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


**WASHINGTON,
      D.C. 20549**







**Form
      10-Q**





**(Mark
      One)**





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





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





**or**





**£**
            **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 T  No
£





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£
            Accelerated
                filerT
            Non-accelerated
                filer£





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





As
      of
      November 7, 2007, there were 25,881,383 shares of the registrant’s common stock
      outstanding.













LINCOLN
      EDUCATIONAL SERVICES CORPORATION AND
      SUBSIDIARIES





INDEX
      TO
      FORM 10-Q





FOR
      THE
      QUARTER ENDING SEPTEMBER 30, 2007











**PART I.**
            **FINANCIAL
                INFORMATION**Item
                1.
            Financial
                StatementsCondensed
                Consolidated Balance Sheets at September 30, 2007 and
                December 31, 2006 (unaudited)
            1Condensed
                Consolidated Statements of Operations for the three
                and nine months ended September 30, 2007 and 2006
                (unaudited)
            3Condensed
                Consolidated Statement of Changes in Stockholders’
                Equity for the nine months ended September 30, 2007
                (unaudited)
            4Condensed
                Consolidated Statements of Cash Flows for the nine
                months ended September 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
            23**PART II.**
            **OTHER
                INFORMATION**
            23Item
                1.
            Legal
                Proceedings
            23Item
                6.
            Exhibits
            24





***Index***





**PART
      I – FINANCIALINFORMATION**


Item
      1. FINANCIALSTATEMENTS





**LINCOLN
      EDUCATIONAL SERVICES CORPORATION AND
      SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


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


**(Unaudited)**





**September 30,**
                
                
                **December 31,****2007**
                
                
                **2006****ASSETS**CURRENT
                    ASSETS:Cash
                    and cash equivalents
                
                $
                3,537
                
                
                $
                6,461Restricted
                    cash
                
                
                1,532
                
                
                
                920Accounts
                    receivable, less allowance of $12,328 and $11,456 at September
                    30, 2007
                    and December 31, 2006, respectively
                
                
                20,353
                
                
                
                20,473Inventories
                
                
                2,694
                
                
                
                2,438Deferred
                    income taxes
                
                
                4,879
                
                
                
                4,827Due
                    from federal programs
                
                
                73
                
                
                
                -Prepaid
                    expenses and other current assets
                
                
                3,088
                
                
                
                3,049Prepaid
                    income taxes
                
                
                5,669
                
                
                
                -Total
                    current assets
                
                
                41,825
                
                
                
                38,168PROPERTY,
                    EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation
                    and
                    amortization of $79,078 and $72,870 at September 30, 2007 and
                    December 31,
                    2006, respectively
                
                
                101,061
                
                
                
                94,368OTHER
                    ASSETS:Deferred
                    finance charges
                
                
                876
                
                
                
                1,019Pension
                    plan assets, net
                
                
                1,139
                
                
                
                1,107Deferred
                    income taxes, net
                
                
                5,052
                
                
                
                2,688Goodwill
                
                
                82,860
                
                
                
                84,995Noncurrent
                    accounts receivable, less allowance of $161 and $84 at September
                    30, 2007
                    and December 31, 2006, respectively
                
                
                1,451
                
                
                
                723Other
                    assets, net
                
                
                3,085
                
                
                
                3,148Total
                    other assets
                
                
                94,463
                
                
                
                93,680TOTAL
                
                $
                237,349
                
                
                $
                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)**





**September 30,**
            
            
            **December 31,****2007**
            
            
            **2006****LIABILITIES
                AND STOCKHOLDERS' EQUITY**CURRENT
                LIABILITIES:Current
                portion of long-term debt and lease obligations
            
            $
            206
            
            
            $
            91Unearned
                tuition
            
            
            34,605
            
            
            
            33,150Accounts
                payable
            
            
            14,543
            
            
            
            12,118Accrued
                expenses
            
            
            12,223
            
            
            
            10,335Advance
                payments of federal programs
            
            
            -
            
            
            
            557Income
                taxes payable
            
            
            -
            
            
            
            2,860Other
                short-term liabilities
            
            
            1,711
            
            
            
            -Total
                current liabilities
            
            
            63,288
            
            
            
            59,111NONCURRENT
                LIABILITIES:Long-term
                debt and lease obligations, net of current portion
            
            
            15,222
            
            
            
            9,769Other
                long-term liabilities
            
            
            6,874
            
            
            
            5,553Total
                liabilities
            
            
            85,384
            
            
            
            74,433COMMITMENTS
                AND CONTINGENCIES (Note 12)STOCKHOLDERS'
                EQUITY:Preferred
                stock, no par value - 10,000,000 shares authorized, no shares issued
                and
                outstanding at September 30, 2007 and December 31, 2006
            
            
            -
            
            
            
            -Common
                stock, no par value - authorized 100,000,000 shares at September
                30, 2007
                and December 31, 2006, issued and outstanding 25,506,566 shares at
                September 30, 2007 and 25,450,695 shares at December 31,
                2006
            
            
            120,327
            
            
            
            120,182Additional
                paid-in capital
            
            
            9,206
            
            
            
            7,695Deferred
                compensation
            
            
            (561
            )
            
            
            (467
            )Retained
                earnings
            
            
            25,404
            
            
            
            26,784Accumulated
                other comprehensive loss
            
            
            (2,411
            )
            
            
            (2,411
            )Total
                stockholders' equity
            
            
            151,965
            
            
            
            151,783TOTAL
            
            $
            237,349
            
            
            $
            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**
            
            
            **Nine
                Months Ended****September 30,**
            
            
            **September 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**REVENUES
            
            $
            86,566
            
            
            $
            81,911
            
            
            $
            237,480
            
            
            $
            227,171COSTS
                AND EXPENSES:Educational
                services and facilities
            
            
            37,053
            
            
            
            34,944
            
            
            
            104,540
            
            
            
            96,093Selling,
                general and administrative
            
            
            41,434
            
            
            
            41,394
            
            
            
            124,075
            
            
            
            117,684Gain
                on sale of assets
            
            
            -
            
            
            
            (7
            )
            
            
            (15
            )
            
            
            (7
            )Total
                costs & expenses
            
            
            78,487
            
            
            
            76,331
            
            
            
            228,600
            
            
            
            213,770OPERATING
                INCOME
            
            
            8,079
            
            
            
            5,580
            
            
            
            8,880
            
            
            
            13,401OTHER:Interest
                income
            
            
            66
            
            
            
            82
            
            
            
            149
            
            
            
            860Interest
                expense
            
            
            (686
            )
            
            
            (696
            )
            
            
            (1,840
            )
            
            
            (1,740
            )Other
                income (loss)
            
            
            26
            
            
            
            (200
            )
            
            
            26
            
            
            
            (130
            )INCOME
                FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
            
            
            7,485
            
            
            
            4,766
            
            
            
            7,215
            
            
            
            12,391PROVISION
                FOR INCOME TAXES
            
            
            3,115
            
            
            
            1,978
            
            
            
            3,008
            
            
            
            5,098NET
                INCOME FROM CONTINUING OPERATIONS
            
            
            4,370
            
            
            
            2,788
            
            
            
            4,207
            
            
            
            7,293LOSS
                FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES
            
            
            (2,331
            )
            
            
            (556
            )
            
            
            (5,487
            )
            
            
            (1,333
            )NET
                INCOME (LOSS)
            
            $
            2,039
            
            
            $
            2,232
            
            
            $
            (1,280
            )
            
            $
            5,960BasicEarnings
                per share from continuing operations
            
            $
            0.17
            
            
            $
            0.11
            
            
            $
            0.17
            
            
            $
            0.29Loss
                per share from discontinued operations
            
            
            (0.09
            )
            
            
            (0.02
            )
            
            
            (0.22
            )
            
            
            (0.05
            )Net
                income (loss) per share
            
            $
            0.08
            
            
            $
            0.09
            
            
            $
            (0.05
            )
            
            $
            0.24DilutedEarnings
                per share from continuing operations
            
            $
            0.17
            
            
            $
            0.11
            
            
            $
            0.16
            
            
            $
            0.28Loss
                per share from discontinued operations
            
            
            (0.09
            )
            
            
            (0.02
            )
            
            
            (0.21
            )
            
            
            (0.05
            )Net
                income (loss) per share
            
            $
            0.08
            
            
            $
            0.09
            
            
            $
            (0.05
            )
            
            $
            0.23Weighted
                average number of common shares outstanding:Basic
            
            
            25,503
            
            
            
            25,410
            
            
            
            25,482
            
            
            
            25,300Diluted
            
            
            26,049
            
            
            
            26,120
            
            
            
            26,029
            
            
            
            26,081





See
      notes
      to unaudited condensed consolidated financial statements.





3
 ***Index***





**LINCOLN
      EDUCATIONAL 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
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,280
            )
            
            
            (1,280
            )Initial
                adoption of new accounting pronouncement (Note 2)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (100
            )
            
            
            (100
            )Issuance
                of restricted stock and amortization of deferred
                compensation
            
            
            23
            
            
            
            -
            
            
            
            320
            
            
            
            (94
            )
            
            
            -
            
            
            
            -
            
            
            
            226Stock-based
                compensation expense
            
            
            -
            
            
            
            -
            
            
            
            1,123
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,123Tax
                benefit of options exercised
            
            
            -
            
            
            
            -
            
            
            
            68
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            68Exercise
                of stock options
            
            
            33
            
            
            
            145
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            145BALANCE
                - September 30, 2007
            
            
            25,507
            
            
            $
            120,327
            
            
            $
            9,206
            
            
            $
            (561
            )
            
            $
            (2,411
            )
            
            $
            25,404
            
            
            $
            151,965





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)**





**Nine
                Months Ended September 30,****2007**
            
            
            **2006**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                (loss) income
            
            $
            (1,280
            )
            
            $
            5,960Adjustments
                to reconcile net (loss) income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            11,734
            
            
            
            11,076Amortization
                of deferred finance charges
            
            
            143
            
            
            
            144Deferred
                income taxes
            
            
            (2,416
            )
            
            
            (2,983
            )Gain
                on disposal of assets
            
            
            (15
            )
            
            
            (7
            )Impairment
                of goodwill and long-lived assets
            
            
            3,099
            
            
            
            -Fixed
                asset donations
            
            
            (26
            )
            
            
            (16
            )Provision
                for doubtful accounts
            
            
            12,639
            
            
            
            12,268Stock-based
                compensation expense and issuance of restricted stock
            
            
            1,349
            
            
            
            1,133Tax
                benefit associated with exercise of stock options
            
            
            -
            
            
            
            483Deferred
                rent
            
            
            451
            
            
            
            850(Increase)
                decrease in assets:Accounts
                receivable
            
            
            (13,247
            )
            
            
            (19,797
            )Inventories
            
            
            (256
            )
            
            
            (720
            )Prepaid
                expenses and current assets
            
            
            (941
            )
            
            
            (498
            )Other
                assets
            
            
            (250
            )
            
            
            492Increase
                (decrease) in liabilities:Accounts
                payable
            
            
            1,321
            
            
            
            2,562Other
                liabilities
            
            
            1,800
            
            
            
            (1,084
            )Income
                taxes payable/prepaid
            
            
            (8,529
            )
            
            
            (5,190
            )Accrued
                expenses
            
            
            1,919
            
            
            
            1,453Unearned
                tuition
            
            
            1,455
            
            
            
            (4,460
            )Total
                adjustments
            
            
            10,230
            
            
            
            (4,294
            )Net
                cash provided by operating activities
            
            
            8,950
            
            
            
            1,666CASH
                FLOWS FROM INVESTING ACTIVITIES:Restricted
                cash
            
            
            (612
            )
            
            
            (2,424
            )Capital
                expenditures
            
            
            (16,391
            )
            
            
            (13,806
            )Acquisitions,
                net of cash acquired
            
            
            -
            
            
            
            (32,807
            )Net
                cash used in investing activities
            
            
            (17,003
            )
            
            
            (49,037
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from borrowings
            
            
            21,500
            
            
            
            12,000Payments
                on borrowings
            
            
            (16,500
            )
            
            
            (2,079
            )Proceeds
                from exercise of stock options
            
            
            145
            
            
            
            519Tax
                benefit associated with exercise of stock options
            
            
            68
            
            
            
            -Principal
                payments under capital lease obligations
            
            
            (84
            )
            
            
            (886
            )Net
                cash provided by financing activities
            
            
            5,129
            
            
            
            9,554NET
                DECREASE IN CASH AND CASH EQUIVALENTS
            
            
            (2,924
            )
            
            
            (37,817
            )CASH
                AND CASH EQUIVALENTS—Beginning of period
            
            
            6,461
            
            
            
            50,257CASH
                AND CASH EQUIVALENTS—End of period
            
            $
            3,537
            
            
            $
            12,440





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)**





**Nine
                Months Ended September 30,****2007**
            
            
            **2006**SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Cash
                paid during the year for:Interest
            
            $
            1,770
            
            
            $
            1,704Income
                taxes
            
            $
            9,898
            
            
            $
            11,859SUPPLEMENTAL
                SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:Cash
                paid during the year for:Fair
                value of assets acquired
            
            $
            -
            
            
            $
            40,021Net
                cash paid for the acquisition
            
            
            -
            
            
            
            (32,807
            )Liabilities
                assumed
            
            $
            -
            
            
            $
            7,214Fixed
                assets acquired in capital lease transactions
            
            $
            652
            
            
            $
            -Fixed
                assets acquired in noncash transactions
            
            $
            1,814
            
            
            $
            -





See
      notes
      to unaudited condensed consolidated financial statements.




6
 ***Index***





**LINCOLN
      EDUCATIONAL SERVICES CORPORATION AND
      SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**NINE
      MONTHS ENDED SEPTEMBER 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 34 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 nine months ended September 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 September 30, 2007
      and the condensed consolidated financial statements as of December 31, 2006
      and
      for the three and nine months ended September 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.**
            **DISCONTINUED
                OPERATIONS**





On
      July
      31, 2007 the Company’s Board of Directors approved a plan (the “Plan”) to cease
      operations at the Company’s Plymouth Meeting, PA, Norcross, GA and Henderson, NV
      campuses.  As a result of the above decision, 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.”*





In
      connection with 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 were tested
      for recoverability and it was determined that certain long-lived assets would
      not be recoverable at June 30, 2007.  As a result, the Company
      recorded a non-cash charge of $0.9 million (for a total of $3.0 million) to
      reduce the carrying value of these assets to their estimated fair
      value.





**As
      of September 30, 2007 all operations have ceased at these campuses, and
      accordingly, the results of operations of these campuses have been reflected
      in
      the accompanying statements of operations as “Discontinued Operations” for all
      periods presented.





8
 ***Index***





The
      following amounts relate to the ceasing of operations at these three campuses,
      which have been segregated from continuing operations and reported as
      discontinued operations:





**Three
                Months Ended**
            
            
            **Nine
                Months Ended****September 30,**
            
            
            **September 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenue
            
            $
            727
            
            
            $
            2,594
            
            
            $
            4,230
            
            
            $
            8,210Operating
                loss
            
            
            (2,359
            )
            
            
            (3,544
            )
            
            
            (8,339
            )
            
            
            (10,475
            )Impairment
                of goodwill
            
            
            -
            
            
            
            -
            
            
            
            (2,135
            )
            
            
            -Impairment
                of long-lived assets
            
            
            (94
            )
            
            
            -
            
            
            
            (964
            )
            
            
            -Retention
                incentives
            
            
            (153
            )
            
            
            -
            
            
            
            (153
            )
            
            
            -Lease
                commitments
            
            
            (1,999
            )
            
            
            -
            
            
            
            (1,999
            )
            
            
            -Other
                commitments
            
            
            (170
            )
            
            
            -
            
            
            
            (170
            )
            
            
            -Loss
                from discontinued operations
            
            
            (4,048
            )
            
            
            (950
            )
            
            
            (9,530
            )
            
            
            (2,265
            )Benefit
                for income taxes
            
            
            (1,717
            )
            
            
            (394
            )
            
            
            (4,043
            )
            
            
            (932
            )Net
                loss from discontinued operations
            
            $
            (2,331
            )
            
            $
            (556
            )
            
            $
            (5,487
            )
            
            $
            (1,333
            )





**4.**
            **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 $0.3 million for the three months ended September
      30, 2007 and 2006, respectively, and $1.3 million and 1.0 million for the nine
      months ended September 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.





**5.**
            **WEIGHTED
                AVERAGE COMMON SHARES**





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





**Three
                Months Ended**
            
            
            **Nine
                Months Ended****September 30,**
            
            
            **September 30,****(In
                thousands)**
            
            
            **(In
                thousands)****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Basic
                shares outstanding
            
            
            25,503
            
            
            
            25,410
            
            
            
            25,482
            
            
            
            25,300Dilutive
                effect of stock options
            
            
            546
            
            
            
            710
            
            
            
            547
            
            
            
            781Diluted
                shares outstanding
            
            
            26,049
            
            
            
            26,120
            
            
            
            26,029
            
            
            
            26,081





For
      the
      three months ended September 30, 2007 and 2006, options to acquire 691,208
      and
      240,500 shares, respectively, and for the nine months ended September 30, 2007
      and 2006, options to acquire 691,208 and 298,000 shares, respectively, were
      excluded from the above table as the result on reported earnings per share
      would
      have been antidilutive.





**6.**
            **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 nine months ended
      September 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.





9
 ***Index***




**Nine
                months ended September 30, 2006****Historical
                2006**
            
            
            **Pro
                forma impact FLA 2006**
            
            
            **Pro
                forma 2006**Revenues
            
            $
            227,171
            
            
            $
            7,148
            
            
            $
            234,319Net
                income from continuing operations
            
            $
            7,293
            
            
            $
            (302
            )
            
            $
            6,991Earnings
                per share from continuing operations- basic
            
            $
            0.29
            
            
            
            
            
            
            $
            0.22Earnings
                per share from continuing operations- diluted
            
            $
            0.28
            
            
            
            
            
            
            $
            0.22





**7.**
            **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 September 30, 2007
            
            $
            82,860





As
      described further in Note 3, during the nine months ended September 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
                September 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
            
            
            $
            2,209
            
            
            $
            2,200
            
            
            $
            2,010Trade
                name
            
            Indefinite
            
            
            
            1,270
            
            
            
            -
            
            
            
            1,270
            
            
            
            -Accreditation
            
            Indefinite
            
            
            
            307
            
            
            
            -
            
            
            
            -
            
            
            
            -Curriculum
            
            
            10
            
            
            
            700
            
            
            
            191
            
            
            
            700
            
            
            
            138Non-compete
            
            
            5
            
            
            
            201
            
            
            
            55
            
            
            
            201
            
            
            
            25Total
            
            
            
            
            
            $
            4,693
            
            
            $
            2,455
            
            
            $
            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 $0.3 million for the
      three months ended September 30, 2007 and 2006, respectively, and $0.3 million
      and $0.7 million for the nine months ended September 30, 2007 and 2006,
      respectively





**8.**
            **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 September 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.





10
 ***Index***





During
      the quarter ended September 30, 2007, the Company repaid $16.5 million of
      outstanding debt resulting in $5.0 million in debt outstanding under the
      credit agreement as of September 30, 2007.  Interest on these
      borrowings at September 30, 2007 ranged from 6.32% to 8.25%.





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 September 30, 2007, the
      Company was in compliance with the financial covenants contained in the credit
      agreement.





**9.**
            **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 September 30, 2007, there were a total of 62,512 shares
      awarded and 19,442 shares vested under the Non-Employee Directors Plan. The
      recognized restricted stock expense for the three months ended September 30,
      2007 and 2006 was $0.09 million and $0.06 million, respectively, and for the
      nine months ended September 30, 2007 and 2006 was $0.2 million and $0.1 million,
      respectively. The deferred compensation or unrecognized restricted stock expense
      as of September 30, 2007 and 2006 was $0.6 million and $0.5 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:





**September 30,****2007**Expected
                volatility
            
            
            55.42
            %Expected
                dividend yield
            
            
            0
            %Expected
                life (term)
            
            6
                YearsRisk-free
                interest rate
            
            
            4.36
            %Weighted-average
                exercise price during the year
            
            $
            11.96





11
 ***Index***





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
            
            
            (39,000
            )
            
            
            16.79Exercised
            
            
            (33,271
            )
            
            
            4.36
            
            
            
            $
            218Outstanding,
                September 30, 2007
            
            
            1,841,454
            
            
            
            9.08
            
            5.91
                years
            
            
            9,788Exercisable
                as of September 30, 2007
            
            
            1,249,215
            
            
            
            
            
            6.35
                years
            
            
            9,444





As
      of
      September 30, 2007, we estimate that pre-tax compensation expense for all
      unvested stock option awards is approximately $3.0 million, which will be
      expensed over the weighted-average period of approximately 1.7
      years.








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





**As
                of September 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
            
            
            
            1.73
            
            
            $
            1.55
            
            
            
            50,898
            
            
            $
            1.55$
            3.10
            
            
            
            883,848
            
            
            
            4.28
            
            
            
            3.10
            
            
            
            876,808
            
            
            
            3.10$
            4.00-$13.99
            
            
            
            215,500
            
            
            
            8.89
            
            
            
            11.10
            
            
            
            19,400
            
            
            
            5.62$
            14.00-$19.99
            
            
            
            563,708
            
            
            
            7.47
            
            
            
            15.28
            
            
            
            234,209
            
            
            
            14.77$
            20.00-$25.00
            
            
            
            127,500
            
            
            
            6.93
            
            
            
            22.66
            
            
            
            67,900
            
            
            
            22.991,841,454
            
            
            
            5.91
            
            
            
            9.08
            
            
            
            1,249,215
            
            
            
            6.35





**10.**
            **SLM
                FINANCIAL CORPORATION LOAN
                AGREEMENT**





The
      Company entered into a Tiered Discount Loan Program agreement effective
      September 1, 2007 with SLM Financial Corporation (SLM) to provide up to $16.0
      million of private non-recourse loans to qualifying students.  Under
      the agreement, the Company is required to pay SLM either 20% or 30% of all
      loans
      disbursed, depending on each student borrower’s credit score.  The
      Company is billed at the end of each month based on loans disbursed during
      that
      month.





The
      Company entered into an agreement effective March 28, 2005 to June 30, 2006
      with
      SLM to provide up to $6.0 million of private recourse loans to qualifying
      students.  During the term of the agreement, $4.9 million of loans
      were disbursed.  Under the recourse loan agreement, the Company was
      required to fund 30% of all loans disbursed into a SLM reserve
      account.  A total of $1.5 million has been funded related to total
      loans disbursed.  For the nine months ended September 30, 2007 no
      loans have been disbursed under this program.





**11.**
            **INCOME
                TAXES**





The
      effective tax rate for the three months ended September 30, 2007 and 2006 was
      40.6% and 41.5% and for the nine months ended September 30, 2007 and 2006 was
      44.8% and 41.1%, respectively.   See Note 3 for tax impact of
      discontinued operations.





**12.**
            **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
 ***Index***





**13.**
            **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 September 30, 2007 the net periodic benefit income was
      $10,750.  For the three months ended September 30, 2006 the net
      periodic benefit cost was $0.  For the nine months ended September 30,
      2007 the net periodic benefit income was $32,500.  For the nine months
      ended September 30, 2006 the net periodic benefit cost was $25,000.





**13.**
            **SUBSEQUENT
                EVENTS**





On
      October 15, 2007, the Company and Lawrence E. Brown, Vice Chairman of the
      Company, mutually agreed to terminate the employment agreement, dated as of
      February 1, 2007, between the Company and Mr. Brown, and to enter into a
      Separation and Release Agreement (the “Agreement”), setting forth the terms of
      Mr. Brown’s separation of employment from the Company.





Under
      the
      Agreement Mr. Brown’s employment with the Company terminated as of the close of
      business on October 31, 2007.  It is anticipated that, for a period of
      14 months following the date of termination of employment, Mr. Brown may
      continue to provide transitional services to the Company, not to exceed ten
      hours per month.  The Agreement further provides that, in
      consideration for a release of claims, the Company will pay Mr. Brown a lump
      sum
      cash payment of $0.5 million, subject to withholding, and will reimburse Mr.
      Brown for the employer-portion of the premiums due for continuation of coverage
      under COBRA for a maximum period ending on December 31, 2008.  Mr.
      Brown will also be entitled to the use of his automobile and reimbursement
      of
      associated costs by the Company, through December 31, 2008.





In
      addition, pursuant to the terms of the Agreement, Mr. Brown has agreed to be
      subject to certain restrictive covenants, which, among other things, prohibit
      him for the duration of 14 months following the date of termination of
      employment, without the Company’s prior written consent, from (i) competing
      against the Company and (ii) soliciting employees, consultants, clients or
      customers of the Company or any of its affiliates or subsidiaries.





13
 ***Index***





**Item
      2.  MANAGEMENT’SDISCUSSION****AND****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 September 30, 2007, 19,463 students were
      enrolled at our 34 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 believed that these campuses offered effective and
      valuable academic programs, given the current competitive environment the
      campuses’ financial results had not met expectations.  We concluded
      that the continued operation of these campuses was 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 have been 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.





14
 ***Index***





**Discontinued
      Operations**





As
      of
      September 30, 2007 we had ceased all operations at these three campuses and
      determined that, in accordance with SFAS No. 144, the operations of these
      campuses should be reflected as discontinued operations for all periods
      presented.  During the three months ended September 30, 2007 the
      following has been recorded in discontinued operations in the accompanying
      statements of operations as “Discontinued Operations”:





Revenue
            
            $
            727Operating
                loss
            
            
            (2,359
            )Impairment
                of long-lived assets
            
            
            (94
            )Retention
                bonuses paid to staff
            
            
            (153
            )Present
                value of non-cancelable lease commitments
            
            
            (1,999
            )Other
                commitments
            
            
            (170
            )Loss
                from discontinued operations
            
            
            (4,048
            )Benefit
                for income taxes
            
            
            (1,717
            )Net
                loss from discontinued operations
            
            $
            (2,331
            )








Footnote
      No. 3 to our condensed consolidated financials statements included in this
      quarterly report provides further information on the impact of closing of these
      campuses.





**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 September
      30,
      2007 and 2006 was 5.3% and 5.7%, respectively and for the nine months ended
      September 30, 2007 and 2006 was 5.2% and 5.2%, respectively.  Our
      exposure to changes in our bad debt expense could impact our operations. A
      change of 1% in our bad debt expense as a percentage of revenues for the three
      and nine months ended September 30, 2007 and 2006 would have resulted in an
      increase in bad debt expense of $0.9 million and $0.8 million for the three
      months ended September 30, 2007 and 2006, respectively and $2.4 million and
      $2.3
      million for the nine months ended September 30, 2007 and 2006,
      respectively.





15
 ***Index***





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.





As
      discussed in “Impairment of Goodwill and Long-lived Assets” above, as a result
      of a decision to close three of our campuses we conducted a review of our
      goodwill as of June 30, 2007.  In connection with that review, we
      recognized a non-cash impairment charge of approximately $2.1 million as of
      June
      30, 2007.  Goodwill represents a significant portion of our total
      assets. As of September 30, 2007, goodwill was approximately $82.9 million,
      or
      34.9%, 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 or June 30, 2007 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:





16
 ***Index***








**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.





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.





17
 ***Index***





**Results
      of Continuing Operations**





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





**Three
                Months Ended**
            
            
            **Nine
                Months Ended****September 30,**
            
            
            **September 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenues
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Costs
                and expenses:Educational
                services and facilities
            
            
            42.8
            %
            
            
            42.7
            %
            
            
            44.0
            %
            
            
            42.3
            %Selling,
                general and administrative
            
            
            47.9
            %
            
            
            50.5
            %
            
            
            52.2
            %
            
            
            51.8
            %Total
                costs and expenses
            
            
            90.7
            %
            
            
            93.2
            %
            
            
            96.2
            %
            
            
            94.1
            %Operating
                income
            
            
            9.3
            %
            
            
            6.8
            %
            
            
            3.8
            %
            
            
            5.9
            %Other
                loss
            
            
            0.0
            %
            
            
            (0.3
            )%
            
            
            0.0
            %
            
            
            (0.1
            )%Interest
                expense, net
            
            
            (0.7
            )%
            
            
            (0.7
            )%
            
            
            (0.7
            )%
            
            
            (0.4
            )%Income
                from continuing operations before income taxes
            
            
            8.6
            %
            
            
            5.8
            %
            
            
            3.1
            %
            
            
            5.5
            %Provision
                for income taxes
            
            
            3.6
            %
            
            
            2.4
            %
            
            
            1.3
            %
            
            
            2.2
            %Net
                income from continuing operations
            
            
            5.0
            %
            
            
            3.4
            %
            
            
            1.8
            %
            
            
            3.3
            %





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





***Revenues***. 
      Revenues increased by $4.7 million, or 5.7%, to $86.6 million for the three
      months ended September 30, 2007 from $81.9 million for the comparable period
      in
      2006.  The increase in revenue for the quarter was attributable in part to
      a 2.3% increase in average student population, which increased to 18,185 for
      the
      quarter ended September 30, 2007 from 17,774 for the quarter ended September
      30,
      2006.  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 September 30, 2007 were $37.1
      million, representing an increase of $2.1 million, or 6.0%, as compared to
      $34.9
      million for the quarter ended September 30, 2006.  The increase in
      educational services and facilities expenses was due to: (i) books and tool
      expenses, which increased by $1.2 million, or 23.8%, as compared to the quarter
      ended September 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 to accommodate new programs 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
      overflow housing expenses ($0.2 million) at one of our destination campuses
      over
      the same period in 2006.    As a percentage of revenue,
      educational services and facilities expenses for the second quarter of 2007
      increased to 42.8% from 42.7% in 2006.





***Selling,
      general and administrative expenses***.  Our selling, general
      and administrative expenses for the quarter ended September 30, 2007 were $41.4
      million, consistent with the quarter ended September 30,
      2006.  For the three months ended September 30, 2007, our sales and
      marketing expenses decreased by approximately $2.0 million from the same period
      in 2006.  This decrease was the result of the additional marketing
      expenses incurred in the third quarter of 2006, to compensate for the shortfall
      we experienced in the high school market, coupled with a shift in mix between
      television advertising and web based initiatives.  Offsetting this
      decrease in sales and marketing expenses was an increase of $2.0 million in
      administrative expenses. The increase in administrative expenses during the
      quarter was due to the hiring of additional personnel in anticipation of higher
      enrollment levels and to yearly compensation increases to existing
      personnel.   Additionally, during the quarter we entered into an
      agreement with a vendor for certain equipment at our campuses.  We
      incurred an upfront one time non-cash charge of $0.5 million in connection
      with
      this agreement.   As a percentage of revenue, selling, general
      and administrative expenses for the third quarter of 2007 decreased to 47.9%
      from 50.5% in 2006.





For
      the
      quarter ended September 30, 2007, our bad debt expense was 5.3% as compared
      to
      5.7% for the same quarter in 2006.





***Net
      interest expense***.  Our net interest expense for each of the
      quarters ended September 30, 2007 and 2006 was $0.6
      million.   As of September 30, 2007, we had $5.0 million
      outstanding under our credit agreement as compared to September 30, 2006 when
      we
      had $17.2 million of debt 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.  For the quarter ended September 30, 2007,
      our average amounts outstanding under our credit agreement was $16.0 compared
      to
      $10.8 for the quarter ended September 30, 2006.





***Income
      taxes***.  For the quarter ended September 30, 2007 we recorded
      a provision of $3.1 million, or 41.6% of pretax income.  As a
      percentage of pretax income, our provision was essentially unchanged from the
      $2.0 million, or 41.5% of pretax income, for the quarter ended September 30,
      2006.





18
 ***Index***





**Nine
      Months Ended September 30, 2007 Compared to Nine Months Ended September 30,
      2006**





***Revenues***. 
      Revenues increased by $10.3 million, or 4.5%, to $237.5 million for the nine
      months ending September 30, 2007 from $227.2 million for the comparable period
      in 2006.  Included in revenue for the nine months ended September 30, 2007
      was an increase of approximately $6.5 million over the corresponding prior
      period from our acquisition of FLA, on May 22, 2006.   The
      remainder of the increase in revenue during the period was attributable to
      our
      Queens facility, which we opened in March 2006.  This facility was a
      start-up facility in 2006 and only contributed six months of earnings for the
      nine month period ending September 30, 2006.  For the nine months
      ended September 30, 2007, the Queens campus was in operation for the full
      period.  Revenue for the period was also impacted positively by
      tuition increases which averaged 3.5% for 2007 and a 0.4% increase in average
      student population, which increased to 17,193 for the nine months
      ended September 30, 2007 from 17,132 for the nine months ended September 30,
      2006.  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 nine months ended September 30, 2007 were $104.5
      million, representing an increase of $8.4 million, or 8.8%, as compared to
      $96.1
      million for the nine months ended September 30, 2006.  The acquisition of
      FLA resulted in $2.5 million of this increase.  The remainder of the
      increase in educational services and facilities expenses was primarily due
      to:
      (i) instructional expenses, which increased $0.5 million, or 1.0% due to yearly
      compensation increases; (ii) books and tool expenses, which increased by $1.7
      million, or 15.0%, as compared to the nine months ended September 30, 2006
      due
      higher tool sales during the period; and (iii) facilities expenses, which
      increased by approximately $3.7 million over the same period in
      2006.  Approximately $1.7 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 ($1.3 million) and increased depreciation expense ($0.5 million)
      over
      the same period in prior year.    Of the $1.3 million
      increase in repairs and maintenance expenses as of September 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 third quarter of 2007
      increased to 44.0% from 42.3% in 2006.





***Selling,
      general and administrative expenses***.  Our selling, general
      and administrative expenses for the nine months ended September 30, 2007 were
      $124.1 million, representing an increase of $6.4 million, or 5.4%, as compared
      to $117.7 million for the nine months ended September 30, 2006.  Included
      in the $124.1 million was an incremental increase of $3.2 million, or
      50.8%, related to the acquisition of FLA.  On a same school basis,
      selling, general and administrative expenses increased by $3.2 million from
      the
      comparable period in 2006, due to increases of $0.9 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 $1.1 million decrease
      in marketing expenditures, a $0.2 million increase in student services, and
      a
      $3.2 million increase in administrative expenses. The decrease in marketing
      expenses for the nine months ended September 30, 2007 was the result of the
      additional marketing expenses incurred in the third quarter of 2006, to
      compensate for the shortfall we experienced in the high school market, coupled
      with a shift in mix between television advertising and web based
      initiatives.  The increase in administrative expenses during the
      period was due to yearly compensation increases and increased expenses
      associated with pay incentives.  Additionally, during the three months
      ended September 30, 2007 we entered into a Master Agreement with a vendor for
      certain copiers for our campuses.  We incurred an upfront one time
      non-cash charge of $0.5 million in connection with this agreement.  As
      a percentage of revenue, selling, general and administrative expenses for the
      nine months ended September 30, 2007 increased to 52.2% from 51.8% in
      2006.





For
      the
      nine months ended September 30, 2007 and 2006, our bad debt expense was 5.2%
      and
      5.2%, respectively.





***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 nine
      months ended September 30, 2007 was $1.7 million, representing an increase
      of
      $0.8 million from the nine months ended September 30, 2006.  This increase
      was primarily due to the decrease in our average cash balances during the period
      as compared to the nine months ended September 30, 2006.





***Income
      taxes***.  For the nine months ended September 30, 2007 we
      recorded a provision for income taxes of $3.0 million, or 41.7% of pretax
      income, as compared to a provision of $5.1 million, or 41.1% of pretax income,
      for the nine months ended September 30, 2006.  The increase in our
      effective tax rate for the period was primarily attributable to the tax benefit
      associated with the exercise of stock options, coupled with the effect of the
      FLA acquisition.  For federal tax purposes, FLA is a separate C
      Corporation.





19
 ***Index***





**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 nine months ended September 30, 2007 and
      2006:





**Nine
                Months Ended September 30,****2007**
            
            
            **2006****(in
                thousands)**Net
                cash provided by operating activities
            
            $
            8,950
            
            
            $
            1,666Net
                cash used in investing activities
            
            $
            (17,003
            )
            
            $
            (49,037
            )Net
                cash provided by financing activities
            
            $
            5,129
            
            
            $
            9,554





At
      September 30, 2007 we had cash and cash equivalents of $3.5 million, compared
      to
      $6.5 million as of December 31, 2006.  For the nine months ended September
      30, 2007, cash and cash equivalents decreased by approximately $2.9 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.  During the three months ended September 30, 2007, we repaid
      $16.5 million of those borrowings.  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 September 30, 2007, we had borrowings
      available under our credit agreement of approximately $90.6 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.





***Operating
      Activities***





Net
      cash
      provided by operating activities was $9.0 million for the nine months ended
      September 30, 2007 compared to $1.7 million for the nine months ended September
      30, 2006.  The $7.3 million increase in cash provided by operating
      activities was primarily due to improved focus on the packaging of student
      financial aid.  This resulted in (i)  better cash
      collections during the period as compared to the comparable period in prior
      year
      (as evidenced by the decrease in day’s sales outstanding to 22.8 days for the
      three months ended September 30, 2007 from 24.3 days for the three months ended
      September 30, 2006) and (ii) an increase as compared to prior year in unearned
      tuition.





***Investing
      Activities***





Net
      cash
      used in investing activities decreased by $32.0 million to $17.0 million for
      the
      nine months ended September 30, 2007 from $49.0 million for the nine months
      ended September 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.





20
 ***Index***





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 expect to be able to fund these capital expenditures
      with cash generated from operating activities.





***Financing
      Activities***





Net
      cash
      provided by financing activities was $5.1 million for the nine months ended
      September 30, 2007 compared to net cash provided by financing activities of
      $9.6
      million for the nine months ended September 30, 2006.  This increase in
      2007 was attributable to our borrowing $21.5 million under our credit agreement
      during the first half of 2007.   During the third quarter we
      repaid $16.5 million of these borrowings.  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:





**September 30,**
            
            
            **December 31,****2007**
            
            
            **2006**Credit
                agreement
            
            $
            5,000
            
            
            $
            -Finance
                obligation
            
            
            9,672
            
            
            
            9,672Automobile
                loans
            
            
            21
            
            
            
            37Capital
                leases-computers (with rates ranging from 6.7% to 10.7%)
            
            
            735
            
            
            
            151Subtotal
            
            
            15,428
            
            
            
            9,860Less
                current portion
            
            
            (206
            )
            
            
            (91
            )$
            15,222
            
            
            $
            9,769





**Contractual
      Obligations**





***Long-Term
      Debt***.  As of September 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).





The
      following table contains supplemental information regarding our total
      contractual obligations as of September 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**
            
            
            **3-5
                years**
            
            
            **After
                5 years**Credit
                agreement
            
            $
            5,000
            
            
            $
            -
            
            
            $
            5,000
            
            
            $
            -
            
            
            $
            -Capital
                leases (including interest)
            
            
            883
            
            
            
            240
            
            
            
            348
            
            
            
            295
            
            
            
            -Operating
                leases
            
            
            135,820
            
            
            
            15,839
            
            
            
            28,372
            
            
            
            24,492
            
            
            
            67,117Rent
                on finance obligation
            
            
            12,454
            
            
            
            1,334
            
            
            
            2,669
            
            
            
            2,669
            
            
            
            5,782Automobile
                loans (including interest)
            
            
            21
            
            
            
            21
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
                contractual cash obligations
            
            $
            154,178
            
            
            $
            17,434
            
            
            $
            36,389
            
            
            $
            27,456
            
            
            $
            72,899





***Capital
      Expenditures.*** We have entered into commitments to expand or
      renovate campuses. These commitments are in the range of $4.0 to $6.0 million
      in
      the aggregate and are due within the next 12 months. Total capital expenditures
      for the year are expected to range between 3 to 5% of revenues.  We
      expect to fund these commitments from cash generated from
      operations.





21
 ***Index***





**Off-Balance
      Sheet Arrangements**





We
      had no
      off-balance sheet arrangements as of September 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.  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 through the first half of 2007 and
      resulted in a shortfall in our expected enrollments during the first half of
      2007.  We experienced a reversal of this trend during the third
      quarter of 2007, mainly as a result of better execution and the benefit of
      initiatives we put in place in the last several quarters.  While we
      have not seen any change to the challenging environment we are operating in,
      we
      believe that through better execution and the continued benefit of the various
      initiatives we implemented, we will be able to sustain positive organic growth
      for the remainder of the year.   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 is currently facing will
      produce positive growth over the long-term.  We continue to be prudent
      and realistic, with a view toward ensuring that operations that have
      not grown as rapidly as expected are right sized.  Accordingly, we
      believe that our operating strategy, business model and infrastructure are
      well
      suited for the short-term and long-term business opportunities.  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.





**Item
      3.  QUANTITATIVEAND 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 September 30, 2007, the Company has $5.0 million
      outstanding under the credit agreement.  Interest on these borrowings
      at September 30, 2007 ranged from 6.32% to 8.25%.





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.





22
 ***Index***





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





**Item
      4.  CONTROLSAND 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. OTHERINFORMATION**





**Item
      1.  LEGALPROCEEDINGS**





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.





23
 ***Index***





**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).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).





24
 ***Index***




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.





25
 ***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:
      November 9, 2007





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






26