Centers, Inc. and National
Education Corporation, and schedules thereto.
2.2* Asset Purchase Agreement, dated as of March 20, 1996, by and between
Corinthian Schools, Inc. and Repose, Inc.
2.3* Asset Purchase Agreement, dated as of July 11, 1996, by and between
Corinthian Schools, Inc. and Concorde Career Colleges, Inc.
2.4* Amendment to Asset Purchase Agreement, made as of August 29, 1996, by
and between Corinthian Schools, Inc. and Concorde Career Colleges,
Inc.
2.5* Master Asset Purchase Agreement, dated as of October 17, 1996, by and
between the Company and Phillips Colleges, Inc.
2.6* Schools Acquisition Agreement, dated as of October 17, 1996, by and
between Rhodes Colleges, Inc., Rhodes Business Group, Inc., Florida
Metropolitan University, Inc. and Phillips Colleges, Inc.
2.7* Provisions Concerning Purchase and Sale of Real Estate, dated as of
October 17, 1996, by and among Blair Business College, Inc., Phillips
College of Denver, Inc., Phillips Educational Group of Central
Florida, Inc., the Company and Phillips Colleges, Inc.
2.8* Amendment to Provisions Concerning Purchase and Sale of Real Estate,
dated as of November 25, 1996, by and among Blair Business College,
Inc., Phillips College of Denver, Inc., Phillips Educational Group of
Central Florida, Inc., the Company and Phillips Colleges, Inc.
3.1* Second Restated Certificate of Incorporation of the Company, dated as
of November 21, 1997.
3.2++ Third Restated Certificate of Incorporation, dated , 1998.
3.3* Bylaws of the Company, certified as of September 19, 1996.
4.1* Promissory Note, dated as of July 1, 1996, by Corinthian Schools, Inc.
in favor of Repose, Inc., in the amount of $50,000.
4.2* Promissory Note, dated as of August 31, 1996, made by Corinthian
Schools, Inc. in favor of Concorde Career Colleges, Inc. in the
amount of $300,000.
4.3* 10.27% Senior Secured Term Note dated October 17, 1996 in the original
principal amount of $22,500,000 registered in the name of The
Prudential Insurance Company of America.
4.4* Senior Secured Revolving Note dated October 17, 1996 in the original
principal amount of $5,000,000 registered in the name of The
Prudential Insurance Company of America.
4.5* Subordinated Note dated October 17, 1996, in the principal amount of
$1,000,000 registered in the name of Primus Capital Fund III Limited
Partnership.
4.6* Subordinated Note, dated October 17, 1996, in the principal amount of
$4,000,000, from the Company to Banc One Capital Partners II, Ltd.
4.7* Promissory Note (Secured) dated April 30, 1997, by Corinthian Property
Group, Inc. in favor of Banc One Capital Partners VI, Ltd. in the
amount of $3,760,000.
4.8* Senior Secured Note, dated October 17, 1997, in the principal amount
of $22,500,000 from the Company to The Prudential Insurance Company
of America.
4.9 Specimen Common Stock Certificate of the Company.
5.1++ Opinion of O'Melveny & Myers LLP.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.1* Promissory Note from David Moore to the Company, dated as of June 30,
1995, in the principal amount of $62,437.50.
10.2* Promissory Note from Paul St. Pierre to the Company, dated as of June
30, 1995, in the principal amount of $49,950.
10.3* Promissory Note from Frank McCord to the Company, dated as of June 30,
1995, in the principal amount of $24,975.
10.4* Promissory Note from Dennis Devereux to the Company, dated as of June
30, 1995, in the principal amount of $24,975.
10.5* Promissory Noted from Lloyd Holland to the Company, dated as of June
30, 1995, in the principal amount of $24,975.
10.6* Subordinated Secured Note and Warrant Purchase Agreement, dated as of
June 30, 1995, by and among Corinthian Schools, Inc., Primus Capital
Fund III Limited Partnership and Banc One Capital Partners II,
Limited Partnership.
10.7* Credit Facility Agreement, dated as of June 30, 1995, by and between
Corinthian Schools, Inc. and Banc One Capital Partners II, Limited
Partnership.
10.8* Warrant Certificate for 5,000 shares of Class B Non-Voting Common
Stock, dated as of June 30, 1995, issued to Banc One Capital Partners
II, Limited Partnership by Corinthian Schools, Inc.
10.9* Warrant Certificate for 1,250 shares of Class A Voting Common Stock,
dated as of June 30, 1995, issued to Primus Capital Fund III Limited
Partnership by Corinthian Schools, Inc.
10.10* Security Agreement, dated as of June 30, 1995, by Corinthian Schools,
Inc. for the benefit of Primus Capital Fund III Limited Partnership
and Banc One Capital Partners II, Limited Partnership, and UCC-1
Financing Statements.
10.11* Purchase Agreement, dated June 30, 1995, between Corinthian Schools,
Inc., Primus Capital Fund III Limited Partnership and Banc One
Capital Partners II, Limited Partnership, and schedules thereto.
10.12* Amended and Restated Registration Agreement dated October 17, 1996, by
and between the Company, Primus Capital Fund III Limited Partnership,
The Prudential Insurance Company of America, Banc One Capital
Partners II, LLC, Banc One Capital Partners II, Limited Partnership,
David G. Moore, Paul St. Pierre, Frank J. McCord, Dennis L. Devereux
and Lloyd W. Holland.
10.13* First Amendment to the Amended and Restated Registration Agreement,
dated as of November 24, 1997, by and between the Company, Primus
Capital Fund III Limited Partnership, BOCP II Limited Liability
Company, Banc One Capital Partners II, LLC, David G. Moore, Paul St.
Pierre, Frank J. McCord, Dennis L. Devereux, Lloyd W. Holland and The
Prudential Insurance Company of America.
10.14* Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Dennis L. Devereux.
10.15* Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Lloyd W. Holland.
10.16* Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Frank J. McCord.
10.17* Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and David G. Moore.
10.18* Amended and Restated Executive Stock Agreement, dated November 24,
1997, between Corinthian Schools, Inc. and Paul St. Pierre.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.19* Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and Lloyd W. Holland.
10.20* Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and Dennis L. Devereux.
10.21* Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and David G. Moore.
10.22* Executive Stock Pledge Agreement, dated as of June 30, 1995 between
Corinthian Schools, Inc. and Frank J. McCord.
10.23* Executive Stock Pledge Agreement, dated as of June 30, 1995, between
Corinthian Schools, Inc. and Paul St. Pierre.
10.24* Escrow Agreement, dated as of March 20, 1996, by and between
Corinthian Schools, Inc., Repose, Inc. and Key Trust Company, as
escrow agent.
10.25* Certificate of Merger of Corinthian Schools, Inc., dated as of
September 30, 1996.
10.26* Revolving Loan Request dated October 17, 1996 from Corinthian
Colleges, Inc. to The Prudential Insurance Company of America.
10.27* Contingent Stock Warrant dated October 17, 1996, for The Prudential
Insurance Company of America.
10.28* Subordinated Note and Warrant Purchase Agreement dated October 17,
1996 by and between Corinthian Colleges, Inc., Primus Capital
Fund III Limited Partnership and Banc One Capital Partners II, LLC.
10.29* Amendment dated November , 1997, to the Subordinated Note and
Warrant Purchase Agreement dated October 17, 1996, by and between the
Company, Primus Capital Fund III Limited Partnership, and Banc One
Capital Partners II, LLC.
10.30* Warrant Certificate for Class A Common Stock, dated October 17, 1996
for Primus Capital Fund III Limited Partnership.
10.31* Warrant Certificate for Class B Common Stock, dated October 17, 1996
for Banc One Capital Partners II, Limited Partnership.
10.32* Contingent Stock Warrant, dated October 17, 1996, for Primus Capital
Fund III Limited Partnership.
10.33* Contingent Stock Warrant, dated October 17, 1996, for Banc One Capital
Partners II, Limited Partnership.
10.34* Contingent Stock Warrant, dated October 17, 1996, for BOCP II, Limited
Liability Company.
10.35* Rights Agreement dated October 17, 1996 between the Company,
Corinthian Schools, Inc., Primus Capital Fund III Limited
Partnership, BOCP II, Limited Liability Company, Banc One Capital
Partners II, Limited Partnership and David G. Moore, Paul St. Pierre,
Frank J. McCord, Dennis L. Devereux and Lloyd W. Holland.
10.36* Amendment to the Rights Agreement, dated November 24, 1997, by and
between the Company, Primus Capital Fund III Limited Partnership,
BOCP II Limited Liability Company, Banc One Capital Partners II, LLC,
David G. Moore, Paul St. Pierre, Frank J. McCord, Dennis L. Devereux
and Lloyd W. Holland.
10.37* Pledge Agreement, dated as of October 17, 1996, by and between the
Company and Rhodes Colleges, Inc., in favor of The Prudential
Insurance Company of America.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.38* Escrow Agreement, dated as of October 17, 1996, by and between the
Company, Phillips Colleges, Inc. and Wells Fargo Bank, N.A. as escrow
agent.
10.39* Guaranty, dated as of October 17, 1996, by the Company in favor of
Phillips Colleges, Inc.
10.40* Escrow Funding Note, dated as of October 17, 1996, made by the Company
in favor of Phillips Colleges, Inc. in the amount of $2,900,000.
10.41* Interim Promissory Note, dated as of October 17, 1996, made by the
Company in favor of Phillips Colleges, Inc., in the amount of
$1,100,000.
10.42* Note Purchase and Revolving Credit Agreement dated October 17, 1996,
by and between the Company and The Prudential Insurance Company of
America, in the amount of $22,500,000.
10.43* Security Agreement, dated October 17, 1996, by and between the
Company, Corinthian Schools, Inc., Rhodes Colleges, Inc., Rhodes
Business Group, Inc., Florida Metropolitan University, Inc. and the
Prudential Insurance Company of America.
10.44* Stock Subscription Warrant, dated October 17, 1996, to The Prudential
Insurance Company of America for Class A Common Stock.
10.45* Loan Agreement dated April 30, 1997 by and between Corinthian Property
Group, Inc. and Banc One Capital Partners VI, Ltd., in the amount of
$3,760,000.
10.46* Limited Guaranty and Indemnity Agreement dated as of April 30, 1997 by
the Company in favor of Banc One Capital Partners VI, Ltd.
10.47* Default Waiver and Third Amendment, dated October 31, 1997, under Note
Purchase and Revolving Credit Agreement dated October 17, 1996, from
The Prudential Insurance Company of America to the Company.
10.48* Purchase Agreement, dated as of November 7, 1997, by and between the
Company, Primus Capital Fund III Limited Partnership and Banc One
Capital Partners II, LLC.
10.49* Stock Subscription Warrant, dated November 24, 1997, to purchase Class
B Common Stock, issued to Banc One Capital Partners II, LLC.
10.50* Stock Subscription Warrant, dated November 24, 1997, to purchase Class
A Common Stock, issued to Primus Capital Fund III Limited
Partnership.
10.51* Stock Subscription Warrant, dated November 25, 1997, to purchase Class
A Common Stock, issued to the Prudential Insurance Company of
America.
10.52* 1998 Performance Award Plan of the Company.
23.1 Consent of Arthur Andersen, LLP.
23.2* Consent of PricewaterhouseCoopers LLP.
23.3++ Consent of O'Melveny & Myers LLP (included in Exhibit 5.1).
24.1* Power of Attorney (contained on page II-4).
99.1 Consent of Houlihan Valuation Advisors
</TABLE>
- --------

* Previously filed

++To be filed by amendment

<PAGE>

EXHIBIT 4.9

[LOGO OF CCi]

NUMBER SHARES

COMMON STOCK COMMON STOCK

INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 000000 00 0

CORINTHIAN COLLEGES, INC.

THIS CERTIFIES THAT

is the Owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.0001 PAR VALUE, OF

- ---------------------------CORINTHIAN COLLEGES, INC.---------------------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar.

Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.

Dated:

[SEAL OF CORINTHIAN COLLEGES, INC.]

SECRETARY CHIEF EXECUTIVE OFFICER

Countersigned and Registered:
U.S. STOCK TRANSFER CORPORATION
Transfer Agent and Registrar,

Authorized Officer

<PAGE>

CORINTHIAN COLLEGES, INC.

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common UNIF GIFT MIN ACT - ______Custodian_______
(Cust) (Minor)
TEN ENT - as tenants by the under Uniform Gifts to
entireties Minors Act____________
(State)
JT TEN - as joint tenants with
right of survivorship
and not as tenants in
common

Additional abbreviations may also be used though not in the above list.

For Value Received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________

________________________________________________________________________________

________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)

________________________________________________________________________________

_________________________________________________________________________ Shares
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint

_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.

Dated:____________________________
________________________________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.

SIGNATURE(S) GUARANTEED

By______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION, (Banks, Stockbrokers, Savings
and Loan Associations and Credit Unions) WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM
PURSUANT TO S.E.C. RULE 17Ad-15.

<PAGE>

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports of Corinthian Colleges, Inc. and the Eleven Career Colleges purchased
from National Education Centers, Inc. (and all references to our Firm)
included in or made a part of this registration statement.

/s/ Arthur Andersen LLP

Orange County, California

August 28, 1998

<PAGE>
EXHIBIT 99.1

[HOULIHAN VALUATION ADVISORS LETTERHEAD]

August 27, 1998

Mr. Nolan Miura
Corinthian Colleges, Inc.
6 Hutton Drive Centre
Suite 400
Santa Ana, CA 92707-5764

Dear Mr. Miura:

We hereby consent to the use of all references to our firm as the independent
appraisal firm included in or made a part of this registration statement.

Houlihan Valuation Advisors

/s/ BRET TACK
- -------------------
Bret Tack
Principal