SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[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,  1998 or 


[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee  Required]

 For the  transition  period from  _______________  to  ________________

Commission File No. 33-18174


                        SIEMANN EDUCATIONAL SYSTEMS, INC.
                  ---------------------------------------------
                 (Name of Small Business Issuer in its Charter)


          Colorado                                         84-1067172
-------------------------------                       ---------------------
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                        Identification Number)


405 South Platte River Drive
Denver, Colorado                                              80203
----------------------------------------                    ---------
(Address of principal executive offices)                    (Zip Code)



Issuer's telephone number:  (303) 733-9673

Securities registered pursuant to Section 12(b) of the Act:  None

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


                           $.10 Par Value Common Stock
                           ---------------------------
                                (Title of Class)

                                              

<PAGE>



Check  whether  the  Registrant  (1) 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
                                  -----       -----

     As of March 31, 1999,  4,207,702  shares of the  Registrant's  no par value
Common Stock were  outstanding.  As of March 31,  1999,  the market value of the
Registrant's no par value Common Stock, excluding shares held by affiliates, was
$2,155,404  based upon a closing bid price of $2.00 per share of Common Stock on
the Electronic Bulletin Board ("EBB").

     Check if there is no disclosure  contained  herein of delinquent  filers in
response to Item 405 of Regulation  S-B, and will not be contained,  to the best
of the Registrant's  knowledge,  in definitive  proxy or information  statements
incorporated  by reference in Part III of this Form 10- KSB or any  amendment to
this Form 10-KSB. [ X ]

     The Registrant's revenues for its most recent fiscal year were $10,080,201.

     The following  documents are incorporated by reference into Part III, Items
9 through 12 hereof: None.



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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS
--------------------------------

     The following is a summary of certain information  contained in this Report
and is  qualified  in its entirety by the  detailed  information  and  financial
statements that appear elsewhere herein.  Except for the historical  information
contained herein,  the matters set forth in this Report include  forward-looking
statements  within the meaning of the "safe  harbor"  provisions  of the Private
Securities Litigation Reform Act of 1995. These  forward-looking  statements are
subject  to risks and  uncertainties  that may cause  actual  results  to differ
materially. These risks and uncertainties are detailed throughout the Report and
will be further  discussed from time to time in the Company's  periodic  reports
filed with the Commission. The forward-looking statements included in the Report
speak only as of the date hereof.

Introduction

     Since August 1997 the Company has owned and operated the Denver  Automotive
& Diesel College ("DADC"), a for-profit,  post-secondary education college which
trains its students to be automotive and diesel  mechanics and  technicians.  In
March 1998,  the Company  acquired Data  Processing  Training  Co.,  ("DPT") for
$9,036,624  comprised of $3,599,102 (net of cash acquired) in cash, a promissory
note in the amount of  $4,340,000  bearing  interest at 7% per annum  payable in
installments through April 15, 2000, and the balance of $750,000 in Common Stock
of  the  Company   issued  and  valued  as  of  March  24,  1999.  DPT  provides
post-secondary   education   in   computer   programming,    business   computer
applications,  medical office  administration  and English as a second language.
Unless  otherwise  indicated,  the  description  of the  Company's  business and
operations  throughout this Report refers to the combined operations of DADC and
DPT.

     The Company annually provides diversified  career-oriented,  post-secondary
education to approximately  1,780 students through DADC (training  approximately
400 students) and DPT (training  approximately  1,380  students).  The Company's
schools  offer  programs  designed to provide  students  with the  knowledge and
skills  necessary  to qualify them for entry level  employment  in the fields of
automotive and diesel  mechanics,  computer  programming  and  applications  and
medical office administration.

History of the Company

     The  Company  was  incorporated  in the state of Colorado in 1987 under the
name Chartwell Cable Fund, Inc. to acquire, develop and operate cable television
systems.  The Company  conducted an initial public offering of its securities in
January 1988, which resulted in net proceeds of approximately $800,000. In 1994,
after  suffering  continuing  losses  from  operations,  the  Company  sold  its
remaining assets for nominal consideration and ceased operations. In August 1997
the  Company  issued  2,250,000  shares of its Common  Stock to Paul T.  Siemann
("Siemann")  and 500,000 shares to CBAS,  Inc.  ("CBAS") for $.001 per share and


                                        3

<PAGE>


subsequently  issued  an  additional  400,000  shares  to  acquire  all  of  the
outstanding stock of Siemann  Educational  Systems,  Inc. ("SES"),  the owner of
DADC, a company owned and  controlled by Siemann.  In September 1997 the Company
changed  its name to  Siemann  Educational  Systems,  Inc.,  and a new  Board of
Directors  was elected  comprised  of  Siemann,  Joseph R.  Chalupa,  the school
director of DADC,  and Barbara S.  Siemann.  In August and September  1997,  the
Company sold an aggregate of 100,000 shares for $2.00 per share, and in December
1998, the Company sold an aggregate of 103,750  shares for $4.00 per share.  See
"Management."

History of DADC and DPT

     DADC  was  founded  in  1963  as  a  private  vocational  school  providing
instruction in automotive  repair and body, fender and paint. In 1968 it adopted
the Denver  Automotive  and Diesel  College  trade name and  offered  courses in
automotive  and diesel repair,  body,  fender and paint  programs.  In September
1987,  DADC was  approved to offer  Associate  of  Occupational  Studies  Degree
programs for Master Technician,  Automotive Technology and Diesel Technology. In
May 1991 DADC received  certification as a "Master Certified  Automotive School"
by  the  National  Automotive  Technicians  Education  Foundation  ("NATEF"),  a
division of the Automotive Service Excellence ("ASE") organization.  Following a
1992 Chapter 11 bankruptcy  filing,  DADC was  purchased  out of the  bankruptcy
proceedings by SES. In August 1995 the school was approved to offer Associate of
Applied  Science Degree  Programs for Master  Technician,  Automotive and Diesel
Technology.

     DPT was founded in 1987 and trains its  students  in computer  programming,
business computer  applications,  medical office administration and English as a
second  language.  DPT is  licensed by the  Pennsylvania  State Board of Private
Licensed  Schools and is accredited by the  Accrediting  Council for  Continuing
Education and Training.

Industry Overview

     The  Company  believes  the  demand  for  post-secondary,   career-oriented
education  will  increase over the next several years as a result of a number of
recognized  trends,  including  (i) a projected  21% growth in the number of new
high school graduates from approximately 2.5 million in 1993-94 to approximately
3.0 million in 2005-6,  (ii) the increasing  enrollment of students over the age
of 24 in  post-secondary  education  institutions  as they seek to enhance their
skills or retrain for new technologies,  and (iii) the increasing recognition of
the income premium  attributable to higher technical  education  certifications,
with individuals holding such certifications  earning  substantially more income
during their lifetimes than individuals holding only high school diplomas.

     According to the National Center for Education Statistics, education is the
second largest sector of the U.S.  economy,  accounting for  approximately 9% of
gross domestic product in 1994, or over $600 billion.  The Company's schools are
part  of  the  education   management   organization   ("EMO")   sector  of  the
post-secondary  education market, which accounts for approximately  one-third of
the total education sector, or $200 billion annually. Of the approximately 6,000


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post-secondary  schools that are  eligible to  participate  in  federally-funded
Title  IV   Programs,   approximately   500  are   proprietary   degree-granting
institutions,  and the balance are certified  technical or  vocational  training
programs such as the Company. The U.S. Department of Education estimates that by
the year 2005 the  number  of  students  enrolled  in  post-secondary  education
institutions will increase by more than 1.5 million to over 16 million students.

     The U.S.  Department of Education estimates that, over the next five years,
initial enrollments in post-secondary  education  institutions by working adults
will  increase  more  rapidly  than  initial  enrollments  of recent high school
graduates.  The  post-secondary  education  industry is also expected to benefit
from  the  public's   increased   recognition   of  the  income   premium  of  a
post-secondary  education.  According  to  The  National  Center  for  Education
Statistics,  the percentage of recent high school  graduates who continued their
education  after  graduation  increased  from  53% in 1983 to 63% in  1993.  The
Company  believes  that the  income  premium  associated  with a  post-secondary
education has been a significant  factor  contributing to this trend. The Census
Bureau has reported that in 1995 a full-time male worker with an associate level
degree earned an average of 37% more per year than a comparable worker with only
a high school diploma,  and a full-time male worker with a bachelor level degree
earned an average of 72% more per year than a comparable worker with only a high
school diploma. In addition,  employment in technical occupations is expected to
increase over the next several years as the demand for technically-skilled labor
increases.

Strategy

     The Company seeks to increase its market share in the expanding  market for
post-secondary  education and improve  profitability by (i) acquiring additional
schools that have  recorded  strong  profits  under  capable  management,  which
management  will agree to remain under  contract to the Company,  (ii) promoting
internal  growth at the Company's  existing and newly acquired  schools  through
improved marketing and the development of new programs within such schools,  and
(iii) enhancing operating efficiencies.  Subject to the availability of adequate
financing (of which there can be no assurance), the Company intends to implement
the following strategies to achieve these goals:

     Acquisition Strategy.  According to the Department of Education, there were
approximately  2,355  accredited,   proprietary   post-secondary   schools  that
participated  in federal  financial  student aid  programs as of June 1996.  The
ownership of these schools is highly-fragmented,  such that the Company believes
no  organization  holds a significant  national market share or owns or operates
more  than 80  schools.  The  Company  believes  that the  fragmentation  of the
post-secondary  education market provides  significant  opportunities to acquire
and  consolidate  existing  independently-owned  schools  and reduce  individual
school overhead through centralizing certain home office functions.  The Company
seeks to acquire  schools which  demonstrate  historical  profitability,  strong
management  in place,  superior  compliance  history  with  respect to federally
guaranteed or funded student loans,  and established  and marketable  curricula.
The Company  intends to  concentrate  its  acquisition  efforts on schools which
satisfy these  acquisition  criteria and which offer  curricula in the fields of
study currently offered at the Company's schools.

                                       5

<PAGE>


     Internal  Growth   Strategy.   The  Company  intends  to  increase  student
enrollment (i) at its existing schools, (ii) at newly added campuses to existing
schools  and (iii) at newly  acquired  schools by  continuing  to enhance  local
marketing  efforts and increasing the number and variety of program offerings at
its schools.  The Company  also  intends to offer its  existing  programs at new
schools  where such  programs  were not  previously  available  and to apply for
licenses and accreditation in order to offer programs leading to the granting of
an associate level degree.

     Operating Strategy. The Company will seek to provide certain administrative
services to all of its schools, which the Company believes can be performed most
efficiently and cost effectively in a centralized location.  Such administrative
services may include marketing  analysis,  accounting,  information  systems and
regulatory  compliance.   However,  the  Company  will  continue  to  operate  a
decentralized management structure in which local school management is empowered
to make most of the  day-to-day  operating  decisions  at each  school and to be
primarily  responsible  for the  profitability  and  growth of that  school  and
compliance with all regulatory requirements.

Programs of Study

     The Company's  programs are intended to provide  students with the specific
knowledge and job skills required to prepare them for entry-level positions in a
chosen career field.  The automotive and diesel programs at DADC are designed to
prepare  students for  occupations  associated  with the  automotive  and diesel
repair  industries.  The computer and medical  programs at DPT train students in
computer  programming and business computer  applications  (such as spreadsheets
and  word  processing)  and  medical  office  administration  (such  as  medical
record-keeping  and billing).  DPT also offers  English as a second  language to
improve  students'  ability to  communicate  in English,  thereby  assisting the
student in  completing  his or her future  course of study at the school.  As of
August 1997,  tuition and fees for an entire program for a new student  entering
one of the DADC or DPT  programs  ranged  from a high of $22,000  for a 30-month
program to a low of $2,950 for a seven and one-half-month program.

     As of December 31, 1998,  approximately  316 students were enrolled at DADC
and  approximately  980  students  were  enrolled at DPT.  All of the  Company's
programs are designed to prepare  graduates to perform  effectively in a variety
of entry-level positions by providing the student with practical experience both
in the classroom and in the field.

     DADC and DPT  schedules  vary  depending  on the  programs  offered by each
school. Generally, programs begin eight times a year with courses offered from 7
AM to 10 PM, five to six and one-half days a week year round.

     The Company  also has applied for licenses  and  accreditation  in order to
offer  programs  leading  to the  granting  of an  associate's  degree.  See " -
Strategy."

                                        6

<PAGE>

Marketing; Student Recruitment

     The Company endeavors to recruit motivated students who have the ability to
complete the programs offered by the Company's schools and to secure entry-level
employment  in the field for which their program is designed to prepare them. To
attract potential students,  the Company engages in several activities to inform
them and their family about the Company's  programs.  Marketing  efforts include
direct mailings to prospective students and to high schools (which often include
videotapes  of the  Company's  schools),  newspaper  advertising,  yellow  pages
advertising and visits by Company personnel to area high schools.  The Company's
advertising is tailored to the national as well as the local market in which the
school  is  located  and  is  intended  to  create  market   interest  and  name
recognition.  Responses to direct mail campaigns are received and followed up at
each  school.  The two  schools  each  employ a director  of  admissions  who is
responsible  for, among other things,  coordinating the efforts of the school to
recruit qualified students,  determining  recruiting policies and procedures and
setting standards for hiring and training admissions representatives.

     Company  representatives  contact potential  students who have indicated an
interest in the schools'  programs and arrange for  interviews  which  generally
take place at the school or at the prospective  student's home. The interview is
designed to establish  the student's  qualifications,  academic  background  and
employment  goals.  Prospective  students are generally given a school catalogue
which describes the school's  programs,  a tour of the school and an explanation
of the  programs  offered and the types of  employment  opportunities  typically
available   to  graduates   of  the  school.   The  Company   employs  two  DADC
representatives based in Denver and six East Coast School  representatives based
at DPT's location. In addition, DADC employs three regional representatives, who
market in North Dakota, South Dakota, Washington and Alaska.

Admission, Retention and Graduate Placement

     In  order  to apply  for  admission  to any of the  Company's  programs,  a
candidate is required to have a high school diploma, a recognized  equivalent or
pass an admissions test specifically approved by the Department of Education. At
December 1998,  substantially  all of the students were high school graduates or
held recognized equivalent certification. Approximately 40% of enrolled students
were under 20 years of age and 70% of the students were men.

     In an attempt to minimize  student  withdrawals  prior to the completion of
their  program,  the schools  provide  staff and other  resources  to assist and
advise students  regarding  academic and financial  matters and employment.  The
schools also provide  tutoring and encourage  help sessions  between  individual
students and instructors when students are experiencing  academic  difficulties.
For those  students  who were  scheduled  to  graduate  in  calendar  year 1997,
approximately  80% completed their course of study.  The Company is obligated to
provide  refunds to those  students who withdraw from school prior to completion
of the program based on formulas required by applicable  accrediting agencies or
by state and federal regulations.

     The  Company's  schools  employ  placement  personnel to provide  placement
assistance  services  to  students  and  graduates  and to  solicit  appropriate
employment  opportunities  from  employers.  During the course of each  program,
students  receive  instruction  on job search and  interviewing  skills and have

                                       7

<PAGE>

available  reference  materials and assistance  with the composition of resumes.
Based on data obtained by the Company from its students and their employers, the
Company believes that  approximately 92% of DADC's and DPT's graduates  obtained
employment in a field related to their program of study.

Faculty

     Faculty members are hired locally in accordance  with criteria  established
by the school,  applicable  accreditation  organizations  and  applicable  state
regulatory  authorities.  Members  of a  school's  faculty  are  hired  based on
academic and vocational training  background,  prior educational  experience and
prior work  experience.  A  significant  portion of the  Company's  faculty were
previously employed in fields related to their area of instruction.  The Company
believes that such faculty  members  provide a "real world"  perspective  to its
students. As of December 31, 1997, DADC and DPT employed approximately 20 and 25
full-time  faculty  members,  respectively  (defined  as those  faculty  members
spending at least 37 hours per week teaching classes at the Company's  schools),
and 0 and 72 part-time faculty members, respectively.

Administration and Employees

     The  Company's  two  schools  are  each  managed  by  a  school   director.
Additionally,  the staff of each  school  includes a director  of  placement,  a
financial aid administrator and a director or assistant  director of admissions.
As of December 31, 1998, DADC and DPT employed approximately 49 and 98 full-time
employees,  respectively. The Company's employees are not represented by a labor
union or subject to a  collective  bargaining  agreement.  The Company has never
experienced  a work  stoppage  and  believes  that its  employee  relations  are
satisfactory.

     Each of the  Company's  two schools  handles its  financial  aid  services,
oversees  regulatory  compliance,  assists in the  development  and  addition of
programs to existing  curricula,  conducts  marketing,  implements  and supports
management  information  systems and provides  accounting services and financial
resources.

Competition

     The post-secondary  education market is  highly-fragmented  and competitive
with no private or public  institution  having a significant  market share.  The
Company's  schools compete for students with  not-for-profit  public and private
colleges  and  proprietary  institutions  which offer degree  and/or  non-degree
granting  programs.   Such  proprietary   institutions  include  vocational  and
technical  training  schools,   continuing  education  programs  and  commercial
training  programs.  Competition among educational  institutions is based on the
quality of the program, perceived reputation of the institution, the cost of the
program,  and the  employability  of graduates.  Public and private colleges may
offer  programs  similar  to those  offered  by the  Company's  schools at lower
tuition  costs  due in part to  government  subsidies,  foundation  grants,  tax
deductible  contributions,   or  other  financial  resources  not  available  to
proprietary  institutions.  Many of the Company's competitors in both the public
and private sector have greater financial and other resources than the Company.

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Financial Aid and Regulation; Title IV Student Financial Assistance Programs

         A substantial  majority of the students attending the Company's schools
finance all or a part of their education  through grants or loans under Title IV
Programs.  Revenues  from  Title IV  funding  provide  most of DADC's  and DPT's
tuition  revenues  (aggregating  approximately  63% of cash  receipts  in fiscal
1998). The maximum amount of a student's  available Title IV program  assistance
is generally  based on the student's  financial  need. The Company  determines a
student's  financial  need based on the national  standard need analysis  system
established by the HEA. If there is a difference  between the amount of Title IV
program  funding a student is entitled to receive  (combined  with other outside
assistance)  and the  student's  tuition,  the  student is  responsible  for the
difference,  which may be  funded  by loans  from the  Company  directly  to the
student.  Such  loans,  if  advanced,  generally  require  the  students to make
payments on the loan commencing when the loan is received.

     Students at the  Company's  two schools may  participate  in the  following
Title IV Programs:

     Pell and FSEOG Grants.  The Federal Pell Grant Program  provides for grants
to help  financially  needy  undergraduate  students  meet  the  costs  of their
post-secondary  education.  The amount of an eligible student's Pell grant award
currently  ranges  from  $400 to $3,000  annually,  depending  on the  student's
financial  need, as determined by a formula set by the HEA and the  Regulations.
The HEA  guarantees  that all of the eligible  students at a school receive Pell
grants in the amounts to which they are  entitled.  In 1998,  the  average  Pell
award per student enrolled in DADC and DPT was approximately $2,204. Pell grants
to students  represented  approximately  $2,995,252,  or 30.9% of the  Company's
revenues in 1998.

     The Federal  Supplemental  Educational  Opportunity Grant program ("FSEOG")
provides for awards to exceptionally needy undergraduate students. The amount of
an  FSEOG  award  currently  ranges  from  $100 to  $4,000,  depending  upon the
student's  financial  need and the  availability  of funds.  In fiscal 1996, the
average FSEOG award to students  enrolled in the Company's two schools receiving
such grants was $400. The Company,  or another  outside  source,  is required to
make a 25% matching  contribution  for FSEOG  program  funds it  disburses.  The
Company made matching  contributions  of  approximately  $42,964  in 1997. FSEOG
awards made to the Company's students (net of matching  contributions)  amounted
to approximately  $128,802 and represented  approximately  1-3% of the Company's
revenues in 1997.

     Federal  Family  Education  Loans and Federal  Direct  Student  Loans.  The
Federal Family  Education Loan ("FFEL")  programs  include the Federal  Stafford
Loan Program ("Stafford Loan"), and the Federal PLUS Program ("PLUS"),  pursuant
to which private lenders make loans to enable a student or the student's parents
to pay the cost of attendance at a post-secondary school.

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     The FFEL  Program  is  administered  through  state and  private  nonprofit
guarantee  agencies  that insure loans  directly,  collect  defaulted  loans and
provide various services to lenders.  The federal  government  provides interest
subsidies in some cases and reinsurance  payments for borrower  default,  death,
disability and bankruptcy.

     The Federal Direct Student Loan Program ("FDSLP") is substantially the same
as the FFEL  program in  providing  Stafford  and PLUS  loans.  Under the FDSLP,
however,  funds are provided directly by the federal government to the students,
and the loans are  administered  through  the school.  For  schools  electing to
participate, the FDSLP replaces the FFEL program, although loans are made on the
same general terms and conditions.

     Stafford Loan Program. Students may borrow an aggregate of $2,625 for their
first  undergraduate  academic  year and $3,500 for their second  academic  year
under the FFEL  Stafford Loan or FDSLP  Stafford  Loan  program.  If the student
qualifies  for  a  subsidized  loan,  based  on  financial  need,,  the  federal
government  pays interest on the loan while the student is attending  school and
during certain grace and deferment periods.  If the student does not qualify for
a subsidized  Stafford Loan, the interest  accruing on the loans must be paid by
the student.  In addition,  independent  students may qualify for an  additional
$4,000 a year in unsubsidized Stafford loans.

     Plus Loan  Program.  Parents of dependent  students may receive loans under
the FFEL PLUS Program or the FDSLP PLUS Program on an academic  year basis.  The
maximum  amount of any PLUS loan is the total cost of a student's  education for
each  relevant  academic  year less other  financial aid received by the student
attributable  to such year.  PLUS loans carry a maximum  interest rate of 9% and
are repayable  commencing  60 days  following  the last  disbursement  made with
respect to the relevant  academic year, with flexible  payment  schedules over a
ten-year  period.  The FFEL PLUS  loans  are made by  lending  institutions  and
guaranteed by the federal government. The FDSLP PLUS Program provides PLUS loans
by the  federal  government  on the same  general  terms as the FFEL PLUS loans.
There were no FDSLP PLUS or FFEL PLUS loans advanced to students in 1997.

     Perkins  Loans.  Students who  demonstrate  financial need may borrow up to
$3,000 per academic  year under the Federal  Perkins Loan  ("Perkins")  program,
subject to the  availability of Perkins funds at the  institution.  Repayment of
loans under the Perkins program is delayed until nine months after graduation or
the  termination  of studies.  Funding  for the  Perkins  program is made by the
Department of Education into a fund maintained by the  participating  school for
that  purpose.   The  participating  school  is  required  to  make  a  matching
contribution  into the fund of 25% of the total  loans made from the fund and to
deposit all repayments into the fund.

     Federal  Work-Study.  Pursuant to the Federal  Work-Study  ("FWS") program,
federal  funds are made  available to provide  part-time  employment to eligible
students  based on  financial  need.  The  Company's  two  schools may provide a
limited   number  of  on-campus  and  off-campus   jobs  to  eligible   students
participating  in the FWS program.  The Company,  or another outside source,  is
required  to pay  25% of the  gross  earnings  of  each  participant  in the FWS
program.

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     Title IV Eligibility.  To obtain and maintain eligibility to participate in
the programs  described above, the Company's  schools must comply with the rules
and  regulations  set  forth  in the  HEA  and the  Regulations  thereunder.  An
institution  must  obtain  certificate  by the  Department  of  Education  as an
"eligible institution" to participate in Title IV Programs.  Certification as an
"eligible  institution"  requires,  among other things,  that the institution be
authorized to offer its educational  programs by the state in which it operates.
It must also be accredited by an accrediting agency recognized by the Department
of Education.

     The HEA provides standards for institutional  eligibility to participate in
the Title IV Programs. The standards are designed,  among other things, to limit
dependence on Title IV funds,  prevent  schools with  unacceptable  student loan
default rates from  participating in Title IV Programs and, in general,  require
institutions  to satisfy certain  criteria  intended to protect the integrity of
the federal programs, including criteria regarding administrative capability and
financial responsibility.

     Generally,  each school (a main  campus and any  additional  locations  for
purposes of the  Regulations)  is considered  separately for compliance with the
Regulations.  A school that has been certified as eligible to participate in the
Title  IV  Programs   continues  to  remain  eligible  for  the  period  of  its
certificate, which is generally four years. A school must apply for a renewal of
its certification  prior to its expiration and must demonstrate  compliance with
the eligibility requirements in its application.

     Under certain circumstances,  the Department of Education may provisionally
certify a school to participate in Title IV programs.  Provisional certification
may be imposed,  when a school is reapplying for  certification or when a school
undergoes a change of  ownership  resulting in a change in control if the school
(i) does not satisfy all of the financial responsibility  standards,  (ii) has a
Cohort  Default Rate of 25% or more in any single  fiscal year of the three most
recent federal  fiscal years for which data is available,  and (iii) under other
circumstances   determined   by  the   Secretary   of   Education.   Provisional
certification may last no longer than three years and differs from certification
in that a provisionally  certified  school may be terminated from eligibility to
participate in the Title IV Programs  without the same opportunity for a hearing
that is afforded to a fully certified  school.  Additionally,  the Department of
Education may impose other conditions on a provisionally certified institution's
eligibility to continue participating in the Title IV Programs.

     Student  Loan  Defaults.  Under  the  HEA,  an  institution  may  lose  its
eligibility to participate in some or all Title IV Programs if student  defaults
on the repayment of federally  guaranteed  student loans exceed specified Cohort
Default  Rates.  Similar rules  regarding  default rates apply to Federal Direct
Loans made  pursuant to the FDSLP,  commencing  with those loans  entering  into
repayment for the first time in the 12-month  period ending  September 30, 1995.
Under  existing  regulations  these rates are based on the repayment  history of
current and former  students for loans  provided under the Stafford Loan program
and the SLS program.  A Cohort  Default Rate is calculated  for each school on a
federal fiscal year basis by determining the rate at which the school's students
entering  repayment  in  that  federal  fiscal  year  default  by the end of the
following  federal fiscal year.  Cohort Default Rates are subject to revision by

                                       11

<PAGE>

the  Department  of Education if new data  becomes  available  and is subject to
appeal by schools  contesting  the  accuracy of the data or the  adequacy of the
servicing of the loans by the loan servicer.

     An institution whose Cohort Default Rate exceeds 40% for any single federal
fiscal year may have its  eligibility  to  participate  in all Title IV Programs
limited,  suspended or terminated. If the Department of Education elects to take
such action due to a single-year Cohort Default rate in excess of the regulatory
level, it must afford the institution a hearing before an independent Department
of Education  hearing  officer and an  opportunity to appeal any decision to the
Secretary of Education before the limitation, suspension or termination may take
effect. Except as indicated below, neither DADC nor DPT has had a Cohort Default
Rate in excess of 40%.

     An institution  whose Cohort Default Rate is 25% or more for the three most
recent  federal fiscal years for which data is available is subject to immediate
loss of eligibility  to  participate in Title IV Programs,  subject to an appeal
(on  the  bases  stated  in the  next  prior  paragraph)  of the  determination,
including an appeal based on a claim of exemption  from the Cohort  Default Fate
requirements  by virtue of  exceptional  mitigating  circumstances.  The loss of
eligibility lasts for the duration of the fiscal year in which the determination
of  ineligibility  is made, plus the two succeeding  fiscal years.  However,  an
institution remains eligible for Title IV funding while the appeal is pending.

     DPT  has  not  had a  Cohort  Default  Rates  of 25%  in  any of the  three
consecutive  federal fiscal years ending 1994. DADC had default rates of 44% (in
1991), 31% (in 1992) and 26% (in 1993), and accordingly,  lost its certification
to participate in the Stafford Loan program. DADC applied for recertification to
participate in the Stafford Loan program and its  application has been approved.
Accordingly,  DADC is now participating in the program.  DADC's published Cohort
Default Rate for 1995 and preliminary published Cohort Default Rate for 1996 are
below  regulatory  requirements.  The Company  believes  that neither of its two
schools is currently vulnerable to any other termination of Title IV eligibility
or programs based on three consecutive years of excess default rates.

     The Regulations  require that any school which experiences a Cohort Default
Rate in excess of 20% must  establish a default  management  plan in  compliance
with the federally mandated plan included in the Regulations. This plan includes
measures to reduce student  withdrawal rates,  improve student  employment rates
and  counseling of students on their  responsibility  to repay their loans.  The
Company has default  reduction  programs in place in its two  schools;  however,
economic and other  factors  outside of the Company's  control  could  adversely
affect default rates.

     The 90/10 Rule. The "90/10" rule, which applies to for-profit  institutions
such as DADC and DPT, became  applicable to the Company's schools beginning with
the fiscal year ending March 31, 1996.  The rule  requires that no more than 90%
of the school's  applicable cash receipts may be derived from Title IV Programs.
A school whose annual certified financial statement or Title IV compliance audit
report to the Department of Education does not reflect compliance with the 90/10
rule is  subject  to  immediate  termination  of its Title IV  eligibility.  The
Company believes that DADC and DPT are in compliance with the 90/10 rule.

                                       12

<PAGE>


     Change in  Control.  Upon a change in  ownership  resulting  in a change in
control  of the  Company  or any  of its  schools  as  defined  in the  HEA  and
Regulations,  either the Company or its schools,  as applicable,  would lose its
eligibility to participate in Title IV Programs for an  indeterminate  period of
time during  which it applies to regain  eligibility.  A change of control  also
could have  significant  regulatory  consequences  for the  Company at the state
level and could  affect  the  accreditation  of the  Company's  schools.  If the
corporation is not  publicly-traded,  the  Regulations  provide that a change in
ownership  resulting  in a change of control  occurs  when a  person's  legal or
beneficial  ownership  either rises above or falls below 25% of the voting stock
of the  corporation  and that person gains or loses control of the  corporation.
The  Company's  purchase  of DPT  constituted  a change in control  of DPT,  and
accordingly,  DPT has lost its  eligibility and will be unable to participate in
Title IV Programs until it is recertified.

     The  Department  of  Education's  regulations  provide that after a company
becomes publicly-traded, a change in control occurs when a report on Form 8-K is
required to be filed with the  Securities and Exchange  Commission  disclosing a
change  in  control.   Most  states  and   accrediting   agencies  have  similar
requirements, but they do not provide a uniform definition of change in control.
If the Company were to lose its  eligibility to participate in Title IV Programs
(by  virtue of DPT  purchase  or  otherwise)  for a  significant  period of time
pending an application to retain  eligibility,,  or if it were determined not to
be eligible, its operations would be materially adversely affected. The possible
loss of  Title  IV  eligibility  resulting  from a change  in  control  may also
discourage or impede a tender offer, proxy contest or other similar  transaction
involving control of the Company.

     Administrative   Capability.  The  Regulations  set  certain  standards  of
"administrative  capability"  which a school must satisfy to  participate in the
Title IV Programs.  These criteria require,  among other things, that the school
comply with all  applicable  Title IV  Regulations,  have capable and sufficient
personnel  to  administer  the Title IV  Programs,  have  acceptable  methods of
defining and  measuring  the  satisfactory  academic  progress of its  students,
provide financial aid counseling to its students,  timely submit all reports and
financial  statements required by the Regulations,  and that the school's Cohort
Default Rate not equal or exceed 25% for any single fiscal year.

     Failure to satisfy any of the criteria may lead the Department of Education
to determine that the school lacks the requisite  administrative  capability and
may subject the school to provisional  certification  when it seeks to renew its
certification  as an eligible  institution,  or may subject it to a fine or to a
proceeding for the limitation, suspension or termination of its participation in
Title  IV  Programs.  Proceedings  to  fine,  limit,  suspend  or  terminate  an
institution  are  conducted  before  an  independent   hearing  officer  of  the
Department of Education and are subject to appeal to the Secretary of Education,
prior to any sanction taking effect.  Thereafter,  judicial review may be sought
in the federal courts pursuant to the federal Administrative Procedures Act.

     Financial  Responsibility   Requirements.   The  HEA  and  the  Regulations
prescribe specific standards of financial responsibility which the Department of
Education must consider with respect to qualification  for  participation in the
Title IV Programs ("Financial  Responsibility  Standards").  These standards are
generally  applied on a  consolidated  school  basis.  However,  there can be no


                                       13

<PAGE>

assurance  that the  Department of Education will not apply such standards on an
individual  school basis. If the Department of Education  determines that either
of  the  Company's  schools  fails  to  satisfy  the  Financial   Responsibility
Standards,  the  Department  may require  that such  school post an  irrevocable
letter of credit (a "Financial  Responsibility  Bond") in favor of the Secretary
of Education  in an amount  equal to not less than  one-half of Title IV Program
funds  received  by the school  during the last  complete  award year or, in the
Department  of   Education's   discretion,   require  some  other  less  onerous
demonstration  of  financial   responsibility  (a  "Demonstration  of  Financial
Responsibility").  Pursuant  to the  Regulations,  the  Company  submits  annual
audited consolidated financial statements to the Department of Education.

     All  institutions  participating  in the Title IV Programs  must  satisfy a
series of specific  standards  of  financial  responsibility.  Institutions  are
evaluated  for  compliance  with those  requirements  in several  circumstances,
including as part of the DOE's recertification process and also annually as each
institution submits its audited financial statements to the DOE. Under standards
in effect prior to July 1, 1998, each institution was required to demonstrate an
acid test ratio  (defined  as the ratio of cash,  cash  equivalents  and current
accounts  receivable to current  liabilities) of at least 1:1 at the end of each
fiscal year.  Another  standard  required that each  institution have a positive
tangible net worth at the end of each fiscal year. A third  standard  prohibited
any institution  from having a cumulative net operating loss during its two most
recent  fiscal  years  that  resulted  in a  decline  of more  than  10% of that
institution's  tangible net worth as measured at the  beginning of that two-year
period.  The DOE may measure an institution's  financial  responsibility  on the
basis of the  financial  statements of the  institution  itself or the financial
statements  of the  institution's  parent  company  and may  also  consider  the
financial condition of any other entity related to the institution.

     In November 1997,  the DOE published new  regulations  regarding  financial
responsibility  that took  effect on July 1,  1998.  The  regulations  provide a
transition  year  alternative  which  will  permit  institutions  to have  their
financial  responsibility  for the 1998  fiscal  year  measured  on the basis of
either the new  regulations  or the  previous  regulations,  whichever  are more
favorable  to the Company.  Under the new  regulations,  the DOE will  calculate
three financial  ratios for an  institution,  an equity ratio, a primary reserve
ratio, and a net income ratio, each of which will be scored separately and which
will then be combined to determine the institution's  financial  responsibility.
If an  institution's  composite  score  is below  the  minimum  requirement  for
unconditional  approval  (which  is a score  of  1.5)  but  above  a  designated
threshold level (the "Intermediate Zone", which is 1.0 to 1.4), such institution
may take advantage of an  alternative  that allows it to continue to participate
in the Title IV Programs for up to three years under  additional  monitoring and
reporting  procedures.  If an  institution's  composite  score  falls  below the
minimum  threshold  level of 1.0 or is in the  Intermediate  Zone for more  than
three  consecutive  years,  the institution will be required to post a letter of
credit  in  favor of the DOE.  The  Company  does not  believe  that  these  new
regulations  will have a material  effect on the Company's  compliance  with the
DOE's financial responsibility standards.

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

                                       14

<PAGE>

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

     Incentive  Compensation.  Schools  participating  in Title IV Programs  are
prohibited from providing any commission, bonus or other incentive payment based
directly or  indirectly on success in securing  enrollments  or financial aid to
persons engaged in any student recruitment,  admission or financial aid awarding
activity (the "Incentive  Compensation  Rule").  The Department of Education has
not  provided  specific  regulations  with respect to this  requirement.  If the
Department  of  Education  were to  determine  that  the  Company's  methods  of
compensation  do not comply with the Incentive  Compensation  Rule,  the Company
could be required to modify its compensation  system,  repay certain  previously
disbursed  Title  IV  Program  funds,  pay  administrative  fines  or  lose  its
eligibility  to  participate  in Title IV  Programs.  The Company  believes  its
compensation policies do not violate the Incentive Compensation Rule.

     Restrictions  on Adding  Locations and  Educational  Programs.  Proprietary
educational institutions must be in full operation for two years before they can
be certified by the Department of Education to participate in Title IV Programs.
However,  an  institution  that is already  qualified to participate in Title IV
Programs  may  establish,  with  approval of the  Department  of  Education,  an
additional  location  that  immediately  qualifies  for  participation  in  such
programs without satisfying the two-year  requirement if such location satisfies
all other  applicable  requirements  for  institutional  eligibility,  including
approval of the additional location by the applicable accrediting agency and the
relevant state authorizing agency.

     Generally,  if a  school  which  is  eligible  to  participate  in Title IV
Programs  adds an  educational  program,  it must  apply  to the  Department  of
Education to have such program  designated as eligible.  However,  if it adds an
additional degree program or a program which prepares students for employment in
the same or related  occupations as those which have  previously been designated
as  eligible,  it is not  obligated  to obtain  the  Department  of  Education's
approval of such  program.  The Company does not believe that the  Department of
Education  requirements  will  hinder its ability to plan and add new degree and
diploma programs to its schools' curricula.

     State  Authorization  and  Accreditation.  The  Company's  schools  must be
authorized by the  applicable  agency or agencies of the state in which they are
located to operate.  State  authorization  is also required for  eligibility  to
participate  in Title IV Programs.  The Company's two schools are  authorized to
operate in their respective states.

                                       15

<PAGE>


     Both of the Company's  schools are  accredited by at least one  accrediting
body recognized by the Department of Education. Accreditation signifies that the
schools have been reviewed and  determined to meet minimum  criteria in terms of
administration,  faculty, curriculum,  physical plant, facilities and equipment,
and financial stability.  Accreditation by an accrediting body recognized by the
Department of Education is a requirement for participation in Title IV Programs.

ITEM 2. DESCRIPTION OF PROPERTY
-------------------------------

     The Company leases 81,500 square feet for its DADC  facilities from Paul T.
Siemann,  its Chief  Executive  Officer  and a  director,  for $15,000 per month
pursuant to a lease which expires in August 2000. The Company  believes that the
terms of the two leases are fair,  reasonable and  consistent  with the terms of
leases which the Company could enter into with nonaffiliated third parties.  DPT
leases an aggregate  of  approximately  51,300  square feet for office space and
school  facilities  for  $42,580  per month  under two  leases  which  expire in
December 2003 and in May 2009.

ITEM 3. LEGAL PROCEEDINGS
-------------------------

     Not applicable.

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

     Not applicable.


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
----------------------------------------------------------------

         The  Company's  Common Stock trades on the  Electronic  Bulletin  Board
("EBB") under the symbol "SEDS". The following table sets forth for the quarters
indicated the range of high and low closing prices of the Company's Common Stock
on the EBB but does not include retail markup, markdown or commissions.

                                                               Closing Price
                                                             -----------------
By Quarter Ended:                                            High          Low
-----------------                                            ----          ---

December 31, 1998............................................ 3.75          .71
September 30, 1998............................................3.50         1.50
June 30, 1998.................................................4.50         1.88
March 31, 1998............................................... 3.85         2.75
December 31, 1997.............................................3.82         2.25
September 30, 1997............................................None         None
June 30, 1997.................................................None         None
March 31, 1997................................................None         None

                                       16

<PAGE>


     As of March 31,  1998,  the  Company  had  approximately  1,200  record and
beneficial stockholders.

Dividends

     The Company has not paid dividends on its Common Stock since  inception and
does not plan to pay dividends in the foreseeable future. Earnings, if any, will
be retained to finance growth.


                                       17

<PAGE>


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

The following discussion of the results of operations and financial condition of
the  Company  should  be read in  conjunction  with the  Company's  Consolidated
Financial Statements and Notes thereto appearing elsewhere herein.

The discussion below contains certain  forward-looking  statements (as such term
is defined in Section 21E of the Securities Exchange Act of 1934) that are based
on the beliefs of the Company's management, as well as assumptions made by , and
information  currently  available  to, the Company's  management.  The Company's
actual growth, results,  performance and business prospects and opportunities in
1998 and beyond could differ  materially from those expressed in, or implied by,
any such forward-looking statements. See "Special Note Regarding Forward-Looking
Statements"  for a  discussion  of risks and  uncertainties  that could cause or
contribute to such material differences.

Background and Overview

Siemann  Educational  Systems,  Inc.  ("SES")  operates  two private  for-profit
post-secondary vocational schools: Denver Automotive and Diesel College ("DADC")
and Data Processing Trainers,  Inc. ("DPT"). DADC, located in Denver,  Colorado,
provides  training  in  automotive  and  diesel  mechanics;  the  school had 316
enrolled  students as of December  31, 1998.  The school is a "Master  Certified
Automotive School" by the National Automotive  Technicians Education Foundation,
and offers several  associate degree and non-degree  programs.  DPT, acquired by
the   Company  on  March  24,   1998  as  more  fully   discussed   below  under
"Acquisitions", consists of two campuses in the Philadelphia, Pennsylvania, area
providing  training  in the areas of  computer  programming,  business  computer
applications,  medical office administration,  and English as a second language.
DPT's two campuses had enrollment of approximately  980 students on December 31,
1998. DADC's enrollment is slightly higher than on December 31, 1997, reflecting
the continuing low  unemployment  rate in the general economy of the area; DPT's
enrollment  has also remained  generally  constant over the past year because it
had reached the limits of its current  physical  capacity until the January 1999
expansion  discussed  below.  Both schools have long  histories,  dating to 1963
(DADC) and 1987 (DPT).  DADC has been  operated by the Company  since August 31,
1997, and, as noted above,  DPT was acquired by the Company in March,  1998. For
the  period  November,  1993 to  August  31,  1997,  DADC was  operated  by an S
corporation owned by the Company's current CEO and primary stockholder.

DPT's northeast  Philadelphia campus has contracted for expansion space in a new
location; the new facilities were occupied by DPT in January of 1999. The campus
was occupying  its current  facility on a  month-to-month  basis until the move.
This  expansion  will result in the ability to increase the student body at that
campus from the current 700 to  approximately  1,400. The school expects to have
an additional 120 students enrolled by June of 1999.  Current tuition revenue is
approximately  $900 per  month  per  student.  Rent  expense  will  increase  by
approximately $9,500 per month at the new facility after April of 1999.

The Company's principal sources of revenues are tuition,  related fees, and book
sale charges  collected  from its students.  Both schools  record tuition at the
start of each academic term as deferred  tuition  income,  a current  liability.
During the term, the applicable portion of deferred tuition income is recognized
as  revenue  each  month  based on  aggregate  number of credit  hours  taken by

                                       18

<PAGE>

students  during the term. The year is divided into terms,  which are determined
by start dates that vary by school and program.  Payment of each term's  tuition
may be made by full cash payment,  financial aid, and/or an installment  payment
plan. If a student  withdraws  from school prior to the  completion of the term,
the Company  refunds a portion of the tuition already paid which is attributable
to the uncompleted  period of the term. The Company's campuses charge tuition at
varying  amounts  depending  on both  the  school  and the type of  program  and
curriculum.  Each of the Company's  campuses  typically  implements  one or more
tuition increases annually; DADC's last increase was 5% in July of 1998, and DPT
is  projecting  a 6-7%  increase  in April of 1999.  For both DADC and DPT,  the
highest  student  body  levels  occur  during  the  fall  terms,   beginning  in
August/September.

The Company's expenses consist of educational and facilities costs,  selling and
promotional  expense,  general  and  administrative  expense,  depreciation  and
amortization, and bad debt expense.

Education costs generally  consist of salaries and related expenses for faculty,
instructional  support,  academic  administration,  educational  materials,  and
related  expenditures.  Facility costs include leasing and maintenance of campus
facilities, and other building occupancy expenses.

Selling  and  promotional  expenditures  include  the costs of  advertising  and
promotional  materials,  as well as salaries and benefits  for  recruitment  and
marketing personnel.

General and administrative expense includes salaries and benefits of accounting,
and school and corporate administration.

Depreciation  and  amortization   consists  of  depreciation  of  purchased  and
capital-leased computer equipment,  automotive training equipment, and furniture
and fixtures.  Amortization of intangible assets consists primarily of the costs
of goodwill  acquired in the purchase of DPT, and loan fees associated with that
purchase.

Uncollectible  student  receivables  are  written  off to bad debt  expense on a
pro-rata basis through out the year. DADC  experienced a period of ineligibility
for federal  financial aid programs during 1996 and 1997; as a consequence,  the
school  substantially  increased the level of tuition being financed by students
under installment  payment plans. Bad debt expense has been  approximately 4% of
DADC revenues in 1998 and 1997. DPT has experienced bad debts of less than 1% of
revenue in 1998 and 1997.

As a result of the S Corporation  status of DADC until August 31, 1997, DADC was
not  subject to federal  and state  income  taxes  until it was  acquired by the
Company.  The Company's  operations  from September 1, 1997 to December 31, 1997
resulted in a net operating loss  carry-forward of approximately  $118,000 as of
December 31, 1997.  The tax benefit of the net operating loss was fully reserved
at December 31, 1997. DPT is subject on an individual company basis to state and
city income and business privilege taxes.

Acquisition

On March 24, 1998, the Company acquired all of the outstanding  stock of DPT for
a purchase  price of $9,030,624,  and additional  direct costs of acquisition of
approximately  $21,900 were also capitalized;  the acquisition was accounted for
as a purchase. The purchase price was determined through arms-length negotiation
with the independent  third-party owner based on historical and projected future

                                       19
<PAGE>

cash flow and earnings.  DPT had minimal  tangible  assets,  and the  difference
between the purchase price and the assets and  liabilities  assumed was recorded
primarily as goodwill (82%) and trade name (11%);  the balance was attributed to
student contracts, curriculum and non-compete covenant.

The  purchase  price  consisted  of cash  payments  of  $3,599,192  (net of cash
acquired),  a $4,340,000  note payable to DPT's  former  owner,  and $750,000 in
future stock to be issued. Funds used for the acquisition were borrowed from the
company's president (in the amount of $2,000,000) and a financing  subsidiary of
a brokerage firm (in the amount of $2,900,000).  Warrants to purchase  2,000,846
shares of the Company  were issued in  connection  with this debt;  the warrants
were valued and recorded at $460,195.

The  acquisition  of DPT  resulted in the  following  balance  sheet  additions:
$1,452,689 to student accounts/notes  receivable,  $77,857 to book and materials
inventories,  $308,206 to tangible  fixed  assets,  $64,478 to prepaid and other
assets, $287,021 to accounts payable, $195,150 to capital lease obligations, and
$1,430,711 to deferred tuition liabilities.  Cash of $341,432 was acquired,  and
goodwill and other intangible assets of $8,720,752 were recorded.

As a  result  of  the  acquisition,  amortization  expense  is  expected  to  be
approximately   $255,000   annually  for  the  years  1999  through  2002,   and
approximately  $215,000  thereafter  through the 40-year  goodwill  amortization
period . The loans from the shareholder and financing subsidiary are due in five
years,  and interest  expense at 12% will  approximate  $588,000  annually until
maturity.  The note payable to the former  owner of DPT carries  interest of 7%;
interest  expense was  approximately  $203,000 in 1998 and will be approximately
$142,000  in 1999 on this note.  Principal  payments  are being  made  quarterly
through March 24, 2000 to retire the debt.

Liquidity and Capital Resources
-------------------------------

December 31, 1998 as Compared to December 31, 1997

The  Company  finances  its  operating  activities  and  capital   requirements,
including  debt   repayments,   principally  from  cash  provided  by  operating
activities  and  borrowings  on lines of  credit.  The  Company's  cash  balance
increased  $1,017,090  over the year  ended  December  31,  1997;  the  increase
resulted  primarily  from  borrowings  associated  with the  acquisition of DPT,
additional borrowings on lines of credit, and cash flows from the newly-acquired
operations of DPT.

Accounts  and  installment  notes  receivable,  net of the  effects  of the  DPT
acquisition  discussed  above,  decreased  slightly  by  $36,000  at  DADC,  and
increased   slightly  by  approximately   $51,000  at  DPT  (from  the  date  of
acquisition);  both reflect the relatively  insignificant  change in size of the
student  body over the year.  Installment  loans are payable by students  over a
period ranging from one to five years from  inception,  while Title IV funds are
generally   collected  within  the  current  academic  year.   Deferred  tuition
liabilities,  which  represent  the unearned  portion of current  academic  year
receivables,  decreased  by $118,961  at DADC,  and by $127,093 at DPT (from the
date of  acquisition).  The changes result from normal  inter-period  start date
timing fluctuations.

Capital  expenditures   unrelated  to  the  acquisition  during  the  year  were
approximately  $400,000.  The Company expects to incur approximately $900,000 in
leasehold improvements and other capital expenditures as a result of the January
1999 relocation of one of its Philadelphia campuses.

                                       20

<PAGE>


Cash provided by operating  activities  of $365,000 for the year ended  December
31, 1998,  primarily results from the addition of DPT operations to the Company;
cash used by operations was $(961,937) in 1997.

December 31, 1997 as Compared to December 31, 1996

In 1997, the Company operated only DADC, and, consequently, the discussion below
is  abbreviated,  and  differs in format  from that  presented  for the  current
period.

During  1997,  the  Company's  cash  balance  decreased  $293,156  from the 1996
amounts.  However,  at December 31, 1997, current assets increased $685,065 over
1996 current  assets,  an increase of 57.4%.  The increase in current assets was
largely due to an increase in short-term  student accounts and notes receivable.
Compared to prior years, a substantial portion of the student accounts and notes
receivable  were  institutional  and  held  by  the  school  rather  than  being
government  granted  or  based.  This  change  occurred  because  DADC  lost its
eligibility  for  government  Title IV  funding  and  grants  in 1996 due to the
previous owner's failure to comply with certain financial responsibility ratios.
The Title IV funding and grants were  restored in November  1997.  Nevertheless,
the 1997 receivables  increased $913,560 over 1996.  However,  the allowance for
uncollectible  receivables  also  increased by $130,331 and the bad debt expense
increased  from $81,020 in 1996 to $138,353 in 1997.  To insure  future cash and
hedge against uncollectible student receivables, in addition to notes receivable
from a  stockholder,  the  Company  sold a number of  student  notes  receivable
(long-term  portion only) to another  stockholder for $200,000.  (In 1998, those
receivables were sold to an unrelated party). The Company's  president increased
his borrowings from the Company by $156,300 over 1996. The total amount due from
the  President was payable  within one year,  and was fully repaid by the end of
1998.

Property and equipment decreased $164,725 from 1996 due to depreciation  expense
of $176,276  after  purchases of property and equipment of $11,551.  Also during
1997,  the  Company  initiated  the  acquisition  of DPT,  which  is more  fully
discussed above. Overall, total assets increased $1,068,101,  or 50%, from 1996.
During 1997, the Company's  accounts  payable and accrued  liabilities  remained
relatively  constant  compared  to  1996.  However,  total  current  liabilities
increased  $604,570  over 1996  current  liabilities,  an increase  of 53%.  The
increase  in current  liabilities  is largely  due to the  increase  in deferred
tuition income and current maturities of long-term debt. Deferred tuition income
increased  $153,538  over  1996 due to  normal  student  enrollment  and  timing
fluctuations.  Current and long-term  maturities of debt increased $840,507 over
1996 due to reduced cash flow created by the loss of Title IV funding  discussed
above. Notes payable to a stockholder decreased by $36,405. The Company incurred
a total  liability  of  $123,936  in 1997  payable  to the  owner of DPT,  which
consisted of $61,968 directly  payable in cash and $61,968 to repurchase  common
stock. Finally, student refunds and credit balances decreased $122,263 from 1996
due to normal fluctuations.

During 1997,  the Company's  current  assets  exceeded  current  liabilities  by
$142,977, giving the Company a current ratio of 1.08:1.

Rent payable, a non-current  liability,  increased $132,902 over 1996 due to the
accrual  of one  year's  rent less a payment  of  $22,000.  This was based on an
agreement  with the  owner of the  building,  who is also the  President  of the
Company, to defer the payment of rent with interest until the school's cash flow
improves.  This liability,  plus additional  accrued  interest,  remained on the
books at the end of 1998.

                                       21

<PAGE>


Common stock  increased  $339,598 over 1996,  due to the  reorganization  of the
Company in a reverse  acquisition and the issuance of additional stock on August
31, 1997.  Additional paid-in capital decreased from $618,646 to $88,706 in 1997
because of the  elimination of the  accumulated  deficit against paid-in capital
when the reorganization occurred.

Results of Operations
---------------------

1998 as Compared to 1997

The following table summarizes the Company's  operating  results as a percentage
of net revenue for the periods indicated:

                                           Twelve Months Ended December 31,
                                                 1998             1997
                                           --------------------------------
   Net revenues                                  100.0            100.0
   Educational services and facilities           (48.7)           (35.6)
   Cost of college supplies/sales                 (3.9)            (5.9)
   Selling and promotion                         (11.8)           (17.2)
   General and administrative                    (23.2)           (29.7)
   Depreciation and amortization                  (6.7)            (6.0)
   Bad debt expense                               (1.6)            (4.5)
                                           -------------------------------
   Income from operations                          4.1              1.1
   Interest expense - net                         (8.5)            (2.2)
   Provision for income taxes                     (1.0)             --
                                           -------------------------------
   Net income                                     (5.4)            (1.1)
                                           ================================


     Total revenues. The Company's total revenues (exclusive of interest income)
     increased by $7,029,367 to $10,080,291 for the year ended December 31, 1998
     over  the  year  ended  December  31,  1997.  Revenues  include  $6,902,272
     attributable  to DPT's  operations from the date of acquisition to December
     31, 1998. DADC's revenues  increased $110,522 over the previous year due to
     a slight increase in student units.

Educational  facilities and services.  The  educational  services and facilities
cost  increase of  $3,825,306 in 1998 over the previous year is primarily due to
the inclusion of DPT's operations;  DPT incurred $3,693,044 of such costs in the
period. DADC's expenses increased by $132,261, or 12.2%, for 1998 over 1997.

Selling and promotion expense.  Selling and promotion expense increased $665,243
over the previous year.  Inclusion of DPT's  expenses  accounted for $551,356 of
the increase, while DADC's expenses increased by $113,887 (22%). As a percent of
revenue,  these expenses  decreased from 17.2% (reflecting DADC operations only)
for 1997 to 11.8% (based on both DADC and DPT  operations)  for the 1998 period;
DPT's  expenses  as a percent  of  revenue  for 1998 are 8%,  while  DADC's  are
approximately 20%. The Company intends to focus on more effective utilization of
marketing resources in DADC operations.

                                       22

<PAGE>


General and  administrative.  General and  administrative  expenses increased by
$1,437,751  over 1997 as a result of indirect  expenses  incurred in conjunction
with  the  purchase  of DPT,  inclusion  of  DPT's  general  and  administrative
expenses,  and  continuing  accounting and legal  expenses  associated  with the
Company's  transition to  publicly-held  status.  These expenses as a percent of
revenue decreased from 29.7% in 1997 to 23.2% in 1998. The Company expects these
expenses as a percent of revenue to decrease in 1999.

Depreciation and amortization.  Amortization  expenses,  primarily  goodwill and
other intangible assets acquired in the DPT purchase,  accounted for $405,396 of
the  $487,820  increase  for 1998 over  1997.  DPT's  depreciation  expense  was
$126,012 for 1998, while DADC's 1998 expense was $103,522,  compared to $184,347
for 1997.

Bad debt  expense.  Bad debt  expense  increased  $19,796  for 1998  over  1997;
inclusion of DPT's amounts  accounted  for all but $7,781 of the  increase.  The
decrease as a percent of revenue from 4.4% to 1.6% is the result of inclusion of
DPT's lower bad debt rate in the average.

Income from operations.  Income from operations increased by $383,724 over 1997.
DPT's  income  from   operations  of  $419,198  as  a  percent  of  revenue  was
approximately  6%, while DADC's was  approximately  1%; the Company believes the
acquisition and expansion of DPT will favorably affect future operating results,
although  the costs of moving and  expansion at DPT during 1999 will hamper this
to some extent.

Interest expense.  Interest expense increased  $850,626 over 1997,  attributable
primarily to acquisition borrowings.

Net loss. The Company's net loss for 1998 of $550,828  reflects the  substantial
interest and  amortization  costs  associated with the acquisition of DPT, which
was financed  primarily with debt, and which  involved a cost  substantially  in
excess of the tangible assets purchased.  Weighted number of shares  outstanding
reflects a  substantial  increase from  December  1997,  due to the issuances of
shares in connection with the conversion from  privately-held  to  publicly-held
status, and issuances in conjunction with acquisition financing.

Year 2000.  The Company relies on internal  computer  systems for accounting and
student  record-keeping  purposes,  and, in the case of DPT,  for  provision  of
training to students. DADC is in the process of installing new computer hardware
that  has  been  determined  to be  Year  2000  compliant  by  the  vendor;  the
replacement would have been necessary without Year 2000 issues,  and the cost is
consequently  not  directly  related  to  Year  2000  compliance.   Its  student
record-keeping  system  software  has been  upgraded  by the vendor to Year 2000
compliance,  and will be installed on the new hardware.  The  accounting  system
will also be  upgraded  during  1999;  however,  the  system  is  off-the-shelf,
inexpensive,  and readily available,  and will not require  significant  advance
time or cost for installation or conversion.  DPT's MIS managers and programmers
regularly update the software and hardware  utilized for student  training,  and
believe  the systems are  currently  Year 2000  compliant.  DPT  primarily  uses
standard off-the-shelf spreadsheet software for student record-keeping purposes,
and will purchase a newer  version at minor cost shortly if the current  version
is  determined  not to be reliable.  DPT has recently  purchased  and  installed
accounting software that the vendor has confirmed is Year 2000 compliant.

The Company has  initiated  formal  communications  with all of its  significant
systems  providers to determine the extent to which the Company is vulnerable to
third  parties'  failure  to  remediate  their  Year 2000  issues.  The  primary
third-party  computer  systems  on which the  Company  relies are  student  loan

                                       23

<PAGE>

processing  and  record-keeping,  payroll  processing,  and banking.  All of the
Company's  service  providers in those areas have been contacted,  and, with the
exception of a required upgrade in payroll processing software which the Company
will  implement  in the  next  six  months,  all  have  responded  with  written
documentation  to the Company that the systems they are using externally or have
provided to the Company are Year 2000 compliant.

1997 as Compared to 1996

Although  student  receivable  amounts  increased during 1997, and despite a 12%
increase in tuition in 1997,  tuition  revenue  decreased in 1997.  The decrease
reflected a 5% decline in the number of students from  approximately 335 in 1996
to 320 in 1997.  The decline in tuition  revenue and students in 1997 was also a
result of the  unavailability  of Stafford loans,  which began in 1996.  College
supply and cafeteria  sales decreased from 1996 due to a reduction in the number
of textbooks  required to be purchased by students,  and a decrease in cafeteria
sales.  The  related  costs  of  these  sales  decreased  as  well  by  $26,241.
Contributed  materials also decreased from 1996,  since no materials or vehicles
were  contributed  in 1997.  Other  income  increased  $55,891 due  primarily to
increased  interest  income from  institutional  student loans.  Overall,  total
revenues decreased $86,673 (3%) from 1996.

Educational services and facilities expense decreased $82,436 from 1996 due to a
greater focus on controlling costs. Selling and promotion decreased $70,637 from
1996 for the same reason. However, general and administrative expenses increased
over 1996 by $81,960 due to additional corporate costs of being a public company
following the reverse  acquisition  discussed above.  Consequently,  income from
operations decreased $48,109 (46%) from 1996.

Interest expense increased $65,789 due to the significant rise in debt. Overall,
the Company sustained a net loss in 1997 of $34,716, as opposed to net income of
$79,182 in 1996.

Special  Note  Regarding  Forward-Looking  Statements.  This  Form 10K  contains
certain statements which reflect the Company's expectations regarding its future
growth,  results  of  operations,   performance,   and  business  prospects  and
opportunities. Wherever possible, words such as "anticipate", "believe", "plan",
"expect",   and  similar   expressions   have  been  used  to   identify   these
"forward-looking"  statements.  These statements  reflect the Company's  current
beliefs  and are  based  on  information  currently  available  to the  Company.
Accordingly, these statements are subject to risks and uncertainties which could
cause the Company's actual growth,  results,  performance and business prospects
and  opportunities  to differ  from those  expressed  in, or implied  by,  these
statements.   These  risks  and  uncertainties  include  implementation  of  the
Company's  operating and growth  strategy,  risks inherent in operating  private
for-profit post-secondary education institutions,  risks associated with general
economic and business conditions, charges and costs related to acquisitions, and
the  Company's  ability to  successfully  integrate  its acquired  institutions,
attract and retain students at its institutions, meet regulatory and accrediting
agency  requirements,  compete  with other  institutions  in its  industry,  and
attract and retain key  employees  and faculty.  The Company is not obligated to
update or revise  these  forward-looking  statements  to  reflect  new events or
circumstances.

                                       24


<PAGE>

ITEM 7. FINANCIAL STATEMENTS
----------------------------

                                    
                                       25

<PAGE>





               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
                               FOR THE YEARS ENDED
                           DECEMBER 31, 1998 AND 1997






<PAGE>



                          
                               TABLE OF CONTENTS
                               -----------------



                                                                    Page
                                                                    ----

Independent Auditors' Report                                           1

Consolidated Balance Sheets                                        2 - 3

Consolidated Statements of Operations                                  4

Consolidated Statements of Stockholders' Equity                        5

Consolidated Statements of Cash Flows                              6 - 8

Notes to Financial Statements                                     9 - 40








<PAGE>


                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
 and Stockholders
Siemann Educational  Systems,  Inc. and Subsidiaries
Denver, Colorado

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Siemann
Educational Systems,  Inc. and Subsidiaries as of December 31, 1998 and 1997 and
the related  consolidated  statements of operations,  stockholders'  equity, and
cash flows for the years  ended  December  31,  1998 and 1997.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material   respects,   the  consolidated   financial  position  of  Siemann
Educational Systems, Inc. and Subsidiaries as of December 31, 1998 and 1997, and
the  consolidated  results  of  operations  and cash  flows for the years  ended
December 31, 1998 and 1997 in  conformity  with  generally  accepted  accounting
principles.




                                              GORDON, HUGHES & BANKS, LLP

Englewood, Colorado
March 26, 1999



                                       1

<PAGE>
<TABLE>
<CAPTION>

                          SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                                     CONSOLIDATED BALANCE SHEETS
                                   AS OF DECEMBER 31, 1998 AND 1997


                                               Assets
                                                                                1998                  1997
                                                                             -----------           ----------               
<S>                                                                          <C>                   <C>   
Current assets:
    Cash                                                                     $ 1,035,920           $    18,830
    Student accounts receivable, less allowance for doubtful
          accounts of $57,474 and $137,213                                     2,075,759               657,814
    Students notes receivable, less allowance for doubtful
          accounts of $65,769 and $60,543                                        811,150               746,693
    Receivable - related party                                                    12,149                  --
    Note receivable - stockholder  (Note 4)                                         --                 216,300
    Receivable - other (Note 3)                                                  175,000                  --
    Inventory                                                                    105,634                 7,392
    Prepaid and other                                                             63,944                31,401
                                                                             -----------           -----------
          Total current assets                                                 4,279,556             1,678,430
Student accounts and notes receivable, long-term portion,
    less allowance for doubtful accounts of $55,370 and $62,926                  704,026               718,275
Note receivable - related party (Note 3)                                            --                 200,000
Property and equipment, net of accumulated depreciation                          794,534               284,774
Intangible assets, net of accumulated amortization (Note 1)                    8,316,398                  --
Investment in acquisition of business (Note 2)                                      --                 223,936
Deferred financing costs, net of accumulated
    amortization of $26,820  and $-0-                                            148,096                  --
Perkins matching funds                                                            70,000                70,000
Other                                                                             46,593                25,597
                                                                             -----------           -----------
Total assets                                                                 $14,359,203           $ 3,201,012
                                                                             ===========           ===========


See notes to financial statements                                                                       Page 2
<PAGE>

                          SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                                     CONSOLIDATED BALANCE SHEETS
                                   AS OF DECEMBER 31, 1998 AND 1997
                                             (CONTINUED)

                                  Liabilities and Stockholders' Equity

                                                                             1998                    1997
                                                                         ------------            ------------
Current liabilities:
    Accounts payable                                                     $    427,502            $    123,449
    Student refunds payable and credit balances                                31,927                  21,061
    Payable to owner of business to be acquired                                  --                    61,968
    Accrued liabilities                                                       472,022                 133,321
    Income taxes payable (Note 12)                                             68,434                    --
    Deferred tuition income                                                 2,056,196                 871,537
    Common stock repurchase commitment                                        415,000                  61,968
    Current maturities of capital leases                                      168,290                   3,600
    Current maturities of long-term debt, net of discount                   3,299,735                 458,549
                                                                         ------------            ------------
          Total current liabilities                                         6,939,106               1,735,453

Rent payable, related party (Note 10)                                         140,401                 132,902
Capital leases, net of current maturities                                     218,229                   4,800
Long-term debt, net of current maturities & discount (Note 6)               3,781,921                 600,930
Note payable - stockholder, net of discount (Note7)                         2,178,676                 355,307
                                                                         ------------            ------------
          Total liabilities                                                13,258,333               2,829,392
                                                                         ------------            ------------

Redeemable warrant (Note 9)                                                   361,635                    --

Stockholders' equity:
    Preferred stock, $.10 par value, 10,000,000 shares
       authorized, none outstanding                                              --                      --
    Common stock, $.10 par value, 100,000,000 shares
       authorized, 3,868,750 (1998) and 3,795,984
       (1997) shares issued and outstanding                                   386,875                 379,598
    Additional paid-in capital                                              1,352,904                  88,706
    Common stock repurchase commitment                                       (415,000)                (61,968)
    Accumulated (deficit)                                                    (585,544)                (34,716)
                                                                         ------------            ------------
          Total stockholders' equity                                          739,235                 371,620
                                                                         ------------            ------------
Total liabilities and stockholders' equity                               $ 14,359,203            $  3,201,012
                                                                         ============            ============



See notes to financial statements                                                                      Page 3
</TABLE>

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997



                                                     1998            1997
                                                 ------------    ------------
Revenue:
      Tuition and fee revenue, net
       of refunds                                $  9,684,294    $  2,771,522
      College supply and cafeteria sales              286,514         164,339
      Other                                           109,483         115,063
                                                 ------------    ------------
         Total revenues                            10,080,291       3,050,924
                                                 ------------    ------------

Operating expenses:
      Educational services and facilities           4,909,691       1,084,385
      Cost of college supplies and
       cafeteria sales                                390,405         180,679
      Selling and promotion                         1,189,999         524,756
      General and administrative                    2,344,650         906,898
      Depreciation and amortization                   672,167         184,347
      Bad debt expense                                158,149         138,353
                                                 ------------    ------------
         Total operating expenses                   9,665,061       3,019,418
                                                 ------------    ------------

Income from operations                                415,230          31,506

Other income (expense)
      Interest income                                  80,228          24,869
      Interest (expense)                             (941,717)        (91,091)
                                                 ------------    ------------
      (Loss) before income taxes                     (446,259)        (34,716)

Provision for income taxes                            104,569            --
                                                 ------------    ------------

Net (loss)                                       $   (550,828)   $    (34,716)
                                                 ============    ============

Net (loss) per common share
      Basic and fully diluted                    $      (0.15)   $      (0.02)
                                                 ============    ============

Weighted number of common shares outstanding
      Basic and fully diluted                       3,769,684       2,185,600
                                                 ============    ============

See notes to financial statements                                         Page 4
<PAGE>
<TABLE>
<CAPTION>

                                SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


                                                                            Additional      Stock                          Total
                                                      Common Stock            Paid-In      Repurchase    Accumulated   Stockholders'
                                                 Shares        Amount         Capital      Commitment      (Deficit)      Equity
                                                 ------        ------         -------      ----------      ---------      ------

<S>                                              <C>        <C>            <C>            <C>            <C>            <C>        
Balances, December 31, 1996                      400,000    $    40,000    $   618,646    $      --      $  (232,540)   $   426,106

Distribution to owner                               --             --         (216,520)          --             --         (216,520)
Sale of common stock to related party
  ($.001 per share)                            2,250,000        225,000       (222,750)          --             --            2,250
Sale of common stock to related party
  ($.001 per share)                              500,000         50,000        (49,500)          --             --              500
Sale of common stock and warrants ($2.00
   per share) net of commission of $5,000         50,000          5,000         95,000           --             --           95,000
Reorganization of the Company at 8/31/97         500,000         50,000       (282,540)          --          232,540           --
Sale of common stock and warrants ($2.00
  per share) net of commission of $5,000          50,000          5,000         85,000           --             --           95,000
Issuance of common stock for services to
  consultant ($.267 per share)                    15,000          1,500          2,500           --             --            4,000
Issuance of common stock ($2.00
  per share) to acquire business                  30,984          3,098         58,870           --             --           61,968
Common stock repurchase commitment                  --             --             --          (61,968)          --          (61,968)
Net (loss)                                          --             --             --             --          (34,716)       (34,716)
                                             -----------    -----------    -----------    -----------    -----------    -----------

Balances, December 31, 1997                    3,795,984        379,598         88,706        (61,968)       (34,716)       371,620

Issuance of common stock ($2.00
  per share) to acquire business                  17,204          1,720         32,688        (34,408)          --             --
Redemption of stock                              (48,188)        (4,818)       (91,558)        96,376           --             --
Issuance of warrants to president and
     majority stockholder                           --             --          168,443           --             --          168,443
Sale of common stock ($4.00 per share)           103,750         10,375        404,625           --             --          415,000
Common stock repurchase commitment                  --             --             --         (415,000)          --         (415,000)
Common stock to be issued                           --             --          750,000           --             --          750,000
Net (loss)                                          --             --             --             --         (550,828)      (550,828)
                                             -----------    -----------    -----------    -----------    -----------    -----------

Balances, December 31, 1998                    3,868,750    $   386,875    $ 1,352,904    $  (415,000)   $  (585,544)   $   739,235
                                             ===========    ===========    ===========    ===========    ===========    ===========


See notes to financial statements                                                                                            Page 5
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                               FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


                                                                                   1998                    1997
                                                                                -----------            -----------
<S>                                                                             <C>                    <C>  
Cash flows from operating activities:
      Net (loss)                                                                $  (550,828)           $   (34,716)
      Cash provided (used) by operating activities:
            Depreciation and amortization                                           672,167                184,347
            Contributed materials                                                   (53,071)                  --
            Loss on sale of assets                                                      332                   --
            Amortization of discount on debt                                         69,029                   --
            Accretion of put liability                                               69,883                   --
            Issuance of stock for services                                             --                    4,000
      Change in operating assets and liabilities:
            Students accounts and notes receivable                                  (15,464)            (1,113,560)
            Notes receivable - student loans                                           --                 (156,300)
            Receivable - other                                                       25,000                   --
            Inventory                                                               (20,385)                15,929
            Prepaid expenses and other assets                                       (31,633)               (56,186)
            Accounts payable                                                        241,636                  5,986
            Student refunds payable and credit balances                              10,866               (122,263)
            Accrued liabilities                                                     117,589                 24,386
            Income tax liability                                                     68,434                   --
            Rent payable, related party                                               7,499                132,902
            Deferred tuition income                                                (246,054)               153,538
                                                                                -----------            -----------

               Net cash provided (used) by operating activities                     365,000               (961,937)
                                                                                -----------            -----------

Cash flows from investing activities:
      Investment in acquisition of business                                      (3,521,100)              (100,000)
      Payment of related party note receivable                                       60,000                   --
      Purchases of property and equipment                                          (102,381)               (11,551)
                                                                                -----------            -----------

               Net cash (used) by investing activities                           (3,563,481)              (111,551)
                                                                                -----------            -----------

                                                   (Continued on next page)

See notes to financial statements                                                                          Page 6

<PAGE>


                         SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                             CONSOLIDATED STATEMENTS OF CASH FLOWS
                         FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
                                           (CONTINUED)


                                                                                   1998           1997
                                                                                -----------    -----------
Cash flows from financing activities:
      Sale of common stock                                                      $   415,000    $   202,750
      Commission paid for sale of stock                                                --          (10,000)
      Loan acquisition fees                                                          (8,751)          --
      Proceeds from debt                                                          3,800,479      1,600,404
      Payments of debt                                                           (1,945,073)      (757,691)
      Proceeds from related party debt                                            2,127,500           --
      Payments of related party debt                                                (75,000)      (252,925)
      Payments of capital leases                                                    (98,584)        (2,206)
                                                                                -----------    -----------

              Net cash provided by financing activities                           4,215,571        780,332
                                                                                -----------    -----------

              Net increase (decrease) in cash                                     1,017,090       (293,156)

Cash, beginning of period                                                            18,830        311,986
                                                                                -----------    -----------

Cash, end of period                                                             $ 1,035,920    $    18,830
                                                                                ===========    ===========

Supplemental disclosure of cash flow information:
        Cash payments for interest                                              $   645,354    $    91,091
                                                                                ===========    ===========
        Cash payments for income taxes                                          $    36,135    $      --
                                                                                ===========    ===========

See notes to financial statements                                                                   Page 7

<PAGE>


                         SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                             CONSOLIDATED STATEMENTS OF CASH FLOWS
                         FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
                                           (CONTINUED)


                                                                                    1998           1997
                                                                                -----------    ----------

Non-cash transactions:
        Note receivable - related party exchanged for student loans             $  (200,000)   $   200,000
                                                                                ===========    ===========
        Investment in acquisition of business exchanged for stock               $   (61,968)   $    61,968
                                                                                ===========    ===========
        Reorganization of Company                                               $      --      $   282,540
                                                                                ===========    ===========
        Distribution to owner converted to debt                                 $      --      $   216,520
                                                                                ===========    ===========

Non-cash investing and financing transactions
  in connection with the acquisition of DPT:
      Fair value of net assets acquired                                         $ 9,052,532
      Future stock issuance                                                        (750,000)
      Note payable to prior owner                                                (4,340,000)
      Earnest money from prior periods applied                                     (100,000)
      Cash acquired with acquisition                                               (341,432)
                                                                                -----------
      Net cash paid to acquire subsidiary                                       $ 3,521,100
                                                                                ===========

      Loan fees and costs                                                       $   174,916
      Loan discounts                                                               (146,165)
      Deposit from prior periods applied                                            (20,000)
                                                                                -----------
      Net cash paid for loan fees and costs                                     $     8,751
                                                                                ===========

      Value of warrents issued                                                  $   460,195
                                                                                ===========
      Equipment acquired under capital lease                                    $   281,553
                                                                                ===========


See notes to financial statements                                                                       Page 8

</TABLE>


<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTS TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     NATURE OF BUSINESS
     ------------------

     Siemann  Educational  Systems,   Inc.  (the  "Company"  or  "Siemann")  was
     incorporated  in the State of Colorado on September 17, 1987.  The Company,
     through  its  wholly-owned  subsidiaries,   Denver  Automotive  and  Diesel
     College, Inc. ("DADC") and Data Processing Trainers Co., ("DPT") is engaged
     in the  business of operating  proprietary  vocational  schools  located in
     Denver, Colorado and Philadelphia, Pennsylvania, respectively. The majority
     of students  are drawn from each of the  school's  respective  metropolitan
     areas, with the remainder drawn from other surrounding states.

     Students who  participate  in government  financial aid programs  provide a
     significant  portion of the Company's  revenues.  Of total tuition revenue,
     revenue derived from governmental aid was approximately $6,251,000, or 63%,
     and  $860,000,  or 31% for the  years  ended  December  31,  1998 and 1997,
     respectively. In connection with this participation, the Company is subject
     to rules and regulations  promulgated by the U.S.  Department of Education.
     Failure to comply with the terms and provisions of this participation could
     lead to suspension or termination  of the Company's  ability to participate
     in government  financial aid programs and,  consequently,  could  adversely
     affect the Company's operations.

     On September 12, 1996, the U.S.  Department of Education notified DADC that
     it had lost its  eligibility to continue its  participation  in the Federal
     Family  Education  Loan  ("FFEL")  Programs  authorized  by Title IV of the
     Higher  Education Act of 1965, as amended.  This was a result of the DADC's
     cohort default rates from each of the fiscal years, 1991 to 1993, exceeding
     the  eligibility  threshold  of 25%.  DADC made  application  with the U.S.
     Department of Education to regain  eligibility  to  participate in the FFEL
     Programs and received  notification  from the U.S.  Department of Education
     that,  effective October 1, 1997, DADC was again eligible to participate in
     the FFEL programs.

     The Company has incurred net losses of  $(550,828)  and  $(34,716)  for the
     years ended December 31, 1998 and 1997, respectively.  In addition, current
     liabilities  exceed  current  assets at  December  31,  1998 and 1997.  The
     Company has  substantial  amounts of current debt  becoming due in the next
     twelve  months.  Management  has budgeted and forecast cash  generated from
     operations of approximately $2,800,000. In addition, the Company expects to
     close on a private placement in the near term for  approximately  $300,000.
     Lastly,  management  has  negotiated  with its primary  bank to finance the
     payment of substantial portions of its current debt.

                                                                          Page 9

<PAGE>


               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

     ORGANIZATION OF COMPANY
     -----------------------

     Chartwell  Cable  Fund,  Inc.,   ("Chartwell"),   a  public  company,   was
     incorporated in 1987. After completing a public offering, Chartwell entered
     the cable television business.  In 1993, Chartwell entered the golf product
     manufacturing business. In 1994, Chartwell completed the divestiture of the
     cable television and golf product businesses.  From 1995 to 1997, Chartwell
     had nominal assets and no operations.  On June 4, 1997 and in contemplation
     of a reorganization of Chartwell, the sole shareholder of Denver Automotive
     and Diesel College,  Inc.  ("DADC")  purchased  2,250,000  shares of common
     stock of Chartwell,  resulting in a majority ownership of Chartwell by that
     individual.  On August 13, 1997, DADC entered into an Agreement and Plan of
     Reorganization  with Chartwell  whereby  Chartwell would acquire all of the
     outstanding shares of DADC.  Chartwell acquired DADC on August 31, 1997 and
     issued  400,000  shares of common stock to the former sole  shareholder  of
     DADC in exchange for all of the issued and outstanding common shares of the
     DADC.

     For legal purposes,  Chartwell  acquired DADC and was the parent company of
     DADC following the reorganization.  However, for accounting purposes,  DADC
     was  treated  as  the  acquiring  company  in a  "reverse  acquisition"  of
     Chartwell.  As a consequence,  the financial  statements for the year ended
     December 31, 1997 presented herein are those of DADC, except for the common
     stock structure which remains that of Chartwell,  i.e. the common stock par
     value and shares of common stock authorized and outstanding. In conjunction
     with  the  reorganization,   the  retained  deficit  of  DADC  (formerly  a
     subchapter  S  corporation)  and of  Chartwell at August 31, 1997 have been
     eliminated and transferred to additional paid-in capital.  As a result, the
     accumulated  deficits at December  31, 1997 and since August 31, 1997 are a
     result of the operations of the reorganized  company.  At a special meeting
     of the  shareholders of Chartwell on September 18, 1997,  Chartwell's  name
     was changed to Siemann Educational Systems, Inc.

     On March 24, 1998,  the Company  acquired  100% of the common stock of Data
     Processing Trainers Co. ("DPT") located in Philadelphia, Pennsylvania. As a
     result,  the assets and  liabilities of the Company as of December 31, 1998
     include  those  of DPT  and  the  operations  of DPT  are  included  in the
     operations of the Company since March 24, 1998.

     CONSOLIDATION
     -------------

     The accompanying  consolidated financial statements include the accounts of
     the Company and its wholly owned  subsidiary  in 1997 and  subsidiaries  in
     1998. All  significant  intercompany  transactions  have been eliminated in
     consolidation.


                                                                         Page 10

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)


     REVENUE RECOGNITION
     -------------------

     Revenue is derived  primarily from courses taught at the schools.  Textbook
     sales to students are recognized when such sales occur,  which happens when
     the semester/school year begins. Cafeteria and other miscellaneous revenues
     are  recognized  as  services  are  performed.   Deferred  tuition  revenue
     represents  amounts billed for the current  educational  year,  reduced for
     tuition  revenue  recognized  pro  rata  during  the  year.  If  a  student
     withdraws,  unearned revenue is reduced by the amount of lost revenue and a
     refund due to the student is recorded. Refunds are calculated in accordance
     with federal, state and accrediting agency standards.

     ACCOUNTS RECEIVABLE
     -------------------

     Accounts receivable represent outstanding tuition and fee balances due from
     students.  Allowances for doubtful accounts have been established to record
     amounts deemed by management to be uncollectible.

     CONCENTRATION OF CREDIT RISK AND FINANCIAL INSTRUMENTS
     ------------------------------------------------------

     Statement  of  Financial  Accounting  Standards  No.  105,  "Disclosure  of
     Information  About Financial  Instruments with  Off-Balance  Sheet Risk and
     Financial   Instruments  with  Concentrations  of  Credit  Risk",  requires
     disclosure of significant  concentrations  of credit risk regardless of the
     degree of such risk.  Financial  instruments with  significant  credit risk
     include cash,  accounts and notes receivable.  The carrying amount of these
     assets  reasonably  approximates  their fair value,  as  determined  by the
     amount of cash or the collectibility of receivables.  The carrying value of
     the Company's debt obligations reasonably  approximates their fair value as
     the stated interest rate approximates current market interest rates of debt
     with  similar  terms.  The  Company's  accounts  are insured by the Federal
     Deposit Insurance Corporation up to $100,000. As of December 31, 1998, cash
     balances  exceeded  $100,000 at three banks.  As of December 31, 1997, cash
     balances  did not  exceed  $100,000  at any one  bank.  Accounts  and notes
     receivable  from students are unsecured and subject to  significant  credit
     risk. For many of the student loans,  the Company  employs a loan servicing
     company.  The Company's policy is to aggressively  pursue the collection of
     any delinquent loans. The note receivable from the related party is secured
     by student notes receivable  purchased by the related party.  This note was
     cancelled when the holder  returned the student notes  underlying the note.
     The fair market  value of the  receivables  (collateral)  approximates  the
     amount of the note.

                                                                         Page 11

<PAGE>


               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)


     ACCOUNTING ESTIMATES
     --------------------

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions   that  affect  certain   reported   amounts  and  disclosures.
     Accordingly, actual results could differ from those estimates.  Significant
     estimates  have been made to  determine  bad debt  expense  and the related
     allowance for  uncollectible  student  accounts and notes  receivable,  the
     amortization life of goodwill and other intangible assets and the valuation
     of warrants.

     INVENTORY
     ---------

     Inventories  consist of books and  automotive  and diesel  repair parts and
     supplies which are consumed in the  educational  activities of the Company.
     Inventories  are  stated  at the  lower  of  cost  or  market,  cost  being
     determined by the first-in, first-out method.

     PROPERTY AND EQUIPMENT
     ----------------------

     Property and equipment are stated at cost.  Depreciation  is provided using
     the straight-line  and accelerated  methods over the estimated useful lives
     of the classes of  property  and  equipment.  Lives range from three to ten
     years.   Management  believes  that  the  depreciation  methods  and  lives
     approximate  the  economic  usefulness  of the  assets  to  which  they are
     applied.  DADC depreciates many training  vehicles and engines at ten years
     since they are used in training programs. Depreciation expense was $259,983
     and $176,276 for the years ended December 31, 1998 and 1997, respectively.

     PERKINS MATCHING FUNDS
     ----------------------

     DADC  and  the  Federal  Government  together  deposit  money  in the  U.S.
     Department of Education Title IV Perkins Loan Program in a ratio of 1 to 9,
     respectively.  As loans are repaid,  the amounts collected are re-loaned to
     new  students.  Should the loan program in which the school has invested be
     terminated,  the Company will receive its respective share of the resulting
     cash. The Company's  approximate  share as of December 31, 1998 and 1997 is
     presented in the accompanying balance sheets at $70,000.

     PREPAID EXPENSES
     ----------------

     The Company  prepaid a consulting  firm $25,000 for services to be rendered
     over a twelve month period,  beginning  September  1997.  Accordingly,  the
     Company  is  amortizing  the  prepayment  on a  straight-line  basis over a
     twelve-month  period.  Amortization  expense was $20,205 and $4,795 for the
     years ended December 31, 1998 and 1997,  respectively.  The prepaid expense
     is fully amortized as of December 31, 1998.

                                                                         Page 12

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)


     GOODWILL AND OTHER INTANGIBLE ASSETS
     ------------------------------------

     Intangible  assets  include  the excess of cost over fair  market  value of
     identifiable   assets  acquired  through  the  purchase  of  DPT.  Deferred
     financing costs include costs of borrowing the cash to purchase DPT and are
     being expensed on a straight-line basis over five years. Goodwill and other
     intangible  items are being amortized on a  straight-line  basis over their
     estimated useful life. As of December 31, 1998 and 1997, the cost basis and
     useful lives of intangible assets consist of the following:

                                              December 31,          Estimated
                                             1998        1997         Lives
                                         -------------------------------------
     Goodwill                            $7,127,794   $      -      40 years
     Trade name                           1,000,000          -      40 years
     Curriculum                             180,000          -      15 years
     Non-compete covenant                   200,000          -       5 years
     Student contracts                      214,000          -     .75 years
                                         ---------------------
                                          8,721,794          -
     Less - Accumulated amortization       (405,396)         -
                                         ---------------------
                                         $8,316,398   $      -
                                         =====================

     On an  ongoing  basis,  the  Company  reviews  intangible  assets and other
     long-lived assets for impairment whenever events or circumstances  indicate
     that carrying  amounts may not be  recoverable.  To date, no such events or
     circumstances  have  occurred.  If such events or changes in  circumstances
     occur,  the Company will  recognize an  impairment  loss if the  discounted
     future  cash flows  expected  to be  generated  by the assets (or  acquired
     business)  are less than the  carrying  value of the  related  assets.  The
     impairment  loss would  adjust the assets to its fair  value.  Amortization
     expense was $405,396 and $0 for the years ended December 31, 1998 and 1997,
     respectively.

     STUDENT REFUNDS PAYABLE AND CREDIT BALANCES
     -------------------------------------------

     Student  refunds  payable  in the  accompanying  balance  sheets  represent
     refunds  due and  payable  on  behalf of  students  who  withdrew  in prior
     periods.  Student credit balances represent the excess of payments received
     over current  tuition  billings for active  students.  Student  refunds and
     credit balances are combined in the  accompanying  balance sheets where the
     credit  balances  comprise  the majority of the amounts  displayed.  Credit
     balances   were  $31,927  and  $16,222  at  December  31,  1998  and  1998,
     respectively.

                                                                         Page 13

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)




     CONTRIBUTED MATERIALS
     ---------------------
 
     Periodically,   automobile   manufacturers  and  automobile  local  dealers
     contribute tools and vehicles to DADC that are restricted solely for use in
     educational  activities.  These  materials are consumed in the  educational
     process and ultimately scrapped.  Once the materials are contributed,  DADC
     has no  obligation  to return them to the  manufacturers  or  dealers.  The
     contributed items are valued at estimated used equipment replacement cost.


     DEFERRED FINANCING COSTS
     ------------------------

     Costs incurred in connection  with obtaining  financing are capitalized and
     amortized  to  over  the  maturity  period  of the  debt.  The Company  is
     amortizing the deferred financing  costs over five years on a straight line
     basis because the debt is payable interest only (i.e. level payments) until
     maturity.  Amortization  amounted  to  $26,820  and $0 for the years  ended
     December 31, 1998 and 1997, respectively.

     ADVERTISING COSTS
     -----------------

     Advertising  costs are charged to operations  when incurred and included in
     selling and promotion  expenses.  Advertising  expense amounted to $653,358
     and $149,331 for the years ended December 31, 1998 and 1997, respectively.

     EARNINGS PER SHARE
     ------------------

     In February 1997, the Financial Accounting Standards Board issued Statement
     of Financial Accounting  Standards No. 128 ("SFAS No. 128"),  "Earnings Per
     Share",  which was issued  effective for periods  ending after December 15,
     1997.  SFAS No. 128 changed the  methodology  of  calculating  earnings per
     share and renamed the two calculations basic earnings per share and diluted
     earnings per share. The calculations differ by eliminating any common stock
     equivalents  (such as stock options,  warrants,  and convertible  preferred
     stock)  from  basic  earnings  per  share.  SFAS No.  128  changes  certain
     calculations when computing diluted earnings per share. The Company adopted
     SFAS No. 128 for the year ended December 31, 1997.

     The following is a reconciliation  of the numerators and denominators  used
     in the  calculations of basic and diluted earnings (loss) per share for the
     years ended December 31, 1998, and 1997:

                                                                         Page 14

<PAGE>

<TABLE>
<CAPTION>

                           SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                  (Continued)


                                                             1998
                                             ------------------------------------------
                                                                                Per
                                                 Net                            Share
                                               (Loss)         Shares            Amount
                                               ------         ------            ------
<S>                                          <C>             <C>               <C> 
Basic Earnings per share:
  Net income (loss)
  and share amounts                          $(550,828)      3,769,684            $(.15)

  Dilutive securities:
      Stock warrants                                 -               -                -
      Repurchased shares                             -               -                -
                                             ------------------------------------------
      Diluted earnings per share:
  Net (loss) and assumed share conversion
                                             $(550,828)       3,769,684           $(.15)
                                             ==========================================


                                                                1997
                                              -----------------------------------------
                                                                                   Per
                                                Net                               Share
                                              (Loss)            Shares           Amount
                                              ------            ------           ------
Basic Earnings per share:
  Net income (loss)
  and share amounts                           $(34,716)        2,185,600          $(.02)

  Dilutive securities:
      Stock warrants                                 -                 -              -
      Repurchased shares                             -                 -              -
                                              -----------------------------------------  
      Diluted earnings per share:
  Net (loss) and assumed share conversion
                                              $(34,716)        2,185,600          $(.02)
                                              =========================================
</TABLE>

     Common  shares  owned by the former sole  shareholder  of DADC prior to the
     reorganization with Chartwell on August 31, 1997 are considered outstanding
     for  all  periods  prior  to the  reorganization.  Shares  outstanding  for
     Chartwell prior to the reorganization with DADC are considered  outstanding
     beginning on August 31, 1997. Stock options of 50,000 and 0 and warrants of
     2,000,846 and 100,000 outstanding during 1998 and 1997,  respectively,  are
     not considered in the calculation of fully diluted net income or (loss) per
     share as their  inclusion  would be  anti-dilutive  since the  Company  has
     incurred losses for 1998 and 1997. Shares that are subject to repurchase at
     December  31,  1998 and  1997 are  considered  outstanding  in  calculating
     earnings per share. If the shares subject to repurchase were excluded,  the
     amount of income or (loss) per share would not be affected.

                                                                         Page 15

<PAGE>


                           SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                  (Continued)


     STATEMENT OF CASH FLOWS
     -----------------------

     For the  purpose of the  statements  of cash flows,  the Company  considers
     investments  and savings  instruments  purchased  with  maturities of three
     months or less to be cash  equivalents.  There were no cash  equivalents at
     December 31, 1998 and 1997.

     RECLASSIFICATIONS
     -----------------

     Certain reclassifications have been made to the December 31, 1997 financial
     statements to conform to the December 31, 1998 presentation.

     STOCK-BASED COMPENSATION
     ------------------------

     Statement  of  Financial  Accounting  Standards  No. 123,  "Accounting  for
     Stock-Based  Compensation"  ("SFAS No. 123"), was issued in October 1995 by
     the  Financial  Accounting  Standards  Board.  SFAS  No.  123  provides  an
     alternative method of accounting for stock-based compensation arrangements,
     based  on fair  value of the  stock-based  compensation  utilizing  various
     assumptions  regarding the underlying  attributes of the options and stock,
     rather than the existing method of accounting for stock-based  compensation
     which  is  provided  in  Accounting   Principles   Board  Opinion  No.  25,
     "Accounting  for Stock Issued to Employees"  ("APB No. 25").  The Financial
     Accounting  Standards  Board  encourages  entities to adopt the  fair-value
     based method but does not require adoption of this method. The Company will
     continue its current accounting policy under APB No. 25 but has adopted the
     disclosure-only  provisions  of SFAS No. 123 for any options  and  warrants
     issued to non-employees,  directors or consultants. During 1998, options to
     purchased  50,000  shares of common stock were issued to one key  employee.
     For 1998 and 1997 no expense has been  recorded.  The  adoption of SFAS No.
     123 has had no effect on net loss.

     IMPAIRMENT OF LONG-LIVED ASSETS
     -------------------------------

     The Company  adopted the  provisions  of 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." Under this method, the
     Company is  required to review for  impairment  the  long-lived  assets and
     certain  identifiable  intangibles  to be held and used whenever  events or
     changes in circumstances  indicate that the carrying amount of an asset may
     not be  recoverable.  All  long-lived  assets  to be  disposed  of  will be
     reported at the lower of carrying amount or fair value less cost to sell.

                                                                         Page 16

<PAGE>


               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     CAPITAL STRUCTURE
     -----------------

     In February 1997, the Financial  Accounting Standards Board issued SFAS No.
     129,  "Disclosure of Information about Capital Structure" ("SFAS No. 129"),
     which  requires  companies to disclose all relevant  information  regarding
     their capital structure. The Company adopted SFAS No. 129 in 1997. For both
     years ended December 31, 1998 and 1997, there is no impact on the financial
     statements or disclosures as a result of adopting SFAS No. 129.


     COMPREHENSIVE INCOME
     --------------------

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
     "Reporting  Comprehensive  Income"  ("SFAS  No.  130"),  which  establishes
     standards for the reporting of  comprehensive  income.  This  pronouncement
     requires that all items recognized under accounting standards as components
     of comprehensive income, as defined in the pronouncement,  be reported in a
     financial  statement  that is displayed  with the same  prominence as other
     financial  statements.  Comprehensive income includes all changes in equity
     during a period  except  those  resulting  from  investments  by owners and
     distributions  to owners.  The Company has adopted SFAS No. 130 in 1998 and
     has determined there is no impact on any of the periods presented.

     SEGMENT REPORTING
     -----------------

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
     "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
     No. 131"),  which amends the requirements for a public enterprise to report
     financial  and  descriptive  information  about  its  reportable  operating
     segments.  Operating  segments,  as  defined  in  the  pronouncement,   are
     components of an enterprise about which separate  financial  information is
     available and that is evaluated regularly by the Company in deciding how to
     allocate resources and in assessing performance.  The financial information
     is  required  to be  reported  on the  basis  that is used  internally  for
     evaluating  segment  performance and deciding how to allocate  resources to
     segments.  The Company  adopted SFAS No. 131 in 1997.  For both years ended
     December 31, 1998 and 1997, there is no impact on the financial  statements
     or disclosures as a result adopting SFAS No. 131.

                                                                         Page 17

<PAGE>


               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     PENSION AND OTHER POST RETIREMENT BENEFITS
     ------------------------------------------

     Statement  of  Financial   Accounting   Standards   No.  132,   "Employers'
     Disclosures about Pension and Other Post Retirement  Benefits" is effective
     for financial  statements  with fiscal years  beginning  after December 31,
     1997. Earlier application is permitted. The new standard revises employers'
     disclosures about pension and other post retirement  benefit plans but does
     not change the  measurement  or  recognition  of those plans.  SFAS No. 132
     standardizes  the  disclosure  requirements  for  pensions  and other  post
     retirement  benefits  to  the  extent   practicable,   requires  additional
     information  on changes in the benefit  obligations  and fair values of the
     plan assets that will facilitate financial analysis, and eliminates certain
     disclosures  previously required when no longer useful. The Company adopted
     SFAS No. 132 in 1998, with no material impact on its results of operations.

     DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
     ---------------------------------------------

     The FASB has recently issued  Statement of Financial  Accounting  Standards
     No. 133,  "Accounting for Derivative  Instruments  and Hedging  Activities"
     ("SFAS No. 133").  SFAS No. 133  established  standards for recognizing all
     derivative  instruments  including  those for hedging  activities as either
     assets or liabilities in the statement of financial  position and measuring
     those  instruments  at fair value.  This  Statement is effective for fiscal
     years beginning after June 30, 1999. The Company will adopt SFAS No. 133 in
     the year 2000 and believes that there will be no impact on its consolidated
     financial statements.

     MORTGAGE BACKED  SECURITIES  RETAINED AFTER THE  SECURITIZATION OF MORTGAGE
     LOANS HELD BY MORTGAGE BANKING ENTERPRISES
     ---------------------------------------------------------------------------

     The FASB recently issued  Statement of Financial  Accounting  Standards No.
     134,   "Accounting  for  Mortgage  Backed  Securities  Retained  after  the
     Securitization  of  Mortgage  Loans Held by Mortgage  Banking  Enterprises"
     ("SFAS No. 134").  SFAS No. 134  establishes  new  reporting  standards for
     certain  activities  of mortgage  banking  enterprises.  This  statement is
     effective  for the  fiscal  quarter  beginning  after  December  15,  1998.
     Management  believes the adoption of this  statement will have no impact on
     the Company's consolidated financial statements.

NOTE 2 - ACQUISITION OF BUSINESS

     During 1997,  the Company  entered into an agreement with the owner of Data
     Processing  Trainers Co. ("DPT") to acquire 100% of the stock of DPT. As of
     December  31,  1997,  the  Company's  investment  in the purchase of DPT of
     $223,936 includes a cash deposit of $100,000,  additional  accrued costs of
     $61,968 payable in cash and stock valued at $61,968.  Subsequently on March
     24, 1998, the Company acquired DPT for a purchase price of $9,030,624. DPT,


                                                                         Page 18

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     now a wholly owned  subsidiary  of the  Company,  is an  accredited  school
     offering a variety of  vocational  training  programs with two locations in
     Philadelphia, Pennsylvania. The purchase price at closing was comprised of:
     $3,940,624 in cash  (including  59,782 shares in  repurchased  common stock
     valued  at  $119,564  and  $100,000  in  earnest  money  paid in  1997),  a
     $4,340,000  promissory  note, and $750,000 in future stock.  The promissory
     note, dated March 24, 1998,  requires  quarterly payments beginning in June
     1998 of $542,500 in principal  plus accrued  interest at 7% per annum.  The
     note is due March 24,  2000 and is secured  by a  Security  Agreement-Stock
     Pledge and a Guaranty and Security Agreement. The $750,000 in the Company's
     common stock was satisfied by the Company issuing on March 24, 1999 338,952
     shares of  non-registered  common stock  equivalent  to a value of $750,000
     based on the ten day trailing average market price at the time of issuance.

     In order to fund the purchase price, the Company  borrowed  $2,000,000 from
     its  president  and majority  stockholder  and  $2,900,000  from an outside
     financing  source.  The debt of  $2,000,000  to the  president  is  payable
     interest  only  monthly,  at 12% per  annum,  with  principal  and  accrued
     interest due on March 24, 2003.  The  president  also received a warrant to
     purchase  732,360  shares of the Company's  restricted  common stock for an
     aggregate  exercise price of $100 for the period ending March 24, 2003. The
     debt of $2,900,000 to the outside financing source is payable interest only
     quarterly,  at 12% per annum,  with  principal and accrued  interest due on
     March 24, 2003. This lender received a warrant to purchase 1,268,486 shares
     of the Company's restricted common stock for a total exercise price of $100
     beginning  March 24,  2001 and  ending six years  after the  payment of all
     obligations  pursuant to the debt. In addition,  this lender received a put
     option.

     The  acquisition  has been  accounted  for as a purchase and the results of
     operations  of the  acquired  business  are  included  in the  consolidated
     financial statements from the date of acquisition.  The capitalized cost of
     the acquisition  also includes  additional  legal costs directly related to
     the  acquisition  in the amount of $21,908.  For accounting  purposes,  the
     purchase price has been allocated to DPT's assets at their book value since
     book value  approximates  fair value. The excess of purchase price over net
     assets has been recorded as goodwill.

     The  following  unaudited pro forma  information  presents a summary of the
     Company's  consolidated  results of  operations  and those of DPT as if the
     acquisition had occurred on January 1, 1997.

                                                                         Page 19

<PAGE>



               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


                                                             (Unaudited)
                                                         For the year-ended
                                                             December 31,
                                                      -------------------------
                                                         1998           1997
                                                      -------------------------
Pro forma revenues                                    $12,218,031    $9,889,452
Pro forma net income (loss)                             $(524,119)    $(397,418)
Pro forma basic earnings (loss) per share                   $(.17)        $(.18)
Pro forma fully diluted earnings (loss)
   per share                                                $(.17)        $(.18)


     These  unaudited  pro forma  results  have  been  prepared  for  comparison
     purposes  only  and do not  purport  to be  indicative  of the  results  of
     operations which actually would have resulted had the acquisition  occurred
     on the date  indicated,  or which may  result in the  future.  For 1998 and
     1997,  the basic and fully diluted  earnings per share are the same because
     the fully diluted amount, if calculated, would be anti-dilutive due the pro
     forma loss.

NOTE 3 - NOTE RECEIVABLE - RELATED PARTY AND SUBSEQUENT DISPOSITION

     In August  1997,  the Company sold  certain  student  loans to the owner of
     Christian Business Advisory Services,  Inc. ("CBAS") which is a significant
     stockholder  of the Company and which provides  consulting  services to the
     Company. The Company received a note for $200,000 in exchange.  The student
     loans  were  sold at a  discount  of  $18,000  from face  value,  which was
     recorded  as a loss at the time of the sale.  The note was secured by those
     loans and 50,000  shares of the common stock in the Company.  The amount of
     the note receivable was $-0- and $200,000 at December 31, 1998 and December
     31, 1997,  respectively.  The note bore  interest at 6% per annum,  payable
     monthly.  Principal was due in full on August 28, 1998. On August 28, 1998,
     the  Company  and the  related  party  agreed to extend the due date of the
     note. The student loans were returned to DADC on December 31, 1998.  During
     the term of the note,  DADC  earned  $16,000 in  interest  from the related
     party and the debtor earned approximately $5,000 in interest on the student
     loans.

     As of December  31,  1998,  DADC resold the student  loans to an  unrelated
     party for  $200,000,  the net  present  value of the loans.  DADC  received
     $25,000 in  December  1998 as a down  payment and  received  the balance of
     $175,000  on  March  31,  1999.  Under  the  purchase  agreement,  the loan
     repayment cash flow will be collected by DADC and remitted to the investor.
     The agreement further obligates the school to replace any loans that become
     uncollectible  with  those that are  collectible  and also  guarantees  the
     investor  a  minimum  of 15%  return  on  the  investment.  The  investor's
     investment  basis must at all times  remain at an amount equal to 81.64% of
     the gross amount of the student loans. The investment is further guaranteed
     personally by the Company's president.

                                                                         Page 20

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



NOTE 4 - NOTES RECEIVABLE - STOCKHOLDER

     Notes  receivable  from the Company's  president  and majority  stockholder
     consist of the following:

                                                     December 31,   December 31,
                                                          1998         1997
                                                      ----------    ------------


     Note  receivable  from majority  stockholder,
     interest at 7% per annum  payable  quarterly,
     principal and accrued interest due in full on
     December 31,  1998,  secured by Deed of Trust
     on real property of the  stockholder,  repaid
     April 1998.                                      $        -       $ 60,000

     Note  receivable  from majority  stockholder,
     interest at 7% per annum  payable  quarterly;
     principal and accrued interest due in full on
     August 29, 1998,  secured by Deed of Trust on
     real property of the stockholder.                         -         88,300

     Note  receivable  from majority  stockholder,
     interest at 7% per annum  payable  quarterly;
     principal and accrued interest due in full on
     October 31, 1998, secured by Deed of Trust on
     real property of the stockholder.                         -         20,000

     Note  receivable  from majority  stockholder,
     interest at 7 % per annum payable  quarterly,
     principal   and   interest  due  in  full  on
     December 31, 1998, secured by real estate.                -         48,000
                                                        --------      ---------

                                                        $      -      $ 216,300
                                                        ========      =========
 
     During 1998, the stockholder repaid $60,000 in cash and approved the offset
     of $156,300 against notes payable owed by the Company to him.

                                                                         Page 21

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



NOTE 5 - PROPERTY AND EQUIPMENT

     A summary of property and equipment is as follows:

                                                 December 31,       December 31,
                                                    1998                1997
                                                 ----------           ---------

    Furniture, equipment and vehicles            $1,436,841           $ 898,569
    Equipment under capital leases                  532,161              15,031
                                                 ----------           ---------
                                                  1,969,002             913,600
    Less accumulated depreciation
     and amortization                            (1,174,468)           (628,826)
                                                 ----------           ---------
                                                 $  794,534           $ 284,774
                                                 ==========           =========


     All  furniture,  equipment and vehicles are pledged as  collateral  for the
     bank  loan,  with  specific  vehicles  pledged  as  collateral  to  finance
     companies.

NOTE 6 - DEBT

     The Company owes the following debt:

                                                      December 31,  December 31,
                                                          1998          1997
                                                      ------------  ------------


     Note payable to bank,  monthly  principal and
     interest payments of $5,856, interest at 9.5%
     per      annum,      due     April      2002,
     cross-collateralized  by accounts receivable,
     notes receivable and equipment. President and
     majority stockholder is jointly and severally
     liable for this note.                            $   204,582    $  251,639


     Note payable to bank,  monthly  principal and
     interest  payments  of  $15,992,  interest at
     9.5%   per   annum,    due   January    2001,
     collateralized  by student  loans.  President
     and  majority   stockholder  is  jointly  and
     severally liable for this note.                      360,470       387,032

                                                                         Page 22

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



     Outstanding  principal on $350,000  revolving
     line of credit from a bank,  monthly interest
     payments   at  9.5%  per   annum,   remaining
     principal   and   interest   due  May   1999,
     collateralized  by  equipment.  President and
     majority stockholder is jointly and severally
     liable for this note.                                 349,881      349,669

     Note  payable  to  finance  company,  monthly
     principal  and  interest  payments  of  $465,
     interest  at 7.99% per  annum,  due  February
     1999,  collateralized by security interest in
     Company vehicle.                                            -        6,217

     Note  payable  to  finance  company,  monthly
     principal  and  interest  payments of $1,358,
     interest  at 8.5% per annum,  due April 2001,
     unsecured. April, 2001, unsecured.                     33,048       46,975

     Note  payable  to  finance  company,  monthly
     principal  and  interest  payments  of  $261,
     interest  at 6.0% per annum,  due March 1999,
     collateralized   by   security   interest  in
     Company vehicle.                                            -        3,752

     Note payable to individual, monthly principal
     and  interest  payments of $266,  interest at
     10.5% per annum, due May 1999, unsecured.               1,296        4,195

     Note payable to  individual,  interest at 10%
     per annum, principal and any accrued interest
     due July 2003, unsecured.                              30,000       10,000

                                                                         Page 23

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     Note  payable  to  bank,   monthly   interest
     payments  through  October  1998,   beginning
     November 1998 monthly  principal and interest
     payments  of  $6,415,  interest  at 1%  above
     prime rate, due October 2001,  collateralized
     by   accounts   receivable.   President   and
     majority stockholder is jointly and severally
     liable for this note.                                 193,813            -

     Senior  Subordinated  Secured Note payable to
     third-party funding source,  monthly interest
     payments  at 12% per  annum  commencing  July
     1998,  remaining  principal  and interest due
     March 2003,  collateralized  by all assets of
     the Company and stock of the Company.               2,900,000            -

     Note   payable   to  former   owner  of  DPT,
     quarterly  principal  payments  of  $542,500,
     plus  interest  at 7% per  annum,  due  March
     2000,  secured by all  assets of the  Company
     and stock of DPT.                                   3,255,000            -
                                                      ------------   ----------
                                                         7,328,090    1,059,479
          Less current portion                          (3,357,720)    (458,549)
                                                      ------------   ----------
                                                      $  3,970,370   $  600,930
                                                      ============   ==========

     Aggregate maturities of long-term debt at December 31, 1998 are as follows:


    YEAR ENDING DECEMBER 31,    Amount Due       Discount    Net of Discount
    ------------------------    ----------      ---------    ---------------
      1999                      $3,357,720      $(57,985)       $3,299,735
      2000                         932,150       (57,985)          874,165
      2001                          83,035       (57,985)           25,050
      2002                          25,185       (57,985)         (32,800)
      2003 and thereafter        2,930,000       (14,494)        2,915,506
                               -------------------------------------------
                                $7,328,090     $(246,434)       $7,081,656
                               ===========================================

                                                                         Page 24

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

     As of December 31, 1998 and 1997, the weighted average interest rate on the
     above outstanding borrowings is 10.7% and 10.6%, respectively.

     The Senior  Subordinated  Secured Note above  contains  certain  covenants.
     These covenants include certain minimum  financial ratios,  restrictions on
     the types and  amounts  of certain  disbursements  and  restriction  on the
     amount of  additional  debt  allowed.  As  described in Note 9, the Company
     issued a warrant with the note. The note has a prepayment  penalty of 5% if
     repaid within one year and penalties that reduce by one percentage point in
     each  succeeding  year.  Prepayment can also be triggered by certain events
     such as sale of the Company or other significant changes in control.

     The individual with a note balance of $10,000 at December  31,1997,  loaned
     the Company an  additional  $16,500 at 10% per annum in 1998.  In addition,
     the accrued  interest  payable for the original loan was  capitalized.  The
     loan  balance at  December  31, 1998 is $30,000,  due,  along with  accrued
     interest, in July 2003.

NOTE 7 - NOTE PAYABLE TO STOCKHOLDER AND RELATED PARTY

     The Company owes its majority stockholder and president $2,178,676,  net of
     unamortized  discount of $144,731,  as of December 31, 1998 and $355,307 as
     of December  31,  1997.  A 12% per annum  $2,000,000  note was  incurred in
     conjunction  with the  acquisition  by the Company of DPT in March 1998, as
     more fully  discussed in Note 2. The  unamortized  discount on this note of
     $144,731 at December 31, 1998 is  associated  with the issuance of warrants
     to  the   stockholder.   All  assets  of  the  Company  secure  this  note.
     Additionally,  the Company  borrowed  $98,000 from the  stockholder  in the
     first quarter of 1998, which is being repaid at $15,000 monthly. The unpaid
     balance was $74,600 at December 31, 1998. One other  unsecured note, in the
     amount  of  $247,007,  bears  interest  at 7% per  annum.  The  balance  of
     principal and interest on the note is due December 31, 1999 and requires no
     periodic payments of principal or interest and no collateral.  During 1998,
     the Company  reduced the note  payable at December  31, 1997 of $355,307 by
     applying three notes receivable from the president in the aggregate  amount
     of $156,300 as a reduction of the note.

     The five year maturities for the debt are as follows:

     YEAR ENDING DECEMBER 31,     Amount Due      Discount       Net of Discount
    ------------------------      ----------      ---------      ---------------
      1999                          $293,405      $(34,054)         $259,351
      2000                            30,002       (34,054)          (4,052)
      2001                                 -       (34,054)         (34,054)
      2002                                 -       (34,054)         (34.054)
      2003 and thereafter          2,000,000        (8,515)        1,991,485
                                  ------------------------------------------
                                  $2,323,407     $(144,731)       $2,178,676
                                  ==========================================

                                                                         Page 25

<PAGE>


               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


NOTE 8 - STOCKHOLDERS' EQUITY

     The  Company's   Articles  of  Incorporation   authorize  the  issuance  of
     10,000,000  shares of preferred  stock with $.10 par value.  The  preferred
     stock may be  issued  from  time to time  with  such  designation,  rights,
     preferences  and  limitations  as the Board of Directors  may  determine by
     resolution.  As of December 31, 1998 and 1997, no shares of preferred stock
     have been issued.

     In June 1997,  Chartwell,  a  predecessor  to the Company,  sold  2,250,000
     shares of common  stock at $.001  per share to the  then-owner  of DADC and
     current  president  of  the  Company.  Also  at  that  time,  CBAS,  then a
     consultant  to the owner of DADC and currently a consultant to the Company,
     purchased  500,000 shares of the Company's common stock at $.001 per share.
     Prior to the acquisition of Chartwell on August 31, 1997, the Company was a
     Subchapter  S  corporation  and had  distributed  $216,520 to its then sole
     owner.

     In addition to common stock transactions described in Note 1, the following
     transactions  occurred  during 1997.  On August 29, 1997,  50,000 shares of
     stock  and a warrant  were  sold for  $100,000,  less  commission  costs of
     $5,000.  The warrant  permits the holder to buy 50,000 shares at a price of
     $4.00 per share.  The warrant  expired  August 29, 1998  without  exercise.
     Subsequent to the  reorganization  of the Company,  discussed in Note 1, an
     additional  50,000 shares of stock and a warrant were sold on September 26,
     1997 for $100,000, less commission costs of $5,000. The warrant permits the
     holder to buy  50,000  shares at a price of $4.00 per  share.  The  warrant
     expired  September 26, 1998 without  exercise.  On October 1, 1997,  15,000
     shares valued at $4,000 were issued for services performed by a consultant.
     This  valuation  was based on the  value of the  services  provided  to the
     Company.

     On December 19, 1997,  the Company  entered into an agreement that modified
     the Letter of Intent to acquire Data Processing Trainers, Inc. ("DPT"). Per
     the agreement, 30,984 shares valued at $61,968 (issued and repurchasable at
     $2.00 per  share)  were  issued  in  December  to the  owner of DPT.  As of
     December 31, 1997,  the amount  representing  these  repurchasable  shares,
     $61,968,  had been  classified as a current  liability with a corresponding
     reduction of  stockholders'  equity.  Subsequent to December 31, 1997,  the
     Company  issued  17,204  additional  shares of common stock to the owner of
     DPT. The Company repurchased all of these shares on March 24, 1998 with the
     acquisition of DPT.

                                                                         Page 26

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     As part of the  purchase  price,  the Company  agreed to issue  $750,000 of
     common stock to the seller of DPT on March 24,  1999.  The number of shares
     to be issued will be  determined  by dividing  $750,000 by the  then-market
     price of the shares.  On March 24, 1999,  the Company issued 338,952 shares
     of stock to the seller priced at $2.21 per share.  Also in connection  with
     the  purchase of DPT,  the Company  issued  warrants to the lenders of cash
     borrowed to purchase DPT. The warrants can be exercised for a nominal price
     to purchase an aggregate of 2,000,846 shares of the Company's common stock.

     On December 24, 1998,  the Company sold 103,750 shares of common stock at a
     price of $4.00 per share to a group of individual investors.  The investors
     have a one-time "Put Right",  exercisable  on or before  December 24, 1999.
     The put right allows the investors to ask the Company to repurchase some or
     all of their  shares for $6.00 per share.  Should  the  Company  decline to
     purchase the shares,  the Company's  president is obligated to purchase the
     shares for $6.00 per share.

NOTE 9 - OPTIONS AND WARRANTS

     OPTIONS
     -------

     In 1998,  the  Company  adopted  a stock  option  plan (the  "Plan")  which
     provides for the grant of options  intended to qualify as "incentive  stock
     options" or "nonqualified  stock options" within the meaning of Section 422
     of the United States Internal Revenue Code of 1986 (the "Code").  Incentive
     stock options are issuable  only to eligible  officers and key employees of
     the Company.

     The Company has reserved  250,000 shares of Common Stock for issuance under
     the Plan, which is administered by its Board of Directors.  Under the Plan,
     the Board of Directors  determines which  individuals will receive options,
     the  time  period  during  which  the  options  may be  partially  or fully
     exercised, the number of shares of Common Stock that may be purchased under
     each option and the option price.

     The per share  exercise price of the Common Stock must not be less than the
     fair  market  value of the Common  Stock on the date the option is granted.
     Subject to certain exceptions,  in the case of incentive stock options, the
     aggregate  fair  market  value  (determined  as of the date the  option  is
     granted) of the common  stock that any person may  purchase in any calendar
     year  pursuant to the exercise of incentive  stock  options must not exceed
     $100,000.  No person who owns,  directly or indirectly,  at the time of the
     granting of an incentive stock option,  more than 10% of the total combined
     voting  power of all classes of stock of the Company is eligible to receive
     incentive  stock options under the Plan unless the option price is at least
     110% of the fair market value of the common stock  subject to the option on
     the  date  of  grant.  The  stock  options  are  subject  to  anti-dilution
     provisions in the event of stock splits and stock dividends.

                                                                         Page 27

<PAGE>


               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     No incentive  stock options are  transferable  by an optionee other than by
     will or the laws of descent  and  distribution.  During the  lifetime of an
     optionee, the option is only exercisable by the optionee. The exercise date
     of an option  granted  under the Plan must not be later than ten years from
     the date of grant.  Any options that expire  unexercised  or that terminate
     upon an optionee's employment  termination will become available once again
     for issuance.

                                                                       Weighted
                                                                       Average 
                                                                       Exercise
                                                Shares    Price Range    Price
                                                ------    -----------    -----
     Outstanding as of January 1, 1997               -    $    -      $      -
        Granted                                   None      None          None
     Outstanding as of December 31, 1997             -         -             -
        Granted during 1998                     50,000     $2.50         $2.50
     Outstanding as of December 31, 1998        50,000     $2.50         $2.50


     Stock options exercisable at
        December 31, 1997                            -         -             -
         December 31, 1998                     50,000          -              -


     The  following  table  summarizes   information  about  all  stock  options
     outstanding as of December 31, 1998 (none were  outstanding at December 31,
     1997):

                                                                         Page 28

<PAGE>
<TABLE>
<CAPTION>


                             SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                 (Continued)


                                         Options Outstanding                    Options Exercisable
                           -------------------------------------------        ---------------------------
                             Number                        Weighted             Number
                           Outstanding      Weighted         Average          Exercisable       Weighted
                             as of          Average         Remaining             at              Average
   Exercise Price           December        Exercise       Contractual         December          Exercise
       Ranges               31,1998           Price            Life            31, 1998            Price
       ------               -------           -----            ----            --------            -----
    <S>                    <C>              <C>            <C>                 <C>               <C>                           
       $2.50                 50,000           $2.50          10 years                 -                -
                           --------------------------------------------       ----------------------------
                             50,000           $2.50          10 years                 -                -
                           ============================================       ============================
</TABLE>

     The following  table  represents  pro forma net (loss) and pro forma (loss)
     per share had the Company  elected to account for equity  awards  using the
     fair-value-based  method beginning with all equity award grants  commencing
     on January 1, 1997. In estimating  the pro forma  compensation  expense for
     each equity  award  granted  during the years ended  December  31, 1998 and
     1997,  the Company used the Black Scholes option pricing model, a risk-free
     interest rate of 8.5%,  expected  dividend yield of zero,  expected  option
     lives of 10 years and expected  volatility  of 119.96%.  The  estimated pro
     forma  compensation  cost  resulting in the pro forma net (loss) and (loss)
     per  share may not be  representative  of actual  results  had the  Company
     accounted  for  the  equity  awards  using  the  fair-value-based   method.

                                                           (Unaudited)
                                                        1998              1997
                                                      ---------        -------- 
     Net (loss) as reported                           $(550,828)       $(34,716)
     Pro forma  net (loss)                            $(671,142)       $(34,716)
     Basic and fully  diluted EPS as reported             $(.15)          $(.02)
     Pro forma basic and fully diluted EPS                $(.18)          $(.02)


     REDEEMABLE WARRANTS
     -------------------

     In connection with incurring debt of $2,900,000 to an unrelated  party, the
     proceeds of which were used in the  acquisition  of DPT, the Company issued
     warrants  exercisable  into a maximum of 1,268,486  shares of the Company's
     restricted  common  stock at an  aggregate  exercise  price  of  $100.  The
     warrants  are  exercisable  beginning  March 24,  2001 and ending six years
     after the payment of all  obligations  pursuant to the debt.  The number of
     warrants  exercisable  is subject to  reduction  based on certain  earnback
     provisions,  primary  of  which  is the  internal  rate  of  return  of the
     creditor's  investment  (interest  paid by the Company on the note plus any
     prepayment penalties) calculated at the later of the date of debt repayment
     or of certain  other  events.  The number of  earnback  shares  varies on a
     sliding  scale of return  from 30% to 40%.  The  maximum  number of 347,340
     shares are subject to earnback if an internal  rate of return equals 40% or
     more while no shares can be earned  back if the rate of return is less than
     30%.

     The Company  assigned a value to these warrants (based on the relative fair
     market value of the  warrants)  of  $291,752.  The fair market value of the
     warrants  was  determined  with  reference  to the  exercise  price  of the
     warrants,  the number of warrants  expected to be exercised  (including the

                                                                         Page 29

<PAGE>


               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     earn-back  shares),  the fair market value of the Company's common stock at
     the date the warrants were issued (including consideration of a recent sale
     to a third party) and the period over which the warrants can be exercised.

     At December 31, 1998, none of the redeemable  warrants were outstanding and
     exercisable.  The average fair value of the redeemable  warrants  issued in
     1998 was  approximately  $290,000.  At December  31,  1998,  the  remaining
     contractual life of these warrants was approximately eleven years.

     In accordance with an amendment to the warrant and debt  agreements,  these
     warrants,  or any portion of shares obtained by exercise of these warrants,
     will become subject to cash redemption  ("put" provision) at the discretion
     of the warrant or share  holder  beginning  January 31, 2003 if the Company
     does not complete a public  offering by January 31, 2000 or  immediately if
     control of the Company or DPT is sold or transferred through the end of the
     exercise  period.  The  redemption  price of these  warrants or shares,  as
     provided by the warrant agreement,  will be based on specified formulas and
     the valuation of the Company at the time of redemption.

     To recognize  the  potential  put,  the Company has accreted  approximately
     $70,000,  thereby  increasing  the  liability  for the  put  and  expensing
     accreted amounts.  The potential maximum accretion for the five year period
     ending  March  2003,  based  on  current  circumstances,  is  approximately
     $1,500,000.

     NON-REDEEMABLE WARRANTS
     -----------------------

     In connection with incurring debt of $2,000,000 to the Company's  President
     in order to acquire  DPT,  the Company  issued  warrants  to the  president
     exercisable into 732,360 shares of the Company's restricted common stock at
     an aggregate  exercise price of $100. The warrants are exercisable from the
     present through March 24, 2003.

     The Company  assigned a value to these warrants (based on the relative fair
     market value of the  warrants)  of  $168,443.  The fair market value of the
     warrants  was  determined  with  reference  to the  exercise  price  of the
     warrants,  the fair market value of the Company's  common stock at the date
     the warrants were issued (including  consideration of a recent sale between
     third parties) and the period over which the warrants can be exercised.

     At December 31, 1998, 732,360 non-redeemable  warrants were outstanding and
     exercisable.  The average fair value of these  warrants  issued in 1998 was
     approximately  $170,000.  At December 31, 1998,  the remaining  contractual
     life of these warrants was approximately eleven years.

                                                                         Page 30

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


                                                        Shares under Warrant
                                                        --------------------
                                                               Class A
                                                             Common Stock
                                                       Shares           Price
                                                     -------------------------
     Outstanding as of January 1, 1997                       -         $     -
      Issued                                           100,000            4.00
                                                     -------------------------
     Outstanding as of December 31, 1997               100,000            4.00
      Expired                                         (100,000)          (4.00)
      Issued                                         2,000,846            $200
                                                     -------------------------
     Outstanding as of December 31, 1998             2,000,846            $200
                                                     =========================

     Warrants exercisable at December 31, 1997         100,000            4.00
                                                     =========================

      Warrants exercisable at December 31, 1998        732,360            $200
                                                     =========================

NOTE 10 - RELATED PARTY TRANSACTIONS

     The Company leases its Denver school facility under an operating lease from
     a company owned by the majority  stockholder of the Company. The net rental
     expense was $172,650 and $154,902 for the years ended December 31, 1998 and
     1997,  respectively.  The  following  is a schedule  by years of future net
     minimum rental payments  required under the operating lease,  which expires
     September 1, 2000:

             YEAR ENDING DECEMBER 31,
             ------------------------
                   1999                                    $169,733
                   2000                                     119,267
                                                           --------
                                                           $289,000
                                                           ========

     On December 31, 1996, DADC had entered into an agreement,  as amended, with
     its then sole stockholder providing for the deferral of rent payments. Rent
     payment deferrals commenced in January 1997 and were accrued as a liability
     through December 1997, after which time monthly rent payments were resumed.
     The deferred rent  liability  bears interest at 7% per annum and is payable
     quarterly,  with the total liability plus accrued  interest payable in full
     on August 31, 2000.  During 1998, DADC underpaid its rent by $7,499.  As of
     December  31,  1998  and 1997  rent  payable  was  $140,401  and  $132,902,
     respectively.

                                                                         Page 31

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     As discussed in Notes 3, 4, 6 and 7, at December 31, 1998 and 1997, various
     note  receivables  and payables  were due to and from related  parties.  At
     December 31, 1998 and 1997,  interest  due to related  parties was $113,688
     and $-0-,  respectively.  At December 31, 1998 and 1997,  interest due from
     related parties was $10,992 and $7,175,  respectively.  For the years ended
     December 31, 1998 and 1997,  interest  income from the related  parties was
     $20,872 and $11,175,  respectively.  For the years ended  December 31, 1998
     and 1997,  interest  expense for debt to related  parties was  $426,462 and
     $33,293, respectively.

     As  discussed  in  Note  7,  the  Company  owes  its  majority  stockholder
     $2,178,676,  net of  discount,  and $355,307 at December 31, 1998 and 1997,
     respectively.

     After the  reorganization  of the Company,  CBAS,  which had been providing
     business-consulting  services  to the  Company's  president  on a  personal
     basis, verbally agreed to provide some consulting time to the Company while
     continuing  to provide  services  to the  president  as well.  Prior to the
     reorganization  of the Company,  CBAS had purchased  500,000  shares of the
     Company's  common  stock and the owner of CBAS had  personally  purchased a
     portfolio of student  loans from the DADC in exchange for a note payable to
     the school for  $200,000.  Fees charged to the Company by CBAS for the four
     months ended December 31, 1997 were  approximately  $5,000 per month. After
     the  activity   connected  with  the  acquisition  with  DPT  significantly
     increased in January 1998,  CBAS began  providing full time services to the
     Company at a rate of $15,000 per month.  The Company's  agreement  with the
     consultant  is verbal  and no set term over which the  consulting  services
     will be provided has been established. CBAS's consulting fees were $172,000
     and $20,430 for the year ended  December 31, 1998 and the four months ended
     December 31, 1997, respectively.

     The Company has provided  various  benefits to its  management,  paying for
     meals, travel and entertainment, including occasional amounts for inclusion
     of spouses in such  events.  Management  believes  that these  expenditures
     further the business  interests of the Company.  The aggregate  amount each
     year for 1998 and 1997 does not exceed $15,000.

     As  described  in  Note  6,  the  Company  owes  the  former  owner  of DPT
     $3,255,000.  In addition,  as described in Note 16,  subsequent to year-end
     the former owner of DPT received 338,952 shares of common stock.

                                                                         Page 32

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     As  described in Note 6, the  president  and  majority  stockholder  of the
     Company is jointly and  severally  liable to a bank for three notes payable
     and one revolving line of credit with an aggregate balance of $1,108,746.

     As  described in Note 8, the  president  and  majority  stockholder  of the
     Company has personally  guaranteed the "Put" agreement issued with the sale
     of the Company's common stock.

     As  described  in Note 16,  the  president  and  majority  stockholder  has
     personally guaranteed a capital lease signed subsequent to year-end.

     During  1998,  the  Company  paid  the  former  owner  of DPT  $70,607  for
     consulting services provided to DPT.

     A small  amount of office  space in a building  owned by a company  that is
     owned by the president and majority  stockholder is provided to the Company
     at no cost. Due to the  insignificance in total square footage,  no cost is
     assigned to the donated space.  The value of the contributed  space is less
     than $4,000.

NOTE 11 - LEASES

     The Company leases computer,  copier, and cafeteria equipment under capital
     leases  expiring in various years through 2003. The assets and  liabilities
     under capital  leases are recorded at the lower of the present value of the
     minimum  lease  payments  or the fair  value of the  asset.  The assets are
     depreciated  over the lower of their related lease terms or their estimated
     productive  lives.  Depreciation of assets under capital leases is included
     in depreciation expense for the years ended December 31, 1998 and 1997.

     The Company  leases its  Philadelphia  school  facilities  under  operating
     leases that are five and ten years in length. The Company leases its Denver
     school facilities from its President (See Note 10.)

     Minimum future lease payments under capital and operating leases (excluding
     related  party  leases) as of  December  31, 1998 for each of the next five
     years and in the aggregate are:

                                   Capital       Operating
     Year ending December 31,       Leases        Leases           Total
                                   -------       ---------       ---------
           1999                   $209,295       $ 506,070       $ 715,365
           2000                    166,847         506,070         672,917
           2001                     63,847         506,070         569,917
           2002                      5,334         506,070         511,404
           2003 and thereafter       4,446       1,870,920       1,875,366
                                 ---------      ----------      ----------
     Total minimum lease payments  449,769      $3,895,200       4,344,969
                                                ==========      ==========

                                                                         Page 33

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     Less:  amount representing
      interest and executory costs          (63,250)
                                            -------
     Present value of net minimum
       lease payments                        386,519
     Current portion                         168,290
                                            --------
     Long-term lease obligations            $218,229
                                            ========

NOTE 12 - INCOME TAXES

     The provision  (benefit) for income taxes for the years ended  December 31,
     1998 and 1997, respectively, consists of the following:

                                              For the Years Ended
                                                 December 31,
                                   -----------------------------------------
                                       1998                     1997
                                   ----------------      -------------------
     Current
       Federal                      $        -              $       -
       State and local                 104,569                      -
                                   ----------------      -------------------
          Total current                104,569                      -
                                   ----------------      -------------------

     Deferred-
       Federal                             -                        -
       State and local                     -                        -
                                   ----------------      -------------------
          Total deferred                   -                        -
                                   ----------------      -------------------
     Total provision (benefit)
       for income taxes             $  104,569             $        -
                                   ================      ===================

     A  reconciliation  of the  statutory  U.S.  federal  income tax rate to the
     effective  income tax rate for the years ended  December 31, 1998 and 1997,
     respectively, is as follows:

                                                        Years Ended
                                                        December 31,
                                             -----------------------------------

                                                   1998               1997
                                             -----------------    --------------
    Statutory U.S. Federal income tax rate           (34%)              (34%)
    State income taxes, net of Federal benefit       (18%)              (4%)
    Permanent differences and other                  (1%)               (1%)
    Net operating loss carry forward                  39%                39%
                                             -----------------    --------------
    Effective income tax rate                         14%                0%
                                             =================    ==============

                                                                         Page 34

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     The Company,  when it was a privately owned entity, had elected Sub Chapter
     S status,  which it maintained during 1996 and through August 31, 1997. The
     income or loss of an S corporation  is included in the income tax return of
     the  stockholder.  Accordingly,  the Company made no  provision  for income
     taxes for the eight  months  ended August 31, 1997 and the year ended 1996.
     Upon reorganization on August 31, 1997, the Company became a C corporation,
     after which time the Company became subject to Federal and State  corporate
     income taxes.  For periods  subsequent to August 31, 1997,  the Company and
     its subsidiaries have elected to file consolidated Federal and State income
     tax  returns.  The Company  incurred a net loss for the four  months  ended
     December 31, 1997 and, as a result, no tax expense was incurred or reported
     for that  period.  For the year  ended,  December  31,  1998,  the  Company
     incurred a net loss for federal income tax purposes,  but its  Pennsylvania
     subsidiary  incurred a net income  before tax of  $557,272  and has accrued
     additional Pennsylvania corporate tax of $68,434.

     Deferred  income  taxes are  recorded  to reflect the tax  consequences  on
     future years of differences between the tax basis of assets and liabilities
     and their financial reporting amounts at each year-end. Deferred income tax
     assets are  recorded to reflect  the tax  consequences  on future  years of
     income tax carry-forward benefits,  reduced by benefit amounts not expected
     to be realized by the Company.

     The net deferred tax asset and deferred tax  liability are comprised of the
     following at December 31, 1998 and 1997:


                                                             Years Ended
                                                             December 31

                                                    1998             1997
     Deferred tax asset:
     Net operating loss benefit carry
        forward                                $      636,904     $    675,063
     Amortization of intangibles                      158,104               -
     Other temporary differences                       89,082               -
     Valuation allowance for deferred 
        tax assets                                   (884,090)        (675,063)
                                               --------------     ------------

    Deferred tax asset                                      -                -

    Deferred tax liability                                  -                -

    Net deferred tax asset                      $           -     $          -
                                               ==============     ============


                                                                         Page 35

<PAGE>


               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     At December 31, 1998 and 1997, the Company had $1,633,087 and $1,730,931 of
     net operating loss carry-forwards (NOLs), respectively: however, $1,578,231
     of these NOLs derive from  Chartwell  Cable,  which was  predecessor to the
     current Company.  The Chartwell NOLs are not likely to be utilized and have
     been totally reserved as a valuation allowance.

     Of the total NOLs at December  31,  1998,  $54,856 is derived  from current
     (Siemann) operations since August 31, 1997. The Company utilized $63,752 of
     NOLs to offset 1998 taxable income.

     The Chartwell  NOLs will expire from 2002 through 2012,  and are not usable
     unless the Company  enters a business  similar to the former  businesses of
     Chartwell.  The Siemann NOLs will begin to expire in 2012. Under recent tax
     legislation,  the carry-forward period has been changed to twenty years for
     NOLs incurred in 1998 and after.

NOTE 13 - EMPLOYEE BENEFIT PLAN

     The Company sponsors defined contribution 401(k) savings and profit-sharing
     plans for its employees at DADC and DPT, respectively.

     Under the DADC 401(k) plan, all employees with twelve consecutive months of
     service and 1,000 hours of service may participate.  Eligible employees may
     voluntarily  contribute  from 1% to 15%,  but not  more  than  the  maximum
     allowed by law (currently $10,000),  of their compensation  annually to the
     plan.  The  Company,  as  of  January  1,  1998,  began  matching  employee
     contributions  at a  rate  of  25%  up  to  6%  of  eligible  compensation.
     Participants are fully vested for amounts that they  contributed,  and vest
     over six years in amounts contributed by the Company.

     The Company  sponsors a defined  contribution  profit-sharing  plan for DPT
     employees,  whereby the Company  contributes  six percent  (6%) of eligible
     employees' base compensation as defined under the terms of the plan.

     The  contribution  expense  for the plans was  $97,080  for the year  ended
     December 31, 1998, and none for all other periods.

                                                                         Page 36

<PAGE>


               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


NOTE 14 - REGULATORY

     The Company and its Schools are subject to extensive  regulation by federal
     and state governmental agencies and accrediting bodies. In particular,  the
     Higher  Education Act of 1965, as amended (the "HEA"),  and the regulations
     promulgated  thereunder by the U.S. Department of Education ("DOE") subject
     the Company and its schools to significant regulatory scrutiny on the basis
     of numerous  standards that schools must satisfy in order to participate in
     the various student financial assistance programs under Title IV of the HEA
     (the "Title IV Programs").  Under the HEA and its implementing regulations,
     certain  financial  responsibility  and other regulatory  standards must be
     complied with in order to qualify to  participate in the Title IV Programs.
     Under such standards,  an institution must, among other things: (i) have an
     acid test  ratio  (defined  as the  ratio of cash,  cash  equivalents,  and
     current accounts receivable to current  liabilities) of at least 1:1 at the
     end of each fiscal year, (ii) have a positive tangible net worth at the end
     of each fiscal year,  (iii) not have a cumulative net operating loss during
     its two most recent fiscal years that results in a decline of more than 10%
     of the  institution's  tangible net worth at the beginning of that two-year
     period,  (iv) collect 85% or less of its  education  revenues from Title IV
     Program funds in any fiscal year,  and (v) not have cohort default rates on
     federally  funded or federally  guaranteed  student loans of 25% or greater
     for  three  consecutive  federal  fiscal  years.  The DOE may  measure  the
     financial  responsibility  standards  on a  school-by-school  basis or on a
     corporate  consolidated basis. Any regulatory  violation could be the basis
     for the initiation of a suspension,  limitation or  termination  proceeding
     against the Company or its institution.

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

                                                                         Page 37

<PAGE>


               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     The  process of  reauthorizing  the HEA by the U.S.  Congress,  which takes
     place  approximately  every five  years,  has begun and is  expected  to be
     completed  during  1998.  It is not  possible to predict the outcome of the
     reauthorization  process.  Although  there is no  present  indication  that
     Congress will decline to reauthorize the Title IV Programs, there can be no
     assurance that  government  funding for the Title IV Programs will continue
     to be available or maintained at current levels, nor can there be assurance
     that current  requirements for student and  institutional  participation in
     the Title IV Programs will be unchanged.  Thus, the reauthorization process
     could result in revisions to the HEA that increase the compliance burden on
     the  Company's  institutions.  A  reduction  in funding  levels for federal
     student financial assistance programs could impact the Company's ability to
     attract students.

     In order to operate and award  degrees,  diplomas and  certificates  and to
     participate  in the  Title  IV  Programs,  a  campus  must be  licensed  or
     authorized to offer its programs of instruction by the relevant agencies of
     the State in which such campuses are located.  The  Company's  campuses are
     fully licensed or authorized by the relevant agencies of the State in which
     each such campus is located.  In addition,  in order to  participate in the
     Title IV Programs,  an  institution  must be accredited  by an  accrediting
     agency   recognized  by  the  DOE.  The  Company's   schools  are  properly
     accredited.

     With each  acquisition of an institution that is eligible to participate in
     the Title IV  Programs,  that  institution  undergoes a change of ownership
     that results in a change of control,  as defined in the HEA and  applicable
     regulations.   In  such  event,  that  institution  becomes  ineligible  to
     participate  in the Title IV Programs  and may receive  and  disburse  only
     previously  committed  Title IV Program funds to its students  until it has
     applied  for  and   received   recertification   from  the  DOE  under  the
     institution's new ownership.

NOTE 15 - SEGMENT AND RELATED INFORMATION

     The  Company  adopted  SFAS  No.  131,  Disclosures  About  Segments  of an
     Enterprise  and  Related  Information,  in 1998 which  changes  the way the
     Company  reports  information  about its  operating  segments.  There is no
     change to the 1997 information to conform to the 1998 presentation.

     The Company's two operating  business units have separate  management teams
     and infrastructures that offer related products and services.  The business
     units have been separated into two reportable segments (DADC and DPT) based
     on geographical location.

                                                                         Page 38

<PAGE>

               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


          DADC: Denver Automotive and Diesel College,  Inc. is the sole business
          unit reported in this segment.  They operate a proprietary  vocational
          school  focused on the education of automotive  and diesel  mechanics.
          The principal  markets for this segment  include the Denver,  Colorado
          metropolitan areas and surrounding States.

          DPT: Data Processing  Trainers  Company,  acquired in 1998 (Note 2) is
          the sole  business  unit  reported  in this  segment.  They  operate a
          proprietary vocational school focused on the education and training of
          individuals  in  specific  computer  oriented  industry  fields.   The
          principal   markets  for  this  segment   include  the   Philadelphia,
          Pennsylvania metropolitan area and surrounding states.

     The accounting  policies of the  reportable  segments are the same as those
     described in Note 1 of the Notes to Consolidated Financial Statements.  The
     Company evaluates the performance of its operating segments based on income
     (loss) before income taxes and interest income and (expense).

     Summarized  financial  information   concerning  the  Company's  reportable
     segments  is shown in the  following  table.  The "Other"  column  includes
     corporate related items and, as it relates to segment profit (loss), income
     and expenses not allocated to reported segments.
<TABLE>
<CAPTION>


                                     DADC               DPT               Other               Total
                                  --------------------------------------------------------------------
<S>                               <C>                <C>                <C>                <C> 
    For the year ended
    December 31, 1998
      Revenues                    $3,241,990         $6,903,847         $1,173,195          $10,080,291
      Segment profit (loss)           32,815            322,815          (906,460)            (550,828)
      Total assets                 2,737,190          2,676,877         10,281,565           14,359,203
      Capital expenditures            46,652            335,248                  -              381,900
      Interest expense               134,201                  -            807,516              941,717
      Depreciation and
         Amortization                103,523            126,011            442,633              672,167
      Income tax expense                   -            104,569                  -              104,569

      For the year ended
      December 31, 1997
      Revenues                    $3,042,629               $  -             $8,295           $3,050,924
      Segment profit (loss)           38,531                  -           (73,247)             (34,716)
      Total assets                 2,890,104                  -          1,428,694            3,201,012
      Capital expenditures            11,551                  -                  -               11,551
      Interest expense                90,702                                   389               91,091
      Depreciation and
         Amortization                179,552                  -              4,795              184,347


                                                                                                Page 39
</TABLE>

<PAGE>


               SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


     The following table presents the details of "Other" segment profit (loss).

                                            1998               1997
                                        -----------------------------
       Revenue affiliated               $ 1,158,513         $       -
       Corporate expenses                (1,272,139)          (81,153)
       Interest expense                    (807,516)             (389)
       Other                                 14,682             8,295
                                        -----------------------------
       Total                            $  (906,460)        $( 73,247)
                                        =============================


NOTE 16 - SUBSEQUENT EVENT

     Subsequent to year-end,  the Company entered into a capital lease agreement
     for a computer,  security and phone system.  The value of the capital lease
     is  approximately  $260,000.  The monthly payment for this lease is $5,855.
     The payment of the lease  obligation has been personally  guaranteed by the
     president of the Company.

     Subsequent to year-end,  the former owner of DPT received 338,952 shares of
     Company common stock.  The issuance of common stock was in accordance  with
     the DPT sales agreement.

                                                                         Page 40
<PAGE>


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

     None.

                                    PART III

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

     The  name,  age and term of office of each of the  executive  officers  and
directors of the Company are set forth below:
                                                                       Officer
                                                                          or
                                                                       Director
Name                     Position Held With the Company          Age     Since
----                     ------------------------------          ---     -----

Paul T. Siemann        President, Chief Executive Officer        47       1997
                       and Director

Joseph R. Chalupa      Vice President and Director               46       1997

Barbara S. Siemann     Director                                  42       1997

     Directors  hold office for a period of one year from their  election at the
annual meeting of  shareholders  or until their  successors are duly elected and
qualified.  Officers of the Company are elected by, and serve at the  discretion
of, the Board of Directors.  The Board of Directors has no audit,  nominating or
compensation  committee.  CBAS,  Inc., a principal  stockholder  of the Company,
currently  receives a  consulting  fee of $15,000  per month  for,  among  other
things, providing the consulting services of its principals to the Company.

Background

     The  following is a summary of the business  experience of each officer and
director of the Company:

     Paul  T.  Siemann  has  been  the  Chief  Executive  Officer  and  majority
stockholder of Institutional Financing Services, Inc. ("IFS") since 1977. IFS is
a Denver,  Colorado based company engaged in fund-raising  services for domestic
and  international  schools.  He acquired DADC in 1993 and has been President of
DADC since that date.  DADC is a  wholly-owned  subsidiary  of the Company.  Mr.
Siemann devotes approximately 80% of his time to the Company's affairs.

                                       26
                                            

<PAGE>

     Joseph R.  Chalupa  has been  employed  by DADC since 1976 and has been its
school director since 1991.

     Barbara  S.  Siemann  is Mr.  Siemann's  wife and  devotes  such time as is
necessary to the Company's affairs. She has been employed by IFS since 1977.

ITEM 10. EXECUTIVE COMPENSATION
-------------------------------

     Mr.  Siemann,  the  Company's  President,  currently  receives  a salary of
$15,000 per month and also receives rental payments for the Company's  corporate
office  and DADC  facilities  aggregating  $15,000  per  month.  CBAS,  Inc.,  a
principal  stockholder  of the  Company,  received a monthly  consulting  fee of
$12,000  per month in  January,  February  and March 1998 and  $15,000 per month
thereafter. No long term compensation,  stock options, bonuses, restricted stock
awards or other compensation has been awarded.

     Compensation of the Company's Chief Executive  Officer for each of the last
two years as set forth below:
<TABLE>
<CAPTION>
                                        Summary Compensation Table

                                                                        Annual Compensation (1)
                                                                        -----------------------
           (a)                                                                  (e)             (f)
   Name and Principal          (b)                (c)              (d)         Stock        Other Annual
        Position               Year            Salary($)         Bonus($)     Options     Compensation($)
        --------               ----            ---------         --------     -------     ---------------

<S>                            <C>              <C>                 <C>          <C>             <C>
  Paul T. Siemann,             1998             180,000             0            0               0
  President                    1997              28,000             0            0               0
  
Joseph Chalupa,                1998              60,000             0            0               0
  Vice President               1997              60,000             0            0               0
</TABLE>

     The Company's  directors do not receive any cash compensation as directors,
although they are reimbursed for  out-of-pocket  expenses in attending  Board of
Directors' meetings.

Stock Option Plan

     The Company has adopted a stock option plan (the "Plan") which provides for
the grant of options  intended  to  qualify  as  "incentive  stock  options"  or
"nonqualified  stock  options"  within the  meaning of Section 422 of the United
States Internal Revenue Code of 1986 (the "Code").  Incentive stock options will
be issuable only to eligible officers and key employees of the Company.

     The Company has not as yet reserved any shares of Common Stock for issuance
under the Plan, which will be administered by its Board of Directors.  Under the
Plan,  the Board of Directors  will determine  which  individuals  shall receive
options,  the time period  during  which the options may be  partially  or fully
exercised, the number of shares of Common Stock that may be purchased under each
option and the option price.

                                       27

<PAGE>


     The per share  exercise price of the Common Stock will not be less than the
fair market value of the Common Stock on the date the option is granted. Subject
to certain  exceptions,  in the case of incentive  stock options,  the aggregate
fair  market  value  (determined  as of the date the option is  granted)  of the
Common Stock that any person may purchase in any calendar  year  pursuant to the
exercise of  incentive  stock  options will not exceed  $100,000.  No person who
owns, directly or indirectly,  at the time of the granting of an incentive stock
option, more than 10% of the total combined voting power of all classes of stock
of the Company will be eligible to receive  incentive  stock  options  under the
Plan unless the option  price is at least 110% of the fair  market  value of the
Common Stock subject to the option on the date of grant.  The stock options will
be subject  to  anti-dilution  provisions  in the event of stock  splits,  stock
dividends and the like.

     No incentive  stock options will be  transferable by an optionee other than
by will or the laws of descent and  distribution,  and during the lifetime of an
optionee, the option will only be exercisable by the optionee. The exercise date
of an option  granted  under the Plan will not be later  than ten years from the
date of grant.  Any options that expire  unexercised  or that  terminate upon an
optionee's  ceasing to be  employed by the Company  will become  available  once
again for  issuance.  Shares issued upon exercise of an option will rank equally
with other shares then outstanding.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------

Principal Stockholders

     The following  table sets forth the holdings of Common Stock by each person
who,  as of March 31,  1999,  holds of record or is known by the Company to hold
beneficially or of record,  more than 5% of the Company's  Common Stock, by each
officer and director,  and by all officers and directors as a group.  All shares
are owned  beneficially  and of record and the address of each person is in care
of the Company.  Ownership  amounts  include  options and  warrants  exercisable
within 60 days from March 31, 1999.

                                       28

<PAGE>


Name                              Amount of Ownership          Percent of Class
----                              -------------------          ----------------

Paul T. Siemann(1)                    3,179,110                      64.4
Joseph R. Chalupa                             0                       0.0
Barbara S. Siemann(1)                 3,179,110                      64.4
CBAS, Inc.                              473,733                      11.3
Hanifen Imhoff Mezzanine
   Fund, L.P. (2)                     1,268,486                      23.1
All officers and
 directors as a
 group (3 persons)(1)                  3,179,110                     64.4

(1)  Paul T. Siemann and Barbara S. Siemann are husband and wife and hold in the
     aggregate  2,446,750  shares of  Common  Stock and  common  stock  purchase
     warrants to acquire an additional 733,360 shares.

(2)  Represents 1,268,486 common stock purchase warrants.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------

     In August 1997 the Company issued  2,250,000  shares of its Common Stock to
Paul T. Siemann  ("Siemann") and 500,000 shares to CBAS, Inc.  ("CBAS")for $.001
per share.  Subsequently,  the Company  issued an additional  400,000  shares to
Siemann to acquire all of the outstanding  capital stock of Siemann  Educational
Systems,  Inc., the owner of DADC and a company owned and controlled by Siemann.
CBAS acts as a  consultant  to the  Company  and  receives a  consulting  fee of
$15,000 per month.

     In July 1997 a subsidiary  of the Company  issued stock  options to a third
party which have since expired.

     The Company paid a consulting fee of $12,000 per month to CBAS, a principal
stockholder,  for the months of January,  February and March 1998. Subsequently,
CBAS  received a consulting  fee of $15,000 per month.  See "Item 10 - Executive
Compensation."

     In March 1998 in connection with the acquisition of DPT, Mr. Siemann loaned
the Company  $2,000,000  evidenced by a promissory note bearing  interest at 12%
per annum due March 25, 2003.  As  additional  compensation  for the loans,  the
Company  issued  to Mr.  Siemann  warrants  to  purchase  732,360  shares of the
Company's  Common Stock for a total of $100 until March 25,  2003.  The warrants
also carry customary piggy back registration rights.


                                       29

<PAGE>



     The Company has advanced  loans to, and received loans from,  Siemann.  See
Notes 3, 4 and 8 to the Company's financial statements.

     The Company leases its office and DADC facilities from Siemann. See "Item 2
- Description of Property."

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------

         a.       Exhibits:         None

         b.       Reports on Form 8-K: None.


                                       30

<PAGE>


                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly  caused  this  Report to be signed  on its  behalf by the  undersigned,
thereunto duly authorized, in Denver, Colorado, on April 15, 1999.

                                          SIEMANN EDUCATIONAL
                                          SYSTEMS, INC.



                                          By  /s/  Paul T. Siemann
                                              ----------------------------------
                                                     Paul T. Siemann,
                                                        President

     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on the dates
indicated.

    Signature                        Title                          Date
    ---------                        -----                          ----


/s/  Paul T. Siemann          President, Chief Executive         April 15, 1999
------------------------      Chief Financial Officer
Paul T. Siemann               (Principal Accounting Officer)
                              and Director

/s/  Joseph R. Chalupa        Vice-President and Director        April 15, 1999
------------------------
Joseph R. Chalupa

/s/  Barbara s. Siemann       Secretary and Director             April 15, 1999
------------------------
Barbara S. Siemann



                                       31