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


**WASHINGTON,
        D.C. 20549**
  
  **Form 10-Q**
  **(Mark
        One)**
  ý
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
 
 **For
        the quarterly period ended March 31, 2007**
 
 **or**
 
 o
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
  
  **Commission
        File Number 000-51371**




**LINCOLN
      EDUCATIONAL SERVICES CORPORATION**


(Exact
      name of registrant as specified in its charter)





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





**200
      Executive Drive, Suite 340**


**West
      Orange, NJ 07052**


(Address
      of principal executive offices)




**(973) 736-9340**


(Registrant’s
      telephone number, including area code)




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




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





Large
                accelerated filero
            Accelerated
                filerý
            Non-accelerated
                filero





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




As
      of May
      7, 2007, there were 25,467,769 shares of the registrant’s common stock
      outstanding.













LINCOLN
      EDUCATIONAL SERVICES CORPORATION AND
      SUBSIDIARIES




INDEX
      TO
      FORM 10-Q




FOR
      THE
      QUARTER ENDING MARCH 31, 2007




**PART
                I.**
            **FINANCIAL
                INFORMATION**Item
                1.
            Financial
                Statements
            1Condensed
                Consolidated Balance Sheets at March 31, 2007 and
                December 31, 2006 (unaudited)
            1Condensed
                Consolidated Statements of Operations for the
                three months ended March 31, 2007 and 2006 (unaudited)
            3Condensed
                Consolidated Statement of Changes in
                Stockholders’ Equity for the three months ended March 31, 2007
                (unaudited)
            4Condensed
                Consolidated Statements of Cash Flows for the three
                months ended March 31, 2007 and 2006 (unaudited)
            5Notes
                to Unaudited Condensed Consolidated Financial
                Statements
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and
                Results of Operations
            12Item
                3.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            19Item
                4.
            Controls
                and Procedures
            19**PART
                II.**
            **OTHER
                INFORMATION**
            19Item
                1.
            Legal
                Proceedings
            19Item
                6.
            Exhibits
            20





*Index*





**PART
      I - FINANCIAL INFORMATION**


Item
      1. FINANCIAL STATEMENTS




**LINCOLN
      EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


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


**(Unaudited)**





**March
                31,**
              **2007**
            
            **December
                31,**
              **2006****ASSETS**CURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            4,658
            
            $
            6,461Restricted
                cash
            
            
            1,480
            
            
            920Accounts
                receivable, less allowance of $11,225 and $11,456 at March 31, 2007
                and
                December 31, 2006, respectively
            
            
            19,519
            
            
            20,473Inventories
            
            
            2,423
            
            
            2,438Deferred
                income taxes
            
            
            4,734
            
            
            4,827Prepaid
                expenses and other current assets
            
            
            3,362
            
            
            3,049Prepaid
                income taxes
            
            
            6,323
            
            
            -Total
                current assets
            
            
            42,499
            
            
            38,168PROPERTY,
                EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation
                and
                amortization of $76,553 and $72,870 at March 31, 2007 and December
                31,
                2006, respectively
            
            
            96,043
            
            
            94,368OTHER
                ASSETS:Deferred
                finance charges
            
            
            972
            
            
            1,019Pension
                plan assets, net
            
            
            1,082
            
            
            1,107Deferred
                income taxes, net
            
            
            3,291
            
            
            2,688Goodwill
            
            
            84,995
            
            
            84,995Noncurrent
                accounts receivable, less allowance of $87 and $84 at March 31, 2007
                and
                December 31, 2006, respectively
            
            
            782
            
            
            723Other
                assets
            
            
            3,277
            
            
            3,148Total
                other assets
            
            
            94,399
            
            
            93,680TOTAL
            
            $
            232,941
            
            $
            226,216




1
 *Index*





**LINCOLN
      EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


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


**(Unaudited)**


**(Continued)**





**March
                31,**
              **2007**
            
            **December
                31,**
              **2006****LIABILITIES
                AND STOCKHOLDERS' EQUITY**CURRENT
                LIABILITIES:Current
                portion of long-term debt and lease obligations
            
            $
            92
            
            $
            91Unearned
                tuition
            
            
            29,404
            
            
            33,150Accounts
                payable
            
            
            12,910
            
            
            12,118Accrued
                expenses
            
            
            10,870
            
            
            10,335Advance
                payments of federal funds
            
            
            550
            
            
            557Income
                taxes payable
            
            
            -
            
            
            2,860Total
                current liabilities
            
            
            53,826
            
            
            59,111NONCURRENT
                LIABILITIES:Long-term
                debt and lease obligations, net of current portion
            
            
            22,746
            
            
            9,769Other
                long-term liabilities
            
            
            5,830
            
            
            5,553Total
                liabilities
            
            
            82,402
            
            
            74,433COMMITMENTS
                AND CONTINGENCIESSTOCKHOLDERS'
                EQUITY:Preferred
                stock, no par value - 10,000,000 shares authorized, no shares issued
                and
                outstanding at March 31, 2007 and December 31, 2006
            
            
            -
            
            
            -Common
                stock, no par value - authorized 100,000,000 shares at March 31,
                2007 and
                December 31, 2006, issued and outstanding 25,461,769 shares at March
                31,
                2007 and 25,450,695 shares at December 31, 2006
            
            
            120,217
            
            
            120,182Additional
                paid-in capital
            
            
            8,074
            
            
            7,695Deferred
                compensation
            
            
            (407
            )
            
            (467
            )Retained
                earnings
            
            
            25,066
            
            
            26,784Accumulated
                other comprehensive loss
            
            
            (2,411
            )
            
            (2,411
            )Total
                stockholders' equity
            
            
            150,539
            
            
            151,783TOTAL
            
            $
            232,941
            
            $
            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 March 31,****2007**
            
            **2006**REVENUES
            
            $
            78,142
            
            $
            75,513COSTS
                AND EXPENSES:Educational
                services and facilities
            
            
            35,752
            
            
            32,137Selling,
                general and administrative
            
            
            44,749
            
            
            38,668Total
                costs & expenses
            
            
            80,501
            
            
            70,805OPERATING
                (LOSS) INCOME
            
            
            (2,359
            )
            
            4,708OTHER:Interest
                income
            
            
            48
            
            
            471Interest
                expense
            
            
            (484
            )
            
            (474
            )Other
                income
            
            
            -
            
            
            16(LOSS)
                INCOME BEFORE INCOME TAXES
            
            
            (2,795
            )
            
            4,721(BENEFIT)
                PROVISION FOR INCOME TAXES
            
            
            (1,177
            )
            
            1,959NET
                (LOSS) INCOME
            
            $
            (1,618
            )
            $
            2,762Earnings
                per share - basic:Net
                (loss) income available to common stockholders
            
            $
            (0.06
            )
            $
            0.11Earnings
                per share - diluted:Net
                (loss) income available to common stockholders
            
            $
            (0.06
            )
            $
            0.11Weighted
                average number of common shares outstanding:Basic
            
            
            25,460
            
            
            25,186Diluted
            
            
            25,460
            
            
            26,038




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
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,618
            )
            
            (1,618
            )Initial
                adoption of FIN 48
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (100
            )
            
            (100
            )Issuance
                of restricted stock and amortization of deferred
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            60
            
            
            -
            
            
            -
            
            
            60Stock-based
                compensation expense
            
            
            -
            
            
            -
            
            
            351
            
            
            -
            
            
            -
            
            
            -
            
            
            351Tax
                benefit of options exercised
            
            
            -
            
            
            -
            
            
            28
            
            
            -
            
            
            -
            
            
            -
            
            
            28Exercise
                of stock options
            
            
            11
            
            
            35
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            35BALANCE
                - March 31, 2007
            
            
            25,462
            
            $
            120,217
            
            $
            8,074
            
            $
            (407
            )
            $
            (2,411
            )
            $
            25,066
            
            $
            150,539




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)**




**Three
                Months Ended March 31,****2007**
            
            **2006**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                (loss) income
            
            $
            (1,618
            )
            $
            2,762Adjustments
                to reconcile net (loss) income to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            3,844
            
            
            3,463Amortization
                of deferred finance charges
            
            
            48
            
            
            50Deferred
                income taxes
            
            
            (510
            )
            
            (477
            )Fixed
                asset donations
            
            
            -
            
            
            (16
            )Provision
                for doubtful accounts
            
            
            3,688
            
            
            3,150Stock-based
                compensation expense
            
            
            411
            
            
            353Tax
                benefit associated with exercise of stock options
            
            
            -
            
            
            52Deferred
                rent
            
            
            191
            
            
            274(Increase)
                decrease in assets:Accounts
                receivable
            
            
            (2,793
            )
            
            (1,843
            )Inventories
            
            
            15
            
            
            (233
            )Prepaid
                expenses and current assets
            
            
            (533
            )
            
            226Other
                assets
            
            
            (198
            )
            
            44Increase
                (decrease) in liabilities:Accounts
                payable
            
            
            791
            
            
            (1,309
            )Other
                liabilities
            
            
            (14
            )
            
            (403
            )Income
                taxes payable/prepaid
            
            
            (9,183
            )
            
            (6,085
            )Accrued
                expenses
            
            
            515
            
            
            (1,128
            )Unearned
                tuition
            
            
            (3,746
            )
            
            (3,734
            )Total
                adjustments
            
            
            (7,474
            )
            
            (7,616
            )Net
                cash used in operating activities
            
            
            (9,092
            )
            
            (4,854
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Restricted
                cash
            
            
            (560
            )
            
            (508
            )Capital
                expenditures
            
            
            (5,192
            )
            
            (3,467
            )Net
                cash used in investing activities
            
            
            (5,752
            )
            
            (3,975
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from borrowings
            
            
            13,000
            
            
            -Proceeds
                from exercise of stock options
            
            
            35
            
            
            78Tax
                benefit associated with exercise of stock options
            
            
            28
            
            
            -Principal
                payments under capital lease obligations
            
            
            (22
            )
            
            (79
            )Net
                cash provided by (used in) financing activities
            
            
            13,041
            
            
            (1
            )NET
                DECREASE IN CASH AND CASH EQUIVALENTS
            
            
            (1,803
            )
            
            (8,830
            )CASH
                AND CASH EQUIVALENTS—Beginning of period
            
            
            6,461
            
            
            50,257CASH
                AND CASH EQUIVALENTS—End of period
            
            $
            4,658
            
            $
            41,427SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Cash
                paid during the year for:Interest
            
            $
            430
            
            $
            516Income
                taxes
            
            $
            8,498
            
            $
            8,469





See
      notes
      to unaudited condensed consolidated financial statements.




5
 *Index*





**LINCOLN
      EDUCATIONAL SERVICES CORPORATION AND
      SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 2007 AND 2006**


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


**(Unaudited)**




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




***Business
      Activities*** -
      Lincoln Educational Services Corporation and subsidiaries (the "Company") is
      a
      diversified provider of career-oriented post-secondary education. The Company
      offers recent high school graduates and working adults degree and diploma
      programs in five principal areas of study: Automotive Technology, Health
      Sciences (which includes programs for licensed practical nursing (LPN), medical
      administrative assistants, medical assistants, pharmacy technicians, medical
      coding and billing and dental assisting), Business and Information Technology,
      Hospitality Services (spa and culinary) and Skilled Trades. The Company
      currently has 37 schools 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 months ended March 31, 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 March 31, 2007
      and
      the condensed consolidated financial statements as of December 31, 2006 and
      for
      the three months ended March 31, 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 requi res
      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.  The Standard 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.




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. SFAS No. 158 was
      adopted on December 31, 2006.





6
 *Index*





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




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





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




The
      Company currently accounts for stock-based employee compensation arrangements
      in
      accordance with the provisions of SFAS No. 123R, “ *Share
      Based Payment.”* Reflected
      in the accompanying statements of income is compensation expense of
      approximately $0.4 million and $0.4 million for the three months ended March
      31,
      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.




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




The
      weighted average numbers of common shares used to compute basic and diluted
      income per share for the three months ended March 31, 2007 and 2006,
      respectively, were as follows:





**Three
                Months Ended**
              **March
                31,**
              **(In
                thousands)****2007**
            
            **2006**Basic
                shares outstanding
            
            
            25,460
            
            
            25,186Dilutive
                effect of stock options
            
            
            -
            
            
            852Diluted
                shares outstanding
            
            
            25,460
            
            
            26,038





For
      the
      three months ended March 31, 2007 and 2006, options to acquire 725,375 and
      157,500 shares, respectively, were excluded from the above table as the result
      on reported earnings per share would have been antidilutive.





7
 *Index*





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




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




The
      following unaudited pro forma results of operations for the three months ended
      March 31, 2006 assumes that the acquisition of FLA occurred January 1, 2006.
      The
      unaudited pro forma results of operations are based on historical results of
      operations, but include adjustments for depreciation, amortization, interest,
      and taxes, but do not necessarily reflect the actual results that would have
      occurred.




**Three
                months ended March 31, 2006****Historical**
              **2006**
            
            **Pro
                forma**
              **impact
                FLA**
              **2006**
            
            **Pro
                forma**
              **2006**Revenues
            
            $
            75,513
            
            $
            4,860
            
            $
            80,373Net
                Income
            
            $
            2,762
            
            $
            261
            
            $
            3,023Earnings
                per share - basic
            
            $
            0.11
            
            
            
            
            $
            0.12Earnings
                per share - diluted
            
            $
            0.11
            
            
            
            
            $
            0.12




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




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





There
      were no changes in the carrying amount of goodwill from the year ended December
      31, 2006 to the three months ended March 31, 2007.




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





**At
                March 31, 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
            
            $
            2,077
            
            $
            2,200
            
            $
            2,010Trade
                name
            
            
            Indefinite
            
            
            1,270
            
            
            -
            
            
            1,270
            
            
            -Accreditation
            
            
            Indefinite
            
            
            253
            
            
            -
            
            
            -
            
            
            -Curriculum
            
            
            10
            
            
            700
            
            
            156
            
            
            700
            
            
            138Non-compete
            
            
            5
            
            
            201
            
            
            35
            
            
            201
            
            
            25Total
            
            
            
            
            $
            4,639
            
            $
            2,268
            
            $
            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 $0.2 million for the
      three months ended March 31, 2007 and 2006, respectively.





8
 *Index*





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




The
      Company has a credit agreement with a syndicate of banks.  Under the terms
      of the credit agreement, the syndicate provided the Company with a $100 million
      credit facility. The credit agreement permits the issuance of up to $20 million
      in letters of credit, the amount of which reduces the availability of permitted
      borrowings under the agreement. The Company incurred approximately $0.8 million
      of deferred finance charges under the existing credit agreement. At March 31,
      2007, the Company had outstanding letters of credit aggregating
      $4.4 million which primarily comprised 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.





On
      March
      13, 2007 and on March 28, 2007 the Company borrowed $10.5 million and $2.5
      million, respectively, under the credit agreement. The interest rate under
      both
      borrowings is 6.32%.





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'
      schools 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 March 31, 2007, the Company was in compliance
      with the financial covenants contained in the credit agreement.





**8.**
            **EQUITY**




Pursuant
      to the Company’s 2005 Non-Employee Directors Restricted Stock Plan (the
“Non-Employee Directors Plan”), each of the Company’s seven non-employee
      directors received an award of 3,069 restricted shares of common stock equal
      to
      $0.06 million on July 29, 2005. On January 1, 2006, one non-employee director
      resigned, forfeiting 3,069 restricted shares of common stock awarded on July
      29,
      2005. Two newly appointed non-employee directors each received an award of
      3,625
      restricted shares of common stock equal to $0.06 million on March 1, 2006. 
Additionally, on May 23, 2006, the date of the Company’s annual meeting, each
      non-employee director received an annual restricted award of 1,781 restricted
      shares of common stock equal to $0.03 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 March 31 2007, there were a total of 39,912 shares
      awarded and 8,555 shares vested under the Non-Employee Directors Plan. The
      recognized restricted stock expense as of March 31, 2007 and 2006 was $0.06
      million and $0.02 million, respectively. The deferred compensation or
      unrecognized restricted stock expense as of March 31, 2007 and 2006 was $0.4
      million and $0.4 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:





**March
                31,**
              **2007**Expected
                volatility
            55.10%Expected
                dividend yield
            0%Expected
                life (term)
            6
                YearsRisk-free
                interest rate
            4.13-4.84%Weighted-average
                exercise price during the year
            $11.96





9
 *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
            
            
            (6,500
            )
            
            16.19Exercised
            
            
            (11,074
            )
            
            3.10
            
            
            
            
            $
            72Outstanding
                March 31, 2007
            
            
            1,896,151
            
            
            9.16
            
            
            5.62
                years
            
            
            10,495Exercisable
                as of March 31, 2007
            
            
            1,206,208
            
            
            
            
            
            5.67
                years
            
            
            10,035





As
      of
      March 31, 2007, we estimate that pre-tax compensation expense for all unvested
      stock option awards, in the amount of approximately $4.1 million which will
      be
      expensed over the weighted-average period of approximately 2.1
      years.





The
      following table presents a summary of options outstanding at March 31,
      2007:





**As
                of March 31, 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
            
            
            2.23
            
            $
            1.55
            
            
            50,898
            
            $
            1.55$
            3.10
            
            
            895,878
            
            
            4.78
            
            
            3.10
            
            
            888,838
            
            
            3.10$
            4.00-$13.99
            
            
            224,000
            
            
            2.32
            
            
            10.90
            
            
            22,900
            
            
            5.08$
            14.00-$19.99
            
            
            584,875
            
            
            8.01
            
            
            15.26
            
            
            190,872
            
            
            14.03$
            20.00-$25.00
            
            
            140,500
            
            
            7.51
            
            
            22.41
            
            
            52,700
            
            
            22.981,896,151
            
            
            5.62
            
            
            9.16
            
            
            1,206,208
            
            
            5.67





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





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




**Disbursement
                Year**
            
            **Loans**
              **Disbursed**
            
            **Loans
                the Company**
              **May
                be Required to**
              **Purchase
                (1)**2005-2006
            
            4,886
            
            1,466





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





Under
      the
      recourse loan agreement, the Company was required to fund 30% of all loans
      disbursed into a SLM reserve account. The amount of our loan purchase obligation
      may not exceed this deposit. We recorded such amounts in accounts receivable
      on
      our consolidated balance sheet. Amounts on deposit may ultimately be utilized
      to
      purchase loans in default, in which case recoverability of such amounts would
      be
      in question. Accordingly, the Company recorded an allowance and bad debt expense
      for the full amount of deposit. Approved funding under this agreement terminated
      by its terms on June 30, 2006. There were no new disbursements for the three
      months ended March 31, 2007. Bad debt expense was $0 and $0.6 million for the
      three months ended March 31, 2007 and 2006, respectively.





10
 *Index*





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




The
      effective tax rate for the three months ended March 31, 2007 and 2006 was 42.1%
      and 41.5%, respectively.




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




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





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




The
      Company sponsors a noncontributory defined benefit pension plan covering
      substantially all of the Company’s union employees. Benefits are provided based
      on employees’ years of service and earnings. This plan was frozen on December
      31, 1994 for non-union employees. While
      the
      Company does not expect to make any contributions to the plan in 2007, after
      considering the funded status of the plan, movements in the discount rate,
      investment performance and related tax consequences, the Company may choose
      to
      make contributions to the plan in any given year. For the three months ended
      March 31, 2007 and 2006, the net periodic benefit cost was $25,000 and $1,000,
      respectively.





11
 *Index*





**Item
      2.  MANAGEMENT’S DISCUSSION 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 March 31, 2007, we enrolled 17,384 students at
      our 37 campuses across 17 states.  Our campuses primarily attract students
      from their local communities and surrounding areas, although our four
      destination schools 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.




**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 policies 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 schools. 
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.





12
 *Index*





Our
      bad
      debt expense as a percentage of revenue for the three months ended March 31,
      2007 and 2006 was 4.7% and 4.2%, respectively. Our exposure to changes in our
      bad debt expense could impact our operations. A 1% increase in our bad debt
      expense as a percentage of revenues for the three months ended March 31, 2007
      and 2006 would have resulted in an increase in bad debt expense of
      $0.8 million and $0.8 million, respectively.




Because
      a
      substantial portion of our revenue 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 schools
      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.




Goodwill
      represents a significant portion of our total assets. As of March 31, 2007,
      goodwill represented approximately $85.0 million, or 36.5%, 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.
      No
      events have occurred subsequently 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.  The Standard 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. SFAS No. 158 was
      adopted on December 31, 2006.





13
 *Index*





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 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. This Interpretation 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.





14
 *Index*





**Results
      of Operations**




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





**Three
                Months Ended**
              **March
                31,****2007**
            
            **2006**Revenues
            
            
            100.0
            %
            
            100.0
            %Costs
                and expenses:Educational
                services and facilities
            
            
            45.7
            %
            
            42.6
            %Selling,
                general and administrative
            
            
            57.3
            %
            
            51.1
            %Total
                costs and expenses
            
            
            103.0
            %
            
            93.7
            %Operating
                income
            
            
            (3.0
            )%
            
            6.3
            %Interest
                expense, net
            
            
            (0.6
            )%
            
            0.0
            %Income
                before income taxes
            
            
            (3.6
            )%
            
            6.3
            %Provision
                for income taxes
            
            
            (1.5
            )%
            
            2.6
            %Net
                income
            
            
            (2.1
            )%
            
            3.7
            %





**Three
      Months Ended March 31, 2007 Compared to Three Months Ended March 31,
      2006**




***Revenues*** . 
      Revenues increased by $2.6 million, or 3.5%, to $78.1 million in the first
      quarter of 2007 from $75.5 million for the comparable period in 2006. 
Included in this increase is approximately $4.3 million from the acquisition
      of
      New England Institute of Technology at Palm Beach, Inc., or FLA. On a same
      school basis, our revenues declined 2.2% as compared to the quarter ended March
      31, 2006. The decrease in revenue for the quarter was attributable to a 7.2%
      decline in average student population, which decreased on a same school basis
      to
      16,409 for the quarter ended March 31, 2007 from 17,676 for the quarter ended
      March 31, 2006. Including FLA, our average undergraduate student enrollment
      decreased by 1.5% to 17,411. 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 March
      31,
      2007 were $35.8 million, representing an increase of $3.7 million, or 11.2%,
      as
      compared to $32.1 million for the quarter ended March 31, 2006.  The
      acquisition of FLA resulted in $1.9 million of this increase.  The
      remainder of the increase in educational services and facilities expenses was
      due to: (i) instructional expenses, which increased by $0.2 million, or 1.3%,
      as
      compared to the quarter ended March 31, 2006 due to yearly compensation
      increases; and (ii) facilities expenses, which increased by approximately $1.4
      million over the same quarter in 2006. Approximately $0.5 million of the
      increase in facilities expenses was due to additional square footage at some
      of
      our facilities and higher utility, insurance and property taxes. The remainder
      of the increase was attributable to repairs and maintenance expense at our
      facilities. For the quarter ended March 31, 2007, repairs and maintenance
      expenses increased $0.8 million as compared to the quarter ended March 31,
      2006
      primarily due to higher than normal repairs and maintenance expenses at one
      of
      our schools. As a percentage of revenue, educational services and facilities
      expenses for the first quarter of 2007 increased to 45.7% from 42.6% in
      2006.





***Selling,
      general and administrative expenses*** . 
      Our selling, general and administrative expenses for the quarter ended March
      31,
      2007 were $44.7 million, representing an increase of $6.0 million, or 15.7%,
      as
      compared to $38.7 million for the quarter ended March 31, 2006.  The
      acquisition of FLA resulted in $2.0 million of this increase. The remainder
      of
      the increase in our selling, general and administrative expenses was due to:
      (i)
      a $1.4 million, or 8.6%, increase in sales and marketing expenses due to
      additional admissions representatives hired during the fourth quarter of 2006
      and additional costs incurred in student recruiting and our rebranding
      initiative; and (ii) a $2.5 million, or 13.3%, increase in administrative
      expenses for the quarter ended March 31, 2007 from the quarter ended March
      31,
      2006. Of the increase in administrative expenses, approximately $1.9 million
      was
      attributable to  increases in compensation and benefits and $0.5 million
      was due to higher bad debt expense. As a percentage of revenue, selling, general
      and administrative expenses for the first quarter of 2007 increased to 57.3%
      from 51.1% in 2006.




For
      the
      quarter ended March 31, 2007, our bad debt expense was 4.7% as compared to
      4.2%
      for the same quarter in 2006. This increase was primarily due to higher accounts
      receivable balances at March 31, 2007 as compared to March 31, 2006. Accounts
      receivable at March 31, 2007 included five new campuses that did not exist
      in
      the prior period (our two Euphoria and two FLA campuses as well as our new
      Queens, New York campus). For additional information on our accounts receivable
      balances, see “Operating Activities” below.





***Net
      interest expense*** . 
      Our net interest expense for the quarter ended March 31, 2007 was $0.4 million,
      representing an increase of $0.4 million from the quarter ended March 31,
      2006.  This increase was primarily due to the decrease in our cash balances
      as of March 31, 2007 as compared to March 31, 2006. At March 31, 2007, we had
      $4.7 million of cash and cash equivalents as compared to $41.4 million at March
      31, 2006.





15
 *Index*





***Income
      taxes*** . 
      For the quarter ended March 31, 2007 we recorded a benefit of $1.2 million,
      or
      42.1% of pretax loss, as compared to $2.0 million, or 41.5% of pretax income,
      for the quarter ended March 31, 2006.  The increase in our effective tax
      rate for the three months ended March 31, 2007 was primarily attributable to
      the
      acquisition of FLA.





**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 three months ended March 31, 2007 and
      2006:




**Three
                Months Ended March 31,****2007**
            
            **2006****(in
                thousands)**Net
                cash used in operating activities
            
            $
            (9,092
            )
            $
            (4,854
            )Net
                cash used in investing activities
            
            $
            5,752
            
            $
            3,975Net
                cash provided by (used in) financing activities
            
            $
            13,041
            
            $
            (1
            )





At
      March
      31, 2007 we had cash and cash equivalents of $4.7 million, compared to $6.5
      million as of December 31, 2006.  For the three months ended March 31,
      2007, cash and cash equivalents decreased by approximately $1.8 million from
      December 31, 2006. This decrease was mainly attributable to normal seasonal
      patterns as we have experienced 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 quarter of
      2007, we borrowed $13.0 million under our credit facility. We currently
      anticipate that we will be able to meet both our short-term cash needs, as
      well
      as our need to fund operations and meet our obligations beyond the next twelve
      months with cash generated by operations, existing cash balances and borrowings
      under our credit agreement. At March 31, 2007, we had borrowings available
      under
      our credit agreement of approximately $67.0 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 schools 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
      used in operating activities was $9.1 million for the three months ended March
      31, 2007 compared to $4.9 million for the three months ended March 31,
      2006.  The $4.2 million increase in cash used in operating activities was
      primarily due to our net loss for the period of $1.6 million as compared to
      net
      income of $2.8 million in the quarter ended March 31, 2006.





***Investing
      Activities***




Net
      cash
      used in investing activities increased $1.8 million to $5.8 million for the
      three months ended March 31, 2007 from $4.0 million for the three months ended
      March 31, 2006.  Our cash used in investing activities was primarily
      related to the purchase 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.





16
 *Index*





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




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




***Financing
      Activities***




Net
      cash
      provided by financing activities was $13.0 million for the three months ended
      March 31, 2007 compared to net cash used of $0.1 million for the three months
      ended March 31, 2006.  This increase in 2007 was attributable to our
      borrowing $13.0 million in March 2007 under our credit agreement.




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.  We incurred approximately $0.8 million of deferred finance
      costs under the agreement.




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





**March
                31,**
              **2007**
            
            **December
                31,**
              **2006**Credit
                agreement
            
            $
            13,000
            
            $
            -Finance
                obligation
            
            
            9,672
            
            
            9,672Automobile
                loans
            
            
            32
            
            
            37Capital
                leases-computers (with rates ranging from 6.7% to 10.7%)
            
            
            134
            
            
            151Subtotal
            
            
            22,838
            
            
            9,860Less
                current portion
            
            
            (92
            )
            
            (91
            )$
            22,746
            
            $
            9,769




**Contractual
      Obligations**




***Long-Term
      Debt*** . 
      As of March 31, 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 March 31, 2007, measured from the end of our
      fiscal year, December 31, 2006 (in thousands):





**Payments
                Due by Period****Total**
            
            **Less
                than 1**
              **year**
            
            **2-3
                years**
            
            **4-5
                years**
            
            **After
                5**
              **years**Credit
                agreement
            
            $
            13,000
            
            $
            -
            
            $
            13,000
            
            $
            -
            
            $
            -Capital
                leases (including interest)
            
            
            145
            
            
            79
            
            
            66
            
            
            -
            
            
            -Operating
                leases
            
            
            145,808
            
            
            17,541
            
            
            30,391
            
            
            24,503
            
            
            73,373Rent
                on finance obligation
            
            
            13,120
            
            
            1,334
            
            
            2,669
            
            
            2,669
            
            
            6,448Automobile
                loans (including interest)
            
            
            32
            
            
            22
            
            
            10Total
                contractual cash obligations
            
            $
            172,105
            
            $
            18,976
            
            $
            46,136
            
            $
            27,172
            
            $
            79,821





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





17
 *Index*





**Off-Balance
      Sheet Arrangements**




We
      had no
      off-balance sheet arrangements as of March 31, 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 schools
      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 schools, we cannot predict with certainty the actual number
      of
      new student enrollments and the related impact on revenue. Our expenses,
      however, do not vary significantly over the course of a year with changes in
      our
      student population and net revenues.  During the first half of the year, we
      make significant investments in marketing, staff, programs and facilities to
      ensure that we have the proper staffing to meet our second half targets and,
      as
      a result, such expenses do not fluctuate significantly on a quarterly
      basis.  To the extent new student enrollments, and related revenues, in the
      second half of the year fall short of our estimates, our operating results
      could
      suffer. We expect quarterly fluctuations in operating results to continue as
      a
      result of seasonal enrollment patterns.  Such patterns may change, however,
      as a result of new school openings, new program introductions, increased
      enrollments of adult students and/or acquisitions.





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





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





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





18
 *Index*





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




The
      Company is exposed to certain market risks as part of its on-going business
      operations.  The Company has a credit agreement with a syndicate of
      banks.  The obligations of the Company under the credit agreement are
      secured by a lien on substantially all of the assets of the Company and its
      subsidiaries and any assets that it or its subsidiaries may acquire in the
      future, including a pledge of substantially all of the subsidiaries’ common
      stock.  Outstanding borrowings bear interest at the rate of adjusted LIBOR
      plus 1.0% to 1.75%, as defined, or a base rate (as defined in the credit
      agreement).  As of March 31, 2007, the Company has $13.0 million
      outstanding under the credit agreement.  The interest rate under this
      borrowing was 6.32% at March 31, 2007.





Based
      on
      our outstanding debt balance, a change of one percent in the interest rate
      would
      cause a change in interest expense of approximately $0.1 million, or less than
      $.01 per basic share, on an annual basis.  Changes in interest rates could
      have an impact on our operations, which are greatly dependent on students’
ability to obtain financing. Any increase in interest rates could greatly impact
      our ability to attract students and have an adverse impact on the results of
      our
      operations.





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





**Item
      4.  CONTROLS AND PROCEDURES**




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




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




**PART
      II. OTHER INFORMATION**




**Item
      1.  LEGAL PROCEEDINGS**




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





19
 *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).




20
 *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.





21
 *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:
      May
      10, 2007





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






22