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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2003

Commission file number 0-16992

CONCORDE CAREER COLLEGES, INC.

(Exact name of registrant as specified in its charter)

5800 Foxridge Drive, Suite 500

Mission, Kansas 66202

Telephone: (913) 831-9977

Incorporated in the State of Delaware

43-1440321

(I.R.S. Employer Identification No.)

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

TITLE OF CLASS

Common Stock, $.10 par value

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), (2) has been subject to such filing requirements for the past 90 days, and (3) is an accelerated filer (as defined by Rule 12 b-2 of the Exchange Act).

(1) Yes x No ¨                     (2) Yes x No ¨                     (3) 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 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. x

Indicate the number of outstanding shares of the Registrant’s Common Stock, as of February 11, 2004:

5,984,772 Shares of Common Stock, $.10 par value

The aggregate market value of Voting Securities (including Common Stock and Class B Voting Convertible Preferred Stock), held by non-affiliates of the Registrant was approximately $83,944,775 as of February 13, 2004. Part III incorporates information by reference to the Registrant’s definitive proxy statement for Annual Meeting of Stockholders to be held May 27, 2004.

CONCORDE CAREER COLLEGES, INC.

FORM 10-K

YEAR ENDED DECEMBER 31, 2003

Index

Introduction and Note on Forward Looking Statements

The discussion set forth below, as well as other portions of this Form 10-K, may contain forward-looking comments. Such comments are based upon information currently available to management and management’s perception thereof as of the date of this Form 10-K and may relate to: (i) the ability of the Company to realize increased enrollments from investments in infrastructure made over the past year; (ii) the U.S. Department of Education’s (“ED’s”) enforcement or interpretation of existing statutes and regulations affecting the Company’s operations; and (iii) the sufficiency of the Company’s working capital, financing and cash flow from operating activities for the Company’s future operating and capital requirements. Actual results of the Company’s operations could materially differ from those forward-looking comments. The differences could be caused by a number of factors or combination of factors including, but not limited to, potential adverse effects of regulations; impairment of federal funding; adverse legislative action; student loan defaults; changes in federal or state authorization or accreditation; changes in market needs and technology; changes in competition and the effects of such changes; changes in the economic, political or regulatory environments; litigation involving the Company; changes in the availability of a stable labor force; or changes in management strategies. Readers should take these factors into account in evaluating any such forward-looking comments. The following should be read in conjunction with Part II, Item 7 – Safe Harbor Statement.

Also see Part II Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Current Trends and Recent Events, and Liquidity and Capital Resources.”

Documents Incorporated By Reference

Portions of the Company’s definitive Proxy Statement for the 2004 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2003, are incorporated by reference into Part III of this report.

PART I

Overview

The Company owns and operates proprietary, postsecondary institutions that offer career vocational training programs primarily in the allied health field. The Company serves the segment of population seeking to acquire a career-oriented education. The Campuses generally enjoy long operating histories and strong franchise value in their local markets. As of December 31, 2003, the Company operated Campuses at 12 locations in seven states (the “Campuses”).

The Company was formed in 1988 as a Delaware corporation. Prior to March 31, 1988, the Company was the career college division of CenCor, Inc. (“CenCor”). The Company’s principal office is located at 5800 Foxridge Drive, Suite 500, Mission, Kansas 66202 (telephone: (913) 831-9977). Unless otherwise indicated, the term “Company” refers to Concorde Career Colleges, Inc. and its direct wholly owned subsidiaries.

Available Information on Website

The Company’s website is located at http://www.concordecareercolleges.com. The Company’s filings are all placed on the Company’s website within a reasonable time after the filing is completed with the SEC.

The Campuses

The Company’s twelve Campuses are located in the following cities: North Hollywood, Garden Grove, San Bernardino, and San Diego, California; Denver, Colorado; Lauderdale Lakes, Jacksonville, and Tampa, Florida; Kansas City, Missouri; Portland, Oregon; Memphis, Tennessee; and Arlington, Texas. The Company has designated each Campus except Memphis, as a “Concorde Career Institute,” to increase name recognition. The Memphis, Tennessee Campus has been designated as “Concorde Career College.”

Programs of Study

The Company’s programs of study are intended to provide students with the requisite knowledge and job skills for the positions in their chosen career. The programs are Vocational/Practical Nursing, Respiratory Therapist, Advanced Respiratory Therapist, Surgical Technician, Pharmacy Technician, Radiology Technician, Medical Office Assistant, Medical Office Professional, Medical Assistant, Insurance Coding and Billing Specialist, Dental Assistant, Patient Care Technician, and Massage Therapy. Program offerings vary by Campus. The Kansas City, North Hollywood and Memphis Campuses offer selected associate

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degree programs. Campuses utilize different program titles pursuant to state regulations. In addition, certain Campuses offer selected short term courses/programs, including Limited X-Ray, Expanded Duties for Dental Assistants, Clinical Lab Assistant, Patient Care Assistant, Home Health Aide, and various certification test preparations in allied health occupations.

The Company’s five largest programs represented approximately 81% of the student population at December 31, 2003. The programs and their percentage of the student population at December 31, 2003 are Medical Assistant 31%, Vocational Nursing/Practical Nursing 19%, Dental Assistant 14%, Insurance Coding and Billing Specialist 11%, and Respiratory Therapy 6%. Each of the remaining programs represented less than 4% of the student population.

The Campuses utilize a non-traditional academic calendar with program start dates varying by location and type of program. Programs typically commence monthly at most Campuses. Programs of study range from five to eighteen months and include from 400 to 2,265 hours of instruction. Programs are generally taught in a classroom atmosphere, with hands-on clinical and/or laboratory experience as an integral part of the curriculum. Programs generally include an externship immediately prior to graduation, varying in duration from four to twelve weeks, depending on the program.

Clinical programs (Surgical Technology, Respiratory Therapy, Radiologic Technology, and Practical/Vocational Nurse) are generally 12 to 15 months in length. The weekend Vocational Nursing program and Radiological Technician are longer, 18 and 24 months respectively. Clinical programs utilize clinical training that occurs in a hospital or medical facility.

Core programs (Medical Assistant, Dental Assistant, Massage Therapy, Medical Office Management, and Insurance Coding and Billing Specialist) are generally 9 to 12 months in length and utilize an externship immediately prior to graduation. Externships occur in medical offices, dental offices, medical and dental clinics, medical facilities, and hospitals.

Program advisory committees provide ideas, evaluate and recommend improvements to the curriculum for each program. Advisory committees meet once or twice a year and are comprised of local industry and business professionals. Advisory committee members provide valuable input regarding changes in the program and suggest new technologies and other factors that may enhance curriculum.

Recruitment and Admissions

A typical student is either: (i) unemployed and enrolls to learn new skills and obtain employment or (ii) underemployed and enrolls to acquire new skills or to update existing skills to increase his/her earning capacity. Students are recruited through advertising in various media, including television, newspapers, Internet, and direct mail. Management estimates that approximately 37% of all enrollments during 2003 were the result of referrals from students and graduates. Referrals accounted for approximately 35% of enrollment during 2002.

Each Campus maintains an Admissions Department that is responsible for conducting admissions interviews with potential applicants to provide information regarding the programs and to assist with the application process. In addition, each applicant for enrollment must take and pass an entrance examination administered by persons other than admissions representatives. The entrance examination and interview are designed to determine the student’s ability to benefit from the instruction provided by the Campus and the student’s level of motivation to complete the program.

The admissions criteria vary according to the program of study. Each applicant for enrollment must have a high school diploma or the equivalent of a high school diploma. Some Campuses accept students without a high school diploma or equivalent; however, the student must demonstrate the ability to benefit from the program by meeting United States Department of Education (“ED”) requirements before admission is granted. All students must be beyond the age of compulsory high school attendance. The Company utilizes a database maintained by ED to identify applicants who may be in default on a prior student loan.

The Company had 5,732 students in attendance at the Campuses at December 31, 2003 compared to 5,056 at December 31, 2002.

Student Retention

The Company strives to help students complete their program of study through admissions screening, financial aid planning and student services. Each Campus has at least one staff member whose function is to provide student services concerning academic and personal problems that might disrupt or result in a premature end to a student’s studies. Programs of study are offered in the morning, afternoon, and evening to meet the students’ scheduling needs. The Vocational Nursing Program and some general education classes are offered on weekends at some Campuses.

If a student terminates enrollment prior to completing a program, federal and state regulations permit the Company to retain only a certain percentage of the total tuition, which varies with, but generally equals or exceeds, the percentage of the program completed. Amounts received by the Company in excess of such set percentage of tuition are refunded to the student or the appropriate funding source. See “Financing Student Education,” and “Regulation” below.

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The President and Chief Executive Officer (the “CEO”) is responsible for the overall performance of the Campuses. Reporting to him are: the Vice President, Chief Financial Officer; Vice President, Human Resources; Vice President of Operations (“VPO”); Vice President of Academic Affairs; and the Vice President of Financial Aid & Compliance.

The Company maintains a strict focus on compliance in all areas of campus management and utilizes the following staff to review, train and support Campus programs and personnel: National Director of Nursing, Regional Training Developer, Director of Special Projects – Nursing, Internal Compliance Auditor, Financial Aid Specialist, and one Regional Specialist. In addition, other corporate staff train and supplement Campus staff when needed.

The Company has centralized some functions to capitalize on expertise at the corporate level. These functions include financial aid fund processing, student collections, default management, accounting, payroll, purchasing, information technology, and new program development. The Company’s operation structure is supported by a management information system that links all Campuses to a centralized administrative database and provides management with real-time access to Campus information and statistics.

Each Campus is operated independently and is managed on site by an Executive Campus Director reporting to the VPO. In addition, most Campuses are staffed with a Director of Admissions, Academic Dean, Director of Graduate Services, Director of Finance or a Financial Aid Director and a Director of Business Services, and several other support staff. Instruction at each Campus is conducted by educators from the health care field or by former and current members of the medical community on a full-time or part-time basis. Instructional staff is selected based upon academic and professional qualifications, and experience level.

Student Placement

The Company, through placement personnel at each Campus, provides job placement assistance for graduates. The placement personnel establish and maintain contact with local employers and other sources of information on positions available in the local area. Additionally, the Director of Graduate Services works with students on preparing resumes and interviewing techniques. Postgraduate placement assistance is also provided, including referral to other cities in which Campuses are located. Frequently, the externship programs result in placement of students with the practitioners participating in the externship.

Accreditation and Licensing

The Campuses are accredited through accreditation associations recognized by ED. These associations are the Accrediting Commission of Career Schools and Colleges of Technology (“ACCSCT”), the Council on Occupational Education (“COE”) and the Accrediting Bureau of Health Education Schools (“ABHES”). The Memphis, Tennessee Campus is accredited by COE. The Arlington, Texas Campus is accredited by ABHES. The remaining Campuses are accredited by ACCSCT. Accreditation by an accrediting body recognized by ED is necessary for a Campus to be eligible to participate in federally sponsored financial aid programs. See “Financing Student Education.”

Certain Campuses have received accreditation or approval for specific programs from the following agencies: The American Society of Health Systems Pharmacists, Commission on Accreditation of Allied Health Education Programs, Joint Review Committee on Education in Radiologic Technology, Committee on Accreditation for Respiratory Care, the Commission on Dental Accreditation, the Committee on Dental Auxiliaries-California Board of Dental Examiners, Accreditation Review Committee on Education in Surgical Technology, the California Board of Vocational Nurse and Psychiatric Technician Examiners, Colorado Board of Nursing, Texas Board of Nursing, Florida Board of Nursing, and the Missouri Board of Nursing. Program specific accreditation/approvals are not necessary for participation in federally sponsored financial aid programs; however, they are required for certification and/or licensure of graduates from some programs, such as the Vocational or Practical Nurse and Respiratory Therapy programs offered by some of the Campuses. These accreditations or approvals have been obtained because management believes they enhance the students’ employment opportunities in those states that recognize the accrediting agencies.

The qualifications of faculty members are regulated by applicable accreditation associations and/or agencies. Faculty standards must be met before the Campuses accreditation is renewed. In addition, faculty members teaching certain curriculum must meet standards set by applicable state licensing laws.

Each Campus is licensed as an educational institution under applicable state and local laws, and is subject to a variety of state and local regulations. These regulations may include approval of the curriculum, faculty and general operations.

Financing Student Education

Tuition and other ancillary fees vary from program to program, depending on the subject matter and length of the program. The total cost per program ranges from approximately $5,000 to $23,000.

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Most students attending the Campuses utilize federal government grants and/or the Federal Family Education Loan programs available under the Higher Education Act of 1965 (“HEA”), and various programs administered thereunder to finance their tuition.

Each Campus has at least one financial aid officer to assist students in preparing applications for federal grants and federal loans. Management estimates that during 2003, 81% of cash receipts were derived from funds obtained by students through these programs.

Currently, each Campus is an eligible institution for some or all of the following federally funded programs: Federal Pell Grant (Pell), Federal Supplemental Education Opportunity Grant (SEOG), Federal Perkins Loan, Federal Parent Loan for Undergraduate Students (PLUS), Federal Stafford Loan, Federal Unsubsidized Stafford Loan, and Veterans Administration Assistance. Also, some students are eligible for assistance under the Department of Labor’s Workforce Investment Act.

The states of California, Colorado, Tennessee, Florida, Oregon, and Texas each offer state grants to students enrolled in educational programs of the type offered by the Campuses. Typically, many restrictions apply in qualifying and maintaining eligibility for participation in these state programs.

Students principally rely on a combination of two Federal programs: Federal Pell Grants and Federal Family Education Loans (FFELs) also referred to as Federal Subsidized Stafford, Unsubsidized Stafford, and PLUS loans. Federal Subsidized Stafford Loans are need based and awarded annually to students studying at least half time at an approved postsecondary educational institution. The maximum Pell Grant a student may receive for the 2003-2004 award year is $4,050. The amount a student actually receives is based on a federal regulatory formula devised by ED.

FFELs are low interest federal student loans provided by banks and other lending institutions, the repayment of which is fully guaranteed as to principal and interest by the federal government through a guarantee agency. The student pays no interest on a Subsidized Stafford Loan while in school and for a grace period (up to six months) thereafter; on unsubsidized loans, interest accrues but is capitalized and added to the principal. Parents of dependent students can receive PLUS loans. There is no interest subsidy for PLUS loans. The parent borrower is responsible for all interest that accrues on the loan while the student is in school. For both subsidized and unsubsidized loans, students do not need to begin payment until expiration of a six-month grace period following last day of attendance. After such time, repayment is required in monthly installments, with a variable interest rate. Lenders making subsidized FFELs receive interest subsidies during the term of the loan from the federal government, which also pays all interest on these FFELs while the student attends school and during the grace period. In the event of default, all FFELs are fully guaranteed as to principal and interest by state or private guarantee agencies which, in turn, are reimbursed by the federal government according to the guarantee agency reinsurance provisions contained in the HEA.

State and federal student financial aid programs are subject to the effects of state and federal budgetary processes. There can be no assurance that government funding for the financial aid programs in which the Company’s students participate will continue to be available or maintained at current levels. The loss or reduction in funding levels for state and federal student financial aid programs could have a material adverse effect on the Company.

Regulation

Both federal and state financial aid programs contain numerous and complex regulations which require compliance not only by the recipient student but also by the institution which the student attends. The Company monitors compliance through periodic visits to the individual Campuses by Corporate staff. Failure to materially comply with such regulations at any of the Campuses could have serious consequences, including limitation, suspension, or termination of the eligibility of that Campus to participate in the funding programs. Independent certified public accountants audit the Campus’ administration of federal funds as mandated by federal regulations. Additionally, these aid programs require accreditation by the Campuses. See “Accreditation and Licensing” and “Financing Student Education.”

One of ED’s principal criteria for assessing a Campus’s eligibility to participate in student loan programs is the cohort default rate threshold percentage requirements (the “Cohort Default Rate”) enacted in the Student Loan Default Prevention Initiative Act of 1990. The regulations apply to the FFEL, and Federal Perkins Loan Program loans. Cohort Default Rates are calculated by the Secretary of Education and are designed to reflect the percentage of former students entering repayment in the cohort year, the fiscal year of the federal government—October 1 to September 30, who default on their loans during that year or the following cohort year. This calculation includes only those defaulted loans on which federal guaranty claims have been paid. A Campus may request that a defaulted loan be removed from the calculation if the Campus can demonstrate that the loan was improperly serviced and collected under guidelines established in ED’s regulations. A loan that is included in the default rate calculation may be subsequently paid by the student, but is not removed from the cohort calculation.

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After January 1, 1991, the Secretary of Education was authorized to initiate proceedings to limit, suspend or terminate the eligibility of an institution to participate in the FFEL program if the Cohort Default Rate for three consecutive years exceeds the prescribed threshold. Beginning with the release of 1992 Cohort Default Rates in the summer of 1994, a Cohort Default Rate equal to or exceeding 25% for three consecutive fiscal years may be used as grounds for terminating FFEL eligibility.

The following table sets forth the 2002, 2001, and 2000 cohort default rates for each of the Campuses.

All of the Company’s Campuses have at least one of their three most recent rates below 25% and are, therefore, eligible to participate in the FFEL program. The Company maintains aggressive default management plans for each Campus and monitors activity frequently. Staff at each Campus and Corporate Office assist and educate student borrowers in understanding their rights and responsibilities as borrowers under these student loan programs.

In 1994, ED established a policy of recertifying all institutions participating in Title IV programs every five years. Provisional certification limits the Campus’ ability to add programs and change the level of educational award. In addition, the Campus is required to accept certain restrictions on due process procedures under ED guidelines. The Kansas City campus received provisional certifications in 2003 that will expire in 2006. Eight of the Company’s Campuses have full certification. Four Campuses currently have provisional certifications, Kansas City, Portland, and Memphis, received provisional certification due to high Federal Perkins Loan default rates. In addition Memphis was cited for FFEL Default Rates. The Arlington Campus was acquired by the Company in August 2002 and received provisional certification due to the change of ownership. The Company does not believe provisional certification will have a material impact on its liquidity, results of future operations or financial position. There has been no material impact due to provisional certification in prior years.

The Company is subject to extensive regulation by federal and state governmental agencies and accreditation bodies. In particular, the Higher Education Act of 1965 (“HEA”), and the regulations promulgated thereunder by ED subject the Campuses to significant regulatory scrutiny on the basis of numerous standards that Campuses must satisfy to participate in the various federal student financial assistance programs under Title IV of the HEA.

To participate in Title IV Programs, an institution must be accredited by an association recognized by ED. ED will certify an institution to participate in the Title IV Programs only after an institution has demonstrated compliance with the HEA and the ED’s extensive regulations regarding institutional eligibility. Under the HEA, accreditation associations are required to include the monitoring of certain aspects of Title IV Program compliance as part of their accreditation evaluations.

Congress must reauthorize the HEA approximately every six years. The most recent reauthorization in October 1998 reauthorized the HEA until September 30, 2004. The 1998 HEA reauthorization imposed a limit on the amount of Title IV funds a withdrawing student can use to pay their education costs. This limitation permits a student to use only a pro rata portion of the Title IV Program funds that the student would otherwise be eligible to use, if the student withdraws during the first 60% of any payment period. The institution must refund to the appropriate lenders or Title IV Programs any Title IV funds that the institution receives on behalf of a withdrawing student in excess of the amount the student can use for such period of enrollment. Under this HEA requirement, students are obligated to the Company for education costs that the students can no longer pay with Title IV funds. The Company implemented this requirement on October 7, 2000 as required by regulation. The Company monitors the increase in accounts receivable from students and its impact on the Company’s results of operations, financial condition and cash flows. The Company’s provision for uncollectible accounts has increased as a result of this regulation.

ED issued a new financial responsibility regulation that became effective July 1, 1998. Institutions are required to meet this regulation to maintain eligibility to participate in Title IV programs. This regulation uses a composite score based upon three financial ratios. An institution demonstrates that it is financially responsible by achieving a composite score of at least 1.5, or by achieving a composite score in the zone from 1.0 to 1.4 and meeting certain provisions.

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An institution in the zone may need to provide to ED timely information regarding certain accrediting agency actions and certain financial events that may cause or lead to a deterioration of the institution’s financial condition. In addition, financial and compliance audits may have to be submitted soon after the end of the institution’s fiscal year. Title IV HEA funds may be subject to cash monitoring for institutions in the zone.

The Company’s composite score was 1.7, 2.0, and 2.7 in 2001, 2002, and 2003, respectively.

An additional HEA standard 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. The Company believes that its method of compensating persons engaged in student recruitment, admission or financial aid awarding activity complies with the requirements of the HEA. The regulations do not, however, establish clear standards for compliance, and the Company cannot assure you that ED will not find any deficiencies in our present or former methods of compensation.

Congress is currently reviewing the current HEA reauthorization which expires September 30, 2004. The Company is not aware of any changes that may be made during reauthorization that will have a material financial impact on the Company. However, there can be no assurance of the impact of new regulations or requirements from reauthorization.

Competition

The Campuses are subject to competition from public educational institutions in addition to a large number of other public and private companies providing postsecondary education, many of which are older, larger and have greater financial resources than the Company.

Management believes that the educational programs offered, the Campus’ reputation and marketing efforts are the principal factors in a student’s choice to enroll at a Campus. Additionally, the cost of tuition and availability of financing, the location and quality of the Campus’ facilities, and job placement assistance offered are important. The specific nature and extent of competition varies from Campus to Campus, depending on the location and type of curriculum offered. The Company competes principally through advertising and other forms of marketing, coupled with specialized curricula offered at competitive prices.

Employees

As of December 31, 2003, the Company had approximately 915 full and part-time employees, of which approximately 497 were faculty members. The Company had 314 management and administrative staff members employed at the Campuses and 44 employed at corporate headquarters. The remaining 60 employees are admissions personnel.

Management and supervisory members of both the administrative staff and administrative faculty are salaried. All other faculty and employees are paid on an hourly basis. The Company employs full-time, part-time, and on a substitute/on-call basis. The Company does not have an agreement with any labor union representing its employees and has not been the subject of any union organization efforts.

Risk Factors

Any of the following risks could materially adversely affect the Company’s business, results of operations or financial condition.

Failure to Comply with Extensive Regulations Could Have a Material Adverse Effect on the Company’s Business. Failure of the Company’s Campuses to comply with extensive regulations could result in financial penalties, loss or suspension of federal funding.

The Company’s revenue is derived almost entirely from tuition, textbook sales, fees and charges paid by, or on behalf of, the Company’s students. A large number of the Company’s students paid a substantial portion of tuition and other fees with funds received through student assistance financial aid programs under Title IV of the HEA. The Company received approximately 81% of cash receipts from such funds for the year ended December 31, 2003. 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 ED, and certification by the ED. As a result, the Company’s Campuses are subject to extensive regulation by these agencies that, among other things, requires the Company to:

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These regulations cover virtually all phases of the Company’s operations, including the Company’s educational programs, facilities, instructional and administrative staff, administrative procedures, financial operations and financial strength. They also affect the Company’s ability to acquire or open additional Campuses or change the Company’s corporate structure. These regulatory agencies periodically revise their requirements and modify their interpretations of existing requirements.

If one of the Company’s Campuses were to violate any of these regulatory requirements, the Company could suffer a financial penalty. The regulatory agencies could also place limitations on or terminate the Company’s Campuses’ receipt of federal student financial aid funds, which could have a material adverse effect on the Company’s business, results of operations or financial condition. The Company believes that the Campuses substantially comply with the requirements of these regulatory agencies, but the Company cannot predict with certainty how all of these requirements will be applied, or whether the Company 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 the Company’s Campuses are described in the following paragraphs.

The U.S. Congress may change the law or reduce funding for federal student financial aid programs, which could harm the Company’s business.

The U.S. 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. Congress must reauthorize HEA approximately every six years. The most recent reauthorization occurred in 1998 and reauthorized the HEA until September 30, 2004. Any action by Congress that significantly reduces funding for the federal student financial aid programs or the ability of the Company’s Campuses or students to participate in these programs could have a material adverse effect on the Company’s business, results of operations or financial condition. Legislative action may also increase the Company’s administrative costs and burden and require the Company to modify the Company’s practices in order for the Company’s Campuses to comply fully with applicable requirements, which could have a material adverse effect on the Company’s business, results of operations or financial condition.

Congress is currently reviewing the current HEA reauthorization which expires September 30, 2004. The Company is not aware of any changes that may be made during reauthorization that will have a material financial impact on the Company. However, there can be no assurance of the impact of new regulations or requirements from reauthorization

If the Company does not meet financial responsibility standards, the Company’s Campuses 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 numeric standards of financial responsibility, or post a letter of credit in favor of the ED and possibly accept other conditions on its participation in the federal student financial aid programs. Currently, none of the Campuses are required to post a letter of credit in favor of the ED or accept other conditions on its participation in the federal student financial aid programs due to failure to satisfy the numeric standards of financial responsibility. The Company cannot assure you that the Company or the Company’s Campuses will satisfy the numeric standards in the future.

The Campuses may lose eligibility to participate in federal student financial aid programs if their student 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 students on their federal student loans exceed specified rates. If any of the Company’s Campuses, 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 the Company’s business, results of operations or financial condition.

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Campuses may lose eligibility to participate in federal student financial paid programs if the percentage of their revenue derived from those programs is too high.

A proprietary institution loses its eligibility to participate in the federal student financial aid programs if it derives more than 90% of its revenue from these programs in any fiscal year (the “90/10” Regulation). If any of the Company’s Campuses, depending on its size, loses eligibility to participate in federal student financial aid programs, it could have a material adverse effect on the Company’s business, results of operations or financial condition. The Company received approximately $60,054,000 from federal student financial aid programs during 2003, representing 81% of the total cash received on FFEL eligible programs. Individual campuses 90/10 rates ranged from a low of 63.1% to a high of 87.3% in 2003.

If the Company fails to demonstrate “administrative capability” to the ED, the Company’s business could suffer.

ED 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:

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

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

Regulatory agencies or third parties may commence investigation, bring claims or institute litigation against the Company.

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

If regulators do not approve the Company’s acquisitions, the ability of the acquired institution to participate in federal student financial aid programs would be limited.

When the Company acquires an institution, ED and most applicable state agencies and accrediting agencies consider that a change of ownership or control of the institution has occurred. A change of ownership or control of an institution under the standards of ED may result in the temporary suspension of the institution’s participation in the federal student financial aid programs until the ED issues a temporary certification document. If the Company were unable to reestablish the state authorization, accreditation or ED certification of an institution the Company acquired, depending on the size of that acquisition, could have a material adverse effect on the Company’s business, results of operations or financial condition. If regulators do not approve transactions involving a change of control, the institutions acquired may lose their ability to participate in federal student financial aid programs. If the Company or any of the Company’s Campuses experience a change of control under the standards of applicable state agencies or accrediting agencies or the ED, the Company or the affected Campuses must seek the approval of the relevant agencies. The failure of any of the Company’s Campuses to reestablish its state authorization, accreditation or ED certification would result in a suspension or loss of federal student financial aid funding, which could have a material adverse effect on the Company’s business, results of operations or financial condition.

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The ED, applicable state education agencies or applicable accrediting agencies may consider other transactions or events to constitute a change of control. Some of these transactions or events, such as a significant acquisition or disposition of the Company’s common stock, may be beyond the Company’s control.

If the Company’s Campuses do not maintain their state authorizations and accreditations, they may not operate or 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 ED are also required for an institution to participate in the federal student financial aid programs. Loss of state authorization or accreditation by any of the Company’s Campuses, depending on the size of the Campus, could have a material adverse effect on the Company’s business, results of operations or financial condition.

Failure to effectively manage the Company’s growth could harm the Company’s business.

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

Opening new Campuses and adding new services could be difficult for the Company.

The Company expects to develop, open and operate new Campuses, most likely as additional locations of existing Campuses. Establishing additional locations would pose unique challenges and require the Company to make investments in management, capital expenditures, marketing expenses and other resources. Because the Company has not yet established any new additional locations, there can be no certainty as to the Company’s ability to be successful in any such endeavor. Any failure of the Company to effectively manage the operations of newly established Campuses could have a material adverse effect on the Company’s business, results of operations and financial condition.

Failure to keep pace with changing market needs and technology could harm the Company’s business.

Prospective employers of the Company’s graduates increasingly demand that their entry-level employees possess appropriate technological skills. Educational programs at the Company’s Campuses must keep pace with these evolving requirements. If the Company cannot respond to changes in industry requirements, it could have a material adverse effect on the Company’s business, results of operations or financial condition. Competitors with greater resources could harm the Company’s business. The postsecondary education market is highly competitive. The Company’s Campuses 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 the Company’s Campuses. Although tuition at private nonprofit institutions is, on average, higher than tuition at the Company’s Campuses, some public institutions are able to charge lower tuition than the Company’s Campuses, due in part to government subsidies, government and foundation grants, tax-deductible contributions and other financial sources not available to proprietary schools. Some of the Company’s competitors in both the public and private sectors have substantially greater financial and other resources than the Company.

Failure to obtain additional capital in the future could reduce the Company’s ability to grow.

No assurance can be given that the Company will be able to obtain adequate funding to complete any potential acquisition or new Campus opening or that such an acquisition or opening will succeed in enhancing the Company’s business and will not ultimately have a material adverse effect on the Company’s business, results of operations and financial condition.

A Number of the Company’s Shares of Common Stock Will be Eligible for Future Sale, Which May Cause the Company’s Stock Price to Decline.

The exercise of substantial amounts of options or registration of common stock or the perception that such sales or registration might occur could cause the market price of the Company’s Common Stock to decline. On December 31, 2003, the Company had 5,963,030 shares of the Company’s Common Stock outstanding. As of December 31, 2003, options to purchase

Part I – Page 9

532,318 shares of the Company’s Common Stock were outstanding, of which approximately 237,000 were exercisable as of such date at an average exercise price of $3.92. This concentration of stock options, relative to the amount of Common Stock outstanding, if exercised, will have a dilutive effect on the Company’s earnings per share which could adversely affect the market price of the Company’s Common Stock. From time to time, the Company may issue additional options to the Company’s employees under the Company’s existing stock option plan and under any new plans the Company may adopt.

The Company entered into agreements on February 25, 1997 with Cahill, Warnock Strategic Partners Fund, LP and Strategic Associates, LP, affiliated Baltimore-based venture capital funds (“Cahill-Warnock”), for the issuance by the Company and purchase by Cahill-Warnock of 55,147 shares of the Company’s new Class B Voting Convertible Preferred Stock (“Voting Preferred Stock”) for $1.5 million, and 5% Debentures due 2003 (“New Debentures”) for $3.5 million (collectively, the “Cahill Transaction”). Cahill-Warnock subsequently assigned (with the Company’s consent) its rights and obligations to acquire 1,838 shares of Voting Preferred Stock to James Seward, a Director of the Company. Mr. Seward purchased such shares for their purchase price of approximately $50,000. On September 30, 2001, Mr. Seward converted his 1,838 shares of Voting Preferred Stock into 18,380 shares of Common Stock. The New Debentures had nondetachable warrants (“Warrants”) for approximately 1,286,765 shares of Common Stock, exercisable at $2.72 per share of Common Stock. The following transactions have occurred with respect to the Voting Preferred Stock and New Debentures since December 31, 2001:

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The Company’s corporate office is located in Mission, Kansas. All Company buildings and facilities are leased.

The Company purchased a parcel of land to construct a parking lot for the Tampa Campus in December 2002. The land is recorded on the balance sheet at its purchase price of $231,000.

The following table sets forth the location, approximate square footage and expiration of lease terms for each of the Campuses as of December 31, 2003:

The Company issued from time to time by a student or students who claim to be dissatisfied with the results of their program of study. Typically, the claims allege a breach of contract; deceptive advertising and misrepresentation and the student or students seek reimbursement of tuition. Punitive damages sometimes are also sought. In addition, ED may allege regulatory violations found during routine program reviews. The Company has, and will continue to dispute these findings as appropriate in the normal course of business. In the opinion of the Company’s management, resolution of such pending litigation and disputed findings will not have a material effect on the Company’s financial condition or its results of operation.

The Company is not aware of any material violation by the Company of applicable local, state and federal laws.

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PART II

The Company’s common stock (“Common Stock”) is currently traded under the symbol “CCDC” on the NASDAQ SmallCap Market. The following table sets forth the high and low closing price reported at the end of the trading day, for the periods indicated as reported by NASDAQ. All price amounts below have been retroactively adjusted to reflect the Reverse Stock Split that occurred on November 21, 2001. The Company’s stock was listed on the Over-the-Counter Bulletin Board (“OTCBB”) prior to May 22, 2002. Prices prior to listing on NASDAQ were reported by the OTCBB.

There were 194 shareholders of record of Common Stock at December 31, 2003.

On February 11, 2004, the bid and asked prices of the Company’s Common Stock on the NASDAQ SmallCap Market were $27.42 and $27.75 per share, respectively.

The Company has never paid cash dividends on its common stock. Management currently anticipates retaining future earnings to finance internal growth and potential acquisitions. Payment of common stock dividends in the future will depend upon the Company’s earnings and financial condition and various other factors the Board of Directors may deem appropriate at the time.

Equity Compensation Plan Information for the year ended December 31, 2003

The following table is information related to the Employee Stock Option Plan. Equity Compensation Plans not approved by security holders are options given to the Company’s Board of Directors.

The following securities have been sold by the Company within the past three years and were not registered under the Securities Act:

Pursuant to the exercise of options under the 2000 Long Term Executive Compensation Plan, the Company sold the following: on December 31, 2001, 2,500 shares of its common stock to an employee at a price of $1.02 per share and for a total aggregate consideration of $2,550; on November 1, 2002, 2,000 shares of its common stock to an employee at a price of $1.35 per share and for a total aggregate consideration of $2,700; on December 31, 2002, 2,500 shares of its common stock to an employee at a price of $1.02 per share and for a total aggregate consideration of $2,550; on September 9, 2003, 12,000 shares of its common stock to an employee at a price of $1.00 per share and for a total aggregate consideration of $12,000; on September 11, 2003, 6,000 shares of its common stock to an employee at a price of $1.00 per share and for a total aggregate consideration and 5,000 shares of its common stock to an employee at a price of $1.02 per share and for a total aggregate consideration of $5,100; on October 10, 2003, 7,500 shares of its common stock to an employee at a price of $1.26 per share and for a total aggregate consideration of $9,450; and on November 3, 2003, 7,500 shares of its common stock to an employee at a price of $1.02 per share and for a total aggregate consideration of $7,650.

Pursuant to the exercise of options under the 2002 Long-Term Executive Compensation Plan, on December 23, 2003, the Company sold 400 shares of its common stock to an employee at the price of $11.45 per share and for a total aggregate consideration of $4,580.

Pursuant to the exercise of options under certain Non-Qualified Stock Option Agreements, the Company sold the following: on April 30, 2002, 4,167 shares of its common stock to a director at the price of $4.50 per share and for a total aggregate consideration of $18,751.50; on December 12, 2003, 5,000 shares of its common stock to a director at the price of $8.60 per share and for a total aggregate consideration of $43,000; and on September 18, 2001, 4,167 shares of its common stock to an employee at the price of $1.126 per share and for a total aggregate consideration of $4,692.04.

All of the transactions listed above were exempt under Section 4(2) of the Securities Act.

Item 6. Selected Financial Data

The following data should be read in conjunction with Part II Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Part II Item 8, “Financial Statements and Supplementary Data.”

Part II – Page 1

Changes in Accounting Principle

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Accounting for Goodwill and Other Intangible Assets.” There was no impact to the consolidated financial statements upon adoption of the accounting pronouncement. See Note 2 to Consolidated Financial Statements.

Supplemental Information

The following selected data has been derived from the Company’s audited financial statements for 1999 through 2003. All share and per share amounts have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented.

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The following discussion should be read with the Selected Financial Data and the Consolidated Financial Statements and Notes to Consolidated Financial Statements included elsewhere in this report.

General

The Company owns and operates proprietary, postsecondary institutions that offer career vocational training programs primarily in the allied health field. As of December 31, 2003, the Company operated Campuses at 12 locations in seven states (the “Campuses”). The Company’s revenue is derived almost entirely from tuition, textbook sales, fees and charges paid by, or on behalf of, our students. A large number of the Company’s students paid a substantial portion of tuition and other fees with funds received through student assistance financial aid programs under Title IV of the Higher Education Act of 1965, as amended (the “HEA”). The Company received approximately 81% of cash revenue from such funds for the year ended December 31, 2003.

The Company’s revenue varies based on student enrollment and population. The number of students that attend our Campuses, the number of new enrollments during a fiscal period, student retention rates and general economic conditions impacts student population. The introduction of new programs at certain campuses, improved advertising effectiveness and student retention have been significant factors of increased student population in the last four years.

Revenues fluctuate as a result of seasonal variations in our business and due to capacity and scheduling limitations. These factors impact student population which varies as a result of new student enrollments and student attrition. Historically, the Campuses have had lower student enrollments in the fourth quarter of the year compared to the remainder of the year. This is due to fewer scheduled enrollments during the holiday periods of November and December. In addition, the Campuses utilize a non-traditional academic calendar with program start dates varying by location and type of program. Programs vary in length generally from 9 to 24 months. This impacts the scheduling of new starts in some programs. Expenses, however, do not vary as significantly as student population and revenues. The Company expects quarterly fluctuations in operating results to continue as a result of enrollment patterns, capacity and scheduling limitations. Such patterns may change, however, as a result of acquisitions, new school openings, increased capacity and new program introductions. The operating results for any quarter are not necessarily indicative of the results for any future period.

The Company’s Campuses must be authorized by the state in which it operates, accredited by an accrediting commission that the U.S. Department of Education (“ED”) recognizes, and certified by the ED to participate in Title IV Programs. Any substantial restrictions on the Campuses ability to participate in Title IV Programs would adversely affect our ability to enroll students.

The Company establishes an accounts receivable and a corresponding deferred revenue liability for each student upon commencement of a program of study. The deferred revenue liability, consisting of tuition and non-refundable registration fees, is recognized into income ratably over the length of the program. If a student withdraws from a program, the unearned portion of the tuition for which the student has paid is refunded on a pro-rata basis. Textbook and uniform sales are recognized when they occur. Any unpaid balance due when the student withdraws is generally due directly from the student, not from a federal or state agency.

Accounts receivable are due from students and are primarily expected to be paid through the use of federal and state sources of funds. Students are responsible for amounts not available through federal and state sources and unpaid amounts due when the student withdraws. The Company realized a higher level of uncollectible accounts receivable from students since October 2000. This was a result of the Higher Education Act of 1965 (“HEA”) refund provision that became effective October 7, 2000. Under the HEA requirements, students are obligated to the Company for education costs that the student can no longer pay with HEA Title IV funds. The Company expects that non-Title IV accounts and notes receivable due from students may increase in the future as student enrollment increases and that the related provision for uncollectible accounts may also increase.

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The following table presents the revenue for the periods indicated.

The following table presents the relative percentage of revenues derived and certain consolidated statement of operations items as a percentage of total revenues for the periods indicated.

Safe Harbor Statement

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. Statements in this Form 10-K containing the words “estimate,” “project,” “anticipate,” “expect,” “intend,” “believe,” and similar expressions may be deemed to create forward-looking statements which, if so deemed, speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

This Form 10-K may contain forward-looking comments. Such comments are based upon information currently available to management and management’s perception thereof as of the date of this Form 10-K and may relate to: (i) the ability of the company to realize increased enrollments from investments in infrastructure made over the past year; (ii) ED’s enforcement or interpretation of existing statutes and regulations affecting the Company’s operations; and (iii) the sufficiency of the Company’s working capital, financings and cash flow from operating activities for the Company’s future operating and capital requirements. Actual results of the Company’s operations could materially differ from those forward-looking comments. The differences could be caused by a number of factors or combination of factors including, but not limited to, potential adverse effects of regulations; impairment of federal funding; adverse legislative action; student loan defaults; changes in federal or state authorization or accreditation; changes in market needs and technology; changes in competition and the effects of such changes; changes in the economic, political or regulatory environments; litigation involving the Company; changes in the availability of a stable labor force; or changes in management strategies. Readers should take these factors into account in evaluating any such forward-looking comments.

Part II – Page 4

The forward-looking statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including, without limitation, the following: (i) the Company’s plans, strategies, objectives, expectations and intentions are subject to change at anytime at the discretion of the Company; (ii) the effect of economic conditions in the postsecondary education industry and in the nation as a whole; (iii) the effect of the competitive pressures from other educational institutions; (iv) the Company’s ability to reduce staff turnover and the attendant operating inefficiencies; (v) the effect of government statutes and regulations regarding education and accreditation standards, or the interpretation or application thereof, including the level of government funding for, and the Company’s eligibility to participate in, student financial aid programs; and (vi) the role of ED and Congress, and the public’s perception of for-profit education as it relates to changes in education regulations in connection with the reauthorization or the interpretation or enforcement of existing regulations.

Current Trends and Recent Events

The Company acquired all the assets of EHE of Arlington, Texas for $890,000 on August 22, 2002. EHE provides Vocational Nursing and other health-care related courses. The revenue and expenses contributed by EHE have been included in the accompanying statement of operations since the date of acquisition. Such revenue and expenses were minimal for the year ended December 31, 2002. The Company moved the Campus to a new facility in June 2003 and plans to expand the number of programs offered during 2004.

The Company moved its San Bernardino Campus in March 2003 to a new facility. The San Diego Campus was moved to a new facility in January 2004. The Company has signed a lease to move its’ Denver Campus and anticipates moving to a new facility in the first quarter of 2004. The new facilities will provide additional classrooms and parking.

The student population was 5,732 at December 31, 2003 compared to 5,056 at December 31, 2002. The student population increase was primarily due to increased demand for courses. Student enrollments increased 11.1% to 9,454 for the year ended December 31, 2003 compared to 8,510 in 2002.

The Company filed a Registration Statement on Form S-3 to register 1,133,090 shares of common stock. The Registration Statement was effective February 5, 2003. The Company received no funds as a result of the registration or subsequent distribution of common stock. Six hundred thousand (600,000) shares of the common stock were issued and outstanding as of the date of the Registration Statement. The Robert F. Brozman Trust held 350,000 shares, Cahill, Warnock Strategic Partners Fund, L.P. held 237,000 shares, and Strategic Associates, L.P. held 13,000 shares. The remaining 533,090 shares related to common shares issued upon conversion of preferred stock to common stock.

Cahill-Warnock exercised the non-detachable Warrants related to the $3,500,000, 5% debentures on February 19, 2003. The Company issued 1,286,764 shares of Common Stock to Cahill-Warnock pursuant to the exercise of the Warrants.

Operating Results

2003 compared to 2002

Student population was 5,732 at December 31, 2003 compared to 5,056 at December 31, 2002. The student population increase was primarily due to increased demand for courses. Student enrollments increased 11.1% to 9,454 for the year ended December 31, 2003 compared to 8,510 in 2002. Three new courses added 211 enrollments to the Campuses during 2003. The Arlington, Texas campus purchased in August 2002 contributed 155 additional enrollments compared to 2002 excluding one new course mentioned above. The remaining enrollment increase of 578 or 6.8% was from existing programs at established Campuses.

Net income of $6,163,000 was recorded for the year ended December 31, 2003 compared to $4,234,000 for the year ended December 31, 2002. The increase in net income was attributable to increased student enrollment and related revenues exceeding increased costs. Total operating expense as a percentage of revenue decreased to 86.8% in 2003 from 89.0% in 2002.

Revenue increased 22.3% or $13,602,000 to $74,714,000 for the year ended December 31, 2003 compared to $61,112,000 in 2002. Revenue increased due to higher student enrollments, increased average student population and an approximate 5.4% price increase. Approximately $416,000 of the revenue increase was due to the elimination of an estimate for refunds of tuition. Average student population increased 15.6% to 5,859 in 2003 compared with 5,069 in 2002.

Instruction Costs and Services – increased $3,773,000 or 20.2% to $22,482,000 compared to $18,709,000 in 2002. The increase from 2002 was primarily a result of increased salaries, textbooks, and uniform expense due to additional enrollments. Salaries increased $2,846,000 and textbook and uniform expense increased $927,000 compared to 2002. The average per hour wage for the instructional staff increased approximately 5%. There was an approximate 15% increase in full time equivalent (“FTE”) employees compared to 2002. This was a result of the enrollment growth the Company had in 2003. Textbook and uniform expense increased as a result of the enrollment growth.

Part II – Page 5

Selling and Promotional – increased $1,449,000 or 17.3% to $9,839,000 compared to $8,390,000 in 2002. The increase was due to additional advertising expense and salaries compared to 2002. Advertising expense increased $1,238,000 to generate more leads. The Company’s two major advertising sources, television and newspaper, increased a combined $1,019,000 or 26.8% compared to 2002. The Company also increased Internet advertising $188,000 and anticipates increased spending in this area in 2004. Salaries increased 6.0% or $211,000 due to regular salary increases and an approximate 7% increase in FTE employees.

General and Administrative – increased 23.9% or $5,713,000 to $29,584,000 compared to $23,871,000 in 2002. The increase was primarily the result of additional payroll, rent, insurance expense, depreciation, and employee procurement. Administrative payroll increased $1,500,000 as the Company added staff at Campuses to provide services for the increased enrollments. Administrative FTE employees increased approximately 10% in 2003 compared to 2002. As the Company grows, additional staff will be required to effectively service students. Rent increased $876,000 due to annual rent increases, additional leased space at current locations, and higher rent due to two Campus moves. The Company moved two Campuses to larger facilities in 2003 due to capacity and parking constraints. The Arlington, Texas Campus moved in June 2003 and the San Bernardino, California Campus moved in February 2003. The Arlington Campus, purchased in August 2002, added rent expense with the facility move in 2003. In addition, the Company did not have a full year of rent expense for Arlington in 2002. The Company added space at several locations during 2003 in anticipation of adding new programs. Insurance expense increased $332,000 compared to 2002 from increased insurance premiums. All categories of insurance expense increased compared to the prior year. However, Workers’ Compensation insurance accounted for the largest increase. The Company has improved management of Workers’ Compensation insurance in the past three years. This has offset increased rates mandated by individual states. Depreciation expense increased $426,000 to $1,383,000 compared to $957,000 in 2002. Depreciation has increased as capital expenditures increased for 2003 to $2,770,000. Capital expenditures related to the two Campus moves were $1,146,000 for leasehold improvements and equipment. Employee procurement increased $536,000 to $1,297,000 compared to $761,000 in 2002. The Company has seen a significant increase in this expense due to enrollment growth and increased competition to hire qualified instructors and staff. The Company experienced increased expenses in most other general and administrative expense categories as enrollment increased 11.1% compared to 2002. In 2002, the Company received an insurance settlement of $306,000 for damages at the Lauderdale Lakes, Florida Campus in 2000. The settlement was recorded as a reduction of expense in the fourth quarter of 2002

Provision for Uncollectible Accounts – decreased $549,000 during 2003. The Company improved student retention and increased efforts in the collections area. The number of student drops as a percentage of population decreased to 5.5% in 2003 from 6.3% in 2002. A higher percentage of students completing their programs generally results in lower write-offs. The Company also improved its’ collections of student receivables for students out of school. However, the provision as a percentage of revenue has increased each quarter in 2003. The Company anticipates that the provision for uncollectible accounts may increase in future periods as enrollments increase.

Interest and Other Non-Operating Income – decreased $52,000 to $179,000 compared to $231,000 in 2002. Interest income continued to decrease due to falling interest rates in 2003. The Company had larger cash balances in 2003 but the interest rate decreases accounted for the decreased interest income.

Interest Expense – decreased $152,000 to $24,000 compared to $176,000 in 2002 due to conversion of the subordinated debt to equity. The Company anticipates it will not have any interest expense in 2004.

Provision for Income Taxes – a tax provision of $3,908,000 or 38.8% of pretax income was recorded in 2003 compared to $2,521,000 or 37.3% of pretax income in 2002.

EPS and Weighted Average Common Shares – Basic weighted average common shares increased to 5,880,000 in 2003 from 4,533,000 in 2002. Basic income per share was $1.05 in 2003 compared to $.85 in 2002. Basic income per share is shown after a reduction for preferred stock dividend accretion of $214,000 in 2002. In addition, basic income per share is shown after the special dividend payment of $174,000 for the early payment of the 2003 dividends; see discussion of Cahill, Warnock transaction under Liquidity and Capital Resources. Diluted weighted average common shares outstanding increased to 6,250,000 in 2003 from 6,142,000 in 2002. Diluted income per share was $.99 for the year ended December 31, 2003 compared to $.68 in 2002. Diluted income per share is shown after interest on convertible debt, net of tax of $108,000 in 2002. In addition, diluted income per share is shown after the special dividend payment of $174,000 for the early payment of the 2003 dividends; see discussion of Cahill, Warnock transaction under Liquidity and Capital Resources.

2002 compared to 2001

The student population was 5,056 at December 31, 2002 compared to 4,269 at December 31, 2001. The student population increase was primarily due to increased demand for courses. Student enrollments increased 20.2% to 8,510 for the year ended December 31, 2002 compared to 7,080 in 2001. Two new courses at current locations increased enrollment by 133 students. The Arlington, Texas campus purchased in August 2002 contributed 49 new enrollments. The remaining enrollment increase of 1,248 or 17.2% was from existing programs at established schools.

Part II – Page 6

Net income of $4,234,000 was recorded for the year ended December 31, 2002 compared to $1,633,000 for the year ended December 31, 2001. The increase in net income is mostly attributable to increases in student enrollment and related revenues exceeding increases in variable costs. Total operating expenses as a percentage of revenues decreased to 89.0% in 2002 from 94.9% in 2001.

Revenue increased 24.6% or $12,063,000 to $61,112,000 for the year ended December 31, 2002 compared to $49,049,000 in 2001. The revenue increased due to higher student enrollments, increased average student population and a small price increase. Average student population increased 19.1% to 5,069 in 2002 compared with 4,257 in 2001.

Instruction Costs and Services – increased $1,379,000 or 8.0% to $18,709,000 compared to $17,330,000 in 2001. The increase from 2001 was primarily a result of increased salaries due to additional enrollments. Salaries increased $1,215,000 compared to 2001.

Selling and Promotional – increased $621,000 or 8.0% to $8,390,000 compared to $7,769,000 in 2001. The increase was due to additional advertising expenses and salaries compared to 2001. Advertising and salary expense increased $226,000 and $395,000, respectively to generate more prospective student leads.

General and Administrative – increased 25.0% or $4,767,000 to $23,871,000 compared to $19,104,000 in 2001. The increase was primarily the result of additional payroll, rent, insurance expense, and health insurance. Administrative payroll increased $2,382,000 as enrollments improved compared to 2001. Rent increased $413,000 due to annual rent increases, additional leased space at current locations, and rent at the new Campus in Arlington, Texas. Insurance expense increased $439,000 compared to 2001 as a result of higher insurance premiums. Health insurance increased $473,000 due to higher administrative expenses and claims filed in 2002. The Company received an insurance settlement of $306,000 for damages done to its’ Lauderdale Lakes, Florida Campus in 2000. The settlement was recorded as a reduction of expenses in the fourth quarter of 2002. The Company also experienced increases in several other categories as enrollments increased 20.2% compared to 2001.

Provision for Uncollectible Accounts – increased $1,083,000 during 2002. This increase is attributable to the $12,063,000 increase in revenues, the $3,256,000 increase in accounts and notes receivable from December 31, 2001 and a slight deterioration in the aging of accounts receivable. The accounts and notes receivable increased due to higher student enrollments.

Other Non-Operating Income – decreased $211,000 to $231,000 compared to $442,000 in 2001. The decrease was primarily a result of the Company recognizing the $157,500 remaining balance of the Person/Wolinsky non-compete agreement as income in the second quarter of 2001, see discussion under Asset Sales. In addition, interest income decreased due to falling interest rates in 2002.

Interest Expense – decreased $6,000 or 3.3% to $176,000 compared to $182,000 in 2001.

Provision for Income Taxes – a tax provision of $2,521,000 or 37.3% of pretax income was recorded in 2002 compared to $1,114,000 or 40.6% of pretax income in 2001.

EPS and Weighted Average Common Shares – Basic weighted average common shares increased to 4,533,000 in 2002 from 3,940,000 in 2001. Basic income per share was $.85 in 2002 compared to $.36 in 2001. Basic income per share is shown after a reduction for preferred stock dividend accretion of $214,000 and $226,000 in 2002 and 2001, respectively. In addition, basic income per share is shown after the special dividend payment of $174,000 for the early payment of the 2003 dividends; see discussion of Cahill, Warnock transaction under Liquidity and Capital Resources. Diluted weighted average common shares outstanding increased to 6,142,000 in 2002 from 5,473,000 in 2001. Diluted income per share was $.68 for the year ended December 31, 2002 compared to $.28 in 2001. Diluted income per share is shown after a reduction for preferred stock dividend accretion of $226,000 in 2001 and interest on convertible debt, net of tax of $108,000 in 2002 and $105,000 in 2001. In addition, diluted income per share is shown after the special dividend payment of $174,000 for the early payment of the 2003 dividends; see discussion of Cahill, Warnock transaction under Liquidity and Capital Resources.

2001 compared to 2000

In 2001, student population increased primarily due to offering new courses at certain campuses and increased emphasis on advertising.

Net income of $1,633,000 was recorded for the year ended December 31, 2001 compared to a net loss of $352,000 for the year ended December 31, 2000. The $1,985,000 improvement was due to additional revenue and other non-operating income. The increased revenue was somewhat offset by increased operating expenses in all categories compared to 2000.

Part II – Page 7

Revenue increased 26.5% or $10,264,000 to $49,049,000 for the year ended December 31, 2001 compared to $38,785,000 for the same period of 2000. The revenue increased due to higher student enrollments, increased average student population and an average 5% price increase compared to 2000. Student enrollments increased 16.6% to 7,080 from 6,072 in 2000. Average student population increased 16.7% to 4,257 in 2001 compared with 3,649 in 2000.

Instruction Costs and Services – increased $1,983,000 or 12.9% to $17,330,000 compared to $15,347,000 in 2000. The increase from 2000 was primarily a result of increased salaries, textbook and uniform expenses due to additional enrollments.

Selling and Promotional – increased $1,151,000 or 17.4% to $7,769,000 compared to $6,618,000 in 2000. The majority of the $1,151,000 increase was due to additional advertising expenses compared to 2000. Advertising expense increased $1,028,000 to generate more prospective student leads. The increase in advertising expense consisted of $171,000 in television, $673,000 in newsprint and $184,000 related to internet advertising and general production costs.

General and Administrative – increased 14.7% or $2,451,000 to $19,104,000 compared to $16,653,000 in 2000. The increase was primarily the result of additional payroll, rent, employee procurement, and insurance expense. Administrative payroll increased $1,274,000 as enrollments improved compared to 2000. Rent increased $294,000 due to annual rent increases and additional leased space at current locations. Employee procurement increased $214,000 due to a tight labor market, which made it more expensive for the Company to hire qualified employees. Insurance expense increased $172,000 compared to 2000 as a result of higher insurance premiums.

Provision for Uncollectible Accounts – increased $1,766,000 during 2001. This increase is attributable to the $10,264,000 increase in revenues, the $3,790,000 increase in accounts and notes receivable from December 31, 2000 and a slight deterioration in the aging of accounts receivable. The accounts and notes receivable increased due to higher student enrollments and as a result of the new refund provision of the Higher Education Act of 1965 (“HEA”) reauthorization that took effect October 7, 2000.

Other Non-Operating Income – increased $261,000 to $442,000 compared to $181,000 in 2000. Most of the increase was a result of the Company recognizing the $157,500 remaining balance of the Person/Wolinsky non-compete agreement as income in the second quarter of 2001, see discussion under Asset Sales. In addition, interest income increased due to the Company having a larger cash balance, offset by falling interest rates during 2001.

Interest Expense – decreased $3,000 or 1.6% to $182,000 compared to $185,000 in 2000.

Provision for Income Taxes – a tax provision of $1,114,000 or 41% of pretax income was recorded in 2001 compared to a tax benefit of $164,000 or 38% of pretax loss in 2000.

EPS and Weighted Average Common Shares – Basic weighted average common shares decreased to 3,940,000 in 2001 from 3,976,000 in 2000. Basic income per share was $.36 in 2001 compared with basic loss per share of $.14 in 2000. Basic income and loss per share is shown after a reduction for preferred stock dividend accretion of $226,000 and $191,000 in 2001 and 2000, respectively. Diluted weighted average common shares outstanding increased to 5,473,000 in 2001 from 3,976,000 in 2000. Diluted income per share was $.28 for the year ended December 31, 2001 compared with diluted loss per share of $.14 in 2000. Diluted income and loss per share is shown after a reduction for preferred stock dividend accretion of $191,000 and $226,000 in 2000 and 2001, respectively and interest on convertible debt, net of tax of $105,000 in 2001.

Liquidity and Capital Resources

The Company’s students paid a substantial portion of tuition and other fees with funds received through student assistance financial aid programs under Title IV of the Higher Education Act of 1965, as amended (the “HEA”). The Company received approximately 81% of cash revenue from such funds for the year ended December 31, 2003 compared to 82% for 2002. Nearly 100% of the Company’s students qualify for some type of federal financial assistance.

Accounts receivable are due from students and are primarily expected to be paid through the use of federal and state sources of funds. Students are responsible for amounts not available through federal and state sources and unpaid amounts due when the student withdraws. The Company expects that non-Title IV accounts and notes receivable due from students may increase in the future as student enrollment increases and that the related provision for uncollectible accounts may also increase.

Cahill, Warnock Transactions

The Company entered into agreements on February 25, 1997 with Cahill, Warnock Strategic Partners Fund, LP and Strategic Associates, LP, affiliated Baltimore-based venture capital funds (“Cahill-Warnock”), for the issuance by the Company

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and purchase by Cahill-Warnock of 55,147 shares of the Company’s new Class B Voting Convertible Preferred Stock (“Voting Preferred Stock”) for $1.5 million, and 5% Debentures due 2003 (“New Debentures”) for $3.5 million (collectively, the “Cahill Transaction”). Cahill-Warnock subsequently assigned (with the Company’s consent) its rights and obligations to acquire 1,838 shares of Voting Preferred Stock to James Seward, a Director of the Company. Mr. Seward purchased such shares for their purchase price of approximately $50,000. On September 30, 2001, Mr. Seward converted his 1,838 shares of Voting Preferred Stock into 18,380 shares of Common Stock. The New Debentures had nondetachable warrants (“Warrants”) for approximately 1,286,765 shares of Common Stock, exercisable at $2.72 per share of Common Stock. The following transactions have occurred with respect to the Voting Preferred Stock and New Debentures since December 31, 2001:

Please see note 9 of Notes to the Consolidated Financial Statements concerning the pro-forma effect of the redemption of debentures and related exercise of warrants.

The Company secured a $3,000,000 revolving credit facility with Security Bank of Kansas City on March 31, 1997. The amount available under the facility is offset by the letter of credit discussed below. As a result $2,882,000 is currently available under the facility. This facility is due to expire on April 30, 2004. The Company currently maintains a large cash and temporary investment balance and may not renew this facility in the future. Funds borrowed under this facility, if any, will be used for general corporate purposes. This facility has a variable interest rate of prime plus one percent, and no commitment fee. The credit facility is secured by all cash, accounts and notes receivable, furniture and equipment, and capital stock of the subsidiaries. The Company is required to maintain a minimum level of consolidated tangible net worth as part of this agreement. The Company is currently in compliance with this agreement. The Company has not borrowed any funds under this facility.

On December 31, 2003, the Company is obligated under a $118,000 letter of credit as security for a lease on the Garden Grove, California location. The letter of credit can only be drawn upon if there is a default under the lease agreement and will expire October 2, 2004.

Cash Flows and Other

Net cash flows from operating activities was $9,960,000 in 2003 compared to $5,548,000 in 2002, an increase of $4,412,000. Net income increased $1,929,000 from $4,234,000 in 2002 to $6,163,000 in 2003. The increase in net income was off-set by an increase in accounts receivable less deferred revenue of $2,116,000. In addition, cash flow increased as income tax payables, and other accounts payables increased.

Cash used in investing activities was $2,812,000 and $3,070,000 in 2003 and 2002, respectively. Cash was used in both years to purchase short-term investments and capital expenditures. In addition, the company purchased the Arlington, Texas Campus in August 2002 for $890,000. The Company also purchased land in 2002 for $231,000 to add parking at its’ Tampa, Florida Campus. Capital expenditures increased $928,000 as the Company moved two facilities and made leasehold improvements and equipment purchases at several other Campuses.

Cash flows from financing activities were $792,000 in 2003 compared to cash used of $257,000 in 2002. The cash flows increase in 2003 is a result of additional exercised stock options, including the related tax benefit, and increased participation in the employee stock purchase plan offset by the purchase of treasury stock and dividend payments. The cash used in financing activities in 2002 is the result of the purchase of treasury stock and payment of dividends on the Voting Preferred Stock, offset by proceeds

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from exercised stock options and the employee stock purchase plan. The preferred stock was converted to Common Stock during 2003. As a result, the Company has no further Preferred Dividend payment obligations.

The Company’s Board of Directors approved a 500,000 shares repurchase program in August 2000 that remains in place. As of December 31, 2003 the Company had purchased a total of 278,935 shares at an average price of $3.92 pursuant to the program. The Company purchased 256,235 shares at an average price of $3.27 through December 31, 2001. The Company purchased 19,900 shares during 2002 at an average price of $11.18 and 2,800 shares during 2003 at an average price of $12.52. The Company has not purchased any shares since January 2003.

The Company meets its working capital, capital equipment purchases and cash requirements with funds generated internally. The Company has generated positive cash flows from operations for the last five years. Management currently expects cash on hand, funds from operations and borrowings available under existing credit facilities to be sufficient to cover both short-term and long-term operating requirements. However, cash flows are dependent on the Company’s ability to maintain Title IV eligibility, maintain demand for programs and to minimize uncollectible accounts receivable through effective collections and improved retention.

The Company has no off balance sheet financing arrangements.

Contractual Obligations and Commercial Commitments

The Company’s contractual obligations and other commercial commitments are summarized below as of December 31, 2003:

Facility operating leases consists of the Company rental agreements for its’ building and office space rentals.

Other operating leases are for the Chief Executive Officer’s automobile.

Capital Asset obligations consist of contracts for leasehold improvements, furniture, computers and equipment for the San Diego, California Campus which moved in January 2004 and the Denver, Colorado Campus which the Company anticipates will move in the first quarter of 2004.

Purchase obligations consist of outstanding purchase orders and commitments for telecommunications and copier contracts.

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements have been prepared in conformity with generally accepted accounting principles. The preparation of the financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and contingent assets and liabilities. Actual results may differ from those estimates and judgments under different assumptions or conditions. The Company evaluates on a continuing basis, our estimates, including those related to allowance for uncollectible accounts and intangible assets. The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The Company believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:

Allowance for Uncollectible Accounts

Accounts and notes receivable are due from students and are expected to be paid primarily through the use of federal and state sources of funds. Students are responsible for amounts not available through federal and state sources and unpaid amounts due when the student withdraws. The Company offers a variety of payment plans to students for payment of the portion of their education expense not covered by financial aid programs. These balances are unsecured and not guaranteed. The Company maintains an allowance for uncollectible accounts for estimated losses resulting from the inability or failure of our students to make

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required payments. The Company bases its’ allowance for uncollectible accounts on the aging of student payments. Historical experience of the collectibility of student payments is analyzed to assign each aging category a percentage that the Company believes will be uncollectible. The allowance percentages range from 2.5% to 100% based on the aging category of the student balances. The Company continually tests its’ allowance and has found that it is reasonable. The Company realized a lower level of uncollectible accounts receivable from students during 2003 compared to 2002. The provision for uncollectible accounts as a percentage of revenue was 3.9% in 2003 compared to 5.6% in 2002. Depending on the effectiveness of the Company’s internal and external collection efforts, the provision for uncollectible accounts may vary as a percentage of revenue in future periods. The Company expects that non-Title IV accounts and notes receivable due from students may increase in the future as student enrollment increases and that the related provision for uncollectible accounts may also increase. Based on the Company’s analysis, the Company believes its’ allowance for uncollectible accounts is reasonable. However, losses may exceed the allowance if students pay at different rates than they did historically.

Intangible Assets

The Company has intangible assets, including goodwill and non-compete agreements. The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments. The Company reviews intangible assets whenever certain events occur or there are changes in circumstances for impairment by comparing the carrying value to future undiscounted cash flows. To the extent that there is impairment, analysis is performed based on several criteria, including but not limited to, revenue trends, discounted operating cash flows and other operating factors to determine the impairment amount. In addition, a determination is made by management to ascertain whether goodwill has been impaired. Analysis is performed on an operating business unit basis under the fair value method. If the review indicates that goodwill is not recoverable, the Company would recognize an impairment loss.

Revenue Recognition

The Company establishes an account receivable and a corresponding deferred revenue liability for each student upon commencement of a program of study. The deferred revenue liability, consisting of tuition and non-refundable registration fees, is recognized into income ratably over the length of the program. If a student withdraws from a program, the unearned portion of the tuition for which the student has paid is refunded on a pro-rata basis. Textbook and uniform sales are recognized when they occur.

Most students enrolled at the Company’s Campuses utilize state and federal government grants and/or guaranteed student loan programs to finance their tuition. During 2003, 81 percent of its cash receipts were derived from funds obtained by students through federal Title IV student aid programs and 19 percent were derived from state sponsored student education and training programs and cash received from students and other sources.

Contingencies

The Company assessed each Campus’ compliance with the regulatory provisions contained in 34 CFR 600.5(d) – (e) for the year ended December 31, 2003. These provisions state that the percentage of cash revenue derived by federal Title IV student assistance program funds cannot exceed 90% of total cash revenues. This is commonly referred to as the 90/10 Rule which was modified as part of legislation extending the Higher Education Act of 1965, as amended. During 2003, the Campus’ percentages of Title IV Funds ranged from 63.1% to 87.3%.

New Accounting Pronouncements

SFAS 143, “Accounting for Asset Retirement Obligations” requires an entity to record a liability for an obligation associated with the retirement of an asset at the time the liability is incurred by capitalizing the cost as part of the carrying value of the related asset and depreciating it over the remaining useful life of that asset. Adoption of SFAS 143, effective January 1, 2003, had no effect on the Company’s financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“Interpretation No. 45”). Interpretation No. 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Interpretation No. 45 also expands the disclosures required to be made by a guarantor about its obligations under certain guarantees that it has issued. Initial recognition and measurement provisions of Interpretation No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2003. Adoption of Interpretation No. 45 had no effect on the Company’s financial condition or results of operations.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“Interpretation No. 46”). Interpretation No. 46 requires a company to consolidate a variable interest entity if the company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns. The interpretation also requires disclosures about variable interest entities that the Company is not required to consolidate but in which it has a significant variable interest. Interpretation No. 46 is immediately effective for variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, with respect to variable interest entities in which an enterprise holds a variable interest that is acquired before February 1, 2003. The Company does not have Variable Interest Entities, or Special Purpose Entities (“SPEs”) and the adoption of Interpretation No. 46 will not have an impact on the Company’s consolidated financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003. The adoption of SFAS No. 150 is not expected to have an impact on the Company’s consolidated financial position or results of operations.

In January 2003, the Company adopted FASB Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“Statement No. 146”), which addresses financial accounting and reporting for costs related to exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity” (including Certain Costs Incurred in a Restructuring). Adoption of SFAS No. 146 had no effect on the Company’s consolidated financial condition or results of operations.

The Company’s exposure to market risk for changes in interest rates relate to the increase or decrease in the amount of interest income the Company can earn on short-term investments in certificate of deposits and cash balances. Because the Company’s investments are in short-term, investment-grade, interest-bearing securities, the Company is exposed to minimum risk on the principal of those investments. The Company ensures the safety and preservation of its invested principal funds by limiting default risks, market risk and investment risk. The Company does not use derivative financial instruments.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Stockholders

Concorde Career Colleges, Inc.

Mission, Kansas

We have audited the accompanying consolidated balance sheets of Concorde Career Colleges, Inc. and subsidiaries as of December 31, 2003 and 2002 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2003. 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 of America. 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 consolidated financial position of Concorde Career Colleges, Inc. and subsidiaries as of December 31, 2003 and 2002 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2, in 2002 the Company changed its method of accounting for goodwill and intangible assets.

BKD, LLP

Kansas City, Missouri

January 30, 2004

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CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

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

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CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

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

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CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

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CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY