<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-K

              [x] Annual Report Pursuant to Section 13 or 15(d) of
              The Securities Exchange Act of 1934  [Fee Required]

                  For the fiscal year ended December 31, 1996

                                       or

           [  ] Transition Report Pursuant to Section 13 or 15(d) of
             The Securities Exchange Act of 1934 [No Fee Required]

                         Commission File Number 1-1003

                         NOBEL EDUCATION DYNAMICS, INC.
             (Exact name of registrant as specified in its charter)

                  DELAWARE                              22-2465204
          (State or other jurisdiction             (IRS Employer
          of incorporation or organization         Identification No.)

    ROSE TREE CORPORATE CENTER II
    1400 N. PROVIDENCE ROAD, SUITE 3055
                  MEDIA, PA                                19063
  (Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code:          (610) 891-8200

Securities Registered Pursuant to Section 12(b) of the Act:

       Title of each class            Name of each exchange on which registered
              NONE                                       NONE

Securities Registered Pursuant to Section 12(g) of the Act:

                            COMMON STOCK, PAR VALUE
                                $.001 PER SHARE
                             (Title of each class)

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

Indicate by check mark if 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]

As of March 13, 1997, 5,831,955 shares of common stock were outstanding.

The aggregate market value of the shares of common stock owned by non-affiliates
of the Registrant as of March 13, 1997 was approximately $56,964,700 (based upon
the closing sale price of these shares as reported by NASDAQ). Calculation of
the number of shares held by non-affiliates is based on the assumption that the
affiliates of the Company include only directors, executive officers and
stockholders filing Schedules 13D or 13G with the Company.  The information
provided shall in no way be construed as an admission that any person whose
holdings are excluded from the figure is an affiliate or that any person whose
holdings are included is not an affiliate and any such admission is hereby
disclaimed.  The information provided is included solely for record keeping
purposes of the Securities and Exchange Commission.

                      DOCUMENTS INCORPORATED BY REFERENCE

None
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                               TABLE OF CONTENTS

Item
No.                                                                     Page
                                     PART I

1.   Business.........................................................    1
2.   Properties.......................................................    9
3.   Legal Proceedings................................................   10
4.   Submission of Matters to a Vote of Security Holders..............   10

                                    PART II

5.   Market for Registrant's Common Equity
     and Related Stockholder Matters..................................   11
6.   Selected Financial Data..........................................   12
7.   Management's Discussion and Analysis
     of Financial Condition and Results of Operations.................   13
8.   Financial Statements and Supplementary Data......................   22
9.   Changes in and Disagreements with Accountants
     on Accounting and Financial Disclosure...........................   22

                                    PART III

10.  Directors and Executive Officers of the Registrant...............   23
11.  Executive Compensation...........................................   26
12.  Security Ownership of Certain Owners and Management..............   30
13.  Certain Relationships and Related Transactions...................   33

                                    PART IV

14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.   34

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                                     PART I

"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

  The Company's 1997 outlook and all other statements in this report other than
historical facts are forward-looking statements that involve risks and
uncertainties and are subject to change at any time. The Company derives its
forward-looking statements from its operating budgets and forecasts, which are
based upon detailed assumptions about many important factors such as market
demand, market conditions and competitive activities.  While the Company
believes that its assumptions are reasonable, it cautions that there are
inherent difficulties in predicting the impact of certain factors, especially
those affecting the acceptance of the Company's newly developed and converted
schools and performance of recently acquired businesses, which could cause
actual results to differ materially from predicted results.

ITEM 1.  BUSINESS.

GENERAL

  Nobel Education Dynamics, Inc.'s business mission is to be the leader in the
United States in providing affordable private education from preschool through
eighth grade for the children of middle-income working families.  The Company
has been identified as a market leader "Education Management Organization" (EMO)
for preschool through eighth grade.  (EMO is a term used in the investment
community to describe companies which manage education businesses for profit in
multiple sites, similar to the "HMO" label used in the healthcare industry.)
The Company's operations include preschools, child care centers, elementary
schools and middle schools (through eighth grade) throughout the United States.
To attain its objectives, Nobel builds on its experience and expertise both in
education and preschool/child care.  As an "education company", the Company's
strategy is to offer practical solutions to a segment of the education problem
in the United States.

  Nobel operates nationwide, with 118 preschools, schools and centers in 14
states at March 31, 1997.  In California, Nobel operates the Merryhill Country
Schools, which is a private school system of 32 preschools, elementary schools
and middle schools, as well as a recently acquired private school in Orange
County, California.  Nationwide, Nobel operates preschools,  schools and centers
under various names, including Chesterbrook Academy, in Pennsylvania, New
Jersey, Virginia, Florida, Maryland, North Carolina, South Carolina, Illinois,
Washington, Indiana, Delaware, Maine and Louisiana.  Nobel also owns a 20%
interest in an elementary school in Florida.

  Management is currently pursuing a three-pronged strategy to take advantage of
the significant growth opportunities in the private education market:

     . internal growth at existing schools, including expansions of campus
       facilities

     . new school development in both existing and new markets

     . strategic acquisitions

  To facilitate this strategy, Nobel is applying the strengths of its
curriculum-based programs to distinguish itself from its competition.  The
strategy also entails geographical clustering of Nobel's

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preschools to (i) increase market awareness, (ii) provide a lower risk method
for expansion into elementary and middle schools by providing a feeder
population and (iii) gain operating efficiencies in both management and costs.

  In response to market demands for quality schools and preschools, since
September 1995, the Company has converted 23 of its child care centers to a
curriculum-based program, under the "Chesterbrook Academy" name.  Conversions
include the adoption of the highly regarded and accredited education curriculums
of Nobel's Merryhill schools and an upgrading of the educationally oriented
teaching materials and computer technology.  Following conversion, a
Chesterbrook Academy school typically offers grade levels through kindergarten
or first grade; one or more grades are then planned to be added in subsequent
years, space permitting, through eighth grade.  The Company intends to convert
its remaining child care centers to curriculum-based preschools/schools over the
next several years.

  Nobel targets its schools and preschools to meet the needs of middle-income
working parents. Most of Nobel's schools, preschools and child care centers are
open from 6:30 a.m. to 6:00 p.m., allowing early drop-off and late pick-up.  In
most locations, programs are available for children starting at six weeks of
age.  For basically the same price as standard child care, parents can leave
children of various ages at one Nobel school knowing they will receive a quality
education during the greater part of the day and be engaged in well-supervised
activities the remainder.

  To complement its programs, the Company also operates (i) before and after
school programs and (ii) summer camps (both sports and educational) at its
various school facilities.  Nobel also seeks to add other services and products
which will add ancillary income and improve overall operating margins.

  The Company's financial strength has improved dramatically since 1992, when
there was a change in management.  Strategies of new management have included a
change of the Company's focus to education from child care, strengthening of the
Company's financial condition, divestiture of centers in mature markets and,
after the Company's financial stabilization, expansion into growth areas.  With
the implementation of these new strategies, the equity of the Company has
increased from a negative net worth of $3.8 million on December 31, 1991 to
positive net worth of $32.3 million as of December 31, 1996.  Net income before
taxes for years 1992, 1993, 1994, 1995 and 1996 were the highest in the
Company's history, with 1996's being the highest at $4.02 million.
Additionally, the Company's EBITDA (earnings before interest, taxes,
depreciation and amortization), a measure of the Company's cash generating
ability, reached a historical high in 1996 at $8.2 million.

  The Company's corporate office is located at Rose Tree Corporate Center II,
1400 North Providence Road, Suite 3055, Media, PA  19063. Its telephone number
is (610) 891-8200; its world wide web address is http://www/nobeleducation.com
or http://www/educating.com.

EDUCATIONAL PHILOSOPHY AND IMPLEMENTATION

  The educational philosophy of Merryhill and Chesterbrook Academy is based on a
sound research foundation, innovative instructional techniques and quality
practice, and proprietary curricula developed by experienced educational
personnel.  Nobel's programs stress the development of the whole child and are
based on concepts of integrated and age-appropriate learning.  The curricula

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recognize that each child develops according to his or her own abilities and
timetable, but also seek to prepare every student for achievement in accordance
with national content standards and goals. Every child's educational needs are
considered upon entrance into a Nobel school, and progress is regularly
monitored in terms of both the curriculum's objectives and the learner's
cognitive, social, emotional, and physical skill development.  The result is the
opportunity for every Nobel student to develop a strong foundation in academic
learning, positive self-esteem, and emotional and physical well-being.

  During 1996, the Company adapted the Merryhill curriculum for implementation
in its Chesterbrook Academy schools through the conversion of fourteen child-
care centers on the East Coast and in the mid-West.  Staff training sessions
were conducted to prepare teachers to present the curriculum-based program in
the pre-school as well as at  elementary grade levels.  Instructional techniques
and assessment practices were also instituted and particular content materials
were adopted in the various subject areas.

  Under the direction of Nobel's Vice President - Education, the Company
circulates regular "curriculum updates," a publication to assist staff in
planning their daily and weekly programs with current and effective
instructional practices and materials.  The Company has also established multi-
media products for a "Learning Lending Library" collection.  The Library, which
is managed out of the Company's corporate office, is available to all Nobel
schools for student and teacher development and parent interest.  Many of these
resources support the Company's curriculum.

  In 1996, the Company launched its National Education Advisory Board.  Under
the direction of the Vice President - Education, the Board includes five
nationally-known educators each of whom will advise Nobel on his or her
particular area of expertise:  Dr. Zalman Usiskin of the University of Chicago
(Mathematics); Dr. Cathy Collins Block of Texas Christian University (Reading
and Language Arts);  Dr. John N. Mangieri of the Institute for Effective
Management (Educational Administration);  Dr. Arthur L. Costa of the University
of California at Sacramento (Curriculum and Teacher Development); and Dr. Drew
H. Gitomer of Educational Testing Service (Testing and Evaluation).  The Board
will help oversee curriculum development in the Company's schools, advise on the
most renowned teaching methods, and assist in finding the best instructional
materials and practices to help students learn effectively and efficiently.
Board members will also be available to work on special projects and services
that enhance the Company's school programs.

  The Company maintains that small class sizes are a basic ingredient of quality
education.  Nobel's educational philosophy is based on personalized instruction
that leads to a student's active involvement in learning and understanding.  The
program for the Company's schools is a strong skills-based, comprehensive
curriculum that is implemented in ways that attract the learner's curiosity,
enhance students' various learning styles, and employ processes that contribute
to lifelong achievement.  Academic areas addressed include reading readiness and
reading, spelling, writing, handwriting, mathematics, science, social studies,
visual and graphic arts, music, physical education and health, and foreign
language.  Computer literacy and study skills are interrelated into the program,
as appropriate, in all content areas.  The schools employ state-of-the-art
technologies, such as interactive CD-ROMs coordinated with classroom content,
and networking capacity.  Merryhill

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and Chesterbrook introduce a second language between the ages of two and three,
and continue that instruction into the pre-K, kindergarten, and school age
programs.

  The Company offers sports activities and supplemental programs, which include
day field trips coordinated with the curriculum to such places as zoos,
libraries, museums and theaters, and, at the middle school, overnight trips to
such places as Yosemite, California and Washington, D.C.  Schools also arrange
classroom presentations by parents and other volunteers, as well as organize
youngsters as presenters to community groups and organizations.  To enhance
better the child's physical, social, emotional and intellectual growth, schools
are encouraged to provide fee-based experiences specifically tailored to
particular families' interest in such ancillary activities as dance, gymnastics,
and music lessons.

  The Company's programs are implemented by experienced principals and directors
and their faculties.  They foster open communication, teamwork and the attention
to detail required to provide a superior service.  School directors work closely
with regional and corporate management, particularly in the regular assessment
of program quality.  In 1996, the groundwork was laid for a Company-wide Quality
Assurance Program and, early in 1997, a Director of Quality Assurance was
appointed to assess systematically each Nobel school and to provide a procedure
for internal accreditation.  Nobel's Quality Assurance Program will set
standards consistent with the external, national accreditation systems in which
the Company participates with such organizations as the National Association for
the Education of Young Children (NAEYC), the National Independent Private School
Association (NIPSA), and the Commission for International and Trans-Regional
Accreditation (CITA).  The Program also provides a formal means to recognize and
reward Company educators for their outstanding performance and achievement.
Similarly, the Program also furnishes guidance for the continued training and
staff development of teaching personnel, using both internal trainers and
external consultants.

  As of March 15, 1997, the aggregate licensed capacity at the Company's 118
schools and centers exceeded 16,500 children.

OPERATIONS / SCHOOL SYSTEMS

  In order to maintain uniform standards, each school and center shares
consistent educational goals and operating procedures.  To respond to local
demands, principals are encouraged to tailor curriculums, within Nobel's
standards, to regional needs.  Management visits all schools and centers on a
regular basis to review program and facility quality.

  Each school and center is staffed with a principal or director, teachers and
teaching assistants. Principals and directors are supervised by district,
regional or area managers. The principal or director is critical to the success
of the school and is provided with ongoing training.  Principals and directors
have responsibility for:  (i) maintaining the quality of educational services
delivered at their schools, (ii) recommending pricing strategy based upon school
location and local area demographics, (iii) personnel management, (iv) sales and
marketing strategy for their locations and (v) fiscal management.

  Principals and directors submit financial reports to the Company's corporate
office and to appropriate district and regional managers each week.  These
reports include data on current

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enrollment, labor costs and cash receipts. Corporate office personnel then
review each report and prepare weekly combined reports by district, region and
for the Company in total. Weekly or monthly tuition rates and utilization rates
are continually monitored. Each school and center is measured on a monthly basis
versus its individual business plan. Nobel is in the process of evaluating
several state-of-the-art computer systems which would assist the principals in
operating schools and provide management with enhanced operational information.

  The Company generally hires experienced individuals and attempts to promote
from within. Employment applicants are thoroughly reviewed with background
checks made to verify accurate employment history and establish background,
reputation and character.  After hiring, the faculty is reviewed and evaluated
annually both through formal evaluation and market surveys.  All principals and
directors are eligible for incentive compensation based on the profitability of
their schools.

MARKETING AND CUSTOMERS

  The Company's management believes that Nobel has a unique position in the
marketplace and has implemented a marketing strategy to capitalize on this
niche.  Nobel strives to differentiate itself from the child care providers.  In
contrast with mere custodial child care, Nobel's programs stress educational
development through proven curriculum programs, beginning at the preschool level
and continuing through upper grades.

  The Company generates the majority of new enrollments from its reputation in
the community and word-of-mouth recommendations of parents.  Further, the
Company is geographically clustering its preschools to increase local market
awareness and to provide a feeder population for Nobel elementary and middle
schools.  The Company also markets its services through display ads, listings in
local print and radio media and through distribution of promotional materials in
residential areas. Marketing campaigns are conducted in the winter, spring and
fall, primarily at the local level by the Company's directors and principals.
In addition, the various regional offices conduct marketing programs, such as
mass mailings and media advertising.

NEW CENTER AND SCHOOL DEVELOPMENT; ACQUISITIONS

  Management expects a significant portion of Nobel's growth for the next few
years to be through the opening of new schools and preschools and strategic
acquisitions of existing schools and preschools.

  New school development offers an attractive growth opportunity for Nobel to
expand into both new and existing markets.  Proposed development sites are
presented to the Company through a network of developers across the United
States.  After site selection, the Company engages a developer or contractor to
build a facility to the Company's specifications.  Nobel currently works with
several developers who purchase the land, build the facility and enter into a
long-term lease with Nobel for the premises.

  Alternatively, Nobel purchases land itself, constructs the building with its
own or borrowed funds and then seeks to enter into a sale and lease back
transaction with an investor. In December 1996, the Company entered into a
Multi-Site Sale Leaseback Agreement with AEI Fund Management, Inc. ("AEI").
Under that agreement, AEI agreed to purchase from Nobel in sale/leaseback
transactions

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up to $15,000,000 worth of parcels through the end of 1999 (subject in each case
to AEI's standard credit, site and other due diligence review). The agreement
also provides that AEI will provide Nobel with land acquisition and construction
loan financing for each project.

  In 1996 and first quarter 1997, Nobel opened nine new schools and preschools.
The Company plans to open approximately 12 to 15 new schools in 1997 and 15 to
20 new schools in 1998.  The Company's development plans are dependent on the
continued availability of such developer and financing arrangements.

  Typically, new schools are single-story stand alone structures located near
residential neighborhoods on sites of acreage appropriate to the nature of the
school.  The Company carefully evaluates all proposed development sites and
makes a selection based on a variety of criteria, including:  the number and age
of children living in proximity to the site; family income data; incidence of
two-wage earner and single parent families; traffic patterns; wage and fixed
cost structure; competition; price elasticity; family education data; local
licensing requirements; and real estate costs.  The Company historically has had
significant success in the new centers it has opened.

  The Company plans to continue to expand the number of grade levels offered by
its existing schools.  Upon conversion to the Chesterbrook Academy format,
current preschools and child care centers initially offer grade levels through
kindergarten or first grade, with further expansion planned. The Company also is
expanding the grades offered by its other schools.  In some locations, this
expansion requires the construction of additions to current facilities or
development of a replacement facility.

  Acquisition activity in 1996 and the first quarter of 1997 consisted of the
following:

     .  In February 1996, the acquisition of five preschools in northern and
        central Virginia.

     .  In November 1996, the acquisition of two preschools in North Carolina.

     .  In December 1996, the acquisition of the Oak Ridge School, an elementary
        school in Coto de Caza (Orange County), California.

     .  In December 1996, the acquisition of the Evergreen Academy elementary
        school and preschool in the Seattle, Washington area.

     .  In January 1997, the acquisition of six preschools in Florida.

     .  In March 1997, the Company signed an agreement to acquire the two
        elementary and one preschool of Rainbow Bridge, Inc. located in San
        Jose, California. The acquisition is expected to close April 1, 1997.

  At the closing of the Florida acquisition in January 1997, Nobel also
purchased a 20% interest in a new elementary school in Florida.   Also, Nobel
entered into a joint venture agreement with the sellers to build five additional
elementary schools in Florida in which Nobel will have an 80% interest.

  Together with current and planned developmental activity, these acquisitions
strengthen Nobel's presence in Virginia and North Carolina, and establish
entries into the Florida, Southern California and the Pacific Northwest markets.

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INDUSTRY AND COMPETITION

  Annual spending in education is estimated to exceed $630 billion annually in
the United States or approximately 10% of gross domestic product.  Estimates of
spending in education for preprimary grades (preschools and child care) are $30
billion while estimates of spending for kindergarten through eighth grade
("K 8") are $200 billion.  Spending is projected to continue to grow through a
combination of increasing per pupil expenditures and increasing school
enrollments.

  It is estimated there are 90,000 schools in the $30 billion preschool/child
care segment with $25 billion spent in the private sector, of which $10 billion
is spent in the for-profit segment. Likewise, it is estimated there are 85,000
schools in the $200 billion K-8 segment with an estimated $15 billion spent in
the private sector, of which $650 million is spent in the for-profit segment.

  The public school market is estimated to be 110,000 schools in total, of which
76,000 are elementary, 23,000 are secondary and 11,000 are combined schools.
The private school market is estimated to be 26,000 schools, of which 15,500 are
elementary, 2,500 are secondary and 8,800 are combined.  Of the 26,000 schools
in the private school market, an estimated 20,500 are religiously affiliated and
5,500 are secular.  Of the 5,500 secular schools, less than 1,000 are for-profit
schools.

  Between 1985 and 1995, it is estimated that the public school K-8 grade
enrollment increased 19.8% from 27.03 million students to 32.38 million students
while the private school K-8 grade enrollments  increased 5.6% from 4.19 million
students to 4.43 million students over the same time period.  The U.S.
Department of Education projects public school and private school K-8 enrollment
growth between 1996 and 2006 to slow to 2%, a 700,000 enrollment increase in
public schools and a 100,000 enrollment increase in private schools,
respectively.  While this increase may not seem large, there is significant
concern that the nation's already overcrowded schools are ill-prepared to handle
it.  It is estimated that in excess of 4,000 new K-8 schools must be built to
relieve current overcrowding and handle the growth.  Also, this growth will vary
significantly in different regions of the United States.  States such as
California, Florida, Washington, Oregon and Arizona are projected to high growth
in the 10% range.  These are targeted states in the Company's expansion plans.

  During the 1996 elections, education was the politically "hot issue" in
national and state contests. The broad public debate has shifted from whether
our existing K-12 system has failed in terms of performance to which reform
movements promise the best and quickest improvements.

  Taxpayers have experienced high costs in education expenditures without
positive results. According to a 1995 Gallup poll, 71% of Americans give the
nation's schools a grade of C, D or F generally and 54% give their own schools a
low grade as well.  Quality is low; yet, the average annual cost of educating a
Kindergarten through 12/th/ grade student in the United States has risen to over
$6,000 in  1995.  Dismal student achievement, a growing minority gap in school
completion rates and student misbehavior causing unsafe school environments are
three commonly mentioned quality measurements that are lacking.  Also, corporate
America has become increasingly frustrated by insufficiently equipped students
produced by the nation's public school systems.

  Education reform movements in the United States are posing alternatives to the
public schools. These include charter schools, private management of public
schools, vouchers, home schooling and private schools.  The Company's strategy
is to provide parents a quality alternative through Nobel's privately owned and
operated schools utilizing a proven curriculum in a safe and challenging
environment.

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  For school age children, the Company competes with other for-profit private
schools, with non-profit schools and, in a sense, with public school systems.
The Company is not aware of any for-profit competitor which currently competes
beyond a regional level.  However, the Company anticipates that, given the
perceived potential of the education market, well-financed competition may
emerge, including possible competition from the large for-profit child care
companies.  The Company believes that the structure of these larger companies
may make it difficult for them to implement and develop programs which are based
upon curriculum-intensive goals, which would require significant cultural
changes.

  The preschool/child care market is a $30 billion highly fragmented industry,
with diverse competition from both public and private sectors.  Approximately 8
million children are enrolled in 90,000 centers/schools, of which less than nine
percent are managed by for-profit chains.  Revenues of the 20 largest child
care/preschool providers represent less than five percent of total segment
revenues.  Also seeking enrollments of pre-school age children are in-home
individual child care providers and corporations that provide child care for
their employees.

  Only one out of seven early care/education programs is rated good or excellent
by the Carnegie Corporation report; four out of five programs fail quality
standards.  The Company believes that persons in its target market -- parents
seeking curriculum-based programs for their children -- seek services not
provided by child care providers without a curriculum base.  Nobel believes
these parents desire to give their child the best educational advantage
available, since, as educators have found, the learning process should start
earlier, preferably somewhere between the ages of two and three.  The Company
offers a national curriculum based program with excellent standards.

  The demand for quality preschools is increasing.  More than 60% of mothers
with children under six years of age are in the workplace.  Both single parents
and dual income families are on the rise. From 1980 to 1990, the percentage of
dual income families rose from 50% to 60%.  From 1970 to 1992, the percentage of
married mothers who worked full time increased 16% to 37%.  Combined,
approximately 80% of U.S. families are either dual income or single parent
households.

  While price is an important factor in competition in both the school age and
preschool markets, the Company believes that other competitive factors also are
important, including:  professionally developed educational programs, well
equipped facilities, trained teachers and a broad range of ancillary services,
including transportation and infant care.  Particularly in the preschool market,
many of these services are not offered by the Company's competition.

REGULATION

  Schools and preschools are subject to a variety of state and local regulations
and licensing requirements.  These regulations and licensing requirements vary
greatly from jurisdiction to jurisdiction.  Governmental agencies generally
review the safety, fitness and adequacy of the buildings and equipment, the
ratio of staff personnel to enrolled children, the dietary program, the daily
curriculum, compliance with health standards and the qualifications of the
Company's personnel.

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INSURANCE

  The Company currently maintains comprehensive general liability, workers'
compensation, automobile liability, property, excess umbrella liability and
student accident insurance.  The policies provide for a variety of coverage and
are subject to various limits.  Companies involved in the education and care of
children, however, may not be able to obtain insurance for the total risks
inherent in their operations.  In particular, general liability coverage can
have sublimits per claim for child abuse.  Since 1994, the Company has been able
to increase significantly the sublimit applicable to such coverage.  There can
be no assurance that in future years the Company will not again become subject
to lower limits.

SERVICE MARKS

  The Company has registered various service marks, including Chesterbrook
Academy(R), Merryhill Country School(R) and The Rocking Horse Child Care
Center(R), in the United States Patent and Trademark Office.  The Company
believes that certain of its service marks have substantial value in its
marketing in the respective areas in which its schools operate.

SEASONALITY

  Nobel's elementary and middle schools historically have lower operating
revenues in the summer due to lower summer enrollments.  Summer revenues of
preschools tend to remain more stable or, in some cases, increase.  The Company
has sought to improve summer results through camps and other programs.

EMPLOYEES

  On March 20, 1996, the Company employed approximately 3,000 persons,
approximately 935 of which were employed on a part-time basis.  Management
believes that its relationship with its employees is satisfactory.

ITEM 2.  PROPERTIES.

  At December 31, 1996, the Company operated 108 schools, preschools and child
care centers (hereafter, "schools")  in 13 states.  At March 15, 1997,  the
number of schools totaled 118, located in 14 states.

  The Company's schools generally are located in suburban settings.  At March
15, 1997, the Company's schools are geographically located as follows: 33 in
California, 17 in Pennsylvania, 9 in New Jersey, 12 in Virginia, 7 in Illinois,
9 in Indiana, 17 in North Carolina, 2 in South Carolina, 6 in Florida, 2 in
Washington and 1 each in Maryland, Delaware, Maine and Louisiana.

  The Company owns the land and buildings for 13 of the schools it operates.
All such properties are subject to mortgages on the real property.  In addition,
one school is run by a majority-owned subsidiary and operated jointly with a
sponsoring employer.  This subsidiary leases the buildings from a third party
and operates them under a ground lease from the employer.  The remaining 105
schools are leased under long-term leases which are typically triple-net leases
requiring the Company to pay all applicable real estate taxes, utility expenses
and insurance costs.  These leases usually contain inflation related rent
escalators.

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  The Company owns the land and building of five properties in Florida and
Georgia; four of such properties are leased to tenants with an option to
purchase and one such property, which the Company intends to sell, is
nonoperational.

  The Company leases 10,786 square feet of space for its corporate offices in
Media, Pennsylvania. The lease expires in the year 2001.

ITEM 3.  LEGAL PROCEEDINGS.

  The Company is engaged in legal actions arising in the ordinary course of its
business.  The Company believes that the ultimate outcome of all such matters
above will not have a material adverse effect on the Company's consolidated
financial position or results of operations.  The significance of these matters
on the Company's future operating results and cash flows depends on the level of
future results of operations and cash flows as well as on the timing and
amounts, if any, of the ultimate outcome.

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

  None.

                                       10
<PAGE>

                                    PART II

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

MARKET INFORMATION.

  The table below sets forth the quarterly high and low sales prices for the
Company's common stock as reported by The National Association of Securities
Dealers (NASD) for each quarter during the period from January 1, 1995 through
December 31, 1996 and for the first quarter to date in 1997. Sales prices prior
to September 28, 1995 are adjusted to reflect the 1 for 4 reverse stock split of
the Company effected on such date.

                                   High       Low

  1995

  First Quarter......              $ 7      $ 4
  Second Quarter.....                8 1/4    6
  Third Quarter......               15 3/4    7 1/4
  Fourth Quarter.....               17       10 3/4

  1996

  First Quarter......              $17 5/8   13 5/8
  Second Quarter.....               18 1/4   13 3/4
  Third Quarter......               15 1/4    9 1/4
  Fourth Quarter.....                   14    9 1/2

  1997

  First Quarter (as of 3/26/97)     12 5/8    7 7/8

HOLDERS.

  At March 15, 1997, there were approximately 650 holders of record of shares of
common stock.

DIVIDEND POLICY.

  The Company has never paid a dividend on its common stock and does not expect
to do so in the foreseeable future.  Although the payment of dividends is at the
discretion of the Board of Directors, the Company intends to retain its earnings
in order to finance its ongoing operations and to develop and expand its
business.  The Company's credit facility with its lenders prohibits the Company
from paying dividends on its common stock or making other cash distributions
without the lenders' consent.  Further, in connection with the private placement
of the Series C Convertible Preferred Stock to Edison Venture Fund II, L.P., the
Company is prohibited from paying cash dividends on its common stock, unless the
dividend is permitted under the Company's bank agreement and the amount of the
dividend is less than or equal to 50% of operating income less income tax.

  The Company's Series A Preferred Stock bears a dividend of 8% per annum,
payable quarterly. Dividends totaling $108,419 were paid in 1996.

                                       11
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA.

  The following table sets forth selected historical financial data of the
Company.  This data should be read in conjunction with the Company's Financial
Statements and the Notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."


<TABLE>
<CAPTION>
                                                                  Year ended December 31,
                                                       1996     1995      1994      1993      1992
                                                     -------   -------   -------   -------   -------
<S>                                               <C>         <C>      <C>       <C>       <C>
(in thousands except per share data)
OPERATING DATA:
Revenue.........................................     $58,909   $44,154   $34,372   $32,594   $33,498
School operating expenses.......................      49,079    35,908    28,161    26,543    27,036
School operating profit.........................       9,831     8,246     6,211     6,051     6,462
General and administrative
 expenses.......................................       4,190     3,396     2,696     2,555     2,946
Litigation expense..............................           -       500       200         -         -
Operating income (loss).........................       5,641     4,350     3,315     3,496     3,516
Interest expense................................       2,004     1,840     1,223     1,718     1,729
Other (income) expense..........................        (483)     (126)      107       (39)     (117)
Minority interest...............................          95        86        83        88        63
Income before income taxes......................       4,025     2,550     1,902     1,729     1,841
Income tax (benefit) expense....................       1,562    (1,356)     (438)       21        36
Net income before extraordinary item............       2,463     3,906     2,340     1,708     1,805
Extraordinary Item..............................           -        62         -         -         -
Net income......................................       2,463     3,844     2,340     1,708     1,805
Preferred Dividends.............................         109       184       199       107         -
Net income available to
 Common Stockholders............................       2,354     3,660     2,141     1,601     1,805
EBITDA (earnings before interest, taxes,
 depreciation and amortization expense).........     $ 8,240   $ 5,902   $ 4,188   $ 4,591   $ 4,811

Primary earnings per share (post split):
---------------------------------------

Net income before extraordinary item............       $0.34   $  0.69     $0.53     $0.40   $  0.48
Extraordinary item..............................           -   $ (0.01)        -         -         -
                                                     -------   -------   -------   -------   -------
Net income......................................       $0.34   $  0.68     $0.53     $0.40   $  0.48
                                                     =======   =======   =======   =======   =======

Fully diluted earnings per share (post split):
---------------------------------------------

Net income before extraordinary item............       $0.34   $  0.64     $0.46     $0.38   $  0.48
Extraordinary item..............................           -   $ (0.01)        -         -         -
                                                     -------   -------   -------   -------   -------
Net income......................................       $0.34   $  0.63     $0.46     $0.38   $  0.48
                                                     =======   =======   =======   =======   =======

                                                                   Year ended December 31,
                                                      1996       1995     1994      1993      1992
                                                     -------   -------   -------   -------   -------
                                                                        (in thousands)
BALANCE SHEET DATA:
Working Capital (deficit).......................     $(1,351)  $  (831)  $(4,197)  $(3,114)  $(3,996)
Goodwill........................................      25,601    17,274     8,888     8,923     9,278
Total assets....................................      56,833    44,937    23,234    22,613    24,226
Short-term debt and current
 portion of long-term debt......................       3,376     1,371     1,768       905     1,523
Long-term debt..................................      14,225    20,272     7,846    12,545    17,733
Stockholders' equity (deficit)                       $32,323   $16,121   $ 8,298   $ 3,732   $  (279)
</TABLE>

                                       12
<PAGE>

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

RESULTS OF OPERATIONS

Fiscal year 1996 compared to fiscal year 1995.

  As of December 31, 1995 the Company operated 101 elementary schools,
preschools and child care centers (sometimes collectively referred to herein as
"schools").  At December 31, 1996, the Company operated 108 schools.  At March
20, 1997, the Company operated 118 schools and owned a 20%  interest in one
elementary school.

  During 1996, the Company acquired the assets or stock of companies owning ten
schools.  These acquisitions included: five preschools in Virginia (School's
Out, Inc. and related companies); two preschools in North Carolina, operating as
the MacGregor Creative Schools; two schools located in Seattle, Washington,
operating as Evergreen Academy; and one school in Coto de Caza, California,
operating as Oak Ridge Private School.  In addition, during 1996, the Company
opened seven new schools, two of which were replacement schools.  Leases of six
non-core schools located in South Carolina expired and were not renewed, as
planned in the 1992 restructuring of the Company.

  In early January 1997, the Company acquired six preschools in Florida,
operating as Another Generation, and a 20% interest in an elementary school in
Ft. Lauderdale, Florida.  The Company also opened two new schools, one in New
Jersey and one in North Carolina, in March 1997.

  Following is a chart which breaks down revenues, school operating profit and
school operating profit margins for the years ended December 31, 1996 and 1995
into three categories, Baseline Schools (defined as all schools opened as of
December 31, 1993), Acquired Schools and New Schools (defined as schools
acquired or newly opened since December 31, 1993):
<TABLE>
<CAPTION>
                                        % of                     % of      1996-1995
                          1996        Revenue        1995      Revenue    Variance ($)
                          ----        -------        ----      -------    ------------
<S>                   <C>           <C>        <C>           <C>        <C>
BASELINE SCHOOLS
Revenues               $32,115,443    100.00%   $32,379,813    100.00%    $  (264,370)
Operating Profit       $ 6,754,000     21.03%   $ 6,695,236     20.68%    $    58,764
                       -----------    ------    -----------    ------     -----------
ACQUIRED SCHOOLS
Revenue                $17,958,065    100.00%   $ 7,102,124    100.00%    $10,855,941
Operating Profit       $ 2,044,162     11.38%   $   855,474     12.05%    $ 1,188,688
                       -----------    ------    -----------    ------     -----------
NEW SCHOOLS
Revenues               $ 8,835,880    100.00%   $ 4,672,430    100.00%    $ 4,163,450
Operating Profit       $ 1,032,497     11.69%   $   695,173     14.88%    $   337,324
                       -----------    ------    -----------    ------     -----------

Total Net Revenues     $58,909,388    100.00%   $44,154,367    100.00%    $14,755,021
                       ===========    ======    ===========    ======     ===========
Total School           $ 9,830,659     16.69%   $ 8,245,883     18.68%    $ 1,584,776
 Operating Profit      ===========    ======    ===========    ======     ===========
</TABLE>

                                       13
<PAGE>

  In 1996, Baseline Schools showed a $264,370 revenue decline. This was caused
by a combination of the divestiture of six South Carolina schools in 1996 and
one Florida school in 1995 creating a $712,358 revenue reduction, partially
offset by a $447,988 increase in the remaining schools. Despite the revenue
decrease, the operating profit from Baseline Schools increased $58,764, as the
previously identified divested schools generated losses in 1995. Operating
margins of the Baseline Schools remained consistent at 21% in both 1996 and
1995.

  In 1996, Acquired Schools as a group generated a $10,855,941 increase in
revenues compared to 1995.  Operating profits of Acquired Schools increased
$1,188,688 in 1996 compared to 1995. Both the revenue and operating profit
increases were caused by the 1996 twelve month full year impact of the three
acquisitions made during 1995 plus the partial year impact of two acquisitions
made in 1996. Operating profit margins reduced slightly to 11.4% in 1996 from
12% in 1995.  This reduction was caused by several factors:  (1) since two of
the 1995 acquisitions were made on September 1,  1995, the Company avoided the
traditionally lower margin summer months, which was not the case in 1996 and (2)
the 1995 acquisition of nine schools located in Indianapolis generated a
$101,000 operating loss in 1996 compared to a $55,000 profit in 1995.  When the
Company acquired these Indianapolis schools, it had anticipated increased
enrollment levels and reduced personnel expenses.  This has not been achieved to
date.  The Company is actively addressing these issues and expects improvement
in 1997.  Removing the negative impact of Indianapolis, operating margins of
Acquired Schools would have increased to 14.7% in 1996 from an adjusted (without
Indianapolis) operating margin of 13.4% in 1995.  Operating margins in Acquired
Schools have the added burden of amortization expense of goodwill.  Goodwill
amortization related to Acquired Schools totaled $372,000 and $64,000 in the
years ended 1996 and 1995, respectively.  Operating margins in Acquired Schools
before the amortization of goodwill totaled 13.45% and 12.94% for the years
ending 1996 and 1995, respectively.  When making acquisitions, the Company takes
steps to increase operating margins of Acquired Schools over a twelve to thirty-
six month period, as it implements cost controls, systems and marketing
strategies.

  In 1996 New Schools generated a $4,163,450 revenue increase compared to 1995.
This growth is from the combination of the maturing of the eleven preschools
that opened in 1994 and 1995 and the first-year impact of the seven new schools
(four preschools, two elementary and one middle school) opened in 1996.
Operating profit increased $337,324 in 1996 from 1995 despite a $272,230 loss
from the seven 1996 New Schools.  As New Schools opened in 1994 and 1995
matured, their operating profit improved by $609,554.  Operating profit margins
of New Schools reduced to 11.7% in 1996 from 14.9% in 1995 mainly due to the
$272,230 loss from the seven 1996 New Schools which compared to a $57,355 loss
for the seven 1995 new preschools.

  The magnitude of the operating loss from the New Schools opened in 1996 is
increased by the mix of these schools.  Generally, the Company experiences
smaller initial start up losses in preschools than elementary or middle schools.
It has also been the Company's experience to reach profitability in new
preschools in six to nine months compared to elementary or middle schools which
can take twelve to twenty-four months to become profitable.

                                       14
<PAGE>

  Overall, in 1996 the Company's total revenues increased $14,755,021 and
operating profits increased $1,584,776, compared to 1995.  Meanwhile, operating
profit margins decreased from 18.7% in 1995 to 16.7% in 1996 as explained above.

  General and administrative expenses increased $793,810 or 23% to $4,189,750
for the year ended December 31, 1996; however, as a percentage of revenue,
general and administrative expenses decreased from 7.7% of revenues in 1995 to
7.1% of revenues in 1996.  The Company enjoyed efficiencies from its growth
through acquisitions.  Management is continuing to build the foundation needed
for growth of the Company and anticipates maintaining the current level of such
general and administrative expenses as a percent of revenues.

  Operating income increased $1,290,966 or 29% to $5,640,909 for the year ended
December 31, 1996.  The increase is a result primarily of the increase in school
operating profit.  In 1995, the Company recorded $500,000 in litigation expense
related to a claim by former officers of the Company which has been settled.  As
a percent of revenue, operating income decreased slightly from 9.8% for the year
ended December 31, 1995 to 9.6% for the year ended December 31, 1996, which is a
result of the decrease in school operating profit margins described above.

  Net cash provided by operating activities increased to $4,775,059 in 1996
compared to $4,037,239 in 1995 which was an 18% increase.  Another key measure
of the Company's cash generating ability is its EBITDA (earnings before
interest, taxes, depreciation and amortization expenses).  EBITDA increased to
$8,239,000 in 1996 from $5,902,000 in 1995 which was a 40% increase.  EBITDA is
not a measure of performance, under generally accepted accounting principles,
however the Company and the investment community consider it a key indicator.

  Interest expense increased $164,829 or 9% to $2,004,392 for the year ended
December 31, 1996, which was due to increased debt relating to the acquisitions
and new school development.

  Other income increased $356,923 or more than 250% to $482,647 which was due to
interest income earned on the proceeds of the private placement of approximately
$11,600,000 in March 1996.

  Pretax income increased $1,474,389 or 58% to $4,024,685 for the year ended
December 31, 1996 as compared to the prior year.  The increase is a result of
(1) an increase in operating profit as a result of the growth of the Company and
(2) interest income related to the approximately $11,600,000 private placement.

  Income tax expense increased $2,917,383 to $1,561,793 for the year ended
December 31, 1996. The increase in taxes was due to the Company being fully
taxed in 1996 as compared to recording a tax benefit in 1995 of $2,105,400.
This credit was based upon the adoption of SFAS 109 in 1992 and the subsequent
reduction of the Company's valuation allowance due to its more recent historical
profitable operating performance and its projections for the future.
Consequently, 1996 is the first year the Company is fully taxable.  The Company
anticipates this trend to continue.

  Net income decreased $1,380,994 or 36% to $2,462,892 for the twelve months
ended December 31, 1996 as a result of the Company reversing the valuation
allowance in 1995 and recording taxes in 1996 at a 38.8% rate as described
above. If pretax net income in 1995 were taxed at an effective rate of 38.8%, on
a pro forma basis, net income would have increased $990,055 or 62%. Fully
diluted earnings per share, on the same pro forma basis, would have increased
from $.25 per share in 1995 to $.34 per share in 1996, or a 36% increase.

                                       15
<PAGE>

  Fully diluted earnings per share decreased from $.63 per share for the year
ended December 31, 1995 to $.34 for the year ended December 31, 1996.  Common
shares and shares equivalents on a fully diluted base increased 1,133,662 or
18.5% from 6,129,121 for the year ended December 31, 1995 to 7,262,783 for the
year ended December 31, 1996, as a result of raising equity capital and issuing
stock in connection with acquisitions.

Fiscal year 1995 compared to fiscal year 1994.

  As of December 31, 1994, the Company operated 68 schools.  During the year
ended December 31, 1995, the Company acquired in both assets and stock
transactions, 27 operating schools, and three schools under development, which
consisted of (1) eight schools operated by Carefree Learning Centers, and three
under development, located in Pennsylvania, (2) ten schools operated by Educo,
Inc., located in Maryland, Virginia, North Carolina and South Carolina and (3)
nine schools operated by Children Today, Inc., located in Indiana.  In addition,
the Company opened seven new schools in various locations and divested one
school in Florida.  As of December 31, 1995, the Company operated a total of 101
schools.

  Following is a chart which breaks down revenues, school operating profit and
school operating profit margins in 1995 and 1994 into three categories of
Baseline Schools, Acquired Schools and New Schools:

<TABLE>
<CAPTION>

                                       % of                     % of       1995-1994
                          1995       Revenue       1994       Revenue     Variance ($)
                          ----       -------       ----       -------     -----------
<S>                   <C>           <C>        <C>           <C>        <C>
BASELINE SCHOOLS
Revenues               $32,379,813    100.00%   $32,448,399    100.00%     $  (69,187)
Operating Profit       $ 6,695,236     21.01%   $ 6,037,123     18.61%     $  658,236
                       -----------    ------    -----------    ------      ----------

ACQUIRED SCHOOLS
Revenues               $ 7,102,124    100.00%   $         0      0.00%     $7,102,124
Operating Profit       $   885,474     12.05%   $         0      0.00%     $  885,474
                       -----------    ------    -----------    ------      ----------

NEW SCHOOLS
Revenues               $ 4,672,430    100.00%   $ 1,923,102    100.00%     $2,749,328
Operating Profit       $   695,173     14.88%   $   173,841      9.04%     $  521,332
                       -----------    ------    -----------    ------      ----------
</TABLE>

                                       16
<PAGE>

<TABLE>

<S>                   <C>           <C>        <C>           <C>        <C>
Total Net Revenues     $44,154,367    100.00%   $34,371,501    100.00%     $9,782,866
                       ===========    ======    ===========    ======      ==========
Total School           $ 8,245,883     18.68%   $ 6,210,964     18.07%     $2,034,919
 Operating Profit      ===========    ======    ===========    ======      ==========
</TABLE>

  In 1995, Baseline Schools showed a $69,187 decline compared to 1994.  This
decline was caused by the divestiture of non-core southeastern centers in late
1994 reducing revenues by $442,432 partially offset by a $373,245 increase in
the remaining schools.  Despite the revenue decline, the operating profit from
Baseline Schools increased $658,236 as the previously identified centers
generated losses in 1994.  Operating margins improved significantly in 1995 to
21% from 18.6% in 1994 primarily due to the divestiture of the southeastern
centers.

  In 1995, Acquired Schools generated $7,102,124 in revenues, operating profits
of $885,474 and operating profit margins of 12.94%.  Operating margins of
Acquired Schools have the added burden of amortization expense of goodwill.
Operating margins before amortization of goodwill was 13%.  There were no
Acquired Schools in 1994.

  In 1995, New Schools generated a $2,749,328 increase in revenues compared to
1994.  This growth is from the combination of the maturing of the four
preschools opened in 1994 and the first year impact of the seven preschools
opened in 1995.  Operating profit increased $521,332 in 1995 from 1994 despite a
$57,355 loss for the seven 1995 new preschools developed.  As the four new
preschools opened in 1994 increased their operating profits by $578,687.
Operating profit margins of New Schools increased to 14.9% in 1995 from 9% in
1994 mainly due to the significant improvement of the four 1994 New Schools
which generated operating margins of 24.5% in 1995.

  Overall, in 1995, the Company's total revenues increased $9,782,866, operating
profits increased $2,034,919 and operating profit margins increased to 18.7%
from 1994 as explained above.

  General and administrative expenses decreased as a percent of revenues from
7.84% in 1994 to 7.7% in 1995.  The percentage decrease is due to efficiencies
resulting from growing the base of the Company.  General and administrative
expense increased $699,864 or 26%.  This increase was related primarily to the
increase in staff as a result of the acquisitions.

  During the twelve months ended December 31, 1995, the Company recorded a
$500,000 litigation expense which was the result of the outcome of the lawsuit
by former management.  The United States Court of Appeals for the Third Circuit
ruled in favor of Julie Sell and Michael Bright and against the Company.  The
Company paid the judgment plus attorney fees and interest in September 1995,
totaling $580,000.  In March 1996, the Company settled certain other proceedings
against the Company brought by Douglas Carneal, its former Chairman, and made a
payment of $170,000 to Mr. Carneal in connection with such settlement. The
Company had sufficient reserves for the settlement, thus additional expense was
not recorded.

  Operating income increased $1,035,055 or 31% from $3,314,888 for the year
ended December 31, 1994 to $4,349,943 for the year ended December 31, 1995.  The
increase is a result primarily of increased school operating profit as detailed
above.

                                       17
<PAGE>

  Net cash provided by operating activities increased to $4,037,239 in 1996
compared to $2,897,905 in 1994 which was a 39% increase.  The Company's EBITDA
(earnings before interest, taxes, depreciation and amortization expenses)
increased to $5,902,000 in 1995 from $4,188,000 in 1994 which was a 41%
increase.    EBITDA is not a measure of performance, under generally accepted
accounting principles, however the Company and the investment community consider
it a key indicator.

  Interest expense increased $616,592 or 50% from $1,222,971 for the year ended
December 31, 1994 to $1,839,563 for the year ended December 31, 1995.  The
increase in interest is due to higher debt levels associated with the
acquisitions which include $6,000,000 of subordinated debt at 14% and 8.5%
mortgage loans on the Carefree properties.

  Other income and expense showed income of $125,724 for the year ended December
31, 1995 compared to expense of $106,960 for the year ended December 31, 1994,
an increase of $232,694. The increase was related to (1) increased interest
income on cash balances, (2) adjustments of rent accruals related to the
cancellation of several leases in the Southeast and (3) decreased costs of
Southeast centers which were divested.

  Pretax income increased $648,830 or 34% from $1,901,466 for the twelve months
ended December 31, 1994 to $2,550,296 for the same period in 1995.  The increase
was due primarily to an increase in schools' operating profit as a result of the
growth of the Company.

  In 1992, the Company changed its method of accounting for income taxes through
the adoption of SFAS 109.  In 1992 and 1993, a valuation allowance of $3,700,000
had been recorded relating to the net operating loss.  In 1994, the Company
reduced the valuation allowance and recognized $510,300 of the deferred tax
asset.  The 1994 estimate recorded was based on the analysis of the positive
operating performance of the prior two years and projected taxable income of
1994 and 1995.  In 1995, based on three years of positive net income and the
analysis of projections for the years 1996 though 1999, the Company removed the
remaining valuation allowance.  Accordingly, such amounts were recorded as a
credit to income tax expense.

  On August 31, 1995, the Company completed the refinancing of its existing
principal debt facilities as described in Footnote 6 to the Company's
Consolidated Financial Statements.  As a result of the refinancing, the Company
expensed the remaining unamortized loan origination fees related to the prior
debt facilities as an extraordinary item, totaling $62,000 after the tax effect.

  Net income before preferred dividends increased $1,504,110 or 64% from
$2,339,776 for the year ended December 31, 1994 to $3,843,886 for the year ended
December 31, 1995.

  Dividends totaling $184,114 and $198,555 were paid on the Company's Series A
Preferred Stock for the twelve months ended December 31, 1995 and 1994,
respectively.  During 1995, 543,000 shares of the Series A Preferred Stock were
converted to 638,568 shares of common stock.

  Fully diluted earnings per share increased from $.46 per share (adjusted for
the 1:4 reverse stock split) for the year ended December 31, 1994 to $.63 for
the year ended December 31, 1995. Common shares and shares equivalents on a
fully diluted base increased 1,092,119 or 22% from

                                       18
<PAGE>

5,037,002 for the year ended December 31, 1994 to 6,129,121 for the year ended
December 31, 1995, as a result of raising equity capital and issuing stock in
connection with acquisitions.

LIQUIDITY AND CAPITAL RESOURCES

  Management is currently pursuing a three-pronged growth strategy to expand the
Company which includes (1) internal growth of existing schools through the
expansion of certain facilities, (2) new school development in both existing and
new markets and (3) strategic acquisitions.  During 1997, the Company intends to
fund its growth strategy and its cash needs through (1) the $10,000,000
available balance of its revolving line of credit, (2) the use of site
developers to build schools and lease them to the Company, (3) the $15,000,000
commitment from AEI, and (4) issuance of subordinated indebtedness or shares of
common stock to sellers in acquisition transactions.  If the need arises, the
Company may also effect additional debt or equity financings.

  The Company anticipates that its existing available principal credit
facilities, cash generated from operations, continued support of site developers
to build and lease schools  and funds from AEI will be sufficient to satisfy the
working capital needs of the Company and the building of new schools in the near
term future.

  The Company is continuing to look for quality acquisition candidates.
Depending on the size of future acquisitions, the Company may need to seek funds
from additional debt or equity placements.

  The Company has historically funded its growth and cash needs through bank
borrowings, cash flow from operations and the proceeds of equity private
placements.  On March 5, 1996, the Company raised net proceeds of $11.6 million
through the private placement of 1,000,000 shares of its Common Stock.  The
Company has used and is using such proceeds (1) to build new schools, (2) to
make strategic acquisitions and (3) for general working capital purposes.  In
December 1996, the Company entered into a Multi-Site Sale Leaseback Agreement
with AEI Fund Management, Inc. Under that agreement, AEI agreed to purchase from
Nobel in sale/leaseback transactions up to $15,000,000 worth of parcels through
the end of 1999 (subject in each case to AEI's standard credit, site and other
due diligence review).  The agreement also provides that AEI will provide Nobel
with land acquisition and construction loan financing for each project.

  In November 1996, the Company entered into the Fourth Amendment of its Loan
and Security Agreement with its senior lender, which increased the Company's
line of credit from $7,500,000 to $10,000,000.  In addition, the bank extended
the maturity of the revolving line of credit one year to 1999 and both term
loans to 2001.  The bank also increased the flexibility of the Company's ability
to open new schools and complete acquisitions without bank consent.

  At December 31, 1996, the Company's loans from its senior lender consisted of:
a $7,500,000 term loan ("Term Loan I"), of which $6,450,000 was outstanding; a
$6,000,000 term loan ("Term Loan I"), of which $5,320,000 was outstanding; and,
a $10,000,000 line of credit, none of which was outstanding.  The Term Loan I
bears interest at 8-1/2% and requires quarterly principal payments as follows:
$200,000 each quarter from December 1, 1995 through September 1, 1996; $250,000
each quarter from December 1, 1996 through September 1, 1999; and $300,000 each
quarter from December 1, 1999 through September 1, 2001.  The Term Loan II,
which was extended on April 6, 1996, bears interest at 8% and requires quarterly
principal payments as follows:  $200,000 each

                                       19
<PAGE>

quarter through September 1, 1996; $280,000 each quarter from December 1, 1996
through September 1, 1999; $350,000 each quarter through June 1, 2001, with the
remaining balance due on September 1, 2001. The revolving line of credit bears
interest at a LIBOR based performance rate and matures September 1, 1999. As of
December 30, 1996, $10.0 million was available to the Company under this line of
credit.

  On March 20, 1997, the Company entered into the Fifth Amendment of its Loan
and Security Agreement with its primary lender which, among other changes,
increased the permitted number of new school construction projects on the
Company's balance sheet to ten annually, and permitted the Company to own at any
time seven tracts of land being held for school development with an aggregate
$3,500,000 purchase price.  This amendment gives the Company greater flexibility
to pursue its growth strategy.

  The Company generally seeks to accomplish development of new schools without
significant expenditures of cash by entering into arrangements with real estate
developers to build new schools. The Company commits to enter into a long-term
lease for a new school from the third party owner. The Company also has
available $15,000,000 from AEI to build new schools through sale/leaseback
transactions.

  In 1997, the Company plans to convert approximately six of its child care
centers to Chesterbrook Academy schools.  When a conversion takes place, the
Company upgrades the curriculum and equipment, retrains the teachers and changes
signage.  The Company estimates the capitalized cost of a conversion to be
$30,000 to $40,000 per location.  The Company anticipates that cash generated
from operations and its line of credit will be sufficient to fund the cost of
the conversions.

  Additionally in 1997, the Company will begin to upgrade its management
information system to link the schools to the corporate office as well as to
other schools.  Management anticipates that the process will take several years
and has projected that it may spend approximately $750,000 on this project in
1997.

  Total cash and cash equivalents increased $1,536,995 from $3,714,560 at
December 31, 1995 to $5,251,555 at December 31, 1996.  The net increase was due
primarily to (1) the raising of $11,600,000 through a private placement of
equity and (2) cash flow from operations totaling $4,700,000.  Cash used in
Investing Activities is as follows:  (1) acquisitions of various schools
totaling $5,400,000,  (2) approximately $8,000,000 for building new schools and
acquisition of land parcels for future development, (3) $1,400,000 for the
purchase of land and buildings related to school acquisitions, (4) $460,000 for
conversion of centers to Chesterbrook Academy schools, and (5) $2,800,000  for
capital expenditures. These were offset by proceeds from the sale of property
and equipment of approximately $8,700,000.  In addition, the Company's cash
provided by Financing Activities was offset by scheduled principal payments of
approximately  $2,000,000 and the prepayment of approximately $3,500,000 of
mortgages on sale of property.

  Net cash flow from operations increased $737,820 or 18% from $4,037,239 as of
December 31, 1995 to $4,775,059 as of December 31, 1996.  The increase is
primarily the result of a decrease in net income of $1,380,994 offset by an
increase in depreciation and amortization of $698,293 and the use of the
deferred tax asset of $1,206,894.

                                       20
<PAGE>

  The working capital deficit increased $519,943 from $831,042 at December 31,
1995 to $1,350,985 at December 31, 1996.  The increase is a result of an
increase in the Company's current portion of long term debt of $1,760,899 of
which $500,000 is related to an acquisition and $1,260,899 is related to the
Company refinancing the $6,000,000 14% subordinated debt with a second term loan
with scheduled principal payments.  The increase in debt was offset by an
increase of current assets totaling $1,166,092.

TRENDS

  Looking forward into 1997, the Company sees a major reform taking place in the
education market.  The Company plans to capitalize on the growing need for
improved quality education.  In 1996 and 1997, the Company built new elementary
and middle schools which incur larger initial losses in the first year as
compared to a preschool but offers higher margins in the later years.  The
Company plans to open five to six elementary schools in 1997, and continue such
development on an accelerated pace.

  A significant portion of the Company's 1995 and 1996 growth was through
acquisitions.  In one of the acquisitions, located in Indianapolis, several of
the schools are performing under expectations, which is creating losses in that
region, and it is taking longer than anticipated to improve several of the
schools.  Management is evaluating several alternatives to return those schools
to acceptable operating levels.

  In California, the Company has felt competitive pressures for teachers.  The
state has committed to lowering the student/teacher ratio in kindergarten,
first, and second grades of its public schools. This commitment has created a
higher demand for teachers as school districts seek to fill new positions.
While several of the Company's teachers left the Company to work for public
schools, the Company is taking aggressive steps to attract and maintain quality
teachers.  Enrollment was negatively impacted by these developments.

INFLATION

  The Company has not been significantly affected by inflation.

INSURANCE

  Companies involved in the education and care of children may not be able to
obtain insurance for the total risks inherent in their operations.  In
particular, general liability coverage can have sublimits per claim for child
abuse.  Since 1995, the Company has been able to increase significantly the
sublimit applicable to such coverage.  There can be no assurance that in future
years the Company will not again become subject to lower limits.

CAPITAL EXPENDITURES

  In 1997, the Company plans to convert six of its existing Rocking Horse Child
Care Centers to Chesterbrook Academy schools.  Capital expenditure requirements
for each conversion are estimated to be $30,000 to $35,000 per school, with
total costs projected to be $210,000.  Cash flows from operations and the line
of credit are anticipated to be sufficient to cover the costs.  In addition, the
Company plans to spend approximately $3,500,000 on capital expenditures in the
remaining schools.

                                       21
<PAGE>

  The Company is continuously maintaining and upgrading the property and
equipment of each school.  During 1996, the Company spent $2,800,000 on capital
expenditures which included upgrading playgrounds, purchasing new equipment and
technology and books, making purchases relating to new school startup and
improving the equipment and facilities of some of the acquisitions.

RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1997 the FASB issued SFAS  No. 128 "Earnings Per Share."  This
Statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock.  This Statement is effective for financial statements issued for
periods ending after December 15, 1997 (earlier application is not permitted).
This Statement requires restatement of all prior-period EPS data presented.  The
Company is currently evaluating the impact, if any, adoption of SFAS No. 128
will have on its financial statements.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

  Financial statements and supplementary financial information specified by this
Item, together with the Reports of the Company's independent accountants
thereon, are included in this Annual Report on Form 10-K on pages F-1 through F-
26 below.

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

  None.

                                       22
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

  The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>

            Name           Age                      Position
---------------------------------------------------------------------------------
<S> <C>                    <C>  <C>
    A. J. Clegg             57  Chairman of the Board of Directors, President
                                and
                                Chief Executive Officer; Director (since 1992)
    John R. Frock           53  Executive Vice President-Corporate Development;
                                Assistant Secretary; Director (since 1992)
    Brian C. Zwaan          38  Executive Vice President and Chief Financial
                                Officer
    D. Scott Clegg          34  Executive Vice President - Operations
    Yvonne DeAngelo         39  Vice President - Administration and Finance;
                                Secretary
    B. Robin Eglin          40  Vice President - Real Estate Development
    Barbara Z. Presseisen   60  Vice President - Education
    Edward Chambers         60  Director (since 1988)
    Peter H. Havens         42  Director (since 1991)
    Janet L. Katz           50  Director (since 1994)
    Morgan R. Jones         57  Director (since 1991)
    John H. Martinson       49  Director (since 1994)
    Eugene G. Monaco        69  Director (since 1995)
</TABLE>

  The following description contains certain information concerning the
foregoing persons:

A.J. Clegg. Mr. Clegg was named Chairman of the Board and Chief Executive
Officer of the Company on May 29, 1992.  Since 1989, Mr. Clegg has also served
on the Advisory Board of Drexel University and, in 1996, was named as a member
of the Board of Trustees of Drexel University. Since June 1990, Mr. Clegg has
also served as the Chairman and CEO of JBS Investment Banking, Ltd., which
provides investment management and consulting services to businesses and
formerly provided services to the Company through an Administrative Services
Agreement.  Mr. Clegg's responsibilities for JBS Investment Banking, Ltd. do not
require material amounts of his time.  In 1979, he formed Empery Corporation, an
operator of businesses in the cable television and printing industries, and held
the offices of Chairman, President and CEO during his tenure (1979-1993). In
addition, Mr. Clegg served as Chairman and CEO of TVC, Inc. (1983-1993), a
distributor of cable

                                       23
<PAGE>

television components; and Design Mark Industries (1988-1993), a manufacturer of
electronic senswitches. Mr. Clegg has also served on the board of directors of
Ferguson International Holdings, PLC, a United Kingdom company, from March 1990
to April 1991; and was Chairman and CEO of Globe Ticket and Label Company from
December 1984 to February 1991.

John R. Frock.  Mr. Frock was named Executive Vice President - Corporate
Development on August 1, 1994.  Mr. Frock was elected to the Board of Directors
of the Company on May 29, 1992.  In March 1992, Mr. Frock became the President
and Chief Operating Officer of JBS Investment Banking, Ltd., which provided
investment management and consulting services to businesses (which included
Nobel).  During the past five years, Mr. Frock also served as the Chairman and
Chief Executive Officer of Avant Guarde Enterprises, Ltd.; President and Chief
Operating Officer of SBF Communications Graphics, a business forms printer
located in Philadelphia, PA; President of Globe Ticket and Label Company; and
President of the Graphics Group of Empery Corporation.

Brian C. Zwaan.  Mr. Zwaan joined Nobel as Chief Financial Officer in December
1996.  Prior to joining Nobel, Mr. Zwaan was Senior Vice President of Summit
Bancorp, managing commercial operations in Southeastern Pennsylvania focusing on
middle market corporations with revenues between $15 million and $250 million.
Mr. Zwaan has over 16 years experience in the finance and accounting industries,
including areas of strategic planning, acquisition underwriting and integration,
budget management and sales and marketing.  He is a licensed CPA in the state of
Pennsylvania.

D. Scott Clegg.  Mr. Clegg was named Vice President - Operations for the
Merryhill Country Schools division in June 1993 and Vice President - Operation,
with responsibility for nationwide operations in early 1996.  He was formerly
Vice President of New Business Development at JBS Investment Banking, Ltd.  Mr.
Clegg also served as General Manager and Chief Operating Officer of Dynasil
Corporation of America, a public company, and also served as a member of
Dynasil's Board of Directors.

Yvonne DeAngelo.  Ms. DeAngelo was appointed Vice President - Finance and
Administration in December 1995.  She had served as Controller since March 1989.
Ms. DeAngelo has also served as Secretary since May 1992.  Before joining Nobel
Education Dynamics, Inc., she served as Senior Auditor for Coopers and Lybrand
from 1986 to 1989.

B. Robin Eglin.  Mr. Eglin was named Vice President - Real Estate Development in
April 1995. Mr. Eglin was formerly Vice President of Carefree Learning Centers,
Inc. and Keystone Real Estate Development Company, Inc., wholly-owned for-profit
subsidiaries of Pennsylvania Blue Shield, where he was in charge of all real
estate, finance and accounting activities.  Mr. Eglin joined Carefree in 1989.

Barbara Z. Presseisen.  Dr. Presseisen was named Vice President - Education in
June 1996.   Dr. Presseisen served in several positions over 24 years at
Research for Better Schools, one of the ten regional educational laboratories
sponsored by the U.S. Department of Education, located in Philadelphia,
Pennsylvania.  In her most recent capacity, Director of National Networking, she
worked with several major school districts on staff development and program
improvement, as well as coordinated training and conferences on curriculum and
student achievement with other laboratories and a number of professional
associations and universities. Dr. Presseisen has authored a number of books and
research reports, and has been an invited lecturer at many national and

                                       24
<PAGE>

regional programs. Most recently, prior to joining Nobel, Dr. Presseisen
consulted on educational design and product development for the Walt Disney
Company from December 1995 to June 1996.

Edward H. Chambers.  Mr. Chambers has served as Executive Vice President -
Finance and Administration of Wawa, Inc. since March 1988.  During the period
April 1984 through March 1988, he served as President and Chief Executive
Officer, and as a director, of Northern Lites, Ltd., an owner and operator of
quick-service restaurants operating pursuant to a franchise from D'Lites of
America, Inc.  From 1982 to July 1984, Mr. Chambers was President - Retail
Operations of Kentucky Fried Chicken Corp., a franchiser of quick-service
restaurants.  He is also a director of Davco, Inc., a franchisee of Wendy's
International, Inc. and a director of Riddle Memorial Hospital.

Peter H. Havens.  Mr. Havens has been Executive Vice President of Bryn Mawr Bank
Corporation since May 1995 overseeing the Trust Division.  From 1982 through May
1995, Mr. Havens served as manager of Kewanee Enterprises, a private investment
firm located in Bryn Mawr, Pennsylvania. He is also Chairman of the Board of
Directors of Petroferm, Inc. and a director of Bryn Mawr Bank Corporation,
Ursinus College and Independence Seaport Museum.

Morgan R. Jones.  Mr. Jones has been a partner in the law firm Drinker Biddle &
Reath, Philadelphia, Pennsylvania since 1970, and is presently Chairman of the
firm. Mr. Jones also serves on the Board of Directors of Mack Printing
Companies, Inc.

Janet Lea Katz.  Ms. Katz has both a Masters and a Doctorate in Education from
Columbia University and is currently serving as the building administrator at
Bogert School in Upper Saddle River, New Jersey.  Ms. Katz has held various
positions throughout her career in education, including speech arts teacher,
coordinator and therapist for speech and language programs for elementary school
and research assistant for the study of learning disabilities at Columbia
University, and is presently the curriculum coordinator for Upper Saddle River
Schools, Upper Saddle River, New Jersey, as well as the building administrator
at Bogert School.

John Martinson.  Mr. Martinson is Managing Partner of Edison Venture Fund which
he founded in 1986.  He also serves on the Board of Directors of the National
Venture Capital Association, Dendrite International, Inc. and eleven private
companies.

Eugene G. Monaco.  Mr. Monaco has both a J.D. from Temple Law School and M.S. in
Mechanical Engineering from the University of Delaware and, from January 1, 1990
until his retirement in late 1995, served as a Judge for the Delaware County
District Court.  He also served as an Instructor in Kinematics and Dynamics at
Drexel University, a Lecturer in child abuse at Penn State University, and was
the Chief Negotiator for the Rose Tree Media School Board. He also served as
Assistant District Attorney in Media, Pennsylvania and Engineering Negotiator
for Westinghouse Electric for 32 years.

  John Martinson serves on the Board as the designee of Edison Venture Fund II,
L.P., the majority holder of the Series C Convertible Preferred Stock, which was
issued in August 1994.

  A. J. Clegg's son, D. Scott Clegg, is the Executive Vice President -
  Operations of the Company.

                                       25
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION.

COMPENSATION TABLES

  The following tables contain compensation data for the Chief Executive Officer
and each other executive officer of the Company whose salary and bonus in 1996
aggregated to at least $100,000.
<TABLE>
<CAPTION>

SUMMARY COMPENSATION TABLE
                                  -----------------------------------------------------------------------------------
                                                                                            LONG TERM
                                                         ANNUAL COMPENSATION           COMPENSATION AWARDS
                                  -----------------------------------------------------------------------------------
                                                            OTHER                  SECURITIES            ALL
                                                            ANNUAL     RESTRICTED  UNDERLYING            OTHER
NAME AND                                                    COMPENS    STOCK       OPTIONS/              COMPENS
PRINCIPAL POSITION                YEAR  SALARY    BONUS/1/  ATION/2/   AWARDS      SARS/3/               ATION/4/
---------------------------------------------------------------------------------------------------------------------
<S>                               <C>   <C>       <C>       <C>        <C>         <C>          <C>
A.J. CLEGG                        1996  $201,465   $     0    $     0                        0                $3,332
Chairman, President and           1995   160,014   $96,000    $     0                   45,000                 2,052
Chief Executive Officer /5, 6/    1994    57,851    39,978    $     0                        0

JOHN R. FROCK                     1996  $112,119   $     0    $13,840                        0                $1,587
Executive Vice President /7/      1995    98,082   $33,750     13,549         /8/          /8/                   746
                                  1994    32,539    14,055     14,950                        0

D. SCOTT CLEGG                    1996  $102,816   $     0    $     0                   30,000                $1,245
Executive Vice President          1995    82,087   $29,400    $     0                    5,000                   127
 - Operations                     1994    73,238    13,320    $     0                        0                   127

B. ROBIN EGLIN                    1996  $101,018   $     0    $13,841                        0                $1,086
Vice President - Real             1995    72,322              $10,380                    3,000
Estate Development /9/                             $19,500                                                    $  756
</TABLE>

(1) Bonuses are reported with respect to the fiscal year earned, although paid
    in the following year.  No bonuses were paid to the named executives for
    1996; however, in January 1997, these executives received additional stock
    option grants.

(2) The amounts reported for John R. Frock consisted of (i) $7,800, $7,800 and
    $3,082 for automobile expenses in 1996, 1995 and 1994, respectively, and
    (ii) $5,760, $5,511 and $895 for health insurance in 1996, 1995 and 1994,
    respectively.  The amounts reported for B. Robin Eglin consisted of (i)
    $7,800 and $5,850, for automobile expenses in 1996 and 1995, respectively,
    and (ii) $6,041 and $4,530 for health insurance in 1996 and 1995,
    respectively. While other named executives enjoy certain similar
    perquisites, for fiscal year 1996, perquisites and other personal benefits
    for such executive officers did not exceed the lesser of $50,000 or 10% of
    any such executive officer's salary and bonus and accordingly have been
    omitted from the table as permitted by the rules of the Securities and
    Exchange Commission.

(3) Options granted to A.J. Clegg were granted on December 18, 1995; options
    granted to D. Scott Clegg were granted on November 18, 1995 and June 21,
    1996, respectively; options granted to B. Robin Eglin were granted on
    December 18, 1995.  All such options vest in increments of one-third of the
    total number of options granted on the first, second and third anniversary
    dates of the date of grant.

                                       26
<PAGE>

(4) Other compensation in 1996:  for A.J. Clegg consisted of $2,290 for life
    insurance and $1,042 for employer matching 401(k) plan contributions; for
    John R. Frock consisted of $984 for life insurance and $603 for employer
    matching 401(k) plan contributions; for D. Scott Clegg consisted $365 for
    life insurance and $880 for employer matching 401(k) plan contributions; and
    for B. Robin Eglin consisted of $540 for life insurance and $546 for
    employer matching 401(k) plan contributions.

(5) In August 1994, A.J. Clegg was hired as an employee of the Company in the
    position of Chairman and Chief Executive Officer. Prior to this time, Mr.
    Clegg was the Chairman and Chief Executive Officer of JBS Investment
    Banking, Ltd. ("JBS"). On May 29, 1992, pursuant to a private placement
    offering, the Company entered into a three year Administrative Services
    Agreement with JBS, pursuant to which JBS provided management and advisory
    services to the Company and received certain management fees. The fixed fee
    portion of this agreement was terminated in August 1994 when Mr. Clegg
    joined the Company as a full time employee. During 1995 and 1994,
    respectively, the Company paid fees to JBS approved by the Board totaling
    $8,289 and $200,374 for the services of JBS personnel, which  included A.J.
    Clegg, John R. Frock and four other persons.  Mr. Clegg joined the Company
    as a full time employee on August 1, 1994.

(6) On March 1, 1995, the Board of Directors approved an increase in Mr. Clegg's
    base salary of $20,000, from $160,014 to $180,014.  Mr. Clegg voluntarily
    declined taking such increase in 1995.

(7) John R. Frock joined the Company as a full time employee on August 1, 1994.

(8) The Company made a Restricted Stock Award to Mr. Frock under the 1995 Stock
    Incentive Plan of 25,000 shares of Common Stock on March 19, 1996.  However,
    these shares were never issued, and the Company and Mr. Frock subsequently
    agreed to the cancellation of such award.  Further, on December 18, 1995,
    the Company granted Mr. Frock an option to purchase 25,000 shares of common
    stock, which option was canceled in March 1996.

(9) B. Robin Eglin joined the Company in April 1995.

                                       27
<PAGE>

OPTIONS/STOCK APPRECIATION RIGHTS GRANTED IN 1996
<TABLE>
<CAPTION>
                                                                           POTENTIAL REALIZED VALUE AT ASSUMED
                                                                               ANNUAL RATES OF STOCK PRICE
                                                                              APPRECIATION FOR OPTION TERM
                                               INDIVIDUAL GRANTS                       (10 YRS.)/1/
                            ----------------------------------------------------------------------------------
                              NUMBER OF     % OF TOTAL
                             SECURITIES      OPTIONS/
                             UNDERLYING    SARS GRANTED    EXERCISE                AT 0%     AT 5%    AT 10%
                               OPTION/        TO ALL       OR BASE                 ANNUAL   ANNUAL    ANNUAL
NAME OF                         SARS       EMPLOYEES IN   PRICE PER   EXPIRATION   GROWTH    GROWTH   GROWTH
EXECUTIVE                    GRANTED/ 2/     1996 /3/        SHARE      DATE        RATE      RATE      RATE
--------------------------------------------------------------------------------------------------------------
<S>                          <C>           <C>            <C>          <C>         <C>      <C>       <C>
A. J. Clegg                             0          0.00%          n/a         n/a       $0  $      0  $      0
John R. Frock                           0          0.00%          n/a         n/a       $0  $      0  $      0
D. Scott Clegg                     30,000         51.72%       $14.25     6/21/06       $0  $268,853  $681,325
B. Robin Eglin                          0          0.00%          n/a         n/a       $0  $      0  $      0
</TABLE>

---------
(1) The potential realizable values are based on an assumption that the stock
    price of the shares of Common Stock of the Company appreciate at the annual
    rate shown (compounded annually) from the date of grant until the end of the
    option term. These values do not take into account amounts required to be
    paid as income taxes under the Internal Revenue Code of 1986, as amended,
    and any applicable state laws, or option provisions providing for
    termination of an option following termination of employment,
    nontransferability, or vesting over periods of up to three years.  These
    amounts are calculated based on the requirements promulgated by the
    Securities and Exchange Commission and do not reflect the Company's estimate
    of future stock price growth of the shares of the Company's Common Stock.

(2) Options granted D. Scott Clegg were granted on June 21, 1996 upon his
    promotion to Executive Vice President - Operations and vest in increments of
    one-third of the total number of options granted on the first, second and
    third anniversary dates of the date of grant.

(3) During 1996, the Company granted to employees options to purchase an
    aggregate of 58,000 shares of Common Stock.

<TABLE>
<CAPTION>


AGGREGATED OPTION/STOCK APPRECIATION RIGHTS EXERCISED IN 1996

AND VALUE OF OPTIONS AT
 DECEMBER 31, 1996


                                                        NUMBER OF UNEXERCISED        VALUE OF UNEXERCISED
                                                        OPTIONS AT DECEMBER 31,     IN-THE-MONEY OPTIONS AT
                                    EXERCISED IN 1996          1996                   DECEMBER 31, 1996
                            --------------------------------------------------------------------------------------
NAME OF EXECUTIVE              SHARES
                             ACQUIRED ON    VALUE
                               EXERCISE    REALIZED  EXERCISABLE    UNEXERCISEABLE    EXERCISABLE  UNEXERCISEABLE
------------------------------------------------------------------------------------------------------------------
<S>                          <C>           <C>        <C>          <C>                 <C>          <C>
A. J. Clegg                             0          0       15,000              30,000      $     0              $0
John R. Frock                           0          0            0                   0      $     0              $0
D. Scott Clegg                          0          0        7,917              33,333      $39,075              $0
B. Robin Eglin                          0          0        1,000               2,000      $     0              $0
                           ---------------------------------------------------------------------------------------
</TABLE>

None of the above named executive officers held any stock appreciation rights at
December 31, 1996.

                                       28
<PAGE>

COMPENSATION OF DIRECTORS

  The Company pays director (other than A. J. Clegg) an annual retainer of
$6,000 which is paid quarterly and pays members of committees of the Board
(other than A. J. Clegg) $750 per meeting for each committee meeting attended.
(John Frock's compensation reported in the Summary Compensation Table does not
include such fees.)

  The Company's 1995 Stock Incentive Plan provides that as of March 31, 1996 and
each subsequent March 31 that the Plan is in effect, each individual serving as
a director of the Company, who is not an officer or employee thereof, will be
granted a nonqualified stock option to purchase 500 shares of Common Stock if
the individual served as a director for the entire previous fiscal year and the
Company's pre-tax income for such fiscal year increased at least 20% from the
prior fiscal year.  Pursuant to the Plan, each of Messrs. Chambers, Havens,
Jones and Martinson and Ms. Katz received an option to purchase 500 shares of
Common Stock on March 31, 1996, and each of Messrs. Chambers, Havens, Jones,
Martinson and Monaco and Ms. Katz received an option to purchase 500 shares of
Common Stock on March 31, 1997.

EXECUTIVE SEVERANCE PLAN

  In March 1997, the Company adopted an Executive Severance Pay Plan (the
"Plan").  The Plan covers each of the four executive officers named in the table
on page 26, as well as four other officers and key executives of the Company,
and persons who succeed to the positions held by such executives and such other
additional employees or positions as determined by written resolution of the
Board from time to time (collectively, the "Eligible Executives").  Under the
Plan, if the employment of an Eligible Executive with the Company terminates
following a Change of Control (as defined in the Plan) of the Company, under
specified circumstances, the Eligible Executive will be entitled to receive the
severance benefit specified in the Plan.  The amount payable to an Eligible
Executive would equal (a) the Eligible Executive's salary for a period of months
equal to six plus the number of years of service of the Eligible Executive as of
the date of termination (or two times the number of years of service, if he or
she has completed at least three years of service as of the termination date),
subject to a maximum of 18 months' pay, plus (b) the bonus which would have been
payable to the Eligible Executive for the year in which employment was
terminated pro rated based on the number of months of employment in the year of
termination.

AGREEMENTS WITH EXECUTIVE OFFICER

  The Company and John R. Frock are parties to a Noncompete Agreement which
provides that the Company will make a payment to Mr. Frock following his
termination for any reason if, within 30 days of his termination date, Mr. Frock
delivers a letter to the Company agreeing not to engage in specified activities
in competition with the Company for four years. The amount of such payment will
equal $85,000 if the termination date is prior to December 1, 1997, $170,000 if
the termination date is on or after December 1, 1997 and on or before November
30, 1998, and $255,000 if the termination date is after November 30, 1998. The
Company and Mr. Frock are also parties to a Contingent Severance Agreement which
provides that if Mr. Frock's employment is terminated because (i) the Company
terminates Mr. Frock's employment without Cause (as defined in the agreement) or
(ii) Mr. Frock resigns following a Change of Control (as defined in the
agreement), within 20 days following the date of termination, the Company must
make a severance payment to Mr. Frock. The amount of such payment would be
calculated in the same manner as a payment under the Noncompete Agreement. The
Company will not under any circumstance be required to make a payment to Mr.
Frock under both the Noncompete Agreement and the Contingent Severance
Agreement.

                                       29
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Common Stock

  The following table shows information concerning the beneficial ownership of
the Company's Common Stock as of February 15, 1997 by each director, by each
executive officer named in the Summary Compensation Table appearing elsewhere in
this Annual Report, by all directors and executive officers as a group, and by
each person who is known to the Company to be the beneficial owner of more than
5% of the Company's Common Stock.  The number of shares beneficially owned by
each person is determined under the rules of the Securities and Exchange
Commission and the information is not necessarily indicative of beneficial
ownership for any other purpose.  Under such rules, beneficial ownership
includes any shares as to which the person has sole or shared voting power or
investment power and also any shares which the person has the right to acquire
within 60 days of February 15, 1997 through the exercise of any stock option or
right or conversion of any convertible security or otherwise.  As of February
15, 1997, the Edison Venture Fund II, L.P., Allied Capital Corporation and
affiliated funds, and A. J. Clegg were the only persons or group of persons
known to the Company as beneficially owning more than 5% of the outstanding
Common Stock of the Company.  The Edison Venture Fund II, L.P. has its principal
executive office at 997 Lenox Drive #3, Lawrenceville, New Jersey 08648.  Allied
Capital Corporation and affiliated funds have their principal executive offices
at 1666 K St., N.W., Suite 901, Washington, DC  20006.  A. J. Clegg's address is
c/o Nobel Education Dynamics, Inc., Rose Tree Corporate Center II, 1400 North
Providence Road, Suite 3055, Media, Pennsylvania  19063.

<TABLE>
<CAPTION>
                                Number of Shares of            Percent
                                   Common Stock                   of
Name of Beneficial Owner        Beneficially Owned            Class (1)
------------------------        ------------------            ---------
<S>                             <C>           <C>               <C>
A. J. Clegg                          569,352     (2)               9.04%
Edward H. Chambers                    22,730     (3)                *
John R. Frock                         27,200     (4)                *
Peter H. Havens                       12,609     (5)                *
Morgan R. Jones                       10,599     (6)                *
Janet Katz                            29,900     (7)                *
John Martinson                       629,532     (8)               9.74%
Eugene Monaco                          1,000                        *
D. Scott Clegg                         7,917     (9)                *
B. Robin Eglin                         1,000    (10)                *
Edison Venture Fund II, L.P.         629,032    (11)               9.74%
Allied Capital Corporation           575,000    (12)               8.98%
All directors and executive        1,314,881    (13)              18.76%
 officers as a group
 (13 persons)
*  Less than 1%.                                  [See notes on following page]
</TABLE>

                                       30
<PAGE>

(1) The numbers set forth above reflect the percentage of outstanding Common
    Stock currently owned by each holder listed and the percentage of
    outstanding Common Stock which would be owned by each such holder giving
    effect to the conversion of all shares of Preferred Stock and exercise of
    all options and warrants held by such holder, but not to such conversion or
    exercise by any other person.

(2) Of these shares, 100,806 shares are issuable upon conversion of Series C
    Preferred Stock of the Company, 20,161 shares are issuable upon the exercise
    of warrants and 15,000 are issuable upon exercise of currently exercisable
    stock options.  In addition, Mr. Clegg is also the beneficial owner of an
    additional 430,885 shares owned of record by, or issuable upon the exercise
    of securities of the Company owned of record by, JBS Investment Banking,
    Ltd., a privately held corporation of which Mr. Clegg is a director, officer
    and controlling stockholder, as follows: 103,000 shares of Common Stock
    owned of record by JBS; 187,500 shares issuable upon the exercise of
    warrants held by JBS; and 140,385 shares of Common Stock issuable upon the
    conversion of the Company's Series A Preferred Stock owned of record by JBS.
    JBS may also be deemed to be the beneficial owner of these 430,885 shares.
    Mr. Clegg is also the beneficial owner of 2,500 shares of Common Stock owned
    by his spouse.  This does not include shares beneficially owned by Mr.
    Clegg's adult children (including Scott Clegg, an officer of the Company),
    as to which he disclaims beneficial ownership.

(3) Consists of 14,750 shares of Common Stock which Mr. Chambers has the right
    to purchase upon the exercise of currently exercisable options, 1,470 shares
    of Common Stock issuable upon the conversion of the Company's Series A
    Preferred Stock, and 6,510 shares of Common Stock held by Mr. Chambers.

(4) Consists of 14,700 shares of Common Stock issuable upon the conversion of
    the Company's Series A Preferred Stock and 12,500 shares of Common Stock
    held by Mr. Frock.

(5) Consists of 7,250 shares of Common Stock which Mr. Havens has the right to
    purchase upon the exercise of currently exercisable options, 3,234 shares of
    Common Stock issuable upon the conversion of the Company's Series A
    Preferred Stock held by Mr. Havens, and 2,125 shares of Common Stock held by
    Mr. Havens.

(6) Consists of 10,099 shares of Common Stock held by Mr. Jones and 500 shares
    of Common Stock which Mr. Jones has the right to purchase upon the exercise
    of currently exercisable options.  Does not include shares owned by Mr.
    Jones's spouse and adult children as to which he disclaims beneficial
    ownership.

(7) Consists of 29,400 shares of Common Stock issuable upon the conversion of
    the Company's Series A Preferred Stock held by Ms. Katz and 500 shares of
    Common Stock which Ms. Katz has the right to purchase upon the exercise of
    currently exercisable options.

(8) Mr. Martinson is a managing partner of Edison Partners II, the general
    partner of Edison Venture Fund II, L.P.. By virtue of his position as
    managing partner, Mr. Martinson may under the SEC's rules also be deemed a
    beneficial owner of the shares owned by Edison Venture Fund II, L.P.  (See
    footnote 11.)  Mr. Martinson disclaims beneficial ownership of such shares.
    Mr. Martinson also holds currently exercisable options to purchase 500
    shares of Common Stock.

(9) Consists of 7,917 shares of Common Stock which Mr. Clegg has the right to
    purchase upon the exercise of currently exercisable options.

(10) Consists of 1,000 shares of Common Stock which Mr. Eglin has the right to
     purchase upon the exercise of currently exercisable options.

(11) Consists of 524,193 shares of Common Stock issuable upon the conversion  of
     the Company's Series C Preferred Stock held by the Edison Venture Fund  II,
     L.P. and 104,839 shares issuable upon the exercise of warrants held by  the
     Edison Venture Fund II, L.P.  By virtue of his position as managing partner
     of Edison Venture Fund II, L.P., Mr. Martinson may under the SEC's rules
     also be deemed a beneficial owner of these shares.

(12) Consists of an aggregate of 265,958 shares of Common Stock upon the
     conversion of the Company's Series D Preferred Stock and 309,043 issuable
     upon the exercise of warrants held by Allied Capital Corporation, Allied
     Capital Corporation II, Allied Investment Corporation and Allied Investment
     Corporation II.

(13) Consists of shares shown as beneficially held by all natural persons in
     this table, and an additional 2,792 shares of Common Stock which an
     executive officer not named in the table has the right to purchase upon the
     exercise of currently exercisable options and 250 shares owned by such
     executive officer.

                                       31
<PAGE>

Preferred Stock

  The following table shows information concerning the beneficial ownership of
the Company's Series A Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock as of February 15, 1997 by each director, by each executive
officer named in the Summary Compensation Table appearing elsewhere in this
Annual Report, and by all directors and executive officers as a group. Directors
and executive officers omitted from a section of the following table do not
beneficially own shares of the series of Preferred Stock to which such section
relates.
<TABLE>
<CAPTION>

                                            Number of Shares of     Percent
Name of                                       Common Stock            of
Security        Name of Beneficial Owner    Beneficially Owned      Class
----------------------------------------------------------------------------
<S>           <C>                           <C>           <C>     <C>
Series A      Edward H. Chambers                   5,000            0.44%
Preferred     A. J. Clegg                        477,500     (1)   42.12%
Stock         John R. Frock                       50,000            4.41%
              Peter H. Havens                     11,000            0.97%
              Janet Katz                         100,000            8.82%
              All directors and executive        643,500           56.76%
              officers as a group
              (11 persons)
--------------------------------------------------------------------------------
Series C      A. J. Clegg                        403,226           16.13%
Preferred     Edison Venture Fund II, L.P.     2,096,774           83.87%
Stock         John Martinson                   2,096,774     (2)   83.87%
              All directors and executive      2,500,000     (2)  100.00%
              officers as a group
              (11 persons)
--------------------------------------------------------------------------------
Series D      Allied Capital Corporation       1,063,830     (3)  100.00%
Preferred     All directors and executive              0
Stock         officers as a group
              (11 persons)
--------------------------------------------------------------------------------
</TABLE>


(1) Mr. Clegg is the beneficial owner of these 477,500 shares of Series A
    Preferred Stock owned of record by JBS Investment Banking, Ltd., as he is a
    director, officer and controlling stockholder of JBS Investment Banking,
    Ltd.

(2) John Martinson is a managing partner of Edison Partners II, the general
    partner of Edison Venture Fund II, L.P. By virtue of his position as
    managing partner, Mr. Martinson may also under the SEC's rules be deemed a
    beneficial owner of the 2,096,774 shares of Series C Preferred Stock owned
    by Edison Venture Fund II, L.P. Mr. Martinson disclaims beneficial ownership
    of such shares.

(3)  Shares are owned by Allied Capital Corporation, Allied Capital Corporation
     II, Allied Investment Corporation and Allied Investment Corporation II.

                                       32
<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

          During 1996, legal services were rendered to the Company by Drinker
Biddle & Reath, of which Morgan R. Jones, a director of the Company, is a
partner and Chairman.  Fees paid to this firm in 1996 were $128,015.  The
Company expects this firm to continue to provide such services in 1997.

                                       33
<PAGE>

                                    PART IV

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

(A) DOCUMENTS FILED AS A PART OF THIS REPORT:

                                                      Page
                                                      ----
  (1) Financial Statements.

     Report of Independent Accountants..................F-1
     Consolidated Balance Sheets........................F-2
     Consolidated Statements of Income..................F-3
     Consolidated Statements of Stockholders' Equity....F-4
     Consolidated Statements of Cash Flows..............F-5
     Notes to Consolidated Financial Statements.........F-7

  (2) Financial Statement Schedules.

     Financial Statement Schedules have been omitted as not applicable or not
  required under the instructions contained in Regulation S-X or the information
  is included elsewhere in the financial statements or notes thereto.

  (B) REPORTS ON FORM 8-K.

     On January 21, 1997, the Company filed a Report on Form 8-K reporting the
closing of its acquisition of all of the outstanding common stock of five
corporations under common control which owned six preschools operating under the
name Another Generation.

  (C) EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K.

Exhibit
Number    Description of Exhibit

2.1    Asset Purchase Agreement dated as of February 2, 1996 by and among Stony
       Point Learning Center, Inc., School's Out, Inc., Cascades Childcare, Inc.
       and Pump Road Child Care, Inc. and Linda Nash and Stephen Nash and the
       Registrant.  (Filed as Exhibit 4A to the Registrant's Current Report on
       Form 8-K dated February 16, 1996, date of earliest event reported
       February 2, 1996, and incorporated herein by reference.)

2.2    Asset Purchase Agreement dated as of February 2, 1996 by and among
       Loudoun Children's Center, Inc. and Linda Nash and Stephen Nash and the
       Registrant.  (Filed as Exhibit 4A to the Registrant's Current Report on
       Form 8-K dated February 16, 1996, date of earliest event reported
       February 2, 1996, and incorporated herein by reference.)

3.1    Registrant's Certificate of Incorporation, as amended and restated.
       (Filed as Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q
       for the quarter ended June 30, 1996, and incorporated herein by
       reference.)

                                       34
<PAGE>

3.2    Registrant's Certificate of Designation, Preferences and Rights of Series
       A Convertible Preferred Stock.  (Filed as Exhibit 7(c) to the
       Registrant's Current Report on Form 8-K filed on June 14, 1993 and
       incorporated herein by reference.)

3.3    Registrant's Certificate of Designation, Preferences and Rights of Series
       C Convertible Preferred Stock.  (Filed as Exhibit 4(ae) to the
       Registrant's Quarterly Report on Form 10-Q with respect to the quarter
       ended June 30, 1994 and incorporated herein by reference.)

3.4    Registrant's Certificate of Designation, Preferences and Rights of Series
       D Convertible Preferred Stock.  (Filed as Exhibit 4E to the Registrant's
       Current Report on Form 8-K filed on September 11, 1995, date of earliest
       event reported August 25, 1995, and incorporated herein by reference.)

3.5    Registrant's Amended and Restated By-laws. (Filed as Exhibit 3.4 to the
       Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
       1996, and incorporated herein by reference.)

4.1    Loan and Security Agreement dated August 30, 1995 (the "Loan and Security
       Agreement") among the Registrant, certain subsidiaries of the Registrant
       and Summit Bank (formerly First Valley Bank). (Filed as Exhibit 4F to the
       Registrant's Current Report on Form 8-K filed on September 11, 1995, date
       of earliest event reported August 25, 1995, and incorporated herein by
       reference.)

4.2    Second Amendment and Modification dated April 4, 1996 and Third Amendment
       and Modification dated July 2, 1996 to the Loan and Security Agreement.
       (Filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q
       for the quarter ended June 30, 1996, and incorporated herein by
       reference.)

4.3    Fourth Amendment and Modification dated November 1, 1996 to Loan and
       Security Agreement.  (Filed as Exhibit 4.2 to the Registrant's Quarterly
       Report on Form 10-Q for the quarter ended September 30, 1996, and
       incorporated herein by reference.)

4.4    Fifth Amendment and Modification dated March 20, 1997 to Loan and
       Security Agreement.

4.5    Term Note dated August 30, 1995 in the principal sum of $7,500,000
       payable to the order of Summit Bank.  (Filed as Exhibit 4G to the
       Registrant's Current Report on Form 8-K dated September 11, 1995, date of
       earliest event reported August 25, 1995, and incorporated herein by
       reference.)

4.6    Line Note dated August 30, 1995 in the principal sum of $7,500,000
       payable to the order of Summit Bank. (Filed as Exhibit 4H to the
       Registrant's Current Report on Form 8-K dated September 11, 1995, date of
       earliest event reported August 25, 1995, and incorporated herein by
       reference.)

4.7    New Term Note dated November 1, 1996 in the principal sum of $6,000,000
       payable to the order of Summit Bank.

                                       35
<PAGE>

       The Registrant has omitted certain instruments defining the rights of
       holders of long-term debt in cases where the indebtedness evidenced by
       such instruments does not exceed 10% of the Registrant's total assets.
       The Registrant agrees to furnish a copy of each of such instruments to
       the Securities and Exchange Commission upon request.

10.1   1986 Stock Option and Stock Grant Plan of the Registrant, as amended.
       (Filed as Exhibit 10(1) to the Registrant's Registration Statement on
       Form S-1 (Registration Statement No. 33-1644) filed on August 12, 1987
       (the "Form S-1") and incorporated herein by reference.)

10.2   1988 Stock Option and Stock Grant Plan of the Registrant.  (Filed as
       Exhibit 19 to the Registrant's Quarterly Report on Form 10-Q dated March
       31, 1988 and incorporated herein by reference.)

10.3   1995 Stock Incentive Plan of the Registrant.  (Filed as Exhibit 4.6 to
       the Registrant's Registration Statement on Form S-8 (Registration
       Statement No. 33-64701) filed on December 1, 1995 and incorporated herein
       by reference.)

10.4   Stock Purchase Agreement between the Registrant and various investors
       dated April 2, 1990.  (Filed as Exhibit 10(q) to the Registrant's Annual
       Report on Form 10-K for the year ended December 31, 1991 and incorporated
       herein by reference.)

10.5   Stock and Warrant Purchase Agreement between the Registrant and various
       investors, dated April 13, 1992.  (Filed as Exhibit 10(r) to the
       Registrant's Annual Report on Form 10-K for the year ended December 31,
       1991 and incorporated herein by reference.)

10.6   Registration Rights Agreement dated May 28, 1992 among the Registrant,
       JBS Investment Banking, Ltd., and Pennsylvania Merchant Group, Ltd.
       (Filed as Exhibit 4(a) to the Registrant's Current Report on Form 8-K
       dated June 11, 1992, date of earliest event reported May 28, 1992, and
       incorporated herein by reference.)

10.7   Saltzman Partners' Agreement dated May 28, 1992 among the Registrant, JBS
       Investment Banking, Ltd., and Saltzman Partners.  (Filed as Exhibit 4(b)
       to the Registrant's Current Report on Form 8-K dated June 11, 1992, date
       of earliest event reported May 28, 1992, and incorporated herein by
       reference.)

10.8   Warrant Subscription Agreement dated May 28, 1992 between Registrant and
       Pennsylvania Merchant Group Ltd.  (Filed as Exhibit 4(c) to the
       Registrant's Current Report on Form 8-K dated June 11, 1992, date of
       earliest event reported May 28, 1992, and incorporated herein by
       reference.)

10.9   Stock Purchase Agreement dated May 28, 1992 between Registrant and a
       limited number of accredited investors at $0.50 per share totaling
       3,200,000 shares of common stock. (Filed as Exhibit 4(d) to the
       Registrant's Current Report on Form 8-K dated June 11, 1992, date of
       earliest event reported May 28, 1992, and incorporated herein by
       reference.)

                                       36
<PAGE>

10.10  Shareholder's Agreement dated May 28, 1992 between Registrant and JBS
       Investment Banking, Ltd.  (Filed as Exhibit 2(a) to the Registrant's
       Current Report on Form 8-K dated June 11, 1992, date of earliest event
       reported May 28, 1992, and incorporated herein by reference.)

10.11  Amendment No. 1 to Shareholders' Agreement dated May 28, 1992 by and
       among JBS Investment Banking, Ltd., Nobel and Saltzman Partners.  (Filed
       as Exhibit 4(ag) to the Registrant's Quarterly Report on Form 10-Q with
       respect to the quarter ended June 30, 1994 and incorporated herein by
       reference.)

10.12  Series 1 Warrants for shares of Common Stock issued to Edison Venture
       Fund II, L.P. and  Edison Venture Fund II-PA, L.P.  (Filed as Exhibit
       4(ad) to the Registrant's Quarterly Report on Form 10-Q with respect to
       the quarter ended June 30, 1994 and incorporated herein by reference.)

10.13  Registration Rights Agreement between Registrant and Edison Venture Fund
       II, L.P. and Edison Venture Fund II-PA, L.P.  (Filed as Exhibit 4(af) to
       the Registrant's Quarterly Report on Form 10-Q with respect to the
       quarter ended June 30, 1994 and incorporated herein by reference.)

10.14  Amendment dated February 23, 1996 to Registration Rights Agreement
       between Registrant and Edison Venture Fund II, L.P. and  Edison Venture
       Fund II-PA, L.P.   (Filed as Exhibit 10.14 to the Registrant's Annual
       Report on Form 10-K for the year ended December 31, 1995 and incorporated
       herein by reference.)

10.15  Investment Agreement dated as of August 30, 1995 by and among the
       Registrant, certain subsidiaries of the Registrant and Allied Capital
       Corporation and its affiliated funds. (Filed as Exhibit 4A to the
       Registrant's Current Report on Form 8-K dated September 11, 1995, date of
       earliest event reported August 25, 1995, and incorporated herein by
       reference.)

10.16  Common Stock Purchase Warrant dated August 30, 1995 entitling Allied
       Capital Corporation to purchase up to 92,173 shares (pre-reverse stock
       split) of the Common Stock of the Registrant.  (Filed as Exhibit 4C to
       the Registrant's Current Report on Form 8-K dated September 11, 1995,
       date of earliest event reported August 25, 1995, and incorporated herein
       by reference.)

Exhibit 10.16 is one in a series of four Common Stock Purchase Warrants issued
pursuant to the Investment Agreement dated as of August 30, 1995 that are
identical except for the Warrant No., the original holder thereof and the number
of shares of Common Stock of the Registrant for which the Warrant may be
exercised, which are as follows:

                                                   Number of Shares
                                               (pre-reverse stock split)
                                                    of Common Stock
Warrant No.                 Holder               (subject to adjustment)
-------------  --------------------------------  -----------------------

      2        Allied Capital Corporation II                     142,932
      3        Allied Investment Corporation                      92,713

                                       37
<PAGE>

      4        Allied Investment Corporation II                   50,220

10.17  Registration Rights Agreement dated August 30, 1995 by and among the
       Registrant and Allied Capital and its affiliated funds, and amendment
       thereto dated February 23, 1996. (Filed as Exhibit 4D to the Registrant's
       Current Report on Form 8-K dated September 11, 1995, date of earliest
       event reported August 25, 1995, and incorporated herein by reference.)

10.18  Amendment dated February 23, 1996 to Registration Rights Agreement dated
       August 30, 1995 by and among the Registrant and Allied Capital and its
       affiliated funds.  (Filed as Exhibit 10.17 to the Registrant's Annual
       Report on Form 10-K for the year ended December 31, 1995 and incorporated
       herein by reference.)

10.19  Form of subscription agreement entered into between Registrant and
       certain customers of Gilder, Gagnon, Howe & Co. relating to the offer and
       sale by the Company of 1,000,000 shares of its common stock.  (Filed as
       Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the year
       ended December 31, 1995 and incorporated herein by reference.)

10.20  Nobel Education Dynamics, Inc. Executive Severance Pay Plan Statement and
       Summary Plan Description, Issued February, 1997.

10.21  Employment Agreement dated June 4, 1996 between Registrant and Barbara Z.
       Presseisen.

10.22  Noncompete Agreement dated as of March 11, 1997 between John R. Frock and
       the Registrant.

10.23  Contingent Severance Agreement dated as of March 11, 1997 between John R.
       Frock and the Registrant.

11     Statement re-computation of per share earnings dated year ended December
       31, 1996, and made a part hereof.

21     List of subsidiaries of the Registrant.

23     Consent of Coopers & Lybrand L.L.P.

27     Financial Data Schedule

Certain schedules (and similar attachments) to Exhibits 2.1, 2.2, 4.1 and 4.2
have not been filed. The Registrant will furnish supplementally a copy of any
omitted schedules or attachments to the Commission upon request.

  (d) FINANCIAL STATEMENT SCHEDULES.

  None.

                                       38
<PAGE>

                           QUALIFICATION BY REFERENCE

          Information contained in this Annual Report on Form 10-K as to a
contract or other document referred to or evidencing a transaction referred to
is necessarily not complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to this Annual Report or
incorporated herein by reference, all such information being qualified in its
entirety by such reference.

                                       39
<PAGE>

                                   SIGNATURES

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

Date:  March 28, 1997            NOBEL EDUCATION DYNAMICS, INC.


                            By:    /s/ A. J. Clegg
                               --------------------
                              A. J. Clegg
                              Chairman of the Board, President
                                and Chief Executive Officer

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

Signature                Position                               Date


  /s/ A. J. Clegg        Chairman of the Board,                 March 28, 1997
 -----------------       President and Chief
 A. J. Clegg             Executive Officer and Director



  /s/ Brian C. Zwaan     Executive Vice President,              March 28, 1997
 --------------------    Chief Financial Officer
 Brian C. Zwaan          (Principal Financial Officer)


  /s/ Yvonne DeAngelo    Vice President - Finance               March 28, 1997
 ---------------------   and Administration
 Yvonne DeAngelo         (Principal Accounting Officer)

 ---------------------   Director                               March 28, 1997
 Edward H. Chambers


  /s/ John R. Frock      Executive Vice President               March 28, 1997
 -------------------     and Director
 John R. Frock


 -------------------     Director                               March 28, 1997
 Peter H. Havens

                                       40
<PAGE>

  /s/ Morgan R. Jones    Director                               March 28, 1997
 ---------------------
 Morgan R. Jones


  /s/ Janet L. Katz      Director                               March 28, 1997
 -------------------
 Janet L. Katz


  /s/ John H. Martinson  Director                               March 28, 1997
 -----------------------
 John H. Martinson


  /s/ Eugene G. Monaco   Director                               March 28, 1997
 ----------------------
 Eugene G. Monaco

                                       41
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS



To the Stockholders and
  the Board of Directors of
  Nobel Education Dynamics, Inc.:



We have audited the accompanying consolidated financial statements of Nobel
Education Dynamics, Inc. and subsidiaries as listed in Item 14 (a) of this Form
10-K.  These financial statements  are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements  based on our audits.

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

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



Coopers & Lybrand L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 10, 1997, except
for Note 16 as to which the
date is March 20, 1997

                                      F-1
<PAGE>

                         NOBEL EDUCATION DYNAMICS, INC.
                                AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                December 31,   December 31,
ASSETS                                                                              1995           1996
------                                                                          -------------  -------------
<S>                                                                             <C>            <C>

Cash and cash equivalents                                                        $ 5,251,555    $ 3,714,560
Accounts receivable, less allowance for doubtful
  accounts of $103,009 in 1996 and 1995                                              779,075        727,097
Other accounts receivable                                                                  -        573,237
Prepaid rent                                                                         734,463        609,401
Prepaid insurance and other                                                          622,106        613,784
Deferred taxes                                                                       890,934        873,962
                                                                                 -----------    -----------
      Total Current Assets                                                         8,278,133      7,112,041
                                                                                 -----------    -----------

Property and equipment, at cost                                                   26,166,293     21,220,004
Accumulated depreciation                                                          (6,843,183)    (5,355,699)
                                                                                 -----------    -----------
                                                                                  19,323,110     15,864,305

Property and equipment held for sale (Southeast)                                   1,111,412      1,307,497
Note receivable                                                                      425,000        425,000
Cost in excess of net assets acquired                                             25,601,028     17,273,626
Deposits and other assets                                                          1,977,951      1,837,871
Deferred taxes                                                                       116,854      1,117,000
                                                                                 -----------    -----------

      Total Assets                                                               $56,833,488    $44,937,340
                                                                                 ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current portion of long-term obligations                                         $ 2,847,308    $ 1,086,409
Current portion of subordinated debt                                                 529,348        285,253
Current portion of capital lease obligations                                          71,456         49,897
Accounts payable and other current liabilities                                     4,464,957      4,608,549
Unearned income                                                                    1,716,049      1,709,670
Escrow Payable                                                                             -        203,305
                                                                                 -----------    -----------
      Total Current Liabilities                                                    9,629,118      7,943,083
                                                                                 -----------    -----------

Revolving Line of Credit (unused portion $10,000,000)                                      -              -
Long-term obligations                                                             10,807,498     11,392,590
Capital lease obligations                                                            290,095        323,199
Deferred gain on sale/leaseback                                                       47,322         55,312
Minority interest in consolidated subsidiary                                         318,359        223,881
Long-term subordinated debt                                                        3,417,656      8,878,605
                                                                                 -----------    -----------

      Total Liabilities                                                           24,510,048     28,816,670
                                                                                 -----------    -----------

Commitments and Contingencies (Notes 2, 5, 8, and 15)

Stockholders' Equity:
  Preferred stock, $.001 par value; 10,000,000 shares authorized, issued and
  outstanding 4,697,542 in 1996 and 5,505,150 in 1995 ($5,633,712 and
 $6,441,320 aggregate liquidation preference at December 31, 1996 and
 1995, respectively)                                                                   4,697          5,505
Common stock, $.001 par value, 50,000,000 shares  authorized, issued and
  outstanding 5,831,055 in 1996 and 4,095,094 in 1995                                  5,831          4,095
Additional paid-in capital                                                        37,665,713     21,818,344
Common Stock issuable (Educo), 312,500 shares                                              -      2,000,000
Accumulated deficit                                                               (5,352,801)    (7,707,274)
                                                                                 -----------    -----------

      Total Stockholders' Equity                                                  32,323,440     16,120,670
                                                                                 -----------    -----------

Total Liabilities and Stockholders' Equity                                       $56,833,488    $44,937,340
                                                                                 ===========    ===========
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-2
<PAGE>

                         NOBEL EDUCATION DYNAMICS, INC.
                                AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                Year Ended December 31,
                                        ----------------------------------------
                                            1996          1995          1994
                                        ------------  ------------  ------------
<S>                                     <C>           <C>           <C>

Revenues                                $58,909,388   $44,154,367   $34,371,501
                                        -----------   -----------   -----------

Operating expenses:
    Personnel costs                      26,777,022    19,664,455    15,285,330
    Center operating costs                8,755,337     6,640,288     5,482,016
    Insurance, taxes, rent and other     11,335,866     8,091,531     6,329,865
    Depreciation and amortization         2,210,504     1,512,210     1,063,326
                                        -----------   -----------   -----------

                                         49,078,729    35,908,484    28,160,537
                                        -----------   -----------   -----------

School operating profit                   9,830,659     8,245,883     6,210,964
                                        -----------   -----------   -----------

General and administrative expenses       4,189,750     3,395,940     2,696,076
Litigation claim                                  -       500,000       200,000
                                        -----------   -----------   -----------

Operating income                          5,640,909     4,349,943     3,314,888
                                        -----------   -----------   -----------

Interest expense                          2,004,392     1,839,563     1,222,971
Other (income) expense                     (482,647)     (125,724)      106,960
Minority interest in income of
  consolidated subsidiary                    94,479        85,808        83,491
                                        -----------   -----------   -----------

Income before income taxes                4,024,685     2,550,296     1,901,466

Income tax (benefit) expense              1,561,793    (1,355,590)     (438,300)
                                        -----------   -----------   -----------

Net income before extraordinary item      2,462,892     3,905,886     2,339,766
                                        -----------   -----------   -----------

Extraordinary loss on early
  extinguishment of debt, net of
  income tax benefit                              -        62,000             -
                                        -----------   -----------   -----------

Net income                                2,462,892     3,843,886     2,339,766

Preferred stock dividends                   108,419       184,114       198,555
                                        -----------   -----------   -----------

Net income available to
  common stockholders                   $ 2,354,473   $ 3,659,772   $ 2,141,211
                                        ===========   ===========   ===========

Primary earnings per share
Net income before extraordinary item    $     0 .34   $      0.69   $      0.53
Extraordinary item                                -         (0.01)            -
                                        -----------   -----------   -----------
Net income                              $      0.34   $      0.68   $      0.53
                                        ===========   ===========   ===========

Fully diluted earnings per share
Net income before extraordinary item    $      0.34   $      0.64   $      0.46
Extraordinary item                                -         (0.01)            -
                                        -----------   -----------   -----------
Net income                              $      0.34   $      0.63   $      0.46
                                        ===========   ===========   ===========
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-3
<PAGE>

                         NOBEL EDUCATION DYNAMICS, INC.
                                AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                                                Additional     Common
                                 Preferred Stock             Common Stock        Paid-In       Stock      Accumulated
                               Shares       Amount        Shares       Amount    Capital      Issuable      Deficit        Total
                           ----------  ------------  ------------  ---------- ------------  ------------  ------------- ------------

<S>                        <C>         <C>           <C>           <C>        <C>           <C>           <C>           <C>
Balance as of
January 1, 1994            2,484,320    $    2,484    15,418,063   $ 15,418   $17,222,137             -   $(13,508,257) $ 3,731,782
                           =========   ===========   ===========   ========   ===========   ===========   ============  ===========

Stock Options Exercised              -             -        27,000         27        25,285             -              -     25,312

Issuance of Preferred Stock
  less transaction costs  2,500,000         2,500             -          -     2,397,500             -              -     2,400,000

Preferred Dividends              -             -             -          -             -             -       (198,555)     (198,555)

Net Income                        -             -             -          -             -             -      2,339,766     2,339,766
                          ---------   -----------   -----------   --------   -----------   -----------   ------------   -----------

  December 31, 1994       4,984,320    $    4,984    15,445,063   $ 15,445   $19,644,922   $         -   $(11,367,046)  $ 8,298,305
                          =========   ===========   ===========   ========   ===========   ===========   ============   ===========

Stock Options Exercised           -             -       150,000        150       112,443             -              -       112,593

Warrants exercised                -             -       100,000        100        49,900             -              -        50,000

Common shares issuable            -             -             -          -             -   $ 2,000,000              -     2,000,000

Issuance of Preferred Stock  1,063,830      1,064             -          -    $ 1,998,936            -              -     2,000,000

Conversion of Preferred
 Stock                      (543,000)        (543)      638,568        639           (96)            -              -            -


One-for-four reverse stock
 split                               -          -   (12,238,537)   (12,239)       12,239             -              -             -

Preferred Dividends                  -          -             -          -             -             -        (184,114)    (184,114)

Net Income                           -          -             -          -             -             -       3,843,886    3,843,886
                             ---------   -----------   ----------- --------   -----------   -----------   -------------  -----------

December 31, 1995        5,505,150    $    5,505     4,095,094     $  4,095   $21,818,344   $ 2,000,000   $ (7,707,274)  $16,120,670

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


Stock Options and Warrants
  Exercised and                 -             -        63,750           64       500,325             -              -       500,389
  related tax benefit
Common Shares Issuable          -             -       312,500          313     1,999,687    (2,000,000)             -             -

Common Shares Issued            -             -       122,270          122     1,739,878             -              -     1,740,000

Private Placement of
  Common Stock, net of
  transaction costs             -             -     1,000,000        1,000    11,606,908             -              -    11,607,908
Conversion of Preferred
   Stock                 (807,608)         (808)      237,441          237           571             -              -             -
Preferred Dividend              -             -             -            -             -             -       (108,419)     (108,419)
Net Income                      -             -             -            -             -             -      2,462,892     2,462,892
                        ---------   -----------   -----------     --------   -----------   -----------   ------------   -----------
December 31, 1996       4,697,542    $    4,697     5,831,055     $  5,831   $37,665,713             -    ($5,352,801)  $32,323,440
                        =========   ===========   ===========     ========   ===========   ===========   ============   ===========
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-4
<PAGE>

                         NOBEL EDUCATION DYNAMICS, INC.
                                AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                      Year Ended December 31,
                             -----------------------------------------
                                  1996         1995           1994
                                  ----         ----           ----
<S>                          <C>            <C>            <C>
Cash Flows from Operating
 Activities:
  Net Income                 $  2,462,892   $  3,843,886   $ 2,339,766
                             ------------   ------------   -----------
Adjustment to Reconcile
 Net Income
  to Net Cash Provided by
   Operating Activities:
  Depreciation and
   amortization                 2,137,110      1,512,210     1,063,326
  Depreciation related to
   non-operating centers           73,394         82,007        90,646
  Provision for losses on
   accounts receivable             87,306         96,867       119,212
  Provision for deferred
   taxes                        1,206,894              -             -
  Minority interest in
   income                          94,479         85,808        83,491
  Early extinguishment of debt          -         88,571             -
  Reversal of tax valuation
    allowance                           -     (1,480,672)     (510,300)
  Deferred gain amortization       (7,990)        (7,991)       (7,991)
Changes in Assets and
  Liabilities Net of Acquisitions
  (increase) decrease in:
  Accounts receivable            (139,286)      (128,245)     (331,452)
  Prepaid assets                  (74,206)      (187,848)       12,817
  Other assets and
   liabilities                   (243,385)      (175,813)      (69,585)
  Unearned income                (133,129)        46,329       (19,040)
  Accounts payable and
   accrued expenses              (689,020)       262,130       127,015
                             ------------   ------------   -----------
  Total Adjustments             2,312,167        193,353       558,139

Net Cash Provided by
 Operating Activities           4,775,059      4,037,239     2,897,905
                             ------------   ------------   -----------

Cash Flows from Investing
 Activities:
  Capital expenditures        (12,775,541)    (2,051,664)   (1,372,384)
  Proceeds from sale of
   property and equipment       8,636,151        251,225       463,760
  Payment for acquisitions
   net of cash acquired        (4,968,528)    (9,101,443)     (210,161)
  Other                                 -       (146,315)            -
                             ------------   ------------   ------------

Net Cash Used in Investing
 Activities                    (9,107,918)   (11,048,197)   (1,118,785)
                             ------------   ------------   -----------

Cash Flows from Financing
 Activities:
  Proceeds from term loan       6,000,000      7,500,000             -
  Proceeds from subordinated
    debt                                -      6,000,000             -
  Proceeds from real estate
    mortgage                            -      3,567,300             -
  Proceeds from other debt      1,500,000      3,671,697             -
  Transaction costs related
    to issuance of debt and
    stock                               -     (1,090,771)     (100,000)
  Proceeds from issuance
   of common stock             11,607,908        162,593        25,312
  Dividends paid to
   minority stockholders                -              -      (230,726)
  Repayment of long-term
   debt                        (7,022,874)   (11,699,432)   (4,025,322)
  Repayment of capital
   lease obligation               (49,897)       (55,641)      (62,484)
  Proceeds from issuance
   of preferred stock                   -      2,000,000     2,500,000
  Dividends paid to
   preferred stockholders        (108,419)      (184,114)     (198,555)
  Repayment of
   subordinated debt           (6,333,533)             -             -
  Proceeds from exercise
   of stock options               276,669              -             -
                             ------------   ------------   -----------

Net Cash Provided by (Used
 in) Financing Activities       5,869,854      9,871,632     (2,091,775)
                             ------------   ------------   ------------

Net increase (decrease) in
 cash and cash equivalents      1,536,995      2,860,674      (312,655)
Cash and cash equivalents
 at beginning of year           3,714,560        853,886     1,166,541
                             ------------   ------------   -----------
Cash and cash                  $5,251,555    $ 3,714,560     $ 853,886
equivalents at                 ==========    ===========   ===========
end of year
</TABLE>

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

                                      F-5
<PAGE>

                         NOBEL EDUCATION DYNAMICS, INC.
                                AND SUBSIDIARIES
                           SUPPLEMENTAL SCHEDULES FOR
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>


                                                    Year Ended December 31,
                                              --------------------------------------
                                                  1996          1995         1994
                                              ------------  ------------  ----------
<S>                                           <C>           <C>           <C>
Supplemental Disclosures of Cash
  Flow Information

Cash paid during year for:
  Interest                                    $ 1,973,531   $1,823,882   $1,228,431
                                              -----------   ----------  -----------
  Income taxes                                    434,498       137,423       64,721
                                              -----------   -----------   ----------

Noncash financing and investing activities
Tax benefit related to exercise of
 stock options and warrants                       223,720             -            -

Acquisitions
       Fair value of tangible assets acquired     842,016    6,847,961      190,000
  Cost in excess of net assets acquired         8,978,398     8,727,293            -
  Cash acquired                                  (573,237)      (29,630)           -

  Liabilities assumed                            (684,936)     (934,181)           -
  Notes issued                                 (1,853,713)   (3,310,000)           -
  Escrow held                                           -      (200,000)           -
  Common shares issued                         (1,740,000)   (2,000,000)           -
                                              -----------   -----------   ----------
  Total cash paid                             $ 4,968,528   $ 9,101,443   $  190,000
                                              ===========   ===========   ==========
</TABLE>



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

                                      F-6
<PAGE>

                         NOBEL EDUCATION DYNAMICS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  Summary of Significant Accounting Policies and Company Background:
     -----------------------------------------------------------------

Nobel Education Dynamics, Inc. (the "Company") was founded in 1982 and commenced
operations in 1984.  The Company operates private pre-schools, elementary
schools and middle schools located primarily in California, the Mid-Atlantic
states, Illinois, Indiana, Maine, Washington and Florida.

Principles of Consolidation and Basis of Presentation:
-----------------------------------------------------

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries and majority-owned subsidiary.  All significant
intercompany balances and transactions have been eliminated.  The preparation of
financial statements in conformity with generally accepted accounting principals
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Fiscal Year:
-----------

The Company's fiscal year ends the last Friday in December.  There were 52 weeks
in fiscal 1996 and 1995 and 53 weeks in fiscal 1994.

Recognition of Revenues and Preopening Expenses:
-----------------------------------------------

Revenue is recognized as the services are performed.  Expenses associated with
opening new centers are charged to expense as incurred.

Cash and Cash Equivalents:
-------------------------

The Company considers cash on hand, cash in banks, and cash investments with
maturities of three months or less when purchased as cash and cash equivalents.
The Company maintains funds in accounts in excess of FDIC insurance limits;
however, the Company minimizes the risk by maintaining deposits in high quality
financial institutions.  At December 31, 1996, $250,000 in cash was restricted
(held in escrow) relating to the Company's January 1997 acquisition.

                                      F-7
<PAGE>

Property and Equipment:
----------------------

Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets as follows:

     Buildings                 40 years
     Leasehold improvements    The shorter of the leasehold
                               period or useful life
     Furniture and equipment   3 to 10 years

Maintenance, repairs and minor renewals are expensed as incurred.  Upon
retirement or other disposition of buildings and furniture and equipment, the
cost of the items, and the related accumulated depreciation are removed from the
accounts and any gain or loss is included in operations.

Cost in Excess of Net Assets Acquired:
-------------------------------------

In 1996 the Company adopted a policy to amortize goodwill related to
acquisitions over 30 years for preschools and 40 years for elementary schools.
Prior to June 1996, all acquisition-related goodwill was amortized over 40
years.  Management has evaluated the life cycles of similar schools and
determined that these lives are consistent with an historical range for private
elementary education, including schools of the Company's subsidiaries Merryhill
Schools, Inc. and Educo, Inc., both of which have been operating over 30 years.
In evaluating potential acquisitions of child care centers, management considers
not only the current child care operations but also the outlook for these
centers as elementary schools.  The excess of purchase price over net assets
acquired is amortized on a straight-line basis.

Amortization expense amounted to $650,996, $341,662 and $253,514 for the years
ended December 31, 1996, 1995 and 1994, respectively.  Accumulated amortization
at December 31, 1996 and 1995 was $2,289,599 and $1,638,603, respectively.

Effective January 1, 1996, the Company adopted the Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of."  The provisions of
SFAS No. 121 require the Company to review its long-lived assets for impairment
on an exception basis whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through future cash
flows.  If it is determined that an impairment loss has occurred based on
expected future cash flows, then the loss is recognized in the income statement
and certain disclosures regarding the impairment are made in the financial
statements.  The adoption of SFAS No. 121 had no material effect on the
Company's 1996 consolidated financial statements.  (See Note 5 related to
Property and Equipment Held for Sale.)

Income Taxes:
------------

The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and liabilities.
The effect on deferred taxes of a change in tax rate is recognized in income in
the period of enactment.  A

                                      F-8
<PAGE>

valuation allowance is recorded based on the uncertainty regarding the ultimate
realizability of deferred tax assets.

Reverse Stock Split:
--------------------

On September 22, 1995, the stockholders approved a one-for-four reverse stock
split of the Company's common stock.  The Company effected the reverse split on
September 28, 1995.  For every four shares of common stock, each stockholder
received one share of common stock.  All historical share and per share amounts
have been restated to reflect retroactively the reverse stock split (except for
the consolidated statement of stockholders' equity).

Earnings Per Share:
------------------

Earnings per share are based on the weighted average number of shares
outstanding and common stock equivalents during the period.  On a primary and
fully-diluted basis, shares outstanding are adjusted to assume conversion of the
non-interest bearing convertible preferred stock from the date of issue.

The number of shares used for computing primary and fully diluted earnings per
share after the impact of the 4:1 reverse split was as follows:
<TABLE>
<CAPTION>

                        1996       1995       1994
                      ---------  ---------  ---------
<S>                   <C>        <C>        <C>

     Primary          6,961,079  5,398,731  4,019,675
     Fully diluted    7,262,783  6,129,121  5,037,002
</TABLE>

Stock-Based Compensation
------------------------

Compensation costs attributable to stock option and similar plans are recognized
based on any difference between the quoted market price of the stock on the date
of the grant over the amount the employee is required to pay to acquire the
stock (the intrinsic value method under Accounting Principles Board Opinion 25).
Such amount, if any, is accrued over the related vesting period, as appropriate.

In October 1995, the FASB (Financial Accounting Standards Board) issued SFAS No.
123, "Accounting for Stock-Based Compensation," effective for fiscal years
beginning after December 15, 1995.  The Statement encourages employers to
account for stock compensation awards based on their fair value on their date of
grant.  Entities may choose not to apply the new accounting method but, instead,
disclose in the notes to the financial statements the pro forma effects on net
income and earnings per share as if the new method had been applied.  The
Company adopted the disclosure-only approach of the Standard effective January
1, 1996.

                                      F-9
<PAGE>

Concentrations of Credit Risk
-----------------------------

The Company provides its services to the parents and guardians of the children
attending the schools. The Company does not extend credit for an extended period
of time, nor does it require collateral. Exposure to losses on receivables is
principally dependent on each person's financial condition.  The Company
monitors its exposure for credit losses and maintains allowances for anticipated
losses.

Recently Issued Accounting Standard
-----------------------------------

In March 1997 the FASB issued SFAS  No. 128 "Earnings Per Share."  This
Statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock.  This Statement is effective for financial statements issued for
periods ending after December 15, 1997 (earlier application is not permitted).
This Statement requires restatement of all prior-period EPS data presented.  The
Company is currently evaluating the impact, if any, adoption of SFAS No. 128
will have on its financial statements.

Reclassifications:
-----------------

Certain prior year amounts have been reclassified in the current year for
comparative purposes.

(2)  Acquisitions:
     ------------

During the twelve months ended December 31, 1996 and 1995 the Company completed
various acquisitions, all of which are accounted for using the purchase method,
which are described below. The results of operations for all acquisitions are
included in in the Consolidated Statement of Income beginning in the year
acquired.

1996 Acquisitions:
-----------------

Acquisition of Virginia Preschools:
----------------------------------

Pursuant to an acquisition agreement dated February 2, 1996, the Company
acquired all the assets of four Virginia corporations, each of which operates a
preschool in Virginia.  The purchase price consisted of (i) $3,200,000 in cash,
(ii) a five-year note in the principal amount of $336,680 bearing interest at
the rate of 7% per annum and (iii) a cash earn-out payment of $25,000 paid in
October 1996.  The Company also entered into a five year non-compete agreement
that requires monthly payments of $1,667 through February 2001.  Also on
February 2, 1996, the Company acquired the assets of a fifth Virginia preschool
for 96,192 shares of the Company's common stock (valued at $1,500,000 for
financial statement purposes), and a cash earn-out payment of $12,500 paid in
October 1996.   As a result of the combined transactions, the Company recorded
goodwill in the amount of approximately $5,108,000, which will be amortized over
forty years.

Acquisition of MacGregor Creative Schools, Oak Ridge Private School and
-----------------------------------------------------------------------
Evergreen Academy:
-----------------

In the fourth quarter of 1996, the Company completed the acquisition of stock or
assets of three companies.  On  November 11, 1996, the Company acquired the
assets of MacGregor Creative Schools located in Cary, North Carolina.  MacGregor
Creative Schools consist of two preschools with

                                      F-10
<PAGE>

aggregate revenues of $2.6 million and capacity of 408 children. The Company
recorded goodwill of approximately $2,459,000 as a result of this transaction,
to be amortized over thirty years. On December 27, 1996 the Company acquired the
assets of Oak Ridge Private School, an elementary school located in Coto de
Caza, California. Oak Ridge Private School has revenues of approximately
$500,000 and potential licensed capacity of 198 children. The Company recorded
goodwill of approximately $280,000 as a result of this transaction, to be
amortized over 35 years. On December 23, 1996, the Company acquired the stock of
Montessori House, Inc., which owns Evergreen Academy located in Seattle,
Washington. Evergreen Academy consists of one elementary/middle school and one
preschool with aggregate revenues of $2.3 million and licensed capacity of 400
children. A portion of the purchase price for this transaction was paid on
January 2, 1997. The Company recorded goodwill of approximately $950,000 as a
result of this transaction, to be amortized over 35 years. The purchase prices
of these three transactions totaled approximately $2.560 million in cash,
$780,000 in subordinated notes, $240,000 in stock (26,078 shares) and
approximately $300,000 in assumed liabilities.

1995 Acquisitions:
-----------------

Acquisition of Educo, Inc.:
--------------------------

On September 1, 1995 the Company acquired all of the outstanding shares of
common stock of Educo, Inc.  Educo, Inc. is an operation of 10 schools and
preschools located in Maryland, Virginia, North Carolina and South Carolina.
The purchase price for the stock consisted of (i) $2,000,000 in cash and (ii) an
agreement to issue and deliver to the former stockholders of Educo, Inc. ("Educo
Stockholders") an aggregate of 312,500 shares of the Company's Common Stock on
or after January 15, 1996.

In connection with the acquisition of Educo, Inc., the Company guaranteed the
value of the 312,500 shares issued to the Educo Stockholders at the fair market
value of the shares ($6.40 per share) as of the date of execution of the
purchase agreement provided certain conditions are met.  Specifically, if an
Educo Stockholder sells shares in a bona fide brokers' transaction during the
period (18 months) that the Company keeps effective a registration statement
with respect to such shares, the Company would pay the difference between
guaranteed value and, if less, the actual sales prices (excluding commissions
and fees); provided that the Educo Stockholders do not sell in the aggregate
more than 17,500 shares during any 30 days period during such period.

In conjunction with the acquisition, the Company entered into an agreement with
the former manager of Educo (one of the Educo stockholders) to provide
consulting services over a period of 10 years. Under the agreement, the Company
will pay annual fees in the amount of $58,224.

Acquisition of Corydon Schools:
------------------------------

On August 25, 1995, the Company acquired from Corydon Day Care Center, Inc.
("Corydon"), nine of its preschools located in the Indianapolis, Indiana area
(the "Centers") and substantially all of the assets (other than real estate)
used by Corydon in the business of operating the Centers.  The Company also
acquired a leasehold interest in the buildings and the land upon which the
Centers are located. The purchase price for the business and assets acquired
from Corydon consisted of (i) $1,050,000 in cash and (ii) a subordinated
promissory note in the principal amount of $1,125,000 collateralized by a
security interest in certain assets located at the centers.

                                      F-11
<PAGE>

Acquisition of Carefree Learning Centers:
----------------------------------------

On March 10, 1995, the Company acquired from Carefree Learning Centers, Inc.
("Carefree"), a subsidiary of Medical Service Association of Pennsylvania, doing
business as Pennsylvania Blue Shield ("Pennsylvania Blue Shield"), Carefree's
child day care business and operations and substantially all of its other
assets, other than real estate, used in the operation of Carefree's business.

The child care business purchased from Carefree consists of eight preschools in
operation at the time of closing, and three preschools under construction or in
the pre-development stage at such time, all of which are located in
Pennsylvania.

The purchase price for the business and assets acquired from Carefree consisted
of (i) $500,000 in cash, (ii) a subordinated promissory note of the Company in
the principal amount of approximately $1,585,000 and (iii) the assumption of
certain other liabilities of Carefree in the amount of approximately $365,000.

Concurrently with the acquisition of Carefree's business, the Company entered
into an agreement of sale with Pennsylvania Blue Shield, pursuant to which the
Company acquired in May 1995 (i) the land and buildings on which four of the
learning centers currently in operation and acquired from Carefree are located,
and (ii) the land and buildings at which one of the child day care centers
acquired from Carefree was at the time under construction.  At the closing, the
purchase price paid for this real estate consisted of (i) approximately
$1,500,000 in cash, (ii) subordinated promissory notes of the Company in the
aggregate principal amount of approximately $600,000 and (iii) the assumption by
the Company of certain other liabilities.  The real estate was subsequently sold
in March 1996 for approximately book value.  In connection with this sale, the
Company is leasing those properties back from the various buyers.  No gain or
loss was recognized on this sale/leaseback transaction.  All future commitments
have been included in Note 8.

Unaudited Pro Forma Information:
--------------------------------

The operating results of all acquisitions are included in the Company's
consolidated results of operations from the date of acquisition.  The following
pro forma financial information assumes the acquisitions which closed during
1996 and 1995 all occurred at the beginning of 1995.  These results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisitions been made at the beginning of
1995, or of the results which may occur in the future.  Further, the information
gathered from some acquired companies are estimates since some acquirees did not
maintain information on a period comparable with the Company's fiscal year-end.
<TABLE>
<CAPTION>

                         (Unaudited)
                             1996         1995
                         ------------  -----------
<S>                      <C>           <C>
Revenues                 $64,293,108   $59,196,547
Net Income                 2,770,635   $ 3,867,574
Earning per share
        Primary          $      0.38   $      0.64
        Fully Diluted    $      0.38   $      0.60
</TABLE>

                                      F-12
<PAGE>

1995 proforma results include the $2,105,400 tax benefit from the reversal of
the valuation allowance in accordance FAS 109.

(3)  Cash Equivalents:
     ----------------

The Company has an agreement with its primary bank that allows the bank to act
as the Company's principal in making daily investments with available funds in
excess of a selected minimum account balance.  This investment amounted to
$3,040,405 and $3,470,873 at December 31, 1996 and 1995, respectively.  In 1996
and 1995, the Company's funds were invested in money market accounts which
exceed federally insured limits.  The Company believes it is not exposed to any
significant credit risk on cash and cash equivalents as such deposits are
maintained in high quality financial institutions.

(4)  Property and Equipment:
     ----------------------

The balances of major property and equipment classes, excluding property and
equipment held for sale in conjunction with the Southeast restructuring, were as
follows:
<TABLE>
<CAPTION>

                                                      December 31,
                                               --------------------------
                                                   1996          1995
                                               ------------  ------------
<S>                                            <C>           <C>

     Land                                      $ 4,105,494   $ 2,675,423
     Buildings                                   8,935,791     8,986,500
     Assets under capital lease obligations        912,781       912,781
     Leasehold improvements                      4,477,198     2,382,420
     Furniture and equipment                     7,722,898     5,769,390
     Construction in progress                       12,131       493,490
                                               -----------   -----------
                                                26,166,293    21,220,004

     Accumulated depreciation                   (6,843,183)   (5,355,699)
                                               -----------   -----------
                                               $19,323,110   $15,864,305
                                               ===========   ===========

</TABLE>

Depreciation expense was $1,559,507, $1,150,087 and $809,818 for the years 1996,
1995 and 1994, respectively.  Amortization of capital leases included in
depreciation expense amounted to $14,640 in each of the years 1996, 1995, and
1994.  Accumulated amortization of capital leases amounted to $446,295,
$431,655, and $417,015 for the years ended 1996, 1995 and 1994, respectively.

(5)  Property and Equipment Held for Sale (Southeast):
     ------------------------------------------------

In 1990 management initiated a restructuring plan which consisted of selling
operations which did not fit with its long term strategic goals and emphasizing
new center development in the Mid-Atlantic region (Delaware, New Jersey, North
Carolina, Pennsylvania and Virginia) and California.  As a result, the Company
recorded a $4.9 million restructuring charge in 1990 and an additional $4.8
million in 1991.

                                      F-13
<PAGE>

The restructuring plan initiated in 1990 resulted thus far in the disposition of
48 centers located in Florida, Georgia and South Carolina, and divestiture of
seven centers in Georgia and Florida developed for the Company but not operated.

Remaining Property and Equipment Held for Sale:
----------------------------------------------

Management has estimated the market price of its remaining six properties being
held for sale based on recent center sales, investment banker analysis, and the
Company's current marketing strategy.

Below is a schedule of activity of property and equipment held for sale and
related depreciation for the years ended 1996 and 1995:

Property and Equipment at Cost:
------------------------------
<TABLE>
<CAPTION>

                       Beginning                         Ending
                        Balances                        Balances
<S>                   <C>           <C>         <C>         <C>
                         12/31/95   Additions   Disposals      12/31/96
                      -----------   ---------   ---------    ----------

Land                  $   562,531           -     (50,000)   $  512,531
Buildings               2,106,489      15,304    (358,030)    1,763,763
FFE                       550,723       1,109    (177,414)      374,418
                      -----------   ---------   ---------    ----------
                      $ 3,219,743   $  16,413   ($585,444)   $2,650,712
Accumulated
Depreciation            ($865,870)    (83,841)    234,575     ($715,136)
                                    ---------   ---------    ----------

Net book value          2,353,873                             1,935,576
Reserve                (1,046,376)                             (824,164)
                      -----------                            ----------

Estimated net
 realizable value     $ 1,307,497                            $1,111,412
                      ===========                            ==========

                        Beginning                                Ending
                         Balances                              Balances
                         12/31/94   Additions   Disposals      12/31/95
                      -----------   ---------   ---------    ----------

Land                  $   562,531           -           -    $  562,531
Buildings               2,104,094       2,395           -     2,106,489
FFE                       626,792      11,871     (87,940)      550,723
                      -----------   ---------   ---------    ----------
                      $ 3,293,417   $  14,266    ($87,940)   $3,219,743
Accumulated
Depreciation            ($841,373)   (102,568)     78,071     ($865,870)
                      -----------   ---------   ---------    ----------

Net book value        $ 2,452,044                            $2,353,873
Reserve                (1,185,396)                           (1,046,376)
                      -----------               ---------

Estimated net
  realizable value    $ 1,266,648                            $1,307,497
                      ===========                            ==========
</TABLE>

The change in reserve for restructuring includes the loss from disposition of
property and equipment as well as other assets and costs associated with
maintaining closed centers.

                                      F-14
<PAGE>
(6)   DEBT:
      ----

Debt consisted of the following:
                                                        December 31,
                                                   -------------------------
                                                        1996          1995
                                                        ----          ----
Long Term Obligations:
---------------------

Term Loan                                          $ 6,450,000   $ 7,300,000

Term Loan II                                         5,320,000             -

1st mortgages, due in varying installments
 over three to twenty years with
 fixed interest rates ranging from 11% to 12%.       1,002,263     4,943,911

Notes payable to vendors for property and
 equipment with fixed interest rates
 varying from 10.0% to 17.5%.                          153,859        72,388

Note payable to seller of Montessori
 House, Inc.                                           519,458             -

Notes payable to sellers from various
 acquisitions, due in varying installments
 over three to fifteen years with fixed
 interest rates varying from 8% to 12%.                124,256       162,700

Other                                                   84,970             -
                                                   -----------   -----------

Total Long Term Obligations                        $13,654,806   $12,478,999

Less Current Portion                                (2,847,308)   (1,086,409)
                                                   -----------   -----------
                                                   $10,807,498   $11,392,590
                                                   ===========   ===========
Subordinated Debt:
-------------------------------------------------

14% Subordinated Debentures                                  -   $ 6,000,000

Subordinated Debt Agreements, due in varying
 installments over five to ten years with fixed
 interest rates varying from 7% to 8%.             $ 3,947,004     3,163,858
                                                   -----------   -----------

Total Long Term Subordinated Debt                    3,947,004     9,163,858

Less Current Portion                                  (529,348)     (285,253)
                                                   -----------   -----------
                                                   $ 3,417,656   $ 8,878,605
                                                   ===========   ===========


                                      F-15
<PAGE>

Debt:
----

On August 31, 1995, the Company completed a $23,000,000 refinancing (the
"Refinancing") which consisted of the placement of:  (1) a $7,500,000 revolving
line of credit and a $7,500,000 term loan (the "Senior Term Loan I"), both
financed through Summit Bank (formerly First Valley Bank); (2) $6,000,000 of
subordinated debentures with Allied Capital Corporation and affiliated entities
(collectively, "Allied"); (3) 1,063,830 shares of Series D Convertible Preferred
Stock sold to Allied for a purchase price of $2,000,000; and (4) Warrants sold
to Allied to acquire an aggregate of 309,042 shares of the Company's Common
Stock, subject to certain adjustments under antidilution provisions, for a
purchase price of $100.  Proceeds of the Refinancing were used as follows:
$11,104,101 to repay the Company's existing principal debt facilities;
$2,000,000 for the acquisition of Educo, Inc.; approximately $1,000,000 to pay
transaction fees and approximately $1,500,000 to provide additional cash to the
Company.  The Refinancing resulted in an extraordinary loss of $62,000 related
to the write-off of the unamortized loan origination fees in 1995.

On April 4, 1996, the Company retired the outstanding $6 million subordinated
debentures to Allied described above, which bore interest at 14%, with the
proceeds of a second term loan ("Senior Term Loan II") with Summit Bank whose
principal amount was originally $6 million.

On November 1, 1996, the Company entered into the Fourth Amendment to the Loan
Agreement which increased the Company's revolving line of credit from $7,500,000
to $10,000,000 and extended the maturity dates of the Senior Term Loan I for one
year to September 2001 and the Company's revolving line of credit to September
1999.  In addition, the Fourth Amendment gives the Company greater flexibility
as to the number of schools it may build and the criteria of the acquisitions it
may complete without bank approval.

The $10,000,000 revolving line of credit bears interest at an annual rate which
is LIBOR performance based and matures on September 1, 1999.  There is also a
usage fee at a rate of 1/4 of 1% of the average daily unused portion of the
line.  The balance of the revolving line of credit at December 31, 1996 was zero
with $10,000,000 available.

The Senior Term Loan I bears interest at an annual rate of 8.5%.  Principal
payments are due quarterly, $200,000 each quarter from December 1, 1995 through
September 1, 1996, $250,000 each quarter from December 1, 1996 through September
1, 1999 and $300,000 each quarter from December 1, 1999 through September 1,
2001.

The Senior Term Loan II bears interest at an annual rate of 8% and requires
quarterly principal payments of $200,000 through September 1996.  Thereafter,
quarterly payments of $280,000 are due through September 1, 1999 at which time
the quarterly payments increase to $350,000 through June 1, 2001 with the
remaining balance due on September 1, 2001.

The revolving line of credit and Senior Term Loans are collateralized by liens
in favor of Summit Bank on the Company's real and personal properties and all
future assets acquired.  All loans to the Company from Summit Bank are cross-
collateralized and cross-defaulted.

Subordinated debt totaling $3,947,004 at December 31, 1996 includes $975,000
related to the acquisition of the Corydon schools, $1,903,605 related to the
acquisition of the Carefree schools, $480,000 related to the

                                      F-16
<PAGE>

acquisition of the MacGregor Creative Schools, $288,399 related to the
acquisition of the Virginia schools and $300,000 related to the acquisition of
the Evergreen Academy schools.

The Company's debt agreements contain restrictive covenants regarding the
payment of common stock dividends and the maintenance of ratios related to debt
to earnings before interest, taxes, depreciation and amortization.

Maturities of long-term obligations are as follows: $3,376,656 in 1997,
$2,912,001 in 1998, $3,044,198 in 1999, $6,228,963 in 2000, $657,644 in 2001 and
$1,382,348 in 2002 and thereafter.

(7)  Accounts Payable and Other Current Liabilities:
     ----------------------------------------------

Accounts payable and other current liabilities were as follows:
<TABLE>
<CAPTION>

                                    December 31,
                               ----------------------
                                  1996        1995
                               ----------  ----------
<S>                            <C>         <C>

     Accounts payable          $  887,555  $  853,218

     Accrued payroll and
       related items            1,189,157     859,901

     Accrued rent                 420,444     444,359

     Accrued property taxes     1,065,021     765,625
     Other accrued expense        902,780   1,685,446
                               ----------  ----------
                               $4,464,957  $4,608,549
                               ==========  ==========
</TABLE>

(8)  Lease Obligations:
     -----------------

Future minimum rentals, for the real properties utilized by the Company and its
subsidiaries, by year and in the aggregate, under the Company's capital leases
and noncancelable operating leases, excluding leases assigned, consisted of the
following at December 31, 1996:

                                     F-17
<PAGE>

                                Operating Leases
                                ----------------
<TABLE>
<CAPTION>

                        Centers
                         to be    Continuing
                       Divested     Centers       Total
                       ---------  -----------  -----------
<S>                    <C>        <C>          <C>

1997                    $ 47,380  $ 8,758,353  $ 8,805,733
1998                      47,380    8,048,061    8,095,441
1999                      47,380    7,126,205    7,173,585
2000                      47,380    6,535,804    6,583,184
2001                      47,380    6,097,390    6,144,770
2002 and thereafter      343,505   37,428,200   37,771,705
                        --------  -----------  -----------

Total minimum lease
  obligations           $580,405  $73,994,013  $74,574,418
                        ========  ===========  ===========
</TABLE>
                                 Capital Leases
                                 --------------
<TABLE>
<CAPTION>

<S>                                           <C>
1997                                           $115,222
1998                                            115,735
1999                                            112,777
2000                                            102,171
2001                                             25,636
                                               --------


Total minimum lease obligations                $471,541
                                               ========

Less amount representing interest               109,990
                                               --------
Present value of capital lease obligations      361,551
                                               --------

Less current portion                             71,456
                                               --------
                                               $290,095
                                               ========
</TABLE>

Most of the above leases contain annual rental increases based on changes in
consumer price indexes, which are not reflected in the above schedule.  Rental
expense for all operating leases was $8,112,516, $5,828,786 and $4,444,735 in
1996, 1995 and 1994, respectively.  These leases are typically triple-net leases
requiring the Company to pay all applicable real estate taxes, utility expenses
and insurance costs.

Since the initiation of the Southeast restructuring (see Note 5), the Company
entered into agreements to assign or sublease leases for five centers under
development and nine centers which were operating. The fourteen assigned leases
have remaining terms from four years to fourteen years.  Under the agreements,
the Company is contingently liable if the assignee is in default under the
lease.  Contingent future rental payments under the assigned leases are as
follows:

                                      F-18
<PAGE>

<TABLE>
<CAPTION>

<S>                              <C>
          1997                   $  724,567
          1998                      688,125
          1999                      673,733
          2000                      656,657
          2001                      595,023
          2002 and thereafter     2,933,535
</TABLE>

On December 23, 1996 the Company entered into a multi-site sale leaseback
agreement with AEI Fund Management, Inc. (AEI).  AEI agreed to purchase from the
Company, via sale/leaseback transaction, up to $15 million worth of proposed
parcels, following the construction of  Company schools, through December 30,
1999.  Each parcel is subject to AEI's standard credit, site and due diligence
review. The Company is to give AEI no less than sixty days notice and a
development package for the decision.  The Company has not yet entered into any
sale/leaseback agreements under this agreement.

(9)  Stockholders' Equity:
     --------------------

Preferred Stock:
---------------

In connection with the Refinancing (see Note 6), on August 31, 1995, the Company
issued 1,063,830 shares of the Company's Series D Convertible Preferred Stock
for a purchase price of $2,000,000. The Series D Preferred Stock is convertible
to Common Stock at a conversion rate, subject to adjustment, of 1/4 share of
Common Stock for each share of Series D Convertible Preferred Stock. Holders of
Series D are not entitled to dividends, unless dividends are declared on the
Company's Common Stock.  Upon liquidation, the holders of shares of Series D
Convertible Preferred Stock are entitled to receive, before any distribution or
payment is made upon any Common Stock, $1.88 per share plus any unpaid
dividends.

On August 22, 1994, the Company completed a private placement of an aggregate of
2.5 million shares of Series C Convertible Preferred Stock and the Series 1
Warrants and Series 2 Warrants discussed below under "Common Stock Warrants" for
an aggregate purchase price of $2,500,000. The Series C Preferred Stock is
convertible into Common Stock at conversion rate, subject to adjustment, of 1/4
share of Common Stock for each share of Series C Convertible Preferred Stock.
Holders of shares of Series C Convertible Preferred Stock are not entitled to
dividends unless dividends are declared on the Company's Common Stock.   Upon
liquidation, the holders of shares of Series D Convertible Preferred Stock are
entitled to receive, before any distribution or payment is made upon Common
Stock, $1.00 per share plus any unpaid dividends.  As of December 31, 1996 and
1995, 2,500,000 shares were outstanding.

On July 20, 1993, the Company completed a private placement of 2,484,320 shares
of its Series A Convertible Preferred Stock at a purchase price of $1.00 per
share.  The Series A Preferred Stock is convertible into Common Stock at a
conversion rate, subject to adjustment, of .2940 shares of Common Stock for each
share of Series A Preferred Stock.  The Series A Preferred Stock is redeemable
by the Company at any time after the fifth anniversary of its issuance at a
redemption price of $1.00 per share plus cumulative unpaid dividends.  The
Preferred Stock is not redeemable at the option of the holders.  Upon
liquidation, the holders of shares of Series A Preferred Stock are entitled to
receive, before any distribution or payment is made upon any Common Stock, $1.00
per share plus all accrued and unpaid dividends.  As of December 31, 1996 and
1995, 1,133,712 and 1,941,320 shares were outstanding,  respectively.  Each
share of Series A Preferred Stock entitles the holder to an $.08 per share
annual dividend.

                                      F-19
<PAGE>

Each share of Series A Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock entitles the holder to a number of votes equal to the number of
full shares of Common Stock into which such share is convertible.  Except as
otherwise required by law, holders of Preferred Stock vote together with the
Common Stock, and not as a separate class, in the election of directors and on
each other matter submitted to a vote of the stockholders.

Private Placement of Common Stock:
---------------------------------

On March 5, 1996, the Company raised approximately $11,600,000 through the
issuance of 1,000,000 shares of common stock at $12 per share.  The Company is
using and has used the funds to pay debt, acquire schools and for general
corporate purposes.

Common Stock Warrants:
---------------------

In connection with the Refinancing (see Note 6) on August 31, 1995, the Company
issued to Allied warrants to acquire an aggregate of 309,042 shares of the
Company's Common Stock.

On August 22, 1994, the Company issued Series 1 Warrants for the purchase of up
to 125,000 shares of the Company's Common Stock and Series 2 Warrants for the
purchase of up to 125,000 shares of the Company's Common Stock.  The  Series 1
Warrants are exercisable at $4.00 per share, subject to adjustment.  The Series
1 Warrants expire on August 19, 2001.  The Series 2 Warrants have terminated
pursuant to their terms, because the fair market value of the Company's Common
Stock exceeded $12.00 per share for 20 consecutive business days prior to
December 31, 1996.

In May 1992, the Company raised $2,000,000 before transaction costs from the
private sale of 1,000,000 shares of common stock.  In connection with the
private placement, the Company issued warrants to purchase 275,000 shares of the
Company's Common Stock.  The warrants are exercisable at $2.00 per share and
expire on May 29, 1997.

1995 Stock Incentive Plan
-------------------------

On September 22, 1995, the stockholders approved the 1995 Stock Incentive Plan.
This plan reserves up to an aggregate of 375,000 shares of common stock of the
Company for issuance in connection with stock grants, incentive stock options
and non-qualified stock options. The purpose of the plan is to attract and
retain quality employees.  All options granted to date have been non-qualified
stock options which vest over three years, except options issued to directors,
which fully vest six months following date of grant.

1988 Stock Option and Stock Grant Plan:
--------------------------------------

During 1988, the Company established the 1988 stock option and stock grant plan.
This plan reserves up to an aggregate of 125,000 shares of common stock of the
Company for issuance in connection with stock grants, incentive stock options
and non-qualified stock options.

1986 Stock Option and Stock Grant Plan:
--------------------------------------

During 1986, the Company established a stock option and stock grant plan, which
was amended in 1987.  The 1986 Plan, as amended, reserves up to an aggregate of
216,750 shares of common stock

                                      F-20
<PAGE>

of the Company for issuance in connection with stock grants and upon the
exercise of incentive stock options and non-qualified stock options.

The number of options granted under the Stock Option and Stock Grant Plans is
determined from time to time by the Compensation Committee of the Board of
Directors.  Incentive stock options are granted at market value or above, and
non-qualified stock options are granted at a price fixed by the Compensation
Committee at the date of grant.  Options are exercisable for up to ten years
from date of grant.

Option activity (adjusted for the 4:1 reverse split) with respect to the 1995,
1988 and 1986 plans was as follows:
<TABLE>
<CAPTION>

         Outstanding Options
----------------------------
<S>                           <C>       <C>      <C> <C>

                               Number            Range
                              -------            --

Balance, January 1, 1994       86,800   $  3.00  to  $13.00
                              -------   -------  --  ------
Granted                             -         -           -
Canceled                         (275)  $  3.00  to  $ 4.00
Exercised                      (6,750)  $  3.75
                              -------   -------
Balance, December 31, 1994     79,775   $  3.00  to  $13.00
                              -------   -------  --  ------

Granted                       102,950   $11.625
Canceled                            -         -   -
Exercised                     (37,500)  $  3.00  to  $ 4.00
                              -------   -------  --  ------
Balance, December 31, 1995    145,225   $  3.00  to  $13.00
                              -------   -------  --  ------

Granted                        60,500   $ 10.50  to  $15.81
Canceled                      (28,175)  $11.625
Exercised                     (28,750)  $  4.00  to  $ 6.00
                              -------   -------  --  ------
Balance, December 31, 1996    148,800   $  3.00  to  $15.81
                              =======   =======  ==  ======

</TABLE>
At December 31, 1996, 269,813 shares remain available for options or stock
grants under the 1995, 1988 and 1986 plans and 77,483 options were exercisable
under such plans.

In 1991, the Board of Directors granted 50,000 stock options outside the above
plans in connection with a consulting agreement with the Company's former
President.  In 1986, the Board of Directors granted 18,125 options outside the
above plans to a former officer of the Company.  At December 31, 1996 and 1995,
55,250 and 65,250 of such options remained outstanding, respectively.

The Company has adopted the disclosure only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation."  Accordingly, no compensation cost
has been recognized for the Company's Stock Option Plan.  Had compensation cost
for the Company's Stock Option Plan been determined based on the fair value at
the grant date for awards in 1996 and 1995 consistent with the provisions of
SFAS No. 123, the Company's net income and net income per share would have been
decreased to the pro forma amounts indicated below:

                                                   1996        1995
                                                ----------  ----------

                                      F-21
<PAGE>

          Net Income - as reported              $2,462,892  $3,843,886

          Net Income - pro forma                 2,365,038   3,840,839

          Net Income per share - as reported    $     0.34  $     0.68

          Net Income per share - pro forma      $     0.34  $     0.68


The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995:

          Expected dividend yield                    0%
          Expected stock price volatility         52.2%
          Risk-free interest rate            5.49-6.64%
          Expected life of options              3 years

Activity (adjusted for the 4:1 reverse split) with respect to warrants
outstanding at December 31, 1996 is as follows:

<TABLE>
<CAPTION>

                               Number   Range
                              --------  -----
<S>                           <C>       <C>    <C> <C>

Balance, January 1, 1994      305,000   $2.00
                              -------   -----
Granted                       125,000   $4.00
                              -------   -----
Canceled                            -       -          -
Exercised                           -       -          -
Balance, December 31, 1994    430,000   $2.00  to  $4.00
                              -------   -----  --  -----

Granted                       309,042   $7.52
Canceled                            -       -          -
Exercised                     (25,000)  $2.00
                              -------   -----
Balance, December 31, 1995    714,042   $2.00  to  $7.52
                              -------   -----  --  -----

Granted                             -       -          -
Canceled                            -       -          -
Exercised                     (25,000)  $4.13          -
                              -------   -----
Balance, December 31, 1996    689,042   $2.00  to  $7.52
                              -------   -----  --  -----
</TABLE>

(10) Other (Income) Expense:
     ----------------------

Other (income) expense consists of the following:

<TABLE>
<CAPTION>

                                 Year Ended December 31,
                            ---------------------------------
                               1996        1995       1994
                            ----------  ----------  ---------
<S>                         <C>         <C>         <C>
Interest income             $(470,164)  $(141,637)  $(76,721)
Rental income                (143,355)   (194,312)   (70,288)
Depreciation related
   to rental properties        73,394      82,007     93,815
</TABLE>

                                      F-22
<PAGE>


Other projects                      -      29,574     15,585
Costs related to centers
   held for sale               57,478      98,644    144,569
                            ---------   ---------   --------

                            $(482,647)  $(125,724)  $106,960
                            =========   =========   ========

(11) Related-Party Transactions:
     --------------------------

Legal services were rendered to the Company by Drinker Biddle & Reath, of which
a director of the Company is a partner.  The Company expects this firm to
continue to provide such services during 1997.  Fees paid to the firm in 1996,
1995 and 1994 totaled $128,015, $703,622 and $129,367, respectively.

A. J. Clegg, the Chairman and Chief Executive Officer of the Company, was also
the Chairman and Chief Executive Officer of JBS Investment Banking, Ltd.
("JBS").  In August, 1994, Mr. Clegg relinquished his duties at JBS and joined
the Company as Chairman and Chief Executive Officer.  In the years ended
December 31, 1995 and 1994, the Company paid to JBS fees totaling, $11,554 and
$200,374, respectively.

(12)                      Income Taxes:
                          -------------

Current tax provision:
                                   1996         1995        1994
                             ----------  -----------   ---------

     Federal                 $   61,693  $    33,755   $  47,000

     States                     293,206       91,327      25,000
                             ----------  -----------   ---------

                             $  354,899  $   125,082   $  72,000

Deferred tax provision       $1,206,894   (1,480,672)   (510,300)
                             ----------  -----------   ---------

                             $1,561,793  $(1,355,590)  $(438,300)
                             ==========  ===========   =========


                                      F-23
<PAGE>

The difference between the actual income tax rate and the statutory U.S. federal
income tax rate is attributable to the following:
<TABLE>
<CAPTION>
                                    1996    1995    1994
                                    -----  ------  ------
<S>                                 <C>    <C>     <C>

U.S. federal statutory rate           34%    34%     34%

State taxes, net of federal
   tax benefit                         3%     5%      1%

Benefit from realization of
   net operating losses                -    (39%)   (38%)

Reduction in valuation allowance       -    (58%)   (27%)

Goodwill and other                     2%     5%      7%
                                    ----   ----    ----

                                      39%   (53%)   (23%)
                                    ====   ====    ====

</TABLE>

Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws.

Temporary differences and carry forwards which give rise to a significant
portion of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>

                                               Year Ended December 31,
                                     -------------------------------------------
                                         1996           1995           1994
                                     -------------
                                       Deferred       Deferred       Deferred
                                          Tax            Tax            Tax
                                        Assets         Assets         Assets
                                     (Liabilities)  (Liabilities)  (Liabilities)
                                     -------------  -------------  -------------
<S>                                  <C>            <C>            <C>

Depreciation                           $ (383,348)    $ (240,639)   $  (371,787)

Provision for center closings and
  other restructurings                    379,099      1,269,913      1,712,547
Net operating losses                      801,424        720,496      1,716,213
General business credits                        -         27,650         27,650
AMT credit carryforward                    89,509        125,816          8,400
Other                                     121,104         87,726         46,256
                                       ----------     ----------    -----------

Net deferred tax asset                  1,007,788      1,990,962      3,139,279
Valuation allowance                             -              -     (2,628,979)
                                       ----------     ----------    -----------

Total deferred taxes                   $1,007,788     $1,990,962    $   510,300
                                       ==========     ==========    ===========
</TABLE>

In 1994, based on the Company's analysis of the last two years of significant
positive operating performance and expected future taxable income, the Company
reduced the valuation allowance by $510,300.  In 1995, based on three years of
positive net income and the analysis of projections for the

                                      F-24
<PAGE>

years 1996 through 1999, the Company removed the remaining valuation allowance.
Accordingly, such amounts were recorded as a credit to income tax expense in the
respective periods.

The net operating loss totaling $2,357,501 begins to expire in the year 2000.

(13) Employee Benefit Plans:
     ----------------------

Effective January 1, 1994, the Company adopted a 401(k) Plan whereby eligible
employees may elect to enroll after one year of service.  The Company will match
25% of an employee's contribution to the Plan of up to 6% of the employee's
salary.  This Plan replaced the existing similar 401(k) Plan at Merryhill as of
January 31, 1994.  Nobel's matching contributions under the Plan and prior
Merryhill Plan were $73,958, $60,904 and $60,617 for the years ended December
31, 1996, 1995 and 1994, respectively.

(14) Fair Value of Financial Instruments:
     -----------------------------------

The fair value of financial instruments approximates carrying value.  The
following methods and assumptions were considered by the Company in determining
its fair value disclosures for financial instruments:

     Cash and cash equivalents: The carrying amount reported in the balance
     sheet approximates fair value.

     Debt: The estimated fair value of the Company's debt as a whole was based
     on the discounted cash flows of all debt instruments.

(15) Commitments and Contingencies:
     -----------------------------

The Company is currently in dispute with a landlord over the payment of certain
taxes related to leases of centers estimated to be approximately $70,000.  At
this time, the Company believes that no taxes are due. However, there are no
certainties regarding the outcome of the dispute.

The Company is engaged in other legal actions arising in the ordinary course of
its business.  The Company believes that the ultimate outcome of all such
matters above will not have a material adverse effect on the Company's
consolidated financial position.  The significance of these matters on the
Company's future operating results and cash flows depends on the level of future
results of operations and cash flows as well as on the timing and amounts, if
any, of the ultimate outcome.

The Company carries fire and other casualty insurance on its centers and
liability insurance in amounts which management believes is adequate for its
operations.  As is the case with other entities in the education and preschool
industry, the Company cannot effectively insure itself against certain risks
inherent in its operations.  Some forms of child abuse have sublimits per claim
in the general liability coverage.

                                      F-25
<PAGE>

(16) Subsequent events
     -----------------

Acquisition of Another Generation Enterprises Inc.:
--------------------------------------------------

On January 7, 1997, the Company purchased the stock of Another Generation
Enterprises Inc. and certain related corporations, which own six preschools
located in Broward County and Palm Beach County, Florida with a capacity of
1,200 children and annual aggregate revenues of approximately $6 million.  The
aggregate purchase price for the stock totaled $4,543,000, with $3,643,000 in
cash, $750,000 in notes and approximately $150,000 in assumed liabilities.

Also on January 7, 1997,  the Company purchased a 20% interest in the Sagemont
School located in Weston, Florida from the principal owners of Another
Generation Enterprises, Inc.  The Sagemont School is an elementary school with a
capacity of 340 which opened in the Fall of 1997.  The Company also formed a
joint venture with such persons to develop five additional elementary schools in
Florida, each of which the Company will own 80%.

Acquisition of Rainbow Bridge:
-----------------------------

On March 5, 1997, the Company executed an agreement to purchase the Rainbow
Bridge Schools located in San Jose, California. Rainbow Bridge is a school
system consisting of two elementary/middle schools and one preschool.  Rainbow
Bridge Schools have historically produced revenue of approximately $5.6 million
and have a capacity to educate 950 children.  The Company anticipates closing
the transaction on April 1, 1997, subject to standard closing conditions.

Loan Amendment:
--------------

On March 20, 1997, the Company entered into the Fifth Amendment of its Loan and
Security Agreement with its primary lender which, among other changes, increased
the permitted number of new school construction projects on the Company's
balance sheet to ten annually, and permitted the Company to own at any time
seven tracts of land with a maximum $3,500,000 purchase price.  This amendment
gives the Company greater flexibility to pursue its growth strategy.

                                      F-26
<PAGE>

                                 EXHIBIT INDEX

Exhibit
Number    Description of Exhibit

2.1    Asset Purchase Agreement dated as of February 2, 1996 by and among Stony
       Point Learning Center, Inc., School's Out, Inc., Cascades Childcare, Inc.
       and Pump Road Child Care, Inc. and Linda Nash and Stephen Nash and the
       Registrant.  (Filed as Exhibit 4A to the Registrant's Current Report on
       Form 8-K dated February 16, 1996, date of earliest event reported
       February 2, 1996, and incorporated herein by reference.)

2.2    Asset Purchase Agreement dated as of February 2, 1996 by and among
       Loudoun Children's Center, Inc. and Linda Nash and Stephen Nash and the
       Registrant. (Filed as Exhibit 4A to the Registrant's Current Report on
       Form 8-K dated February 16, 1996, date of earliest event reported
       February 2, 1996, and incorporated herein by reference.)

3.1    Registrant's Certificate of Incorporation, as amended and restated.
       (Filed as Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q
       for the quarter ended June 30, 1996, and incorporated herein by
       reference.)

3.2    Registrant's Certificate of Designation, Preferences and Rights of Series
       A Convertible Preferred Stock.  (Filed as Exhibit 7(c) to the
       Registrant's Current Report on Form 8-K filed on June 14, 1993 and
       incorporated herein by reference.)

3.3    Registrant's Certificate of Designation, Preferences and Rights of Series
       C Convertible Preferred Stock.  (Filed as Exhibit 4(ae) to the
       Registrant's Quarterly Report on Form 10-Q with respect to the quarter
       ended June 30, 1994 and incorporated herein by reference.)

3.4    Registrant's Certificate of Designation, Preferences and Rights of Series
       D Convertible Preferred Stock.  (Filed as Exhibit 4E to the Registrant's
       Current Report on Form 8-K filed on September 11, 1995, date of earliest
       event reported August 25, 1995, and incorporated herein by reference.)

3.5    Registrant's Amended and Restated By-laws. (Filed as Exhibit 3.4 to the
       Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
       1996, and incorporated herein by reference.)

4.1    Loan and Security Agreement dated August 30, 1995 (the "Loan and Security
       Agreement") among the Registrant, certain subsidiaries of the Registrant
       and Summit Bank (formerly First Valley Bank). (Filed as Exhibit 4F to the
       Registrant's Current Report on Form 8-K filed on September 11, 1995, date
       of earliest event reported August 25, 1995, and incorporated herein by
       reference.)

4.2    Second Amendment and Modification dated April 4, 1996 and Third Amendment
       and Modification dated July 2, 1996 to the Loan and Security Agreement.
       (Filed

                                      F-27
<PAGE>

       as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the
       quarter ended June 30, 1996, and incorporated herein by reference.)

4.3    Fourth Amendment and Modification dated November 1, 1996 to Loan and
       Security Agreement.  (Filed as Exhibit 4.2 to the Registrant's Quarterly
       Report on Form 10-Q for the quarter ended September 30, 1996, and
       incorporated herein by reference.)

4.4    Fifth Amendment and Modification dated March 20, 1997 to Loan and
       Security Agreement.

4.5    Term Note dated August 30, 1995 in the principal sum of $7,500,000
       payable to the order of Summit Bank.  (Filed as Exhibit 4G to the
       Registrant's Current Report on Form 8-K dated September 11, 1995, date of
       earliest event reported August 25, 1995, and incorporated herein by
       reference.)

4.6    Line Note dated August 30, 1995 in the principal sum of $7,500,000
       payable to the order of Summit Bank. (Filed as Exhibit 4H to the
       Registrant's Current Report on Form 8-K dated September 11, 1995, date of
       earliest event reported August 25, 1995, and incorporated herein by
       reference.)

4.7    New Term Note dated November 1, 1996 in the principal sum of $6,000,000
       payable to the order of Summit Bank.

       The Registrant has omitted certain instruments defining the rights of
       holders of long-term debt in cases where the indebtedness evidenced by
       such instruments does not exceed 10% of the Registrant's total assets.
       The Registrant agrees to furnish a copy of each of such instruments to
       the Securities and Exchange Commission upon request.

10.1   1986 Stock Option and Stock Grant Plan of the Registrant, as amended.
       (Filed as Exhibit 10(1) to the Registrant's Registration Statement on
       Form S-1 (Registration Statement No. 33-1644) filed on August 12, 1987
       (the "Form S-1") and incorporated herein by reference.)

10.2   1988 Stock Option and Stock Grant Plan of the Registrant.  (Filed as
       Exhibit 19 to the Registrant's Quarterly Report on Form 10-Q dated March
       31, 1988 and incorporated herein by reference.)

10.3   1995 Stock Incentive Plan of the Registrant.  (Filed as Exhibit 4.6 to
       the Registrant's Registration Statement on Form S-8 (Registration
       Statement No. 33-64701) filed on December 1, 1995 and incorporated herein
       by reference.)

10.4   Stock Purchase Agreement between the Registrant and various investors
       dated April 2, 1990.  (Filed as Exhibit 10(q) to the Registrant's Annual
       Report on Form 10-K for the year ended December 31, 1991 and incorporated
       herein by reference.)

10.5   Stock and Warrant Purchase Agreement between the Registrant and various
       investors, dated April 13, 1992.  (Filed as Exhibit 10(r) to the
       Registrant's Annual

                                      F-28
<PAGE>

       Report on Form 10-K for the year ended December 31, 1991 and incorporated
       herein by reference.)

10.6   Registration Rights Agreement dated May 28, 1992 among the Registrant,
       JBS Investment Banking, Ltd., and Pennsylvania Merchant Group, Ltd.
       (Filed as Exhibit 4(a) to the Registrant's Current Report on Form 8-K
       dated June 11, 1992, date of earliest event reported May 28, 1992, and
       incorporated herein by reference.)

10.7   Saltzman Partners' Agreement dated May 28, 1992 among the Registrant, JBS
       Investment Banking, Ltd., and Saltzman Partners.  (Filed as Exhibit 4(b)
       to the Registrant's Current Report on Form 8-K dated June 11, 1992, date
       of earliest event reported May 28, 1992, and incorporated herein by
       reference.)

10.8   Warrant Subscription Agreement dated May 28, 1992 between Registrant and
       Pennsylvania Merchant Group Ltd.  (Filed as Exhibit 4(c) to the
       Registrant's Current Report on Form 8-K dated June 11, 1992, date of
       earliest event reported May 28, 1992, and incorporated herein by
       reference.)

10.9   Stock Purchase Agreement dated May 28, 1992 between Registrant and a
       limited number of accredited investors at $0.50 per share totaling
       3,200,000 shares of common stock.  (Filed as Exhibit 4(d) to the
       Registrant's Current Report on Form 8-K dated June 11, 1992, date of
       earliest event reported May 28, 1992, and incorporated herein by
       reference.)

10.10  Shareholder's Agreement dated May 28, 1992 between Registrant and JBS
       Investment Banking, Ltd.  (Filed as Exhibit 2(a) to the Registrant's
       Current Report on Form 8-K dated June 11, 1992, date of earliest event
       reported May 28, 1992, and incorporated herein by reference.)

10.11  Amendment No. 1 to Shareholders' Agreement dated May 28, 1992 by and
       among JBS Investment Banking, Ltd., Nobel and Saltzman Partners.  (Filed
       as Exhibit 4(ag) to the Registrant's Quarterly Report on Form 10-Q with
       respect to the quarter ended June 30, 1994 and incorporated herein by
       reference.)

10.12  Series 1 Warrants for shares of Common Stock issued to Edison Venture
       Fund II, L.P. and  Edison Venture Fund II-PA, L.P.  (Filed as Exhibit
       4(ad) to the Registrant's Quarterly Report on Form 10-Q with respect to
       the quarter ended June 30, 1994 and incorporated herein by reference.)

10.13  Registration Rights Agreement between Registrant and Edison Venture Fund
       II, L.P. and  Edison Venture Fund II-PA, L.P.  (Filed as Exhibit 4(af) to
       the Registrant's Quarterly Report on Form 10-Q with respect to the
       quarter ended June 30, 1994 and incorporated herein by reference.)

10.14  Amendment dated February 23, 1996 to Registration Rights Agreement
       between Registrant and Edison Venture Fund II, L.P. and  Edison Venture
       Fund II-PA, L.P.    (Filed as Exhibit 10.14 to the Registrant's Annual
       Report on Form 10-K for the year ended December 31, 1995 and incorporated
       herein by reference.)

                                      F-29
<PAGE>

10.15  Investment Agreement dated as of August 30, 1995 by and among the
       Registrant, certain subsidiaries of the Registrant and Allied Capital
       Corporation and its affiliated funds. (Filed as Exhibit 4A to the
       Registrant's Current Report on Form 8-K dated September 11, 1995, date of
       earliest event reported August 25, 1995, and incorporated herein by
       reference.)

10.16  Common Stock Purchase Warrant dated August 30, 1995 entitling Allied
       Capital Corporation to purchase up to 92,173 shares (pre-reverse stock
       split) of the Common Stock of the Registrant.  (Filed as Exhibit 4C to
       the Registrant's Current Report on Form 8-K dated September 11, 1995,
       date of earliest event reported August 25, 1995, and incorporated herein
       by reference.)

10.17  Registration Rights Agreement dated August 30, 1995 by and among the
       Registrant and Allied Capital and its affiliated funds, and amendment
       thereto dated February 23, 1996.  (Filed as Exhibit 4D to the
       Registrant's Current Report on Form 8-K dated September 11, 1995, date of
       earliest event reported August 25, 1995, and incorporated herein by
       reference.)

10.18  Amendment dated February 23, 1996 to Registration Rights Agreement dated
       August 30, 1995 by and among the Registrant and Allied Capital and its
       affiliated funds.  (Filed as Exhibit 10.17 to the Registrant's Annual
       Report on Form 10-K for the year ended December 31, 1995 and incorporated
       herein by reference.)

10.19  Form of subscription agreement entered into between Registrant and
       certain customers of Gilder, Gagnon, Howe & Co. relating to the offer and
       sale by the Company of 1,000,000 shares of its common stock.  (Filed as
       Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the year
       ended December 31, 1995 and incorporated herein by reference.)

10.20  Nobel Education Dynamics, Inc. Executive Severance Pay Plan Statement and
       Summary Plan Description, Issued February, 1997.

10.21  Employment Agreement dated June 4, 1996 between Registrant and Barbara Z.
       Presseisen.

10.22  Noncompete Agreement dated as of March 11, 1997 between John R. Frock and
       the Registrant.

10.23  Contingent Severance Agreement dated as of March 11, 1997 between John R.
       Frock and the Registrant.

11     Statement re-computation of per share earnings dated year ended December
       31, 1996, and made a part hereof.

21     List of subsidiaries of the Registrant.

23     Consent of Coopers & Lybrand L.L.P.

27     Financial Data Schedule

                                      F-30