CALIFORNIA CULINARY ACADEMY INC, 10KSB40, 1996-10-15

CALIFORNIA CULINARY ACADEMY INC
10KSB40, 1996-10-15
EDUCATIONAL SERVICES

Previous: CISCO SYSTEMS INC, 8-K/A, 1996-10-15

Next: DELPHI FINANCIAL GROUP INC/DE, 8-A12B, 1996-10-15

<PAGE>

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

(Mark One)
[X] Annual report under section 13 or 15(d) of the Securities and Exchange Act
of 1934 [Fee Required] for the fiscal year ended June 30, 1996.

[ ] Transition report pursuant to section 13 or 15(d) of the Securities and
Exchange Act of 1934 [No Fee Required] For the transition period
from ____________________ to ____________________.

COMMISSION FILE NUMBER: 0-21932

CALIFORNIA CULINARY ACADEMY, INC.
(Exact name of small business issuer in its charter)

California 94-3042862
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)

625 Polk Street
San Francisco, CA 94102
(Address of principal executive offices) (Zip Code)

Issuer's Telephone Number: (415) 771-3536

Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock, no par value
--------------------------
(Title of class)

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

Indicate by check mark if there is no disclosure of delinquent filers pursuant
to Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]

Revenues for the most recent fiscal year were: $14,882,000

The aggregate market value of the voting stock held by non-affiliates computed
by reference to the closing market price on September 26, 1996, was $13,826,274.

The number of shares outstanding of the registrant's Common Stock as of June 30,
1996, was 3,186,053.

Documents incorporated by reference: None

Transitional Small Business Disclosure Format. Yes No X
------ -------

<PAGE>

PART I

ITEM 1. BUSINESS

The California Culinary Academy, Inc., ("Academy") is one of the largest
publicly held, for-profit professional chef training schools in the United
States (based on the number of students enrolled in its programs) and offers
both an Associate of Occupational Studies ("A.O.S.") Degree Program in Culinary
Arts and a Certificate Program in Baking & Pastry Arts. The Academy also offers
a wide variety of consumer education classes and workshops for dedicated
amateurs and professionals. In conjunction with its educational activities, the
Academy operates two public restaurants and a small retail shop at its San
Francisco campus, serving a clientele that consists of students, staff and the
general public.

As of September 1, 1996, the Academy has graduated over 4,100 students from its
professional programs and additionally thousands of individuals have attended
one or more of its continuing education classes.

The predecessor to the California Culinary Academy, Inc. was incorporated in
June 1977, as a Pennsylvania corporation. In October 1986, the Academy was
incorporated in the State of California under the name CCA Acquisition
Corporation and was the surviving corporation in a merger with the Pennsylvania
corporation. Upon completion of the merger, CCA Acquisition Corporation changed
its name to California Culinary Academy, Inc.

RECENT EVENTS

TRAINING CENTER AT SALINAS, CALIFORNIA
During July 1996, the Academy entered into a lease for a former restaurant site
to be used as a culinary arts training center for selected non-professional and
professional non-degreed programs. Construction is currently under way, and it
is anticipated that construction will be completed during the month of October
1996, with the first classes starting shortly after completion of construction.
The focus of the training will be basic skills. Tuition is expected to range
between $200 and approximately $1,400 per class with up to three different
classes each day ranging in size from 10 to 20 students. See Item 12, "Certain
Relationships and Related Transactions."

ENROLLMENTS
Revenues from the Academy's A.O.S. Culinary Arts Degree Program and the Baking &
Pastry Arts Certificate Program rely exclusively on student enrollments. For
the A.O.S. Culinary Arts Degree Program, the average time period from initial
contact with prospective students to enrollment is approximately six months.
During the enrollment periods for February, April and June 1995, the Academy
experienced a decrease in the number of students enrolling compared to
enrollments in the prior fiscal year and compared to management's enrollment
estimates. The decreased number of students during those periods contributed to
a loss for the fourth quarter of fiscal 1995. Management has isolated what it
believes to be the causes of the decreased enrollments, has taken specific steps
to mitigate and correct the deficiencies, and as a result, enrollments during
the later part of fiscal 1996 have risen. It is management's belief that its
changes to the enrollment management process will continue to be successful,
however, there can be no assurance that such changes will continue to prove
successful. Additionally, there have been changes to the size of starting
classes and in the frequency of class starts (described in "Professional
Programs and Continuing Education - A.O.S. CULINARY ARTS DEGREE PROGRAM"). As a
result, total student count will continue to decrease as the Academy graduates
classes of larger size than the new classes it admits. This effect is expected
to reverse in the second quarter of

<PAGE>

fiscal 1997. Management's corrective plan included the retention of an
enrollment management consulting firm to advise it in the areas of improvement
to the enrollment management process and the restructuring of its Admissions
Department. The Academy has implemented the Noel-Levitz "EMAS-Plus" system of
enrollment management and made substantial revisions to its reporting and
admissions processes during the first quarter of fiscal 1997. There can be no
assurance, however, that management's corrective actions will be continue to be
successful or that enrollments or revenues will increase in the future.

PROFESSIONAL PROGRAMS AND CONTINUING EDUCATION

The Academy offers an 18-month Associate of Occupational Studies ("A.O.S.")
Culinary Arts Degree Program and a 30-week Baking & Pastry Arts Certificate
Program. The Academy also offers a wide variety of professional weekend
programs in addition to consumer education classes and workshops for dedicated
amateurs and professionals. In conjunction with its educational classes, the
Academy operates two public restaurants and a small retail shop at its San
Francisco campus, serving a clientele that consists of its students, staff, and
the general public.

The Academy's A.O.S. Culinary Arts Degree Program and Baking & Pastry Arts
Certificate Program are designed to prepare students for entry-level
professional positions or for individual advancement. By teaching the skills
required of the professional chef and pastry chef, the Academy seeks to prepare
its graduates to become successful in the food industry. Because the curriculum
focuses on practical skills and techniques crucial to success in the food
industry, the Academy has historically enjoyed a high job placement rate among
its graduates.

A.O.S. CULINARY ARTS DEGREE PROGRAM. The A.O.S. Culinary Arts Degree Program
was, until June 1996, 16 months of instruction organized into four semesters,
each four months in length. Starting in June 1996, the A.O.S. Culinary Arts
Degree Program was expanded to 18 months to provide a longer externship thus
giving the student more practical work experience prior to graduation. Until
June 1996, when the enrollment cycle changed, there was approximately two months
separation between each of six enrollment periods. Starting in June 1996,
A.O.S. classes are scheduled to start every two weeks, allowing for more time
slots and greater scheduling convenience and control over enrollment. All
students attend all four semesters on a full-time basis. Students attend
classes five days each week, seven and one-quarter hours per day, in two shifts.
For the year ended June 30, 1996, the Academy averaged approximately 500
students per enrollment period with a greater number of students enrolling in
the second half of the fiscal year and fewer during the first half. The
A.O.S. program can accommodate up to 29 students per enrollment period. Once a
class begins the sequential program, it then continues without interruption
through the 18-month course of study that, if successfully completed, results in
the award of the A.O.S. Culinary Arts Degree. There were approximately 500
students enrolled in the A.O.S. program on June 30, 1996, compared to
approximately 560 students enrolled at June 30, 1995, a decrease of 11%. The
decrease is primarily due to the planned change in the frequency and size of
class starts. Accordingly, graduating class sizes will be larger than the size
of new starting classes for a period of time. These changes will have a
depressive effect on total student count until approximately the second quarter
of the fiscal year ending June 30, 1997. See "Recent Events - ENROLLMENTS".
Students in the A.O.S. program are eligible to participate in federal financial
assistance programs.

BAKING & PASTRY ARTS CERTIFICATE PROGRAM. The Academy has a 30-week
professional Baking & Pastry Arts Certificate Program, which has a comprehensive
curriculum and is taught over two semesters, 15 weeks per semester. Attendance
is on a full-time, five-day per week basis. Students enrolled in the 30-

<PAGE>

week Baking & Pastry Arts Certificate Program are eligible to participate in
federal financial assistance programs. At June 30, 1996, there were 45 students
enrolled in this program compared to approximately 70 students enrolled at June
30, 1995, representing a 36% decrease. See "Recent Events - ENROLLMENTS." The
30-week Baking & Pastry Arts Certificate Program can accommodate approximately
120 students.

The goal of the 30-week Baking & Pastry Arts Certificate Program is to prepare
students for advancement to a supervisory position in a commercial bakery or
pastry kitchen. Instruction includes such core subjects as baking sciences,
nutrition, retail management, purchasing, and cost control. The program
emphasizes "hands on" practical experience in workshops where students are
supervised by faculty members.

BASIC SKILLS PROFESSIONAL WEEKEND COURSES. Under the moniker of "New Basics,"
the Academy offers a weekend program that addresses traditional kitchen skills
with emphasis on palate development and exposure to anthropological patterns in
world cuisine. As a test laboratory for program development, these courses
offer innovative approaches to teaching and thinking about the fundamentals of
cooking. Designed to serve the needs of amateurs and industry professionals,
completed coursework from this program is transferable into the Academy's A.O.S.
program. There are currently five programs each six weeks in length.

BAKING & PASTRY PROFESSIONAL WEEKEND COURSES. Beginning in February 1996, the
Academy offered a professional weekend Baking & Pastry program. The program,
modeled after the 30-week Baking & Pastry Arts Certificate Program, consists of
eight courses of 14 weeks each. Topics range from basic breadmaking techniques
to confectionery and showpiece techniques. Completed weekend coursework can be
transferred into the Academy's 30-week Baking & Pastry Arts Certificate Program.

CONSUMER EDUCATION. The Academy offers a wide variety of culinary arts classes
and workshops for amateurs. Courses are offered on general subjects such as
Basic Cooking, Professional Cooking, Advanced Professional Cooking and Basic
Knife Skills and on special interest topics such as regional ethnic cuisines,
seasonal cooking and various healthy food subjects.

EDUCATIONAL SERVICES

JOB PLACEMENT FOR PROFESSIONAL PROGRAM STUDENTS AND GRADUATES. The Academy's
Career Services staff assists currently enrolled students and graduates in
obtaining positions in the food industry in a number of ways: (I) the Career
Services Office houses reference material containing current job openings that
include entry level through advanced positions throughout the United States and
foreign countries. For students and graduates who are unable to access the
current job openings on campus, these job openings are also recorded on the Job
Hotline, a telephone announcement that is updated weekly; (II) twice per year
during the Academy's Spring and Fall Recruitment Weekend, the Career Services
staff coordinates a Career Faire featuring representatives from all areas of the
food industry seeking to hire students and graduates of the Academy. The Career
Services staff also coordinates interview schedules for companies recruiting
students and graduates directly from the Academy during the Recruitment Weekend;
and (III) individual counseling sessions, resume assistance, and other career
development materials are also available through the Career Services Office.
While the Academy does not guarantee employment or specific positions upon
graduation, it believes its name, reputation, and high job placement rate are
factors that attract students to its professional programs.

<PAGE>

Students interested in part-time or full-time jobs while they are enrolled at
the Academy can register with the Career Services Office. The Academy provides
students names of prospective employers seeking catering staff or other part-
time and full-time assistance. Additionally, the Academy itself offers part-
time employment. For example, the Academy's Food and Beverage Department hires
students to assist with special functions and events, such as private parties
and corporate events held in its restaurants. The Academy also offers federal
work-study opportunities.

ALUMNI RELATIONS. The California Culinary Academy Alumni Association was
created to offer alumni appealing educational, social, and cultural activities,
greater access to job information, and assistance in recruiting efforts.

RECRUITMENT AND ADMISSIONS. Students are recruited both domestically and
internationally. Statistics compiled in June 1996, show that approximately 48%
of the full-time students enrolled in the professional programs are from
Northern California. Applications for admission to the A.O.S. Culinary Arts
Degree Program and the Baking & Pastry Arts Certificate Program are reviewed by
the Academy's admissions staff. In considering an application for admission to
the degree or certificate programs, the admissions staff first determines
whether an applicant meets certain minimum prerequisites, including: (I)
demonstrated motivation towards a career in the culinary arts; (II) graduation
from high school with at least a 2.0 grade point average or passage of an
approved high school equivalency examination; and (III) for those whose native
language is other than English, passage of the TOEFL test of English as a
Foreign Language with a score of at least 550. Experience in the food industry
is viewed favorably by the admissions staff but is not considered a prerequisite
for admission to the programs.

Additionally, the Academy has articulation agreements with 18 regional junior
colleges and one culinary school, allowing certain courses to be transferred to
the Academy for credit, enabling the Academy to recruit more effectively from
junior colleges.

The Academy believes that an important recruiting tool is its media exposure. A
13-part series, COOKING AT THE ACADEMY, was developed and written by the Academy
and produced by the San Francisco public television station, KQED. This series
has been shown in its entirety since 1991 through the Public Broadcasting System
to the major media markets in the United States. Additionally, in the spring of
1995, a new 26-episode series of COOKING AT THE ACADEMY began airing on public
television stations throughout the country. The Academy believes that such
widespread exposure as well as sales of associated cookbooks and videotapes has
enhanced the Academy's name recognition and reputation. The Academy believes
that this broad media exposure has had a positive effect on recruitment and
admissions.

As of September 30, 1996, the Academy employed four full-time admissions
representatives and three database and communications analysts who are
supervised by the Director of Enrollment Management and the Director of
Financial Aid. These admissions representatives consult with prospective
students who are referred by alumni, respond to the Academy's advertising, or
are otherwise motivated to contact the school.

EDUCATIONAL PROGRAM DEVELOPMENT. The Academy's ability to attract and place
students depends to a significant extent on its ability to offer educational
programs that provide students with skills sought after in the food community.
Given the continual changes in professional cooking and professional baking, it
is critical that the most current methods are taught. The Academy's Educational
Program Committee, (consisting of the Academy's faculty, administration, and
focus groups from the food industry) responds quickly to both the culinary and
business needs of the food industry.

<PAGE>

EDUCATION-OPERATIONS DEPARTMENT. The Education-Operations Department is
responsible for the quality and delivery of the education process, including
direct responsibility for curriculum content and sequencing, chef instructor
training and development, and teaching and evaluation methods. The Director of
Education-Operations is assisted by the heads of each educational area -
Culinary Production, Baking and Pastry, and Related Subjects, each of whom
serves as an instructor in the degree or certificate programs. In addition, the
department's Manager of Curriculum develops, monitors, and updates the
educational programs offered at the Academy.

STUDENT RETENTION. In the past several years, the Academy has focused its
efforts on improving the retention rate of students. For the fiscal years ended
June 30, 1996 and 1995, approximately 80% of the then enrolled students
successfully completed the A.O.S. Culinary Arts Degree Program on schedule. An
additional 11% graduated at a later date. However, as is the case at most
institutions of higher education, some of the Academy's students end their
studies early for personal, financial, or academic reasons. The Academy faculty
maintain weekly office hours to provide academic assistance and to advise
students. The Academy faculty and administration are also available to provide
support and referrals to students experiencing personal difficulties.

TUITION AND FEES. Effective June 1996, tuition and fees for the A.O.S. Degree
Program in Culinary Arts totaled approximately $25,000. This fee includes
textbooks, uniforms, knife kits, the cost of food used in the classrooms, and
one meal per day in addition to the cost of courses. Tuition is payable in
installments during the two academic terms. The tuition for the Baking & Pastry
Arts Certificate Program is approximately $11,000, including textbooks,
uniforms, knife kits, cost of food, one meal per day, and supplies. Deferred
payment plans and financial aid are available to eligible students. The Academy
believes that its tuition and fee structure is below the market and,
accordingly, is currently studying the effect of a moderate increase in tuition
rates. Any change, however, is not expected to affect currently enrolled
students. See "Government Financial Aid Programs and Regulation."

RESTAURANTS, RETAIL AND MEDIA

RESTAURANTS. The Academy operates two public restaurants at its San Francisco
campus: the Careme Room, with seating for approximately 325 diners, and the
newly remodeled Tavern on the Tenderloin, formerly the Academy Grill, with
seating for approximately 125 diners. The Careme Room is open to the public
five days per week for lunch and dinner, excluding school holidays, and the
Tavern is open six days per week. The restaurants are generally available for
private parties and corporate events seven days per week, are staffed weekly by
students under faculty supervision, and serve as an important teaching
environment since they provide experience in restaurant food preparation,
service and management. As a part of the A.O.S. Culinary Arts Degree Program,
the Academy's students are instructed in dining room service styles, as well as
professional cooking and food and beverage management.

RETAIL. The Academy maintains a small retail shop at its San Francisco campus.
The retail shop, which services students, staff and the public, is open six days
per week, offering juices, espresso, other coffee-based beverages, salads,
sandwiches, soups, confections and bakery goods. In addition, the shop offers
various clothing items bearing the Academy name and logo, cookbooks, videotapes
of the COOKING AT THE ACADEMY series, knife kits bearing the Academy logo and
trademark, and selected cooking tools.

<PAGE>

MEDIA. In January 1996, the Academy entered into an agreement with Simon &
Schuster to author and publish four cookbooks. The agreement provides for the
Academy to earn fees for the delivery of acceptable outlines and completed
manuscripts to the publisher in addition to royalties ranging from 6%-10% on the
sale of published works. The first manuscript is scheduled to be delivered to
the publisher in December 1996.

The Academy developed and wrote the 13-part television series, COOKING AT THE
ACADEMY, produced in 1991 by San Francisco public television station KQED. Over
135,000 copies of the accompanying cookbook, COOKING AT THE ACADEMY, have been
distributed. In addition, a series entitled "California Culinary Academy
Cookbooks," which includes 30 titles, has sold over two million copies since
1985.

In 1995, 26 new episodes of COOKING AT THE ACADEMY began airing on public
television stations throughout the country. Over 85,000 copies of the
accompanying cookbook, FESTIVE FAVORITES, have been distributed. All of the
series production costs were underwritten by Trident Trading Company, Inc., the
exclusive wholesaler for Wusthof-Registered Trademark- Cutlery in the eleven
western United States, Meyer Corporation, the producer of Circulon-Registered
Trademark- Commercial brand cookware, Everpure Drinking Water Systems and
Chicago Metallic Bakeware. These companies entered into agreements directly
with KQED. The Academy is not a party to those contracts.

The Academy, in a separate agreement, has agreed to exclusively sell, in certain
circumstances, Wusthof-Registered Trademark--Trident knife sets to students and
other customers. The Academy became a dealer and is obligated to purchase
$1,650,000 of Wusthof-Registered Trademark--Trident knives, tools, gadgets and
equipment for resale over an unlimited period of time. Among other items, the
Academy's logo, designs and/or tradenames will be used on certain approved
products, which will be sold by Wusthof-Registered Trademark--Trident through
existing retail and catalog distribution channels. The Wusthof factory has
assumed the responsibilities of Trident Trading Company, Inc. under an
assignment agreement to which the Academy consented.

In a separate agreement, the Academy will help arrange, when requested, U.S.
appearances of Academy alumni chefs for promotion of Meyer products, will become
a retailer of Meyer products, and will cooperate in certain advertising.

The Academy maintains a home page on the Internet at "www.baychef.com" as a
promotion and marketing tool to attract new business. The Academy's website
provides information on the Academy's cooking programs and admissions
procedures, profiles chef instructors, offers articles, recipes and practical
cooking techniques for culinary enthusiasts, and allows interested parties to
communicate with the Academy via e-mail.

ACCREDITATION OF PROFESSIONAL PROGRAMS

Accreditation is a process for evaluating educational institutions and their
professional programs. Such a process engenders the schools to the confidence
of the educational community, federal and state government agencies, and the
public at large.

In the United States, this accreditation is given primarily through non-
government, voluntary, institutional, or professional associations. Those
groups establish criteria for accreditation, arrange site visits and evaluate
institutions and professional programs which desire accredited status, publicly
designating those that meet their criteria. Accredited schools are subject to
periodic review by accrediting bodies to ensure that the schools maintain the
level of program performance, content, and teaching and administrative quality
required by the accrediting body.

<PAGE>

The Academy is recognized in its postsecondary educational program by the U.S.
Department of Education ("DOE") and by the California Council for Private
Postsecondary and Vocational Education ("CPPVE").

The Academy is approved to grant to its students who successfully complete the
full-time Culinary Arts Degree program an Associate of Occupational Studies
("AOS") degree in Culinary Arts. The Academy is also approved to grant to its
students who successfully complete the full-time Baking and Pastry program a
Certificate in Baking and Pastry Arts. Approval from CPPVE is renewed
periodically in accordance with the provisions of the California Education Code.

The Academy's course of instruction is approved for veterans training by the
federal Department of Veterans Affairs under the G.I. Bill of Rights and the
Veterans Education Assistance Programs ("VEAP") and for foreign students under
the rules and regulations of the Immigration and Naturalization Service ("INS").

The Academy is accredited by the American Culinary Federation Educational
Institute Accrediting Commission ("ACFEI") and by the Accrediting Commission for
Career Schools/Colleges of Technology (formerly known as the Accrediting
Commission for Trade and Technical Schools of the Career College Association).

GOVERNMENT FINANCIAL AID PROGRAMS AND REGULATION

The Academy's students finance their education, in whole or part, through
individual resources with approximately 62% of students receiving some form of
financial aid assistance. In addition, approximately 42% of the Academy's
fiscal 1996 education program revenues from tuition receipts were derived from
federal and/or state government-sponsored financial aid. On the basis of
financial information provided by the student and/or the student's family, the
Academy develops an assistance package for students who are eligible for
financial aid. To maintain financial assistance eligibility, students must
demonstrate satisfactory academic progress.

Extensive and complex regulations govern all of the government grant and loan
programs in which the Academy and its students participate. These programs are
required to be administered in accordance with the standard of care and
diligence of a fiduciary and are subject to annual audits. All three of the
Academy's financial aid counselors and the Director are certified by the State
of California. Any regulatory violation could be the basis for suspension,
limitation, or termination proceedings. No suspension, limitation, or
termination proceedings have ever been instituted against the Academy.

In July 1995, the Academy was notified by the U.S. Department of Education
("DOE") that is was eligible to participate in Title IV, HEA programs through
July 31, 1999.

Additionally, an institution is required to meet certain specified financial
standards in order to participate in Title IV funding programs administered by
the DOE. Failure of an institution to adhere to those standards may result in
the DOE requiring that institution to post a letter of credit or other surety to
ensure that the Academy is able to fulfill its educational commitments to its
students and pay required refunds upon withdrawal.

The Academy devotes significant effort to properly and satisfactorily
administering the above-described financial aid programs in accordance with
applicable government regulations and responsibilities. The

<PAGE>

Academy has established an internal review committee charged with ongoing
compliance reviews to identify irregularities early, to take expeditious
corrective action and to implement any and all mandated changes in regulations
affecting these programs on a timely basis. In addition, the Academy has: (i)
developed job descriptions that the Academy believes comply with Federal Work
Study ("FWS") employment at for-profit postsecondary institutions; (ii) adopted
internal written procedures to ensure compliance with Title IV restrictions; and
(iii) established and maintains general ledger control accounts and related
subsidiary accounts to assist in the accurate and timely reporting of
information to the DOE and other interested parties.

The following is a list of government financial aid programs in which the
Academy's students participate:

- Federal PELL Grant
- Federal Supplemental Educational Opportunity Grant ("SEOG")
- Unsubsidized Federal Stafford Loan Program (non-need-based)
- Federal Stafford Loan Program (need-based)
- Federal Perkins Direct Student Loan Programs ("Perkins")
- Federal Parent Loans for Undergraduate Students ("PLUS")
- Federal Work Study ("FWS")
- California State Grants A, B and C

The Academy is also approved to train veterans and, therefore, students may be
eligible to receive benefits from the Veterans Administration.

The Academy's continued eligibility to participate in Title IV student financial
aid loan programs is dependent, in part, on maintaining an acceptable "cohort"
default rate. The cohort default rate is defined as the default rate of all
federal financial aid loan programs, other than the Perkins program, which is
calculated separately and is the smallest of the Academy's federally funded
financial aid loan programs.

The Academy's cohort default rate averaged 7.1% for the three years ended June
30, 1992. In June 1995, the Academy was notified that its cohort default rate
for the year ended June 30, 1993, was 13%, effectively increasing the four year
average to 8.6%. The increase in the default rate during this period was caused
by an increase in the number of defaulting students from 31 to 34 from June 30,
1992, to June 30, 1993. The Academy believes that this rate is significantly
lower than the average 1993 cohort default rate of Career College Association
member schools, which consist of vocational trade and technical schools with
curricula generally of two years or less. The Academy's current cohort default
rate for the two year period ending June 30, 1994 is 18.6%. The increase in the
default rate during this period was caused by an increase in the number of
defaulting students from 34 to 55. The Academy does not believe that its
eligibility to participate in Title IV financial aid programs is threatened as a
result of this increase. However the Academy believes that changes that it has
made to the administration of the admissions department, its student
applications review process, and its scholarship granting process along with its
implementation of selected portions of the Department of Education's Default
Management Program will favorably impact the cohort default rate in the future.

Approximately 42% of education program revenues during fiscal 1996 were provided
by federal and/or state government-sponsored financial aid programs, a
substantial portion of which were derived from various student loan programs.
Participating students make loan applications to one or more federally approved
financial institutions. The ability of private financial institutions to
originate loans to the Academy's students is critical to the Academy's business.

<PAGE>

Grants are funds made available to eligible students by the government that do
not have to be repaid. The Academy is eligible to participate in federal PELL
Grant and SEOG programs. Both are programs for undergraduates at postsecondary
schools in the United States who have demonstrated sufficient financial need.

All government-subsidized financial assistance programs for students are subject
to political and budgetary consideration outside the control of the Academy. No
assurance can be given that governmental programs that are currently providing
financial assistance and subsidies to students attending the Academy's education
programs will remain available at present levels or at all. A reduction or
curtailment of funding levels, or other unanticipated changes in federal
assistance program participation requirements, could result in lower enrollments
and adversely impact the Academy's business.

COMPETITION

The Academy is one of the largest publicly held for-profit professional chef
training schools in the United States, according to enrollment statistics in the
1995 SHAW GUIDE. However, the market for professional training of chefs is
fragmented and regionally oriented. According to the American Culinary
Federation Educational Institute, there are approximately 500 postsecondary
culinary programs offered worldwide. These programs range from simple food
programs offered by vocational training schools to fully accredited four-year
programs.

As of June 30, 1996, recent admissions statistics show that approximately 48% of
the Academy's students reside in Northern California. However, the Academy
believes that it competes in the professional chef training market with, among
others, the Culinary Institute of America, with its main campus in Hyde Park,
New York and a facility located in the Napa Valley region of California, and
Johnson & Wales University in Providence, Rhode Island with campuses in
Maryland, Colorado and Florida, founded in 1946 and 1914, respectively, both of
which are not-for-profit institutions. The Academy believes that both of these
institutions have secured significant financial and equipment contributions to
build new facilities and expand their classrooms. The Academy's business will
be subject to its ability to compete effectively with the Culinary Institute of
America and Johnson & Wales, as well as other competitors now in, or which
subsequently enter, the professional chef training market.

The Academy's competitive strengths include the quality of the faculty and
educational services, the job placement of Academy graduates, and the quality of
the academic facilities.

PROPRIETARY RIGHTS

The Academy has a registered service mark consisting of the name "California
Culinary Academy" and the accompanying stylized logo, which are registered with
the U.S. Patent and Trademark Office for various uses. In addition, the name
"California Culinary Academy" is a tradename of the Academy also registered with
the U.S. Patent and Trademark Office. Although the Academy service mark has
become incontestable by any party alleging prior use of the mark, no assurance
can be given that such registration is not cancelable on grounds other than
prior use. The Academy plans to defend its mark in the event of unauthorized
infringement. Such a defense would be time consuming and expensive, regardless
of the outcome. Failure or inability to defend its marks could adversely impact
the Academy's reputation and results of operations. Generally, a trademark is
protected from infringement for a period of 10 years, with renewal granted for
an additional 10 year period. In 1989 the Academy renewed it registration for
its trademark and tradename.

<PAGE>

FACULTY AND EMPLOYEES

The Academy employed 119 persons at June 30, 1996, of which 13 were part time.
Those employees included the Chief Executive Officer, President, and Chief
Financial Officer, 88 members of the administrative and operational staff and 28
chef instructors and adjunct faculty.

ITEM 2. PROPERTY

The Academy leases approximately 63,000 square feet of space at 625 Polk Street
in San Francisco, California, in a historic building. This leased facility is
composed of the basement, the ground floor, mezzanine, second, and third floors
of a five story structure. The monthly rental obligation is approximately
$98,000, and the Academy is also responsible for payment of its pro rata share
of all leasehold expenses including insurance, taxes, utilities and maintenance,
which were approximately $18,000 per month during fiscal year 1996. The lease
term extends until March 31, 2000, with a five-year option thereafter.

In February 1994, the Academy entered into a two-year lease for approximately
1,500 square feet at 700 Polk Street in San Francisco, which it uses for its
educational programs. Rental for this location is approximately $2,600 per
month. In November 1995, the Academy elected to extend its lease through
February 1997.

In July 1996, the Academy entered into a five-year lease for approximately 4,000
square feet in the city of Salinas, California for use as a culinary arts
training center. The lease is with a partnership whose partners include certain
members of the Board of Directors and substantial shareholders in the Academy.
Independent members of the Board of Directors have approved the lease.
Management believes that these lease terms are no less favorable than those
which it may have negotiated with an independent landlord. The monthly rent for
the facility will be the greater of approximately $3,900 or 8% of gross sales
plus a share of common area and exterior maintenance charges. The lease
agreement includes a termination clause subject to revenue performance at the
facility during the first twelve months of operation and a termination fee
should the Academy invoke the termination clause. As of September 30, 1996, the
site was under construction for improvements.

Academy students have access to lecture classrooms and 14 kitchens for practical
training, including four baking and pastry kitchens, two confiseries, two garde
manger kitchens, a seafood butchery, a meat butchery, three professional
production kitchens, and a fully equipped demonstration kitchen and classroom.
Table service classroom facilities include two full service, student run public
restaurants, which seat more than 700 customers for lunch and dinner six days a
week. Other facilities include a retail shop for the sale of culinary art
supplies and student prepared food products from the garde manger, pastry shop,
bakery, and confiserie. The Academy also has a library and offices for
administrative, admissions, financial aid, educational services, faculty, and
consumer education.

Academy management estimates that its current facilities can accommodate
approximately 765 students and that once full enrollment in these facilities is
achieved additional facilities can be located.

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

There are various legal claims and lawsuits pending by and against the Academy
that, in the opinion of management, after consultation with legal counsel, are
not expected to have in any material adverse effect on the results of operations
or financial position of the Academy.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

By written consent of the shareholders effective March 2, 1996, the shareholders
approved an amendment to the Academy's Articles of Incorporation to authorize
the issuance of up to 5,000,000 shares of Preferred Stock in one or more series,
with such rights, preferences, privileges, and restrictions as may be determined
by the Board of Directors.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Common Stock is included in the Nasdaq National Market under the symbol
"COOK." The Common Stock began trading on July 6, 1993, following the Academy's
Initial Public Offering. The following table sets forth the high and low
closing sale price quotations on Nasdaq for the Common Stock for the periods
indicated:

Sale Price
----------------------
High Low
------ -----
Fiscal Year Ended June 30, 1995
- -------------------------------
Quarter ended September 30, 1994 $7.000 $5.125
Quarter ended December 31, 1994 $7.625 $5.875
Quarter ended March 31, 1995 $8.125 $6.875
Quarter ended June 30, 1995 $8.250 $6.750

Fiscal Year Ended June 30, 1996
- -------------------------------
Quarter ended September 30, 1995 $7.625 $4.375
Quarter ended December 31, 1995 $7.625 $6.500
Quarter ended March 31, 1996 $7.375 $6.188
Quarter ended June 30, 1996 $7.750 $6.500

On September 26, 1996, the closing price for the Common Stock was $8.25 per
share.

As of September 30, 1996, there were approximately 80 record holders of the
Common Stock, based on information provided by the Academy's transfer agent.

The Academy has never paid cash dividends on it capital stock, however,
beginning September 30, 1996, it will be required to pay quarterly dividends on
its Series A Preferred Stock at the annual rate of $.4125 per share. At
present, the Academy intends to retain any earnings for use in its business and
does

<PAGE>

not anticipate paying cash dividends in the foreseeable future except as are
required to be paid on its Series A Preferred Stock.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the financial
statements and notes thereto located on pages F-3 through F-17.

The Academy's revenues are derived primarily from culinary arts education as
well as restaurant, retail and media operations. Culinary arts education
primarily consists of the A.O.S. Culinary Arts Degree Program, the 30-week
Baking & Pastry Arts Certificate Program, and consumer education classes.
Starting in June 1996, the A.O.S. Culinary Arts Degree Program began enrollment
on a two week cycle. The program can accommodate up to 29 students per
enrollment period. Previously the A.O.S. Degree Program enrolled an average of
approximately 80 students per enrollment period with six enrollments per year.
The 30-week Baking & Pastry Arts Certificate Program enrolled classes ranging
from 15 to 20 students with three classes enrolled at June 30, 1996.

The change in class size and the change in the enrollment cycle for the A.O.S.
program from every two months to every two weeks was made to enable student
enrollments to be managed more effectively. With an increased number of choices
of start dates for students, the Academy is better able to manage individual
student start dates to optimize class sizes. Additionally, the academy is able
to manage faculty labor costs and other program costs due to more predictable
class sizes. Further, the Academy is able to utilize space in its teaching
facility more effectively because it is able to free up previously underutilized
space for other revenue producing activities such as contract training.

Consumer education consists of avocational and team building programs. The
Academy's team building programs offer groups the use of the Academy's
professional kitchens under the guidance of a chef instructor. This form of
team building is an alternative to other forms of combined business and social
interaction such as river rafting and sporting event outings. Restaurant and
retail operations include two restaurants and two private dining rooms generally
open to the public seven days per week, banquet services generally offered seven
days per week and a small on-site retail shop offering student prepared foods,
beverages, cookbooks, video tapes, kitchen wares and selected clothing. Media
operations primarily consist of the marketing of the "Cooking at the Academy"
television series and the licensing of the Academy's name and cookbook content
for use in a CD-ROM based cookbook series. Certain expenses such as food costs
and costs of goods sold related to both educational services and retail
restaurant operations.

Revenues from the Academy's A.O.S. Culinary Arts Degree Program and the Baking &
Pastry Arts Certificate Program rely exclusively on enrollments in those
programs. Tuition is initially recorded at the commencement of each eight-month
semester (nine-month semesters as of June 1996) or 30-week term, respectively,
as deferred revenue that is recognized over the semester as students complete
credit hours required for graduation. For the A.O.S. Culinary Arts Degree
Program, the average time period from initial contact with prospective students
to enrollment is approximately six months. During the enrollment period for
February, April and June 1995, the Academy experienced a decrease in the number
of students enrolling compared to enrollment periods earlier in the fiscal year
and to management's enrollment estimates. The effect of the decreased number of
students during those periods contributed to a loss for the fourth quarter of
fiscal 1995. Management has spent considerable time, effort and cost to
identify the causes of decreased enrollments and has taken specific steps to

<PAGE>

mitigate and correct the deficiencies. It is management's belief that
corrective actions have already proven successful. Management's corrective plan
included the retention of the enrollment management consulting firm of Noel-
Levitz to advise it as to how to improve the enrollment management process, the
restructuring of its Admissions Department, the implementation of the Noel-
Levitz "EMAS-Plus" system of enrollment management, and substantial revisions to
its reporting and admissions processes. There is no assurance, however, that
management's corrective actions will be successful or that enrollments or
revenues will increase in the future.

In its prior fiscal year the Academy believed that a prudent strategy for growth
included the aggressive pursuit of acquisition candidates that demonstrated
specific criteria such as financial health, acceptable cohort financial aid
repayment default rates and high student placement rates and expansion beyond
the existing San Francisco campus to other locations to offer a full complement
of professional programs and consumer education classes. Certain actions were
taken during the current fiscal year in furtherance of this growth strategy.
The Academy concluded during the fourth quarter of the current fiscal year that,
based upon a variety of factors, such strategies required significant revision
in order to be successful. In May, 1996 the Academy changed its senior
management. The Academy promoted its Chief Operating Officer, Keith Keogh, who
is a Certified Executive Chef and currently the coach of the U.S. Culinary Team,
to the position of President. The change of leadership is anticipated to
facilitate the return to core competencies of the Academy, namely, providing
training and education to the food industry.

The Academy believes that manageable growth is achievable through the addition
of remote training facilities such as its culinary arts training center at
Salinas, California and by the addition of programs to be offered to the food
industry such as contract training and research and development in the areas of
menu development and restaurant design. In order to facilitate this revised
strategy, the Academy has formed the CCA Development Company whose mission is to
provide knowledge based resources to the food industry which complement the
education which the Academy's degree programs offer. CCA Development Company is
led by Lea Bergen, a former chef with 20 years experience in the culinary arts.

While management believes that this revised strategy will enable it to
significantly increase revenues by providing additional educational, training
and consultative resources to the food industry there can be no assurance that
management will be able to successfully implement such a strategy.

In July 1995, the Academy executed a non-binding letter of intent to purchase
all of the outstanding stock of the New York Restaurant School, Inc. ("NYRS"),
which letter of intent expired March 15, 1996. Although the Academy and NYRS
continued to negotiate in good faith after expiration of the letter of intent,
the Academy halted the acquisition and expensed during the current fiscal year
approximately $109,000 in realted costs.

<PAGE>

Broadway. In November 1995, the Academy entered into an agreement with Broadway
whereby the Academy was paid $135,000 as reimbursement for expenses incurred and
was released from all of its obligations under the letter of intent and sublease
agreement. Approximately $30,000 of costs in excess of the $135,000
reimbursement incurred by the Academy in connection with the letter of intent
and sublease agreement were expensed during the current fiscal year.

Except for historical information contained herein this report contains forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. The forward-
looking statements contained herein are based upon current expectations, and
actual results may differ materially. Forward-looking statements contained in
this Report involve numerous risks and uncertainties, including those discussed
in this Report, that could cause actual results to differ materially from those
projected. Investors are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Academy undertakes no obligation to publicly release the
results of any revision to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

RESULTS OF OPERATIONS

The Academy incurred a net loss of $999,000 for the 1996 fiscal year, or $(0.32)
per share, compared to net income of $151,000, or $0.05 per share for the prior
year.

Total revenues decreased 1.6% for the 1996 fiscal year to $14,882,000 from
$15,129,000 for the prior year. Revenues from culinary arts education, which
typically account for approximately 80% of total revenues, were down 3.6% from
the prior year primarily due to lower enrollment and total student population
during the year. Revenues from restaurant and retail sales, media and other
increased $206,000, or 8.1%, for the year over the prior year.

Total culinary arts education revenues for the fiscal year ended June 30, 1996,
were $12,151,000 compared to $12,604,000 for the fiscal year ended June 30,
1995. The decrease of $453,000, or 3.6%, is primarily related to lower
enrollment and student population in the A.O.S. Culinary Arts Degree Program and
Baking & Pastry Certificate Program during the year. This decrease was
partially offset by tuition increases in these programs.

For the A.O.S. Culinary Arts Degree Program, the average time from initial
contact with prospective students to enrollment is approximately six months.
During the enrollment periods for February, April and June 1995, the Academy
experienced a decrease in the number of students enrolling compared to
enrollments in the prior fiscal year and compared to management's enrollment
estimates. The effect of the decreased number of students during those periods
resulted in a loss for the fourth quarter of fiscal 1995. Management has
isolated what it believes to be the causes of decreased enrollments, has taken
specific steps to mitigate and correct the deficiencies, and enrollments during
the later part of fiscal 1996 have risen. It is management's belief that its
changes to the enrollment management process will continue to be successful.
Due to the changes to smaller class sizes with more frequent starts, total
student count will continue to decrease as larger classes graduate and smaller
classes start. This effect is expected to reverse in the second quarter of
fiscal 1997. Management's corrective plan included the retention of the
enrollment management consulting firm of Noel-Levitz to advise it as to how to
improve the enrollment management process, to restructure its Admissions
Department, to implement the Noel-Levitz "EMAS-Plus" system of enrollment
management, in addition to substantial revisions in the

<PAGE>

reporting and admissions processes. There is no assurance, however, that
management's corrective actions will be successful or that enrollments or
revenues will increase in the future.

Starting in June 1996, A.O.S. classes are scheduled to start every two weeks,
allowing for more time slots, greater scheduling convenience, better control
over the enrollment management process, and better management of labor and
facility costs. Also starting in June 1996, the A.O.S. Culinary Arts Degree
Program was expanded to 18 months to provide a longer externship thus giving the
student more practical work experience prior to graduation. Additionally, this
new enrollment schedule will allow the Academy to deliver the curriculum in
sequential order. Such a schedule ensures more effective competency testing
and advancement through the entire program. If the Academy should need to
postpone an enrollment of students for two weeks in order to optimize class
size, idle kitchens may be used for other revenue producing programs such as
contract training with large groups, teambuilding classes for avocational
students, and part-time offerings. While other programs are being planned,
there is no assurance that the Academy will be successful in marketing or
selling these new programs.

The Academy estimates that because of the planned reduction in class start size,
revenues for the first two quarters of fiscal 1997 will be lower than for the
same periods in the preceding year. In light of this change and in response to
the financial results of the fiscal year ended June 30, 1996, the Academy has
undertaken significant cost reduction programs, the most significant component
of which is to reduce its labor costs. In the months of May, June, and July
1996, the Academy made staff reductions of approximately 13 people primarily in
the admissions and operations departments.

Restaurant, retail, media, and other sales were $2,731,000, or 18.4% of total
revenues, during the fiscal year ended June 30, 1996, compared to sales of
$2,525,000, or 16.7% of total revenues for the fiscal year ended June 30, 1995.
The increase in revenues is primarily related to $150,000 in royalties earned
from the use of the Academy's trademark, logo and certain content in computer
CD-ROM software products.

Operating expenses were $8,914,000 or 59.9% of revenues for the fiscal year
ended June 30, 1996, compared to operating expenses of $8,642,000, or 57.1% of
revenues, for fiscal year ended June 30, 1995. The increase was attributable to
the addition of personnel to pursue new business opportunities that were a part
of the business plan of expansion by acquisition and expansion into retail,
media and other non-core businesses along with the cost of marketing efforts to
attract more students and other forms of business. In addition certain costs of
restructuring the executive office and admissions of approximately $250,000 are
also included in operating expenses. An increase in occupancy costs, including
depreciation, was also incurred due to the completion of expansion and
refurbishment of the Academy's existing facility, retail shop and computer
systems.

During the fiscal year ended June 30, 1996, the Academy expensed approximately
$359,000 in costs related to certain non-recurring items including the costs
associated with the termination of employment of its former president and the
costs associated with its efforts in connection with the failed acquisition of
the New York Restaurant School and the establishment of a remote training
facility at various Broadway department stores (see discussion above).

Food costs were $1,692,000, or 11.4% of revenues for the year for the fiscal
year ended June 30, 1996, compared to food costs of $1,629,000, or 10.8% of
revenues, for the fiscal year ended June 30, 1995.

Selling, general and administrative costs were $4,835,000, or 32.5% of revenues,
for the fiscal year ended June 30, 1996, compared to selling, general and
administrative costs of $4,566,000, or 30.2% of revenues, for the fiscal year
ended June 30, 1995.

<PAGE>

For the fiscal year ended June 30, 1996, interest expense, net of interest
income, was $81,000, or 0.5% of revenues, compared to interest income, net of
interest expense, of $25,000, or 0.2% of revenues, for the fiscal year ended
June 30, 1995.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Academy financed its growth from the issuance of equity
securities in private and public transactions, borrowings from related parties,
lease and debt financing obligations and through cash flow provided by
operations.

At June 30, 1996, the Academy's principal sources of liquidity included cash and
cash equivalents of $3,283,000, $646,000 in certificates of deposit that are
classified as long term investments, and net accounts receivable of $2,786,000.
The Academy has long-term obligations of $2,556,000 and working capital of
$935,000 at June 30, 1996. Included in the long-term obligations is $1,400,000
for Convertible Notes that converted into Series A Preferred Stock during August
1996.

As of June 30, 1996, the Academy had available a revolving line of credit
provideing for borrowings up to $500,000 with interest at the prime rate of the
bank, the proceeds of which are to be used to finance working capital
requirements. The line of credit is collateralized by the Academy's equipment.
Any outstanding principal balance under the line of credit shall be due and
payable on February 1, 1997. As of June 30, 1996, the Academy had no
outstanding borrowings under the line of credit. During September 1996, the
Academy requested that the bank terminate the line of credit.

Additionally, the Academy is indebted for term loan that provides for borrowings
up to $750,000 with interest at 1% above the prime rate of the bank, the
proceeds of which are to be used to finance the purchase of new equipment. The
outstanding principal balance of the first term loan is to be repaid in 36
monthly installments of approximately $21,000. This term loan are
collateralized by all of the Academy's equipment and a certificate of deposit,
the balance of which shall not at any time be less than 50% of the principal
balance outstanding under the term note. In July 1994, the Academy borrowed
$750,000 under the term loan to finance equipment used in its expansion and
renovation. As of June 30, 1996, the Academy had approximately $292,000
outstanding under this term loan and maintained a certificate of deposit for
$355,000 in accordance with this provision. The loan was classified as a
current liability and was repaid on October 9, 1996.

In June 1996, the Academy obtained a second term loan from another bank in the
amount of $500,000, the proceeds of which were used for working capital
requirements. Any outstanding principal balance under the second term loan
shall be due and payable on July 15, 1997. The second term loan provides for
interest to be paid monthly at 1% above the bank's index rate for 90-day
business certificate of deposits. The second term loan is collateralized by
certificate of deposit at the same bank in the amount of $500,000. As of June
30, 1996, the Academy had approximately $500,000 outstanding under the second
term loan and maintained a certificate of deposit of $500,000 in accordance with
this provision.

<PAGE>

ITEM 7. FINANCIAL STATEMENTS

The Balance Sheet of the Academy at June 30, 1996, and the related Statements of
Operations, Shareholders' Equity and Cash Flows for the years ended June 30,
1996, and 1995, and notes to the financial statements are located on pages F-3
through F-17.

Form
10-KSB
Page
------
Report of Independent Public Accountants
Deloitte & Touche, LLP F-1

Report of Independent Public Accountants
Arthur Andersen LLP F-2

Balance Sheet at June 30, 1996 F-3

Statements of Operations for the years ended
June 30, 1996 and 1995 F-4

Statements of Shareholders' Equity for the years
ended June 30, 1996 and 1995 F-5

Statement of Cash Flows for the years ended
June 30, 1996 and 1995 F-6

Notes to Financial Statements F-7

<PAGE>

[LETTERHEAD]

Board of Directors and Shareholders
California Culinary Academy, Inc:

We have audited the accompanying balance sheet of the California Culinary
Academy, Inc. (the "Academy") as of June 30, 1996 and the related statements of
operations, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Academy's management. Our
responsibility is to express an opinion on these financial statements 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 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 audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Academy at June 30, 1996, and the
results of its operations and its cash flows for the year ended in conformity
with generally accepted accounting principles.

/s/ Deloitte & Touche LLP

August 30, 1996 (October 9, 1996
as to Note 3)

F-1

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of the California Culinary Academy, Inc:

We have audited the accompanying statements of operations, shareholders' equity
and cash flows of the California Culinary Academy, Inc. (a California
corporation) for the year ended June 30, 1995. These financial statements are
the responsibility of the Academy's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of the
California Culinary Academy, Inc. for the year ended June 30, 1995, in
conformity with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP

Oakland, California,
August 16, 1995

F-2

<PAGE>

CALIFORNIA CULINARY ACADEMY, INC.
BALANCE SHEET
JUNE 30, 1996

ASSETS

Current Assets:
Cash and cash equivalents $3,283,000
Accounts receivable, net of allowance of $280,000 2,786,000
Inventories 208,000
Prepaid expenses and other assets 160,000
Deferred tax asset 145,000
-----------
Total Current Assets 6,582,000
-----------
-----------
Property and equipment, net of depreciation and amortization 4,117,000
Intangible assets, net 546,000
Long-term investments - restricted 646,000
Other assets 967,000
-----------
TOTAL ASSETS $12,858,000
-----------
-----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $749,000
Accrued liabilities 477,000
Deferred revenue 3,795,000
Student prepayments 258,000
Current portion of note payable to bank 292,000
Current portion of capital lease obligations 76,000
-----------
Total Current Liabilities 5,647,000
-----------
-----------

Note payable to bank 500,000
Capital lease obligations 215,000
Other non-current liabilities 441,000

Subordinated convertible notes payable 1,400,000

Shareholders' Equity:
Common stock, no par value, 20,000,000 shares authorized,
3,186,000 issued and outstanding 8,741,000
Retained deficit (4,086,000)
-----------
-----------
Total Shareholders' Equity 4,655,000
-----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,858,000
-----------
-----------

<PAGE>

CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995

Year Ended June 30
----------------------------
1996 1995
----------- -----------
Revenues:
Culinary arts education $12,151,000 $12,604,000
Restaurants, retail, media and other 2,731,000 2,525,000
----------- -----------
Total revenues 14,882,000 15,129,000
Costs and expenses:
Operating expenses 8,914,000 8,642,000
Selling, general and administrative 4,835,000 4,566,000
Food costs 1,692,000 1,629,000
Severance and other 359,000
Interest, net 81,000 25,000
----------- -----------
Total costs and expenses 15,881,000 14,862,000
Income (loss) before income tax provision (999,000) 267,000
Income tax provision 116,000
----------- -----------
Net income (loss) $(999,000) $151,000
----------- -----------
----------- -----------
Primary earnings (loss) per share $(0.32) $0.05
----------- -----------
----------- -----------
Weighted average common shares and equivalents 3,114,732 3,278,829
----------- -----------
----------- -----------

<PAGE>

CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995

Common Stock
------------------------
Retained
Shares Amount Deficit Total
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at June 30, 1994 3,012,858 $8,006,000 ($3,238,000) $4,768,000
Exercise of Stock Options 82,742 275,000 275,000
Net income for the year 151,000 151,000
---------- ----------- ----------- -----------
Balance at June 30, 1995 3,095,600 8,281,000 (3,087,000) 5,194,000
Exercise of Stock Options 87,453 447,000 447,000
Stock issued in exchange for services 3,000 13,000 13,000
Net loss for the year (999,000) (999,000)
---------- ----------- ----------- -----------
Balance at June 30, 1996 3,186,000 $8,741,000 ($4,086,000) $4,655,000
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>

<PAGE>

CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1996 AND 1995

Year Ended June 30
------------------------
1996 1995
---------- ----------
Cash Flows From Operating Activities:
Net income (loss) $(999,000) $151,000
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 991,000 874,000
Provision for losses on accounts receivable 275,000 39,000
Expense not requiring cash 13,000
Deferred tax asset 75,000
Loss on disposal of property 13,000
Changes in assets and liabilities:
Accounts receivable 522,000 801,000
Inventories 50,000 (74,000)
Prepaid expenses and other assets (244,000) (31,000)
Deferred revenues (563,000) (597,000)
Accounts payable (52,000) (783,000)
Accrued and other liabilities 44,000 (206,000)
Other long-term obligations (19,000) 22,000
---------- ---------
Net Cash Provided By Operating Activities 18,000 284,000
---------- ---------

Cash Flows From Investing Activities:
Increase in long-term investments (646,000)
Acquisition of property and equipment (464,000) (800,000)
---------- ----------
Net Cash Used In Investing Activities (1,110,000) (800,000)
---------- ----------

Cash Flows From Financing Activities:
Borrowings under term loan agreement 500,000 750,000
Borrowings under Convertible Note 1,400,000
Principal payments on term loan agreement (250,000) (208,000)
Principal payments on capital lease obligations (81,000) (43,000)
Proceeds from exercise of stock options 447,000 275,000
---------- ----------
Net Cash Provided By Financing Activities 2,016,000 774,000
---------- ----------

Net Increase In Cash and Cash Equivalents 924,000 258,000

Cash and cash equivalents, beginning of period 2,359,000 2,101,000
---------- ----------

Cash and cash equivalents, end of period $3,283,000 $2,359,000
---------- ----------
---------- ----------

<PAGE>

CALIFORNIA CULINARY ACADEMY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996

NOTE 1 -- THE COMPANY

The California Culinary Academy, Inc. (the "Academy") was founded in 1977 and
operates a professional school for chef training that stresses the fundamental
techniques of modern classical cooking and baking. The operations of the
Academy include an A.O.S. Degree Program in Culinary Arts, a Certificate Program
in Baking and Pastry Arts, weekend and short-course professional and vocational
cooking classes, two public restaurants, two private dining rooms and a small
retail shop located in San Francisco. The Academy is accredited by the
Accrediting Commission of Career Schools and Colleges of Technology of the
Career College Association (formerly known as the Accrediting Commission for
Trade and Technical Schools of the Career College Association) and the American
Culinary Federation Educational Institute's Accrediting Commission.

Enrollment revenues from the Academy's A.O.S. Degree Program and the Baking and
Pastry Arts Certificate Program rely exclusively on enrollments in those
programs. For the A.O.S. Degree Program, the average time period from initial
contact with prospective students to enrollment is approximately six months.
During the enrollment period for February, April and June 1995, the Academy
experienced a decrease in the number of students enrolling compared to
enrollments periods earlier in the fiscal year 1995 and to management's
enrollment estimates.

Starting in June 1996, A.O.S. classes are scheduled to start every two weeks,
allowing for more time slots, scheduling convenience and control over
enrollment. Management has isolated what it believes to be the causes of
decreased enrollments and has taken specific steps to mitigate and correct the
deficiencies. It is management's belief that corrective actions will be
successful for future enrollments. Given the length of time required to enroll
prospective students, management believes the effect of corrective actions on
results of operations will not be effective until at least the second quarter of
fiscal 1997. There is no assurance, however, that management's corrective
actions will be successful or that enrollments or revenues will increase in the
future.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION
Tuition is initially recorded at the commencement of each eight-month or nine-
month semester, and 30-week or 14-week term, respectively, as deferred revenue
and is recognized as revenue over the length of program as students complete
course work required for graduation. Revenue on restaurant, retail and media
sales is recognized at the time services are performed or goods are sold.

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

<PAGE>

CASH AND CASH EQUIVALENTS
The Academy considers all highly liquid investments with an original maturities
of three months or less to be cash equivalents.

LONG-TERM INVESTMENTS
Long-term investments represent certificates of deposit, which have been pledged
as collateral for long-term bank debt (see Note 3). These certificates of
deposit have original maturities of three months.

INVENTORIES
Inventories are stated at the lower of cost or market and consist primarily of
food and beverage. Cost is determined using the first-in, first-out (FIFO)
method.

PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which range
from three to ten years. Leasehold improvements are amortized using the
straight-line method over the remaining term of the lease or the useful life of
the improvements, whichever is shorter.

Property and equipment at June 30, 1996 consists of the following:

Kitchen equipment $1,663,000
Furniture, fixtures and equipment 2,543,000
Construction-in-process 30,000
Leasehold improvements 3,777,000
-----------
8,013,000

Less accumulated depreciation and
amortization (3,896,000)
-----------
$4,117,000
-----------
-----------

INTANGIBLE ASSETS
Intangible assets are stated at cost and consist primarily of the excess of the
purchase price over the net tangible assets acquired in the original purchase of
the Academy. Intangible assets at June 30, 1996 consist of the following:

Favorable lease 1,476,000
Goodwill 249,000
-----------
1,725,000
Less accumulated amortization (1,179,000)
-----------
$546,000
-----------
-----------

Amortization is computed using the straight-line method over the estimated
useful lives of the respective assets. The estimated useful lives used in
computing amortization are: favorable lease - 15 years; and goodwill - 20 years.

<PAGE>

PRIMARY EARNINGS (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of shares
outstanding during each of the respective periods, including the dilutive
effects of stock options and warrants using the treasury stock method.

CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Academy to concentrations of
credit risk consist of cash, short-term cash investments, such as money market
investments, and accounts receivable. The Academy invests substantially all of
its excess cash funds in money market funds through high-quality financial
institutions and grants credit to its students. The Academy believes that the
investment risks associated with money market funds are minimal due to the high
quality of the financial institutions through which the investments are made.
The Academy believes the credit risk associated with its student accounts
receivable is minimal as the majority of students receive some type of financial
aid paid directly to the Academy. To reduce credit risk, the Academy performs
ongoing evaluations of its students' financial condition and assists qualified
students in obtaining student financial aid.

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Academy paid approximately $66,000 and $69,000 in interest for the years
ended June 30, 1996 and 1995, respectively.

The Academy paid no income taxes for the year ended June 30, 1996 and
approximately $7,000 in income taxes for the years ended June 30, 1995.

The Academy entered into capital lease obligations for approximately $188,000
and $130,000 for the years ended June 30, 1996 and 1995, respectively.

NEW ACCOUNTING STANDARDS
SFAS No.123, ACCOUNTING FOR STOCK-BASED COMPENSATION, defines a fair market
value of accounting for stock options and other equity instruments. Under the
fair market value method, compensation cost is measured at the grant date based
on the fair market value of the award and is recognized over the service period,
which is usually the vesting period. The new standard encourages, but does not
require, adoption of the fair market value method of accounting for employee
stock-based transactions. SFAS No.123 permits companies to continue to account
for such transactions under Accounting Principles Board Opinion ("APBO") No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, but requires disclosure of pro forma
net income and earnings per share as if a company had applied the new method of
accounting.

In fiscal 1997, the Academy will adopt the requirements of SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS. SFAS No 121 requires that
an entity review long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the carry-
ing amount of an asset may not be recoverable. Management is evaluating the
impact to the financial statements upon adoption.

RECLASSFICATIONS
Certain prior year amounts have been reclassified to conform to current year
presentation.

<PAGE>

NOTE 3 -- BANK DEBT

As of June 30, 1996, the Academy had available a revolving line of credit and
term loan with a bank. The line of credit provides for borrowings up to $500,000
with interest at the prime rate of the bank, the proceeds of which are to be
used to finance working capital requirements. The term loan provides for
borrowings up to $750,000 with interest at 1% above the prime rate of the bank,
the proceeds of which are to be used to finance the purchase of new equipment.
The revolving line of credit and term loan are collateralized by all of the
Academy's equipment and the term loan is further collateralized by a certificate
of deposit, the balance of which shall not at any time be less than 50% of the
principal balance outstanding under the term note. As of June 30, 1996, the
Academy maintained a certificate of deposit of $355,000 with the bank, of which
$146,000 was collateral for the term loan. As of June 30, 1996 there were no
amounts outstanding on the line of credit; and in September 1996, the Academy
canceled the line of credit.

The financing agreement contains various affirmative covenants including certain
covenants and ratios which the Academy must maintain. As of June 30, 1996, the
Academy was in violation of certain covenants. The loan was classified as
current and was repaid on October 9, 1996.

In June 1996, the Academy obtained a term loan from a bank in the amount of
$500,000, the proceeds of which were used for working capital requirements. The
term loan provides for interest paid monthly at 1% above the bank's index rate
for 90-day business certificate of deposits. The line of credit is
collateralized by certificate of deposit at the same bank in the amount of
$500,000.

Future bank debt payments at June 30, 1996 are as follows:

Years Ending June 30: Amount
--------------------- ---------
1997 $292,000
1998 500,000
---------
Total debt payments $792,000
---------
---------

NOTE 4 - CAPITAL LEASE OBLIGATIONS

The Academy leases computer and other equipment under various capital lease
agreements. Certain lease agreements include purchase options and renewal
provisions at the option of the Academy.

<PAGE>

Future minimum lease payments at June 30, 1996 are as follows:

Years Ending June 30: Amount
--------------------- ---------
1997 $100,000
1998 86,000
1999 78,000
2000 56,000
2001 and thereafter 33,000
---------
Total minimum lease payments 353,000
Less amount representing interest (62,000)
---------
Present value of minimum lease payments 291,000
Less current portion of capital lease obligations (76,000)
---------
Long term portion of capital lease obligations $215,000
---------
---------
NOTE 5 - RELATED-PARTY TRANSACTIONS

In July 1992 and from time to time prior to August 1, 1991, the Chairman of the
Board and two other members of the Board of Directors, all principal
shareholders, made unsecured loans to the Academy. These loans were evidenced
by promissory notes and subsequently repaid. The loans carried interest at then
prevailing interest rates and called for warrants to be issued that entitled the
holders thereof to purchase an aggregate of 82 shares of the Academy's then-
existing Series A Preferred Stock. Warrants issued in conjunction with these
loans were converted, concurrently with the completion of the Initial Public
Offering in July 1993, into warrants to purchase 97,990 shares of common stock
at an exercise price of $4.18 per share. In August 1996, all warrants were
exercised to purchase 97,990 shares of common stock.

In April 1993, the Academy issued warrants to a shareholder who is related to
the Chairman of the Board of Directors to purchase 10 shares of its then-
existing Series A preferred stock at $8,000 per share. These warrants were
converted, concurrently with the completion of the Initial Public Offering in
July 1993, into warrants to purchase 11,950 shares of common stock at an
exercise price of $6.69. In August 1996, all warrants were exercised to purchase
97,990 shares of common stock.

In July 1994, the Academy entered into a six-month consulting agreement with a
principal shareholder and Chairman of the Board of Directors, to provide
consulting services relating to the Academy's business expansion and acquisition
strategies. The Academy paid $36,000 in consulting fees for the year ended June
30, 1995. In January 1995, the Academy entered into a month-to-month consulting
agreement whereby the shareholder provides investor relations and other
strategic services. The agreement provides for fees not to exceed $6,000 per
month. The Academy paid $36,000 and $72,000 in consulting fees for the years
ended June 30, 1995 and 1996, respectively.

In January 1996, the Academy entered into an agreement with a company to serve
as the selling agents for the placement of up to $5,000,000 in Convertible
Subordinated Notes ("Notes") (see Note 8). The Chairman and President of the
selling agent company is a member of on the Academy's Board of Directors. The
agent is entitled to receive a commission of 7% of the gross proceeds sold, a
non-accountable expense allowance of 3%, and warrants to purchase Common Stock
equal to 10% of the

<PAGE>

number of shares issued upon conversion of the Notes to Series A Preferred Stock
(see Note 8- Sale of Convertible Subordinated Notes) for $6.625 per share. In
April 1996, the Academy issued $1,400,000 of Notes and the selling agent
received $189,000 in commissions and fees.

During the year ended June 30, 1996, the Academy paid legal fees related to the
issuance of the Notes and other matters. For the year ended June 30, 1996, a
member of the Board of Directors and legal counsel to the Academy was paid
$152,000 for legal services and other reimbursements.

In July 1996, the Academy entered into a five-year lease for an approximately
3,780 square foot facility in Salinas, California. The lessor is a partnership
controlled by the principal shareholder and Chairman of the Board of Directors
and another principal shareholder and member of the Board of Directors. The new
facility will be an extension campus and is expected to open in October 1996.
The monthly rent for the facility will be the greater of $3,900 or 8% of gross
sales plus a share of common area and exterior maintenance charges. The Academy
paid a lease acquisition fee of $150,000 upon execution of the lease agreement.
The lease agreement includes a termination clause subject to revenue performance
at the extension campus during the first twelve months of operations and a
termination fee should the Academy invoke the termination clause.

NOTE 6- SHAREHOLDERS' EQUITY

STOCK OPTION PLAN
During 1990, prior to adoption of the 1992 Stock Option Plan, the Board of
Directors granted options to the former President and CEO of the Academy which
entitled the President to purchase 35,850 shares of Common Stock at an exercise
price of $2.26 per share, the fair value of the common stock at the date of
grant, as determined by the Board of Directors. Such options were exercised in
full in July 1994.

The Academy established the 1992 Stock Option Plan (the "Plan") during the year
ended August 31, 1993 and allocated a total of 383,595 shares to be granted
under the Plan. Under the Plan, incentive stock options can be granted at
prices not less than 100 percent of the fair market value of the stock at the
date of grant, and non-qualified options can be granted at not less than 85
percent of the fair market value of the stock at the date of grant. Options are
exercisable from one to five years from the date of grant.

During the year ended June 30, 1995, the Academy increased the stock options
available for future grant by 450,000 and granted 228,238 non-qualified and
164,012 incentive stock options with exercise prices equal to fair value of the
stock on the dates of grants which ranged from $5.125 to $8.00.

During the year ended June 30, 1996, the Academy increased the stock options
available for future grant by 100,000 and granted 10,600 non-qualified and
15,000 incentive stock options with exercise prices equal to fair value of the
stock on the dates of grants which ranged from $4.25 to $6.50.

<PAGE>

Option activity under the 1992 Plan is as follows:

Shares Options Option
Available Outstanding Price
--------- ----------- ------
Balance as of June 30, 1994 0 359,695 $4.18

Shares authorized 450,000 0
Options granted (392,250) 392,250 $5.125 to $8.00
Options exercised 0 (46,892) $4.18
Options canceled 114,393 (114,393) $4.18 to $6.25
------- ---------
Balance as of June 30, 1995 172,143 590,660 $4.18 to $8.00
Shares authorized 100,000 0
Options granted (25,600) 25,600 $4.25 to $6.50
Options exercised 0 (87,453) $4.18 to $6.25
Options canceled 156,004 (156,004) $4.18 to $8.00
--------- ---------
Balance as of June 30, 1996 402,547 372,803 $4.18 to $6.50
--------- ---------
--------- ---------
Exercisable options 345,857 $4.18 to $6.50
---------
---------

Of the options outstanding at June 30, 1996 and 1995, 248,553 and 436,678,
respectively, were non-qualified stock options.

NOTE 7 - INCOME TAXES

As of June 30, 1996 the Academy has federal and California net operating loss
carryforwards, for tax return purposes, of approximately $1,906,000 and
$1,092,000, respectively, which are available to offset future taxable income,
if any.

The provision (benefit) for income taxes for the year ended June 30, 1996 and
the year ended June 30, 1995 consists of the following:

Year Ended June 30
------------------
1996 1995
----------- -----------
Current $0 $0
Deferred 0 116,000
----------- -----------

$0 $116,000
----------- -----------
----------- -----------

<PAGE>

A reconciliation of the provision for income taxes by applying the Federal
statutory rate to the pre-tax income (loss) is as follows:

Year Ended June 30
------------------
1996 1995
----------- -----------
Federal statutory rate 34.0% 34.0%
State tax, net of federal
income tax deferral 0.0% 6.1%
Other items 0.0% 5.0%
Valuation allowance (34.0%) 5.0%
----------- -----------
Income tax provision 0.0% 45.1%

Deferred tax assets and liabilities result from differences in the timing of the
recognition of certain income and expense items for tax and financial accounting
purposes. The components of the net deferred tax asset include the following
deferred tax assets and liabilities:

Year Ended June 30
--------------------------
1996 1995
---------- -----------
Deferred Tax Assets (Liabilities)
Accrued Vacation $33,000 $30,000
Allowance for doubtful accounts 112,000 137,000
Net operating loss carryforward 715,000 121,000
Depreciation (195,000)
Amortization (219,000)
Other (42,000)
Valuation allowance (200,000)
----------- ------------

Net deferred tax asset/(liability) $246,000 $246,000
---------- -----------
---------- -----------

A valuation allowance has been provided for the current year net operating loss
and deferred assets since it is more likely than not that the future tax
benefits of these items will not realized. The factors affecting the
realizability of the deferred asset balance at 6/30/95 have not changed
significantly.

NOTE 8- SALE OF CONVERTIBLE SUBORDINATED NOTES

The Board of Directors authorized management to issue up to $5,000,000 in
Convertible Subordinated Notes ("Notes"), which will convert into (i) Common
Stock, at the option of the note holder, or (ii) Preferred Stock, mandatorily,
on the date the Academy becomes legally authorized to issue a new series of
Preferred Stock (the "Series A Convertible Preferred Stock" or "Series A
Preferred Stock"). The Notes also provide for an initial conversion price of
$5.50 per share. The Notes provide for interest at an annual rate of 7.5%,
payable quarterly, and are due and payable ten years after the date of initial
issuance. The holders of the Notes have no voting rights in such capacity, but
upon conversion will be entitled to voting rights attributable to the respective
stock. The Notes are senior to Common Stock and Preferred Stock, but are
subordinated to bank indebtedness.

<PAGE>

The non-redeemable Series A Preferred Stock into which the Notes are convertible
provide for quarterly dividends at an annual rate of 7.5% per share from the
date of first issuance, when and if declared by the Board of Directors, with a
liquidation preference of $5.50 per share, plus accrued dividends. Although the
Series A Preferred Stock is nonvoting, in the event the Academy fails to pay a
quarterly dividend, the holder of the Series A Preferred Stock will be entitled
to elect one-third of the Academy's Board of Directors at the next meeting held
for the election of directors. Each share of Series A Preferred Stock is
convertible at the option of the holder into the Academy's Common Stock at the
conversion price of $5.50 per share. After six months from the date on which
the Series A Preferred Stock is legally created, each share of Series A
Preferred Stock will convert automatically if the closing price of the Common
Stock equals or exceeds $8.00 for 20 consecutive days. Certain provisions for
price protection are set forth in the terms of the Series A Preferred Stock, but
in no event will the conversion price be less than $3.50.

In April 1996, the Academy closed on the purchase and sale of the Notes,
received gross proceeds of $1,400,000, and incurred debt issuance costs of
$394,000, which are included in other assets on the accompanying balance sheet.

The terms of the Notes also provide for certain registration rights. Certain
penalties are payable to the investors in an amount equal to one percent of the
principal per month in the event that a registration statement covering the
resale of the Common Stock issuable upon conversion is not effective within 90
days of (i) the date on which the Academy becomes legally authorized to issue
the Series A Preferred Stock and the Notes automatically convert into Preferred
Stock, or (ii) the date on which 100% of the Notes have been converted to Common
Stock.

On August 23, 1996, the Academy became legally authorized to issue Series A
Preferred Stock. Accordingly, the Notes automatically converted to 254,541
shares of Series A Preferred Stock. The Academy plans to file a registration
statement to register for resale the Common Stock issuable upon conversion of
the outstanding Series A Preferred Stock and will use its best efforts to effect
such registration before November 21, 1996, when certain penalties take effect.

NOTE 9- COMMITMENTS AND CONTINGENCIES

PURCHASE AGREEMENT
In September 1994, the Academy entered into an agreement with a company to
purchase $1,650,000 of knives, tools, gadgets and equipment over an unlimited
period of time. In exchange, the company underwrote one-third of the production
costs of the Academy's new television cooking series "Cooking at the Academy."
As of June 30, 1996, the Academy had purchased approximately $254,000 of knives,
tools, gadgets and equipment.

FACILITY LEASE
The Academy leases restaurant, school and office facilities under an operating
lease. The lease payment is approximately $98,000 per month and requires the
Academy to pay its pro rata share of common area maintenance, insurance and tax
expenses of approximately $18,000 per month. Certain of the Academy's Directors
and shareholders have guaranteed the Academy's performance under the lease. The
Academy leases office space in another facility close to its main facility. The
lease payment is $2,600 per month.

<PAGE>

Future minimum lease payments for all operating leases are approximately as
follows:

Years Ending June 30: Amount
--------------------- ------------
1997 $1,185,000
1998 1,163,000
1999 1,163,000
2000 873,000
------------
$4,384,000
------------
------------

Rent expense for the years ended June 30, 1996 and 1995, was approximately
$1,394,000 and $1,183,000, respectively.

STUDENT FINANCIAL ASSISTANCE PROGRAMS
Approximately 42% percent of the Academy's education program revenues are
provided by students participating in student financial assistance programs
administered by the DOE and the State of California.

In order for the Academy to participate in Title IV funding programs
administered by the DOE, it is required to meet certain minimum financial
standards which the Academy believes it meets or exceeds at June 30,1996. The
Academy is subject to periodic audit by the Department of Education ("DOE") of
its compliance with DOE funding requirements. While management believes they
are in compliance as of June 30, 1996, possibility of adverse DOE findings
exist. The financial statement effect of potential adverse findings is unknown.

LITIGATION
There are various claims and lawsuits pending by and against the Academy that,
in the opinion of management after consultation with legal counsel, will not
result in any material adverse effect on the results of operations or financial
position of the Academy.

NOTE 10-401(K) RETIREMENT PLAN

Employees become eligible to participate in a defined 401(k) plan after one year
of service, assuming that other eligibility requirements are also satisfied. The
401(k) plan allows for employee contributions and discretionary employer
matching contributions. Academy contributions to the 401(k) plan for the years
ended June 30,1996 and 1995 were approximately $89,000 and $68,000,
respectively.

NOTE 11- SEVERANCE AND OTHER

In May 1996, the Board of Directors voted to terminate the employment contract
of the president of the Academy. Pursuant to the employment contract, the
president was entitled to severance equal to one year's salary, approximately
$220,000, upon termination. The severance is due over a period of one year from
termination and as of June 30, 1996, the remaining amount of severance pay due
under the employment contract was approximately $184,000. In addition to the
severance costs, the Academy expensed $139,000 in costs related to halted
acquisitions as described below.

<PAGE>

In December 1994, the Academy entered into a letter of intent with Broadway
Stores, Inc. ("Broadway") to sublease space from Broadway to provide culinary
education classes in Costa Mesa, California and a second location. In March
1995, the Academy entered into a sublease agreement related to the Costa Mesa
location. In July 1995, Federated Department Stores announced it had entered
into an agreement to acquire Broadway. In November 1995, the Academy entered
into an agreement with Broadway whereby the Academy was paid $135,000 as
reimbursement for expenses incurred and was released from all of its obligations
under the letter of intent and sublease agreement. The Academy expensed
approximately $30,000 of costs that it had previously incurred in connection
with the Costa Mesa proposed site in excess of the $135,000 reimbursement during
the fiscal year ended June 30, 1996.

NOTE 12- SUBSEQUENT EVENT

In July 1996, a prior executive officer of the Academy elected to exercise
approximately 112,000 vested stock options. The Academy subsequently entered
into a transaction with this prior officer, wherein the Academy purchased and
retired this stock in exchange for approximately $717,000, which approximated
fair market value and was comprised of approximately $560,000 in cash and
$157,000 in promissory notes bearing an interest rate of 8.75%.

NOTE 13- FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and equivalents, accounts receivable and payable,
and restricted long-term investment (cash) are reasonable estimates of their
fair values.

Rates currently available to the Academy for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.

As of June 30, 1996 the fair value of existing debt is as follows:

Carrying Fair
Amount Value
------------ ------------
Term Loans $792,000 $792,000
Subordinated Convertible Notes Payable $1,400,000 $1,400,000

<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There were no disagreements on accounting and financial disclosure. The
Academy's decision to appoint Deloitte & Touche in place of its former
independent Arthur Andersen LLP, has been previously reported on Form 8-K

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE, WITH SECTION 16(a) OF THE EXCHANGE ACT

The executive officers and directors of the Academy as of September 30, 1996,
are as follows:

Name Age Positions

Theodore G. Crocker 50 Chairman of the Board and Chief
Executive Officer
William G. DeMar (2),(3) 48 Director
Robert J. Marani (1),(2),(3) 41 Director
Grover T. Wickersham 46 Director
W. Bruce C. Bailey (1),(2),(3) 42 Director
Keith H. Keogh 43 President and Chief Operating
Officer
Robert A. Stoffregen 47 Chief Financial Officer, Director
of Corporate Development

The bylaws of the Academy provide for a board of seven members. The board
currently has two vacancies. All directors hold office until the next annual
meeting of shareholders or until their successors have been duly elected and
qualified. Officers serve at the discretion of the Board of Directors.

Mr. Crocker has served as Chairman of the Board since March 1987. In May 1996,
he was appointed Chief Executive Officer. Since 1980, Mr. Crocker has also been
primarily employed as the President of Crocker & Associates, a real estate
development company located in Watsonville, California. From 1986 to May 1992,
Mr. Crocker was the President of Overland Development Corporation, a real estate
development company located in Aptos, California ("Overland"), where he was
responsible for day-to day management. Mr. Crocker holds an Associate of Arts
degree from Cabrillo Junior College.

Mr. DeMar has served as a member of the Board of Directors since March 1987.
Since July 1993, Mr. DeMar has been a consultant to the Academy in the areas of
facility space planning, construction and lease negotiations for future campus
facilities. From May 1990, to September 1992, Mr. DeMar

- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Messrs. Marani and DeMar are first cousins. There are no other family
relationships among any of the officers and directors.

<PAGE>

provided services to the Academy as a consultant, including, from September
1992, until March 1993, serving as the Director of Operations. From January
1989, to March 1993, Mr. DeMar was the President of Denver, Inc., a dry-cleaning
and laundromat business in the San Francisco Bay Area. From June 1988 to
December 1992, Mr. DeMar also was a partner in Cris, a partnership located in
San Francisco representing Lacsa Airlines for the Western United States. From
January 1990, to December 1992, Mr. DeMar owned and operated DDC Business
Services, San Francisco, California, a hotel concession providing various
business services to corporate hotel clients, as a sole proprietorship. Mr.
DeMar holds a Bachelor of Arts degree in Political Science from California State
University at Sacramento.

Mr. Marani has been a member of the Board of Directors since March 1987. From
that date until March 1993, he also served as the Academy's Treasurer. Mr.
Marani was a member of the Academy's Executive Committee from May 1989 until
March 1993. Since July 1985, Mr. Marani has been primarily employed as the
President of the Robert Marani Company, a real estate and investment company
located in Aptos, California. From May 1986 to May 1992, Mr. Marani also served
as the Vice President of Overland Development Corporation, a real estate
development company located in Aptos, California, where he was responsible for
managing acquisitions and finance. Mr. Marani holds a Bachelor of Arts degree
in Letters and Sciences from the University of California at Davis.

Mr. Bailey founded the investment banking firm of Bailey & Company, Inc.,
Toronto, Canada, in December 1988, and has been employed by such firm since that
date as Chairman of the Board. Bailey & Company is currently serving as an
investment banker to the Academy. Mr. Bailey hold a B.A. [Hons.] degree from
Queen's University, Kingston, Canada, an LL.B. from Dalhousie University,
Halifax, Canada, an LL.M. from Columbia University, New York, New York, and Call
to the Bar, Law Society of Upper Canada, Toronto, Canada.

Mr. Wickersham became the founding member of the law firm, Grover T. Wickersham,
P.C., Palo Alto, California, in July 1986. This firm serves as securities law
counsel to the Academy. Mr. Wickersham holds a B.A. degree in American Studies
from University of California at Berkeley, a JD degree from Hastings College of
the Law, and an MBA degree from Harvard Business School.

Mr. Keogh joined the Academy as Executive Vice President and Chief Operating
Officer in June 1995 and was promoted to President in May 1996. From 1971 until
joining the Academy, Mr. Keogh was employed at Walt Disney World in Florida and
held various positions, most recently as Executive Chef, Research and
Development-Theme Parks. Mr. Keogh is also the Manager of the Culinary Team USA
and President of the World Association of Cooks Societies.

Mr. Stoffregen joined the Academy in June 1996. Prior to his appointment as
Chief Financial Officer and Director of Corporate Development, Mr. Stoffregen
was a member of the public accounting firm of Jones, Henley & Schunck. From
August 1991 to September 1994, Mr. Stoffregen was Chief Financial Officer of
Sharper Image Corporation. Prior to 1991, Mr. Stoffregen was a partner in the
public accounting firm of Deloitte & Touche. Mr. Stoffregen holds a B.A. degree
in accounting from the University of Minnesota - Duluth and a JD from William
Mitchell College of Law, Saint Paul, Minnesota.

During the fiscal year ended June 30, 1996, the Board of Directors held four
meetings. No member of the Board attended fewer than 75% of the meetings in the
last fiscal year.

<PAGE>

COMMITTEES OF THE BOARD

The Academy's Board of Directors has established a Compensation Committee and an
Audit Committee. Each Committee has at least one outside director. The
Compensation Committee establishes salaries, incentives and other forms of
compensation for directors, officers and other employees of the Academy. The
Audit Committee oversees actions taken by the Academy's independent auditors and
reviews the Academy's internal financial controls. The Compensation and Audit
Committees each held two meetings during the fiscal year ended June 30, 1996.
The Board has delegated certain advisory authority to each committee, but the
decision making and management responsibilities of the Academy remain with the
full Board.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

As permitted by the General Corporation Law of California (the "Corporations
Code"), the Academy's Articles of Incorporation eliminate, to the fullest extent
permitted under California law, the personal liability of a director to the
Academy for monetary damages in an action brought by or in the right of the
Academy for breach of a director's duties to the Academy and its shareholders.
Under current California law, liability is not eliminated for (i) acts or
omissions that involve intentional misconduct or a knowing and culpable
violation of law; (ii) acts or omissions that a director believed to be
contrary to the best interests of the corporation or its shareholders or that
involve the absence of good faith on the part of the director; (iii) any
transaction from which a director derived an improper personal benefit; (iv)
acts or omissions that show a reckless disregard for the director's duty to the
corporation or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of serious injury to the corporation or its
shareholders; (v) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders; (vi) contracts or other transactions between
corporations and directors having interrelated directors in violation of Section
310 of the Corporations Code; and (vii) distributions, loans or guarantees made
in violation of Section 316 of the Corporations Code. In addition, the
Academy's Articles of Incorporation and bylaws provide for indemnification, to
the fullest extent permitted under the Corporations Code, of directors, officers
and agents of the Academy and persons who serve at the request of the Academy as
a director, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.

The Academy has also entered into indemnification agreements with its directors
and executive officers, as permitted under the bylaws. The indemnification
agreements provide that the directors and executive officers will be indemnified
to the fullest extent permitted by applicable law against all expenses
(including attorneys' fees), judgments, fines and amounts reasonably paid or
incurred by them for settlement in any threatened, pending or completed action,
suit or proceeding, including any derivative action, on account of their
services as a director or executive officer of the Academy or of any subsidiary
of the Academy or of any other company or enterprise in which they are serving
at the request of the Academy. No indemnification will be provided under the
indemnification agreements, however, to any director or executive officer in
certain limited circumstances, including on account of knowingly fraudulent,
deliberately dishonest or willful misconduct. To the extent the provisions of
the indemnification agreements exceed the indemnification permitted by
applicable law, such provisions may be unenforceable or may be limited to the
extent they are found by a court of competent jurisdiction to be contrary to
public policy. In addition, in the opinion of the Securities and Exchange
Commission, indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Act"), is against

<PAGE>

public policy and, therefore, unenforceable. Accordingly, these indemnification
provisions may not limit the liability of directors and executive officers under
the Act.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth certain information regarding compensation paid
by the Academy for services rendered during each of the Academy's last three
completed fiscal years for the Academy's Chief Executive Officers and all other
executive officers whose total annual salary and bonus exceeded $100,000 for
the fiscal year ended June 30, 1996 (the "Named Executive Officers").
Summary Compensation Table

Name and Long Term All Other
Principal Position Year Salary Compensation Awards Compensation
($$) Options/SARs (#) ($$)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alexander M. Hehmeyer, 1996 204,769 36,486(2)
CEO and President (1) 1995 220,000 180,488 4,526(3)
1994 36,666 47,000(4)

Theodore Crocker, 1996 72,000 15,000(6)
CEO and Chairman of the Board (5)

Keith H. Keogh, 1996 153,846 564(3)
President 1995 73,846 60,000

Christine Munson, 1996 107,077 2,500(7)
Chief Financial Officer 1995 52,145 1,300(7)
1994 40,000

</TABLE>

- ------------------------
(1) Mr. Hehmeyer terminated his employment on May 1, 1996, so 1996 amounts
represent 10 months of salary.
(2) Represents $8,986 of employer contributions to the 401(k) Plan and $27,500
in severance payments paid after May 1, 1996.
(3) Represents payments on life insurance policy.
(4) Represents $32,000 in earnings as a consultant to the Academy through April
30, 1994, and $15,000 in fees paid as a member of the Board of Directors
prior to appointment as President and CEO.
(5) Mr. Crocker was appointed Chief Executive Officer on May 1, 1996, so the
1996 salary figure includes only two months as CEO.
(6) Represents Board of Director fees.
(7) Represents employer contributions to the 401(k) Plan.

The Board of Directors has authorized payment of reasonable travel or other out-
of-pocket expenses incurred by non-management directors in attending meetings of
the Board of Directors and committees thereof. Each of the members of the Board
of Directors received $15,000 in board fees for each of the fiscal years ended
June 30, 1996 and 1995.

<PAGE>

Other than the 401(k) Plan described below, the Academy has no retirement,
pension or profit sharing program for the benefit of its directors, officers or
other employees, but the Board of Directors may recommend one or more such
programs for adoption in the future.

STOCK OPTIONS

The Academy's 1992 Stock Option Plan permits the granting of incentive stock
options ("ISOs"), or non-qualified stock options ("NQSOs") at the discretion of
the Board or a committee designated by the Board to administer the Plan (the
"Administrator"). Subject to the terms of the Plan, the Administrator
determines the terms and conditions of options granted under the Plan, including
the exercise price and option term. The Plan provides that the Administrator
must establish an exercise price for ISOs that is not less than the fair market
value per share at the date of grant. The exercise price of NQSOs may not be
less than 85% of the fair market value per share on the date of grant. Each ISO
must expire within ten years of the date of grant. However, if ISOs are granted
to persons owning more than 10% of the voting stock of the Academy, the Plan
provides that the exercise price must be not less than 110% of the fair market
value per share at the date of grant and that the term of the option may not
exceed five years. No ISO may be granted to an employee who, when aggregated
with all other ISOs granted to such employee by the Academy or any parent,
subsidiary or affiliate (as defined by the Plan) would result in the vesting of
shares having an aggregate fair market value (determined for each share as of
the date of grant of the ISO covering such share) in excess of $l00,000 in any
calendar year. No such limit applies to the grant of NQSOs.

As of April 1994, the number of shares authorized for issuance under the plan
was 450,000 shares. In March 1996, the Board of Directors voted to increase the
number of shares reserved for issuance under the plan by 100,000 shares. Such
increase was approved by an affirmative vote of the shareholders at the annual
shareholders meeting in March 1996.

In the event of a merger in which at the Academy is not the surviving
corporation the sale of substantially all of the assets of the Academy, all
outstanding options shall, notwithstanding any contrary terms of the grant,
accelerate and become exercisable in full prior to the consummation of such
merger at such times and on such conditions as the Administrator shall
determine, unless the successor corporation assumes the outstanding options or
substitutes substantially equivalent options. Shares subject to options granted
under the Plan that have lapsed or terminated are returned to the Plan. Unless
sooner terminated by the Board of Directors, the Plan terminates in December
2002.

The following table sets forth information regarding exercises of stock options
during the fiscal year ended June 30, 1996 by the executive officers named in
the Summary Compensation Table:

<PAGE>

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUE

Number of Unexercised Value of In-the-Money
Shares Acquired Value Options/SARs at FY-end Options/SARs at FY-end
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alexander M. Hehmeyer 40,000 $57,500 53,333/0 $139,999(1)/$0
19,120/0 $68,258(2)/$0

Theodore G. Crocker 0 $0 97,990/0 $349,824(3)/$0
10,000/0 $21,875(4)/$0

Keith Keogh 0 $0 60,000/0 $0/$0

Christine Munson 23,120 $48,248 5,000/0 $0/$0

</TABLE>

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

(1) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1996 of $7.75 and the option exercise price of $5.125
per share.
(2) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1996 of $7.75 and the option exercise price of $4.18
per share.
(3) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1996 of $7.75 and the option exercise price of $4.18
per share.
(4) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1996 of $7.75 and the option exercise price of $5.56
per share.

LONG-TERM INCENTIVE PLANS

The Academy currently has no long-term incentive plans and currently has no
plans to adopt any such plans in the foreseeable future. There is no assurance,
however, that the Academy will not adopt long-term incentive plans in the
future.

401(K) RETIREMENT PLAN

The Academy maintains an employee benefit plan qualified under Section 401(k) of
the Internal Revenue Code. Employees become eligible to participate in the
401(k) Plan after one year of service, assuming other eligibility requirements
are also satisfied. Under the 401(k) Plan, there is no fixed dollar amount of
retirement benefits, and actual benefits received by employees will depend on
the amount of each employee's account balance at the time of retirement. The
account balance will reflect annual allocations, the period of time an employee
participates in the 401(k) Plan and the success of the 401(k) Plan in investing
and reinvesting the assets of the trust fund. A participant's vested benefit is
distributed upon death, disability or termination of employment, however,
terminated employees may elect to keep vested benefits in the plan if such
vested benefits are greater than an amount stipulated on the Plan. The Plan is
not insured by the Pension Benefit Guaranty Corporation.

<PAGE>

The 401(k) Plan includes an arrangement under which employees may elect to have
the Academy contribute a portion of their compensation to the 401(k) Plan. The
Plan does not allow an employee to made direct contributions to the trust fund.
Such contributions are elective deferrals, and the amount may not exceed certain
dollar limitations established by the Internal Revenue Service.

ITEM 11. SECURITY OWNERSHIP OR CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of September 1, 1996, with respect
to the beneficial ownership of Common Stock by each shareholder owning 5% or
more of the Academy's Common Stock, by each director, the Named Executive
Officers, and by all executive officers and directors as a group.

SHARES BENEFICIALLY OWNED(1)
DIRECTORS AND 5% STOCKHOLDERS NUMBER PERCENT
- --------------------------------------------------------------
Theodore Crocker 1,283,649(2) 35.2%
625 Polk Street
San Francisco, CA 94102

William DeMar 271,135(3) 7.4%
625 Polk Street
San Francisco, CA 94102

Robert Marani 202,002(4) 5.5%
625 Polk Street
San Francisco, CA 94102

Grover T. Wickersham 14,850(5) 0.4%
625 Polk Street
San Francisco, CA 94102

W. Bruce Bailey 25,454(6)
625 Polk Street
San Francisco, CA 94102

Alexander M. Hehmeyer 0 0.0%
625 Polk Street
San Francisco, CA 94102

Christine Munson 0 0.0%
625 Polk Street
San Francisco, CA 94102

All Executive Officers and 1,832,671(7) 50.3%
Directors as a Group (7 persons)

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

(1) Beneficial ownership of shares by directors, officers and 5% or more
shareholders includes both outstanding Common Stock and shares issuable
upon exercise of warrants or options that are currently exercisable or will
be exercisable within 60 days after the date of this table. Except as
indicated in the footnotes to this table and pursuant to

<PAGE>

applicable community property laws the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
(2) Includes 161,526 shares of Common Stock issuable upon exercise of currently
exercisable options and warrants.
(3) Includes 40,152 shares of Common Stock issuable upon exercise of currently
exercisable options and warrants.
(4) Includes 86,002 shares of Common Stock issuable upon exercise of currently
exercisable options and warrants.
(5) Includes 14,850 shares of Common Stock issuable upon exercise of currently
exercisable options.
(6) Includes 25,454 shares of Common Stock issuable upon exercise of currently
exercisable warrants.
(7) Includes 362,530 shares of Common Stock issuable upon exercise of currently
exercisable options and warrants.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In April 1993, Richard V. Crocker, brother of Theodore G. Crocker, Chairman of
the Board, loaned the Academy $150,000, evidenced by a promissory note bearing
interest at 10% and maturing on the earlier of five business days following the
closing of a public or private financing of at least $5,000,000 or May 1994.
Mr. Crocker was also issued 10 warrants to purchase shares of its then existing
Series A Preferred Stock, which were exercisable for two years at an exercise
price of $8,000 per share. After giving effect to the conversion of the Series
A Preferred Stock into Common Stock at the time of the initial public offering
and the stock split effected in April 1993, the shares of Series A Preferred
Stock would be issued at an equivalent purchase price of $6.69 per share, if the
warrants were exercised. The Academy repaid the $150,000 loan out of the net
proceeds of the initial public offering in July 1993. Such warrants expired
unexercised.

In July 1992, and from time to time prior to August 1, 1991, the Chairman of the
Board and two other members of the Board of Directors, all principal
shareholders, made unsecured loans to the Academy. These loans were evidenced
by promissory notes and subsequently repaid. The loans carried interest at then
prevailing interest rates and called for warrants to be issued that entitled the
holders thereof to purchase an aggregate of 82 shares of the Academy's then
Series A Preferred Stock. Warrants issued in conjunction with these loans were
converted, concurrently with the completion of the Initial Public Offering in
July 1993, into warrants to purchase 97,990 shares of common stock at an
exercise price of $4.18 per share. During 1994, the original expiration date
of the warrants was extended for an additional two years to August 31, 1996. On
August 31, 1996, such warrants were exercised.

In March 1987, Messrs. Crocker, Marani and DeMar executed personal guarantees
with respect to the Academy's performance under the lease of its existing San
Francisco facilities. The current lease obligates the Academy to pay
approximately $116,000 per month in rent and additional charges. McKesson
Corporation, the prior owner of the Academy, was required to, and did, guarantee
performance under the lease, which guarantee was not released upon sale of the
Academy by McKesson. However, as part of the purchase and sale of the Academy,
McKesson, in turn, required Messrs. Crocker, Marani and DeMar to execute
personal guarantees, which guarantees remain in full force and effect. Messrs.,
Crocker, Marani and DeMar have not executed personal guarantees directly with
the landlord.

In July 1994, the Academy entered into a six-month consulting agreement with a
principal shareholder and Chairman of the Board of Directors, to provide
consulting services relating to the Academy's business expansion and acquisition
strategies. In January 1995, the Academy entered into a month-to-month
consulting agreement whereby the shareholder provides investor relations and
other strategic

<PAGE>

services. The agreement provides for fees not to exceed $6,000 per month. The
Academy paid $72,000 in consulting fees in both the years ended June 30, 1996
and 1995 to this shareholder.

In January 1996, the Academy entered into an agreement with a company to serve
as the selling agents for the placement of up to $5,000,000 in Convertible
Subordinated Notes ("Notes"). The Chairman and President of the selling agent
company is a member of on the Academy's Board of Directors. The agent is
entitled to receive a commission of 7% of the gross proceeds sold, a non-
accountable expense allowance of 3% and warrants to purchase 10% of the number
of shares sold in the offering. In April 1996, the Academy issued $1,400,000 of
Notes and the selling agent received $189,000 commissions and fees.

During the year ended June 30, 1996, the Academy paid a member of the Board and
Directors and legal counsel to the Academy was paid approximately $116,000 for
legal services in connection with the issuance of the Notes.

In July 1996, the Academy entered into a five-year lease for approximately a
3,800 square foot facility in Salinas, California. The lessor is a partnership
controlled by a principal shareholder and Chairman of the Board of Directors and
another principal shareholder and member of the Board of Directors. The new
facility will be an extension campus and is expected to open in October 1996.
The monthly rent for the facility will be the greater of approximately $3,900 or
8% of gross sales plus a share of common area and exterior maintenance charges.
The Academy paid a lease acquisition fee of $150,000 upon execution of the lease
agreement which may be partially rebated upon an early termination. The lease
agreement includes a termination clause subject to revenue performance at the
extension campus during the first twelve months of operations; and a termination
fee should the Academy invoke the termination clause.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) The exhibits in the accompanying Index to Exhibits on page 44 of this
report are filed or incorporated by reference as part of this report.

(b) On June 24, 1996, a report on Form 8-K was filed stating that the Academy
had decided to change its independent public accountants from Arthur Andersen
LLP. An amendment to that report was filed on July 23, 1996, confirming that
the appointment of Deloitte & Touche LLP as the Academy's new independent public
accountants had become effective as of July 18, 1996.

<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized;

Dated: October 11, 1996

California Culinary Academy, Inc.

By: /s/ Theodore G. Crocker
------------------------------------
Theodore G. Crocker
Chief Executive Officer and
Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated below.

SIGNATURE TITLE DATE

/s/ Theodore G. Crocker
- -------------------------
Theodore G. Crocker Chief Executive Officer and October 11, 1996
Chairman of the Board

/s/ Keith H. Keogh
- -------------------------
Keith H. Keogh President October 11, 1996

/s/ Robert A. Stoffregen
- -------------------------
Robert A. Stoffregen Chief Financial Officer October 11, 1996

/s/ Robert J. Marani
- -------------------------
Robert J. Marani Director October 11, 1996

/s/ William G. DeMar
- -------------------------
William G. DeMar Director October 11, 1996

/s/ Grover T. Wickersham
- -------------------------
Grover T. Wickersham Director October 11, 1996

/s/ W. Bruce Bailey
- -------------------------
W. Bruce Bailey Director October 11, 1996

<PAGE>

INDEX TO EXHIBITS

SEQUENTIAL EXHIBIT NUMBER EXHIBIT

3.1a(1) Amended and Restated Articles of Incorporation

3.2(2) Bylaws, as currently in effect

3.3(1) Specimen of Common Stock Certificate

3.4(1) Form of Representative's Warrant

3.5 1992 Stock Option Plan, form of Incentive Stock

4.1(1) Option Agreement, form of Nonqualified Stock

4.2(2) Option Agreement

10.1(1) Form of Indemnification Agreement with Directors
and Officers of the Registrant and Schedule of
Indemnities

10.2(1) Lease for Premises at 625 Polk Street, San
Francisco, as amended

10.3(1) U.S. Department of Education Program Letter of
Agreement dated March 1993

10.4(1) Form of Enrollment Agreement

10.6(1) Guarantee Participation and Endemnity Agreement
dated as of May 30, 1989 among the Registrant,
McKesson Corporation and certain shareholders of
the Registrant

10.7(1) Amendment to Promissory Notes and Agreement
Regarding Consolidation and Restructuring of
Scheduled Payments under Promissory Notes, as
amended, between Registrant and U.S. Leasing Co.,
fdba Ford Equipment Leasing Company dated October
1, 1990

10.8(1) "Cooking at the Academy" Home Video and Audio
Visual License Agreement between Registrant and
KQED, Inc. dated June 23, 1991

10.9(1) Letter of Intent between Registrant and KQED dated
December 10, 1992

10.10(1) Agreement between Registrant and KQED, Inc. dated
June 23, 1994

10.10(a)(5) 401(k) Plan and Trust

10.12(1) Accountant's Preferability Letter relating to a
Change in Accounting Principle

10.15(3) Financing Agreement with Wells Fargo Bank dated
May 1, 1994

10.16(4) Amended Financing Agreement with Wells Fargo Bank
dated June 28, 1994

10.16(a)(4) Commitment Letter from Wells Fargo Bank dated
September 22, 1994

10.16(b)(5) Consulting Agreement between Registrant and
Alexander H. Hehmeyer dated January 1, 1994
<PAGE>

10.17(5) Consulting Agreement between Registrant and
Alexander H. Hehmeyer dated January 1, 1994

10.18(5) Consulting Agreement between Registrant and
Theodore G. Crocker dated January 1, 1994

10.19(4) Agreement between Registrant and American Empire
Building Maintenance Corp. dated June 8, 1994

10.20(5) Agreement between Registrant and Meyer Corporation
dated September 10, 1994

10.21(5) Agreement between Registrant and Trident Trading
Company, Inc. (Wusthof-Registered Trademark--
Trident) dated August 5, 1994

10.22(4) Executive Employment Agreement between Registrant
and Alexander M. Hehmeyer dated May 3, 1994

10.24(6) Sublease Agreement between Registrant and Broadway
Stores, Inc. dated March 14, 1995

10.25(7) Lease Agreement between Registrant and Toshiba
America Information Systems, Inc. dated November
2, 1995

10.25(8) Amended Financing Agreement between Registrant and
Wells Fargo Bank dated February 1, 1996

10.26(8) Agreement between Registrant and Simon & Schuster,
Inc. dated February 22, 1996

10.27 Loan Agreement between Registrant and Mid-
Peninsula Bank dated June 14, 1996

11.0 Statement re: Computation of Earnings per Share

23.1 Consent of Arthur Andersen LLP

23.2 Consent of Deloitte & Touche, LLP

27.0 Financial Data Schedule
____________

1 Previously filed as an exhibit to the original filing of the registration
statement filed May 14, 1993 of Form SB-2
2 Previously filed as an exhibit to the first amendment of the registration
statement filed June 7, 1993 on Form SB-2
3 Previously filed as an exhibit to Form 10-KSB/A for the fiscal year ended
August 31, 1994
4 Previously filed as an exhibit to Form 10-QSB for the quarter ended May 31,
1994
5 Previously filed as an exhibit to Form 10-QSB for the fiscal year ended
June 30 1994
6 Previously filed as an exhibit to Form 10-QSB for the fiscal year ended
June 30 1995
7 Previously filed as an exhibit to Form 10-QSB for the quarter ended
December 31, 1995
8 Previously filed as an exhibit to Form 10-QSB for the quarter ended March
31, 1996

<PAGE>

CALIFORNIA CULINARY ACADEMY, INC.
ORDER OF PARTS OF EXHIBIT 3.1

1. Certificate of Amendment and Restatement of Articles of Incorporation
(signed December 1989)

2. Certificate of Amendment of Amended and Restated Articles of Incorporation
(dated May 10, 1993)

3. Certificate of Correction of Certificate of Amended and Restated Articles
of Incorporation (dated June 7, 1993)

4. Certificate of Amendment of Articles of Incorporation (dated July 25, 1996)

5. Certificate of Determination of Rights, Preferences, Privileges and
Restrictions of Series A Preferred Stock (dated August 9, 1996)

<PAGE>

CERTIFICATE OF AMENDMENT
AND RESTATEMENT OF
ARTICLES OF INCORPORATION OF

CALIFORNIA CULINARY ACADEMY. INC.

DR. THOMAS A. BLOOM and WILLIAM G. DEMAR certify that:

1. They are President and Secretary, respectively, of CALIFORNIA
CULINARY ACADEMY, INC., a California corporation;

2. Attached hereto as "Exhibit A" are the Amended and Restated
Articles of Incorporation of CALIFORNIA CULINARY ACADEMY, INC.:

3. The Amendments set forth in the Amended and Restated Articles of
Incorporation have been duly approved by the Board of Directors of the
Corporation;

4. The Amendments set forth in the Amended and Restated Articles have
been duly approved by the required vote of the shareholders of the Corporation
in accordance with Section 902 of the California General Corporation Law. The
Corporation has two classes of shares: Common and Preferred. The number of
outstanding Common shares is 450 and the number of outstanding Preferred shares
is 855. The number of shares voted in favor of the Amendment equaled or exceeded
the vote required for each class of shares. The percentage required for the
approval of the Amendments set forth in the Restated Articles was more than
fifty percent.

5. The Amendments set forth in the Amended and Restated Articles have
been duly approved by the required 80% combined vote of the outstanding shares
of the Corporation in accordance with Article IV of the Corporation's Articles
of Incorporation as amended on March 26, 1987.

6. The Amendments set forth in the Amended and Restated Articles have
been duly approved by the required majority vote of the outstanding Preferred
shares of the Corporation, voting separately, in accordance with Section 903 of
the California General Corporation Law.

<PAGE>

We further declare under penalty of perjury under the law of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.

Dated: December 11, 1989 /s/ Dr. Thomas A. Bloom
------------------------------
DR. THOMAS A. BLOOM
President

Dated: December 11, 1989 /s/ William G. Demar
------------------------------
WILLIAM G. DEMAR
Secretary

<PAGE>

AMENDED AND RESTATED

ARTICLES OF INCORPORATION OF

CALIFORNIA CULINARY ACADEMY, INC.

The name of this corporation is CALIFORNIA CULINARY ACADEMY, INC.

II.

The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the California
Corporations Code.

III.

This corporation is authorized to issue three classes of stock:
Common, Series "A" Preferred, and Series "B" Preferred. The total number of
shares of stock which this corporation has authority to issue is 8,100,
consisting of 5,000 shares of Common Stock, $.10 par value ("Common Stock"), and
1,550 shares of Series "A" Preferred Stock, $1.00 par value ("Series "A"
Preferred Stock"), and 1,550 shares of Series "B" Preferred Stock, $1.00 par
value ("Series "a" Preferred Stock"). The shares of Preferred Stock of the
Corporation that are outstanding as of the filing of these Amended and Restated
Articles shall become Series "B" Preferred Stock.

LIQUIDATION PREFERENCE. Upon the voluntary or involuntary liquidation,
winding up or dissolution of the corporation, out of the assets available for
distribution to the shareholders, the Series "A" Preferred Stock shall be
entitled to receive, in preference to any payment of the Series "B" Preferred
Stock and/or Common Stock, an amount equal to Four Thousand Dollars ($4,000.00)
per share. Thereafter, Series "B" Preferred Stock shall be entitled to receive,
in preference to any payment on the Common Stock [and AFTER payment of
preference on Series "A" Preferred Stock set forth above], an amount equal to
One Thousand Six Hundred Thirty-Six Dollars and 36/100 ($1,636.36) per share.

<PAGE>

Thereafter, the Common Stock shall be entitled to receive Four
Thousand Dollars ($4,000.00) per share to be paid in conjunction with a Two
Thousand Three Hundred Sixty-Three Dollar ($2,363.00) per share preference to
the holders of Series "B" Preferred Stock until they have each reached Four
Thousand Dollars ($4,000.00) per share distribution payments.

The Series "A" Preferred Stock, Series "B" Preferred Stock, and the
Common Stock liquidation preferences shall be adjusted proportionately for any
stock split or reverse stock split of the Series "A" Preferred Stock, Series "B"
Preferred Stock and/or Common Stock or for any stock dividend payable to the
holders of Series "A" Preferred Stock, Series "B" Preferred Stock and/or Common
Stock in additional shares of stock.

The above Liquidation Preferences shall be paid in the following
order:

1. FIRST, to the holders of Series "A" Preferred Stock, until they have
each received distributions equal to Four Thousand Dollars ($4,000.00)
per share. If sufficient proceeds are not available to pay the full
Four Thousand Dollars ($4,000.00) per share preference to the holders
of Series "A" Preferred Stock, one hundred percent (100%) of the
liquidation proceeds will be distributed on a per share basis to the
holders of Series "A" Preferred Stock;

2. SECOND, to the holders of Series "B" Preferred Stock, until they have
each received distributions equal to One Thousand Six Hundred Thirty-
Six Dollars and 36/100 ($1,636.36) per share. If sufficient proceeds
are not available to pay the full One Thousand Six Hundred Thirty-Six
Dollars and 36/100 ($1,636.36) per share preference to the holders of
Series "B" Preferred Stock, one hundred percent (100%) of the
remaining liquidation proceeds will be distributed on a per share
basis to the holders of Series "B" Preferred Stock;

3. THIRD, Four Thousand Dollars ($4,000.00) per share to the holders of
Common Stock and Two Thousand Three Hundred and Sixty-Three Dollars
and 64/100 ($2,363.64) per share to the holders of the Series "B"
Preferred Stock until they have each reached Four Thousand Dollars
($4,000.00) per share, including the One Thousand Six Hundred
Thirty-Six Dollars and 36/100 ($1,636.36) per share Liquidation
Preference previously paid to the Series "B" Preferred Stock. If
sufficient liquidation proceeds are not available at this level to
make such a Four Thousand Dollar ($4,000.00) per share distribution
payment, the available liquidation proceeds shall be distributed with
thirty-seven and one-tenths percent (37.1%) to the holders of Series
"B" Preferred Stock and sixty-two and nine-tenths percent (62.9%) to
the holders of Common Stock;

2
<PAGE>

4. FOURTH, thereafter, all remaining liquidation proceeds will be
distributed ratably on a per share basis to the holders of Series "A"
Preferred Stock, Series "B" Preferred Stock and Common Stock.

The reorganization or sale, lease, conveyance, exchange, transfer or
other disposition of all or substantially all of the assets of this Corporation
"hall not be considered to be a liquidation, winding up or dissolution within
the meaning of this Article III, and Series "A" Preferred Stock and Series "B"
Preferred Stock shall be entitled only to the rights provided in any Plan of
Reorganization or similar agreement and Chapters 11, 12, and 13, as applicable,
of the California General Corporations Law [or any successors thereto] and
elsewhere in these Articles.

VOTING RIGHTS. The holders of Series "A" Preferred Stock shall have no
voting rights except as may be required by California Law. The Corporation,
however, may not alter any of the rights, preferences, privileges, voting
powers, or other restrictions or qualifications of Series "A" Preferred Stock
without the consent of the holders of at least two-thirds (2/3) of the total
number of Series "A" shares then outstanding and issued.

Each holder of Series "B" Preferred Stock shall have the right to one
vote for each share of Common Stock into which the shares of Series "B"
Preferred Stock it holds could be then converted (with any fractional share of
Common Stock, on an aggregate conversion basis, being rounded to the nearest
whole share). The holders of Common Stock and of Series "B" Preferred Stock
shall have and possess the same right to notice of shareholders' meetings and
the same voting rights and powers and shall vote together as ,a single class
except where a Separate class vote is required by law.

3
<PAGE>

CONVERSION

(1) CONVERSION OF SERIES "A" PREFERRED STOCK.

Each share of Series "A" Preferred Stock is required to convert into
one share of Common Stock: (i) if the Company issues any of its Common Stock in
a public offering registered with the United States Securities and Exchange
Commission; or (ii) immediately upon the consummation of any merger with which
the corporation is a constituent corporation.

(2) CONVERSION OF SERIES "B" PREFERRED STOCK.

(a) Subject to adjustment as provided herein, each share of
Series "B" Preferred Stock shall be convertible at the option of the respective
holder thereof, at any time, at the office of the Corporation or any transfer
agent for such shares, into one fully paid and non-assessable share of Common
Stock.

(b) Before any holder of Series "B" Preferred Stock shall be
entitled to convert the same into Common Stock, he shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
corporation or of any transfer agent for such shares, shall give written notice
to the corporation at such office that he elects to convert the same and shall
state in writing therein the name or names in which he wishes the certificate or
certificates for shares of Common Stock to be issued. The corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Series "B" Preferred Stock, or to his nominee or nominees, certificates for
the number of shares of Common Stock to which he shall be entitled. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series "B" Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares on such date. The corporation
shall pay all taxes and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock issuable upon
exercise of the conversion right contained herein. The corporation shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Common Stock in
any name other than that of the registered holder of the shares of Series "B"
Preferred Stock surrendered in connection with the conversion thereof, and, in
such case, the corporation shall not be required to issue or deliver any stock
certificate until ouch tax or other charge has been paid or it has been
established to the corporation's satisfaction that no tax or other charge is
due.

4
<PAGE>

to the occurrence of any of the following events shall be automatically
converted into one share of Common Stock immediately prior to such occurrence:

(i) the consummation of a firm commitment underwritten public
offering of Common Stock registered by this corporation under the Securities Act
of 1933, as amended, for an aggregate offering price to the public of $5,000,000
or more;

(ii) the consummation of a reorganization in connection with
which the approval of any class of outstanding stock of this corporation is
required under Chapter 12 of the California General Corporation Law (or any
successor thereto);

(iii) the consummation of any sale, lease, conveyance,
exchange, transfer or other disposition of all or substantially all of the
assets of this corporation in connection with which the approval of the
outstanding shares of this corporation is required under Chapter 11 of the
California General Corporation Law (or any successor thereto);

(iv) the consummation of any merger with which the corporation
is a constituent corporation.

(d) Each share of Common Stock issued upon conversion of a share
or shares of Series "B" Preferred Stock pursuant to these Articles shall be
validly issued, fully paid and nonassessable.

(e) No shares of Series "B" Preferred Stock of the corporation
which have been reacquired in any manner by the corporation after the original
issue thereof shall ever again be reissued and all such shares so reacquired
shall upon such reacquisition cease to be a part of the authorized shares of the
corporation.

(3) STOCK SPLIT SUBDIVISION OF SHARES.

In the event the corporation should, at any time or from time to time,
after the date of the filing of this Certificate with the Secretary of State of
California, fix a record date for the effectuation of split or subdivision of
the outstanding shares of any class or classes of this Corporation's stock, or
the determination that the holders of any such class or classes of stock are
entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend, distribution, split or subdivision if
no record date

5
<PAGE>

is fixed), the number of shares of Common Stock issuable on conversion of each
share of Preferred Stock shall be increased in proportion to such increase in
the outstanding shares of Common Stock (assuming the complete conversion or
exercise of all of the Common Stock Equivalents). If the number of shares of
Common Stock outstanding at any time is decreased by a combination of the
outstanding shares of Common Stock, then, as of the record date of such
combination (or the date of such combination if no record date is fixed), the
number of shares of Series "A" Preferred Stock and the number of shares of
Common Stock issuable on conversion of each share of Series "B" Preferred Stock
shall be decreased in proportion to such decrease in the outstanding shares of
Common Stock.

IV.

In addition to the requirements of law, the affirmative vote of 80% or
more of the combined voting power of the then outstanding shares of capital
stock of the corporation shall be required to amend, alter or repeal, or adopt
any provision inconsistent with this Article IV or Article III of these
Articles.

<PAGE>

CERTIFICATE OF AMENDMENT
OF AMENDED AND RESTATED
ARTICLES OF INCORPORAITON
OF
CALIFORNIA CULINARY ACADEMY, INC.

Thomas A. Bloom and James S. Clapp certify that:

1. They are the President and Asst. Secretary, respectively, of California
Culinary Academy, Inc., a California corporation.

2. The first paragraph of Article III of the corporation's Amended and
Restated Articles i hereby amended to read in its entirety as follows:

"This corporation is authorized to issue three classes of stock:
Common, Series "A" Preferred and Series "B" Preferred. The total number of
shares of stock that this corporation has the authority to issue is
23,003,100, consisting of 20,000,000 shares of Common Stock, no par value
("Common Stock"), 1,550 shares of Series "A" Preferred Stock, no par value
("Series "A" Preferred Stock") and 1,550 shares of Series "B" Preferred
Stock, no par value ("Series "B" Preferred Stock"). Upon the amendment of
this Article III to read as set forth above, each outstanding share of
Common Stock is divided into 1,195 shares of Common Stock. No fractional
shares shall be issued to shareholders in connection with this stock split,
but instead, cash shall be distributed to each shareholder who would
otherwise have been entitled to receive a fractional share. Such cash value
shall be based upon the fair market value of the shares of Common Stock on
the effective date of the stock split, as determined by the Board of
Directors in its sole discretion, shall be remitted to the shareholders
entitled thereto."

3. Article IV as in effect prior to the filing of this Certificate of
Amendment is deleted in its entirety and a new Article IV is added to the
Amended and Restated Articles of Incorporation, which reads in its entirety as
follows:

"ARTICLE IV

"The corporation is authorized to indemnify its agents to the fullest
extent permissible under California law, as the same exists or may
hereafter be amended. For purposes of this provision, the term "agent" has
the meaning set forth from time to time in Section 317 of the California
Corporations Code or any successor statute. Any repeal or modification of
the foregoing provisions of this Article IV

<PAGE>

by the shareholders of this corporation or otherwise shall not adversely
affect y right or protection an agent or former agent of this corporation
existing at the time of such repeal or modification. The indemnification
provisions set forth in this Article IV under the General Corporation Law
of the State of California shall not be denied or limited by the
corporation's Bylaws."

4. A new Article V is added to the Amended and Restated Articles of
Incorporation and reads in its entirety as follows:

"ARTICLE V

"The liability of directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law,
as the same exists or may hereafter be amended. Any repeal or modification
of the foregoing provisions of this Article V by the shareholders of this
corporation or otherwise shall not adversely affect any right or protection
of a director or former director of this corporation existing at the time
of such repeal or modification. The elimination of personal liability set
forth in this Article V under the General Corporation Law of the State of
California shall not be denied or limited by the corporation's Bylaws.

5. The foregoing amendment of the Amended and Restated Articles of
Incorporation has been duly approved by the board of directors.

6. The foregoing amendment of the Amended and Restated Articles of
Incorporation has been duly approved by the required vote of the shareholders in
accordance with section 902 of the Corporations Code. The total number of
outstanding shares of each outstanding class was 450 shares of Common Stock,
327.4 shares of Series A Preferred Stock and 855 shares of Series B Preferred
Stock. The number of shares voting in favor of the foregoing amendment equalled
or exceeded the vote required. The percentage vote required was more than 80% of
the outstanding capital stock.

<PAGE>

We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.

Dated this 10th day of May, 1993.

/s/ Thomas A. Bloom
--------------------------
Thomas A. Bloom
President and Chief Executive Officer

/s/ James S. Clapp
--------------------------
James S. Clapp
Assistant Secretary

<PAGE>

CERTIFICATE OF CORRECTION
OF CERTIFICATE OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CALIFORNIA CULINARY ACADEMY, INC.

Thomas A. Spanier and Christine E. Munson certify that:

1. They are the Executive Vice President and Treasurer, respectively, of
California Culinary Academy, Inc., a California corporation.

2. The name of the corporation is California Culinary Academy, Inc., and it
is a California corporation.

3. The instrument being corrected is entitled "CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED ARTICLES OF INCORPORAITON," and said instrument was filed
with the Secretary of State of the State of California on June 15, 1993.

4. So much of the first paragraph of Article III of the corporation's
Certificate of Amendment of Amended and Restated Articles of Incorporation as
now reads, "[t]the total number of shares of stock that this corporation has the
authority to issue is 23,003,100, consisting of 20,000,000 shares of Common
Stock, no par value ("Common Stock"), 1,550 shares of Series "A" Preferred
Stock, no par value ("Series "A" Preferred Stock") and 1,550 shares of Series
"B" Preferred Stock, no par value ("Series "B" Preferred Stock) is corrected to
read: The total number of shares of stock that this corporation has the
authority to issue is 20,003,100, consisting of 20,000,000 of Common Stock, no
par value ("Common Stock"), 1,550 shares of Series "A" Preferred Stock, no par
value ("Series "A" Preferred Stock") and 1,550 shares of Series "B" Preferred
Stock, no par value ("Series "B" Preferred Stock).

<PAGE>

5. That said first paragraph of Article III, as corrected, conforms the
wording of the amended article to that adopted by the board of directors and
shareholders.

We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.

Dated this 7th day of June, 1993.

/s/ Thomas A. Spanier
-------------------------------
Thomas A. Spanier
Executive Vice President

/s/ Christine E. Munson
-------------------------------
Christine E. Munson
Treasurer

<PAGE>

CERTIFICATE OF AMENDMENT
OF ARTICLES OF INCORPORATION
OF CALIFORNIA CULINARY ACADEMY, INC.

THEODORE G. CROCKER and ROBERT A. STOFFREGEN certify that:

1. They are the Chairman of the Board and Chief Financial Officer,
respectively, of CALIFORNIA CULINARY ACADEMY, INC.

2. Article III of the Articles of Incorporation of this corporation
is amended to read as follows:

ARTICLE III

The corporation is authorized to issue two classes of shares
designated "Preferred Stock" and "Common Stock," respectively. The total
number of shares of stock that this corporation has the authority to issue
is 25,000,000, consisting of 20,000,000 shares of Common Stock, no par
value, and 5,000,000 shares of Preferred Stock, no par value.

The Preferred Stock may be divided into such number of series as the
Board of Directors may determine. The Board of Directors is authorized to
determine and alter the rights, preferences, privileges and restrictions
granted to and imposed upon any wholly unissued series of Preferred Stock,
and to fix the number of shares of any series of Preferred Stock and the
designation of any such series of Preferred Stock. The Board of Directors
within the limits and restrictions stated in any resolution or resolutions
of the Board of Directors originally fixing the number of shares
constituting any series, may increase or decreased (but not below the
number of shares of such series then outstanding) the number of shares of
any series subsequent to the issue of shares of that series.

3. The foregoing amendment of the Articles of Incorporation has been
duly approved by the board of directors.

4. The foregoing amendment of the Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with Section
902 of the Corporations Code. The total number of outstanding shares of the
corporation is 3,186,049. The number of shares voting in favor of the amendment
equaled or exceeded the vote required. The percentage vote required was more
than 50%.

There are no shares of any series of Preferred Stock currently
outstanding.

<PAGE>

We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.

Dated this 25th day of July, 1996.

/s/ Theodore G. Crocker
--------------------------------
Theodore G. Crocker
Chairman of the Board

/s/ Robert A. Stoffregen
---------------------------------
Robert A. Stoffregen
Vice President, Finance and Chief Financial
Officer

<PAGE>

CERTIFICATE OF DETERMINATION
OF RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF
SERIES A CONVERTIBLE PREFERRED STOCK OF
CALIFORNIA CULINARY ACADEMY, INC.
A CALIFORNIA CORPORATION

The undersigned, KEITH H. KEOGH and ROBERT A. STOFFREGEN, hereby certify
that:

1. They are the duly elected President and Chief Financial Officer,
respectively, of CALIFORNIA CULINARY ACADEMY, INC., a California corporation
(the "Company").

2. Pursuant to the authority given by said corporation's Articles of
Incorporation, the Board of Directors of said corporation has duly adopted the
following recitals and resolutions:

WHEREAS, the Articles of Incorporation of this corporation provide for a
class of shares known as Preferred Stock, issuable from time to time in one or
more series; and

WHEREAS, the Board of Directors of this corporation is authorized to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock, to fix the
number of shares constituting any such series, and to determine the designation
thereof, or any of them;

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors (the "Board")
hereby fixes and determines the designations of, the number of shares
constituting, and the rights, preferences, privileges and restrictions relating
to, its first series of Preferred Stock as follows:

(a) DESIGNATION. The first series of Preferred Stock shall be
designated "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock").

(b) AUTHORIZED SHARES. The number of shares constituting the Series A
Preferred Stock shall be Seven Hundred Thousand (700,000) shares.

(i)(A) The holders of the then outstanding Series A Preferred
Stock shall be entitled to receive, when and as declared by the Board, out of
any funds legally available therefor,

<PAGE>

cumulative dividends at the annual rate of $0.4125 per share. Such dividends
shall be payable in cash, quarterly to shareholders of record on September 30,
December 31, March 31 and June 30 of each year ("Record Dates"), commencing on
September 30, 1996, and shall be paid 45 days after such Record Dates. Such
dividends shall accrue on each share on the date the shares of Series A
Preferred Stock are originally issued (the "Original Issuance Date"), and shall
accrue from day to day, whether or not earned or declared. Such dividends shall
be cumulative so that, except as provided in paragraph (c)(1)(B) below, if such
dividends in respect of any previous or current annual dividend period, at the
annual rate specified above, shall not have been paid or declared and a sum
sufficient for the payment thereof set apart, the deficiency shall first be
fully paid before any dividend or other distribution shall be paid on or
declared and set apart for the Common Stock. Any accumulation of dividends on
the Series A Preferred Stock shall not bear interest. The amount of dividends
payable per share for the initial dividend period and any period shorter than a
full dividend period will be computed on the basis of a 360-day year.

(B) Unless full dividends on the Series A Preferred Stock
for all past dividend periods and the then current dividend period shall have
been paid or declared and a sum sufficient for the payment thereof set apart:
(A) no dividend whatsoever (other than a dividend payable solely in Common
Stock) shall be paid or declared, and no distribution shall be made, on any
Common Stock and (B) no shares of Common Stock shall be purchased, redeemed or
acquired by the Company and no funds shall be paid into or set aside or made
available for a sinking fund for the purchase, redemption or acquisition
thereof; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock held by employees, officers, directors,
consultants or other persons performing services for the Company or any
Subsidiary that are subject to restrictive stock purchase agreements under which
the Company has the option to repurchase such shares at cost upon the occurrence
of certain events, such as the termination of employment. After cumulative
dividends on the Series A Preferred Stock for all past dividend periods and the
then current dividend period shall have been declared and paid or set apart, if
the Board shall elect to declare additional dividends out of funds legally
available therefor, such additional dividends shall be declared solely on the
Common Stock and such other

<PAGE>

series of Preferred Stock as to which the Board may deem appropriate, but shall
not include additional dividends on the Series A Preferred Stock.

(ii) Each holder of shares of Series A Preferred Stock shall be
deemed to have consented, for purposes of Sections 502, 503 and 506 of the
General Corporation Law, to distributions made by the Company in connection with
the repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Company or any
Subsidiary upon termination of their employment or services pursuant to
agreements providing for the right of repurchase, provided that such purchases
are not prohibited by paragraph (c)(i) hereof.

(d) LIQUIDATION RIGHTS.

(i) In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, the holders of each share of
Series A Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Company available for distribution to its shareholders, before
any payment or declaration and setting apart for payment of any amount shall be
made with respect to the Common Stock, an amount equal to $5.50 per share, plus
an amount equal to all accrued and unpaid dividends thereon, whether or not
earned or declared, to and including the date full payment shall be tendered to
the holders of the Series A Preferred Stock with respect to such liquidation,
dissolution or winding up, and no more. If upon any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the assets to be
distributed to the holders of the Series A Preferred Stock shall be insufficient
to permit the payment to such shareholders of the full preferential amount
aforesaid, then all of the assets of the Company to be distributed shall be
distributed ratably to the holders of the Series A Preferred Stock.

(ii) After the payment or distribution to the holders of the
Series A Preferred Stock of the full preferential amounts aforesaid, the holders
of the Common Stock and any other outstanding series of Preferred Stock then
outstanding shall be entitled to receive ratably (or such other division as
shall have been established among the various series of Preferred Stock and
class of Common Stock) all the remaining assets of the Company.

<PAGE>

(e) REDEMPTION OF THE SERIES A PREFERRED STOCK. The Series A Preferred
Stock shall not be redeemable.

(f) VOTING RIGHTS. The holders of the Series A Preferred Stock shall
have the following voting rights (the "Voting Rights"):

(i) GENERAL VOTING RIGHTS. Except as otherwise required by law
or as provided elsewhere in this paragraph (f), the holders of shares of Series
A Preferred Stock shall not be entitled to vote on matters brought before the
shareholders of the Company.

(ii) SPECIAL VOTING RIGHTS FOR ELECTION OF DIRECTORS. If the
Company shall have failed to pay in full any quarterly dividend payment on the
Series A Preferred Stock when and as the same become payable, whether or not
funds are generally available therefor, the holders of the Series A Preferred
Stock shall, immediately upon the giving of written notice to the Company by any
holder of Series A Preferred Stock, be entitled to elect the smallest number of
directors which shall constitute one-third of the authorized number of directors
of the Company, and the holders of any other outstanding series of preferred
stock, if any, and the Common Stock shall be entitled to elect the remaining
members of the Board.

(iii) DIVESTMENT OF SPECIAL VOTING RIGHTS FOR ELECTION OF
DIRECTORS. If all dividends on the Series A Preferred Stock theretofore unpaid
shall have been paid and the full dividend on the Series A Preferred Stock for
the then current dividend period shall have been paid in full or declared and
set apart for payment, then the holders of the Series A Preferred Stock shall be
divested of the voting rights specified in paragraph (f)(ii). Voting rights
shall again accrue to the holders of the shares of Series A Preferred Stock in
case of any further defaults in dividend payments as provided in paragraph (c)
above. Upon termination of any such voting rights as hereinabove provided, the
Board shall call a special meeting of the shareholders at which all directors
will be elected, and the terms of office of all persons who are then directors
of the Company shall terminate immediately upon the election of their
successors.

(iii) VOTING PROCEDURE FOR ELECTION OF DIRECTORS. Whenever
under the provisions of paragraph (f)(i) hereof, the right shall have accrued to
the holders of the shares of Series A Preferred Stock, to vote as a class to
elect one- third of the directors, the Board shall, within 30 days after
delivery to the Company at its principal office of a request to such effect by

4
<PAGE>

any holder of Series A Preferred Stock, call a special meeting of the
shareholders for the election of directors, to be held upon not less than 10 nor
more than 30 days' notice to such holders. If such notice of meeting is not
given within the 30 days required above, the holders of Series A Preferred Stock
requesting the calling of such meeting may also call such meeting and shall have
access to the stock books and records of the Company for such purpose. At any
meeting so called or at any other meeting held which the holders of shares of
Series A Preferred Stock shall have the voting power provided in paragraph
(f)(i) above, the holders of a majority of the shares of Series A Preferred
Stock present in person or by proxy, shall be sufficient to constitute a quorum
for the election of directors as herein provided.

(iv) VACANCIES. In the case of any vacancy in the office of a
director occurring among the directors elected by the holders of a class (with
the holders of Series A Preferred Stock voting as a separate class) of stock
pursuant to paragraph (f)(i) hereof, the remaining directors so elected by the
class may by affirmative vote of a majority thereof (or the remaining director
so elected if there be but one) elect a successor or successors to hold office
for the unexpired term of the director or directors whose place or places shall
be vacant. Any director who shall have been elected by the holders of a class of
stock or by any directors so elected as provided in the next preceding sentence
hereof may be removed during the aforesaid term of office, either for or without
cause, by, and only by, the affirmative vote of the holders of a majority of the
shares of the class of stock who elected such director or directors, given
either at a special meeting of such shareholders duly called for that purpose or
pursuant to a written consent of shareholders, and any vacancy thereby created
may be filled by the holders of that class of stock represented at such meeting
or pursuant to such written consent.

(g) CONVERSION. The holders of the Series A Preferred Stock shall have
the following conversion rights (the "Conversion Rights").

(i) RIGHT TO CONVERT. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after
issuance of such shares, at the office of the Company or any transfer agent for
the Preferred Stock or Common Stock, into fully paid and nonassessable shares of
Common Stock at the Conversion Price (as hereinafter defined) in effect at the
time of conversion, determined as provided herein.

5
<PAGE>

(ii) AUTOMATIC CONVERSION.

(A) After six months from the Original Issuance Date, each
share of Series A Preferred Stock shall automatically be converted into shares
of Common Stock at the then effective Conversion Price, immediately in the event
the closing price for the Common Stock has equalled or exceeded $8 (subject to
adjustment as provided elsewhere herein) for 20 consecutive trading days;
provided, however, that such conversion shall be conditioned upon the Company
paying all accrued and unpaid dividends on the outstanding Series A Preferred
Stock, whether or not earned or declared, to and including the date of such
conversion; provided, further, that the Company may, at its option, in lieu of
making a full cash payment of all such accrued and unpaid dividends, make
payment thereof in whole shares of Common Stock, valued at such Conversion
Price, plus cash in lieu of any fractional shares, so that such cash plus such
value of such Common Stock equal the amount of such accrued and unpaid
dividends.

(B) Upon the occurrence of an event specified in subsection
(A) of this paragraph (g)(ii), the outstanding shares of Series A Preferred
Stock to be converted shall be converted automatically without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent,
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless
certificates evidencing such shares of the Preferred Stock being converted are
either delivered to the Company or any transfer agent, as hereafter provided, or
the holder notifies the Company or any transfer agent, as hereinafter provided,
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith. Upon the automatic conversion of the
Series A Preferred Stock, the holders of such Series A Preferred Stock shall
surrender the certificates representing such shares at the office of the Company
or of any transfer agent for the Common Stock. Thereupon, there shall be issued
and delivered to such holder, promptly at such office and in his name as shown
on such surrendered certificate or certificates, a certificate or certificates
for the number of shares of Common Stock into which the shares of Preferred
Stock surrendered were convertible on the date on which such automatic
conversion occurred.

6
<PAGE>

(iii) CONVERSION PRICE. The number of shares into which one share
of Series A Preferred Stock shall be convertible shall be determined by dividing
$5.50 by the conversion price at the time in effect for such share (the
"Conversion Price"). The initial Conversion Price per share for the Series A
Preferred Stock shall be $5.50 for such share, which shall be subject to
adjustment from time to time in certain instances, as provided below in this
paragraph (g).

(iv) MECHANICS OF CONVERSION. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or of any transfer agent for the Common
Stock, and shall give written notice to the Company at such office that he
elects to convert the same and shall state therein the number of shares of
Series A Preferred Stock being converted. Thereupon, the Company shall promptly
issue and deliver at such office to such holder of Series A Preferred Stock a
certificate or certificates for the number of shares of Common Stock to which he
shall be entitled.

Such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the shares of Series A
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date.

(v) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Company
shall at any time or from time to time after the Original Issuance Date effect a
subdivision of the outstanding Common Stock, the Conversion Price in effect
immediately prior thereto shall be proportionately decreased, and conversely, if
the Company shall at any time or from time to time after the Original Issuance
Date combine the outstanding shares of Common Stock, the Conversion Price then
in effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph (g)(v) shall become effective at the close
of business on the date the subdivision or combination becomes effective.

(vi) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Company at any time, or from time to time after the Original Issuance
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series A Preferred Stock then in effect shall be decreased as of
the

7
<PAGE>

time of such issuance or, in the event such a record date shall have been fixed,
as of the close of business on such record date, by multiplying the Conversion
Price for such Series A Preferred Stock then in effect by a fraction:

(A) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and

(B) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or
distribution;

provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series A Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series A Preferred Stock shall be
adjusted pursuant to this paragraph (g)(vi) as of the time of actual payment of
such dividends or distributions.

(vii) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In
the event the Company at any time or from time to time after the Original
Issuance Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Company other than shares of Common Stock, then and
in each such event provision shall be made so that the holders of such Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Company that they would have received had their Series A Preferred Stock been
converted into Common Stock on the date of such event and had thereafter, during
the period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period
giving application to all adjustments called for during such period under this
paragraph (g) with respect to the rights of the holders of the Series A
Preferred Stock.

(viii) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR
SUBSTITUTION. If the Common Stock issuable upon the conversion of the Series A
Preferred Stock shall be changed

8
<PAGE>

into the same or a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation or sale of assets provided for elsewhere
in this paragraph (g)), then and in each such event the holder of each share of
Series A Preferred Stock shall have the right thereafter to convert such share
into the kind and amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification or other change, by
holders of the number of shares of Common Stock into which such shares of Series
A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.

(ix) REORGANIZATION, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS.
If at any time or from time to time there shall be a capital reorganization of
the Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this paragraph (g)) or a merger or
consolidation of the Company with or into another corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person, then, as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holders of the Series A Preferred Stock
shall thereafter be entitled to receive upon conversion of such Series A
Preferred Stock, the number of shares of stock or other securities or property
of the Company or of the successor corporation resulting from such merger or
consolidation or sale, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, merger,
consolidation or sale. In any such case, appropriate adjustment shall be made in
the application of the provisions of this paragraph (g) with respect to the
rights of the holders of the Series A Preferred Stock after the reorganization,
merger, consolidation or sale to the end that the provisions of this paragraph
(g) (including adjustment of the Conversion Price then in effect and the number
of shares purchasable upon conversion of the Series A Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.

(x) PRICE PROTECTION. In the event the average closing bid
price for any 30 consecutive trading day period subsequent to the earlier of
(A) the public announcement of quarterly or annual financial results or (B)
the date upon which the respective Quarterly Report on Form 10-Q or Form
10-QSB or Annual Report on Form 10-K or Form 10-KSB (the "window

9
<PAGE>

period") is less than 80% of the Initial Conversion Price, then and in each case
the then Conversion Price for such Series A Preferred Stock shall be reduced as
of the opening of business on the 31st trading day to a new Conversion Price
equal to such average closing bid price; provided, however, that in no event
shall the Conversion Price be less than $3.50, subject to adjustment as
otherwise provided in this paragraph (g).

(xi) CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Conversion Price for the number of shares of Common Stock or
other securities issuable upon conversion of the Series A Preferred Stock, the
Company shall compute such adjustment or readjustment in accordance herewith and
the Company's Chief Financial Officer shall prepare and sign a certificate
showing such adjustment or readjustment, and shall mail such certificate by
first class mail, postage prepaid, to each registered holder of the Series A
Preferred Stock at the holder's address as shown in the Company's books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based.

(xii) NOTICES OF RECORD DATE. In the event of (A) any taking
by the Company of a record of the holders of any class or series of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution or (B) any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company or any transfer of all or substantially all of the
assets of the Company to any other corporation, entity or person, or any
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the Company shall mail to each holder of Series A Preferred Stock at least 30
days prior to the record date specified therein, a notice specifying (1) the
date on which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (2) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective
and (3) the time, if any is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up.

10
<PAGE>

(xiii) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the Company
shall pay cash equal to the product of such fraction multiplied by the fair
market value of one share of the Company's Common Stock on the date of
conversion, as determined in good faith by the Board.

(xiv) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series A Preferred Stock, and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of Series A
Preferred Stock, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.

(xv) NOTICES. Any notice required by the provisions of this
paragraph (g) to be given to the holder of shares of the Series A Preferred
Stock shall be deemed given when personally delivered or delivered by facsimile
transmission to such holder (followed by prompt deposit of such notice in the
United States mail addressed to the holder), or five business days after the
same has been deposited in the United States mail, certified or registered mail,
return receipt requested, postage prepaid, and addressed to each holder of
record at his address appearing on the books of the Company.

(xvi) PAYMENT OF TAXES. The Company will pay all taxes and
other governmental charges that may be imposed in respect of the issue or
delivery of shares of Common Stock upon conversion of shares of Series A
Preferred Stock.

(xvii) NO DILUTION OR IMPAIRMENT. The Company shall not amend
its Articles of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in carrying
out all such action

11
<PAGE>

as may be reasonably necessary or appropriate in order to protect the conversion
rights of the holders of the Series A Preferred Stock against dilution or other
impairment.

(h) NO REISSUANCE OF PREFERRED STOCK. No share or shares of Series A
Preferred Stock acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares of Series A Preferred Stock
which the Company shall be authorized to issue.

(i) RESTRICTIONS AND LIMITATIONS. So long as any shares of Series A
Preferred Stock remain outstanding, the Company shall not, without the vote or
written consent by the holders of at least 66-2/3% of the then outstanding
shares of Series A Preferred Stock authorize or issue, or obligate itself to
issue, any other equity security (including any security convertible into or
exercisable for any equity security) senior to or on a parity with the Series A
Preferred Stock as to dividend rights and liquidation preferences.

RESOLVED FURTHER, that the Chairman of the Board, the President or any Vice
President, and the Secretary, the Chief Financial Officer, the Treasurer, or any
Assistant Secretary or Assistant Treasurer of this corporation are each
authorized to execute, verify and file a certificate of determination of
preferences in accordance with California law.

3. The authorized number of shares of Preferred Stock of said corporation
is 5,000,000 shares, none of which is issued and outstanding. The authorized
number of shares of Series A Preferred Stock is 700,000. No shares of Series A
Preferred Stock have been issued.

We further declare under penalty of perjury that the matters set forth in
the foregoing certificate are true and correct of our own knowledge.

(continued on following page)

12
<PAGE>

IN WITNESS WHEREOF, the undersigned have executed this certificate on
August 9, 1996 at San Francisco, California.

/s/ Keith H. Keogh
---------------------------
Keith H. Keogh
President

/s/ Robert A. Stoffregen
----------------------------
Robert A. Stoffregen
Chief Financial Officer

<PAGE>
EXHIBIT 10.27

PROMISSORY NOTE

- -----------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$500,000.00 06-14-1996 07-15-1997 0106499155 512 02 CB
- -----------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
- -----------------------------------------------------------------------------------------------------
</TABLE>
Borrower: California Culinary Academy, Inc. Lender: Mid-Peninsula Bank
625 Polk Street 420 Cowper Street
San Francisco, CA 94102-3368 P.O. Box 210
Palo Alto, CA 94302

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

Principal Amount: $500,000.00 Initial Rate: 7.000% Date of Note: June 14, 1996

PROMISE TO PAY. California Culinary Academy, Inc. ("Borrower") promises to pay
to Mid-Peninsula Bank ("Lender"), or order, in lawful money of the United States
of America, the principal amount of Five Hundred Thousand & 00/100 Dollars
($500,000.00), together with interest on the unpaid principal balance from June
14, 1996, until paid in full.

PAYMENT. Borrower will pay this loan in one principal payment of $500,000.00
plus interest on July 15, 1997. This payment due July 15, 1997, will be for all
principal and accrued interest not yet paid. In addition, Borrower will pay
regular monthly payments of all accrued unpaid interest due as of each payment
date, beginning July 15, 1996, will all subsequent interest payments to be due
on the same day of each month after that. Interest on this Note is computed on
a 365/360 simple interest basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Mid-Peninsula
Bank quoted rate For 90-Day, $500,000.00 Jumbo Business Times Certificates of
Deposit (the "Index"). Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each 90 days. The Index currently is 5.000% per annum. The interest rate to
be applied to the unpaid principal balance of this Note will be at a rate of
2.000 percentage points over the Index, resulting in an initial rate of
7.000% per annum. NOTICE: Under no circumstances will the interest rate on
this Note be more than the maximum rate allowed by applicable law....

PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Note, Borrower understands that Lender is
entitled to a minimum interest charge of $250.00. Other than Borrower's
obligation to pay any minimum interest charge, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower or
Borrower's obligation to continue to make payments under the payment
schedule. Rather, they will reduce the principal balance due.

LATE CHARGE: If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $10.00, whichever is greater.

DEFAULT: Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to
Lender by Borrower or on Borrower's behalf is false or misleading in any
material respect either now or at the time made or furnished. (d) Borrower
becomes Insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any Borrower's accounts with Lender. (f) Any of the events described in this
default section occurs with respect to any guarantor of this Note. (g) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness is impaired.

If any default, other than a default in payment, is curable and if Borrower has
not been given notice of a breach of the same provision of this Note within the
preceding twelve (12) months, it may be cured (and no event of default will have
occurred) if borrower, after receiving written notice from Lender demanding cure
of such default: (a) cures the default within fifteen (15) days; or (b) if the
cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps to
sufficient to produce compliance as soon as reasonably practical.

LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) Increase the variable interest rate
on this Note to 7,000 percentage points over the Index, and (b) add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate on this Note (including any increased rate). Lender may hire
or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under any applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of California. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of Santa Clara
County, the State of California. This Note shall be governed by and construed
in accordance with the laws of the State of California.

DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however, all IRA, Keogh, and trust
accounts.

PLEASE
/s/ KK
INITIAL

<PAGE>

06-14-1996 PROMISSORY NOTE Page 2
(Continued)

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

GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive any applicable statute of limitations, presentment, demand for payment,
protest and notice of dishonor. Upon any change in the terms of this Note,
and unless otherwise expressly stated in writing, no party who signs this
Note, whether as maker, guarantor, accommodation maker or endorser, shall be
released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any
party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is
made.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.

BORROWER:

California Culinary Academy, Inc.

By: /s/ Keith Keogh /s/ Robert A. Stoffregen
-------------------------------- -------------------------------
Keith Keogh, President Robert A. Stoffregen, CFO

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

<PAGE>

Exhibit 11

CALIFORNIA CULINARY ACADEMY, INC.
STATEMENT RE: EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended June 30
------------------
1996 1995
---- ----
Primary Fully Diluted Primary Fully Diluted
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Net earnings (loss) $(999,000) $(999,000) $151,000 $151,000
----------- ----------- ----------- -----------
Weighted average common shares outstanding:
Common shares 3,114,732 3,114,732 3,095,000 3,095,000

Common equivalent shares:
Stock options and warrants * 183,829 183,829
----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding 3,114,732 3,114,732 3,278,829 3,278,829
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings (loss) per share $(0.32) $(0.32) $0.05 $0.05
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

* For the year ended June 30, 1996 all common stock equivalents were anti-
dilutive.

<PAGE>

EXHIBIT 23.1

CONSENT OF ARTHUR ANDERSEN LLP

As independent public accountants, we hereby consent to the inclusion in this
Form 10-KSB of our report dated August 16, 1995. It should be noted that we
have not audited any financial statements of the California Culinary Academy,
Inc. subsequent to June 30, 1995, or performed any audit procedures
subsequent to the date of our report.

ARTHUR ANDERSEN LLP

Oakland, California,
October 9, 1996

<PAGE>

[LETTERHEAD]

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement No. 33-
93266 on Form S-8 of our report dated August 30, 1996 (October 9, 1996 as to
Note 3), appearing in this Annual Report on Form 10-K of the California Culinary
Academy, Inc. for the year ended June 30, 1996.

/s/ Deloitte & Touche LLP

October 9, 1996

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000858915
<NAME> CALIFORNIA CULINARY ACADEMY, INC.
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 3283
<SECURITIES> 0
<RECEIVABLES> 3066
<ALLOWANCES> 280
<INVENTORY> 208
<CURRENT-ASSETS> 6582
<PP&E> 8013
<DEPRECIATION> 3896
<TOTAL-ASSETS> 12858
<CURRENT-LIABILITIES> 5647
<BONDS> 1400
0
0
<COMMON> 8741
<OTHER-SE> (4086)
<TOTAL-LIABILITY-AND-EQUITY> 12858
<SALES> 2731
<TOTAL-REVENUES> 14882
<CGS> 1692
<TOTAL-COSTS> 15441
<OTHER-EXPENSES> 359
<LOSS-PROVISION> 275
<INTEREST-EXPENSE> 137
<INCOME-PRETAX> (999)
<INCOME-TAX> 0
<INCOME-CONTINUING> (999)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (999)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)

</TABLE>