<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>d10k.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

    For the fiscal year ended June 30, 2001

                                       or

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

                        Commission file number: 0-25283

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

                           CORINTHIAN COLLEGES, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
                  Delaware                                       33-0717312
<S>                                            <C>
       (State or other jurisdiction of              (I.R.S. Employer Identification No.)
        incorporation or organization)

<CAPTION>
      6 Hutton Centre Drive, Suite 400,
            Santa Ana, California                                  92707
<S>                                            <C>
   (Address of principal executive offices)                      (Zip Code)
</TABLE>

       Registrant's telephone number, including area code: (714) 427-3000

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

          Securities registered pursuant to Section 12(b) of the Act:

                                      None

          Securities registered pursuant to Section 12(g) of the Act:

                   Common Stock, $0.0001 par value per share

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

   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 disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

   As of September 24, 2001, the aggregate market value of voting and non-
voting common equity held by non-affiliates of the registrant was approximately
$518.9 million. For this computation, the Company has excluded the market value
of all common stock beneficially owned by all executive officers and directors
of the Company and their associates as a group. As of September 24, 2001, the
number of outstanding shares of voting and non-voting common equity of the
registrant was approximately 21,250,003.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                           CORINTHIAN COLLEGES, INC.

                      INDEX TO ANNUAL REPORT ON FORM 10-K

                    FOR THE FISCAL YEAR ENDED JUNE 30, 2001

<TABLE>
<CAPTION>
                                                                          Page
                                                                          No.
                                                                          ----
 <C>      <S>                                                             <C>
          INTRODUCTION AND NOTE ON FORWARD LOOKING STATEMENTS...........    1

                                    PART I

 ITEM 1.  BUSINESS......................................................    2

          GOVERNMENTAL REGULATIONS AND FINANCIAL AID....................   10

          RISKS RELATED TO OUR BUSINESS.................................   22

 ITEM 2.  DESCRIPTION OF PROPERTY.......................................   27

 ITEM 3.  LEGAL PROCEEDINGS.............................................   28

 ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........   28

                                    PART II

 ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
          MATTERS.......................................................   29

 ITEM 6.  SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA.....   30

 ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS.....................................   32

 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.....   39

 ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......   39

 ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURE......................................   61

                                   PART III

 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............   61

 ITEM 11. EXECUTIVE COMPENSATION........................................   64

 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT....................................................   64

 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................   64

                                    PART IV

 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
          FORM 8-K......................................................   65
</TABLE>

                                      -i-
<PAGE>

              INTRODUCTION AND NOTE ON FORWARD LOOKING STATEMENTS

   Corinthian Colleges, Inc. (hereinafter the "Company" or "Corinthian") is a
Delaware corporation; its principal executive offices are located at 6 Hutton
Centre Drive, Suite 400, Santa Ana California, 92707.

   You should keep in mind the following points as you read this Report on Form
10-K:

  . the terms "we," "us" or the "Company" refer to Corinthian Colleges, Inc.
    and its subsidiaries;

  . the terms "school," "college" or "campus" refer to a single location of
    any school;

  . the term "institution" means a main campus and its additional locations,
    as such are defined under the regulations of the U.S. Department of
    Education, or the "DOE"; and

  . our fiscal year ends on June 30; references to fiscal 2001, fiscal 2000
    and similar constructions refer to the fiscal year ended on June 30 of
    the applicable year.

   This Annual Report on Form 10-K contains statements which, to the extent
they do not recite historical fact, constitute "forward looking" statements,
within the meaning of Section 27A of the Securities Act of 1933, as amended,
under Section 21E of the Securities Exchange Act of 1934, as amended. Forward
looking statements are used under the captions "Business," "Governmental
Regulation and Financial Aid," "Risks Related to Our Business," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
elsewhere in this Annual Report on Form 10-K. You can identify these statements
by the use of words like "may," "will," "could," "should," "project,"
"believe," "anticipate," "expect," "plan," "estimate," "forecast," "potential,"
"intend," "continue," and variations of these words or comparable words.
Forward looking statements do not guarantee future performance and involve
risks and uncertainties. Actual results may differ substantially from the
results that the forward looking statements suggest for various reasons,
including those discussed under the caption "Risks Related to Our Business."
These forward-looking statements are made only as of the date of this Annual
Report on Form 10-K. We do not undertake to update or revise the forward
looking statements, whether as a result of new information, future events or
otherwise.

                      DOCUMENTS INCORPORATED BY REFERENCE

   Portions of the Company's definitive proxy statement for the 2001 Annual
Meeting of Stockholders, to be held on November 15, 2001, are incorporated by
reference into Part III of this report.

                                       1
<PAGE>

                                     PART I

ITEM 1. BUSINESS

Overview

   Our Company is one of the largest private, for-profit, post-secondary
education companies in the United States, with more than 25,600 students
enrolled as of June 30, 2001. We currently operate 56 colleges in 20 states,
including 17 in California and nine in Florida and serve the large and growing
segment of the population seeking to acquire career-oriented education. Our
schools generally enjoy long operating histories and strong franchise value in
their local markets.

   We offer a variety of master's, bachelor's and associate's degrees and
diploma programs through two operating divisions. Our Corinthian Schools
subsidiary ("CSI") operates 35 diploma-granting schools with curricula
primarily in the healthcare, electronics and information technology fields and
seeks to provide its students a solid base of training for a variety of entry-
level positions. Our Rhodes Colleges subsidiary ("RCI") operates 21 degree-
granting colleges and offers curricula principally in the business, healthcare,
information technology and criminal justice areas. Both subsidiaries receive
strategic direction and operational support from regional management and
corporate staff.

   Our Company is led by David G. Moore, our President, Chief Executive Officer
and Chairman of the Board, and an experienced executive management team. Our
team of eight executives, including Mr. Moore, have an average of approximately
13 years experience in various fields of education and an average of
approximately 11 years in the for-profit, post-secondary education industry.
Our operational structure consists of seven regions, each headed by a regional
operations director and a regional admissions director. We also have a newly
created CSI regional president with oversight responsibility of our 35 diploma-
granting schools. This regional structure is supported by our proprietary
management information system, which links all of our colleges to a centralized
administrative database and provides management with real-time access to
marketing reports, lead tracking, academic records, grades, transcripts and
placement information.

Operating Strategy

   We have increased our student enrollment and improved profitability through
the successful implementation of our operating strategy. Key elements of our
operating strategy include the following components:

   Focus on Attractive Markets. We design our educational programs to benefit
from favorable demographic trends. Our diploma-granting colleges provide
programs in healthcare and technology related fields, allowing us to capitalize
on the growth in entry-level job opportunities in these industries. Our degree-
granting colleges, with their business focus, and modern facilities and
equipment and excellent faculty, seek to provide students with specific
knowledge and skills necessary to advance in business and industry. Our
geographic strategy is to build a strong competitive position in attractive and
growing local markets where we can take advantage of operating efficiencies and
benefit from favorable demographic trends. We are well positioned, with 17
schools in California and nine schools in Florida, to benefit from the
population growth in these states.

   Centralize Key Functions. In order to capitalize on the experience of our
senior management team and to encourage best practices, we have established a
regional management organization consisting of local school administrators and
regional administrators, which are supported by centralized functions
supervised by senior management at our corporate headquarters.

   Local school administrators retain control of, and accountability for, the
day-to-day academic, operational and financial performance of their individual
schools and receive appropriate financial incentives. The corporate management
team controls centralized key operational functions such as accounting, MIS,
financial aid management, marketing, curriculum development, staff training,
human resources and centralized purchasing, which we believe enables us to
achieve significant operating efficiencies. For example, our corporate

                                       2
<PAGE>

management team controls the advertising function and utilizes our proprietary
management information system to analyze the effectiveness of our marketing
efforts and make timely and efficient decisions regarding the allocation of
marketing resources at individual colleges.

   Emphasize Student Outcomes. We believe that positive student outcomes are a
critical component of our long-term success. Accordingly, we devote substantial
resources to maintaining and improving our retention and placement rates.
Modest increases in student retention can have a significant impact on our
profitability and high graduation and placement rates, enhance a school's
reputation and marketability, increase referrals and improve cohort default
rates. We have implemented a variety of programs, including tutoring, advising,
ride-sharing and referral programs, all of which are designed to improve
student retention. We utilize a curriculum development team which is assisted
by advisory boards comprised of local business professionals to help insure
that our curricula provides our students with the skills required by local
employers. We also maintain dedicated, full-time placement personnel at each
school that undertake extensive placement efforts, including recruiting
prospective employers, helping students prepare resumes, conducting practice
interviews, establishing internship programs and tracking students' placement
success on a monthly basis. As a result of our efforts in this area, over 86%
of our graduates in calendar year 2000 who were "available for placement," as
defined by industry and accreditation standards, were placed in a job for which
they were trained within six months after graduation.

   Create a Supportive and Friendly Learning Environment. We view our students
as customers and seek to provide a supportive and convenient learning
environment where student satisfaction is achieved. We offer a flexible
schedule of classes, providing our students with the opportunity to attend
classes throughout the day, as well as nights and weekends. Schools operate
year-round, permitting students to complete their course of study more quickly.
We limit class sizes and focus the efforts of our faculty on teaching students
rather than research. Personal interaction between students and faculty is
encouraged and we offer several support programs, such as on-campus advising
and tutoring, which are designed to help students successfully complete their
course of study. We also maintain a toll-free student hotline to address and
help resolve student concerns.

Growth Strategy

   We intend to achieve continued growth in revenues and profitability by
pursuing our growth strategy:

  Enhance Growth at Existing Campuses.

     Curriculum Expansion and Development. We have developed, refined and
  acquired curricula based on market research and recommendations from our
  faculty, employees, industry advisory board members and our curriculum
  development team. We believe considerable opportunities exist for
  curriculum expansion and we expect to continue developing new curricula and
  selectively replicating existing programs into both existing and new
  locations. In fiscal 2001, our institutions adopted 75 programs into a
  total of 34 locations.

     Integrated and Centralized Marketing Program. We have increased student
  enrollment by employing an integrated marketing program that utilizes an
  extensive direct response advertising campaign delivered through
  television, newspaper, direct mail and the Internet. In addition, we began
  a significant sales and marketing effort directed at high school guidance
  counselors in fiscal 2000. A professional marketing staff at our
  headquarters coordinates marketing efforts through an in-bound call center
  and our sophisticated real-time leads tracking capability.

     Facilities Enhancement and Expansion. In order to expand facility
  capacity to meet our expected enrollment demand, as well as to improve the
  location and appearance of our facilities, we have relocated, and we expect
  to continue to systematically relocate, selected colleges within their
  respective markets into larger, enhanced facilities upon lease expiration.
  Since 1996, 18 colleges have been relocated and an additional 14 campuses
  have been either remodeled or enlarged. As of August 15, 2001, the total
  square footage of our campuses was approximately 1,252,000 square feet.

                                       3
<PAGE>

   Establish Additional Locations. Since our initial public offering in
February 1999, we have opened and successfully integrated eight branch campuses
into our operations. Of the eight branch campuses, two were opened in each of
fiscal 2000 and fiscal 1999, and four were opened during fiscal 2001. A key
advantage of this strategy is that new campuses branched from existing campuses
have immediate access to federally funded student financial aid. We believe
that opening new branch campuses will allow us to enter new geographic markets,
create additional capacity in existing markets and effectively leverage our
infrastructure and our extensive investment in curricula.

   Acquire Accredited Colleges. Since our founding in 1995, acquisitions have
been an important part of our growth strategy. Of the 56 campuses that we
currently operate, 48 have been acquired and successfully integrated into our
operations. During fiscal 2001, we acquired and successfully integrated nine
campuses. As part of the integration process, we consolidated one existing
school into an acquired campus and have announced the expected closing of one
small acquired campus. To evaluate acquisition opportunities, we have
established several criteria, such as demographics, curricula, geographic
proximity to our existing campuses and selected financial measurements.

   Expand Distance Learning and Delivery Models. We intend to expand our
distance learning and contract training initiatives.

     Distance Learning. Online education, or education delivered via the
  Internet, has become an increasingly important component of the higher
  education market. During fiscal 2001, we experienced a significant increase
  in the number of students taking our online courses through the Internet.
  There were over 7,000 course registrations in fiscal 2001, which was a 255%
  increase over the prior year. We currently offer approximately 50 online
  courses through 17 campuses. All of the courses necessary to complete an
  Associate's of Business degree and a Bachelor's of Business Administration
  degree are now available online. In June of 2001, we received approval from
  one of our accrediting agencies (ACICS) to offer these two degrees to
  students enrolled in an entirely online format. We believe that online
  learning will continue to expand. In order to meet the increasing demand
  for online courses, we are developing online courses in our Accounting,
  Criminal Justice and Master's of Business Administration programs. These
  courses will be offered to our students beginning in October of 2001. We
  expect to continue to add to the number of campuses offering online courses
  in fiscal 2002 and we expect to continue to expand the number and variety
  of courses available in this format.

     Contract Training. Although we do not derive a significant portion of
  our revenues from contract training, we believe that the corporate training
  arena is an attractive market and that our curricula meet the needs of a
  variety of employers. We expect to expand contract training revenues in the
  future.

Programs of Study

   Our diploma programs are intended to provide students with the requisite
knowledge and job skills for entry-level positions in their chosen career. Our
degree programs are primarily designed for career-oriented adults and to assist
them in enhancing their skills. Our curriculum development team has the
responsibility of maintaining high quality, market driven curricula. Each
college also utilizes advisory boards to help evaluate and improve the
curriculum for each program offered. These advisory boards meet at least twice
a year and are comprised of local industry and business professionals. Advisory
board members provide valuable input regarding changes in the program, suggest
new technologies and other factors that may enhance curriculum.

   Among the diploma-granting colleges, the curriculum principally includes
medical assisting, dental assisting, medical office management, information
technology, business operation, medical administrative assistant, dialysis
technician, respiratory therapy technician, and electronics and computer
technology. Eight of the National Institute of Technology, or "NIT," colleges
also offer electronics technology, network

                                       4
<PAGE>

administration and Microsoft Office User Specialist. The curriculum at our
degree-granting colleges includes accounting, business administration, computer
information technology, hospitality management, marketing, criminal justice,
medical assisting, paralegal, commercial art, court reporting, film and video
and travel and tourism. Most programs lead to an associate's degree, except at
our Florida Metropolitan University, or "FMU," campuses, where most programs
lead to a bachelor's degree. Master's degrees are also offered at FMU in
business administration and criminal justice.

   Diploma programs generally have a duration of 8-19 months, depending on the
course of study. Associate's degree programs have a duration of 18-24 months,
bachelor's degree programs last 36-48 months and master's degree programs have
a duration of 24 months. As of June 30, 2001, we had 10,535 students enrolled
in associate's programs, 1,972 enrolled in bachelor's programs, 442 enrolled in
master's programs, and 12,677 enrolled in diploma programs.

   The following table reflects our schools, their locations and principal
curricula. In the table below, programs offered are designated as follows:
heathcare (HC), business (B), information technology and electronics (IT), and
criminal justice (CJ).

<TABLE>
<CAPTION>
                             Principal
Degree-Granting Colleges     Curricula
------------------------   -------------
<S>                        <C>
Blair College, Colorado
 Springs, CO.............. HC, B, IT, CJ
Duff's, Pittsburgh, PA.... HC, B, IT, CJ
FMU, Brandon, FL.......... HC, B, IT, CJ
FMU, Ft. Lauderdale, FL...  HC,B, IT, CJ
FMU, Jacksonville, FL.....     B, IT, CJ
FMU, Lakeland, FL......... HC, B, IT, CJ
FMU, Melbourne, FL........ HC, B, IT, CJ
FMU, Orlando, FL North.... HC, B, IT, CJ
FMU, Orlando, FL South.... HC, B, IT, CJ
FMU, Pinellas, FL......... HC, B, IT, CJ
FMU, Tampa, FL............ HC, B, IT, CJ
Las Vegas College, Las
 Vegas, NV................ HC, B, IT, CJ
Mountain West College,
 Salt Lake City, UT....... HC, B, IT, CJ
Parks College, Thornton,
 CO....................... HC, B, IT, CJ
Parks College, Aurora,
 CO....................... HC, B, IT, CJ
RBI, Rochester, NY........         B, IT
Rhodes College, Phoenix,
 AZ.......................     B, IT, CJ
Rhodes College, Rancho
 Cucamonga, CA............     B, IT, CJ
Rhodes College,
 Springfield, MO.......... HC, B, IT, CJ
Western Business College,
 Vancouver, WA............ HC, B, IT, CJ
Western Business College,
 Portland, OR............. HC, B, IT, CJ
</TABLE>
<TABLE>
<CAPTION>
                                Principal
Diploma-Granting Colleges       Curricula
-------------------------       ---------
<S>                             <C>
Bryman, Brighton, MA..........     HC, IT
Bryman, El Monte, CA..........      HC, B
Bryman, Gardena, CA...........         HC
Bryman, Los Angeles, CA.......         HC
Bryman, New Orleans, LA.......         HC
Bryman, Anaheim, CA...........     HC, IT
Bryman, San Francisco, CA.....         HC
Bryman, San Jose, CA North....         HC
Bryman, San Jose, CA South....         HC
Bryman, Reseda, CA............         HC
Bryman, Sea Tac, WA...........         HC
Bryman, Ontario, CA...........      HC, B
Bryman, West Los Angeles, CA..      HC, B
Bryman, Whittier, CA..........      HC, B
Computer Training Academy,
 Pleasanton, CA*..............      B, IT
Computer Training Academy, San
 Jose, CA.....................      B, IT
GMI, Atlanta, GA..............         HC
GMI, Jonesboro, GA............         HC
GMI, Marietta, GA.............         HC
Harbor Medical College,
 Torrance, CA.................         HC
Kee Business College, Newport
 News, VA.....................     HC, IT
Kee Business College,
 Chesapeake, VA...............     HC, IT
NIT, Atlanta, GA..............     HC, IT
NIT, Cross Lanes, WV..........     HC, IT
NIT, Dearborn, MI.............     HC, IT
NIT, Greenspoint, TX..........      HC, B
NIT, Houston, TX..............     HC, IT
NIT, Long Beach, CA...........  HC, B, IT
NIT, San Antonio, TX..........  HC, B, IT
NIT, Southfield, MI...........     HC, IT
Olympia Career Training
 Institute, Grand Rapids, MI..     HC, IT
Olympia Career Training
 Institute, Kalamazoo, MI.....         HC
Olympia College, Merrillville,
 MI...........................         HC
Olympia College, Skokie, IL...     HC, IT
Skadron College, San
 Bernardino, CA...............  HC, B, IT
</TABLE>
                                          --------
                                          * Scheduled to close

                                       5
<PAGE>

Marketing and Recruitment

   We employ a variety of methods to attract qualified applicants who will
benefit from our programs and achieve success in their chosen careers. We
believe that one of the principal attractions for prospective students is the
excellent reputation which our schools enjoy in their respective communities.
Nine of our campuses have been operating for more than 80 years. We believe the
franchise value of these schools enhances their marketability within their
respective communities. This franchise value, along with the quality of the
programs offered, has enabled us to generate significant new student
enrollments from referrals. For the year ended June 30, 2001, approximately 29%
of our new student enrollments came from referrals.

   We also employ a variety of direct response advertising techniques to
generate leads of potential applicants for our schools. Our advertising
department generated more than 368,000 leads in fiscal 2001 through television,
direct mail, newspaper and yellow pages. The effectiveness of this advertising
campaign is dependent on timely and accurate lead tracking. To that end, we
operate a call center at our headquarters, staffed by a team of operators who
receive incoming calls from interested students attracted to our programs
through television and newspaper advertisement. These trained operators enter
data on each prospect into our proprietary management information system during
the call and immediately transmit the information to the appropriate college.
The college admissions representative promptly contacts the prospect and begins
the admissions process.

   Our lead tracking capability allows us to identify leads generated by
specific commercials and spot times. Our three advertising agencies are
networked into our proprietary management information database and are provided
with real time information on the effectiveness of individual commercials as
well as the effectiveness of the media "buy". The agencies consult with our
advertising department to adjust schedules for advertisements depending on our
needs and the effectiveness of the particular advertisements. Since more than
75% of our advertising budget is spent on television and newspaper
advertisements, the availability of timely and accurate lead information is
critical to the leads generation process. For the year ended June 30, 2001,
approximately 48% of our new student enrollments were generated through
television, newspaper and yellow pages advertising, 29% were generated through
referrals, 6% were generated through direct mail, 4% were generated from high
school recruiting, and 13% were generated through a variety of other methods.

Admissions

   We employ approximately 364 admissions representatives who work directly
with prospective students to facilitate the enrollment process. These
representatives interview and advise students interested in specific careers to
determine the likelihood of their success and are a key component of our effort
to generate interest in our educational services. We conduct quarterly student
satisfaction surveys and students have consistently given high marks to our
admissions personnel for helpfulness, courtesy and accuracy of information.
Because our success is highly dependent on the efficiency and effectiveness of
our admissions process, we invest considerable resources to train our
admissions representatives in product knowledge, regulatory compliance and
customer service. We also employ various admissions supervisory and monitoring
programs, including the survey of students which we believe helps us ensure
compliance with both government regulations and our corporate policies.

   One of the our primary objectives in the admissions process is to identify
students who have appropriate qualifications to succeed in our schools.
Candidates for admission into our degree-granting colleges must have a high
school diploma or a GED and must pass a standardized admissions test. In
addition, most of our diploma-granting colleges may accept non-high school
graduates who can demonstrate an ability to benefit, or "ATB," from the program
by passing certain tests which are required by the U.S. Department of
Education. We believe that ATB students can successfully complete many of our
diploma programs and our colleges have demonstrated success in graduating and
placing these students over the years. As of June 30, 2001, ATB students
accounted for approximately 5.0% of total enrollments in our schools.

                                       6
<PAGE>

Placement

   Our placement success is critical to our colleges' reputations and their
ability to continue to successfully recruit new students. We maintain a
placement department at each college and, as of June 30, 2001, employed
approximately 110 professionals in this capacity. In many cases, our placement
staff work with students from the time they begin their courses of study until
they are successfully placed in a job for which they are trained. We view our
placement departments as essentially in-house employment agencies, assisting
students with resumes, conducting practice interview sessions, and recruiting
prospective employers for the colleges' graduates.

   The efforts we devote to place our students have achieved excellent results.
Based on information received from graduating students and employers for
calendar year 2000, over 86% of our graduates who were "available for
placement" were placed in a job for which they were trained within six months
after their graduation date. In accordance with accrediting standards, the term
"available for placement" includes all graduates except those who are
continuing their education, are in active military service or are deceased or
disabled, and foreign students who are ineligible to work in the United States
after graduation.

Tuition

   Typical tuition for our diploma programs ranges from $6,000 to $26,000,
depending upon the nature and length of the program. Tuition for degree
programs is charged on a credit hour basis and varies by college, typically
ranging from $193 to $270 per undergraduate credit hour, depending upon the
program of study and the number of courses taken per quarter. Tuition for
graduate programs ranges from $297 to $312 per credit hour. On average, an
undergraduate degree candidate can expect tuition of approximately $7,700 per
academic year, while a master's degree candidate can expect tuition of
approximately $9,500 per academic year. In addition to tuition, students at our
schools must also typically purchase textbooks and other supplies as part of
their educational programs. We anticipate increasing tuition based on the
market conditions prevailing at our individual colleges. Our tuition ranges are
competitive with similar institutions, but like many proprietary institutions,
are somewhat higher than public institutions such as community colleges and
state universities.

   Under DOE regulations, if a student fails to complete the period of
enrollment such as a quarter, trimester, semester, academic year or program,
the institution may be required to refund amounts previously collected on the
student's account back to the original disbursing agency, calculated in
accordance with the applicable state, federal or institutional refund policy.

Management and Employees

   Our Company is led by David G. Moore, Chairman of the Board, President and
Chief Executive Officer. He is assisted by his senior management team of Paul
R. St. Pierre, Dennis L. Devereux, Dennis N. Beal, Beth A. Wilson, Mary H.
Barry, Nolan A. Miura and Stan A. Mortensen. Beyond the senior management
level, our management structure includes a President of our CSI subsidiary, and
seven regional operations and admissions directors. As of June 30, 2001, we had
approximately 3,890 employees, of whom approximately 2,120 were part-time and
approximately 150 were employed at our corporate headquarters and regional
offices.

Campus Administration

   We set policy and monitor the performance of all of the schools and
implement these policies through the coordination of an Executive Vice
President of Operations, a CSI President and seven regional operations
directors. The college presidents, in consultation with their respective
management teams, have the responsibility for the day-to-day operation of the
schools. Each college employs the following management personnel which report
to the college president:

  . an academic dean or education director;

  . an admissions director;

                                       7
<PAGE>

  . a placement director; and

  . a finance or business director.

Corporate personnel at headquarters manage several key functions, including
financial aid, MIS, finance, marketing and advertising, purchasing, human
resources, payroll, curriculum development, leads management, staff training
and development, and internal audit. Among the principal oversight functions
performed by corporate personnel, in cooperation with our regional and college
management, is the budget, strategic planning and forecasting processes. These
processes establish goals for each college, implement strategies and set
performance incentives for achieving targeted results. Our senior management
team monitors operating performance and profitability of each college and has
daily access to operational data through our sophisticated management
information system and conducts weekly conference calls with the college
presidents to review results of operations and determine the proper course of
action.

Faculty

   The faculty members at all of our colleges are expected to be industry
professionals and hold appropriate credentials in their respective disciplines.
We choose faculty carefully and provide support for these professionals to
pursue professional development activities. We believe the skill and dedication
of our faculty have the single greatest impact on the placement and success of
our students following their graduation. As of June 30, 2001, we employed 2,161
faculty, 552 of whom were full-time employees. Faculty represents approximately
56% of all our employees.

Competition

   The post-secondary education market, consisting of approximately 6,800
accredited institutions, is highly fragmented and competitive, with no
institution having a significant market share. Many of the programs offered by
our colleges are also offered by public and private non-profit institutions, as
well as by many of the approximately 2,500 private, for-profit colleges and
schools. Typically, the tuition charged by public institutions is less than
tuition we charge for comparable programs because public institutions receive
state tax subsidies, donations and government grants that are not available to
our colleges. However, tuition at private non-profit institutions is typically
higher than that at our colleges.

   We compete in most markets with other private, for-profit institutions
offering similar programs. We believe that the franchise value of our colleges,
the qualifications of our faculty, our facilities and our emphasis on student
services allow us to compete effectively. In addition, most of our colleges
have been operating in their markets for more than 35 years, which has led to a
substantial number of graduates who are working in the market and validating
the quality of the colleges' programs. For example, the Bryman Colleges have
been well-known in the healthcare education field in California for over 35
years. Many physicians and dentists in California view Bryman as their best
source of qualified medical and dental assistants.

Facilities

   Our corporate office is located in Santa Ana, California, and our 56
campuses are located in 20 states. Each campus provides our students with
modern lecture halls, instructional medical labs, libraries, Internet access
and an administrative staff led by a college president.

   We review our facility capacity and closely monitor facility capacity
required to accommodate campus growth initiatives. We provide for expansion and
future growth at each campus through relocations to larger facilities and by
expanding or remodeling at existing facilities. From the end of fiscal 1996
through fiscal 2001, approximately 32% of the campuses have been relocated and
an additional 25% of total campuses have been either expanded or remodeled. The
following table reflects the number of campuses added or closed during

                                       8
<PAGE>

each of the last five fiscal years, the number of campuses open at the end of
each of the last five fiscal years and the number of campuses that have been
relocated, enlarged or remodeled in each of the last five fiscal years ended:

<TABLE>
<CAPTION>
                                                        Years Ended June 30,
                                                      ------------------------
                                                      1997 1998 1999 2000 2001
                                                      ---- ---- ---- ---- ----
<S>                                                   <C>  <C>  <C>  <C>  <C>
Opened
  Acquired...........................................  20    0    0    5    9
  Branched...........................................   0    0    2    2    4
Closed...............................................   0    1    0    0    1
Total campuses at year end...........................  36   35   37   44   56
Relocated............................................   2    6    5    2    3
Enlarged or remodeled................................   0    1    1    2   10(1)
</TABLE>
--------
(1) The number of enlarged or remodeled locations in fiscal 2001 also includes
    our headquarters facility.

   All but four of our campuses are leased; we also lease our headquarters
offices. Most of our leases have primary terms between five and ten years with
options available to us to extend the lease.

                                       9
<PAGE>

                   GOVERNMENTAL REGULATION AND FINANCIAL AID

   Students attending the Company's schools finance their education through a
combination of family contributions, individual resources (including earnings
from full or part-time employment) and government-sponsored financial aid. The
Company estimates that approximately 71.5% of its students, as of June 30,
2001, received some federal Title IV financial aid. For fiscal 2001,
approximately 80.6% of the Company's revenue (on a cash basis) was derived from
federal Title IV Programs (as defined herein).

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

   The foregoing standards must be complied with on an institutional basis. For
purposes of those standards, the regulations define an institution as a main
campus and its additional locations, if any. Under this definition, each of the
Company's campuses is a separate institution with the following exceptions:
Bryman College in New Orleans, Louisiana is an additional location of Bryman
College (South) in San Jose, California; the Florida Metropolitan University
("FMU") campuses in Melbourne and Orlando (South), Florida are additional
locations of FMU, Orlando (North); FMU in Brandon, Florida is an additional
location of FMU in Tampa, Florida; the FMU campuses in Lakeland and
Jacksonville, Florida are additional locations of FMU in Pinellas, Florida;
Parks College (South) in Denver, Colorado is an additional location of Parks
College (North) in Denver; two campuses of the National Institute of Technology
("NIT") in Houston, Texas are additional locations of NIT in San Antonio,
Texas; Kee Business College in Chesapeake, Virginia is an additional location
of Kee Business College in Newport News, Virginia; Western Business College in
Vancouver, Washington is an additional location of Western Business College in
Portland, Oregon; Olympia Career Training Institute in Kalamazoo, Michigan and
Olympia College in Merrillville, Indiana are additional locations of Olympia
Career Training Institute in Grand Rapids, Michigan; Career Training Academy in
Pleasanton, California is an additional location of Career Training Academy in
San Jose, California; Rhodes College in Rancho Cucamonga, California is an
additional location of Rhodes College in Springfield, Missouri; the two Bryman
College campuses in West Los Angeles and Whittier, California are additional
locations of NIT in Long Beach, California; Georgia Medical Institute (GMI)
campuses in Jonesboro and Marietta, Georgia are additional locations of GMI in
Atlanta, Georgia; and the NIT campus in Dearborn, Michigan is an additional
location of the NIT campus in Southfield, Michigan.

Accreditation

   Accreditation is a voluntary non-governmental process by which institutions
submit themselves to qualitative review by an organization of peer
institutions. There are three types of accrediting agencies: (i) national
accrediting agencies, which accredit institutions without regard to
geographical location; (ii) regional accrediting agencies, which accredit
institutions within their geographic areas; and

                                       10
<PAGE>

(iii) programmatic accrediting agencies, which accredit specific educational
programs offered by institutions. Accrediting agencies primarily examine the
academic quality of the instructional programs offered at the institution,
including retention and placement rates, and also review the administrative
and financial operations of the institution to ensure that it has the academic
and financial resources to achieve its educational mission. A grant of
accreditation is generally viewed as certification that an institution and its
programs meet generally accepted academic standards.

   Pursuant to provisions of the HEA, the DOE relies on accrediting agencies
to determine whether an institution and its educational programs are of
sufficient quality to permit it to participate in Title IV Programs. The HEA
specifies certain standards that all recognized accrediting agencies must
adopt in connection with their review of post-secondary institutions and
requires accrediting agencies to submit to a periodic review by the DOE as a
condition of their continued recognition. All of our colleges are accredited
by an accrediting agency recognized by the DOE. Twenty-three of the Company's
schools are accredited by the Accrediting Council for Independent Colleges and
Schools ("ACICS"), twenty-three schools are accredited by the Accrediting
Commission of Career Schools and Colleges of Technology ("ACCSCT"), three
schools are accredited by the Accrediting Council for Continuing Education and
Training ("ACCET"), six schools are accredited by the Accrediting Bureau of
Health Education Sciences ("ABHES") and one school is accredited by North
Central Association ("NCA").

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

<TABLE>
<CAPTION>
                                                        Accrediting
Degree-Granting Colleges                 Location         Agency     Expiration
------------------------                 --------       ----------- ------------
<S>                                <C>                  <C>         <C>
Blair College....................  Colorado Springs, CO    ACICS      12/31/02
Duff's Business Institute........  Pittsburgh, PA          ACICS      12/31/01
Florida Metropolitan University..  Jacksonville, FL        ACICS      12/31/02
Florida Metropolitan University..  Fort Lauderdale, FL     ACICS      12/31/03
Florida Metropolitan University..  Orlando (North), FL     ACICS      12/31/01
Florida Metropolitan University..  Orlando (South), FL     ACICS      12/31/01
Florida Metropolitan University..  Melbourne, FL           ACICS      12/31/01
Florida Metropolitan University..  Tampa, FL               ACICS      12/31/01
Florida Metropolitan University..  Brandon, FL             ACICS      12/31/01
Florida Metropolitan University..  Lakeland, FL            ACICS      12/31/03
Florida Metropolitan University..  Clearwater, FL          ACICS      12/31/03
Las Vegas College................  Las Vegas, NV           ACICS      12/31/01
Mountain West College............  Salt Lake City, UT      ACICS      12/31/01
Parks College ...................  Thornton, CO            ACICS      12/31/01
Parks College ...................  Aurora, CO              ACICS      12/31/01
Rhodes College...................  Phoenix, AZ              NCA     2007-2008(1)
Rhodes College...................  Rancho Cucamonga, CA    ACICS      12/31/04
Rhodes College...................  Springfield, MO         ACICS      12/31/04
Rochester Business Institute.....  Rochester, NY           ACICS      12/31/01
Western Business College.........  Portland, OR            ACICS      12/31/01
Western Business College.........  Vancouver, WA           ACICS      12/31/01
</TABLE>

                                      11
<PAGE>

<TABLE>
<CAPTION>
                                                          Accrediting
 Diploma-Granting Colleges                 Location         Agency    Expiration
 -------------------------                 --------       ----------- ----------
<S>                                  <C>                  <C>         <C>
Bryman College.....................  Los Angeles, CA        ACCSCT     11/01/05
Bryman College.....................  New Orleans, LA        ACCSCT     12/31/01
Bryman Institute...................  Brighton, MA           ACCSCT     12/31/02
Bryman College.....................  Anaheim, CA            ACCSCT     04/01/02
Bryman College.....................  El Monte, CA           ACCSCT     08/01/04
Bryman College.....................  San Francisco, CA      ACCSCT     12/31/01
Bryman College.....................  SeaTac, WA             ACCSCT     10/01/02
Bryman College.....................  Gardena, CA            ACCSCT     10/01/02
Bryman College.....................  Reseda, CA             ACCSCT     12/31/01
Bryman College.....................  Ontario, CA            ACCSCT     10/01/03
Bryman College ....................  San Jose (North), CA   ACCSCT     01/01/03
Bryman College ....................  San Jose (South), CA   ACCSCT     12/31/01
Bryman College.....................  Whittier, CA           ACCSCT     08/01/05
Bryman College.....................  West Los Angeles, CA   ACCSCT     05/01/04
Computer Training Academy(2).......  Pleasanton, CA          ACCET     04/15/03
Computer Training Academy..........  San Jose, CA            ACCET     04/15/03
Georgia Medical Institute..........  Atlanta, GA             ABHES     12/31/04
Georgia Medical Institute..........  Jonesboro, GA           ABHES     12/31/04
Georgia Medical Institute..........  Marietta, GA            ABHES     12/31/04
Harbor Medical College.............  Torrance, CA            ACCET     12/31/01
Kee Business College...............  Newport News, VA        ACICS     12/31/04
Kee Business College...............  Chesapeake, VA          ACICS     12/31/04
National Institute of Technology...  San Antonio, TX        ACCSCT     12/31/01
National Institute of Technology...  Atlanta, GA            ACCSCT     08/01/02
National Institute of Technology...  Dearborn, MI           ACCSCT     03/19/03
National Institute of Technology...  Greenspoint, TX        ACCSCT     03/07/02
National Institute of Technology...  Houston, TX            ACCSCT     11/01/05
National Institute of Technology...  Long Beach, CA         ACCSCT     07/01/03
National Institute of Technology...  Southfield, MI         ACCSCT     04/01/03
National Institute of Technology...  Cross Lanes, WV        ACCSCT     12/31/01
Olympia Career Training Institute..  Grand Rapids, MI        ABHES     12/31/02
Olympia Career Training Institute..  Kalamazoo, MI           ABHES     12/31/02
Olympia College....................  Merrillville, IN        ABHES     12/31/02
Olympia College....................  Skokie, IL             ACCSCT     01/01/02
Skadron College....................  San Bernardino, CA      ACICS     12/31/01
</TABLE>
--------
(1) NCA recommendation of agency staff is pending final approval by its
    commissioners.
(2) Scheduled to close during fiscal 2002.

                                       12
<PAGE>

   The HEA requires accrediting agencies recognized by the DOE to review many
aspects of an institution's operations in order to ensure that the education or
training offered is of sufficient quality to achieve, for the duration of the
accreditation period, the stated objectives of the education or training
offered. Under the HEA, recognized accrediting agencies must conduct regular
inspections and reviews of the institutions they accredit. In addition to
periodic accreditation reviews, institutions undergoing a change of ownership
must be reviewed by the accrediting agency. All of the Company's colleges have
been visited and reviewed by their respective accrediting agencies subsequent
to the date of acquisition by the Company. Accrediting agencies also monitor
institutions' compliance during the term of their accreditation. If an
accrediting agency believes that an institution may be out of compliance with
accrediting standards, it may place the institution on probation or a similar
warning status or direct the institution to show cause why its accreditation
should not be revoked. An accrediting agency may also place an institution on
"reporting" status in order to monitor one or more specific areas of the
institution's performance. An institution placed on reporting status is
required to report periodically to its accrediting agency on that institution's
performance in specific areas. Failure to demonstrate compliance with
accrediting standards in any of these instances could result in loss of
accreditation. While on probation, show cause or reporting status, an
institution may be required to seek permission of its accrediting agency to
open and commence instruction at new locations. Ten of our 56 campuses are
currently on retention reporting with ACICS.

Federal Support for Post-Secondary Education

   While many of the states support their public colleges and universities
through direct state subsidies, the federal government provides a substantial
part of its support for post-secondary education by way of grants and loans to
students who can use this money at any institution certified as eligible by the
DOE. Since 1972, Congress has expanded the scope of the HEA by, among other
things, (i) providing that students at proprietary institutions, such as the
Company's institutions, are eligible for assistance under the Title IV
Programs, (ii) establishing a program for loans to parents of eligible
students, (iii) opening the Title IV Programs to part-time students, and (iv)
increasing maximum loan limits and in some cases eliminating the requirement
that students demonstrate financial need to obtain federally guaranteed loans.
Most recently, the Federal Direct Lending Program ("FDL") was enacted, enabling
students to obtain loans directly from the federal government rather than from
commercial lenders. Congress reauthorizes the student financial assistance
programs of the HEA approximately every five years, the last time having done
so in 1998.

   Students at the Company's institutions receive grants, loans and work
opportunities to fund their education under several of the Title IV Programs,
of which the two largest are the Federal Student Loan ("FFEL") program and the
Federal Pell Grant ("Pell") program. The Company's institutions also
participate in the Federal Supplemental Educational Opportunity Grant ("FSEOG")
program, and some of them participate in the Perkins program and the Federal
Work-Study ("FWS") program.

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

   Pell. Pell grants are the primary component of the Title IV Programs under
which the DOE makes grants to students who demonstrate financial need. Every
eligible student is entitled to receive a Pell grant; there is no institutional
allocation or limit. For the 2000-2001 award year, Pell grants ranged from $400
to $3,300 per year. Amounts received by students enrolled in the Company's
institutions in the 2000-2001 award year under the Pell program equaled
approximately 24% of the Company's net revenue.

   FSEOG. FSEOG awards are designed to supplement Pell grants for the neediest
students. FSEOG grants generally range in amount from $100 to $4,000 per year;
however, the availability of FSEOG awards is limited by the amount of those
funds allocated to an institution under a formula that takes into account the
size of the institution, its costs and the income levels of its students. The
Company is required to make a 25% contribution

                                       13
<PAGE>

for all FSEOG awards disbursed. Resources for this institutional contribution
may include institutional grants, scholarships and other eligible funds (i.e.,
funds from foundations and other charitable organizations) and, in certain
states, portions of state scholarships and grants. During the 2000-2001 award
year, the Company's required 25% contribution match was met by approximately
$691,000 in funds from its institutions and funds from state scholarships and
grants and from foundations and other charitable organizations. Amounts
received by students in the Company's institutions under the federal share of
the FSEOG programs in the 2000-2001 award year equaled approximately 1.3% of
the Company's net revenue.

   FFEL and FDL. The FFEL program consists of two types of loans, Stafford
loans, which are made available to students, and PLUS loans, which are made
available to parents of students classified as dependents. Under the FDL
program, students may obtain loans directly from the DOE rather than commercial
lenders. The conditions on FDL loans are generally the same as on loans made
under the FFEL program. Under the Stafford loan program, a student may borrow
up to $2,625 for the first academic year, $3,500 for the second academic year
and, in some educational programs, $5,500 for each of the third and fourth
academic years. Students with financial needs qualify for interest subsidies
while in school and during grace periods. Students who are classified as
independent can increase their borrowing limits and receive additional
unsubsidized Stafford loans. Such students can obtain an additional $4,000 for
each of the first and second academic years and, depending upon the educational
program, an additional $5,000 for each of the third and fourth academic years.
The obligation to begin repaying Stafford loans does not commence until six
months after a student ceases enrollment as at least a half-time student.
Amounts received by students in the Company's institutions under the Stafford
program in the 2000-2001 award year equaled approximately 52.0% of the
Company's net revenue. PLUS loans may be obtained by the parents of a dependent
student in an amount not to exceed the difference between the total cost of
that student's education (including allowable expenses) and other aid to which
that student is entitled. Amounts received by students in the Company's
institutions under the PLUS program in the 2000-2001 award year equaled
approximately 3.6% of the Company's net revenue.

   The Company's schools and their students use a wide variety of lenders and
guaranty agencies and have generally not experienced difficulties in
identifying lenders and guaranty agencies willing to make federal student
loans. Additionally, the HEA requires the establishment of lenders of last
resort in every state to ensure that students at any institution that cannot
identify such lenders will have access to the FFEL program loans. None of the
Company's colleges uses a lender of last resort.

   Perkins. Eligible undergraduate students may borrow up to $4,000 under the
Perkins program during each academic year, with repayment delayed until six
months after the borrower ceases to be enrolled on at least a half-time basis.
Perkins loans are made available to those students who demonstrate the greatest
financial need. Perkins loans are made from a revolving account, 75% of which
was initially capitalized by the DOE. Subsequent federal capital contributions,
with an institutional contribution of one-third of the federal contribution,
may be received if an institution meets certain requirements. Each institution
collects payments on Perkins loans from its former students and loans those
funds to currently enrolled students. Collection and disbursement of Perkins
loans is the responsibility of each participating institution. During the 2000-
2001 award year, the Company collected approximately $876,000 from its former
students in repayment of Perkins loans. In the 2000-2001 award year, the
Company had no required matching contribution. The Perkins loans disbursed to
students in the Company's institutions in the 2000-2001 award year equaled
approximately 0.3% of the Company's net revenue.

   FWS. Under the FWS program, federal funds are made available to pay up to
75% of the cost of compensation for part-time employment of eligible students,
based on their financial need, to perform work for the institution or for off-
campus public or non-profit organizations. During the 2000-2001 award year, the
Company's institutions and other organizations provided matching contributions
totaling approximately $176,000. At least 7% of an institution's FWS allocation
must be used to fund student employment in community service positions. FWS
earnings are given directly to the student for their own discretionary use.
However, in the 2000-2001 award year, the federal share of FWS earnings equaled
0.2% of the Company's net revenue.

                                       14
<PAGE>

Federal Oversight of the Title IV Programs

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

   Cohort Default Rates. A significant component of the Congressional
initiative aimed at reducing fraud, waste and abuse was the imposition of
limitations on participation in the Title IV Programs by institutions whose
former students defaulted on the repayment of federally guaranteed or funded
student loans at an excessive rate ("Cohort Default Rates"). Since the DOE
began to impose sanctions on institutions with Cohort Default Rates above
certain levels, the DOE has reported that more than 1,000 institutions have
lost their eligibility to participate in some or all of the Title IV Programs.
However, many institutions, including all of the Company's institutions, have
responded by implementing aggressive student loan default management programs
aimed at reducing the likelihood of students failing to repay their loans in a
timely manner. An institution's Cohort Default Rates under the FFEL and FDL
programs are calculated on an annual basis as the rate at which student
borrowers scheduled to begin repayment on their loans in one federal fiscal
year default on those loans by the end of the next federal fiscal year. An
institution that participates in both the FFEL and FDL programs, including any
of the Company's institutions, receives a single "weighted average" Cohort
Default Rate in place of an FFEL or FDL Cohort Default Rate. Any institution
whose Cohort Default Rate equals or exceeds 25% for any one of the three most
recent federal fiscal years may be found by the DOE to lack administrative
capability and, on that basis, placed on provisional certification status for
up to three years. Provisional certification status does not limit an
institution's access to Title IV Program funds but does subject that
institution to closer review by the DOE and possible summary adverse action if
that institution commits violations of the Title IV Program requirements. Any
institution whose Cohort Default Rates equal or exceed 25% for three
consecutive years will no longer be eligible to participate in the FFEL or FDL
programs for the remainder of the federal fiscal year in which the DOE
determines that such institution has lost its eligibility and for the two
subsequent federal fiscal years. In addition, an institution whose Cohort
Default Rate for any federal fiscal year exceeds 40% may have its eligibility
to participate in all of the Title IV Programs limited, suspended or
terminated. The 1998 Amendments to the HEA provide that institutions which
become ineligible to participate in the Title IV Programs because of Cohort
Default Rates in excess of the applicable levels will also become ineligible to
participate in the Pell grant program. Since the calculation of Cohort Default
Rates involves the collection of data from many non-governmental agencies
(i.e., lenders, private guarantors or servicers), as well as the DOE, the HEA
provides a formal process for the review and appeal of the accuracy of Cohort
Default Rates before the DOE takes any action against an institution based on
such rates. The 1998 Amendments expand institutions' ability to appeal loss of
eligibility owing to such default rates.

   We proactively manage our students' repayment obligations and have engaged
two professional default management firms to assist the us in reducing the
Cohort Default Rates at our colleges. To date the firms have favorably impacted
the Cohort Default Rates at our colleges, lowering historical default rates at
certain colleges by ten percentage points or more. We believe that professional
default management services can continue to assist us in reducing the Cohort
Default Rates at our colleges.

                                       15
<PAGE>

   Due to excessive Cohort Default Rates during 1992 to 1996, six of our
schools, NIT in Wyoming, Michigan, Bryman Institute in Brighton, Massachusetts,
and the Bryman Colleges in El Monte, California, Los Angeles, California, San
Jose (South), California and New Orleans, Louisiana became ineligible to
participate in the FFEL programs beginning in May 1997. The seventh, Skadron
College in San Bernardino, California, lost its eligibility to participate in
the FFEL program in June of 1994.

   Through the Company's aggressive default management efforts, two of these
seven colleges had fiscal 1995 published default rates below 25%. Moreover, as
a result of negotiations between the Company and the DOE regarding
reinstatement of eligibility for the seven campuses that lost eligibility, the
DOE reinstated four of the seven colleges. The remaining three colleges, Bryman
Colleges in San Jose, California and New Orleans, Louisiana and Skadron College
in San Bernardino, California were reinstated in October 2000.

                                       16
<PAGE>

   The following table sets forth the final Cohort Default Rates for our
institutions for federal fiscal years 1997, 1998 and 1999:

<TABLE>
<CAPTION>
Institution                                                 1997  1998  1999(1)
-----------                                                 ----  ----  -------
<S>                                                         <C>   <C>   <C>
Degree-Granting Colleges

Blair College, Colorado Springs, CO.......................  13.9% 15.2%  16.6%
Duff's Business Institute, Pittsburgh, PA.................  21.6% 23.2%  23.0%
FMU--Orlando (North, South, Melbourne), FL(2).............  22.7% 15.3%   9.5%
FMU--Pinellas (Lakeland, Jacksonville), FL(2).............  21.5% 18.6%  10.2%
FMU--Tampa (Brandon), FL(2)...............................  18.9% 15.7%  11.9%
FMU--Ft. Lauderdale, FL...................................  25.5% 13.3%  11.4%
Las Vegas College, NV.....................................  17.1% 11.1%  16.5%
Mountain West College, Salt Lake City, UT.................  23.0% 16.1%  12.9%
Parks College North and South, CO(2)......................  15.2% 15.2%  17.7%
Rochester Business Institute, Rochester, NY...............  23.2% 23.1%  14.2%
Rhodes College, Phoenix, AZ...............................  18.5% 18.6%  12.9%
Rhodes College (Springfield, MO, Rancho Cucamonga, CA)....  21.1% 21.9%  18.2%
Western Bus. College (Portland, OR and Vancouver, WA)(2)..  18.1% 13.3%  11.3%

Diploma-Granting Colleges

Bryman Institute, Brighton, MA............................  23.7% 17.5%  13.8%
Bryman College, El Monte, CA..............................  17.3% 14.7%  11.2%
Bryman College, Gardena, CA...............................  19.1% 11.4%  17.1%
Bryman College, Los Angeles, CA...........................  13.5% 13.2%  13.3%
Bryman College, Anaheim, CA...............................  16.7%  9.4%  12.9%
Bryman College, San Francisco, CA.........................  19.5% 14.1%  12.2%
Bryman College, San Jose No., CA..........................  23.1% 10.4%  12.7%
Bryman College, San Jose South, CA (New
 Orleans, LA)(1)(2).......................................  16.0% 16.7%  25.8%
Bryman College, Sea Tac, WA...............................   6.6% 17.3%  14.7%
Bryman College, Reseda, CA................................  19.1% 13.7%  10.8%
Bryman College, Ontario, CA...............................  12.6%  9.4%  12.5%
Computer Training Academy, San Jose, CA
 (Pleasanton, CA)(2)......................................   8.6%  9.4%  15.6%
GMI (Atlanta, Jonesboro and Marietta, GA)(2)..............  22.1% 14.9%   2.8%
Harbor Medical College, Torrance, CA(3) ..................     0%    0%  25.0%
Kee Business College, Newport News, VA
 (Chesapeake, VA)(2)......................................  27.2% 17.5%  12.3%
NIT, Cross Lanes, WV (Atlanta, GA)(2).....................  18.0% 16.9%  11.3%
NIT, Long Beach, CA (Los Angeles, CA and
 Whittier, CA)(2).........................................  15.7% 15.0%  15.0%
NIT, San Antonio, TX (Houston, TX and
 Greenspoint, TX)(2)......................................  21.3% 17.2%  15.8%
NIT, Southfield, MI (Dearborn, MI)(2).....................  12.2% 16.5%  18.9%
Olympia College,  Skokie, IL..............................  13.5% 16.5%  11.1%
Olympia Career Training Institute (Grand Rapids, MI,
 Kalamazoo, MI and Merrillville, IN)(2)...................   9.0%  9.3%   7.4%
Skadron College, San Bernardino, CA.......................  23.2%  2.4%     0%
</TABLE>
--------
(1) Final 1999 rates were released in September 2001. Final rates are subject
    to appeal. Based on current information, the Company plans to appeal the
    1999 default rate of Bryman College, San Jose (South), with its additional
    campus in New Orleans, LA, and expects the final rate to be reduced to
    below 25%.
(2) Indicates additional locations wherein the Cohort Default Rates are blended
    with the main campus.
(3) The 1999 rate for Harbor Medical College is an "unofficial rate" because
    there were less than 30 students in the cohort. Accordingly, the 1999 rate
    will not count against the college in determining its Title IV eligibility.

   In addition, if an institution's Cohort Default Rate for loans under the
Perkins program exceeds 15% for any federal award year (i.e., July 1 through
June 30), that institution may be placed on provisional certification

                                       17
<PAGE>

status for up to three years. Fifteen of the Company's institutions have
Perkins program Cohort Default Rates in excess of 15% for students who were
scheduled to begin repayment in the 1999 federal award year, the most recent
year for which such rates have been calculated. During fiscal 2001, Perkins
loans amounted to 0.3% of total Company revenues. The Perkins Cohort Default
Rates for these institutions ranged from 16.6% to 46.9%. Default rates in
excess of 15% could result in provisional certification status. Historically,
provisional certification due to excessive Perkins program Cohort Default Rates
has not had a material adverse effect on our business.

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

   Increased Regulatory Scrutiny. The HEA provides for a three-part initiative,
generally referred to as the Triad, intended to increase regulatory scrutiny of
post-secondary education institutions. One part of the Triad expands the role
of accrediting agencies in the oversight of institutions participating in the
Title IV Programs. Accrediting agencies which review and accredit the Company's
campuses conduct reviews of substantial breadth. Their examinations pertain to
such areas as student achievement, curriculum, faculty, facilities, equipment,
admissions, financial responsibility and timeliness of student refunds. The
Triad provisions also require each accrediting agency recognized by the DOE to
undergo comprehensive periodic reviews by the DOE to ascertain whether such
accrediting agency is adhering to required standards.

   A second part of the Triad involves the standards to be applied by the DOE
in evaluating the financial responsibility and administrative capability of
institutions participating in the Title IV Programs. In addition, the Triad
mandates that the DOE periodically reviews the eligibility and certification to
participate in the Title IV Programs of every such eligible institution. By
law, all institutions are required to undergo a recertification review at least
every six years, although the DOE may recertify an institution for a shorter
time period. Under these standards, each of our institutions is evaluated by
the DOE on a routine basis. A denial of recertification would preclude an
institution from continuing to participate in the Title IV Programs.

   A third part of the Triad involves approvals by state education agencies
with jurisdiction over educational institutions. State requirements are
important to an institution's eligibility to participate in the Title IV
Programs since an institution must be licensed or otherwise authorized to
operate in the state in which it offers education or training services in order
to be certified as eligible. The level of regulatory oversight varies
substantially from state to state. In some states, the campuses are subject to
licensure by the state education agency and also by a separate higher education
agency. State laws establish standards for instruction, qualifications of
faculty, location and nature of facilities, financial policies and
responsibility and other operational matters. State laws and regulations may
limit the ability of the Company to obtain authorization to operate in certain
states or to award degrees or diplomas or offer new degree programs. Certain
states prescribe standards of financial responsibility that are different from
those prescribed by the DOE. The Company believes that each of its campuses is
in substantial compliance with state authorizing and licensure laws.

   Financial Responsibility Standards. All institutions participating in the
Title IV Programs must satisfy a series of specific standards of financial
responsibility. Institutions are evaluated for compliance with those
requirements in several circumstances, including as part of the DOE's
recertification process and also annually as each institution submits its
audited financial statements to the DOE. In November 1997, the DOE published
new regulations regarding financial responsibility that took effect on July 1,
1998. Under the new regulations,

                                       18
<PAGE>

the DOE calculates three financial ratios for an institution, an equity ratio,
a primary reserve ratio, and a net income ratio, each of which is scored
separately and is then combined to determine the institution's financial
responsibility. If an institution's composite score is below the minimum
requirement for unconditional approval (which is a score of 1.5) but above a
designated threshold level (the "Intermediate Zone," which is 1.0 to 1.4), such
institution may take advantage of an alternative that allows it to continue to
participate in the Title IV Programs for up to three years under additional
monitoring and reporting procedures, but without having to post a letter of
credit in favor of the DOE. If an institution's composite score falls below the
minimum threshold level of 1.0 or is in the Intermediate Zone for more than
three consecutive years, the institution may be required to post a letter of
credit in favor of the DOE.

   For fiscal 2001, our calculations show that all of our schools exceed the
requirements for financial responsibility on an individual basis, with
composite scores from 1.8 to 3.0. Also, the Company, on a consolidated basis,
meets the requirements with the maximum possible composite score of 3.0.

   An institution that is determined by the DOE not to meet any one of the
standards of financial responsibility is nonetheless entitled to participate in
the Title IV Programs if it can demonstrate to the DOE that it is financially
responsible on an alternative basis. An institution may do so by posting a
surety either in an amount equal to 50% (or greater, as the DOE may require) of
the total Title IV Program funds received by students enrolled at such
institution during the prior year or in an amount equal to 10% (or greater, as
the DOE may require) of such prior year's funds if the institution also agrees
to provisional certification and to transfer to the reimbursement or cash
monitoring system of payment for its Title IV Program funds. The DOE has
interpreted this surety condition to require the posting of an irrevocable
letter of credit in favor of the DOE.

   Based on financial responsibility standards in place at the time the Company
purchased 18 colleges from Phillips Colleges Inc., the Company was required to
post a $1.0 million letter of credit in favor of DOE at the time of the
acquisition. In addition, the 18 colleges the Company purchased were required
to remain on the reimbursement program (they had been placed on reimbursement
under prior ownership). Although the $1.0 million letter of credit is less than
the amount normally required under such circumstances, the DOE agreed to these
terms in order to facilitate the sale of the colleges to the Company. The need
for and sufficiency of the letter of credit has been reviewed annually by the
DOE. As a result of this review in 1998, the letter of credit was increased to
$1.5 million based on the increased usage of Title IV Program funds by the
Company's students. After review of the Company's fiscal 1999 financial
statements during its 2000 fiscal year, the DOE released the letter of credit
and no longer required any of the schools to remain on reimbursement.

   Under a separate standard of financial responsibility, if an institution has
made late Title IV refunds to students in its prior two years, the institution
is required to post a letter of credit in favor of the DOE in an amount equal
to 25% of the total Title IV Program refunds paid by the institution in its
prior fiscal year. As of July 1, 1997, this standard has been modified to
exempt an institution if it has not been found to make late refunds to 5% or
more of its students who were due refunds in either of the two most recent
fiscal years and has not been cited for a reportable condition or material
weakness in its internal controls related to late refunds in either of its two
most recent fiscal years. Based on this standard, the Company currently has
three outstanding letters of credit in the aggregate amount of approximately
$56,000. Although there are no citations for material weaknesses in the
Company's or its colleges' internal controls, there can be no assurance that,
upon review by the DOE, that the Company will not be required to post
additional letters of credit in favor of the DOE on behalf of the affected
colleges.

   Restrictions on Acquiring or Opening Additional Schools and Adding
Educational Programs. An institution which undergoes a change of ownership
resulting in a change of control, including all the institutions the Company
has acquired or will acquire, must be reviewed and recertified for
participation in the Title IV Programs under its new ownership. If an
institution is recertified following a change of ownership, it will be on a
provisional basis. During the time an institution is provisionally certified,
it may be subject to closer review by the DOE and to summary adverse action for
violations of Title IV Program requirements, but provisional certification does
not otherwise limit an institution's access to Title IV Program funds. All of
the

                                       19
<PAGE>

Company's schools have been provisionally certified following their acquisition
by the Company. Currently, 16 have received full certification and 40 remain on
a provisional certification.

   The 1998 Amendments allow for the temporary certification of an institution
that has undergone a change of ownership that results in a change of control so
that Title IV Program funds may not be interrupted. To qualify for such
temporary certification, the institution must submit a "materially complete"
application for recertification within 10 business days of the transaction. The
institution must also timely file approval of the change of ownership, if
required by the state in which it operates and its accrediting agency, and an
audited balance sheet as of the date of the closing. Such temporary
certification continues until the application for recertification is acted upon
by the DOE.

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

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

   Ability to Benefit Regulations. Under certain circumstances, an institution
may elect to admit non-high school graduates into certain of its programs of
study. In such instances, the institution must demonstrate that the student has
the "ability to benefit" from the program of study ("ATB"). Twenty-seven of the
Company's colleges admit ATB students into their programs. The basic evaluation
method to determine that a student has the ability to benefit from the program
is the student's achievement of a minimum score on a test approved by the DOE
and independently administered in accordance with DOE regulations. In addition
to the testing requirements, the DOE regulations also prohibit enrollment of
ATB students from constituting 50% or more of the total enrollment of the
institution. None of the Company's colleges that accept ATB students has an ATB
enrollment population that exceeds 50% of the total enrolled population. As of
June 30, 2001, ATB students represented approximately 5.0% of the Company's
total student population.

   The "90/10 Rule"(formerly the "85/15 Rule"). Under a provision of the HEA
commonly referred to as the "90/10 Rule," a private, for-profit institution,
such as each of the Company's institutions, would cease

                                       20
<PAGE>

being eligible to participate in the Title IV Programs if, on a cash accounting
basis, more than 90% of its revenue for the prior fiscal year was derived from
the Title IV Programs. Prior to the 1998 Amendments, the proportion of revenues
that an institution was permitted to derive from the Title IV Programs was 85%.
Any institution that violates the 90/10 Rule immediately becomes ineligible to
participate in the Title IV Programs and is unable to apply to regain its
eligibility until the following fiscal year. The Company has calculated, and
the Company's independent auditors have certified, that, since this requirement
took effect in 1995, each of the Company's institutions has met this
requirement in each fiscal year. The Company regularly monitors compliance with
this requirement in order to minimize the risk that any of its institutions
would derive more than the applicable thresholds of its revenue from the Title
IV Programs for any fiscal year. If an institution appears likely to approach
the threshold, the Company would evaluate the appropriateness of making changes
in student funding and financing to ensure compliance with the 90/10 Rule.

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

   Return of Title IV Funds. The 1998 Amendment to the HEA changed
substantially the way Title IV funds are handled when a Title IV recipient
withdraws from a school. Instead of the previous federal refund policy,
institutions must follow requirements which ensure the return to the federal
student financial and programs all of the unearned funds of a student who
withdraws from a program. Final regulations implementing the new return of
federal student financial aid funds policy were issued in November 1999. The
regulations became effective October 7, 2000.

                                       21
<PAGE>

                         RISKS RELATED TO OUR BUSINESS

Risks Related To Extensive Regulation Of Our Business

   If we fail to follow extensive regulatory requirements for our business, we
could suffer severe fines and penalties, including loss of access to federal
student loans and grants for our students.

   We derive a majority of our revenues from federal student financial aid
programs. To participate in such programs an institution must obtain and
maintain authorization by the appropriate state agencies, accreditation by an
accrediting agency recognized by the DOE, and certification by the DOE. As a
result, our schools are subject to extensive regulation by these agencies that,
among other things, requires us to:

  . undertake steps to assure that the students at each of our schools do not
    default on federally guaranteed or funded student loans at a rate of 25%
    or more for three consecutive years;

  . limit the percentage of revenues derived at each of our institutions from
    federal student financial aid programs to less than 90%;

  . adhere to financial responsibility and administrative capability
    standards;

  . prohibit the payment of incentives to personnel engaged in student
    recruiting, admissions activities or awarding financial aid; and

  . achieve stringent completion and placement outcomes for short-term
    programs.

   These regulations also affect our ability to acquire or open additional
schools or change our corporate structure. These regulatory agencies
periodically revise their requirements and modify their interpretations of
existing requirements.

   If one or more of our schools were to violate any of these regulatory
requirements, we could suffer fines, penalties or other censure, including the
loss of our ability to participate in federal student financial aid programs at
those schools that could have a materially adverse effect on our business. We
cannot predict how all of these requirements will be applied, or whether we
will be able to comply with all of the requirements in the future. Some of the
most significant regulatory requirements and risks that apply to our schools
are described in the following paragraphs.

   Congress may change the law or reduce funding for federal student financial
programs, which could harm our business.

   Congress regularly reviews and revises the laws governing the federal
student financial aid programs and annually determines the funding level for
each of these programs. Any action by Congress that significantly reduces
funding for the federal student financial aid programs or the ability of our
schools or students to participate in these programs could harm our business.
Legislative action may also increase our administrative costs and burden and
require us to modify our practices in order for our schools to comply fully
with applicable requirements, which could have a material adverse effect on our
business.

   For example, the 1998 amendments to the HEA changed substantially the way
federal student financial aid funds are handled when a student withdraws from a
school. Instead of the previous federal refund policy, institutions must follow
requirements which ensure the return to the federal student financial aid
programs of all of the unearned funds of a student who withdraws from a
program. Final regulations implementing the new return of federal student
financial aid funds policy were issued in November 1999. The regulations became
effective October 7, 2000. We have implemented policies to require our schools
to make refund calculations based on the new refund methodology.

   The effect of these new federal policies is to generally reduce the amount
of federal loans and grant funds available to students who withdraw from school
before finishing their programs. Consequently, the amount of money owed
directly by the students to the schools could increase and, to the extent the
students fail to pay the

                                       22
<PAGE>

amounts owed, the Company's bad debt expense would increase. We have
implemented procedures designed to mitigate the adverse impact of these new
federal refund policies. The procedures, however, may be insufficient to
entirely mitigate any adverse effect on bad debt expense. Any significant
increase in bad debt expense could have a material adverse effect on our
business.

   If we do not meet specific financial responsibility ratios and tests
established by the DOE our schools may lose eligibility to participate in
federal student financial aid programs.

   To participate in the federal student financial aid programs, an institution
must either satisfy quantitative standards of financial responsibility, or post
a letter of credit in favor of the DOE and possibly accept other conditions on
its participation in the federal student financial aid programs. Each year,
based on financial information submitted by institutions that participate in
federal student financial aid programs, the DOE calculates three financial
ratios for an institution: an equity ratio, a primary reserve ratio and a net
income ratio. Each of these ratios is scored separately and then combined to
determine the institution's financial responsibility. If an institution's score
is above 1.5, it may continue its participation in federal student financial
aid programs. For fiscal 2001, our calculations show that all of our schools
exceed this requirement on an individual basis, with composite scores from 1.8
to 3.0. On a consolidated basis, our Company also exceeds this requirement with
the maximum possible composite score of 3.0. We cannot assure you that we and
our institutions will satisfy the numeric standards in the future.

   Our schools may lose eligibility to participate in federal student financial
aid programs if the percentage of their revenues derived from those programs is
too high.

   A proprietary institution loses its eligibility to participate in the
federal student financial aid programs for a period of one year if it derives
more than 90% of its revenues, on a cash basis, from these programs in any
fiscal year. Any institution that violates this rule immediately becomes
ineligible to participate in federal student financial aid programs and is
ineligible to reapply to regain its eligibility until the following fiscal
year. Based on our calculations, none of our schools received more than 90% of
its revenues, on a cash basis, in fiscal 2001, with our highest institution
receiving 86% of its revenues, on a cash basis, from federal student financial
aid programs. On a consolidated basis, the Company received 81% of its
revenues, on a cash basis, from federal student financial aid programs in
fiscal 2001. If any of our institutions, depending on its size, loses
eligibility to participate in federal student financial aid programs, it could
have a material adverse effect on our business.

   Our schools may lose eligibility to participate in federal student financial
aid programs if their current and former students' loan default rates are too
high.

   An institution may lose its eligibility to participate in some or all of the
federal student financial aid programs if defaults by its former students on
their federal student loans equal or exceed 25% per year for three consecutive
years. For federal fiscal year 1999, the last year for which final rates have
been published, default rates for our institutions range from a low of 2.8% to
a high of 25.8%. Cohort Default Rates published by the DOE are subject to
appeal by the Company. The Company reviews all annually published Cohort
Default Rates and appeals those rates it believes are inaccurate. Even though
rates are published as final, they are still subject to appeal by the Company
and may change based on current and future appeals that may be submitted by the
Company. The Company expects to appeal the 1999 rate for San Jose (along with
its additional location of New Orleans) and currently believes that such appeal
will reduce the final 1999 rate to below 25%. If any of our institutions,
depending on its size, loses eligibility to participate in federal student
financial aid programs because of high student loan default rates, it could
have a material adverse effect on our business.

   If regulators do not approve our acquisitions, the acquired school(s) would
not be permitted to participate in federal student financial aid programs.

   When we acquire an institution, we must seek approval from the DOE and most
applicable state agencies and accrediting agencies, because an acquisition is
considered a change of ownership or control of the acquired

                                       23
<PAGE>

institution under applicable regulatory standards. A change of ownership or
control of an institution under the DOE standards can result in the temporary
suspension of the institution's participation in the federal student financial
aid programs unless a timely and materially complete application for
recertification is filed with the DOE and the DOE issues a temporary
certification document. If we are unable to re-establish the state
authorization, accreditation or DOE certification of any institution we have
acquired or will acquire, depending on the size of that acquisition, that
failure could have a material adverse effect on our business.

   Additionally, if regulators do not approve transactions involving a change
of control of our Company or any of our schools, we may lose our ability to
participate in federal student financial aid programs. If we or any of our
institutions experience a change of control under the standards of applicable
state agencies or accrediting agencies or the DOE, we or the affected
institutions must seek the approval of the relevant agencies. Some of these
transactions or events, such as a significant acquisition or disposition of our
common stock, may be beyond our control. The adverse regulatory effect of a
change of ownership resulting in a change of control could also discourage bids
for the Company's outstanding shares of common stock at a premium and could
have an adverse effect on the market price of our common stock.

   If any of our schools fails to maintain its state authorizations and
accreditations, we may lose our ability to operate in that state and to
participate in federal student financial aid programs.

   An institution that grants degrees, diplomas or certificates must be
authorized by the relevant agencies of the state in which it is located and, in
some cases, other states. Requirements for authorization vary substantially
among the states. State authorization and accreditation by an accrediting
agency recognized by the DOE are also required for an institution to
participate in the federal student financial aid programs. If any of our
campuses were to lose its state authorization or accreditation, it could have a
materially adverse effect on our business.

   During calendar year 2001, current accreditation for 21 of our schools will
expire and these schools will be subject to reaccreditation reviews. In
addition, during calendar 2002, the accreditation for 12 of our schools will be
subject to reaccreditation reviews. If one or more of these schools fails to be
reaccredited, our business could be harmed.

   If we fail to demonstrate "administrative capability" to the DOE, our
business could suffer.

   DOE regulations specify extensive criteria an institution must satisfy to
establish that it has the requisite "administrative capability" to participate
in federal student financial aid programs. These criteria require, among other
things, that the institution:

 . comply with all applicable federal student financial aid regulations;

 . have capable and sufficient personnel to administer the federal student
   financial aid programs;

 . have acceptable methods of defining and measuring the satisfactory academic
   progress of its students;

 . provide financial aid counseling to its students; and

 . submit all reports and financial statements required by the regulations.

 If an institution fails to satisfy any of these criteria, the DOE may:

 . require the repayment of federal student financial aid funds;

 . transfer the institution from the "advance" system of payment of federal
   student financial aid funds to the "reimbursement" system of payment or
   cash monitoring;

 . place the institution on provisional certification status; or

 . commence a proceeding to impose a fine or to limit, suspend or terminate
   the participation of the institution in federal student financial aid
   programs.

                                       24
<PAGE>

   Should one or more of our institutions be limited in their access to, or
lose, federal student financial aid funds due to their failure to demonstrate
administrative capability, our business could be materially adversely
affected.

   Regulatory agencies or third parties may commence investigations or bring
claims instituting litigation against us.

   Because we operate in a highly regulated industry, we may be subject from
time to time to investigations, claims of non-compliance, or lawsuits by
governmental agencies or third parties, which may allege statutory violations,
regulatory infractions, or common law causes of action. If the results of the
investigations are unfavorable to us or if we are unable to successfully
defend against third-party lawsuits, we may be required to pay money damages
or be subject to fines, penalties, injunctions or other censure that could
have a materially adverse effect on our business. Even if we adequately
address the issues raised by an agency investigation or successfully defend a
third-party lawsuit, we may have to devote significant money and management
resources to address these issues, which could harm our business.

Operational Risks That Could Have A Material Adverse Effect On Our Business

   If students fail to pay their outstanding balances, our business will be
harmed.

   We offer a variety of payment plans to help students pay that portion of
their education expense not covered by financial aid programs. These balances
are unsecured and not guaranteed. Losses related to unpaid student balances in
excess of the amounts we have reserved for bad debts could have a material
adverse effect on our business.

   Failure to effectively manage our growth could harm our business.

   We have grown rapidly since we formed our Company in 1995. Our rapid
growth, now or in the future, could place a strain on our management,
operations, employees or resources. We cannot assure our stockholders that we
will be able to maintain or accelerate our current growth rate, effectively
manage our expanding operations or achieve planned growth on a timely or
profitable basis. If we are unable to manage our growth effectively, our
business could be materially adversely affected.

   If we cannot effectively identify, acquire and integrate additional
schools, it could harm our business.

   We expect to continue to rely on acquisitions as a key component of our
growth. We often engage in evaluations of, and discussions with, possible
acquisition candidates. We cannot make assurances that we will be able to
identify suitable acquisition candidates or that we will be able to acquire
any of the acquisition candidates on favorable terms. Furthermore, we cannot
make assurances that any acquired schools can be successfully integrated into
our operations or be operated profitably. Acquisitions involve a number of
risks that include:

 . diversion of management resources;

 . integration of the acquired schools' operations;

 . adverse short-term effects on reported operating results; and

 . possible loss of key employees.

   Continued growth through acquisition may also subject us to unanticipated
business or regulatory uncertainties or liabilities. When we acquire an
existing school, we typically allocate a significant portion of the purchase
price to fixed assets, curriculum, goodwill and intangibles, such as covenants
not-to-compete. For our acquisitions to date, we have amortized goodwill and
trade names over a period of 40 years and curricula over three to 15 years.
The Company assesses the recoverability of its long-lived assets on an annual
basis or

                                      25
<PAGE>

whenever adverse events or changes in circumstances or business climate
indicate that expected undiscounted future cash flows related to such long-
lived assets may not be sufficient to support the net book value of such
assets. If undiscounted cash flows are not sufficient to support the recorded
assets, impairment is recognized to reduce the carrying value of the long-
lived assets to the estimated fair value. Cash flow projections, although
subject to a degree of uncertainty, are based on trends of historical
performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
Additionally, in conjunction with the review for impairment, the remaining
estimated lives of certain of the Company's long-lived assets are assessed. In
addition, our acquisition of a school is a change of ownership of that school,
which may result in the temporary suspension of that school's participation in
federal student financial aid programs until it obtains the DOE's approval. If
we fail to manage successfully our acquisitions, our business would likely
suffer.

   Failure to effectively manage opening new schools or adding new services
could harm our business.

   Establishing new schools requires us to make investments in management,
capital expenditures, marketing expenses and other resources. To open a new
school, we are also required to obtain appropriate state and accrediting
agency approvals. In addition, to be eligible for federal student financial
aid programs, the new school is required to be certified as eligible to
receive Title IV funds by the DOE. We cannot assure you that we will be able
to successfully open new schools in the future. Our failure to effectively
manage the operations of newly established schools could have a material
adverse effect on our business.

   Our success depends upon our ability to recruit and retain key personnel.

   We depend on key personnel, including David G. Moore, Paul R. St. Pierre,
Dennis L. Devereux, Dennis N. Beal, Beth A. Wilson, Mary H. Barry, Nolan A.
Miura and Stan A. Mortensen to effectively operate our business. If any of
these people left our Company and we failed to effectively manage a transition
to new people, our business could suffer.

   Our success also depends, in large part, upon our ability to attract and
retain highly qualified faculty, school presidents and administrators and
corporate management. Due to the nature of our business, we may have
difficulty locating and hiring qualified personnel, and retaining such
personnel once hired. The loss of the services of any of our key personnel, or
our failure to attract and retain other qualified and experienced personnel on
acceptable terms, could cause our business to suffer.

   Anti-takeover provisions in our charter documents and Delaware law could
make an acquisition of our Company difficult.

   Our certificate of incorporation, our by-laws and Delaware law contain
provisions that may delay, defer or inhibit a future acquisition of our
Company not approved by our board of directors. These provisions are intended
to encourage any person interested in acquiring us to negotiate with and
obtain the approval of our board of directors. Our certificate of
incorporation also permits our board of directors to issue shares of preferred
stock with voting, conversion and other rights as it determines, without any
further vote or action by our stockholders. By using preferred stock, we
could:

 . discourage a proxy contest,

 . make the acquisition of a substantial block of our common stock more
   difficult, or

 . limit the price investors may be willing to pay in the future for shares of
   our common stock.

   In addition, our bylaws provide that (a) special meetings of our
stockholders may be called only by our board of directors and (b) only two of
our five Directors may be elected at a special meeting. These provisions also
could discourage bids for your shares of common stock at a premium and could
have a material adverse effect on the market price of your shares.

                                      26
<PAGE>

   Failure to keep pace with changing market needs and technology could harm
our business.

   Prospective employers of our graduates increasingly demand that their entry-
level employees possess appropriate technological skills. Educational programs
at our schools, particularly programs in information technology, must keep pace
with these evolving requirements. If we cannot respond to changes in industry
requirements, it could have a material adverse effect on our business.

   Competitors with greater resources could harm our business.

   The post-secondary education market is highly competitive. Our schools
compete with traditional public and private two-year and four-year colleges and
universities and other proprietary schools, including those that offer distance
learning programs. Some public and private colleges and universities, as well
as other private career-oriented schools, may offer programs similar to those
of our schools. Although tuition at private non-profit institutions is, on
average, higher than tuition at our schools, some public institutions are able
to charge lower tuition than our schools, due in part to government subsidies,
government and foundation grants, tax-deductible contributions and other
financial sources not available to proprietary schools. Some of our competitors
in both the public and private sectors have substantially greater financial and
other resources than us.

   Failure to obtain additional capital in the future could reduce our ability
to grow.

   We believe that funds from operations, cash, investments and borrowings
under our $20 million credit facility pursuant to our credit agreement will be
adequate to fund our current operation plans for the foreseeable future.
However, we may need additional debt or equity financing in order to carry out
our strategy of growth through acquisitions. We may also need additional debt
or equity financing in the future to carry out our growth strategy. The amount
and timing of such additional financing will vary principally depending on the
timing and size of acquisitions and the sellers' willingness to provide
financing themselves. To the extent that we require additional financing in the
future and are unable to obtain such additional financing, we may not be able
to fully implement our growth strategy.

ITEM 2. DESCRIPTION OF PROPERTY

   Our corporate office is located in Santa Ana, California and our 56
facilities are located in 20 states. Each campus provides our students with
modern lecture halls, instructional medical labs, libraries, Internet access
and an administrative staff lead by a college president.

   We actively monitor our facility capacity and future facility capacity
required to accommodate campus growth initiatives. We provide for expansion and
future growth at each campus through relocations to larger facilities and by
expanding or remodeling at existing facilities. From the end of fiscal 1996
through fiscal 2001, approximately 32% of the campuses have been relocated and
an additional 25% of total campuses have been either expanded or remodeled. The
following table reflects the number of campuses added or closed during each of
the last five fiscal years, the number of campuses at the end of each of the
last five fiscal years and the number of campuses that have been relocated,
enlarged or remodeled in each of the last five fiscal years ended:

<TABLE>
<CAPTION>
   During Fiscal Years Ended             6/30/97 6/30/98 6/30/99 6/30/00 6/30/01
   -------------------------             ------- ------- ------- ------- -------
   <S>                                   <C>     <C>     <C>     <C>     <C>
   Opened
     Acquired...........................    20       0       0       5       9
     Branched...........................     0       0       2       2       4
   Closed...............................     0       1       0       0       1
   Total campuses at year end...........    36      35      37      44      56
   Relocated............................     2       6       5       2       3
   Enlarged or remodeled................     0       1       1       2      10(1)
</TABLE>
--------
(1) The number of enlarged or remodeled locations in fiscal 2001 also includes
    our headquarters facility.

                                       27
<PAGE>

   All but four of our campuses are leased and we lease our headquarters
offices. Most of our leases have primary terms between five and ten years with
options to extend the lease, at our election.

   Square footage of the Company's colleges varies significantly based upon the
type of programs offered and the market being served. The following table
reflects square footage by location as of August 15, 2001:

<TABLE>
<CAPTION>
                               Approx.
                                Square
   Degree-Granting Colleges    Footage
   ------------------------    -------
<S>                            <C>
Blair College, Colorado
 Springs, CO(1)...............  23,134
Duff's, Pittsburgh, PA........  30,370
FMU, Brandon, FL..............  35,250
FMU, Ft. Lauderdale, FL.......  36,500
FMU, Jacksonville, FL.........  21,975
FMU, Lakeland, FL.............  23,717
FMU, Melbourne, FL(1).........  21,970
FMU, Orlando, FL North........  39,424
FMU, Orlando, FL South........  37,221
FMU, Pinellas, FL.............  30,734
FMU, Tampa, FL(1).............  29,380
Las Vegas College, Las Vegas,
 NV...........................  17,884
Mountain West College, Salt
 Lake City, UT................  24,200
Parks College, Thornton,
 CO(1)........................  28,000
Parks College, Aurora, CO.....  21,000
RBI, Rochester, NY............  29,424
Rhodes College, Phoenix, AZ...  14,200
Rhodes College, Rancho
 Cucamonga, CA................  17,643
Rhodes College, Springfield,
 MO...........................  23,012
Western Business College,
 Vancouver, WA................  16,813
Western Business College,
 Portland, OR.................  34,260
Corporate Offices.............
 Santa Ana, CA................  44,345
 Gulfport, MS.................   3,021
</TABLE>
<TABLE>
<CAPTION>
                                  Approx.
                                  Square
   Diploma-Granting Colleges      Footage
   -------------------------      -------
<S>                               <C>
Bryman, Brighton, MA............  14,664
Bryman, El Monte, CA............  22,497
Bryman, Gardena, CA.............  21,355
Bryman, Los Angeles, CA.........  14,588
Bryman, New Orleans, LA.........  19,939
Bryman, Anaheim, CA.............  16,906
Bryman, San Francisco, CA.......  18,500
Bryman, San Jose, CA North......  17,678
Bryman, San Jose, CA South......   3,054
Bryman, Reseda, CA..............  19,486
Bryman, Sea Tac, WA.............  12,239
Bryman, Ontario, CA.............  12,244
Bryman, West Los Angeles, CA....  26,227
Bryman, Whittier, CA............  21,030
Computer Training Academy,
 Pleasanton, CA(2)..............   9,701
Computer Training Academy, San
 Jose, CA.......................  32,688
GMI, Atlanta, GA................  18,116
GMI, Jonesboro, GA..............  16,700
GMI, Marietta, GA...............  13,396
Harbor Medical College,
 Torrance, CA...................   3,604
Kee Business College, Newport
 News, VA.......................  16,215
Kee Business College,
 Chesapeake, VA.................  21,299
NIT, Atlanta, GA................  18,000
NIT, Cross Lanes, WV............  24,700
NIT, Dearborn, MI...............  17,546
NIT, Greenspoint, TX............  18,525
NIT, Houston, TX................  20,585
NIT, Long Beach, CA.............  26,715
NIT, San Antonio, TX............  37,300
NIT, Southfield, MI.............  24,033
Olympia Career Training
 Institute, Grand Rapids, MI....  22,255
Olympia Career Training
 Institute, Kalamazoo, MI.......   9,676
Olympia College, Merrillville,
 IN.............................  15,381
Olympia College, Skokie, IL.....  20,077
Skadron College, San Bernardino,
 CA.............................  21,600
</TABLE>
--------
(1) Indicates owned properties.
(2) Scheduled to close during fiscal 2002.

ITEM 3. LEGAL PROCEEDINGS

   In the ordinary conduct of our business, we and our colleges are subject to
occasional lawsuits, investigations and claims. Although we cannot predict the
ultimate resolution of lawsuits, investigations and claims asserted against us,
we do not believe that any currently pending legal proceeding to which we are a
party will have a material adverse effect on our business, results of
operations or financial condition.

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

   There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended June 30, 2001.

                                       28
<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Dividend Policy

   We have never paid cash dividends on our common stock. We currently
anticipate retaining future earnings, if any, to finance internal growth and
potential acquisitions. Payment of dividends in the future, if at all, will
depend upon our earnings and financial condition and various other factors our
directors may deem appropriate at the time. Our credit agreement restricts the
payment of cash dividends.

Price Range of Common Stock

   Our common stock is listed on the Nasdaq National Market System under the
symbol "COCO." The approximate number of holders of record of our common stock
as of August 31, 2001 was 29 and the number of beneficial owners is believed to
be in excess of 9,500. Our common stock was first listed on Nasdaq upon the
completion of our initial public offering in February 1999.

   On September 24, 2001 the closing price per share of common stock was
$27.47, and the range of high and low sales prices of our common stock, as
reported by the Nasdaq National Market System, for each applicable quarter in
fiscal 1999, 2000 and 2001 is as follows (after giving effect to the Company's
two-for-one stock split effected in the form of a dividend in December 2000):

<TABLE>
<CAPTION>
                                                                   Price Range
                                                                    of Common
                                                                      Stock
                                                                  -------------
                                                                   High   Low
                                                                  ------ ------
     <S>                                                          <C>    <C>
     1999:
       Third Quarter (from February 5, 1999)..................... $12.50 $10.44
       Fourth Quarter............................................  11.03   6.25
     2000:
       First Quarter............................................. $11.75 $ 6.94
       Second Quarter............................................  12.06   8.32
       Third Quarter.............................................  12.63   7.94
       Fourth Quarter............................................  12.88   7.75
     2001:
       First Quarter............................................. $30.63 $11.50
       Second Quarter............................................  43.00  24.63
       Third Quarter.............................................  48.36  31.13
       Fourth Quarter............................................  52.00  34.00
     2002:
       First Quarter (through September 24, 2001)................ $55.47 $24.06
</TABLE>

                                       29
<PAGE>

ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

   The following selected historical consolidated financial and other data are
qualified by reference to, and should be read in conjunction with, our
consolidated financial statements and the related notes thereto appearing
elsewhere in this Form 10-K and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected statement of
operations data and the balance sheet data set forth below as of and for each
of the five years ended June 30, 1997, 1998, 1999, 2000 and 2001 are derived
from our audited consolidated financial statements. These historical results
are not necessarily indicative of the results that may be expected in the
future.

<TABLE>
<CAPTION>
                                           Years Ended June 30,
                                -----------------------------------------------
                                 1997      1998      1999      2000      2001
                                -------  --------  --------  --------  --------
                                   (In thousands, except per share data)
<S>                             <C>      <C>       <C>       <C>       <C>
Statement of Operations Data:
 Net revenues(1)..............  $77,201  $106,486  $132,972  $170,734  $244,163
                                -------  --------  --------  --------  --------
 Operating expenses:
  Educational services........   50,568    65,927    76,425    92,757   131,501
  General and administrative..    8,101    10,777    13,961    16,346    19,562
  Marketing and advertising...   19,000    24,268    29,702    37,225    52,349
                                -------  --------  --------  --------  --------
  Total operating expenses....   77,669   100,972   120,088   146,328   203,412
                                -------  --------  --------  --------  --------
 Income (loss) from
  operations..................     (468)    5,514    12,884    24,406    40,751
 Interest expense (income),
  net.........................    2,524     3,305     1,678    (1,681)   (2,078)
 Other (income)...............      --        --        --       (175)      --
                                -------  --------  --------  --------  --------
 Income (loss) before income
  taxes and extraordinary
  (loss)......................   (2,992)    2,209    11,206    26,262    42,829
 Provision (benefit) for
  income taxes................   (1,107)      988     4,703    10,840    17,098
                                -------  --------  --------  --------  --------
 Net income (loss) before
  extraordinary (loss)........   (1,885)    1,221     6,503    15,422    25,731
 Extraordinary (loss) net of
  tax benefit.................      --        --     (2,011)      --        --
                                -------  --------  --------  --------  --------
 Net income (loss)............  $(1,885) $  1,221  $  4,492  $ 15,422  $ 25,731
                                =======  ========  ========  ========  ========
INCOME (LOSS) ATTRIBUTABLE TO
 COMMON STOCKHOLDERS:
 Net income (loss) before
  extraordinary (loss)........  $(1,885) $  1,221  $  6,503  $ 15,422  $ 25,731
 Less preferred stock
  dividends...................     (118)     (365)     (355)      --        --
                                -------  --------  --------  --------  --------
 Income (loss) before
  extraordinary (loss)
  attributable to Common
  stockholders................   (2,003)      856     6,148    15,422    25,731
 Extraordinary (loss).........      --        --     (2,011)      --        --
                                -------  --------  --------  --------  --------
  Net income (loss)
   attributable to common
   Stockholders...............  $(2,003) $    856  $  4,137  $ 15,422  $ 25,731
                                =======  ========  ========  ========  ========
INCOME (LOSS) PER SHARE
 ATTRIBUTABLE TO COMMON
 STOCKHOLDERS:
 Basic--
  Income (loss) before
   extraordinary (loss).......  $ (0.20) $   0.08  $   0.42  $   0.75  $   1.22
  Extraordinary (loss)........      --        --      (0.13)      --        --
                                -------  --------  --------  --------  --------
  Net income (loss)...........  $ (0.20) $   0.08  $   0.29  $   0.75  $   1.22
                                =======  ========  ========  ========  ========
 Diluted--
  Income (loss) before
   extraordinary (loss).......  $ (0.20) $   0.06  $   0.36  $   0.74  $   1.18
  Extraordinary (loss)........      --        --      (0.12)      --        --
                                -------  --------  --------  --------  --------
  Net income (loss)...........  $ (0.20) $   0.06  $   0.24  $   0.74  $   1.18
                                =======  ========  ========  ========  ========
Weighted average number of
 common shares outstanding:
 Basic........................    9,792    10,472    14,532    20,693    21,032
                                =======  ========  ========  ========  ========
 Diluted......................    9,792    14,250    17,098    20,849    21,731
                                =======  ========  ========  ========  ========
</TABLE>

                                       30
<PAGE>

<TABLE>
<CAPTION>
                                          Years Ended June 30,
                               -----------------------------------------------
                                 1997     1998      1999      2000      2001
                               --------  -------  --------  --------  --------
                                         (Dollars In thousands)
<S>                            <C>       <C>      <C>       <C>       <C>
Other Data:
 EBITDA(2).................... $  1,602  $ 8,573  $ 16,329  $ 28,204  $ 45,611
 Cash flow provided by (used
  in):
  Operating activities........      995   (3,373)    5,794    23,582    21,532
  Investing activities........  (30,973)  (1,676)  (16,140)  (19,362)  (17,395)
  Financing activities........   30,975    4,630     9,731    (1,121)   10,715
 Capital expenditures(3)......    5,936    1,926     2,790     4,182    12,545
 Number of colleges at end of
  period......................       36       35        37        44        56
 Student population at end of
  period......................   12,820   13,992    16,012    19,464    25,626
 Starts during the period(4)..   13,673   18,261    21,008    24,660    33,252
Balance Sheet Data:
 Cash, cash equivalents and
  restricted cash(5).......... $  3,831  $ 3,162  $  1,797  $  4,896  $ 19,748
 Marketable investments.......      --       --     14,501    24,107     9,699
 Working capital..............    1,844      606    19,108    29,069    39,722
 Total assets.................   53,809   59,905    73,857    95,233   138,636
 Long-term debt, net of
  current maturities..........   36,168   31,535     3,396     2,230     2,138
 Redeemable preferred stock...    2,042    2,167       --        --        --
 Convertible preferred stock..      --     5,174       --        --        --
 Total stockholders' equity... $     21  $   977  $ 53,536  $ 69,003  $105,563
</TABLE>
--------
(1) Represents student tuition and fees and bookstore sales, net of refunds.
(2) EBITDA equals earnings before interest, taxes, depreciation and
    amortization, including amortization of deferred financing costs. For the
    year ended June 30, 1999, EBITDA excludes the extraordinary loss from early
    extinguishment of debt which amounted to $2.0 million (net of $1.5 million
    tax benefit). EBITDA is presented because we believe it allows for a more
    complete analysis of our results of operations. EBITDA should not be
    considered as an alternative to, nor is there any implication that it is
    more meaningful than, any measure of performance or liquidity as
    promulgated under GAAP.
(3) Year ended June 30, 1997 includes approximately $3.4 million for real
    estate acquired in connection with the acquisition of certain schools from
    Phillips Colleges, Inc.
(4) Represents the new students starting school during the periods presented.
(5) Includes approximately $1.0 million, $760,000, $10,000, $10,000 and $10,000
    of restricted cash at June 30, 1997, 1998, 1999, 2000 and 2001,
    respectively.

                                       31
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

   The following discussion and analysis should be read in conjunction with the
Selected Historical Consolidated Financial and Other Data and the Company's
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Report on Form 10-K.

Background and Overview

   As of June 30, 2001, we operated 56 colleges, with more than 25,600
students, in 20 states. During the fiscal year ended June 30, 2001, our Company
had net revenues of $244.2 million. Our revenues consist principally of student
tuition, enrollment fees and bookstore sales, and are presented as net revenues
after adjustments related to students who do not complete their program.

   Net revenues increased 43.0% to $244.2 million in 2001 from $170.7 million
in 2000. The increase is largely the result of a 31.7% increase in the average
student population and a 9.1% increase in the average tuition rate per student
during the period. Tuition revenues, which represented 93.7% of fiscal 2001
total net revenues, fluctuate with the aggregate enrolled student population
and the average program or credit hour charge. The student population varies
depending on, among other factors, the number of (i) continuing students at the
beginning of a fiscal period, (ii) new student enrollments during the fiscal
period, (iii) students who have previously withdrawn but who reenter during the
fiscal period, and (iv) graduations and withdrawals during the fiscal period.
New student starts occur on a monthly basis in the diploma-granting colleges.
In the degree-granting colleges, the majority of new student starts occur in
the first month of each calendar quarter with an additional "mini-start" in the
second month of each quarter in most colleges. The tuition charges vary by
college depending on the local market, the program level, such as diploma, or
associate's, bachelor's or master's degree, and the specific curriculum.

   The majority of students at our colleges rely on funds received under
various government sponsored student financial aid programs to pay a
substantial portion of their tuition and other education-related expenses. In
fiscal 2001, approximately 81% of our net revenues, on a cash basis, were
derived from federal student financial aid programs.

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

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

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

                                       32
<PAGE>

Acquisitions

   Since our inception, we have completed the following acquisitions, each of
which was accounted for using the purchase method of accounting, and the
results of their operations are included in our consolidated results of
operations since their respective dates of acquisition.

   On June 30, 1995, we acquired five colleges from National Education
Corporation. As part of the same transaction, we subsequently acquired from
National Education Corporation a second group of five colleges on September
30, 1995 and an additional six colleges on December 31, 1995. The adjusted
purchase price for all 16 colleges was approximately $4.7 million in cash.

   On July 1, 1996, we acquired one college from Repose, Inc., for a purchase
price of $250,000 in cash.

   On August 31, 1996, we acquired one college from Concorde Career Colleges,
Inc., for a purchase price of $350,000 in cash.

   On October 17, 1996, we acquired 18 colleges from Phillips Colleges, Inc.,
for an adjusted purchase price of approximately $23.6 million in cash.

   On January 18, 2000, we acquired substantially all of the assets of Harbor
Medical College, which operated one college in Torrance, California, for
approximately $300,000 in cash.

   On April 1, 2000, we acquired substantially all of the assets of the
Georgia Medical Institute, which operated three colleges in the greater
Atlanta, Georgia metropolitan area, for approximately $7.0 million in cash.

   On June 1, 2000, we acquired substantially all of the assets of Academy of
Business College, Inc. which operated one college in Phoenix, Arizona, for
approximately $1.0 million in cash.

   On October 23, 2000, we acquired substantially all of the assets of
Educorp, Inc., which operated four colleges in California, for approximately
$12.6 million in cash.

   On November 1, 2000, we acquired substantially all of the assets of
Computer Training Academy, Inc. which operated two colleges in northern
California, for approximately $6.1 million in cash.

   On February 1, 2001, we acquired all of the outstanding stock of Grand
Rapids Educational Center, Inc., which operated three campuses in Michigan and
Illinois, for approximately $2.8 million in cash.

                                      33
<PAGE>

Results of Operations

   Comparisons of results of operations between fiscal year ended June 30,
2001, and fiscal years ended June 30, 2000 and 1999, are difficult due to the
opening of four branch campuses and the acquisition of nine campuses in fiscal
2001, the opening of two branch campuses and the acquisition of five campuses
in fiscal 2000 and the opening of two branch campuses in fiscal 1999.

   The following table summarizes our operating results as a percentage of net
revenues for the periods indicated.

<TABLE>
<CAPTION>
                                                               Years Ended
                                                                June 30,
                                                            -------------------
                                                            1999   2000   2001
                                                            -----  -----  -----
   <S>                                                      <C>    <C>    <C>
   Statement of Operations Data:
   Net revenues............................................ 100.0% 100.0% 100.0%
                                                            -----  -----  -----
   Operating expenses:
     Educational services..................................  57.5   54.3   53.9
     General and administrative............................  10.5    9.6    8.0
     Marketing and advertising.............................  22.3   21.8   21.4
                                                            -----  -----  -----
       Total operating expenses............................  90.3   85.7   83.3
   Income from operations..................................   9.7   14.3   16.7
   Interest expense (income), net..........................   1.3   (1.0)  (0.8)
   Other (income)..........................................   --    (0.1)   --
                                                            -----  -----  -----
   Income before income taxes..............................   8.4   15.4   17.5
   Provision for income taxes..............................   3.5    6.4    7.0
                                                            -----  -----  -----
   Net income before extraordinary (loss)..................   4.9    9.0   10.5
   Extraordinary (loss), net of tax benefit................  (1.5)   --     --
                                                            -----  -----  -----
     Net income............................................   3.4%   9.0%  10.5%
                                                            =====  =====  =====
</TABLE>

Year Ended June 30, 2001 Compared to Year Ended June 30, 2000

   Net Revenues. Net revenues increased $73.5 million, or 43.0%, from $170.7
million in fiscal 2000 to $244.2 million in fiscal 2001 due primarily to a
31.7% increase in the average student population during the year and a 9.1%
increase in the average earning rate, tuition, per student. At June 30, 2001,
the total student population was 25,626, compared with 19,464 at June 30, 2000.
Same school student population increased 14.0% as of June 30, 2001.

   Educational Services. Educational services expense increased $38.7 million,
or 41.8%, from $92.8 million in fiscal 2000 to $131.5 million in fiscal 2001.
The increase was due primarily to the 31.7% increase in the average student
population, wage increases for employees, bad debt expense and expenses
incurred to adopt curricula at the schools. During fiscal 2001, we adopted 75
programs, during fiscal 2000 we adopted 36 programs and in fiscal 1999 we
adopted 24 programs. Bad debt expense was negatively impacted from the October
2000 required adoption of the Department of Education's new methodology for
calculating refunds of federal student financial aid previously disbursed to
students who have since withdrawn from an institution. This new regulation
results in an increase in the student's obligation to the institution from
which they have withdrawn and a decrease in the amount of student federal
financial aid received by the institution on behalf of the students who
withdraw. Bad debt expense amounted to $14.0 million, or 5.7% of revenue in
fiscal 2001, compared to $8.8 million, or 5.1% of revenue in fiscal 2000.
Additionally, 13 of our colleges were relocated, enlarged, or remodeled, four
new branch campuses were opened, and nine campuses were acquired. As a
percentage of net revenues, educational services expense decreased from 54.3%
to 53.9%.

   General and Administrative. General and administrative expense increased
$3.3 million, or 19.7%, from $16.3 million in fiscal 2000 to $19.6 million in
fiscal 2001. The increase was primarily a result of (i) additional

                                       34
<PAGE>

headquarters staff and related relocation costs to support operations, (ii)
wage increases for employees, and (iii) higher incentive compensation. As a
percentage of net revenues, general and administrative expense decreased from
9.6% to 8.0%.

   Marketing and Advertising. Marketing and advertising expense increased $15.1
million, or 40.6%, from $37.2 million in fiscal 2000 to $52.3 million in fiscal
2001, primarily due to the increased volume of advertising required to support
the acquired campuses and new branch campus openings and additional admissions
staff necessary to support the 33.6% increase in new student enrollments. Also
contributing to the increase was advertising cost inflation and wage increases
for employees. As a percentage of net revenues, marketing and advertising
expense decreased from 21.8% to 21.4%.

   Income From Operations. Income from operations increased 67.0% to $40.8
million, or 16.7% of revenues in fiscal 2001, compared to $24.4 million, or
14.3% of revenues in fiscal 2000.

   Interest Income, Net. Interest income (net of interest expense of $0.3
million) amounted to $2.1 million in fiscal 2001 compared to interest income
(net of interest expense of $0.4 million) of $1.7 million in fiscal 2000.

   Provision for Income Taxes. The effective income tax rate for fiscal 2001
decreased to 39.9% of income before taxes compared to 41.3% of income before
taxes in fiscal 2000.

   Net Income. Net income for fiscal 2001 increased 66.8% to $25.7 million, or
10.5% of revenues, compared to net income of $15.4 million, or 9.0% of
revenues, for fiscal 2000.

Year Ended June 30, 2000 Compared to Year Ended June 30, 1999

   Net Revenues. Net revenues increased $37.8 million, or 28.4%, from $133.0
million in fiscal 1999 to $170.7 million in fiscal 2000 due primarily to a
15.7% increase in the average student population during the year and a 10.6%
increase in the average earning rate, tuition, per student. At June 30, 2000,
the total student population was 19,464, compared with 16,012 at June 30, 1999.
Same school student population increased 13.0% as of June 30, 2000.

   In connection with our acquisition of 18 colleges from Phillips Colleges,
Inc. in fiscal 1997, we honored certain fixed price commitments to students
already in school ("grandfathered students") when we acquired those colleges.
As a result, over the last several years, including fiscal 2000, our average
tuition rate per student has increased more dramatically than the actual
tuition price increases at our schools. This is as a result of the changing mix
of new to grandfathered students, as the latter students have graduated or
discontinued their education. As of June 30, 2000, virtually all grandfathered
students had either graduated or discontinued their education.

   Educational Services. Educational services expense increased $16.3 million,
or 21.4%, from $76.4 million in fiscal 1999 to $92.8 million in fiscal 2000.
The increase was due primarily to the 15.7% increase in the average student
population, wage increases for employees and increases in bad debt expense. Bad
debt expense amounted to $8.8 million, or 5.1% of revenue in fiscal 2000
compared to $7.7 million, or 5.8% of revenue in fiscal 1999. Additionally,
during fiscal 2000, four colleges were either relocated, remodeled or enlarged
and two new branch campuses were opened and five campuses were acquired. As a
percentage of net revenues, educational services expense decreased from 57.5%
to 54.3%.

   General and Administrative. General and administrative expense increased
$2.4 million, or 17.1%, from $14.0 million in fiscal 1999 to $16.4 million in
fiscal 2000. The increase was primarily a result of (i) additional headquarters
staff to support operations, (ii) wage increases for employees, (iii) higher
management incentive compensation due to our performance, (iv) increased travel
and training, and (v) one-time Year 2000 remediation expenses. As a percentage
of net revenues, general and administrative expense decreased from 10.5% to
9.6%.

                                       35
<PAGE>

   Marketing and Advertising. Marketing and advertising expense increased $7.5
million, or 25.3%, from $29.7 million in fiscal 1999 to $37.2 million in fiscal
2000, primarily due to the increased volume of advertising and additional
admissions staff necessary to support the 17.4% increase in starts. Also
contributing to the increase was advertising cost inflation and wage increases
for employees. As a percentage of net revenues, marketing and advertising
expense decreased from 22.3% to 21.8%.

   Income From Operations. Income from operations increased 89.4% to $24.4
million, or 14.3% of revenues in fiscal 2000, compared to $12.9 million, or
9.7% of revenues in fiscal 1999.

   Interest Income, Net. Interest income (net of interest expense of $0.4
million) amounted to $1.7 million in fiscal 2000 compared to interest expense
(net of interest income of $0.7 million) of $1.7 million in fiscal 1999. In the
third quarter of fiscal 1999, we retired approximately $35.8 million of long-
term debt and, as such, did not incur the related interest expense during
fiscal 2000. Additionally, as a result of increased earnings and related cash
flow available for investing, interest income increased by $1.3 million in
fiscal 2000 when compared to fiscal 1999.

   Provision for Income Taxes. The effective income tax rate for fiscal 2000
decreased to 41.3% of income before taxes compared to 42.0% of income before
taxes in fiscal 1999.

   Net Income. Net income for fiscal 2000 increased 243% to $15.4 million, or
9.0% of revenues, compared to net income of $4.5 million, or 3.4% of revenues,
for fiscal 1999. Net income for fiscal 1999 includes an extraordinary loss from
the early retirement of debt of $2.0 million (net of $1.5 million from income
tax benefits).

Seasonality

   Our revenues normally fluctuate as a result of seasonal variations in our
business, principally in its total student population. Student population
varies as a result of new student enrollments and student attrition.
Historically, our colleges have had lower student populations in the first
fiscal quarter than in the remainder of the year. Our expenses, however, do not
vary as significantly as student population and revenues. We expect quarterly
fluctuations in operating results to continue as a result of seasonal
enrollment patterns. Such patterns may change, however, as a result of
acquisitions, new school openings, new program introductions and increased high
school enrollments. The operating results for any quarter are not necessarily
indicative of the results for any future period. See Note 13 of the
Consolidated Financial Statements included elsewhere herein.

Liquidity and Capital Resources

   In August 2001, we entered into a Second Amendment to our Amended and
Restated Loan Agreement, as amended our "Credit Facility," for $20.0 million
with Union Bank of California, which expires in September 2003. The Credit
Facility includes a non-usage fee of 1/8% per year on the unused portion and
borrowings will bear interest at LIBOR plus 150 basis points. At September
2003, any outstanding acquisition advances (subject to a limit of $10.0
million), as defined by the Credit Facility, will be converted into a three
year amortizing term loan. The Credit Facility requires us to maintain certain
financial and other covenants and we were in compliance or obtained a waiver
with these covenants as of June 30, 2001. There were no borrowings outstanding
at June 30, 2000 and June 30, 2001. Average daily borrowings outstanding
amounted to approximately $20,000 in fiscal 2000 compared to $35,000 in fiscal
2001. The Credit Facility provides for a standby letter of credit sub-limit of
$5.0 million. As of June 30, 2001, we had letters of credit of $140,000 issued
and outstanding.

   Working capital amounted to $39.7 million as of June 30, 2001, and $29.1
million as of June 30, 2000 and the current ratios were 2.4:1 and 2.3:1,
respectively.

                                       36
<PAGE>

   Cash flows provided by operating activities amounted to $21.5 million in
fiscal 2001 compared to $23.6 million in fiscal 2000 and $5.8 million in 1999.
The decrease in cash provided by operating activities in fiscal 2001, when
compared to fiscal 2000, was due to increases in student receivables and
prepaid expenses and other assets, partially offset by increased earnings,
accounts payable, accrued expenses and prepaid tuition. The increase in cash
provided by operating activities in fiscal 2000, when compared to fiscal 1999,
was due to increased earnings, reductions in student receivables, increases in
accounts payable, accrued expenses and prepaid tuition. The increase in cash
provided by operating activities in fiscal 1999 was due to decreases in student
receivables and prepaid and other current assets, partially offset by increases
in accounts payable and increases in accrued expenses, net income and prepaid
tuition.

   Cash flows used in investing activities amounted to $17.4 million in fiscal
2001, $19.4 million in fiscal 2000 and $16.1 million in fiscal 1999. The change
in cash flows used in investing activities is due primarily to the acquisition
of colleges, capital expenditures, net of proceeds from asset dispositions, and
from changes in restricted cash and in marketable investments. During fiscal
2001, we completed the acquisition of nine colleges in three separate
transactions for a combined purchase price of $22.1 million, including $2.8
million of liabilities assumed or paid. The amount paid in excess of the fair
market value of the assets acquired, net of liabilities assumed, was $18.4
million of which $17.0 million and was allocated to goodwill and is being
amortized over 40 years and the remaining $1.4 was allocated to curriculum and
non-compete agreements with the former owners. The acquisitions were accounted
for using the purchase method of accounting and their respective results of
operations are included in our consolidated results of operations since their
respective acquisition dates. During fiscal 2000, we completed the acquisition
of substantially all of the assets of five colleges in three separate
transactions for a combined purchase price of $8.3 million in cash, including
$0.7 million of liabilities assumed or paid. The amount paid in excess of the
fair market value of the assets acquired, net of liabilities assumed, was $7.9
million and was allocated to goodwill and is being amortized over 40 years. The
acquisitions were accounted for using the purchase method of accounting and
their respective results of operations are included in our consolidated results
of operations since their respective acquisition dates.

   Capital expenditures amounted to $12.5 million in fiscal 2001, $4.2 million
in fiscal 2000 and $2.8 million in fiscal 1999. Capital expenditures were
incurred to open four new branch campuses in fiscal 2001, and two new branch
campuses in each of fiscals 2000 and 1999, for the purchases of equipment to
accommodate the increasing student population and to continue to upgrade
existing schools and equipment. Capital expenditures were also incurred to
relocate, remodel and enlarge campuses. During fiscal 2001, three campuses were
relocated and 9 campuses and our corporate headquarters were enlarged or
remodeled. During fiscal 2000, two campuses were relocated and two campuses
were remodeled and during fiscal 1999, five campuses were relocated and one
campus was remodeled. Capital expenditures of approximately $3.2 million were
incurred to purchase an integrated software package in fiscal 2001. In June
2000, we sold one of our Colorado facilities and subsequently leased the
facility back at rents which approximate fair market rents. Net proceeds from
the sale were approximately $2.0 million and the gain on the sale of the
facility was approximately $1.0 million which is being amortized into income
over the term of the lease. We believe that our capital expenditures for fiscal
2002 will approximate $15.0 million.

   During fiscal 2001, marketable investments decreased by $14.4 million while
in fiscal 2000, marketable investments increased by $9.6 million. Marketable
investments increased by $14.5 million in fiscal 1999.

   Net cash provided by financing activities amounted to $10.7 million in
fiscal 2001. Net cash used in financing activities amounted to $1.1 million in
fiscal 2000 and net cash provided by financing activities amounted to $9.7
million in fiscal 1999. During fiscal 2001, net cash provided by financing
activities consisted primarily of net proceeds of $8.8 million from the
secondary public stock offering and the proceeds from the exercises of stock
options of $2.2 million. During fiscal 2000, net cash used in financing
activities consisted primarily of payments on long-term debt. During fiscal
1999, net cash provided by financing activities amounted to $9.7 million
primarily from the our initial public stock offering in February 1999.

                                       37
<PAGE>

Initial Public Stock Offering

   In February 1999, we issued and sold 5,400,000 shares (post stock split) of
common stock at a price of $9.00 (post stock split) per share in our initial
public offering, or "IPO." We received total net proceeds, after deduction of
underwriting discounts, of approximately $45.2 million. After the IPO, we
applied $1.9 million of the proceeds to the expenses of the IPO, repaid $22.6
million of senior indebtedness, including a prepayment penalty of $2.6 million,
repaid $5.0 million of subordinated indebtedness, repaid $3.0 million of
outstanding credit facility borrowings, redeemed $2.2 million in redeemable
preferred stock, including accumulated dividends, and paid accumulated
dividends of $0.5 million on convertible preferred stock. The remaining
$10.0 million of proceeds were available for general corporate purposes. In
conjunction with the early retirement of debt in February 1999, we recorded a
$2.0 million extraordinary loss, net of tax benefit of $1.5 million, resulting
from prepayment penalties and the write-off of deferred loan fees associated
with the indebtedness. In February 1999, we received $187,312 from five of our
executive officers as full payment for notes receivable from these executive
officers, plus the accumulated interest on the notes.

   We believe that our working capital, cash flow from operations, access to
operating leases and borrowings from our Credit Facility will provide us with
adequate resources for ongoing operations through fiscal 2002 and our currently
identified facility relocations, remodels and expansions and other planned
capital expenditures.

New Accounting Pronouncements

   In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation"--an Interpretation of APB 25. This Interpretation
clarifies (a) the definition of employee for purposes of applying Opinion 25,
(b) the criteria for determining whether a plan qualifies as a non-compensatory
plan, (c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 became effective
July 1, 2000, but certain conclusions in FIN 44 cover specific events that
occur after either December 15, 1998, or January 12, 2000. The adoption of FIN
44 did not have a material effect on the Company's financial position or
results of operations.

   For fiscal 2001, we were required to adopt Statements of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The adoption of SFAS No. 133 did not have a material
adverse effect on our financial position or results of operations.

   For fiscal 2001, we adopted Staff Accounting Bulletin ("SAB") 101. SAB 101
required the Company to change the accounting method of revenue recognition of
certain one-time non-refundable fees from immediate recognition, to amortizing
the fees into revenues over the period of active enrollment of the student. The
adoption of SAB 101 did not have a material impact on the Company's financial
position or results of operations.

   In June 2001, FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial
accounting and reporting for business combinations and is effective for all
business combinations after June 30, 2001. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets and
is effective for fiscal years beginning after December 15, 2001, with early
adoption permitted for entities with fiscal years beginning after March 15,
2001, provided that the first interim financial statements have not previously
been issued. The Company is in the process of gathering information and
analyzing the impact the adoption of SFAS No. 142 may have on the results of
operations of the Company. The adoption of SFAS No. 142 includes the
elimination of goodwill amortization expense and requires a periodic review of
the Company's intangible assets for possible impairment. As of June 30, 2001,
goodwill totaled $32.8 million and is amortized over 40 years. Goodwill
amortization expense amounted to $636,000 in fiscal 2001 and is expected to be
approximately $830,000 in fiscal 2002 if we do not elect to adopt SFAS No. 142
prior to July 1, 2002.

                                       38
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

   We do not utilize interest rate swaps, forward or option contracts on
foreign currencies or commodities, or other types of derivative financial
instruments. Our only assets or liabilities which are subject to risks from
interest rate changes are (i) mortgage debt in the aggregate amount of $2.2
million, (ii) notes receivable from students in the aggregate amount of $2.3
million, and (iii) marketable investments of $9.7 million, all as of June 30,
2001. Our mortgage debt, student notes receivable, and marketable investments
are all at fixed interest rates. We do not believe we are subject to material
risks from reasonably possible near-term changes in market interest rates.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                       39
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Corinthian Colleges, Inc.:

We have audited the accompanying consolidated balance sheets of CORINTHIAN
COLLEGES, INC. (a Delaware corporation) and subsidiaries as of June 30, 2000
and 2001 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended June 30,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Corinthian
Colleges, Inc. and subsidiaries, as of June 30, 2000 and 2001, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 2001, in conformity with accounting principles generally
accepted in the United States.

/s/ Arthur Andersen LLP

Orange County, California
August 15, 2001

                                       40
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  June 30,
                                                              -----------------
                                                               2000     2001
                                                              ------- ---------
                                                               (In thousands)
<S>                                                           <C>     <C>
                           ASSETS

CURRENT ASSETS:
  Cash and cash equivalents.................................. $ 4,886 $  19,738
  Restricted cash............................................      10        10
  Marketable investments.....................................  24,107     9,699
  Accounts receivable, net of allowance for doubtful accounts
   of $4,363 and $7,191 at June 30, 2000 and 2001,
   respectively..............................................  14,208    24,368
  Student notes receivable, net of allowance for doubtful
   accounts of $247 and $106 at June 30, 2000 and 2001,
   respectively..............................................     919       577
  Deferred income taxes......................................   2,481     4,089
  Prepaid expenses and other current assets..................   4,125     9,675
                                                              ------- ---------
    Total current assets.....................................  50,736    68,156
PROPERTY AND EQUIPMENT, net..................................  12,141    22,921
OTHER ASSETS:
  Intangibles................................................  27,946    44,170
  Student notes receivable, net of allowance for doubtful
   accounts of $934 and $319 at June 30, 2000 and 2001,
   respectively..............................................   3,157     1,730
  Deposits and other assets..................................   1,253     1,659
                                                              ------- ---------
    TOTAL ASSETS............................................. $95,233 $ 138,636
                                                              ======= =========

            LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable........................................... $ 5,521 $   7,587
  Accrued compensation and related liabilities...............   7,722     9,254
  Accrued expenses...........................................   1,310     1,305
  Income tax payable.........................................   1,161     1,280
  Prepaid tuition............................................   5,851     7,962
  Current portion of long-term debt..........................     102     1,046
                                                              ------- ---------
    Total current liabilities................................  21,667    28,434
LONG-TERM DEBT, net of current portion.......................   2,230     2,138
DEFERRED INCOME..............................................     808       655
DEFERRED INCOME TAXES........................................     935     1,283
OTHER LIABILITIES............................................     590       563
COMMITMENTS AND CONTINGENCIES................................     --        --
STOCKHOLDERS' EQUITY:
  Common Stock, $0.0001 par value:
    Common Stock, 40,000 shares authorized, 18,345 shares and
     21,223 shares issued and outstanding at June 30, 2000
     and 2001, respectively..................................       2         2
    Nonvoting Common Stock, 2,500 shares authorized, 2,353
     and 0 shares issued and outstanding at June 30, 2000 and
     2001....................................................     --        --
  Additional paid-in capital.................................  49,653    60,482
  Retained earnings..........................................  19,348    45,079
                                                              ------- ---------
    Total stockholders' equity...............................  69,003   105,563
                                                              ------- ---------
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $95,233 $ 138,636
                                                              ======= =========
</TABLE>

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

                                       41
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                 Years Ended June 30,
                                              ----------------------------
                                                1999      2000      2001
                                              --------  --------  --------
                                              (In thousands, except per
                                                     share data)
<S>                                           <C>       <C>       <C>       <C>
NET REVENUES................................. $132,972  $170,734  $244,163
                                              --------  --------  --------
OPERATING EXPENSES:
  Educational services (including a provision
   for bad debt expense of $7,673, $8,760 and
   $13,965 for the years ended June 30, 1999,
   2000 and 2001, respectively)..............   76,425    92,757   131,501
  General and administrative.................   13,961    16,346    19,562
  Marketing and advertising..................   29,702    37,225    52,349
                                              --------  --------  --------  ---
    Total operating expenses.................  120,088   146,328   203,412
                                              --------  --------  --------
INCOME FROM OPERATIONS.......................   12,884    24,406    40,751
  Interest expense (income), net.............    1,678    (1,681)   (2,078)
  Other (Income).............................      --       (175)      --
                                              --------  --------  --------
INCOME BEFORE PROVISION FOR INCOME TAXES AND
 EXTRAORDINARY (LOSS)........................   11,206    26,262    42,829
  Provision for income taxes.................    4,703    10,840    17,098
                                              --------  --------  --------
INCOME BEFORE EXTRAORDINARY (LOSS)...........    6,503    15,422    25,731
  Extraordinary (loss) from early
   extinguishment of debt (net of tax benefit
   of $1,518)................................   (2,011)      --        --
                                              --------  --------  --------
NET INCOME................................... $  4,492  $ 15,422  $ 25,731
                                              ========  ========  ========
INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS:
  Net income before extraordinary (loss)..... $  6,503  $ 15,422  $ 25,731
  Less preferred stock dividends.............     (355)      --        --
                                              --------  --------  --------
  Income before extraordinary (loss)
   attributable to common stockholders.......    6,148    15,422    25,731
  Extraordinary (loss).......................   (2,011)      --        --
                                              --------  --------  --------
      Net income attributable to common
       stockholders.......................... $  4,137  $ 15,422  $ 25,731
                                              ========  ========  ========
INCOME (LOSS) PER SHARE ATTRIBUTABLE TO
 COMMON STOCKHOLDERS:
  Basic
    Income before extraordinary (loss)....... $   0.42  $   0.75  $   1.22
    Extraordinary (loss).....................    (0.13)      --        --
                                              --------  --------  --------
      Net income............................. $   0.29  $   0.75  $   1.22
                                              ========  ========  ========
  Diluted
    Income before extraordinary (loss)....... $   0.36  $   0.74  $   1.18
    Extraordinary (loss).....................    (0.12)      --        --
                                              --------  --------  --------
      Net income............................. $   0.24  $   0.74  $   1.18
                                              ========  ========  ========
Weighted average number of common shares
 outstanding:
  Basic......................................   14,532    20,693    21,032
                                              ========  ========  ========
  Diluted....................................   17,098    20,849    21,731
                                              ========  ========  ========
</TABLE>

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


                                       42
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                       Nonvoting
                         Common Stock Common Stock                          Retained
                         ------------ ------------- Additional              Earnings       Total
                                 Par           Par   Paid-in     Notes    (Accumulated Stockholders'
                         Shares Value Shares  Value  Capital   Receivable  (Deficit)      Equity
                         ------ ----- ------  ----- ---------- ---------- ------------ -------------
                                                       (In thousands)
<S>                      <C>    <C>   <C>     <C>   <C>        <C>        <C>          <C>
Balance at June 30,
 1998...................  9,848 $  2   2,830  $ --   $ 1,373     $(187)     $  (211)     $    977
 Redeemable Preferred
  Stock dividend
  accrual...............    --   --      --     --       --        --           (85)          (85)
 Convertible Preferred
  Stock dividend
  accrual...............    --   --      --     --       --        --          (270)         (270)
 Conversion of
  Convertible Preferred
  Stock to Common Stock
  and Nonvoting Common
  Stock.................    776  --      776    --     4,934       --           --          4,934
 Conversion of Nonvoting
  Common Stock to Common
  Stock.................  1,654  --   (1,654)   --       --        --           --            --
 Exercise of warrants
  for Common Stock and
  Nonvoting Common
  Stock.................    660  --      401    --       --        --           --            --
 Issuance of Common
  Stock from initial
  public stock
  offering..............  5,400  --      --     --    43,301       --           --         43,301
 Proceeds from notes
  receivable for stock..    --   --      --     --       --        187          --            187
 Net income.............    --   --      --     --       --        --         4,492         4,492
                         ------ ----  ------  -----  -------     -----      -------      --------
Balance at June 30,
 1999................... 18,338    2   2,353    --    49,608       --         3,926        53,536
 Exercise of Stock
  Options...............      7  --      --     --        45       --           --             45
 Net income.............    --   --      --     --       --        --        15,422        15,422
                         ------ ----  ------  -----  -------     -----      -------      --------
Balance at June 30,
 2000................... 18,345    2   2,353    --    49,653       --        19,348        69,003
 Conversion of Nonvoting
  Common Stock to Common
  Stock.................  2,353  --   (2,353)   --       --        --           --            --
 Issuance of Common
  Stock from secondary
  public stock offering,
  net...................    400  --      --     --     8,821       --           --          8,821
 Exercise of Stock
  Options, including tax
  benefit...............    125  --      --     --     2,008       --           --          2,008
 Net income.............    --   --      --     --       --        --        25,731        25,731
                         ------ ----  ------  -----  -------     -----      -------      --------
Balance at June 30,
 2001................... 21,223 $  2     --   $ --   $60,482     $ --       $45,079      $105,563
                         ====== ====  ======  =====  =======     =====      =======      ========
</TABLE>

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

                                       43
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                     Years Ended June 30,
                                                  ----------------------------
                                                    1999      2000      2001
                                                  --------  --------  --------
                                                        (In thousands)
<S>                                               <C>       <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income.....................................  $  4,492  $ 15,422  $ 25,731
 Adjustments to reconcile net income to net cash
  provided by operating activities--
   Depreciation and amortization................     3,445     3,798     4,860
   Deferred income taxes........................       827       (98)   (1,260)
   Write-off of deferred financing costs........       911       --        --
   Gain on disposal of assets...................        --      (175)      --
   Changes in assets and liabilities, net of
    effects from acquisitions:
     Accounts receivable........................    (1,308)   (2,192)   (9,150)
     Student notes receivable...................      (950)    3,058     1,769
     Prepaid expenses and other assets..........    (2,660)     (397)   (5,509)
     Accounts payable...........................       101       463     1,901
     Accrued expenses...........................       522     2,068     1,463
     Income tax payable.........................       109      (687)      119
     Prepaid tuition............................       305     1,732     1,085
     Other long-term liabilities................       --        590       523
                                                  --------  --------  --------
      Net cash provided by operating
       activities...............................     5,794    23,582    21,532
                                                  --------  --------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Acquisitions of schools and colleges, net of
  cash acquired.................................       --     (7,588)  (19,258)
 Change in restricted cash......................       750       --        --
 Capital expenditures...........................    (2,790)   (4,182)  (12,545)
 Proceeds from sale of assets...................       --      2,014       --
 Phillips College acquisition purchase price
  adjustment....................................       401       --        --
 Change in marketable investments...............   (14,501)   (9,606)   14,408
                                                  --------  --------  --------
      Net cash (used) in investing activities...   (16,140)  (19,362)  (17,395)
                                                  --------  --------  --------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Increase in deferred financing costs...........      (256)      --        --
 Borrowings under long-term debt................     3,200       --        --
 Principal repayments on long-term debt.........   (35,835)   (1,166)     (114)
 Proceeds from initial public offering..........    45,198       --        --
 Payment of redeemable preferred stock and
  accrued dividends.............................    (2,253)      --        --
 Proceeds from secondary public offering........       --        --      8,821
 Payment of convertible preferred stock
  dividends.....................................      (510)      --        --
 Exercise of stock options, including tax
  benefit.......................................       --         45     2,008
 Proceeds from notes receivable for stock.......       187       --        --
                                                  --------  --------  --------
      Net cash provided by (used in) financing
       activities...............................     9,731    (1,121)   10,715
                                                  --------  --------  --------
NET (DECREASE) INCREASE IN CASH AND CASH
 EQUIVALENTS....................................      (615)    3,099    14,852
CASH AND CASH EQUIVALENTS, beginning of year....     2,402     1,787     4,886
                                                  --------  --------  --------
CASH AND CASH EQUIVALENTS, end of year..........  $  1,787  $  4,886  $ 19,738
                                                  ========  ========  ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
 Cash paid during the year for:
   Income taxes.................................  $  2,666  $ 11,526  $ 16,979
                                                  ========  ========  ========
   Interest.....................................  $  3,673  $    392  $    275
                                                  ========  ========  ========
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING
 AND FINANCING ACTIVITIES:
 Preferred stock dividend accrual...............  $    355  $    --   $    --
                                                  ========  ========  ========
 Acquisitions of various schools and colleges--
   Fair value of assets acquired................  $    --   $  9,051  $ 20,754
   Net cash used in acquisitions................       --      7,588    19,258
                                                  ========  ========  ========
   Liabilities assumed or incurred..............  $    --   $  1,463  $  1,496
                                                  ========  ========  ========
</TABLE>

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

                                       44
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1--Description of the Business and Summary of Significant Accounting
Policies

 Description of the Business

   Corinthian Colleges, Inc. (the "Company"), a Delaware corporation, was
formed in October 1996 during a reorganization transaction with a predecessor
company which was accounted for as a recapitalization. Prior to October 1996,
the Company operated under the name of its predecessor, Corinthian Schools,
Inc.

   The Company's primary business is the operation of degree and diploma
granting for-profit, post-secondary schools devoted to career program training
primarily in the allied health, technical, business, and criminal justice
fields. The Company currently operates 56 colleges located in 20 states:
Virginia, West Virginia, Texas, Michigan, Massachusetts, Louisiana, California,
Oregon, Colorado, Nevada, Utah, Missouri, Pennsylvania, New York, Washington,
Arizona, Georgia, Florida, Indiana, and Illinois. Revenues generated from these
schools consist primarily of tuition and fees paid by students. To pay for a
substantial portion of their tuition, the majority of students rely on funds
received from federal financial aid programs under Title IV ("Title IV
Programs") of the Higher Education Act of 1965, as amended ("HEA"). For further
discussion see Concentration of Risk below and Note 12--Governmental
Regulation.

 Principles of Consolidation

   The accompanying consolidated financial statements include the accounts of
Corinthian Colleges, Inc. and each of its wholly owned subsidiaries. All
intercompany activity has been eliminated in consolidation.

 Financial Statement Estimates

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

 Cash and Cash Equivalents

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

 Marketable Investments

   Statements of Financial Accounting Standards ("SFAS") No. 115, "Accounting
For Certain Debt and Equity Securities" requires that all applicable
investments be classified as trading securities, available-for-sale securities
or held-to-maturity securities. The Company does not currently have any trading
securities or held-to-maturity securities.

   Securities classified as available-for-sale may be sold in response to
changes in interest rates, liquidity needs and for other purposes. Available-
for-sale securities are carried at fair value and include all debt and equity
securities not classified as held-to-maturity or trading. Unrealized holding
gains and losses for available-for-sale securities are excluded from earnings
and reported, net of any income tax effect, as a separate component of
stockholders' equity. Realized gains and losses for securities classified as
available-for-sale are reported in earnings based on the adjusted cost of the
specific security sold. At June 30, 2000 and 2001, the unrealized gain or loss
on available-for-sale securities was immaterial.

   The Company has adopted SFAS No. 130, "Reporting Comprehensive Income," in
1999. This statement requires that all items that meet the definition of
components of comprehensive income be reported in a

                                       45
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

financial statement for the period in which they are recognized. Components of
comprehensive income include revenues, expenses, gains and losses that under
accounting principles generally accepted in the United States are included in
comprehensive income, but excluded from net income. There are no differences
between the Company's net income, as reported and comprehensive income, as
defined, for the periods presented.

 Restricted Cash

   Restricted cash consists of a $10,000 deposit as required by the State of
Pennsylvania Department of Education.

 Revenue Recognition

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

 Educational Services

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

 Marketing and Advertising

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

 Property and Equipment

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

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

 Deferred Financing Costs

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

 Intangible Assets

   Intangible assets consist of goodwill, trade names and course curriculum.
Goodwill represents the excess of cost over the fair market value of net assets
acquired, including identified intangible assets. Goodwill is

                                       46
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

amortized using the straight-line method over 40 years. Course curriculum
represents the cost of acquiring such curriculum and is amortized using the
straight-line method over 3 to 15 years. Trade names represent the cost to
acquire and use the names of the colleges acquired and are amortized using the
straight line method over 40 years. Amortization of curriculum and trade names
is included in general and administrative expenses in the accompanying
statements of operations. The Company assesses the recoverability of its long-
lived assets on an annual basis or whenever adverse events or changes in
circumstances or business climate indicate that expected undiscounted future
cash flows related to such long-lived assets may not be sufficient to support
the net book value of such assets. If undiscounted cash flows are not
sufficient to support the recorded assets, impairment is recognized to reduce
the carrying value of the long-lived assets to the estimated fair value. Cash
flow projections, although subject to a degree of uncertainty, are based on
trends of historical performance and management's estimate of future
performance, giving consideration to existing and anticipated competitive and
economic conditions. Additionally, in conjunction with the review for
impairment, the remaining estimated lives of certain of the Company's long-
lived assets are assessed.

 Deferred Income

   In fiscal 2000, the Company sold one of its Colorado facilities and
subsequently leased the facility back at rents which we believe approximate
fair market rents. The gain on the sale of the facility was approximately $1.0
million and will be amortized into income over the term of the lease.

 Fair Value of Financial Instruments

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

 Post Retirement Benefit Obligation

   The Company provides certain post retirement benefits to certain key
employees. In accordance with SFAS No. 106, the related expense did not have a
material effect on the Company's financial position or results of operations.

 Income Taxes

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

 Stock-Based Compensation

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

 Net Income (Loss) Per Common Share

   The Company accounts for net income per common share in accordance with SFAS
No. 128 "Earnings Per Share" and SFAS No. 129, "Disclosure of Information about
Capital Structure." Basic net income (loss)

                                       47
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

per common share is computed by dividing income (loss) available to common
stockholders by the weighted average number of common shares outstanding.
Diluted net income (loss) per common share is computed by dividing income
(loss) available to common stockholders by the weighted average number of
common shares outstanding plus the effect of any dilutive stock options, common
stock warrants and convertible preferred stock, utilizing the treasury stock
method. On December 15, 2000, the Company effected a two-for-one stock split in
the form of a stock dividend. All share and per share amounts have been
restated to reflect the stock split as of the beginning of each period
presented.

 New Accounting Pronouncements

   In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation"--an Interpretation of APB 25. This Interpretation
clarifies (a) the definition of employee for purposes of applying Opinion 25,
(b) the criteria for determining whether a plan qualifies as a non-compensatory
plan, (c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 became effective
July 1, 2000, but certain conclusions in FIN 44 cover specific events that
occur after either December 15, 1998, or January 12, 2000. The adoption of FIN
44 did not have a material effect on the Company's financial position or
results of operations.

   For fiscal 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Investments and Hedging Activities." The adoption of SFAS No. 133
did not have a material impact on the Company's financial position or results
of operations.

   For fiscal 2001, the Company adopted Staff Accounting Bulletin ("SAB") 101.
SAB 101 requires the Company to change the accounting method of revenue
recognition of certain one-time non-refundable fees from immediate recognition,
to amortizing the fees into revenues over the period of active enrollment of
the student. The adoption of SAB 101 did not have a material impact on the
Company's financial position or results of operations.

   In June 2001, FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial
accounting and reporting for business combinations and is effective for all
business combinations after June 30, 2001. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets and
is effective for fiscal years beginning December 15, 2001, with early adoption
permitted for entities with fiscal years beginning after March 15, 2001,
provided that the first interim financial statements have not previously been
issued. The Company is in the process of gathering information and analyzing
the impact the adoption of SFAS No. 142 may have on the results of operations
of the Company. The adoption of SFAS No. 142 includes the elimination of
goodwill amortization expense and requires a periodic review of the Company's
intangible asset for possible impairment. As of June 30, 2001, goodwill totaled
$32.8 million and is amortized over 40 years. Goodwill amortization expense
amounted to $636,000 in fiscal 2001 and is expected to be approximately
$830,000 in fiscal 2002 if the Company does not elect to adopt SFAS No. 142
prior to July 1, 2002.

 Concentration of Risk

   The Company maintains its cash and cash equivalents accounts in financial
institutions. Accounts at these institutions are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to $100,000. The Company performs ongoing
evaluations of these institutions to limit its concentration risk exposure.

                                       48
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The Company extends credit for tuition to a majority of the students. A
substantial portion is repaid through the student's participation in federally
funded financial aid programs. Transfers of funds from the financial aid
programs to the Company are made in accordance with the Department of Education
("DOE") requirements. Approximately 78%, 77% and 81% of the Company's revenues,
on a cash basis, were collected from funds distributed under Title IV Programs
of the Higher Education Act of 1965, as amended ("HEA") for the years ended
June 30, 1999, 2000 and 2001, respectively. The financial aid and assistance
programs are subject to political and budgetary considerations. There is no
assurance that such funding will be maintained at current levels. Extensive and
complex regulations in the U.S. govern all the government financial assistance
programs in which the Company's students participate. The Company's
administration of these programs is periodically reviewed by various regulatory
agencies. Any regulatory violation could be the basis for the initiation of a
suspension, limitation or termination proceeding which could have a material
adverse effect to the Company.

   The Company has routinely afforded relatively short-term installment payment
plans to many of its students to supplement their federally funded financial
aid. During fiscal 1998, the Company expanded the internal loan program to
assist students in those colleges that lost access to Federal Family Education
Loans ("FFEL") (see Note 12). During fiscal 1999, various schools that had lost
access to FFEL were reinstated. Accordingly, there were fewer internal loans
granted during fiscal 1999 as compared to fiscal 1998. During fiscals 2000 and
2001, the Company continued to reduce its reliance on the issuance of internal
loans. While these loans are unsecured, the Company believes it has adequate
reserves against these loan balances. However, there can be no assurance that
losses will not exceed reserves. Losses in excess of reserves could have a
material adverse effect on the Company's business.

Note 2--Initial Public Offering

   On February 10, 1999, the Company completed an initial public stock offering
("IPO") of 5,400,000 (post stock split) shares of Common Stock at a price of
$9.00 (post stock split) per share. Prior to the IPO, on February 3, 1999 the
Company filed with the Delaware Secretary of State its Restated Certificate of
Incorporation, which was thereby amended to provide for, among other things,
(i) an increase in the authorized capital stock of the Company to 43,000,000
shares, (ii) a 44.094522 for 1 split of all shares of the Common Stock and
Nonvoting Common Stock, and (iii) a change in par value for the Common Stock
and Nonvoting Common Stock to $0.0001 per share. All share and per share
amounts shown in the accompanying consolidated financial statements have been
retroactively adjusted to reflect this increase in authorized shares, stock
split and change in par value.

   In connection with the IPO, the Company also caused the conversion of all
existing Series 2 Convertible Preferred Stock into 776,668 (post stock split)
shares of Nonvoting Common Stock and all existing Series 3 Convertible
Preferred Stock into 776,668 (post stock split) shares of Common Stock. The
holders of 1,653,546 (post stock split) shares of Nonvoting Common Stock
exercised their contractual rights to exchange all such shares of Nonvoting
Common Stock for an equal number of shares of Common Stock. The holders of all
outstanding exercisable warrants to purchase Common Stock and Nonvoting Common
Stock exercised such warrants for an aggregate of 660,724 (post stock split)
shares of Common Stock and 400,010 (post stock split) shares of Nonvoting
Common Stock.

   The Company received total net proceeds, after deduction of underwriting
discounts, of approximately $45.2 million. Subsequent to the IPO, the Company
applied $1.9 million of the proceeds to the expenses of the IPO, repaid $22.6
million of senior indebtedness, including a prepayment penalty of $2.6 million,
repaid $5.0 million of subordinated indebtedness, repaid $3.0 million of
outstanding credit facility borrowings, redeemed

                                       49
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

$2.2 million in redeemable preferred stock including accumulated dividends
thereon, and paid accumulated dividends of $0.5 million on convertible
preferred stock. The remaining $10.0 million of proceeds were available for
general corporate purposes.

Note 3--Detail of Selected Balance Sheet Accounts

   Prepaid expenses and other current assets consist of the following:

<TABLE>
<CAPTION>
                                                                     June 30,
                                                                   -------------
                                                                    2000   2001
                                                                   ------ ------
                                                                        (In
                                                                    thousands)
   <S>                                                             <C>    <C>
   Prepaids....................................................... $2,492 $5,028
   Course materials, net..........................................  1,460  2,694
   Other current assets...........................................    173  1,953
                                                                   ------ ------
                                                                   $4,125 $9,675
                                                                   ====== ======
</TABLE>

   Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                  June 30,
                                                              -----------------
                                                               2000      2001
                                                              -------  --------
                                                               (In thousands)
   <S>                                                        <C>      <C>
   Furniture and equipment................................... $10,417  $ 14,873
   Computer hardware and software............................   4,146     8,603
   Leasehold improvements....................................   3,231     8,329
   Land......................................................   1,687     1,687
   Buildings.................................................     884       884
                                                              -------  --------
                                                               20,365    34,376
   Less--accumulated depreciation and amortization...........  (8,224)  (11,455)
                                                              -------  --------
                                                              $12,141  $ 22,921
                                                              =======  ========
</TABLE>

   Depreciation and amortization expense associated with property and equipment
was $2,141,000, $2,640,000, and $3,231,000 for the years ended June 30, 1999,
2000 and 2001, respectively.

   Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                  June 30,
                                                               ----------------
                                                                2000     2001
                                                               -------  -------
                                                               (In thousands)
   <S>                                                         <C>      <C>
   Goodwill................................................... $15,750  $32,835
   Curriculum.................................................  11,405   12,079
   Trade names................................................   5,039    5,075
                                                               -------  -------
                                                                32,194   49,989
   Less--accumulated amortization.............................  (4,248)  (5,819)
                                                               -------  -------
                                                               $27,946  $44,170
                                                               =======  =======
</TABLE>

   Amortization expense associated with intangibles was $1,100,000, $1,138,000
and $1,571,000 for the years ended June 30, 1999, 2000, and 2001, respectively,
and includes amortization of goodwill of $213,000, $252,000, and $636,000,
respectively. Additionally, the Company has non-compete agreement expense and
deferred loan fee amortization totaling $58,000 for the year ended June 30,
2001.

                                       50
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 4--Student Notes Receivable

   Student notes receivable represent loans which have maturity dates that
generally range between 6 months to 60 months from the loan origination date.
The interest charged on the notes generally ranges from 9.00 to 16.00 percent
per annum.

   The following reflects an analysis of student notes receivable at June 30,
2001:

<TABLE>
<CAPTION>
                                                  Net     Allowance   Gross
                                                Student      For     Student
                                                 Notes    Doubtful    Notes
                                               Receivable Accounts  Receivable
                                               ---------- --------- ----------
                                                       (In thousands)
   <S>                                         <C>        <C>       <C>
   Current....................................   $  577     $106      $  683
   Long-term..................................    1,730      319       2,049
   Interest to be earned over the remaining
    term of the note..........................                           650
                                                                      ------
     Total....................................                        $3,382
                                                                      ======
</TABLE>

   Payments (principle and interest) due under student notes receivable are as
follows:

<TABLE>
<CAPTION>
                                                                   Years Ending
                                                                     June 30,
                                                                  --------------
                                                                  (In thousands)
   <S>                                                            <C>
   2002..........................................................     $1,388
   2003..........................................................        914
   2004..........................................................        501
   2005..........................................................        274
   2006..........................................................        210
   Thereafter....................................................         95
                                                                      ------
     Total.......................................................     $3,382
                                                                      ======
</TABLE>

Note 5--Business Acquisitions

   During fiscal year ended June 30, 2000, the Company completed the
acquisition of substantially all of the assets of five colleges in three
separate transactions for a combined purchase price of $8.3 million before
working capital adjustments and liabilities assumed. The amount paid in excess
of the fair market value of the assets acquired, net of liabilities assumed was
$7.9 million and was allocated to goodwill and curriculum and is being
amortized over 40 and 15 years, respectively. The acquisitions were accounted
for using the purchase method of accounting and their respective results of
operations are included in the consolidated results of operations of the
Company since their respective acquisition dates.

   During fiscal year ended June 30, 2001, the Company completed the
acquisition of nine colleges in three separate transactions for a combined
purchase price of $22.0 million before working capital adjustments and
liabilities assumed. The amount paid in excess of the fair market value of the
assets acquired, net of liabilities assumed was $17.3 million and was allocated
to goodwill and curriculum and is amortized over 40 and 15 years, respectively.
The acquisitions were accounted for using the purchase method of accounting and
their respective results of operations are included in the consolidated results
of operations of the Company since their respective acquisition dates.

                                       51
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 6--Long-term Debt

   Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                                                   June 30,
                                                                ---------------
                                                                 2000    2001
                                                                ------  -------
                                                                (In thousands)
   <S>                                                          <C>     <C>
   Promissory note due April 2007, with interest at 10.95% per
    annum, secured by
    certain land and improvements.............................  $2,332  $ 2,230
   Other......................................................     --       954
                                                                ------  -------
                                                                 2,332    3,184
   Less--current portion......................................    (102)  (1,046)
                                                                ------  -------
                                                                $2,230  $ 2,138
                                                                ======  =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                   Years Ending
                                                                     June 30,
                                                                  --------------
                                                                  (In thousands)
   <S>                                                            <C>
   2002..........................................................     $1,046
   2003..........................................................        133
   2004..........................................................        148
   2005..........................................................        166
   2006..........................................................        176
   Thereafter....................................................      1,515
                                                                      ------
     Total.......................................................     $3,184
                                                                      ======
</TABLE>

   In August 2001, the Company entered into a Second Amendment to its Amended
and Restated Loan Agreement, as amended, the "Credit Facility," for $20.0
million with Union Bank of California, which expires in September 2003. The
Credit Facility includes a non-usage fee of 1/8% per year on the unused portion
and borrowings will bear interest at LIBOR plus 150 basis points. At September
2003, any outstanding acquisition advances (subject to a limit of $10.0
million), as defined by the Credit Facility, will be converted into a three
year amortizing term loan. The Credit Facility requires the Company to maintain
certain financial and other covenants. The Company was either in compliance or
has obtained a waiver with these covenants as of June 30, 2001. There were no
borrowings outstanding at June 30, 2000 and June 30, 2001, and average daily
borrowings outstanding amounted to approximately $20,000 in fiscal 2000
compared to $35,000 in fiscal 2001. The Credit Facility provides for a standby
letter of credit sub-limit of $5.0 million, of which $140,000 was issued and
$4.8 million was available as of June 30, 2001.


Note 7--Preferred Stock and Common Stockholders' Equity

   The Company is authorized to issue 500,000 shares of preferred stock. As of
June 30, 2001, there were no outstanding shares of preferred stock.

 Redeemable Preferred Stock

   There were no issued and outstanding shares of Redeemable Preferred Stock at
June 30, 2000 or 2001. The Company redeemed the Redeemable Preferred Stock
including accumulated dividends thereon in connection with the IPO in February
1999.

                                       52
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Convertible Preferred Stock

   There are no outstanding shares of Series 2 and Series 3 Convertible
Preferred Stock. All outstanding shares of the Series 2 and Series 3
Convertible Preferred Stock were converted into Nonvoting Common Stock and
Common Stock, respectively, in connection with the IPO in February 1999.

 Common Stock

   Class A common stock (referred to herein as the "Common Stock") is entitled
to one vote per share on all matters. Class B common stock (referred to herein
as the "Nonvoting Common Stock") has no voting rights, except the Nonvoting
Common Stock together with Common Stock, as one class, has the right to vote on
(i) any merger or consolidation of the Company with or into another company,
(ii) any sale of all or substantially all of the Company's assets and (iii) any
amendment to the Company's Certificate of Incorporation.

   In connection with 4,409,452 (post stock split) shares of Common Stock
issued on June 30, 1995, the Company entered into various Executive Stock
Agreements (the "Agreements"), as amended, with each of its principal
executives. Under the terms of these Agreements, the shares of Common Stock
acquired by the executives vested concurrent with the Company's IPO in February
1999 (See Note 2).

   On June 30, 1995, the Company also sold 1,653,546 (post stock split) shares
of Nonvoting Common Stock at $0.1134 (post split) per share to certain
executives. Concurrent with the Company's IPO, and, pursuant to contractual
obligations of the Company to the executives, the Nonvoting Common Stock was
exchanged for an equal number of shares of Common Stock (See Note 2).

 Warrants

   The following represents a summary of the warrant (post stock split)
activity:

<TABLE>
<CAPTION>
                                          Years Ended June 30,
                           ----------------------------------------------------
                                 1999               2000             2001
                           -----------------  ---------------- ----------------
                                      Wt.
                                    Average             Wt.              Wt.
                                      Ex.             Average          Average
                           Shares    Price    Shares Ex. Price Shares Ex. Price
                           -------  --------  ------ --------- ------ ---------
                              (In thousands, except Wt. Average Ex. Price)
<S>                        <C>      <C>       <C>    <C>       <C>    <C>
Outstanding, beginning of
 the year................    1,936  $ 0.0002   --      $ --     --      $ --
Granted..................      --        --    --        --     --        --
Exercised................   (1,060)  (0.0001)  --        --     --        --
Forfeited/expired........     (876)  (0.0003)  --        --     --        --
                           -------  --------   ---     -----    ---     -----
Outstanding, end of the
 year....................      --   $    --    --      $ --     --      $ --
                           =======  ========   ===     =====    ===     =====
</TABLE>

   The warrants granted during fiscal 1997 were issued to lenders in
conjunction with loans made to the Company. No amount was allocated to these
warrants because management believes the effect would not be material to the
consolidated results of operations. In November 1997, in connection with the
amended Senior Credit Agreement, the lenders received additional warrants
equivalent to two percent of the Company on a fully diluted basis, exercisable
at $0.0001 (post stock split) per share. These warrants were subject to
forfeiture by the lenders if the Company attained certain performance criteria,
as defined. In connection with the IPO, 660,724 warrants (post stock split)
were exercised into Common Stock and 400,010 warrants (post stock split) were
exercised into Nonvoting Common Stock during fiscal 1999. The remaining
outstanding warrants were forfeited.

                                       53
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Stock Options

   On April 28, 1998, the Board of Directors adopted the 1998 Performance Award
Plan (the "Plan"). Under the Plan, 1,058,268 (post stock split) options, stock
appreciation rights or other common stock based securities may be granted to
directors, officers, employees and other eligible persons. During fiscal 2001,
the Company's shareholders authorized an additional 2,200,000 options, stock
appreciation rights or other common stock based securities available for grants
to directors, officers, employee and other eligible persons under the 1998
Performance Award Plan. As of June 30, 2001, approximately 1,583,774 shares
were available for future granting. Options granted under the Plan were issued
at exercise prices ranging from $6.24-$47.88 per share and have expiration
dates not longer than 10 years. Options granted generally vest over a period of
two to four years.

   A summary of the status of the Company's stock option grants are presented
below:

<TABLE>
<CAPTION>
                                                                       Weighted-
                                                                        Average
                                                                       Exercise
                                                             Shares      Price
                                                            ---------  ---------
   <S>                                                      <C>        <C>
   Outstanding at June 30, 1998............................   242,078   $ 6.24
   Stock options granted during the year...................    48,000     9.00
   Stock options exercised.................................       --       --
   Forfeitures.............................................    (4,946)    6.24
                                                            ---------   ------
   Outstanding at June 30, 1999............................   285,132   $13.42

   Stock options granted during the year...................   479,280   $ 8.42
   Stock options exercised.................................    (7,224)    6.24
   Forfeitures.............................................   (13,330)    7.16
                                                            ---------   ------
   Outstanding at June 30, 2000............................   743,858   $ 7.80

   Stock options granted during the year...................   929,000   $28.04
   Stock options exercised.................................  (124,759)    7.91
   Forfeitures.............................................    (5,588)    7.50
                                                            ---------   ------
   Outstanding at June 30, 2001............................ 1,542,511   $19.98
                                                            =========   ======
</TABLE>

   The following table summarizes information about stock options outstanding
and exercisable at June 30, 2001:

<TABLE>
<CAPTION>
                          Options Outstanding         Options Exercisable
                         --------------------- ---------------------------------
                                     Weighted-  Weighted-              Weighted-
                           Number     Average    Average     Number     Average
        Exercise         Outstanding Remaining Outstanding Exercisable Exercise
      Prices Range       at 6/30/01    Life       Price    At 6/30/01    Price
      ------------       ----------- --------- ----------- ----------- ---------
<S>                      <C>         <C>       <C>         <C>         <C>
$ 6.24--$10.00..........    598,511     8.1      $ 7.68      223,503     $7.22
$11.94--$21.44..........    322,000     8.9       20.99          --        --
$29.72--$32.13..........    516,000     9.4       29.83          --        --
$37.98--$47.88..........    106,000     9.9       38.41          --        --
                          ---------              ------      -------     -----
                          1,542,511              $19.98      223,503     $7.22
                          =========              ======      =======     =====
</TABLE>

                                       54
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   There were no stock options exercisable at June 30, 1998 and June 30, 1999.

   Pursuant to SFAS No. 123, the weighted average fair value of stock options
granted during fiscal 1999, 2000 and 2001 was $5.58, $5.82 and $18.53,
respectively. As discussed in Note 1, the Company elected the "disclosure
alternative" allowed under SFAS No. 123. Accordingly, the Company is required
to disclose pro forma net income over the vesting period of the options.

   The following is the pro forma effect for fiscal 1999, 2000 and 2001:

<TABLE>
<CAPTION>
                                                              Fiscal Years
                                                         ----------------------
                                                          1999   2000    2001
                                                         ------ ------- -------
                                                         (In thousands, except
                                                            per share data)
   <S>                                                   <C>    <C>     <C>
   Net income:
     As reported........................................ $4,492 $15,422 $25,731
     Pro forma.......................................... $4,315 $14,589 $22,457
   Basic earnings per share:
     As reported........................................ $ 0.29 $  0.75 $  1.22
     Pro forma.......................................... $ 0.27 $  0.71 $  1.07
   Diluted earnings per share:
     As reported........................................ $ 0.24 $  0.74 $  1.18
     Pro forma.......................................... $ 0.23 $  0.70 $  1.03
</TABLE>

   For pro forma disclosure, the fair value of compensatory stock options,
stock appreciation rights and other common stock based securities was estimated
using the Black-Scholes option pricing model using the following weighted
average assumptions:

<TABLE>
<CAPTION>
                                                     1999      2000      2001
                                                   --------  --------  --------
   <S>                                             <C>       <C>       <C>
   Risk-free rate.................................      6.0%     6.75%     5.44%
   Expected years until exercise..................  7 years   7 years   7 years
   Expected stock volatility......................       54%       64%       62%
   Expected dividends............................. $    --   $    --   $    --
</TABLE>

Note 8--Weighted Average Number of Common Shares Outstanding

   On October 4, 2000, the Company completed a secondary stock offering which
included 400,000 shares (post stock split) sold by the Company.

   On December 15, 2000, the Company completed a two-for-one stock split
effected in the form of a stock dividend and all share and per share amounts
have been restated to reflect the stock split as of the beginning of each
period presented.

                                       55
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The table below indicates the weighted average number of common share
calculations used in computing basic and diluted net income (loss) per common
share utilizing the treasury stock method:

<TABLE>
<CAPTION>
                                                                  June 30,
                                                            --------------------
                                                             1999   2000   2001
                                                            ------ ------ ------
                                                               (In thousands)
   <S>                                                      <C>    <C>    <C>
   Basic common shares outstanding......................... 14,532 20,693 21,032
   Effects of dilutive securities:
     Warrants..............................................  1,168    --     --
     Non-vested executive Common Stock.....................    332    --     --
     Non-vested executive Nonvoting Common Stock...........    996    --     --
     Stock options.........................................     70    156    699
                                                            ------ ------ ------
   Diluted common shares outstanding....................... 17,098 20,849 21,731
                                                            ====== ====== ======
</TABLE>

Note 9--Income Taxes

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

<TABLE>
<CAPTION>
                                                         Years Ended June 30,
                                                        -----------------------
                                                         1999   2000     2001
                                                        ------ -------  -------
                                                            (In thousands)
   <S>                                                  <C>    <C>      <C>
   Current provision:
     Federal........................................... $3,178 $ 8,843  $14,851
     State.............................................    698   2,095    3,222
                                                        ------ -------  -------
                                                         3,876  10,938   18,073
                                                        ------ -------  -------
   Deferred provision:
     Federal...........................................    615    (221)    (831)
     State.............................................    212     123     (144)
                                                        ------ -------  -------
                                                           827     (98)    (975)
                                                        ------ -------  -------
       Total provision for income taxes................ $4,703 $10,840  $17,098
                                                        ====== =======  =======
</TABLE>

   Actual income tax provision (benefit) differs from the income tax provision
(benefit) computed by applying the U.S. federal statutory tax rate of 34% for
fiscal 1999, and 35% for fiscal 2000 and 2001 to income (loss) before provision
for income taxes as follows:

<TABLE>
<CAPTION>
                                                          Years Ended June 30,
                                                         ----------------------
                                                          1999   2000    2001
                                                         ------ ------- -------
                                                             (In thousands)
   <S>                                                   <C>    <C>     <C>
   Provision at the statutory rate...................... $3,810 $ 9,192 $14,990
   State income tax provision, net of federal benefit...    822   1,441   2,000
   Other................................................     71     207     108
                                                         ------ ------- -------
                                                         $4,703 $10,840 $17,098
                                                         ====== ======= =======
</TABLE>

                                       56
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

<TABLE>
<CAPTION>
                                                                   June 30,
                                                                ---------------
                                                                 2000    2001
                                                                ------  -------
                                                                (In thousands)
   <S>                                                          <C>     <C>
   Current deferred tax asset:
     Accounts receivable allowance for doubtful accounts....... $1,286  $ 2,039
     Accrued vacation..........................................    533      692
     State taxes...............................................    662    1,121
     Other accrued liabilities.................................    --       237
                                                                ------  -------
       Current deferred tax asset..............................  2,481    4,089
                                                                ------  -------
   Non-current deferred tax asset (liability):
     Notes receivable allowance for doubtful accounts..........    301      182
     Depreciation..............................................   (384)    (381)
     Amortization..............................................   (852)  (1,367)
     Deferred gain on sale/leaseback...........................    --       283
                                                                ------  -------
       Non-current deferred tax liability......................   (935)  (1,283)
                                                                ------  -------
                                                                $1,546  $ 2,806
                                                                ======  =======
</TABLE>

Note 10--Commitments and Contingencies

 Leases

   The Company leases most of its operating facilities and various equipment
under non-cancellable operating leases expiring at various dates through 2011.
The facilities leases require the Company to pay various operating expenses of
the facilities in addition to base monthly lease payments.

   Future minimum lease payments under operating leases are as follows:

<TABLE>
<CAPTION>
                                                                   Years Ending
                                                                     June 30
                                                                  --------------
                                                                  (In thousands)
   <S>                                                            <C>
   2002..........................................................    $20,830
   2003..........................................................     17,810
   2004..........................................................     13,828
   2005..........................................................     11,663
   2006..........................................................     11,314
   Thereafter....................................................     24,393
                                                                     -------
                                                                     $99,838
                                                                     =======
</TABLE>

   Rent expense for the years ended June 30, 1999, 2000 and 2001 amounted to
$10.1 million, $12.4 million, and $17.8 million, respectively, and is reflected
in educational services and general and administrative expense in the
accompanying consolidated statements of operations.

 Legal Matters

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

                                       57
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 11--Employee Benefit Plans

   The Company has established an employee savings plan under Section 401(k) of
the Internal Revenue Code. All employees with at least one year and 1,000 hours
of employment are eligible to participate. Contributions to the plan by the
Company are discretionary. The plan provides for vesting of Company
contributions over a five-year period. Employees previously employed by each of
the campuses acquired by the Company vest in the plan based on total years of
service with the Company and with the predecessor company. Company
contributions to the plan were $333,000, $498,000 and $1,042,000 for the years
ended June 30, 1999, 2000 and 2001, respectively.

   In August 2000, the Company adopted the Corinthian Colleges, Inc. Employee
Stock Purchase Plan ("ESPP"). Under the terms of the ESPP, eligible employees
of the Company are permitted to purchase shares of common stock at a price
equal to 90% of the fair market value on the first or last day, whichever is
lower, of each six month offering period. A total of 500,000 shares (post stock
split) of common stock were initially reserved for sale under the ESPP. At June
30, 2001, employees had purchased approximately 5,785 shares and 494,215 shares
were still available for purchase under the ESPP.

Note 12--Governmental Regulation

   The Company and each school are subject to extensive regulation by federal
and state governmental agencies and accrediting bodies. In particular, HEA, and
the regulations promulgated thereunder by DOE subject the schools to
significant regulatory scrutiny on the basis of numerous standards that schools
must satisfy in order to participate in the various federal student financial
assistance programs under Title IV of the HEA.

   To participate in the Title IV Programs, an institution must be authorized
to offer its programs of instruction by the relevant agencies of the state in
which it is located, accredited by an accrediting agency recognized by the DOE
and certified as eligible by the DOE. The DOE will certify an institution to
participate in the Title IV Programs only after the institution has
demonstrated compliance with the HEA and the DOE's extensive regulations
regarding institutional eligibility. An institution must also demonstrate its
compliance to the DOE on an ongoing basis. As of June 30, 2001, management
believes all of the Company's schools meet these requirements.

   Political and budgetary concerns significantly affect the Title IV Programs.
Congress must reauthorize the HEA approximately every six years. The most
recent reauthorization in October 1998 reauthorized the HEA for an additional
five years (the "1998 HEA Reauthorization"). Congress reauthorized all of the
Title IV Programs in which the schools participate, generally in the same form
and at funding levels no less than for the prior year. Changes made by the 1998
HEA Reauthorization include (i) expanding the adverse effects on schools with
high student loan default rates, (ii) increasing from 85% to 90% the portion a
proprietary school's cash basis revenues that may be derived each year from the
Title IV Programs, (iii) revising the refund standards that require an
institution to return a portion of the Title IV Program funds for students who
withdraw from school and (iv) giving the DOE flexibility to continue an
institution's Title IV participation without interruption in some circumstances
following a change of ownership or control.

   A significant component of Congress' initiative to reduce abuse in the Title
IV Programs has been the imposition of limitations on institutions whose former
students default on the repayment of their federally guaranteed or funded
student loans above specific rates (cohort default rate). An institution whose
cohort default rates equal or exceed 25% for three consecutive years will no
longer be eligible to participate in the FFEL or FDL programs. An institution
whose cohort default rate ("CDR") under certain Title IV Programs for any
federal fiscal year exceeds 40% may have its eligibility to participate in all
of the Title IV Programs limited, suspended or terminated by the DOE.

                                       58
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   All institutions participating in the Title IV Programs must satisfy
specific standards of financial responsibility. The DOE evaluates institutions
for compliance with these standards each year, based on the institution's
annual audited financial statements and following a change of ownership of the
institution.

   Under regulations which took effect July 1, 1998, the DOE calculates the
institution's composite score for financial responsibility based on its (i)
equity ratio, which measures the institution's capital resources, ability to
borrow and financial viability; (ii) primary reserve ratio, which measures the
institution's ability to support current operations from expendable resources;
and (iii) net income ratio, which measures the institution's ability to operate
at a profit. An institution that does not meet the DOE's minimum composite
score may demonstrate its financial responsibility by posting a letter of
credit in favor of the DOE in an amount equal to at least 50% of the Title IV
Program funds received by the institution during its prior fiscal year and
possibly accepting other conditions on its participation in the Title IV
Programs. At June 30, 2001, all of the Company's schools and the Company on a
consolidated basis satisfied the DOE's standards of financial responsibility.

   As of June 30, 1999, all schools except for four (NIT in Wyoming, Michigan;
Bryman College in New Orleans, Louisiana; Bryman College (South) in San Jose,
California; and Skadron College in San Bernardino, California) were eligible to
receive federal funding, including loan funds. These schools were ineligible
for federal loan funds as they exceeded the CDR threshold. NIT in Wyoming,
Michigan was reinstated in calendar 1999 and Bryman College in New Orleans,
Louisiana, Bryman College (South) in San Jose, California and Skadron College
in San Bernardino, California were reinstated in calendar 2000.

   Because the Company operates in a highly regulated industry, it, like other
industry participants, may be subject from time to time to investigations,
claims of non-compliance, or lawsuits by governmental agencies or third parties
which allege statutory violations, regulatory infractions or common law causes
of action. In October 1998, the Inspector General's Office ("IG") of the DOE
began an examination of the Company's compliance with the 90/10 rule and to
review in general the Company's administration of Title IV funds. This
examination was part of a broader review conducted by the IG of proprietary
institutions' compliance with these requirements. The Company provided all
information and documentation requested by the IG. During fiscal 2000, the
Company received the final audit report from the DOE. There were no actions
taken against the Company as a result of the examination. However, there can be
no assurance that other regulatory agencies or third parties will not undertake
investigations or make claims against the Company, or that such claims, if
made, will not have a material adverse effect on the Company's business,
results of operations or financial condition.

                                       59
<PAGE>

                   CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 13--Quarterly Financial Summary (unaudited)

<TABLE>
<CAPTION>
                                           Fiscal Quarters
                                   -------------------------------
                                    First  Second   Third  Fourth  Fiscal Year
                                   ------- ------- ------- ------- -----------
                                    (In thousands, except per share amounts)
<S>                                <C>     <C>     <C>     <C>     <C>
Fiscal 2001
-----------
Net revenues...................... $51,793 $60,768 $65,197 $66,405  $244,163
Income from operations............   6,901  10,566  11,558  11,726    40,751
Net income........................   4,412   6,578   7,164   7,577    25,731
Net income per common share
  Basic........................... $  0.21 $  0.31 $  0.34 $  0.36  $   1.22
  Diluted......................... $  0.21 $  0.30 $  0.33 $  0.34  $   1.18
Fiscal 2000
-----------
Net revenues...................... $38,644 $42,183 $43,874 $46,033  $170,734
Income from operations............   3,729   6,216   7,544   6,917    24,406
Net income........................   2,379   3,852   4,659   4,532    15,422
Net income per common share
  Basic........................... $  0.11 $  0.19 $  0.23 $  0.22  $   0.75
  Diluted......................... $  0.11 $  0.19 $  0.22 $  0.22  $   0.74
Fiscal 1999
-----------
Net revenues...................... $30,296 $32,974 $34,939 $34,763  $132,972
Income from operations............   1,393   3,574   4,225   3,692    12,884
Income before extraordinary loss
 from the early Retirement of
 debt.............................     295   1,518   2,352   2,338     6,503
Net income........................     295   1,518     341   2,338     4,492
Net income per common share
  Basic--before extraordinary
   loss........................... $  0.02 $  0.13 $  0.14 $  0.13  $   0.42
  Basic--after extraordinary
   loss........................... $  0.02 $  0.13 $  0.01 $  0.13  $   0.29
  Diluted--before extraordinary
   loss........................... $  0.01 $  0.09 $  0.13 $  0.13  $   0.36
  Diluted--after extraordinary
   loss........................... $  0.01 $  0.09 $  0.01 $  0.13  $   0.24
</TABLE>

Note 14--Loan to Company Officer

   The Company loaned a Company officer a total of $350,000 under the terms of
a promissory note and pledge agreement (the "Agreement") between the Company
and the officer. The terms of the Agreement provide for an interest rate of
seven percent per annum, payable on an annual basis and when the principal
becomes due and payable in August 2002. As security for this loan, the officer
has pledged to the Company 68,086 shares of his common stock in the Company. As
of June 30, 2001, the officer repaid in full all outstanding borrowings from
the Company.

                                       60
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

   None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   Certain information in response to this Item is incorporated herein by
reference from the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on November 15, 2001.

<TABLE>
<CAPTION>
        Name                Age                     Position
        ----                ---                     --------
   <C>                      <C> <S>
   David G. Moore..........  63 President, Chief Executive Officer, Chairman of
                                 the Board
   Paul R. St. Pierre......  56 Executive Vice President, Marketing and
                                 Admissions, Director
   Dennis L. Devereux......  54 Executive Vice President, Administrative
                                 Services, Assistant Secretary
   Dennis N. Beal..........  50 Executive Vice President and Chief Financial
                                 Officer
   Beth A. Wilson..........  49 Executive Vice President, Operations
   Mary H. Barry...........  52 Vice President, Education
   Nolan A. Miura..........  46 Vice President, Strategic Planning, Treasurer
   Stan A. Mortensen.......  34 Vice President, General Counsel and Corporate
                                 Secretary
   Loyal Wilson............  53 Director
   Jack D. Massimino.......  52 Director
   Linda Arey Skladany.....  56 Director
</TABLE>

   David G. Moore is one of the founders of our Company and has served as our
President as well as a member of our board of directors, since our inception in
July 1995. He was elected the Chairman of the Board in August of 2001.
Immediately prior to forming our Company, he was President of National
Education Centers, Inc., a subsidiary of National Education Corporation. From
1992 to 1994, Mr. Moore served as President of DeVry Institute of Technology in
Los Angeles, where he developed DeVry's West Coast growth strategy. From 1980
to 1992, he was employed by Mott Community College in Flint, Michigan, where he
was President from 1984 to 1992. From 1960 to 1980, Mr. Moore served a
distinguished career in the U.S. Army, retiring at the rank of Colonel. Mr.
Moore received a Bachelor of Arts in Political Science from Seattle University
and Master of Business Administration from the University of Puget Sound. He
has also completed the Management of Higher Education Program at Harvard
University, post graduate studies in Higher Education Management at the
University of Michigan and graduate study and research in Computer Science at
Kansas State University.

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

                                       61
<PAGE>

   Dennis L. Devereux is one of the founders of our Company and currently
serves as Executive Vice President, Administrative Services. He has had that
title since August 2001. Previously, he served as Vice President, Human
Resources from the Company's inception in July 1995 to April 1998, when he was
promoted to Executive Vice President. He was employed by National Education
Centers, Inc. as its Vice President, Human Resources from 1988 to 1995. From
1987 to 1988, he was Director, Human Resources for Jacobs Engineering Group,
Inc. He was employed by American Diversified Companies, Inc. as its Director,
Human Resources from 1985 to 1987. From 1973 to 1984, Mr. Devereux was employed
by Bechtel Group, Inc. in a variety of human resources management positions,
including Personnel Manager for a subsidiary company and Personnel Supervisor
for a major construction site and within a large regional operation.
Previously, he was employed in a compensation assignment with Frito-Lay, Inc.
and as Personnel Manager and Personnel Assistant with Anaconda Wire & Cable
Company from 1969 to 1973. Mr. Devereux received a Bachelor of Science in
Business Administration (Industrial Relations) from California State
University, Long Beach.

   Dennis N. Beal joined us as our Executive Vice President and Chief Financial
Officer in May 2000. Prior to joining our Company, Mr. Beal was employed by
Stater Bros. Holdings Inc. (an operator of 155 supermarkets in California) as
its Vice President and Chief Financial Officer from 1992 to 1998 and as its
Senior Vice President and Chief Financial Officer from 1998 to May 2000. From
1981 to 1992, Mr. Beal was employed by American Stores Company (an operator of
approximately 1,500 supermarkets and drug stores) and served in various
financial capacities including Vice President, Controller. From 1974 to 1981,
Mr. Beal was employed by the firm of Bushman, Daines, Rasmussan and Wisan CPA's
and was admitted as a Partner in 1980. Mr. Beal, a Certified Public Accountant,
graduated with a Bachelor of Science degree in Accounting from the University
of Utah and received a Masters of Business Administration degree from
Westminster College, Salt Lake City, Utah.

   Beth A. Wilson has been employed by us since our inception in July 1995. She
was promoted to Executive Vice President in July 2001. Previously, Ms. Wilson
was Vice President of Operations from June 1998 to June 2001. Ms. Wilson was
Regional Operations Director for the College Region of Rhodes Colleges, Inc.
from May 1997 to June 1998. From July 1995 to May 1997 she was Operations
Director and Regional Operations Director for Corinthian Schools, Inc. Ms.
Wilson was employed by National Education Centers, Inc. from 1991 to 1995,
initially as Executive Director of its Capital Hill campus, then as Area
Operations Manager. From 1990 to 1991, she was Vice President, Branch
Operations for National College. She was employed by United Education and
Software from 1984 to 1990, initially as Executive Director of a business
school, then as Group Manager for four to fifteen locations and finally as Vice
President, Administration. She was Scholarship Administrator for National
University from 1982 to 1984 and Assistant Director of American Business
College from 1976 to 1981. Ms. Wilson earned an MBA from National University
and a Bachelor of Arts degree from California State College, Sonoma.

   Mary H. Barry has served as our Vice President of Education since April
1998. She was previously employed by University of Phoenix, Southern California
Campus, from 1992 through April 1996, where her assignments included Director
of Academic Affairs and Director of Administration. She was the Director of
Center for Professional Education, Western Region, from 1996 to 1998. From 1990
to 1991, Ms. Barry was Director of National College. During the period 1980 to
1990, she was employed in the banking industry as Senior Vice President of
Marquette Banks, Director for Citibank, and Vice President of First National
Bank of Chicago. Ms. Barry served as a Public Affairs Officer in the U.S.
Marine Corps from 1971 to 1979, achieving the rank of Major. Ms. Barry earned a
Bachelor of Science in Speech/Drama from Bowling Green State University, a
Master of Management from the Kellogg Graduate School of Management,
Northwestern University and a Juris Doctorate from Western State University.

   Nolan A. Miura has been our Vice President of Strategic Planning and
Treasurer since his promotion to this position in October 1999. Mr. Miura
joined the Company as Director of Treasury and Business Analysis in November
1997 and was promoted to Treasurer in December 1998. He was employed by
Atlantic Richfield Company ("ARCO") from 1979 to 1997 in various financial and
marketing positions including Planning

                                       62
<PAGE>

Manager-ARCO Products Company, Marketing Director-ARCO Pipe Line Company,
Marketing Analysis Manager-ARCO Products Company and Planning, Evaluation and
Business Development Manager-ARCO Marine, Inc. Mr. Miura received an MBA
(Corporate Finance) from the University of Southern California and a Bachelor
of Science in Business Administration (Finance) from California State
University, Long Beach. Mr. Miura is also a Certified Internal Auditor.

   Stan A. Mortensen has been Vice President, General Counsel and Corporate
Secretary since January 2000. Prior to that time, Mr. Mortensen was an
associate at the law firm of O'Melveny & Myers LLP from March 1997 through
December 1999, where his practice focused on corporate finance, mergers and
acquisitions, and general corporate matters. From August 1994 through February
1997, Mr. Mortensen was an associate at the law firm of Robins, Kaplan, Miller
& Ciresi, where his practice focused on complex commercial litigation. Mr.
Mortensen received a Juris Doctor and a Bachelor of Arts in Political Science
from Brigham Young University.

   Loyal Wilson has served as a member of our board of directors since our
inception in July 1995. He has been a Managing General Partner of Primus
Venture Partners since 1983 and a Managing Director of Primus Venture Partners,
Inc. since 1993. In those capacities, Mr. Wilson has overseen investments by
various venture funds controlled by those entities in numerous private
companies. From 1973 to 1983, Mr. Wilson was employed by First Chicago
Corporation. He is also a Director of STERIS Corporation and was formerly a
Director of DeVry, Inc. He received a Bachelor of Arts in Economics from the
University of North Carolina and a Masters in Business Administration from
Indiana University.

   Jack D. Massimino became a member of the board of directors upon the
completion of our initial pubic offering of common stock in February 1999. Mr.
Massimino is retired and manages his personal investment portfolio. He was
President and Chief Executive Officer of Talbert Medical Management
Corporation, a publicly traded physician practice management company from 1995
through late 1997. Prior to his association with Talbert, Mr. Massimino was
Executive Vice President and Chief Operation Officer of FHP International
Corporation, a multi-state, publicly traded HMO, with revenues in excess of $4
billion. He also served in other executive positions since joining FHP in 1988,
including Senior Vice President and Vice President, Corporate Development. Mr.
Massimino has held other executive positions in the healthcare field since the
mid 1970's. He received a Bachelor of Arts in Psychology from California
Western University and earned a Master's Degree in Management from the American
Graduate School for International Management. Mr. Massimino has served on
several boards, including Talbert Medical Management Corporation, FHP, Inc.,
Texas Health Plans, Great States Insurance Company, Art Institute of Southern
California, Thunderbird World Business Advisory Council and the Orange County
Business Committee for the Arts.

   Linda Arey Skladany, Esq. became a member of the board of directors
effective upon the completion of our initial public offering in February 1999.
Ms. Skladany has been Vice President for Congressional Relations at Parry,
Romani, DeConcini & Symms, a Washington D.C. lobbying firm since 1995. Ms.
Skladany joined the Reagan administration in 1981 as Special Assistant, first
to the Secretary of Education and then later to the United States Attorney
General, before joining the United States Department of Transportation as
Director of the Executive Secretariat under Secretary Elizabeth Dole. In 1985,
she joined President Reagan's White House staff as Special Assistant to the
President and Deputy Director of the White House Office of Public Liaison. In
1988, President Reagan appointed Ms. Skladany to the Advisory Committee for
Trade Negotiation. She was later appointed by Presidents Reagan and Bush,
respectively, to the positions of Commissioner and Acting Chair of the
Occupational Safety and Health Review Commission. From 1990 to 1995, Ms.
Skladany was a legislative attorney and of counsel with the law firm of Holland
and Hart. From 1993 to 1995, she also served as Executive Director of the
Foundation for Environmental and Economic Progress. In 1994, Governor
George Allen of Virginia appointed her to a four-year term on the Board of
Visitors of the College of William and Mary. Ms. Skladany earned a Bachelor of
Arts in Education from the College of William and Mary, a Master of Arts in
Education from Wake Forest University and a Juris Doctorate from the University
of Richmond Law School. She was admitted to the bar in Virginia and the
District of Columbia.

                                       63
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

   Information in response to this Item is incorporated herein by reference
from the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on November 15, 2001.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   Information in response to this Item is incorporated herein by reference
from the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on November 15, 2001.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Information in response to this Item is incorporated herein by reference
from the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on November 15, 2001.

                                       64
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

   (a) The following documents are filed as part of this Report:

     1. Index to Financial Statements

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
  <S>                                                                      <C>
      Report of Independent Public Accountants...........................   40
      Consolidated Balance Sheets as of June 30, 2000 and 2001...........   41
      Consolidated Statements of Operations for the years ended June 30,
       1999, 2000
       and 2001..........................................................   42
      Consolidated Statements of Stockholders' Equity for the years ended
       June 30, 1999, 2000 and 2001......................................   43
      Consolidated Statements of Cash Flows for the years ended June 30,
       1999, 2000
       and 2001..........................................................   44
      Notes to Consolidated Financial Statements.........................   45
</TABLE>

     2. Financial Statement Schedules

   All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require the submission of the
schedules, or because the information required is included in the consolidated
financial statements or the notes thereto.

     3. Exhibits:

   The exhibits listed in the accompanying Index to Exhibits are filed as part
of this annual report.

   (b) Reports on Form 8-K:

   On September 4, 2001, the Company filed a report on Form 8-K disclosing the
Company's bad debt expense as a percentage of revenue for the fiscal years and
fourth fiscal quarters ended June 30, 1999, June 30, 2000 and June 30, 2001.

                                       65
<PAGE>

                           CORINTHIAN COLLEGES, INC.

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
 Exhibit                                                          Incorporation
 Number                  Description of Exhibit                     Reference
 -------                 ----------------------                   -------------
 <C>     <S>                                                      <C>
  3.3 +  Restated Certificate of Incorporation.................        (a)

  3.4 +  Bylaws of the Company incorporated by reference to
          Exhibit 3.3 of the Company's Registration Statement
          on Form S-1 (Registration No. 33-59505) as filed with
          the Securities and Exchange Commission on July 21,
          1998

  4.9 +  Specimen Common Stock Certificate of the Company......        (a)

 10.12+  Amended and Restated Registration Agreement dated
          October 17, 1996, by and between the Company, Primus
          Capital Fund III Limited Partnership, The Prudential
          Insurance Company of America, BancOne Capital
          Partners II, LLC, BancOne Capital Partners II,
          Limited Partnership, David G. Moore, Paul St. Pierre,
          Frank J. McCord, Dennis L. Devereux and Lloyd W.
          Holland..............................................        (b)

 10.13+  First Amendment to the Amended and Restated
          Registration Agreement dated as of November 24, 1997,
          by and between the Company, Primus Capital Fund III
          Limited Partnership, BOCP II Limited Liability
          Company, BancOne Capital Partners II, LLC, David G.
          Moore, Paul St. Pierre, Frank J. McCord, Dennis L.
          Devereux, Lloyd W. Holland and The Prudential
          Insurance Company of America.........................        (b)

 10.14+  Amended and Restated Executive Stock Agreement, dated
          November 24, 1997, between Corinthian Schools, Inc.
          and Dennis L. Devereux...............................        (c)

 10.17+  Amended and Restated Executive Stock Agreement, dated
          November 24, 1997, between Corinthian Schools, Inc.
          and David G. Moore...................................        (c)

 10.18+  Amended and Restated Executive Stock Agreement, dated
          November 24, 1997, between Corinthian Schools, Inc.
          and Paul St. Pierre..................................        (c)

 10.52+  1998 Performance Award Plan of the Company............        (b)

 10.54+  Amended and Restated Loan Agreement, dated February 1,
          2000 by and between Union Bank of California, N.A.
          and the Company......................................        (d)

 10.57+  Asset Purchase Agreement, dated as of September 4,
          2000, by and among Corinthian Schools, Inc., Educorp,
          Inc. and Dr. Rashed B. Elyas and Ken Boyle...........        (e)

 10.58+  Asset Purchase Agreement, dated as of September 10,
          2000, by and among Corinthian Schools, Inc., Computer
          Training Academy, Inc., and Sam Shirazi, Bahman
          Imani, Marilyn Emel, Mahammed Tahmasebi and Peter
          Tsuda ...............................................        (f)

 10.59+  Stock Purchase Agreement, dated as of December 29,
          2000, by and among Corinthian Schools, Inc., Grand
          Rapids Educational Center, Inc., Malone Management
          Company, and Robert J. Malone and Mary C. Malone.....        (g)

 10.60   Second Amendment to Amended and Restated Loan
          Agreement, dated as of July 9, 2001, by and between
          Corinthian Colleges, Inc. and Union Bank of
          California, N.A.

 10.61+  Asset Purchase Agreement, dated as of March 8, 2000,
          by and among Corinthian Schools, Inc., Cuff & Dean
          Incorporated (d/b/a Georgia Medical Institute),
          and Dominic J. Dean and Arthur Cuff..................        (h)

 21.1    List of Subsidiaries
</TABLE>

                                       66
<PAGE>

<TABLE>

<CAPTION>
 Exhibit                                          Incorporation
 Number          Description of Exhibit             Reference
 -------         ----------------------           -------------
 <C>     <S>                                      <C>
 23.1    Consent of Arthur Andersen LLP

 24.1    Power of Attorney (see signature page)
</TABLE>
--------
 +  Previously filed with the Securities and Exchange Commission as set forth
    in the following table:
(a) Incorporated by reference to the like-numbered exhibit of the Company's
    Amendment No. 3 to Registration Statement on Form S-1 (Registration No.
    333-59505), as filed with the Securities and Exchange Commission on January
    11, 1999.
(b) Incorporated by reference to the like-numbered exhibit of the Company's
    Registration Statement on Form S-1 (Registration No. 333-59505), as filed
    with the Securities and Exchange Commission on July 21, 1998.
(c) Incorporated by reference to the like-numbered exhibit of the Company's
    Amendment No. 4 to Registration Statement on Form S-1 (Registration No.
    333-59505), as filed with the Securities and Exchange Commission on
    February 1, 1999.
(d) Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report
    on Form 10-Q, for the quarter ended March 31, 2000, as filed with the
    Securities and Exchange Commission on May 12, 2000.
(e) Incorporated by reference to the like-numbered exhibit of the Company's
    Registration Statement on Form S-3 (Registration No. 333-45510), as filed
    with the Securities and Exchange Commission on September 11, 2000.
(f) Incorporated by reference to the like-numbered exhibit of the Company's
    Annual Report on Form 10-K, for the fiscal year ended June 30, 2000, as
    filed with the Securities and Exchange Commission on September 18, 2000.
(g) Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report
    on Form 10-Q, for the quarter ended December 31, 2000, as filed with the
    Securities and Exchange Commission on February 14, 2001.
(h) Incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report
    on Form 10-Q, for the quarter ended March 31, 2000, as filed with the
    Securities and Exchange Commission on May 12, 2000.

                                       67
<PAGE>

                        SIGNATURES AND POWER OF ATTORNEY

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                          Corinthian Colleges, Inc.

                                                  /s/ David G. Moore
                                          By: _________________________________
                                                     David G. Moore
                                             Chairman of the Board, President
                                                and Chief Executive Officer
                                               (Principle Executive Officer)
                                                    September 27, 2001

                                                  /s/ Dennis N. Beal
                                          By: _________________________________
                                                     Dennis N. Beal
                                            Executive Vice President and Chief
                                                     Financial Officer
                                                 (Principle Financial and
                                                    Accounting Officer)
                                                    September 27, 2001

   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 and in the capacities and on the dates indicated. Each person whose
signature appears below hereby authorizes and appoints David G. Moore and
Dennis N. Beal, or either of them, as attorneys-in-fact and agents to execute
and file with the applicable regulatory authorities any amendment to this
report on his or her behalf individually and in each capacity stated below.

<TABLE>
<CAPTION>
              Signature                           Title                    Date
              ---------                           -----                    ----

<S>                                   <C>                           <C>
       /s/ David G. Moore             Chairman of the                September 27, 2001
_____________________________________  Board, President,
           David G. Moore              and Chief Executive Officer
                                       (Principal Executive
                                       Officer)

       /s/ Paul St. Pierre            Executive Vice President       September 27, 2001
_____________________________________  and Director
           Paul St. Pierre

        /s/ Loyal Wilson              Director                       September 27, 2001
_____________________________________
            Loyal Wilson

      /s/ Jack D. Massimino           Director                       September 27, 2001
_____________________________________
          Jack D. Massimino

     /s/ Linda Arey Skladany          Director                       September 27, 2001
_____________________________________
         Linda Arey Skladany
</TABLE>

                                       68
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Corinthian Colleges, Inc.

We have audited in accordance with auditing standards generally accepted in the
United States, the financial statements of Corinthian Colleges, Inc. (a
Delaware corporation) and subsidiaries included in this Form 10-K and have
issued our report thereon dated August 15, 2001. Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in the index above is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.

/s/ Arthur Andersen LLP

Orange County, California
August 15, 2001

                                       69
<PAGE>

                           CORINTHIAN COLLEGES, INC.

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                   Balance at  Charged to            Balance at
                                  Beginning of Costs and               End of
                                      Year      Expenses  Deductions    Year
                                  ------------ ---------- ---------- ----------
                                                 (In thousands)
<S>                               <C>          <C>        <C>        <C>
Allowance for doubtful accounts
Accounts receivable:
  Year ended June 30, 1999.......    $3,519     $ 7,013    $ (7,274)   $3,258
  Year ended June 30, 2000.......     3,258       7,874      (6,769)    4,363
  Year ended June 30, 2001.......     4,363      13,822     (10,994)    7,191
Student notes receivable:
  Year ended June 30, 1999.......     2,286         660      (1,048)    1,898
  Year ended June 30, 2000.......     1,898         886      (1,603)    1,181
  Year ended June 30, 2001.......    $1,181     $   143    $   (899)   $  425
</TABLE>

                                       70

</TEXT>
</DOCUMENT>
