**U.
      S. SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**









**Form 10-Q**




**(Mark
      One)**




ý
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**For
      the quarterly period ended June 30, 2007**





**or**





o
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**








**Commission
      File Number 000-51371**







**LINCOLN
      EDUCATIONAL SERVICES CORPORATION**


(Exact
      name of registrant as specified in its charter)




**New
                Jersey**
            
            **57-1150621**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (IRS
                Employer Identification No.)







**200
      Executive Drive, Suite 340**


**West
      Orange, NJ 07052**


(Address
      of principal executive offices)




**(973) 736-9340**


(Registrant’s
      telephone number, including area code)




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




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act. (Check one):





Large
                accelerated filer  o
            Accelerated
                filer  ý
            Non-accelerated
                filer  o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o  No ý




As
      of
      August 7, 2007, there were 25,504,966 shares of the registrant’s common stock
      outstanding.
















LINCOLN
      EDUCATIONAL SERVICES CORPORATION AND
      SUBSIDIARIES




INDEX
      TO
      FORM 10-Q




FOR
      THE
      QUARTER ENDING JUNE 30, 2007







**PART
                I.**
            **FINANCIAL
                INFORMATION**Item
                1.
            Financial
                StatementsCondensed
                Consolidated Balance Sheets at June 30, 2007 and
                December 31, 2006 (unaudited)
            1Condensed
                Consolidated Statements of Operations for the
                three and six months ended June 30, 2007 and 2006
                (unaudited)
            3Condensed
                Consolidated Statement of Changes in
                Stockholders’ Equity for the six months ended June 30, 2007
                (unaudited)
            4Condensed
                Consolidated Statements of Cash Flows for the six
                months ended June 30, 2007 and 2006 (unaudited)
            5Notes
                to Unaudited Condensed Consolidated Financial
                Statements
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            14Item
                3.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            22Item
                4.
            Controls
                and Procedures
            22**PART
                II.**
            **OTHER
                INFORMATION**
            22Item
                1.
            Legal
                Proceedings
            22Item
                4.
            Submission
                of Matters to Vote of Security
                Holders
            23Item
                6.
            Exhibits
            23





***Index***





**PART
      I – FINANCIAL INFORMATION**


Item
      1.
      FINANCIAL STATEMENTS




**LINCOLN
      EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(In
      thousands, except share amounts)**


**(Unaudited)**





**June
                30,**
              **2007**
            
            
            **December
                31,**
              **2006****ASSETS**CURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            5,697
            
            
            $
            6,461Restricted
                cash
            
            
            1,458
            
            
            
            920Accounts
                receivable, less allowance of $11,685 and $11,456 at June 30, 2007
                and
                December 31, 2006, respectively
            
            
            19,844
            
            
            
            20,473Inventories
            
            
            2,052
            
            
            
            2,438Deferred
                income taxes
            
            
            4,720
            
            
            
            4,827Prepaid
                expenses and other current assets
            
            
            3,117
            
            
            
            3,049Prepaid
                income taxes
            
            
            7,865
            
            
            
            -Total
                current assets
            
            
            44,753
            
            
            
            38,168PROPERTY,
                EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation
                and
                amortization of $76,582 and $72,870 at June 30, 2007 and December
                31,
                2006, respectively
            
            
            98,091
            
            
            
            94,368OTHER
                ASSETS:Deferred
                finance charges
            
            
            924
            
            
            
            1,019Pension
                plan assets, net
            
            
            1,129
            
            
            
            1,107Deferred
                income taxes, net
            
            
            3,794
            
            
            
            2,688Goodwill
            
            
            82,860
            
            
            
            84,995Noncurrent
                accounts receivable, less allowance of $117 and $84 at June 30, 2007
                and
                December 31, 2006, respectively
            
            
            1,053
            
            
            
            723Other
                assets, net
            
            
            3,202
            
            
            
            3,148Total
                other assets
            
            
            92,962
            
            
            
            93,680TOTAL
            
            $
            235,806
            
            
            $
            226,216





See
      notes
      to unaudited condensed consolidated financial statements.





1
 ***Index***





**LINCOLN
      EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(In
      thousands, except share amounts)**


**(Unaudited)**


**(Continued)**





**June
                30,**
              **2007**
            
            
            **December
                31,**
              **2006****LIABILITIES
                AND STOCKHOLDERS' EQUITY**CURRENT
                LIABILITIES:Current
                portion of long-term debt and lease obligations
            
            $
            94
            
            
            $
            91Unearned
                tuition
            
            
            25,316
            
            
            
            33,150Accounts
                payable
            
            
            13,833
            
            
            
            12,118Accrued
                expenses
            
            
            9,666
            
            
            
            10,335Advance
                payments of federal funds
            
            
            297
            
            
            
            557Income
                taxes payable
            
            
            -
            
            
            
            2,860Total
                current liabilities
            
            
            49,206
            
            
            
            59,111NONCURRENT
                LIABILITIES:Long-term
                debt and lease obligations, net of current portion
            
            
            31,222
            
            
            
            9,769Other
                long-term liabilities
            
            
            5,969
            
            
            
            5,553Total
                liabilities
            
            
            86,397
            
            
            
            74,433COMMITMENTS
                AND CONTINGENCIESSTOCKHOLDERS'
                EQUITY:Preferred
                stock, no par value - 10,000,000 shares authorized, no shares issued
                and
                outstanding at June 30, 2007 and December 31, 2006
            
            
            -
            
            
            
            -Common
                stock, no par value - authorized 100,000,000 shares at June 30, 2007
                and
                December 31, 2006, issued and outstanding 25,495,536 shares at June
                30,
                2007 and 25,450,695 shares at December 31, 2006
            
            
            120,293
            
            
            
            120,182Additional
                paid-in capital
            
            
            8,809
            
            
            
            7,695Deferred
                compensation
            
            
            (648
            )
            
            
            (467
            )Retained
                earnings
            
            
            23,366
            
            
            
            26,784Accumulated
                other comprehensive loss
            
            
            (2,411
            )
            
            
            (2,411
            )Total
                stockholders' equity
            
            
            149,409
            
            
            
            151,783TOTAL
            
            $
            235,806
            
            
            $
            226,216





See
      notes
      to unaudited condensed consolidated financial statements.




2
 ***Index***




**LINCOLN
      EDUCATIONAL SERVICES CORPORATION AND
      SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(In
      thousands, except per share amounts)**


**(Unaudited)**




**Three
                  Months Ended June 30,**
              
              
              **Six
                  Months Ended June 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**REVENUES
              
              $
              76,276
              
              
              $
              75,363
              
              
              $
              154,418
              
              
              $
              150,876COSTS
                  AND EXPENSES:Educational
                  services and facilities
              
              
              34,752
              
              
              
              32,609
              
              
              
              70,504
              
              
              
              64,746Selling,
                  general and administrative
              
              
              40,854
              
              
              
              40,955
              
              
              
              85,603
              
              
              
              79,623Gain
                  on sale of assets
              
              
              (15
              )
              
              
              -
              
              
              
              (15
              )
              
              
              -Impairment
                  of goodwill and long-lived assets
              
              
              3,005
              
              
              
              -
              
              
              
              3,005
              
              
              
              -Total
                  costs & expenses
              
              
              78,596
              
              
              
              73,564
              
              
              
              159,097
              
              
              
              144,369OPERATING
                  (LOSS) INCOME
              
              
              (2,320
              )
              
              
              1,799
              
              
              
              (4,679
              )
              
              
              6,507OTHER:Interest
                  income
              
              
              35
              
              
              
              306
              
              
              
              83
              
              
              
              777Interest
                  expense
              
              
              (670
              )
              
              
              (570
              )
              
              
              (1,154
              )
              
              
              (1,044
              )Other
                  income
              
              
              -
              
              
              
              54
              
              
              
              -
              
              
              
              70(LOSS)
                  INCOME BEFORE INCOME TAXES
              
              
              (2,955
              )
              
              
              1,589
              
              
              
              (5,750
              )
              
              
              6,310(BENEFIT)
                  PROVISION FOR INCOME TAXES
              
              
              (1,255
              )
              
              
              623
              
              
              
              (2,432
              )
              
              
              2,582NET
                  (LOSS) INCOME
              
              $
              (1,700
              )
              
              $
              966
              
              
              $
              (3,318
              )
              
              $
              3,728Earnings
                  (loss) per share - basic:Net
                  (loss) income available to common stockholders
              
              $
              (0.07
              )
              
              $
              0.04
              
              
              $
              (0.13
              )
              
              $
              0.15Earnings
                  (loss) per share - diluted:Net
                  (loss) income available to common stockholders
              
              $
              (0.07
              )
              
              $
              0.04
              
              
              $
              (0.13
              )
              
              $
              0.14Weighted
                  average number of common shares outstanding:Basic
              
              
              25,483
              
              
              
              25,303
              
              
              
              25,471
              
              
              
              25,245Diluted
              
              
              25,483
              
              
              
              26,084
              
              
              
              25,471
              
              
              
              26,061




See
      notes
      to unaudited condensed consolidated financial statements.




3
 ***Index***




**LINCOLNEDUCATIONAL
      SERVICES CORPORATION AND
      SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY**


**(In
      thousands)**


**(Unaudited)**





**Accumulated****Additional**
            
            
            
            
            
            **Other****Common
                Stock**
            
            
            **Paid-in**
            
            
            **Deferred**
            
            
            **Comprehensive**
            
            
            **Retained****Shares**
            
            
            **Amount**
            
            
            **Capital**
            
            
            **Compensation**
            
            
            **Loss**
            
            
            **Earnings**
            
            
            **Total**BALANCE
                - December 31, 2006
            
            
            25,451
            
            
            $
            120,182
            
            
            $
            7,695
            
            
            $
            (467
            )
            
            $
            (2,411
            )
            
            $
            26,784
            
            
            $
            151,783Net
                loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,318
            )
            
            
            (3,318
            )Initial
                adoption of FIN 48
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (100
            )
            
            
            (100
            )Issuance
                of restricted stock and amortization of deferred
                compensation
            
            
            23
            
            
            
            -
            
            
            
            320
            
            
            
            (181
            )
            
            
            -
            
            
            
            -
            
            
            
            139Stock-based
                compensation expense
            
            
            -
            
            
            
            -
            
            
            
            749
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            749Tax
                benefit of options exercised
            
            
            -
            
            
            
            -
            
            
            
            45
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            45Exercise
                of stock options
            
            
            22
            
            
            
            111
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            111BALANCE
                - June 30, 2007
            
            
            25,496
            
            
            $
            120,293
            
            
            $
            8,809
            
            
            $
            (648
            )
            
            $
            (2,411
            )
            
            $
            23,366
            
            
            $
            149,409




See
      notes
      to unaudited condensed consolidated financial statements.




4
 ***Index***




**LINCOLN
      EDUCATIONAL SERVICES CORPORATION AND
      SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(In
      thousands)**


**(Unaudited)**




**Six
                Months Ended June 30,****2007**
            
            
            **2006**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                (loss) income
            
            $
            (3,318
            )
            
            $
            3,728Adjustments
                to reconcile net (loss) income to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            7,768
            
            
            
            7,136Amortization
                of deferred finance charges
            
            
            95
            
            
            
            97Deferred
                income taxes
            
            
            (999
            )
            
            
            (1,469
            )Gain
                on disposal of assets
            
            
            (15
            )
            
            
            -Impairment
                of goodwill and long-lived assets
            
            
            3,005
            
            
            
            -Fixed
                asset donations
            
            
            -
            
            
            
            (16
            )Provision
                for doubtful accounts
            
            
            7,980
            
            
            
            7,446Stock-based
                compensation expense and issuance of restricted stock
            
            
            888
            
            
            
            757Tax
                benefit associated with exercise of stock options
            
            
            -
            
            
            
            359Deferred
                rent
            
            
            336
            
            
            
            618(Increase)
                decrease in assets:Accounts
                receivable
            
            
            (7,681
            )
            
            
            (8,544
            )Inventories
            
            
            386
            
            
            
            (330
            )Prepaid
                expenses and current assets
            
            
            (662
            )
            
            
            (1,893
            )Other
                assets
            
            
            (267
            )
            
            
            40Increase
                (decrease) in liabilities:Accounts
                payable
            
            
            1,714
            
            
            
            (2,863
            )Other
                liabilities
            
            
            (278
            )
            
            
            (1,062
            )Income
                taxes payable/prepaid
            
            
            (10,725
            )
            
            
            (6,602
            )Accrued
                expenses
            
            
            (688
            )
            
            
            1,035Unearned
                tuition
            
            
            (7,834
            )
            
            
            (9,831
            )Total
                adjustments
            
            
            (6,977
            )
            
            
            (15,122
            )Net
                cash used in operating activities
            
            
            (10,295
            )
            
            
            (11,394
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Restricted
                cash
            
            
            (538
            )
            
            
            (2,069
            )Capital
                expenditures
            
            
            (11,543
            )
            
            
            (8,643
            )Acquisitions,
                net of cash acquired
            
            
            -
            
            
            
            (32,759
            )Net
                cash used in investing activities
            
            
            (12,081
            )
            
            
            (43,471
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from borrowings
            
            
            21,500
            
            
            
            10,000Payments
                on borrowings
            
            
            -
            
            
            
            (55
            )Proceeds
                from exercise of stock options
            
            
            111
            
            
            
            272Tax
                benefit associated with exercise of stock options
            
            
            45
            
            
            
            -Principal
                payments under capital lease obligations
            
            
            (44
            )
            
            
            (142
            )Net
                cash provided by financing activities
            
            
            21,612
            
            
            
            10,075NET
                DECREASE IN CASH AND CASH EQUIVALENTS
            
            
            (764
            )
            
            
            (44,790
            )CASH
                AND CASH EQUIVALENTS—Beginning of period
            
            
            6,461
            
            
            
            50,257CASH
                AND CASH EQUIVALENTS—End of period
            
            $
            5,697
            
            
            $
            5,467





See
      notes to unaudited condensed
      consolidated financial statements.




5
 ***Index***




**LINCOLN
      EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(In
      thousands)**


**(Unaudited)**


**(Continued)**





**Six
                Months Ended June 30,****2007**
            
            
            **2006**SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Cash
                paid during the year for:Interest
            
            $
            1,000
            
            
            $
            932Income
                taxes
            
            $
            9,287
            
            
            $
            10,294SUPPLEMENTAL
                SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:Cash
                paid during the year for:Fair
                value of assets acquired
            
            $
            -
            
            
            $
            48,987Net
                cash paid for the acquisition
            
            
            -
            
            
            
            (39,973
            )Liabilities
                assumed
            
            $
            -
            
            
            $
            9,014





See
      notes
      to unaudited condensed consolidated financial statements.




6
 ***Index***





**LINCOLNEDUCATIONAL
      SERVICES CORPORATION AND
      SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**


**SIX
      MONTHS ENDED JUNE 30, 2007 AND 2006**


**(In
      thousands, except share and per share amounts and unless otherwise
      stated)**


**(Unaudited)**




**1.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**




***Business
      Activities***– Lincoln Educational Services Corporation and
      subsidiaries (the "Company") is a diversified provider of career-oriented
      post-secondary education. The Company offers recent high school graduates and
      working adults degree and diploma programs in five principal areas of study:
      Automotive Technology, Health Sciences (which includes programs for licensed
      practical nursing (LPN), medical administrative assistants, medical assistants,
      pharmacy technicians, medical coding and billing and dental assisting), Business
      and Information Technology, Hospitality Services (spa and culinary) and Skilled
      Trades. The Company currently has 37 campuses in 17 states across the United
      States.





***Basis
      of Presentation***– The accompanying unaudited condensed consolidated
      financial statements have been prepared by the Company pursuant to the rules
      and
      regulations of the Securities and Exchange Commission and in accordance with
      accounting principles generally accepted in the United States of America
      (“GAAP”).  Certain information and footnote disclosures normally included
      in annual financial statements have been omitted or condensed pursuant to such
      regulations.  These statements, when read in conjunction with the December
      31, 2006 consolidated financial statements of the Company, reflect all
      adjustments, consisting solely of normal recurring adjustments, necessary to
      present fairly the consolidated financial position, results of operations,
      and
      cash flows for such periods.  The results of operations for the three and
      six months ended June 30, 2007 are not necessarily indicative of the results
      that may be expected for the fiscal year ending December 31, 2007.




The
      unaudited condensed consolidated financial statements as of June 30, 2007 and
      the condensed consolidated financial statements as of December 31, 2006 and
      for
      the three and six months ended June 30, 2007 and 2006 include the accounts
      of
      the Company.  All significant intercompany accounts and transactions have
      been eliminated.




***Use
      of Estimates in the Preparation of Financial Statements***– The
      preparation of financial statements in conformity with GAAP requires management
      to make estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the consolidated financial statements and the reported amounts of revenues
      and
      expenses during the period.  On an ongoing basis, the Company evaluates the
      estimates and assumptions, including those related to revenue recognition,
      bad
      debts, fixed assets, goodwill and other intangible assets, stock-based
      compensation, income taxes, benefit plans and certain accruals.  Actual
      results could differ from those estimates.





**2.**
            **RECENT
                ACCOUNTING PRONOUNCEMENTS**




In
      February 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 159  “*The
      Fair Value Option for Financial Assets and Financial Liabilities*”,
      providing companies with an option to report selected financial assets and
      liabilities at fair value.  The objective of SFAS No. 159 is to reduce both
      complexity in accounting for financial instruments and the volatility in
      earnings caused by measuring related assets and liabilities differently. 
Generally accepted accounting principles have required different measurement
      attributes for different assets and liabilities that can create artificial
      volatility in earnings. SFAS No. 159 helps to mitigate this type of
      accounting-induced volatility by enabling companies to report related assets
      and
      liabilities at fair value, which would likely reduce the need for companies
      to
      comply with detailed rules for hedge accounting.  SFAS No. 159 also
      establishes presentation and disclosure requirements designed to facilitate
      comparisons between companies that choose different measurement attributes
      for
      similar types of assets and liabilities.  SFAS No. 159 requires companies
      to provide additional information that will help investors and other users
      of
      financial statements to more easily understand the effect of the Company’s
      choice to use fair value on its earnings. It also requires entities to display
      the fair value of those assets and liabilities for which the Company has chosen
      to use fair value on the face of the balance sheet.  SFAS No. 159 will be
      effective for the Company as of January 1, 2008.  The Company is currently
      evaluating the impact of the adoption of this Statement on its consolidated
      financial statements.





7
 ***Index***





In
      September 2006, the FASB issued SFAS No. 158, *“Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
      Statements No. 87, 88, 106, and 132(R).”* Among other items, SFAS No. 158
      requires recognition of the overfunded or underfunded status of an entity’s
      defined benefit postretirement plan as an asset or liability in the financial
      statements, requires the measurement of defined benefit postretirement plan
      assets and obligations as of the end of the employer’s fiscal year, and requires
      recognition of the funded status of defined benefit postretirement plans in
      other comprehensive income.  The Company adopted SFAS No. 158 on
      December 31, 2006.  The incremental effects of applying SFAS No. 158
      on the Company’s December 31, 2006 consolidated financial statements, on a line
      by line basis, are as follows:




**Balances
                Before Adoption of Statement 158**
            
            
            **Adjustments**
            
            
            **Balances
                After Adoption of Statement 158**Pension
                plan assets, net
            
            $
            5,169
            
            
            $
            (4,062
            )
            
            $
            1,107Deferred
                income taxes
            
            
            1,037
            
            
            
            1,651
            
            
            
            2,688Accumulated
                other comprehensive income
            
            
            -
            
            
            
            2,411
            
            
            
            2,411





In
      September 2006, the FASB issued SFAS No. 157, “*Fair Value
      Measurements.”* SFAS No. 157 defines fair value, establishes a framework for
      measuring fair value in GAAP, and expands disclosures about fair value
      measurements. This Statement applies under other accounting pronouncements
      that
      require or permit fair value measurements, the Board having previously concluded
      in those accounting pronouncements that fair value is the relevant measurement
      attribute. Accordingly, this Statement does not require any new fair value
      measurements. The provisions of SFAS No. 157 are effective for the Company
      as of
      January 1, 2008. The adoption of the provision of SFAS No. 157 is not expected
      to have a material effect on the Company’s consolidated financial
      statements.




In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin (“SAB”) No. 108 which provides interpretive guidance on how
      the effects of the carryover or reversal of prior year unrecorded misstatements
      should be considered in quantifying a current year misstatement. SAB No. 108
      is
      effective for the Company as of January 1, 2007. The adoption of the provision
      of SAB No. 108 had no effect on the Company’s consolidated financial
      statements.




In
      June
      2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “*Accounting
      for Uncertainty in Income Taxes*.” FIN No. 48 clarifies the accounting for
      uncertainty in income taxes recognized in an enterprise’s financial statements
      in accordance with FASB SFAS No. 109, “*Accounting for Income Taxes*”,
      which was adopted by the Company on January 1, 2007. FIN No. 48 prescribes
      a
      recognition threshold and a measurement attribute for the financial statement
      recognition and measurement of tax positions taken or expected to be taken
      in a
      tax return. For those benefits to be recognized, a tax position must be
      more-likely-than-not to be sustained upon examination by taxing authorities.
      The
      amount recognized is measured as the largest amount of benefit that is greater
      than 50 percent likely of being realized upon ultimate settlement. The adoption
      of FIN No. 48 resulted in a cumulative effect adjustment to retained earnings
      as
      of January 1, 2007 of $0.1 million.




In
      March
      2006, the FASB issued SFAS No. 156, “*Accounting for Servicing of Financial
      Assets.*” SFAS No. 156 provides guidance addressing the recognition and
      measurement of separately recognized servicing assets and liabilities, common
      with mortgage securitization activities, and provides an approach to simplify
      efforts to obtain hedge accounting treatment. SFAS No. 156 was adopted on
      January 1, 2007. The adoption of the provision of SFAS No. 156 had no effect
      on
      the Company’s consolidated financial statements.




In
      February 2006, the FASB issued SFAS No. 155, “*Accounting for Certain Hybrid
      Financial Instruments*.” SFAS No. 155 is effective beginning January 1,
      2007. The adoption of the provision of SFAS No. 155 had no effect on the
      Company’s consolidated financial statements.





**3.**
            **STOCK-BASED
                COMPENSATION**




The
      Company currently accounts for stock-based employee compensation arrangements
      in
      accordance with the provisions of SFAS No. 123R, “*Share Based
      Payment.”*Reflected in the accompanying statements of income is
      compensation expense, including amortization of deferred compensation, of
      approximately $0.5 million and $0.4 million for the three months ended June
      30,
      2007 and 2006, respectively, and $0.9 million and 0.7 million for the six months
      ended June 30, 2007 and 2006, respectively.  The Company uses the
      Black-Scholes valuation model and utilizes straight-line amortization of
      compensation expense over the requisite service period of the
      grant.  The Company makes an estimate of expected forfeitures upon
      grant issuance.





8
 ***Index***





**4.**
            **WEIGHTED
                AVERAGE COMMON SHARES**




The
      weighted average numbers of common shares used to compute basic and diluted
      income per share for the three and six months ended June 30, 2007 and 2006,
      respectively, were as follows:





**Three
                Months Ended**
              **June
                30,**
              **(In
                thousands)**
            
            
            **Six
                Months Ended**
              **June
                30,**
              **(In
                thousands)****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Basic
                shares outstanding
            
            
            25,483
            
            
            
            25,303
            
            
            
            25,471
            
            
            
            25,245Dilutive
                effect of stock options
            
            
            -
            
            
            
            781
            
            
            
            -
            
            
            
            816Diluted
                shares outstanding
            
            
            25,483
            
            
            
            26,084
            
            
            
            25,471
            
            
            
            26,061





For
      the
      three months ended June 30, 2007 and 2006, options to acquire 377,500 and
      215,000 shares, respectively, and for the six months ended June 30, 2007 and
      2006, options to acquire 723,708 and 215,000 shares, respectively, were excluded
      from the above table as the result on reported earnings per share would have
      been antidilutive.





**5.**
            **BUSINESS
                ACQUISITIONS**




On
      May
      22, 2006, the Company acquired all of the outstanding stock of New England
      Institute of Technology at Palm Beach, Inc. (“FLA”) for approximately $40.1
      million.  The purchase price was $32.9 million, net of cash acquired
      plus the assumption of a mortgage note for $7.2 million.  The FLA
      purchase price has been allocated to identifiable net assets with the excess
      of
      the purchase price over the estimated fair value of the net assets acquired
      recorded as goodwill.




The
      following unaudited pro forma results of operations for the three and six months
      ended June 30, 2006 assumes that the acquisition of FLA occurred January 1,
      2006.  The unaudited pro forma results of operations are based on
      historical results of operations, but include adjustments for depreciation,
      amortization, interest, and taxes, but do not necessarily reflect the actual
      results that would have occurred.




**Three
                months ended June 30, 2006****Historical
                2006**
            
            
            **Pro
                forma impact FLA 2006**
            
            
            **Pro
                forma 2006**Revenues
            
            $
            75,363
            
            
            $
            2,289
            
            
            $
            77,652Net
                Income
            
            $
            966
            
            
            $
            (460
            )
            
            $
            506Earnings
                per share - basic
            
            $
            0.04
            
            
            
            
            
            
            $
            0.02Earnings
                per share - diluted
            
            $
            0.04
            
            
            
            
            
            
            $
            0.02




**Six
                months ended June 30, 2006****Historical
                2006**
            
            
            **Pro
                forma impact FLA 2006**
            
            
            **Pro
                forma 2006**Revenues
            
            $
            150,876
            
            
            $
            7,148
            
            
            $
            158,024Net
                Income
            
            $
            3,728
            
            
            $
            (302
            )
            
            $
            3,426Earnings
                per share - basic
            
            $
            0.15
            
            
            
            
            
            
            $
            0.14Earnings
                per share - diluted
            
            $
            0.14
            
            
            
            
            
            
            $
            0.13





9
 ***Index***





**6.**
            **GOODWILL
                AND OTHER INTANGIBLE
                ASSETS**




The
      Company accounts for its intangible assets in accordance with SFAS No.
      142,*“Goodwill and Other Intangible Assets*.”  The Company reviews
      intangible assets with an indefinite useful life for impairment when indicators
      of impairment exist.  Annually, or more frequently if necessary, the
      Company evaluates goodwill for impairment, with any resulting impairment
      reflected as an operating expense.





Goodwill
                balance as of December 31, 2006
            
            $
            84,995Goodwill
                impairment
            
            
            (2,135
            )Goodwill
                balance as of June 30, 2007
            
            $
            82,860





As
      described further in Note 13, during the three months ended June 30, 2007,
      the
      Company recorded a goodwill impairment charge as a result of its decision to
      cease operations at three of its campuses.




Intangible
      assets, which are included in other assets in the accompanying condensed
      consolidated balance sheets, consist of the following:





**At
                June 30, 2007**
            
            
            **At
                December 31, 2006****Weighted
                Average Amortization Period (years)**
            
            
            **Gross
                Carrying Amount**
            
            
            **Accumulated
                Amortization**
            
            
            **Gross
                Carrying Amount**
            
            
            **Accumulated
                Amortization**Student
                Contracts
            
            
            1
            
            
            $
            2,215
            
            
            $
            2,146
            
            
            $
            2,200
            
            
            $
            2,010Trade
                name
            
            Indefinite
            
            
            
            1,270
            
            
            
            -
            
            
            
            1,270
            
            
            
            -Accreditation
            
            Indefinite
            
            
            
            307
            
            
            
            -
            
            
            
            -
            
            
            
            -Curriculum
            
            
            10
            
            
            
            700
            
            
            
            173
            
            
            
            700
            
            
            
            138Non-compete
            
            
            5
            
            
            
            201
            
            
            
            45
            
            
            
            201
            
            
            
            25Total
            
            
            
            
            
            $
            4,693
            
            
            $
            2,364
            
            
            $
            4,371
            
            
            $
            2,173





The
      increase in accreditation assets was due to the purchase of a new nursing
      program on March 5, 2007.





Amortization
      of intangible assets was approximately $0.1 million and $0.1 million for the
      three months ended June 30, 2007 and 2006, respectively, and $0.2 million and
      $0.4 million for the six months ended June 30, 2007 and 2006,
      respectively





**7.**
            **LONG-TERM
                DEBT**




The
      Company has a credit agreement with a syndicate of banks.  Under the terms
      of the credit agreement, the syndicate provided the Company with a $100 million
      credit facility.  The credit agreement permits the issuance of up to
      $20 million in letters of credit, the amount of which reduces the availability
      of permitted borrowings under the credit agreement.  The Company
      incurred approximately $0.8 million of deferred finance charges under the
      existing credit agreement.  At June 30, 2007, the Company had
      outstanding letters of credit aggregating $4.4 million, comprised primarily
      of letters of credit for the Department of Education and real estate
      leases.





The
      obligations of the Company under the credit agreement are secured by a lien
      on
      substantially all of the assets of the Company and its subsidiaries and any
      assets that it or its subsidiaries may acquire in the future, including a pledge
      of substantially all of the subsidiaries’ common stock.  Outstanding
      borrowings bear interest at the rate of adjusted LIBOR plus 1.0% to 1.75%,
      as
      defined, or a base rate (as defined in the credit agreement).  In
      addition to paying interest on outstanding principal under the credit agreement,
      the Company and its subsidiaries are required to pay a commitment fee to the
      lender with respect to the unused amounts available under the credit agreement
      at a rate equal to 0.25% to 0.40% per year, as defined.





During
      the quarter ended June 30, 2007, the Company borrowed an additional $8.5 million
      under the credit agreement.  As of June 30, 2007, the Company had
      $21.5 million in debt outstanding under its credit
      agreement.  Interest on these borrowings at June 30, 2007 ranged from
      6.32% to 6.34%.





The
      credit agreement contains various covenants, including a number of financial
      covenants.  Furthermore, the credit agreement contains customary
      events of default as well as an event of default in the event of the suspension
      or termination of Title IV Program funding for the Company’s and its
      subsidiaries' campuses aggregating 10% or more of the Company’s EBITDA (as
      defined) or its consolidated total assets and such suspension or termination
      is
      not cured within a specified period.  As of June 30, 2007, the Company was
      in compliance with the financial covenants contained in the credit
      agreement.





10
 ***Index***





**8.**
            **EQUITY**




Pursuant
      to the Company’s 2005 Non-Employee Directors Restricted Stock Plan (the
“Non-Employee Directors Plan”), each of the Company’s seven non-employee
      directors received an award of 3,069 restricted shares of common stock equal
      to
      $0.06 million on July 29, 2005. On January 1, 2006, one non-employee director
      resigned, forfeiting 3,069 restricted shares of common stock awarded on July
      29,
      2005. Two newly appointed non-employee directors each received an award of
      3,625
      restricted shares of common stock equal to $0.06 million on March 1, 2006. 
On May 23, 2006, the date of the Company’s 2006 annual meeting, each
      non-employee director received an annual restricted award of 1,781 restricted
      shares of common stock equal to $0.03 million. Beginning in 2007, each
      non-employee director received, on April 26, 2007, the date of the Company’s
      2007 annual meeting, an annual restricted award of 2,825 restricted shares
      of
      common stock equal to $0.04 million.  The number of shares granted to
      each non-employee director was based on the fair market value of a share of
      common stock on that date.  The restricted shares vest ratably on the
      first, second and third anniversaries of the grant date; however, there is
      no
      vesting period on the right to vote or the right to receive dividends on these
      restricted shares. As of June 30, 2007, there were a total of 62,512 shares
      awarded and 13,308 shares vested under the Non-Employee Directors Plan. The
      recognized restricted stock expense for the three months ended June 30, 2007
      and
      2006 was $0.08 million and $0.05 million, respectively, and for the six months
      ended June 30, 2007 and 2006 was $0.1 million and $0.07 million, respectively.
      The deferred compensation or unrecognized restricted stock expense as of June
      30, 2007 and 2006 was $0.6 million and $0.6 million, respectively.





The
      fair
      value of the stock options used to compute stock-based compensation is the
      estimated present value at the date of grant using the Black-Scholes
      option pricing model.  The weighted average fair values of
      options granted during 2007 were $6.78 using the following weighted average
      assumptions for grants:





**June
                30,**
              **2007**Expected
                volatility
            55.10%Expected
                dividend yield
            0%Expected
                life (term)
            6
                YearsRisk-free
                interest rate
            4.13-4.84%Weighted-average
                exercise price during the year
            $11.96





The
      following is a summary of transactions pertaining to the option
      plans:





**Shares**
            
            
            **Weighted
                Average Exercise Price Per Share**
            
            **Weighted
                Average Remaining Contractual Term**
            
            **Aggregate
                Intrinsic Value (in thousands)**Outstanding,
                December 31, 2006
            
            
            1,728,225
            
            
            $
            8.85Granted
            
            
            185,500
            
            
            
            11.96Cancelled
            
            
            (13,000
            )
            
            
            15.19Exercised
            
            
            (22,241
            )
            
            
            4.98
            
            
            
            $
            158Outstanding,
                June 30, 2007
            
            
            1,878,484
            
            
            
            9.16
            
            6.07
                years
            
            
            12,289Exercisable
                as of June 30, 2007
            
            
            1,230,244
            
            
            
            
            
            6.18
                years
            
            
            11,422





As
      of
      June 30, 2007, we estimate that pre-tax compensation expense for all unvested
      stock option awards, in the amount of approximately $3.6 million which will
      be
      expensed over the weighted-average period of approximately 1.9
      years.




11
 ***Index***





The
      following table presents a summary of options outstanding at June 30,
      2007:





**As
                of June 30, 2007****Stock
                Options Outstanding**
            
            
            **Stock
                Options Exercisable****Range
                of Exercise Prices**
            
            
            **Shares**
            
            
            **Contractual
                Weighted Average life (years)**
            
            
            **Weighted
                Average Price**
            
            
            **Shares**
            
            
            **Weighted
                Exercise Price**$
            1.55
            
            
            
            50,898
            
            
            
            1.98
            
            
            $
            1.55
            
            
            
            50,898
            
            
            $
            1.55$
            3.10
            
            
            
            894,878
            
            
            
            4.53
            
            
            
            3.10
            
            
            
            887,838
            
            
            
            3.10$
            4.00-$13.99
            
            
            
            215,500
            
            
            
            9.14
            
            
            
            11.10
            
            
            
            14,400
            
            
            
            4.63$
            14.00-$19.99
            
            
            
            576,708
            
            
            
            7.75
            
            
            
            15.28
            
            
            
            205,208
            
            
            
            14.29$
            20.00-$25.00
            
            
            
            140,500
            
            
            
            7.26
            
            
            
            22.41
            
            
            
            71,900
            
            
            
            22.741,878,484
            
            
            
            6.18
            
            
            
            9.16
            
            
            
            1,230,244
            
            
            
            6.07





**9.**
            **RECOURSE
                LOAN AGREEMENT**





The
      Company entered into an agreement effective March 28, 2005 to June 30, 2006
      with
      SLM Financial Corporation (SLM) to provide up to $6.0 million of private
      recourse loans to qualifying students. The following table reflects selected
      information with respect to the recourse loan agreements, including total
      cumulative loan disbursements and purchase activity under the
      agreement:




**Disbursement
                Year**
            
            
            **Loans
                Disbursed**
            
            
            **Loans
                the Company May be Required to Purchase (1)**2005-2006
            
            
            
            $4,869
            
            
            
            $1,461





(1)
            Represents
                the maximum amount of loans under the agreement that we may be required
                to
                purchase in the future based on cumulative loans disbursed and
                purchased.





Under
      the
      recourse loan agreement, the Company was required to fund 30% of all loans
      disbursed into a SLM reserve account. The amount of our loan purchase obligation
      may not exceed this deposit. We recorded such amounts in accounts receivable
      on
      our consolidated balance sheet. Amounts on deposit may ultimately be utilized
      to
      purchase loans in default, in which case recoverability of such amounts would
      be
      in question. Accordingly, the Company recorded an allowance and bad debt expense
      for the full amount of deposit.  Approved funding under this agreement
      terminated by its terms on June 30, 2006.  There were no new
      disbursements for the six months ended June 30, 2007.  Bad debt
      expense was $0 and $0.4 million for the three months ended June 30, 2007 and
      2006, respectively, and $0 and 1.0 million for the six months ended June 30,
      2007 and 2006, respectively





**10.**
            **INCOME
                TAXES**




The
      effective tax rate for the three months ended June 30, 2007 and 2006 was 42.5%
      and 39.2% and for the six months ended June 30, 2007 and 2006 was 42.3% and
      40.1%, respectively.




**11.**
            **COMMITMENTS
                AND CONTINGENCIES**




***Litigation
      and Regulatory Matters***– In the ordinary conduct of the Company’s
      business, it is subject to periodic lawsuits, investigations and claims,
      including, but not limited to, claims involving students or graduates and
      routine employment matters. Although the Company cannot predict with certainty
      the ultimate resolution of lawsuits, investigations and claims asserted against
      it, the Company does not believe that any currently pending legal proceeding
      to
      which it is a party will have a material adverse effect on the Company’s
      business, financial condition, results of operation or cash flows.





**12.**
            **PENSION
                PLAN**




The
      Company sponsors a noncontributory defined benefit pension plan covering
      substantially all of the Company’s union employees. Benefits are provided based
      on employees’ years of service and earnings.  This plan was frozen on
      December 31, 1994 for non-union employees.  While the Company does not
      expect to make any contributions to the plan in 2007, after considering the
      funded status of the plan, movements in the discount rate, investment
      performance and related tax consequences, the Company may choose to make
      contributions to the plan in any given year.  For the three months
      ended June 30, 2007 the net periodic benefit income was $46,500.  For
      the three months ended June 30, 2006 the net periodic benefit cost was
      $24,000.  For the six months ended June 30, 2007 the net periodic
      benefit income was $21,500.  For the six months ended June 30, 2006
      the net periodic benefit cost was $25,000.





12
 ***Index***





**13.**
            **IMPAIRMENT
                OF GOODWILL AND LONG-LIVED
                ASSETS**




On
      July
      31, 2007 our Board of Directors approved a plan (the “Plan”) to cease operations
      at three of our campuses which include Plymouth Meeting, PA, Norcross, GA and
      Henderson, NV.  While the Company believes that these campuses offer
      effective and valuable academic programs, the campuses’ financial results have
      not met the Company’s expectations and the continued operation of these campuses
      is inconsistent with our strategic goals.  As a result of the above,
      the Company reviewed the related goodwill and long-lived assets for possible
      impairment in accordance with SFAS No. 142, “*Goodwill and Other Intangible
      Assets”* and SFAS No. 144 “*Accounting for the Impairment or Disposal of
      Long-Lived Assets.”*





As
      a
      result of the goodwill review, the Company recognized a non-cash impairment
      charge of approximately $2.1 million as of June 30,
      2007.  Additionally, under SFAS No. 144, long-lived assets shall be
      tested for recoverability whenever events or changes in circumstances indicate
      that their carrying amount may not be recoverable.  As a result of the
      Plan, some of our long-lived assets will be abandoned. Accordingly, the Company
      determined that certain long-lived assets would not be recoverable at June
      30,
      2007 and recorded a non-cash charge of $0.9 million to reduce the carrying
      value
      of these assets to their estimated fair value.





While
      the
      Company has not yet evaluated what additional charges will be incurred due
      to
      the Plan to cease operations at these campuses, we anticipate recording
      additional charges in the future for retention benefits expected to be paid
      to
      employees as well as other costs including lease termination costs, early
      contract termination costs and employee retention costs.  We are
      currently evaluating the amount and timing of the charges that will be recorded,
      but at this time the Company can not reasonably estimate the amount of such
      charges.





13
 ***Index***





**Item
                2.**
            **MANAGEMENT’S
                DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION
                AND RESULTS OF OPERATIONS**




The
      following discussion may contain forward-looking statements regarding us, our
      business, prospects and our results of operations that are subject to certain
      risks and uncertainties posed by many factors and events that could cause our
      actual business, prospects and results of operations to differ materially from
      those that may be anticipated by such forward-looking statements.  Factors
      that could cause or contribute to such differences include, but are not limited
      to, those described in the “Risk Factors” section of our Annual Report on Form
      10-K for the year ended December 31, 2006, as filed with the Securities and
      Exchange Commission.  Readers are cautioned not to place undue reliance on
      these forward-looking statements, which speak only as of the date of this
      report.  We undertake no obligation to revise any forward-looking
      statements in order to reflect events or circumstances that may subsequently
      arise.  Readers are urged to carefully review and consider the various
      disclosures made by us in this report and in our other reports filed with the
      Securities and Exchange Commission that advise interested parties of the risks
      and factors that may affect our business.




The
      interim financial statements filed on this Form 10-Q and the discussions
      contained herein should be read in conjunction with the annual financial
      statements and notes included in our Form 10-K for the year ended December
      31,
      2006, as filed with the Securities and Exchange Commission, which includes
      audited consolidated financial statements for our three fiscal years ended
      December 31, 2006.




**General**




We
      are a
      leading and diversified for-profit provider of career-oriented post-secondary
      education.  We offer recent high school graduates and adults degree and
      diploma programs in five principal areas of study:  automotive technology,
      health sciences, skilled trades, business and information technology and
      hospitality services.  As of June 30, 2007, we enrolled 16,580 students at
      our 37 campuses across 17 states.  Our campuses primarily attract students
      from their local communities and surrounding areas, although our four
      destination campuses attract students from across the United States, and in
      some
      cases, from abroad.  We continue to expand our product offerings and our
      geographic reach.  On March 27, 2006 we opened our new automotive
      campus in Queens, New York and on May 22, 2006, we completed the acquisition
      of
      New England Institute of Technology at Palm Beach, Inc. (“FLA”), which was
      subsequently re-branded Lincoln College of Technology.








**Impairment
      of Goodwill and Long-lived Assets**




On
      July
      31, 2007 our Board of Directors approved a plan (the “Plan”) to cease operations
      at our Plymouth Meeting, PA, Norcross, GA and our Henderson, NV
      campuses.  While we believe that these campuses offer effective and
      valuable academic programs, given the current competitive environment the
      campuses' financial results have not met expectations.  While it may
      be possible to improve the operations at these campuses with additional
      investments, we believe that this capital will produce better returns
      elsewhere.   Accordingly, we have concluded that the continued
      operation of these campuses is inconsistent with our strategic
      goals.  As a result of the above, we reviewed the related goodwill and
      long-lived assets for possible impairment in accordance with SFAS No. 142,
      “*Goodwill and Other Intangible Assets”* and SFAS No. 144 “*Accounting
      for the Impairment or Disposal of Long-Lived Assets.”*





As
      a
      result of the goodwill review, we recognized a non-cash impairment charge of
      approximately $2.1 million as of June 30, 2007. Additionally, under SFAS No.
      144, long-lived assets shall be tested for recoverability whenever events or
      changes in circumstances indicate that their carrying amount may not be
      recoverable.  As a result of the Plan, some of our long-lived assets
      will be abandoned. Accordingly, we determined that certain long-lived assets
      would not be recoverable at June 30, 2007 and recorded a non-cash charge of
      $0.9
      million to reduce the carrying value of these assets to their estimated fair
      value.





While
      we
      have not yet evaluated what additional charges will be incurred due to the
      Plan,
      we anticipate recording additional charges in the future for retention benefits
      expected to be paid to employees as well as other costs including lease
      termination costs, early contract termination costs and employee retention
      costs.  We are currently evaluating the amount and timing of the
      charges that will be recorded, but at this time we can not reasonably estimate
      the amount of such charges.  In accordance with SFAS No. 144, we
      expect to classify the operations of these campuses as discontinued operations
      in our consolidated financial statements once we no longer have any continuing
      involvement and all operations have ceased.





In
      connection with the Plan, we expect to offer our students several options of
      completing their education, including: (i) transferring to another one of our
      campuses; (ii) making arrangements for students to transfer to other educational
      companies; or (iii) ultimately to teach-out the remaining
      students.  As a result of the Plan, we have stopped accepting new
      students at these campuses and will cease all marketing and sales
      activities.





14
 ***Index***





**Critical
      Accounting Policies and Estimates**




Our
      discussions of our financial condition and results of operations are based
      upon
      our consolidated financial statements, which have been prepared in accordance
      with accounting principles generally accepted in the United States of America
      (“GAAP”).  The preparation of financial statements in conformity with GAAP
      requires management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the consolidated financial statements and the
      reported amounts of revenues and expenses during the period.  On an ongoing
      basis, we evaluate our estimates and assumptions, including those related to
      revenue recognition, bad debts, fixed assets, goodwill and other intangible
      assets, stock-based compensation, income taxes and certain accruals. 
Actual results could differ from those estimates.  The critical accounting
      policies discussed herein are not intended to be a comprehensive list of all
      of
      our accounting policies.  In many cases, the accounting treatment of a
      particular transaction is specifically dictated by GAAP and does not result
      in
      significant management judgment in the application of such principles. 
There are also areas in which management’s judgment in selecting any available
      alternative would not produce a materially different result from the result
      derived from the application of our critical accounting policies.  We
      believe that the following accounting policies are most critical to us in that
      they represent the primary areas where financial information is subject to
      the
      application of management’s estimates, assumptions and judgment in the
      preparation of our consolidated financial statements.




***Revenue
      recognition***.  Revenues are derived primarily from programs
      taught at our campuses.  Tuition revenues and one-time fees, such as
      nonrefundable application fees and course material fees, are recognized on
      a
      straight-line basis over the length of the applicable program, which is the
      period of time from a student’s start date through his or her graduation date,
      including internships or externships that take place prior to graduation. 
If a student withdraws from a program prior to a specified date, any paid but
      unearned tuition is refunded.  Refunds are calculated and paid in
      accordance with federal, state and accrediting agency standards.  Other
      revenues, such as textbook sales, tool sales and contract training revenues
      are
      recognized as services are performed or goods are delivered.  On an
      individual student basis, tuition earned in excess of cash received is recorded
      as accounts receivable and cash received in excess of tuition earned is recorded
      as unearned tuition.




***Allowance
      for uncollectible accounts***.  Based upon experience and
      judgment, we establish an allowance for uncollectible accounts with respect
      to
      tuition receivables.  We use an internal group of collectors, augmented by
      third-party collectors as deemed appropriate, in our collection efforts. 
In establishing our allowance for uncollectible accounts, we consider, among
      other things, a student’s status (in-school or out-of-school), whether or not
      additional financial aid funding will be collected from Title IV Programs or
      other sources, whether or not a student is currently making payments and overall
      collection history.  Changes in trends in any of these areas may impact the
      allowance for uncollectible accounts.  The receivables balances of
      withdrawn students with delinquent obligations are reserved based on our
      collection history.  Although we believe that our reserves are adequate, if
      the financial condition of our students deteriorates, resulting in an impairment
      of their ability to make payments, or if we underestimate the allowances
      required, additional allowances may be necessary, which will result in increased
      selling, general and administrative expenses in the period such determination
      is
      made.




Our
      bad
      debt expense as a percentage of revenue for the three months ended June 30,
      2007
      and 2006 was 5.6% and 5.7%, respectively and for the six months ended June
      30,
      2007 and 2006 was 5.2% and 4.9%, respectively.  Our exposure to
      changes in our bad debt expense could impact our operations. A 1% increase
      in
      our bad debt expense as a percentage of revenues for the three and six months
      ended June 30, 2007 and 2006 would have resulted in an increase in bad debt
      expense of $0.8 million, respectively.




Because
      a
      substantial portion of our revenues is derived from Title IV programs, any
      legislative or regulatory action that significantly reduces the funding
      available under Title IV programs or the ability of our students or campuses
      to
      participate in Title IV programs could have a material effect on the
      realizability of our receivables.




***Goodwill***. We
      test our goodwill for impairment annually, or whenever events or changes in
      circumstances indicate an impairment may have occurred, by comparing its fair
      value to its carrying value. Impairment may result from, among other things,
      deterioration in the performance of the acquired business, adverse market
      conditions, adverse changes in applicable laws or regulations, including changes
      that restrict the activities of the acquired business, and a variety of other
      circumstances. If we determine that impairment has occurred, we are required
      to
      record a write-down of the carrying value and charge the impairment as an
      operating expense in the period the determination is made. In evaluating the
      recoverability of the carrying value of goodwill and other indefinite-lived
      intangible assets, we must make assumptions regarding estimated future cash
      flows and other factors to determine the fair value of the acquired assets.
      Changes in strategy or market conditions could significantly impact these
      judgments in the future and require an adjustment to the recorded
      balances.




On
        July
        31, 2007 our Board of Directors approved a plan (the “Plan”) to cease operations
        at three of our campuses which include Plymouth Meeting, PA, Norcross, GA
        and
        Henderson, NV.  While we believe that these campuses offer effective
        and valuable academic programs, the campuses’ financial results have not met our
        expectations and the continued operation of these campuses is inconsistent
        with
        our strategic goals.  As a result of the above, we reviewed the
        related goodwill and long-lived assets for possible impairment in accordance
        with SFAS No. 142, “*Goodwill and Other Intangible Assets”* and SFAS No.
        144 “*Accounting for the Impairment or Disposal of Long-Lived
        Assets.”*
 
 As
        a
        result of the goodwill review, we recognized a non-cash impairment charge
        of
        approximately $2.1 million as of June 30, 2007.  Additionally, under
        SFAS No. 144, long-lived assets shall be tested for recoverability whenever
        events or changes in circumstances indicate that their carrying amount may
        not
        be recoverable.  As a result of the Plan, some of our long-lived
        assets will be abandoned.  Accordingly, we determined that certain
        long-lived assets would not be recoverable at June 30, 2007 and recorded
        a
        non-cash charge of $0.9 million to reduce the carrying value of these assets
        to
        their estimated fair value.
 
 While
        we
        have not yet evaluated what additional charges will be incurred due to the
        Plan
        to cease operations at these campuses, we anticipate recording additional
        charges in the future for retention benefits expected to be paid to employees
        as
        well as other costs including lease termination costs, early contract
        termination costs and our employee retention costs.  We are currently
        evaluating the amount and timing of the charges that will be recorded, but
        at
        this time we cannot reasonably estimate the amount of such
        charges.




15
 ***Index***





Goodwill
      represents a significant portion of our total assets. As of June 30, 2007,
      goodwill represented approximately $82.9 million, or 35.1%, of our total assets.
      At December 31, 2006, we tested our goodwill for impairment utilizing a market
      capitalization approach and determined that we did not have an
      impairment.  Except for the planned cessation of operations at the
      three campuses mentioned above, no additional events have occurred subsequent
      to
      December 31, 2006 that would mandate retesting.




***Stock-based
      compensation***.  We currently account for stock-based employee
      compensation arrangements in accordance with the provisions of SFAS No. 123R,
      “*Share Based Payment*.”  We use a fair value-based method of
      accounting for options as prescribed by SFAS No. 123 “*Accounting for
      Stock-Based Compensation”*.  Because no public market for our
      common stock existed prior to our initial public offering, our board of
      directors determined the fair value of our common stock based upon several
      factors, including our operating performance, forecasted future operating
      results, and our expected valuation in an initial public offering.





***Bonus
      costs***.  We accrue the estimated cost of our bonus programs
      using current financial and statistical information as compared to targeted
      financial achievements and actual student graduate outcomes.  Although
      we believe our estimated liability recorded for bonuses is reasonable, actual
      results could differ and require adjustment of the recorded
      balance.





**Effect
      of Inflation**




Inflation
      has not had a material effect on our operations.




**Recent
      Accounting Pronouncements**




In
      February 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 159  “*The
      Fair Value Option for Financial Assets and Financial Liabilities*”,
      providing companies with an option to report selected financial assets and
      liabilities at fair value.  The objective of SFAS No. 159 is to reduce both
      complexity in accounting for financial instruments and the volatility in
      earnings caused by measuring related assets and liabilities differently. 
Generally accepted accounting principles have required different measurement
      attributes for different assets and liabilities that can create artificial
      volatility in earnings. SFAS No. 159 helps to mitigate this type of
      accounting-induced volatility by enabling companies to report related assets
      and
      liabilities at fair value, which would likely reduce the need for companies
      to
      comply with detailed rules for hedge accounting.  SFAS No. 159 also
      establishes presentation and disclosure requirements designed to facilitate
      comparisons between companies that choose different measurement attributes
      for
      similar types of assets and liabilities.  SFAS No. 159 requires companies
      to provide additional information that will help investors and other users
      of
      financial statements to more easily understand the effect of the Company’s
      choice to use fair value on its earnings. It also requires entities to display
      the fair value of those assets and liabilities for which the Company has chosen
      to use fair value on the face of the balance sheet.  SFAS No. 159 will be
      effective for us as of January 1, 2008.  We are currently evaluating the
      impact of the adoption of SFAS No. 159 on our consolidated financial
      statements.




In
      September 2006, the FASB issued SFAS No. 158, *“Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
      Statements No. 87, 88, 106, and 132(R).”* Among other items, SFAS No. 158
      requires recognition of the overfunded or underfunded status of an entity’s
      defined benefit postretirement plan as an asset or liability in the financial
      statements, requires the measurement of defined benefit postretirement plan
      assets and obligations as of the end of the employer’s fiscal year, and requires
      recognition of the funded status of defined benefit postretirement plans in
      other comprehensive income. The Company adopted SFAS No. 158 on December 31,
      2006.  The incremental effects of applying SFAS No. 158 on the
      Company’s December 31, 2006 consolidated financial statements, on a line by line
      basis, are as follows:




**Balances
                Before Adoption of Statement 158**
            
            
            **Adjustments**
            
            
            **Balances
                After Adoption of Statement 158**Pension
                plan assets, net
            
            $
            5,169
            
            
            $
            (4,062
            )
            
            $
            1,107Deferred
                income taxes
            
            
            1,037
            
            
            
            1,651
            
            
            
            2,688Accumulated
                other comprehensive income
            
            
            -
            
            
            
            2,411
            
            
            
            2,411




In
      September 2006, the FASB issued SFAS No. 157, *“Fair Value
      Measurements.”* SFAS No. 157 defines fair value, establishes a framework for
      measuring fair value in GAAP, and expands disclosures about fair value
      measurements. This Statement applies under other accounting pronouncements
      that
      require or permit fair value measurements, the Board having previously concluded
      in those accounting pronouncements that fair value is the relevant measurement
      attribute. Accordingly, this Statement does not require any new fair value
      measurements. The provisions of SFAS No. 157 are effective for the
      Company as of January 1, 2008. The adoption of the provision of SFAS No.
      157 is not expected to have a material effect on our consolidated financial
      statements.





16
 ***Index***





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin (“SAB”) No. 108 which provides interpretive guidance on how the effects
      of the carryover or reversal of prior year unrecorded misstatements should
      be
      considered in quantifying a current year misstatement. SAB No. 108 is effective
      for the Company as of January 1, 2007. The adoption of the provision of SAB
      No.
      108 had no effect on our consolidated financial statements.




In
      June
      2006, FASB issued FASB Interpretation (“FIN”) No. 48, “*Accounting for
      Uncertainty in Income Taxes*.” FIN No. 48 clarifies the accounting for
      uncertainty in income taxes recognized in an enterprise’s financial statements
      in accordance with FASB SFAS No. 109, “*Accounting for Income Taxes*”,
      which was adopted by us on January 1, 2007.  FIN No. 48 prescribes a
      recognition threshold and a measurement attribute for the financial statement
      recognition and measurement of tax positions taken or expected to be taken
      in a
      tax return. For those benefits to be recognized, a tax position must be
      more-likely-than-not to be sustained upon examination by taxing authorities.
      The
      amount recognized is measured as the largest amount of benefit that is greater
      than 50 percent likely of being realized upon ultimate settlement. The adoption
      of FIN No. 48 resulted in a negative cumulative effect adjustment to retained
      earnings as of January 1, 2007 of approximately $0.1 million.




In
      March
      2006, FASB issued SFAS No. 156, “*Accounting for Servicing of Financial
      Assets.*” SFAS No. 156 provides guidance addressing the recognition and
      measurement of separately recognized servicing assets and liabilities, common
      with mortgage securitization activities, and provides an approach to simplify
      efforts to obtain hedge accounting treatment. SFAS No. 156 will be adopted
      on
      January 1, 2007. The adoption of the provision of SFAS No. 156 had no effect
      on
      our consolidated financial statements.




In
      February 2006, the FASB issued SFAS No. 155, “*Accounting for Certain Hybrid
      Financial Instruments*.” SFAS No. 155 is effective beginning January 1,
      2007. The adoption of the provision of SFAS No. 155 had no effect on our
      consolidated financial statements.







**Results
      of Operations**




The
      following table sets forth selected consolidated statements of operations data
      as a percentage of revenues for each of the periods indicated.





**Three
                Months Ended**
              **June
                30,**
            
            
            **Six
                Months Ended**
              **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenues
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Costs
                and expenses:Educational
                services and facilities
            
            
            45.6
            %
            
            
            43.3
            %
            
            
            45.7
            %
            
            
            42.9
            %Selling,
                general and administrative
            
            
            53.6
            %
            
            
            54.3
            %
            
            
            55.4
            %
            
            
            52.8
            %Impairment
                of goodwill and long-lived assets
            
            
            3.9
            %
            
            
            0.0
            %
            
            
            1.9
            %
            
            
            0.0
            %Total
                costs and expenses
            
            
            103.1
            %
            
            
            97.6
            %
            
            
            103.0
            %
            
            
            95.7
            %Operating
                (loss) income
            
            
            (3.0
            )%
            
            
            2.4
            %
            
            
            (3.0
            )%
            
            
            4.3
            %Interest
                expense, net
            
            
            (0.9
            )%
            
            
            (0.3
            )%
            
            
            (0.6
            )%
            
            
            (0.1
            )%(Loss)
                income before income taxes
            
            
            (3.9
            )%
            
            
            2.1
            %
            
            
            (3.7
            )%
            
            
            4.2
            %(Benefit)
                provision for income taxes
            
            
            (1.6
            )%
            
            
            0.8
            %
            
            
            (1.6
            )%
            
            
            1.7
            %Net
                (loss) income
            
            
            (2.2
            )%
            
            
            1.3
            %
            
            
            (2.1
            )%
            
            
            2.5
            %





**Three
      Months Ended June 30, 2007 Compared to Three Months Ended June 30,
      2006**




***Revenues***. 
      Revenues increased by $0.9 million, or 1.2%, to $76.3 million for the three
      months ended June 30, 2007 from $75.4 million for the comparable period in
      2006.  Included in revenue is approximately $4.0 million from the
      acquisition of New England Institute of Technology at Palm Beach, Inc., or
      FLA,
      which represents an increase of $2.1 million over the three months ended June
      30, 2006. On a same school basis, our revenues declined 1.6% as compared to
      the quarter ended June 30, 2006.  The decrease in revenue for the
      quarter was attributable to a 5.1% decline in average student population, which
      decreased on a same school basis to 15,994 for the quarter ended June 30, 2007
      from 16,853 for the quarter ended June 30, 2006.  Including FLA, our
      average undergraduate student enrollment decreased by 2.7% to
      16,905.  For a general discussion of trends in our student enrollment,
      see “Seasonality and Trends” below.




***Educational
      services and facilities expenses***.  Our educational services
      and facilities expenses for the quarter ended June 30, 2007 were $34.8 million,
      representing an increase of $2.2 million, or 6.6%, as compared to $32.6 million
      for the quarter ended June 30, 2006.  The acquisition of FLA resulted in
      $1.0 million of this increase.  The remainder of the increase in
      educational services and facilities expenses was due to: (i) books and tool
      expenses, which increased by $0.3 million, or 10.4%, as compared to the
      quarter ended June 30, 2006 due to higher tool sales during the period; and
      (ii)
      facilities expenses, which increased by approximately $0.9 million over the
      same quarter in 2006. Approximately $0.5 million of the increase in facilities
      expenses was due to additional square footage at some of our facilities and
      higher utility, insurance and property taxes.   The remainder of
      the increase was attributable to higher repairs and maintenance expense at
      our
      facilities ($0.2 million) and increased depreciation expense ($0.2 million)
      over
      the same period in prior year. As a percentage of revenue, educational services
      and facilities expenses for the second quarter of 2007 increased to 45.6% from
      43.3% in 2006.





17
 ***Index***





***Selling,
      general and administrative expenses***.  Our selling, general
      and administrative expenses for the quarter ended June 30, 2007 were $40.9
      million, representing a decrease of $0.1 million, or .03%, as compared to $41.0
      million for the quarter ended June 30, 2006.  Included in the $40.9 million
      is an increase of $1.3 million related to the acquisition of FLA.  On
      a same school basis, selling, general and administrative expenses decreased
      by
      $1.4 million from the comparable period in 2006, due to decreases of $0.2
      million in sales expenses, resulting from delays in replacing sales
      representatives, a $0.2 million decrease in student services due to lower
      student population during the quarter versus prior year, and due to a $1.0
      million reduction in marketing and administrative expenses. The decrease in
      administrative expenses during the quarter is due to decreased expenses
      associated with pay incentives and other variable compensation due to lower
      than
      anticipated student enrollments during the quarter.  As a percentage
      of revenue, selling, general and administrative expenses for the second quarter
      of 2007 decreased to 53.6% from 54.3% in 2006.





For
      the
      quarter ended June 30, 2007, our bad debt expense was 5.6% as compared to 5.7%
      for the same quarter in 2006.





***Impairment
      of goodwill and long-lived assets***.  As of June 30, 2007, we
      recorded a non-cash charge of $3.0 million related to the impairment of goodwill
      and other long term assets due to the planned cessation of operations at three
      of our campuses.  See “Impairment of Goodwill and Long-lived
      Assets”.





***Net
      interest expense***.  Our net interest expense for the quarter
      ended June 30, 2007 was $0.6 million, representing an increase of $0.4 million
      from the quarter ended June 30, 2006.  This increase was primarily due to
      the decrease in our average cash balances as of June 30, 2007 as compared to
      June 30, 2006 and due to higher amounts outstanding under our credit
      agreement.  As of June 30, 2007, we had $21.5 million outstanding
      under our credit agreement as compared to June 30, 2006 when we had $17.2
      million comprised of $10.0 million outstanding under our credit agreement and
      a
      mortgage note assumed in connection with our acquisition of FLA for $7.2
      million.





***Income
      taxes***.  For the quarter ended June 30, 2007 we recorded
      a benefit of $1.3 million, or 42.5% of pretax loss, as compared to $0.6 million,
      or 39.2% of pretax income, for the quarter ended June 30, 2006.  The
      increase in our effective tax rate for the three months ended June 30,
      2007 was primarily attributable to the tax benefit associated with the
      exercise of stock options.








**Six
      Months Ended June 30, 2007 Compared to Six Months Ended June 30,
      2006**




***Revenues***. 
      Revenues increased by $3.5 million, or 2.3%, to $154.4 million for the six
      months ending June 30, 2007 from $150.9 million for the comparable period in
      2006.  Included in revenue is approximately $8.3 million from the
      acquisition of FLA, which represents an increase of $6.4 million over the six
      months ended June 30, 2006. On a same school basis, our revenues declined
      1.9% as compared to the six months ended June 30, 2006.  The decrease
      in revenue for the period was attributable to a 6.2% decline in average student
      population, which decreased on a same school basis to 16,201 for the six months
      ended June 30, 2007 from 17,265 for the six months ended June 30, 2006.
      Including FLA, our average undergraduate student enrollment decreased by 2.1%
      to
      17,158.  For a general discussion of trends in our student enrollment,
      see “Seasonality and Trends” below.




***Educational
      services and facilities expenses***.  Our educational services
      and facilities expenses for the six months ended June 30, 2007 were $70.5
      million, representing an increase of $5.8 million, or 8.9%, as compared to
      $64.7
      million for the six months ended June 30, 2006.  The acquisition of
      FLA resulted in $2.9 million of this increase.  The remainder of the
      increase in educational services and facilities expenses was primarily due
      to: (i) instructional expenses, which increased $.1 million, or 0.4% due to
      yearly compensation increases; (ii) books and tool expenses, which
      increased by $0.4 million, or 5.6%, as compared to the six months ended June
      30,
      2006 due higher tool sales during the period; and (iii) facilities
      expenses, which increased by approximately $2.2 million over the same
      period in 2006.  Approximately $1.0 million of the increase in
      facilities expenses was due to additional square footage at some of our
      facilities and higher utility, insurance and property
      taxes.   The remainder of the increase was attributable to higher
      repairs and maintenance expense at our facilities ($1.0 million) and increased
      depreciation expense ($0.2 million) over the same period in prior
      year.    Of the $1.0 million increase in repairs and
      maintenance expenses as of June 30, 2007, $0.8 million was due to repairs and
      maintenance expenses at one of our campuses during the first quarter of 2007.
      As
      a percentage of revenue, educational services and facilities expenses for the
      second quarter of 2007 increased to 45.7% from 42.9% in 2006.





***Selling,
      general and administrative expenses***.  Our selling, general
      and administrative expenses for the six months ended June 30, 2007 were $85.6
      million, representing an increase of $6.0 million, or 7.5%, as compared to
      $79.6
      million for the six months ended June 30, 2006.  Included in the $85.6
      million is an incremental of $3.4 million related to the acquisition of
      FLA.  On a same school basis, selling, general and administrative
      expenses increased by $2.6 million from the comparable period in 2006, due
      to
      increases of $0.4 million in sales expense, resulting from yearly compensation
      increases and a higher number of sales representatives as compared to the same
      period in 2006, a $1.0 million increase in marketing expenditures, and a $1.2
      million increase in administrative expenses. The increase in administrative
      expenses during the period is due to yearly compensation increases and increased
      expenses associated with pay incentives.  As a percentage of revenue,
      selling, general and administrative expenses for the six months ended June
      30,
      2007 increased to 55.4% from 52.8% in 2006.





18
 ***Index***





For
      the
      six months ended June 30, 2007, our bad debt expense was 5.2% as compared to
      4.9% for the same period in 2006.





***Impairment
      of goodwill and long-lived assets***.  As of June 30, 2007, we
      recorded a non-cash charge of $3.0 million related to the impairment of goodwill
      and other long term assets due to the planned cessation of operations at three
      of our campuses.  See “Impairment of Goodwill and Long-lived
      Assets”.





***Net
      interest expense***.  Our net interest expense for the six
      months ended June 30, 2007 was $1.1 million, representing an increase of $0.8
      million from the six months ended June 30, 2006.  This increase was
      primarily due to the decrease in our average cash balances during the period
      as
      compared to the six months ended June 30, 2006.





***Income
      taxes***.  For the six months ended June 30, 2007 we
      recorded a benefit of $2.4 million, or 42.3% of pretax loss, as compared to
      a
      provision of $2.6 million, or 40.9% of pretax income, for the six months ended
      June 30, 2006.  The increase in our effective tax rate for the
      period is primarily attributable to the tax benefit associated with the
      exercise of stock options.





**Liquidity
      and Capital Resources**




Our
      primary capital requirements are for facility expansion and maintenance,
      acquisitions and the development of new programs.  Our principal sources of
      liquidity have been cash provided by operating activities and borrowings under
      our credit agreement.  The following chart summarizes the principal
      elements of our cash flow for the six months ended June 30, 2007 and
      2006:




**Six
                Months Ended June 30,****2007**
            
            
            **2006****(in
                thousands)**Net
                cash used in operating activities
            
            $
            (10,295
            )
            
            $
            (11,394
            )Net
                cash used in investing activities
            
            $
            (12,081
            )
            
            $
            (43,471
            )Net
                cash provided by financing activities
            
            $
            21,612
            
            
            $
            10,075





At
      June
      30, 2007 we had cash and cash equivalents of $5.7 million, compared to $6.5
      million as of December 31, 2006.  For the six months ended June 30, 2007,
      cash and cash equivalents decreased by approximately $0.8 million from December
      31, 2006.  This decrease was mainly attributable to normal seasonal
      patterns of lower student populations in the first half of the
      year.  Historically, we have financed our operating activities and
      organic growth primarily through cash generated from operations.  In
      addition, we have financed acquisitions primarily through borrowings under
      our
      credit facility and cash generated from operations.  During the first six
      months of 2007, we borrowed $21.5 million under our credit
      facility.  We currently anticipate that we will be able to meet both
      our short-term cash needs, as well as our need to fund operations and meet
      our
      obligations beyond the next twelve months with cash generated by operations,
      existing cash balances and borrowings under our credit
      agreement.    At June 30, 2007, we had borrowings available
      under our credit agreement of approximately $58.5 million, including a $15.6
      million sub-limit on letters of credit.




Our
      primary source of cash is tuition collected from our students.  Our
      students fund their tuition payments from a variety of sources including Title
      IV Programs, federal and state grants, private loans and their personal
      resources.  A significant majority of our students’ tuition payments are
      derived from Title IV Programs.  Students must apply for a new loan for
      each academic period.  Federal regulations dictate the timing of
      disbursements of funds under Title IV Programs, and loan funds are generally
      provided by lenders in two disbursements for each academic year.  The first
      disbursement is usually received approximately 30 days after the start of a
      student’s academic year and the second disbursement is typically received at the
      beginning of the sixteenth week after the start of the student’s academic
      year.  Certain types of grants and other funding are not subject to a
      30-day delay.  Our programs range from 30 to 84 weeks and may cover one or
      two academic years.  In certain instances, if a student withdraws from a
      program prior to a specified date, any paid but unearned tuition or prorated
      Title IV financial aid is refunded with the amount varying by
      state.




The
      majority of students enrolled at our campuses rely on funds received under
      various government-sponsored student financial aid programs to pay a substantial
      portion of their tuition and other education-related expenses.  The largest
      of these programs is Title IV, which represented approximately 80% of our cash
      receipts relating to revenues in 2006.  As a result of the significance of
      the Title IV funds received by our students, we are highly dependent on these
      funds to operate our business.  Any reduction in the level of Title IV
      funds that our students are eligible to receive or any impact on our ability
      to
      receive Title IV funds would have a significant impact on our operations and
      our
      financial condition.





19
 ***Index***





***Operating
      Activities***




Net
      cash
      used in operating activities was $10.3 million for the six months ended
      June 30, 2007 compared to $11.4 million for the six months ended June 30,
      2006.  The $1.1 million decrease in cash used in operating activities was
      primarily due decreases in cash used for working capital  items during
      the period offset by a decrease in net income during the period.





***Investing
      Activities***




Net
      cash
      used in investing activities decreased by $31.4 million to $12.1 million for
      the
      six months ended June 30, 2007 from $43.5 million for the six months ended
      June
      30, 2006.  Our decrease in cash used in investing activities was primarily
      due to the purchase of FLA in May of 2006, offset by increased purchases of
      property and equipment.  Our capital expenditures primarily result
      from facility expansion, leasehold improvements, and investments in classroom
      and shop technology and in operating systems.





We
      currently lease a majority of our campuses.  In October 2005, we completed
      the purchase of our Grand Prairie, Texas facility, which we opened in July
      2006.  In addition, with our purchase of FLA on May 22, 2006, we
      acquired real estate valued at approximately $19.8 million.  Our
      growth strategy is primarily focused on internal growth, including campus
      expansions; however, we have in the past and expect to continue to consider
      strategic acquisitions.  To the extent that these potential strategic
      acquisitions are large enough to require financing beyond available cash from
      operations and borrowings under our credit facilities, we may incur additional
      debt or issue additional debt or equity securities.




Capital
      expenditures are expected to increase as we upgrade and expand current equipment
      and facilities and open new facilities to meet increased student
      enrollments.   Additionally, we are evaluating several other expansion
      opportunities.  We now anticipate capital expenditures to be approximately
      12% of revenues in 2007.  We expect to be able to fund these capital
      expenditures with cash generated from operating activities.




***Financing
      Activities***




Net
      cash
      provided by financing activities was $21.6 million for the six months ended
      June
      30, 2007 compared to net provided of $10.1 million for the six months ended
      June
      30, 2006.  This increase in 2007 was attributable to our borrowing
      $21.5 million under our credit agreement during 2007. Due to normal seasonal
      patterns, our student populations are generally at the lowest levels during
      the
      first half of the year and increase during the second half of the
      year.  As a result, during the first half of the year, we typically
      borrow funds to finance our operations and repay those funds in the second
      half
      of the year.




Under
      the
      terms of our credit agreement, the lending syndicate provided us with a
      $100 million credit facility with a term of five years.  The credit
      agreement permits the issuance of letters of credit of up to $20 million, the
      amount of which reduces the availability of permitted borrowings under the
      agreement.




The
      following table sets forth our long-term debt at the dates
      indicated:





**June
                30,**
              **2007**
            
            
            **December
                31,**
              **2006**Credit
                agreement
            
            $
            21,500
            
            
            $
            -Finance
                obligation
            
            
            9,672
            
            
            
            9,672Automobile
                loans
            
            
            27
            
            
            
            37Capital
                leases-computers (with rates ranging from 6.7% to 10.7%)
            
            
            117
            
            
            
            151Subtotal
            
            
            31,316
            
            
            
            9,860Less
                current portion
            
            
            (94
            )
            
            
            (91
            )$
            31,222
            
            
            $
            9,769




**Contractual
      Obligations**




***Long-Term
      Debt***.  As of June 30, 2007, our long-term debt consisted of
      amounts borrowed under our credit agreement, the finance obligation in
      connection with our sale-leaseback transaction in 2001 and amounts due under
      capital lease obligations.




***Lease
      Commitments***.  We lease offices, educational facilities and
      various equipment for varying periods through the year 2023 at basic annual
      rentals (excluding taxes, insurance, and other expenses under certain
      leases).





20
 ***Index***





The
      following table contains supplemental information regarding our total
      contractual obligations as of June 30, 2007, measured from the end of our fiscal
      year, December 31, 2006 (in thousands):





**Payments
                Due by Period****Total**
            
            
            **Less
                than 1 year**
            
            
            **1-3
                years**
            
            
            **4-5
                years**
            
            
            **After
                5 years**Credit
                agreement
            
            $
            21,500
            
            
            $
            -
            
            
            $
            21,500
            
            
            $
            -
            
            
            $
            -Capital
                leases (including interest)
            
            
            126
            
            
            
            79
            
            
            
            47
            
            
            
            -
            
            
            
            -Operating
                leases
            
            
            142,971
            
            
            
            17,665
            
            
            
            29,727
            
            
            
            24,841
            
            
            
            70,738Rent
                on finance obligation
            
            
            12,787
            
            
            
            1,334
            
            
            
            2,669
            
            
            
            2,669
            
            
            
            6,115Automobile
                loans (including interest)
            
            
            27
            
            
            
            22
            
            
            
            5Total
                contractual cash obligations
            
            $
            177,411
            
            
            $
            19,100
            
            
            $
            53,948
            
            
            $
            27,510
            
            
            $
            76,853





***Capital
      Expenditures.***    We have entered into
      commitments to expand or renovate campuses. These commitments are in the range
      of $3.0 to $5.0 million in the aggregate and are due within the next 12 months.
      We expect to fund these commitments from cash generated from
      operations.





**Off-Balance
      Sheet Arrangements**




We
      had no
      off-balance sheet arrangements as of June 30, 2007, except for our letters
      of
      credit of $4.4 million which are primarily comprised of letters of credit for
      the DOE and security deposits in connection with certain of our real estate
      leases. These off-balance sheet arrangements do not adversely impact our
      liquidity or capital resources.




**Seasonality
      and Trends**




Our
      net
      revenues and operating results normally fluctuate as a result of seasonal
      variations in our business, principally due to changes in total student
      population.  Student population varies as a result of new student
      enrollments, graduations and student attrition.  Historically, our campuses
      have had lower student populations in our first and second quarters and we
      have
      experienced large class starts in the third and fourth quarters and student
      attrition in the first half of the year.  Our second half growth is largely
      dependent on a successful high school recruiting season.  We recruit
      our high school students several months ahead of their scheduled start dates,
      and thus, while we have visibility on the number of students who have expressed
      interest in attending our campuses, we cannot predict with certainty the actual
      number of new student enrollments and the related impact on
      revenue.  Our expenses, however, do not vary significantly over the
      course of a year with changes in our student population and net revenues. 
During the first half of the year, we make significant investments in marketing,
      staff, programs and facilities to ensure that we have the proper staffing to
      meet our second half targets and, as a result, such expenses do not fluctuate
      significantly on a quarterly basis.  To the extent new student enrollments,
      and related revenues, in the second half of the year fall short of our
      estimates, our operating results could suffer.  We expect quarterly
      fluctuations in operating results to continue as a result of seasonal enrollment
      patterns.  Such patterns may change, however, as a result of new school
      openings, new program introductions, increased enrollments of adult students
      and/or acquisitions.





Similar
      to other public for-profit post secondary education companies, the increase
      in
      our average undergraduate enrollments has not met our historical or anticipated
      growth rates in 2005 and 2006.  As a result of the slow down in 2005
      and 2006, we entered 2007 with fewer students enrolled than we had in January
      2006.  This trend has continued throughout 2007 and resulted in a
      shortfall in our expected enrollments during the first half of
      2007.  The slow down that has occurred in the for-profit post
      secondary education sector appears to have had a greater impact on companies,
      like ours, that are more dependent on their on-ground business as opposed to
      on-line students.  We believe that the slow down can be attributed to
      many factors, including:  (a) the economy and the labor market; (b)
      the availability of student financing; (c) the dependency on television to
      attract students to our school; (d) turnover of our sales representatives;
      and
      (e) increased competition in the marketplace.





Despite
      soft organic enrollment trends and increased volatility in the near term, we
      believe that our growth initiatives as well as the steps we have taken to
      address the challenging trends that our industry and we are currently facing
      will produce positive growth over the long-term.   While our
      operating strategy, business model and infrastructure are well suited for the
      short-term and we have ample operating flexibility, we continue to be prudent
      and realistic and have taken the necessary steps to ensure that operations
      that
      have not grown as rapidly as expected are right sized.  We also
      continue to make investments in areas that are demonstrating solid
      growth.





Operating
      income is negatively impacted during the initial start-up phase of new campus
      expansions.  We incur sales and marketing costs as well as campus personnel
      costs in advance of the opening of each campus.  Typically we begin to
      incur such costs approximately 15 months in advance of the campus opening with
      the majority of such costs being incurred in the nine-month period prior to
      a
      campus opening.  During 2006, we continued expansion efforts for one new
      campus, located in Queens, New York, which opened on March 27,
      2006.





21
 ***Index***





**Item
                3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**




The
      Company is exposed to certain market risks as part of its on-going business
      operations.  The Company has a credit agreement with a syndicate of
      banks.  The obligations of the Company under the credit agreement are
      secured by a lien on substantially all of the assets of the Company and its
      subsidiaries and any assets that it or its subsidiaries may acquire in the
      future, including a pledge of substantially all of the subsidiaries’ common
      stock.  Outstanding borrowings bear interest at the rate of adjusted LIBOR
      plus 1.0% to 1.75%, as defined, or a base rate (as defined in the credit
      agreement).  As of June 30, 2007, the Company has $21.5 million outstanding
      under the credit agreement.  Interest on these borrowings at June 30, 2007
      ranged from 6.32% to 6.34%.





Based
      on
      our outstanding debt balance, a change of one percent in the interest rate
      would
      cause a change in interest expense of approximately $0.2 million, or less than
      $.01 per basic share, on an annual basis.  Changes in interest rates could
      have an impact on our operations, which are greatly dependent on students’
ability to obtain financing.  Any increase in interest rates could
      greatly impact our ability to attract students and have an adverse impact on
      the
      results of our operations.





The
      remainder of our interest rate risk is associated with miscellaneous capital
      equipment leases, which are not material.




**Item
                4.**
            **CONTROLS
                AND PROCEDURES**




(a)*Evaluation of disclosure controls and procedures.*  Our Chief Executive
      Officer and Chief Financial Officer, after evaluating the effectiveness of
      our
      disclosure controls and procedures (as defined in Securities Exchange Act
      Rule 13a-15(e)) as of the end of the quarterly period covered by this
      report, have concluded that our disclosure controls and procedures are adequate
      and effective to reasonably ensure that material information required to be
      disclosed by us in the reports that we file or submit under the Exchange Act
      is
      recorded, processed, summarized and reported within the time periods specific
      by
      Securities and Exchange Commissions’ Rules and Forms and that such information
      is accumulated and communicated to our management, including our Chief Executive
      Officer and Chief Financial Officer, as appropriate, to allow timely decisions
      regarding required disclosure.




(b) *Changes in Internal Control Over Financial Reporting.*  There were no
      changes made during our most recently completed fiscal quarter in our internal
      control over financial reporting that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.




**PART
      II. OTHER INFORMATION**




**Item
                1.**
            **LEGAL
                PROCEEDINGS**




In
      the
      ordinary conduct of our business, we are periodically subject to lawsuits,
      investigations and claims, including, but not limited to, claims involving
      students or graduates and routine employment matters.  Although we cannot
      predict with certainty the ultimate resolution of lawsuits, investigations
      and
      claims asserted against us, we do not believe that any currently pending legal
      proceeding to which we are a party will have a material adverse effect on our
      business or financial condition, results of operations or cash
      flows.





22
 ***Index***





**Item
                4.**
            **SUBMISSION
                OF MATTERS TO VOTE OF SECURITY
                HOLDERS**





At
      our
      annual meeting held on April 26, 2007, the shareholders voted to approve all
      of
      management’s proposals as follows:





1.           For
      the election of nine directors to hold office until our next annual meeting,
      the
      voting for each nominee was:





Votes
                For
            
            
            Votes
                WithheldDavid
                F. Carney
            
            
            24,596,223
            
            
            
            4,677Alexis
                P. Michas
            
            
            24,436,346
            
            
            
            164,554James
                J. Burke, Jr.
            
            
            24,436,346
            
            
            
            164,554Steven
                W. Hart
            
            
            24,428,313
            
            
            
            172,587Jerry
                G. Rubenstein
            
            
            24,598,189
            
            
            
            2,711Paul
                E. Glaske
            
            
            24,585,989
            
            
            
            14,911Peter
                S. Burgess
            
            
            24,598,189
            
            
            
            2,711J.
                Barry Morrow
            
            
            24,597,689
            
            
            
            3,211Celia
                H. Currin
            
            
            24,597,689
            
            
            
            3,211








2.           For
      ratifying the appointment of Deloitte & Touche LLP as our independent
      registered public accounting firm for our fiscal year ending December 31,
      2007:





Votes
                For
            
            
            Votes
                Against
            
            
            Abstained24,593,636
            
            
            
            5,764
            
            
            
            1,500








**Item
                6.**
            **EXHIBITS**




EXHIBIT
      INDEX





The
      following exhibits are filed with or incorporated by reference into this Form
      10-Q.








Exhibit
              Number
            
            Description3.1
            
            Amended
                and Restated Certificate of Incorporation of the Company
                (1).3.2
            
            Amended
                and Restated By-laws of the Company (2).4.1
            
            Stockholders’
                Agreement, dated as of September 15, 1999, among Lincoln Technical
                Institute, Inc., Back to School Acquisition, L.L.C., and Five Mile
                River
                Capital Partners LLC. (1).4.2
            
            Letter
                agreement, dated August 9, 2000, by Back to School Acquisition, L.L.C.,
                amending the Stockholders’ Agreement (1).4.3
            
            Letter
                agreement, dated August 9, 2000, by Lincoln Technical Institute,
                Inc.,
                amending the Stockholders’ Agreement (1).4.4
            
            Management
                Stockholders Agreement, dated as of January 1, 2002, by and among
                Lincoln
                Technical Institute, Inc., Back to School Acquisition, L.L.C. and
                the
                Stockholders and other holders of options under the Management Stock
                Option Plan listed therein (1).4.5
            
            Registration
                Rights Agreement between the Company and Back to School Acquisition,
                L.L.C. (2).4.6
            
            Specimen
                Stock Certificate evidencing shares of common stock
                (1).10.1
            
            Credit
                Agreement, dated as of February 15, 2005, among the Company, the
                Guarantors from time to time parties thereto, the Lenders from time
                to
                time parties thereto and Harris Trust and Savings Bank, as Administrative
                Agent (1).





23
 ***Index***




10.2
            
            Amended
                and Restated Employment Agreement, dated as of February 1, 2007,
                between
                the Company and David F. Carney (4).10.3
            
            Amended
                and Restated Employment Agreement, dated as of February 1, 2007,
                between
                the Company and Lawrence E. Brown (4).10.4
            
            Amended
                and Restated Employment Agreement, dated as of February 1, 2007,
                between
                the Company and Scott M. Shaw (4).10.5
            
            Amended
                and Restated Employment Agreement, dated as of February 1, 2007,
                between
                the Company and Cesar Ribeiro (4).10.6
            
            Amended
                and Restated Employment Agreement, dated as of February 1, 2007,
                between
                the Company and Shaun E. McAlmont (4).10.7
            
            Lincoln
                Educational Services Corporation 2005 Long Term Incentive Plan
                (1).10.8
            
            Lincoln
                Educational Services Corporation 2005 Non Employee Directors Restricted
                Stock Plan (1).10.9
            
            Lincoln
                Educational Services Corporation 2005 Deferred Compensation Plan
                (1).10.10
            
            Lincoln
                Technical Institute Management Stock Option Plan, effective January
                1,
                2002 (1).10.11
            
            Form
                of Stock Option Agreement, dated January 1, 2002, between Lincoln
                Technical Institute, Inc. and certain participants (1).10.12
            
            Management
                Stock Subscription Agreement, dated January 1, 2002, among Lincoln
                Technical Institute, Inc. and certain management investors
                (1).10.13
            
            Stockholder’s
                Agreement among Lincoln Educational Services Corporation, Back to
                School
                Acquisition L.L.C., Steven W. Hart and Steven W. Hart 2003
                Grantor Retained Annuity Trust (2).10.14
            
            Stock
                Purchase Agreement, dated as of March 30, 2006, among Lincoln Technical
                Institute, Inc., and Richard I. Gouse,
                Andrew T. Gouse, individually and as Trustee of the Carolyn Beth
                Gouse Irrevocable Trust, Seth A. Kurn and
                Steven L. Meltzer (3).31.1
                *
            
            Certification
                of Chairman & Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
                *
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.32
                *
            
            Certification
                of Chairman & Chief Executive Officer and Chief Financial Officer
                pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
                the
                Sarbanes-Oxley Act of 2002.





________________________________________________




(1)
            Incorporated
                by reference to the Company’s Registration Statement on Form S-1
                (Registration No. 333-123664).




(2)
            Incorporated
                by reference to the Company’s Form 8-K dated June 28,
                2005.




(3)
            Incorporated
                by reference to the Company’s Form 10-Q for the quarterly period ended
                March 31, 2006.





(4)
            Incorporated
                by reference to the Company’s Form 10-K for the fiscal year ended December
                31, 2006.




*
            Filed
                herewith.





24
 ***Index***





**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned hereunto
      duly authorized.




Date:
      August 9, 2007





LINCOLN
                EDUCATIONAL SERVICES CORPORATIONBy:
            /s/
                Cesar RibeiroCesar RibeiroChief
                Financial Officer(Principal
                Accounting and Financial Officer)






25