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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM 10-K

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

For the fiscal year ended August 31, 2001

Commission file number 000-29820

Argosy Education Group, Inc.
(Exact name of registrant as specified in its charter)

Illinois 36-2855674
(State or other
jurisdiction of (I.R.S. Employer
incorporation or
organization) Identification No.)

Two First National Plaza, 20 South Clark Street, Suite 2800, Chicago, Illinois
60603
(Former Address: Two First National Plaza, 20 South Clark Street, 3rd Floor,
Chicago, Illinois 60603)
(Address of principal executive offices)

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Registrant's telephone number, including area code: (312) 899-9900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Class A Common Stock
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

YES [X] NO [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant, based upon the $11.90 per share closing sale
price of the registrant's Common Stock on November 9, 2001, was approximately
$18,101,994. For purposes of this calculation, Education Management Corp and
the Registrant's directors and executive officers have been assumed to be
affiliates.

The number of shares outstanding of the registrant's Class A Common Stock,
par value $.01, as of November 9, 2001 was 6,497,296.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our Notice of Special Stockholders Meeting and Proxy Statement
for the Special Meeting of Stockholders, that was held on October 31, 2001, are
incorporated by reference into Part III of this Report.

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ARGOSY EDUCATION GROUP, INC.

FORM 10-K

TABLE OF CONTENTS

Page
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PART I
Item 1. Business............................................................................. 3
Item 2. Properties........................................................................... 25
Item 3. Legal Proceedings.................................................................... 26
Item 4. Submission of Matters to a Vote of Security Holders.................................. 27

PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 28
Item 6. Selected Historical Consolidated Financial Data...................................... 29
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 30
Item 7A. Quantitative and Qualitative Disclosures about Market Risk........................... 38
Item 8. Financial Statements and Supplementary Data.......................................... 39
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 39

PART III
Item 11. Executive Compensation............................................................... 39
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 39
Item 13. Certain Relationships and Related Transactions....................................... 39

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................... 40

Special Note Regarding Forward-Looking Statements:

This Form 10-K contains certain statements which reflect our expectations
regarding our future growth, results of operation, performance and business
prospects and opportunities. Wherever possible, words such as ''anticipate,''
''believe,'' ''plan,'' ''expect'' and similar expressions have been used to
identify these ''forward-looking'' statements as such terms are defined in
Section 21E of the Securities Exchange Act of 1934, as amended. These
statements reflect our current beliefs and are based on information currently
available to us. Accordingly, these statements are subject to risks and
uncertainties which could cause our actual growth, results, performance and
business prospects and opportunities to differ from those expressed in, or
implied by, these statements. These risks and uncertainties include the
consummation of the Education Management Corp merger, implementation of our
operating and growth strategy, risks inherent in operating private for-profit
postsecondary education institutions, risks associated with general economic
and business conditions, charges and costs related to acquisitions, and our
ability to: successfully integrate our acquired institutions and continue our
acquisition strategy, attract and retain students at our institutions, meet
regulatory and accrediting agency requirements, compete with enhanced
competition and new competition in the education industry, and attract and
retain key employees and faculty. We assume no obligation to update or revise
these forward-looking statements to reflect new events or circumstances.

PART I

ITEM 1. BUSINESS

General Overview

The Company is the nation's largest for-profit provider of doctoral level
programs. The Company's mission is to provide academically-oriented,
practitioner-focused education in fields with numerous employment opportunities
and strong student demand. In addition to doctoral and masters degrees in
psychology, education, business, and law, the Company also awards bachelor's
degrees in business, associate degrees in health sciences and diplomas in
information technology. For the 2000-2001 school year, approximately 61% of the
Company's students were enrolled in doctoral programs. In 2000, the Company
graduated approximately 264 clinical psychology doctoral students out of
approximately 1,648 psychology doctoral degrees conferred nationwide. The
Company operates 18 campuses in nine states and the Province of Ontario,
Canada, and had a total of approximately 5,700 students, representing 50 states
and 20 foreign countries, enrolled for the 2000-2001 school year.

The Company was founded in 1975, when the Company's Chairman, Michael C.
Markovitz, Ph.D., ("Dr. Markovitz") recognized a demand for a non-research
oriented professional school that would educate and prepare students for
careers as clinical psychology practitioners. To address this demand, the
Company started the Illinois School of Professional Psychology in Chicago,
Illinois in 1976 and, in its first year of operations, received several
thousand inquiries for admission to a class of 70 students for the PsyD degree.
The continuing demand for high quality, practitioner-focused psychology
postgraduate education led the Company to expand the renamed American Schools
of Professional Psychology to ten campuses located across the United States. In
response to a broader demand for quality career education, the Company has
expanded beyond the psychology curriculum with the acquisitions of (i) the
University of Sarasota, a degree-granting institution focusing primarily on
postgraduate business and education (March 1992); (ii) the Medical Institute of
Minnesota, a degree-granting institution focusing on a variety of allied health
professions (February 1998); (iii) PrimeTech Institute, an institution granting
diplomas in computer programming and other aspects of information technology
and in paralegal studies (November 1998) and (iv) John Marshall Law School and
Western State University College of Law, degree-granting institutions offering
the juris doctor degree (March 2001). In addition, the Company became the
largest provider of postgraduate psychology license examination preparation
courses and materials in the United States by its acquisition of Ventura in
August 1997. Through Ventura, the Company also provides professional licensure
examination materials and workshops for social work; marriage, family and child
counseling; marriage and family therapy; and counseling certification
examinations nationwide In 2001, the Company purchased The Connecting Link, a
provider of graduate level, continuing education courses for primary and
secondary school educators.

EDMC Acquisition

On July 9, 2001, the Company entered into an Agreement and Plan of Merger
with Education Management Corporation ("EDMC") and HAC, Inc., a wholly-owned
subsidiary of EDMC, pursuant to which HAC will merge with and into the Company,
with the Company continuing as the surviving corporation. In the merger,
holders of the Company's common stock will receive $12.00 per share, without
interest, for each share of all of the Company's outstanding common stock. EDMC
also entered into a Stock Purchase Agreement with Dr. Markovitz providing for
the purchase of his shares of Argosy common stock at $12.00 per share, subject
to rescission if the merger contemplated by the Merger Agreement is not
consummated by December 31, 2001. The purchase of Dr. Markovitz's shares was
completed on September 26, 2001.

On October 31, 2001, a special shareholders meeting was held and the Company
announced its shareholders voted in favor of the Agreement and Plan of Merger
by and among the Company, EDMC and HAC Inc., a wholly owned subsidiary of
Education management. The agreement was approved at a special shareholder
meeting.

There are approximately 6.5 million AEG shares outstanding. The merger is
expected to close in December 2001 and is subject to customary conditions,
including regulatory approvals. At the effective time of the merger, the
separate corporate existence of HAC, Inc. will cease and Argosy will continue
as a wholly-owned subsidiary of EDMC.

Under the EDMC Merger Agreement, EDMC retained the ability, at their
election and upon notice to the Company, to cause the Company to dispose of
John Marshall Law School and/or PrimeTech (the "Excluded Operations"). EDMC has
so elected. Under the Stock Purchase Agreement, Dr. Markovitz agreed, upon the
Company's request, to purchase the Excluded Operations for nominal
consideration. The Company has so requested. Dr. Markovitz purchased PrimeTech
for $1.00 effective October 31, 2001 and is expected to purchase John Marshall
for $1.00 effective November 30, 2001. As a result:

. the net assets of the Excluded Operations are considered to be
impaired,

. the net assets of the Excluded Operations were adjusted to the
purchase price of $1.00 each as of August 31, 2001, and

. an impairment charge of $1.5 million ($1.0 million for PrimeTech;
$0.5 million for John Marshall) was recorded in operations in the
fourth quarter of fiscal 2001.

Schools

The Company operated the following schools (through August 31, 2001):

. American Schools of Professional Psychology (''ASPP'') grants
doctoral and master's degrees in clinical psychology and related
disciplines at ten campuses located in Illinois (2), Minnesota,
Georgia, Virginia, Hawaii, Arizona, Florida, California and
Washington. ASPP is accredited by the Higher Learning Commission and
is a member of the North Central Association of Colleges and Schools
(''NCA''), and six of its campuses are accredited by the American
Psychological Association (''APA'').

. University of Sarasota (''U of S'') grants doctoral, master's and
bachelor's degrees at three campuses located in Sarasota, Florida,
Tampa, Florida and Orange, California. U of S was accredited by the
Southern Association of Colleges and Schools (''SACS'') until
September 1, 2001 and is now accredited by NCA.

. Medical Institute of Minnesota (''MIM'') grants associate degrees at
one campus in Minneapolis, Minnesota. MIM is institutionally
accredited by the Accrediting Bureau of Health Education Schools
(''ABHES''), and additionally holds individual programmatic
accreditation appropriate to each degree program offered, and is now
accredited by NCA.

. Western State University College of Law ("WSU") grants the juris
doctor degree at one campus in Fullerton, California. The institution
is provisionally accredited by the American Bar Association and is
regionally accredited by the Western Association of Schools and
Colleges.

. John Marshall Law School ("JMLS") grants the juris doctor degree at
one campus in Atlanta, Georgia. The school is approved to award the
J.D. degree by the Supreme Court of Georgia.

. PrimeTech Institute (''PrimeTech'') awards diplomas at two campuses
in Ontario, Canada.

In addition, Ventura publishes materials and holds workshops in select
cities across the United States to prepare individuals to take various national
and state administered oral and written health care licensure examinations in
psychology and other mental health disciplines.

The Connecting Link provides graduate level, continuing education courses to
educators. The Connecting Link partners with local, regionally accredited
institutions that provide the credit for each of these courses, after approving
the instructors and curricula developed by The Connecting Link. Students then
apply these credits toward career advancement and/or continuing education
requirements of the states' teacher license.

On September 1, 2001 three of the Argosy Education Group, Inc. schools,
ASPP, U of S and MIM were merged to create Argosy University. For the purpose
of this discussion related to fiscal 2001 and prior we will address the schools
as separate entities (see section entitled "Growth Strategy" for further
discussion).

The following table sets forth certain additional information regarding the
Company's schools and their various campuses:

As of
August 31,
Year Date 2001
School and Campus Locations Opened Acquired Accreditation
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American Schools of Professional Psychology NCA
Illinois School of Professional
Psychology/Chicago........................ Chicago, IL 1976 -- APA
Illinois School of Professional
Psychology/Chicago Northwest.............. Rolling Meadows, IL 1979 March 1994 APA
Minnesota School of Professional Psychology. Minneapolis, MN 1987 -- APA
Georgia School of Professional Psychology... Atlanta, GA 1990 -- APA
American School of Professional
Psychology/Virginia....................... Arlington, VA 1994 -- APA
American School of Professional
Psychology/Hawaii......................... Honolulu, HI 1979 March 1994 APA
Arizona School of Professional Psychology... Phoenix, AZ 1997 --
Florida School of Professional Psychology(1) Tampa, FL 1995 Sept. 1998
American School of Professional Psychology/
San Francisco Bay Area Point.............. Richmond, CA 1998 Sept. 1998
Washington School of Professional Psychology Seattle, WA 1997 Sept. 1999

University of Sarasota SACS
University of Sarasota/Honore............... Sarasota, FL 1969 March 1992
University of Sarasota/Tampa................ Tampa, FL 1997 --
University of Sarasota/California........... Orange, CA 1999 --
Medical Institute of Minnesota.............. Minneapolis, MN 1961 Feb. 1998 ABHES

PrimeTech Institute
PrimeTech Institute/City Campus............. Toronto, Ontario 1995 Nov. 1998
PrimeTech Institute/Scarborough............. Scarborough, Ontario 1999 --
John Marshall Law School.................... Atlanta, Georgia 1933 Mar. 2001
Western State University College of Law..... Fullerton, CA 1966 Mar. 2001 ABA
(provisional)
WASC

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(1) Historically operated as a unit of the University of Sarasota.

Industry Overview

According to the National Center for Education Statistics (the ''NCES'') of
the United States Department of Education (''DOE''), education is the second
largest sector of the U.S. economy, accounting for approximately 8% of gross
domestic product in 1997, or over $600 billion. The Company's schools are part
of the postsecondary education market, which accounts for approximately
one-third of the total sector. Of the

approximately 6,000 postsecondary schools that are eligible to participate in
the student financial aid programs (''Title IV Programs'') administered by DOE
under the Higher Education Act of 1965, as amended (''HEA''), approximately 500
are for-profit degree-granting institutions such as the Company's schools.

The NCES estimates that by the year 2009 the number of students enrolled in
higher education institutions will increase from current estimated levels by
more than 1.5 million, to over 16 million students. The Company believes that a
significant portion of this growth in the postsecondary education market will
result from an increase in the number of new high school graduates, an increase
in the number of college graduates attending postgraduate institutions and the
increased enrollment by working adults in postsecondary and postgraduate
institutions. According to the NCES, the number of new high school graduates is
expected to increase by approximately 24%, from 2.5 million graduates in 1994
to 3.1 million graduates in 2004. Over the same period, the number of college
graduates attending postgraduate institutions is expected to increase by
approximately 100,000 students. The NCES estimates that, over the next several
years, initial enrollments in postsecondary education institutions by working
adults will increase more rapidly than initial enrollments of recent high
school graduates.

The postsecondary education industry generally is expected to benefit from
the public's increased recognition of the value of a postsecondary education.
According to the NCES, the percentage of recent high school graduates who
continued their education after graduation increased from approximately 53% in
1983 to approximately 65% in 1996. The percentage of college graduates
continuing to postgraduate institutions remained relatively constant, at 11%,
over the same period. The Company believes that students pursue higher
education for a variety of reasons, including the increased prestige associated
with academic credentials, career change and development, intellectual
curiosity and the income premium associated with higher education. According to
Census Bureau data, in 1997 the income premiums over comparable workers with
high school diplomas for associate, bachelor's, master's and doctoral degree
holders were 26%, 57%, 103% and 175%, respectively.

Business Strategy

The Company's mission is to provide academically-oriented,
practitioner-focused education in fields with numerous employment opportunities
and strong student demand. The key elements of the Company's business strategy
are as follows:

Focusing on Advanced Degrees. Approximately 61% of the Company's students
are enrolled in doctoral programs (including 8% JD as doctorate), an additional
24% pursuing master's degrees and the remainder pursuing bachelor's or
associate degrees or diplomas. Management believes that the Company's emphasis
on advanced degree programs provides greater predictability of tuition revenue
and reduces recruitment cost per enrolled student, as compared to lower level
degree programs, due to a number of factors, including the longer term of most
advanced degree programs, the higher student retention rates experienced in
more advanced degree programs and the narrower target markets for advanced
degree programs. Consistent with this philosophy, the Company plans to expand
some of its associate degree programs, such as those offered by MIM, to
bachelor's degree programs. By offering more advanced degree programs, the
Company can also take advantage of the tendency of many graduates of master's,
bachelor's and associate degree programs to continue their education at the
same institution if appropriate advanced degree programs are offered.

Focusing on Curricula with Practical Professional Applications. The Company
was founded to respond to a demand for postgraduate education that focuses on
practical professional applications instead of research. The Company's academic
programs are designed to prepare students to work in their chosen professions
immediately upon graduation. Psychology graduate students, for example, gain
significant practical professional experience through a required internship
program. Similarly, MIM requires all of its students to participate in a
field-based internship. The Company's programs for professional educators also
focus on practical benefits by offering the academic credentials and skills in
discrete sub-specialties required for promotion and increased compensation.

This practitioner-focused approach provides the additional benefits of
attracting highly motivated students and increasing student retention and
graduate employment. The Company's professional test preparation business
provides it with another means of participating in the practical education
needed for graduates in many fields to become practitioners.

Refining and Adapting Educational Programs. Each of the Company's schools
strives to meet the changing needs of its students and changes in the
employment markets by regularly refining and adapting its existing educational
programs. To do so, the Company has implemented its Institutional Effectiveness
Review which is designed to provide periodic feedback from senior management,
faculty and students with a view toward consistently improving the quality of
each school's academic programs. Through the process, the Company solicits the
views of each of these participants on quality improvement issues such as
curriculum innovations which can meet existing or expected employment and
student needs and class scheduling and other program administrative
improvements.

Emphasizing School Management Autonomy and Accountability. The Company
operates with a decentralized management structure in which local campus
management is empowered to make most of the day-to-day operating decisions at
each campus and is primarily responsible for the profitability and growth of
that campus. Appropriate performance-based incentive compensation arrangements
have been implemented by the Company to reinforce the accountability of local
campus management under this structure. At the same time, the Company provides
each of its schools with certain services that it believes can be performed
most efficiently and cost-effectively by a centralized office. Such services
include marketing, accounting, information systems, financial aid processing
and administration of regulatory compliance. The Company believes this
combination of decentralized management and certain centralized services
significantly increases its operational efficiency.

Growth Strategy

The Company's objective is to achieve growth in revenue and profits while
consistently maintaining the integrity and quality of its academic programs.
The key elements of the Company's growth strategy are as follows:

Argosy University. On September 1, 2001, three of the Argosy Education
Group, Inc. schools, ASPP, U of S and MIM will be merged to create Argosy
University. Among the strategic advantages identified are the following:

. Economies of scale--Operating as one entity allows efficiencies in
facilities, student recruitment, marketing, advertising and other
communications, information technology, student financial aid and a
host of other administrative functions.

. Clearer identity--Communicating one brand consistently to all
audiences raises awareness and create greater understanding among
current and prospective students about the inherent value of the
Argosy franchise.

. Simplified accrediting and regulatory relationships--As of September
1, 2001, Argosy University and all its campuses considered a single
institution by the U.S. Department of Education and will be
accredited by the Higher Learning Commission and are members of the
North Central Association of Schools and Colleges. Managing state
regulatory affairs also will become less burdensome.

. Streamlined corporate governance--Under the Argosy University
structure, the need for school-specific boards eventually will be
eliminated.

Such an endeavor represents a major undertaking that requires the focus and
dedication of all management disciplines. Each campus will continue to offer
its current curricular programs, and over time will add new programs in
Argosy's core disciplines of psychology, education, businesses, and health
services. This approach will ultimately lead to a nationwide network of
full-service Argosy University campuses offering both graduate and
undergraduate degree programs.

Emphasizing Student Recruitment and Retention. The Company believes that it
can increase total enrollment at its campuses through the implementation of an
integrated marketing program that utilizes direct response marketing. The
Company also believes it can increase its profitability through improvements in
student retention rates, as the cost of efforts to keep current students in
school are less than the expense of attracting new students.

Expanding Program Offerings. The Company regularly engages in the
development of new, and the expansion of existing, curricular offerings at the
doctoral, master's, bachelor's, associate and certificate levels. Of the 18
degree-granting programs currently offered by the Company, five have been
introduced since 1995. In 1999 the Company began offering courses in its new
sports psychology program. In 2000, the Company initiated masters of arts
(''MA'') in forensic psychology. In 2002, the Company will institute a bachelor
of arts in psychology degree completion program. The Company believes that
there are significant opportunities to develop additional new programs, such as
its new dental hygienics and radiation therapy at MIM. Once new programs have
proven successful at one school, the Company seeks to expand them to its other
schools. For example, Argosy University currently offers an MA degree in
counseling at six of its campuses and is in the process of making this program
available at the remaining Argosy University campuses.

The Company believes that significant opportunities exist in providing
educational services that are related to its current program offerings. Through
Argosy Professional Services, the Company has become a leading provider of test
preparation programs for psychology licensure examinations. These programs
bring the Company in contact with a significant number of current and future
psychology practitioners, which the Company believes can offer an opportunity
to market additional educational programs in the future. For example, the
Company believes that non-degree continuing education programs will
increasingly be mandated by state licensing authorities; this represents an
opportunity for the Company to provide services not only for the graduates of
its schools, but also for the broader universe of licensed health care
providers to which it gains access through its Argosy Professional Services
test preparation programs.

Also on March 1, 2001, the Company acquired The Connecting Link, a privately
held provider of continuing professional education for kindergarten to grade 12
teachers. The Connecting Link provides graduate level, continuing education
courses to educators. The Connecting Link partners with local, regionally
accredited institutions that provide the credit for each of these courses,
after approving the instructors and curricula developed by The Connecting Link.
Students then apply these credits toward career advancement and/or continuing
education requirements of the states' teacher license.

Adding New Campuses. The Company seeks to expand its presence into new
geographic locations. Nine of the Company's 18 campuses were developed by the
Company internally. The Company regularly evaluates new locations for
developing additional campuses and believes that significant opportunities
exist for doing so. Accordingly, the Company plans on adding one Argosy
University campus (formerly ASPP, MIM and U of S) during the next fiscal year
and two additional campuses every year thereafter. Of the 21 metropolitan areas
in the United States with a population in excess of two million persons, nine
do not have a graduate school of professional psychology that award the PsyD
degree.

Acquisitions. Based on recent experience and internal research, the Company
believes that, in both the for-profit and not-for-profit postgraduate education
industry, most schools are small, stand-alone entities without the benefits of
centralized professional management, scale economies in purchasing and
advertising or the financial strength of a well-capitalized parent company. The
Company intends to capitalize on this fragmentation by acquiring and
consolidating attractive schools and educational programs. The Company has
acquired 9 of its 18 campuses, four of which were for-profit and five of which
were originally not-for-profit, and the Ventura test preparation business and
The Connecting Link. The Company believes there are significant opportunities
to acquire schools which can serve as platforms for program and campus
expansion. Prime acquisition candidates are those that have the potential to be
quickly developed into profitable, accredited degree-granting schools offering
programs consistent with the Company's mission.

Western State

On March 1, 2001, the Company completed its acquisition of Western State
University College of Law, in Fullerton, California (''Western State'')
pursuant to the terms of the Stock Purchase Agreement dated as of November 14,
2000, between Argosy and Western State. Consideration for the purchase
consisted of $9.4 million in cash and the assumption of $3.9 million in debt,
and certain purchase price adjustments as provided in the purchase agreement.
Since its founding in 1966, the school has graduated more than 10,000 students.
Approximately 25 percent of the lawyers practicing in Orange County and 15
percent of those practicing in the Inland Empire and the Long Beach area are
Western State University graduates. The college is accredited by the Western
Association of Schools and Colleges and provisionally approved by the American
Bar Association.

John Marshall

As of September 1, 1999, the Company entered into an agreement to manage
John Marshall. The agreement was for 10 years and included an option to
purchase John Marshall which was exercisable at the Company's discretion. In
addition, a line of credit of $0.6 million was established between the Company
and John Marshall. Prior to the acquisition on March 1, 2001, the Company
advanced $0.5 million under the line of credit and approximately $3.6 million
to fund operations.

The Connecting Link

Programs of Study

The following programs of study for ASPP, MIM and U of S were combined under
Argosy University on September 1, 2001. The programs will continue under Argosy
University.

ASPP. ASPP grants postgraduate level degrees in a variety of specialties
within the field of clinical psychology. The Company offers a doctorate in
clinical psychology, master's of arts degrees in psychology and professional
counseling and a master's of science degree in health services administration.
ASPP also offers postdoctoral program. Approximately 62% of ASPP's students are
enrolled in the PsyD program in various specialties and, of the students
enrolled in the clinical MA program, historically more than 60% continue in the
PsyD program.

The Company was among the first academic programs in the United States to
offer the practitioner-focused PsyD degree, as compared to the
research-oriented PhD degree. The PsyD is a four-year program consisting of one
year of classroom training, two years divided between classroom training and
fieldwork practicum and a fourth year consisting of a paid internship. The
program focuses on practical issues in clinical psychology as compared to
abstract research topics. For example, fourth year students prepare a case
study as their final project, rather than a doctoral dissertation. Clinical MA
students complete a two-year program, all of which can be carried over into the
PsyD program.

In connection with its emphasis on a practitioner-focused education, ASPP
offers a variety of minors to be pursued in connection with the PsyD program.
For example, the Chicago campus offers minors in the areas of

Family Psychology, Ethnic Racial Psychology, Psychoanalytic Psychology, Sexual
Abuse Psychology, Health Psychology and Psychology and Religion. The Minnesota
campus also offers the Health Psychology and Psychology and Religion
subspecialties, as well as a minor in Child and Family Psychology.

The master's of arts program in professional counseling is a two-year
program combining classroom training and fieldwork. Typically offered in the
evening and on weekends, this program aims to provide the skills and training
needed by individuals to practice as licensed professional counselors in a wide
variety of governmental, community and private settings.

ASPP's academic programs are highly respected in the field. Since its
inception in 1976, ASPP has graduated over 2,800 students. While its focus is
on practice rather than research, its graduates also include PsyDs who now
serve as tenured faculty members at Harvard University and Northwestern
University.

U of S. U of S grants postgraduate and bachelor's level degrees in
education, business and behavioral science. U of S offers a doctorate in
education (''EdD''), a master's of arts in education (''MEd'') and an
educational specialist degree (''EdS''), each with various majors or
concentrations, such as curriculum and instruction, human services
administration, counseling psychology and educational leadership. In business,
U of S offers a doctorate in business administration (''DBA''), a master's of
business administration (''MBA'') and a bachelor's of science in business
administration (''BSBA''), each with various majors or concentrations, such as
information systems, international business, management and marketing.

The DBA, MBA and BSBA degrees are offered both part-time and full-time and
consist of classes in disciplines such as statistics, economics, accounting and
finance. The DBA is a three-year program; the MBA is a two-year program, which
may count towards two of the three years required for the DBA; and the BSBA is
a two-year degree completion program.

The master and doctoral level education and behavioral sciences programs are
offered to professional educators from across the U.S. The programs consist of
an innovative combination of distance learning and personal interaction,
allowing students to complete a significant percentage of the preparatory work
for each course at home in advance of an intensive in-person instructional
period, typically scheduled during breaks in the academic year. The Company
believes that an important aspect of the learning experience is the student's
interaction with faculty and other students. The EdD is a three-year program,
and the MAEd and EdS are two-year programs.

MIM. MIM offers associate degrees (''AA'') in a variety of health science's
professions including dental hygienist, radiation therapist, veterinary
technician, diagnostic medical sonographer, histotechnician, medical assistant,
medical laboratory technician and radiologic technologist. Currently,
approximately 60% of the students are enrolled in the veterinary technician
program. The programs typically consist of 12-15 months of full-time classroom
training and two to six additional months of internship.

PrimeTech. PrimeTech offers diploma programs in network engineering,
internet engineering, software programming and paralegal studies. The programs
typically consist of 12-18 months of full-time course work, which can be taken
on a part-time basis and which is completed on-site.

Ventura. Ventura publishes materials and holds workshops in select cities
across the United States to prepare individuals to take various national and
state administered oral and written health care licensure examinations in the
fields of psychology, social work, counseling, marriage and family therapy, and
marriage, family and child counseling. The programs typically last three to
four days and are conducted at various locations throughout the United States.

John Marshall Law School. JMLS is a law school approved by the Supreme Court
of Georgia to award the Juris Doctor degree.

Western State University. WSU grants the Juris Doctor degree and is the
oldest law school in Orange County, California. The program achieved
provisional accreditation from the American Bar Association in 1998.

The Connecting Link. The Connecting Link provides graduate level, continuing
education courses to educators. The Connecting Link partners with local,
regionally accredited institutions that provide the credit for each of these
courses, after approving the instructors and curricula developed by The
Connecting Link. Students then apply these credits toward career advancement
and/or continuing education requirements of the states' teacher license.

Student Body

Recruitment

The Company seeks to attract students with both the motivation and ability
to complete the programs offered by its schools. To generate interest, the
Company engages in a broad range of activities to inform potential students and
their parents about its schools and programs of study.

The general reputation of the Company's schools and referrals from current
students, alumni and employers are the largest sources of new students. The
Company believes that the majority of ASPP's students for the 2001 fiscal year
were enrolled through referrals from current and former students as well as
employees and others who have worked with ASPP's graduates. The Company also
employs marketing tools such as its web sites and creates publications and
other promotional materials for the Company's schools, participates in school
fairs and uses other traditional recruitment techniques common to undergraduate
and postgraduate institutions. The goal of the Company's recruitment efforts is
to increase awareness of the Company's schools among potential applicants in a
cost-effective and dignified manner.

The curicula of psychology, business and education appeal to academically
oriented students, ASPP and U of S seek to appeal to academically-oriented
students, students who might otherwise elect to attend a state-sponsored or
private university and who expect to see recruitment efforts and materials
consistent with such universities. Health services and information technology
appeal to students who are strictly seeking career-enhancing education and
students who may not have college or university experience. These students
typically respond to more traditional commercial marketing efforts. Ventura
markets its programs directly to graduates of postgraduate psychology schools
that have registered to take postgraduate licensure exams.

The following table sets forth certain statistics regarding the student body
at each of the Company's schools for the 2000-2001 academic year:

Number of Average % Graduate
School Students Age Programs
------ --------- ------- ----------

American Schools of Professional Psychology...... 2,680 32 100%
University of Sarasota........................... 2,236 41 99%
Medical Institute of Minnesota................... 731 26 0%
PrimeTech Institute.............................. 277 30 0%
John Marshall Law School......................... 277 30 100%
Western State University......................... 151 26 100%

Admission

The Company's admissions objective is to achieve controlled student
enrollment growth while consistently maintaining the integrity and quality of
its academic programs. At each of the Company's schools, student admissions are
overseen by a committee, comprised principally of members of the faculty that
reviews each

application and makes admissions decisions. Differing programs within the
Company operate with differing degrees of selectivity. Some of the Company's
programs, particularly its postgraduate psychology programs, receive many more
applications for admission than can be accommodated. Admissions criteria for
such programs include a combination of prior academic record, performance on an
admissions essay and work experience. The Company believes that other of its
programs are beneficial to anyone who possesses the necessary qualifications
and chooses to enroll. Such programs tend to be less selective; however, the
Company does screen students both for their commitment to completing a
particular program of study and their aptitude for the academic subject matter
of their chosen program. Upon passing the various screens of the admissions
process, successful applicants are notified of acceptance into the program of
their choice. All of the Company's schools use a rolling admissions format.

Retention

The Company recognizes that the ability to retain students until graduation
is an important indicator of the success of its schools and of its students. As
with other postsecondary institutions, students at the Company's schools may
fail to finish their programs for a variety of personal, financial or academic
reasons. While ASPP doctoral students have seven years to complete their
studies, students generally complete the program in approximately five and
one-half years. Over 62% of the members of ASPP's 1993 entering doctoral class
graduated in 1998, and historically approximately 70% of ASPP's students
ultimately complete their degree. U of S, MIM and PrimeTech have historically
had completion rates similar to those of ASPP, although MIM and PrimeTech have
substantially shorter programs. The Company believes MIM's and PrimeTech's
completion rates are higher than those of many other associate degree and
diploma programs. To reduce the risk of student withdrawals, the Company
counsels students early in the application process to gauge their commitment to
completing their chosen course of study.

Student retention is considered an entire school's responsibility, from
admissions to faculty and administration to career counseling services. To
minimize student withdrawals, faculty and staff members at each of the
Company's campuses strive to establish personal relationships with students.
Each campus devotes staff resources to advising students regarding academic and
financial matters, part-time employment and other matters that may affect their
success. In addition, the Company's senior management regularly tracks
retention rates at each campus and provides feedback and support to local
campus administrators.

Tuition and Fees

The Company's schools invoice students for tuition and other institutional
charges by the term of instruction. Each school's refund policies meet the
requirements of the DOE and such school's state and accrediting agencies.
Generally, if a student ceases attendance during the first 60% of any term for
which he or she received Title IV Program funds, the applicable school will
refund institutional charges based on the number of days remaining in that
term. After a student has attended 60% of that term, the school generally is
allowed to retain 100% of the institutional charges.

The Company has historically implemented tuition increases each year at or
above the rate of inflation. Average tuition increases at the Company's schools
for fiscal 1999, 2000, and 2001 were 5.2%, 5.1%, and 5.7%, respectively.

The following table sets forth the average total tuition to complete a
degree at each of the Company's schools, based on tuition rates for the
2000-2001 academic year:

Average
Total Length of
School Tuition Program
------ -------- ------------

American Schools of Professional Psychology
PsyD........................................................... $ 58,650 4 years
MA (Clinical).................................................. $ 29,070 2 years
MA (Counseling)................................................ $ 18,480 2 years
University of Sarasota
DBA, EdD....................................................... $ 26,220 3 years
MAEd........................................................... $ 15,483 2 years
EdS............................................................ $ 11,910 2 years
MBA............................................................ $ 10,320 2 years
MA............................................................. $ 19,056 2 years
A.A.S.......................................................... $ 16,320 12-18 months
Medical Institute of Minnesota
A.S............................................................ $ 22,317 15-21 months
PrimeTech Institute (Canadian $).................................. $ 26,302
Certificate programs in various computer, accounting and legal
disciplines.................................................. various 12-18 months
John Marshall Law School.......................................... $ 38,400 4 years
Western State University.......................................... $ 66,504 3 years

Graduate Employment

The Company believes that employment of its graduates in occupations related
to their fields of study is critical to the ability of its schools to continue
to recruit students successfully. Based on information received from graduating
students and employers, the Company believes that students graduating from the
Company's schools enjoy considerable professional success. ASPP's graduating
class for the 1999-2000 school year, for example, reported a 93% employment
rate in their area of study within six months after graduation. U of S's
education students are primarily working professional educators, and thus by
definition, have a significant graduate employment rate. The success of their
educational experience is measured by continued and accelerated success in
their field. MIM and PrimeTech each provide academic programs specifically
tailored to a student's career goals. MIM's and PrimeTech's graduating classes
for the 1999-2000 school year reported employment rates in their relevant
fields of study within six months of graduation of 85% and 75%, respectively.

Faculty

The Company seeks to attract and retain faculty with outstanding credentials
in their respective fields for each of its schools. Each of the Company's
schools attempts to employ faculty members who are dedicated to the teaching
profession and to provide such faculty members with a stimulating and
professional academic environment and competitive compensation package. The
Company emphasizes a core staff of full-time faculty members to maintain
continuity and consistency across its academic programs, augmented by adjunct
faculty with significant industry experience. The Company's schools each employ
dedicated faculty with significant experience and credentials in their
respective fields to provide the personal interaction that is critical to the
academic experience. The Company also encourages its full-time faculty members
to engage in meaningful outside professional activities to retain current
practical experience. The Company has implemented its Institutional
Effectiveness Review providing periodic feedback to faculty from senior
management, faculty peers and students with a view toward consistently
improving the quality of each school's academic programs.

The following table sets forth certain information regarding the faculty at
each of the Company's schools as of August 31, 2001:

Adjunct
School Faculty Faculty(1) Highest Degree of Full-Time Faculty
------ ------- ---------- -----------------------------------

American Schools of Professional Psychology 92 177 100% Doctoral (PhD or PsyD)

University of Sarasota..................... 37 42 97% Doctoral, 3% Master's

Medical Institute of Minnesota............. 35 49 9% Doctoral, 14% Master's,
35% Bachelor's,
10% Associate,
32% Certificate

PrimeTech Institute........................ 9 15 12% Doctoral, 38% Master's,
50% Bachelor's

John Marshall Law School................... 8 15 100% J.D.

Western State University................... 20 31 100%J.D.
- -------------------------------------------

(1) Represents faculty members teaching at least one class during the 2000-2001
academic year.

Governance of the Company's Schools

Each campus is managed locally by a Campus President who reports either to
the Vice President of Operations (Scott Tjaden, PhD-appointed on October 1,
2001) or directly to the Argosy Chief Operating Officer (Jim Otten, PhD).
PrimeTech is headed by Unit President Fred Fischer who reports to the board of
directors and consults with the President of the Company (Jim Otten). Scott
Ables, General Manager of Ventura and The Connecting Link, also reports to the
President of the Company. U of S, MIM, John Marshall, and Western State each
had an independent Board of Directors, separate from the Company's Board but
elected by the Company as sole shareholder. These local boards of directors
independently made and approved policies and budgets. ASPP, U of S, MIM now has
one common board following the creation of Argosy University on September 1,
2001.

Competition

The postsecondary education market in the United States is highly fragmented
and competitive, with no private or public institution enjoying a significant
market share. The Company competes for students with postgraduate, four year
and two-year degree-granting institutions, which include non-profit public and
private colleges, universities and for-profit institutions. An attractive
employment market also reduces the number of students seeking postgraduate
degrees, thereby increasing competition for potential postgraduate students.
Management believes that competition among educational institutions is based on
the quality of educational programs, location, perceived reputation of the
institution, cost of the programs and employment opportunities for graduates.
Certain public and private colleges and universities may offer programs similar
to those of the Company at a lower tuition cost due in part to governmental
subsidies, government and foundation grants, tax deductible contributions or
other financial resources not available to proprietary institutions. Other
proprietary institutions also offer programs that compete with those of the
Company. Moreover, there is an increase in competition in the specific
educational markets served by the Company. For example, excluding PsyD programs
offered by the Company, in the 1992 academic year there were 36 PsyD programs
existing in the United States, while in the 1997 academic year there were 54
PsyD programs in the United States. Certain of the Company's competitors in
both the public and private sector have greater financial and other resources
than the Company.

PrimeTech operates in the Province of Ontario, Canada where a number of
competing programs exist, both in the public and private sectors, which offer a
broad spectrum of content and pricing.

Employees

As of August 31, 2001, the Company employed 522 persons. Of this number, 50
were employed in the Company's corporate headquarters, 210 were full-time or
permanent part-time faculty members and 262 were working as administrative or
support staff deployed at the various Company locations. None of the Company's
employees are unionized. The Company believes its relations with its employees
are generally good.

FINANCIAL AID AND REGULATION

Accreditation

Accreditation is a non-governmental process through which an institution
voluntarily submits itself to qualitative review by an organization of peer
institutions. The three types of accrediting agencies are (i) national
accrediting agencies, which accredit institutions on the basis of the overall
nature of the institutions without regard to their locations, (ii) regional
accrediting agencies, which accredit institutions principally located within
their geographic areas, and (iii) programmatic accrediting agencies, which
accredit specific educational programs offered by an institution. Accrediting
agencies primarily examine the academic quality of the instructional programs
of an institution, and a grant of accreditation is generally viewed as
certification that an institution's programs meet generally accepted academic
standards. Accrediting agencies also review the administrative and financial
operations of the institutions they accredit to ensure that each institution
has the resources to perform its educational mission.

Pursuant to provisions of the HEA, the DOE relies in part on accrediting
agencies to determine whether an institution and its educational programs
qualify to participate in the Title IV Programs. The HEA specifies certain
standards that all recognized accrediting agencies must adopt in connection
with their review of postsecondary institutions. Accrediting agencies that meet
the DOE standards are recognized as reliable arbiters of educational quality.
The HEA requires each recognized accrediting agency to submit to a periodic
review of its procedures and practices by the DOE as a condition of its
continued recognition.

All of the Company's U.S. campuses are accredited by an accrediting agency
recognized by the DOE, (except John Marshall Law School.) These accrediting
agencies are the Higher Learning Commission of the North Central Association of
Colleges and Schools (''NCA''), the Southern Association of Colleges and
Schools (''SACS''), the Accrediting Bureau of Health Education Schools/Programs
(''ABHES'') and the American Psychological Association (''APA''). NCA, SACS and
ABHES are institutional accrediting bodies which accredit the entire
institution. The APA is a programmatic accrediting body which does not accredit
the entire institution, but only specific programs offered by the institution.
ASPP is institutionally accredited by NCA to offer both doctoral and master's
degrees at all of its campuses. ASPP's Chicago, Minneapolis, Atlanta, Hawaii,
Rolling Meadows and Virginia campuses also have programmatic accreditation by
the APA for the PsyD degree. Currently, ASPP's Florida campus has hosted the
APA on a site visit which is a preliminary step to potentially full
accreditation. Although APA accreditation is not currently required, failure to
obtain such accreditation could adversely affect state authorization of this
campus in future periods or the ability of graduates of this campus to obtain
state licenses to practice. U of S is institutionally accredited by SACS to
award doctoral, master's and bachelor's degrees in business, doctoral and
master's degrees in education and doctoral and master's degrees in psychology.
With the formation of Argosy University on September 1, 2001, Argosy University
will be accredited by NCA. PrimeTech is approved as a private vocational school
in the Province of Ontario, Canada, to award diplomas upon successful
completion of the following main programs: network engineering, internet
engineering, software programming and paralegal studies.

In 1987, the Georgia Supreme Court mandated that John Marshall obtain
American Bar Association ("ABA") accreditation before 2003 in order for John
Marshall graduates to take the Georgia Bar Exam. On June 8, 2001 the Georgia
Supreme Court handed down an order to extend John Marshall's accreditation
through 2008. This extension will continue to allow students to take the state
bar exam as the school works toward gaining ABA accreditation. The ABA has to
date not granted such accreditation.

Each of the institutional accrediting agencies that accredits the Company's
campuses has standards pertaining to areas such as curricula, institutional
objectives, long-range planning, faculty, administration, admissions, record-
keeping, library resources, facilities, finances and student refunds, among
others. Certain institutional substantive changes, including changes of
ownership and the addition of new facilities and programs may require review
and approval from accrediting agencies. Institutions which apply for
accreditation typically receive a visiting team which reviews the institution's
compliance with these standards. Based on the team's report and the
institution's response, the accrediting agency grants or denies accreditation.
The accrediting

agencies which accredit the institution's campuses assess annual fees and
require that institutions pay for the costs associated with team visits and
other substantive reviews of the institution resulting from changes to the
institution or its curricula.

The HEA requires accrediting agencies recognized by the DOE to review many
aspects of an institution's operations to ensure that the education or training
offered by the institution is of sufficient quality to achieve, for the
duration of the accreditation period, the stated objective for which the
education or training is offered. Under the HEA, a recognized accrediting
agency must perform regular inspections and reviews of institutions of higher
education. An accredited institution must meet or exceed an accrediting
agency's standards throughout its period of accreditation. An accrediting
agency may place an institution on probation or similar warning status or
direct the institution to show cause why its accreditation should not be
revoked if the accrediting agency believes an institution may be out of
compliance with accrediting standards. It may also place an institution on
''reporting'' status in order to monitor one or more specified areas of the
institution's performance. An institution placed on reporting status is
required to report periodically to its accrediting agency on that institution's
performance in the specified areas. While on reporting status, an institution
may be required to seek the permission of its accrediting agency to open and
commence instruction at new locations. Except as stated in the following
paragraph, none of the Company's schools are on probation, show cause or
reporting status.

On November 13, 2001, WSU, which is provisionally accredited by the ABA,
received a letter from the ABA's Accreditation Committee outlining certain
deficiencies in the school that were identified during the ABA's most recent
regularly-scheduled inspection of the school in March 2001. The letter requires
the school to appear at a meeting of the Committee in January 2002 to show
cause why the school should not be required to take appropriate remedial
action, placed on probation or removed from the list of law schools
provisionally approved by the ABA. The Company is addressing the issues
identified by the Committee, and, although there can be no assurances of the
outcome of the January meeting, the Company does not anticipate that its
provisional accreditation will be withdrawn at that time.

The Company must obtain approval from the ABA's Council of the Section on
Legal Education and Admission to the Bar for the change of ownership of Western
State University College of Law that will result from the Company's acquisition
by Education Management Corporation, and receipt of this approval is a
condition to the closing of the transaction. The Company has been advised that
the Council is scheduled to consider and rule upon the change of ownership on
December 1, 2001. Although the ABA's Accreditation Committee has not made any
recommendation to the Council regarding the application for change of
ownership, action by the Accreditation Committee is not a prerequisite to
approval by the Council. However, there can be no assurance that the Council
will vote to approve the change of ownership at its December meeting.

Student Financial Assistance

Students attending the Company's schools finance their education through a
combination of individual resources (including earnings from full or part-time
employment), government-sponsored financial aid and other sources, including
family contributions and scholarships provided by the Company. The Company
estimates that over 65% of the students at its U.S. schools receive some
government-sponsored (federal or state) financial aid. For fiscal 2001,
approximately 67% of the Company's net tuition revenue (on a cash basis) was
derived from some form of such government-sponsored financial aid received by
the students enrolled in its schools. In addition, approximately 65% of the
students attending PrimeTech receive Canadian government-sponsored financial
aid.

To provide students access to financial assistance available through the
Title IV Programs, an institution, including its additional locations, must be
(i) authorized to offer its programs of instruction by the relevant agencies of
the state in which it and its additional campuses, if any, are located, (ii)
accredited by an accrediting agency recognized by the DOE and (iii) certified
as eligible by the DOE. In addition, the institution must ensure that Title IV
Program funds are properly accounted for and disbursed to eligible students.

Under the HEA and its implementing regulations, each of the Company's
campuses that participates in the Title IV Programs must comply with certain
standards on an institutional basis, as more specifically identified below. For
purposes of these standards, the regulations define an institution as a main
campus and its additional locations, if any. Under this definition, each of the
Company's U.S. schools is a separate institution.

Nature of Federal Support for Postsecondary Education in the United States

While many states support public colleges and universities primarily through
direct state subsidies, the federal government provides a substantial part of
its support for postsecondary education in the form of grants and loans to
students who can use this support at any institution that has been certified as
eligible by the DOE. The Title IV Programs have provided aid to students for
more than 30 years, and, since the mid-1960's, the scope and size of such
programs have steadily increased. Since 1972, Congress has expanded the scope
of the HEA to provide for the needs of the changing national student population
by, among other things, (i) providing that students for-profit institutions,
such as the Company's institutions, are eligible for assistance under the Title
IV Programs, (ii) establishing a program for loans to parents of eligible
students, (iii) opening the Title IV Programs to part-time students and (iv)
increasing maximum loan limits and in some cases eliminating the requirement
that students demonstrate financial need to obtain federally guaranteed student
loans. Most recently, the Federal Direct Loan program was enacted, enabling
students to obtain loans from the federal government rather than from
commercial lenders.

On October 1, 1998, legislation was enacted which reauthorized the student
financial assistance programs of the HEA. The 1998 Amendments continued many of
the then-current requirements for student and institutional participation in
the Title IV Programs. The 1998 Amendments also changed or modified some
requirements. These changes and modifications included increasing the
percentage of its revenues that an institution may derive from Title IV funds
from 85% to 90% and revising the requirements pertaining to the manner in which
institutions must calculate refunds to students. The 1998 Amendments also
prohibit institutions that are ineligible for participation in Title IV loan
programs due to student default rates in excess of applicable thresholds from
participating in the Pell Grant program. Other changes expanded participating
institutions' ability to appeal loss of eligibility owing to such default
rates. The 1998 Amendments permit an institution to avoid the interruption of
eligibility for the Title IV Programs upon a change of ownership which results
in a change of control by submitting a materially complete application for
recertification of eligibility within 10 business days of such a change of
ownership. Regulations concerning a school's calculation of refunds to students
took effect in October 2000, and regulations to implement the remaining
portions of the 1998 Amendments take effect on July 1, 2001. The Company does
not believe that the 1998 Amendments will adversely or materially affect its
business operations. None of the Company's institutions derives more than 73%
of its revenue from Title IV funds and no institution has student loan default
rates in excess of current thresholds. The Company also believes that its
current refund policy satisfies the new refund requirements.

Students at the Company's institutions receive grants, loans and work
opportunities to fund their education under several of the Title IV Programs,
of which the two largest are the FFEL program and the Federal Pell Grant
(''Pell'') program. Some of the Company's institutions participate in the
Perkins program and the Federal Work-Study (''FWS'') program. In addition, the
Company's institutions are eligible to participate in the Federal Supplemental
Educational Opportunity Grant (''FSEOG'') program.

Most aid under the Title IV Programs is awarded on the basis of financial
need, generally defined under the HEA as the difference between the cost of
attending an educational program and the amount a student can reasonably
contribute to that cost. All recipients of Title IV Program funds must maintain
a satisfactory grade point average and progress in a timely manner toward
completion of their program of study.

Pell. Pell grants are the primary component of the Title IV Programs under
which the DOE makes grants to students who demonstrate financial need. Every
eligible student is entitled to receive a Pell grant; there is no institutional
allocation or limit, although there is a limit for each eligible student,
depending on need. For the

2000 federal fiscal year, the maximum individual Pell grant was $3,300. For the
2001, federal fiscal year, the maximum Pell grant increased to $3,750, and no
determination has been made, as yet, for the 2002 federal fiscal year.

FSEOG. FSEOG awards are designed to supplement Pell grants for the neediest
students. FSEOG grants generally range in amount from $100 to $4,000 per year;
however, the availability of FSEOG awards is limited by the amount of funds
allocated to an institution under a formula that takes into account the size of
the institution, its costs and the income levels of its students. The Company
is required to make a 25% matching contribution for all FSEOG program funds
disbursed. Resources for this institutional contribution may include
institutional grants, scholarships and other eligible funds (i.e., funds from
foundations and other charitable organizations) and, in certain states,
portions of state scholarships and grants. At this time, MIM and U of S
participates in the FSEOG program.

FFEL. The FFEL program consists of two types of loans, Stafford loans, which
are made available to students, and PLUS loans, which are made available to
parents of students classified as dependents. Under the Stafford loan program,
a student may borrow up to $2,625 for the first academic year, $3,500 for the
second academic year and, in some educational programs, $5,500 for each of the
third and fourth academic years. Graduate and professional students may borrow
up to $8,500 per academic year. Students with financial need may qualify for
interest subsidies while in school and during grace periods. Students who are
classified as independent can increase their borrowing limits and receive
additional unsubsidized Stafford loans. Such students can obtain up to an
additional $4,000 for each of the first and second academic years and,
depending upon the educational program, an additional $5,000 for each of the
third and fourth academic years. Graduate and professional students may borrow
up to an additional $10,000 per academic year. The obligation to begin repaying
Stafford loans does not commence until six months after a student ceases to be
enrolled on at least a half-time basis. Amounts received by students in the
Company's institutions under the Stafford program in fiscal 2001 equaled
approximately 66% of the Company's net tuition revenue (on a cash basis). Under
the PLUS loan program, the parents of a dependent student may obtain a loan in
an amount not to exceed the difference between the total cost of that student's
education (including allowable expenses) and other aid to which that student is
entitled. At this time, of the Company's institutions, only MIM participates in
the PLUS program.

The Company's schools and their students use a wide variety of lenders and
guaranty agencies and have not experienced difficulties in identifying lenders
and guaranty agencies willing to make federal student loans. The HEA requires
the establishment of lenders of last resort in every state to ensure that
students at any institution that cannot identify such lenders will have access
to the FFEL program loans.

Perkins. Eligible undergraduate students may borrow up to $4,000 under the
Perkins loan program during each academic year, with an aggregate maximum of
$20,000, at a 5% interest rate and with repayment delayed until nine months
after the borrower ceases to be enrolled on at least a half-time basis. Perkins
loans are made available to those students who demonstrate the greatest unmet
financial need. Perkins loans are made from a revolving account, 75% of which
was initially capitalized by the DOE. Subsequent federal capital contributions,
with an institutional match in the same proportion, may be received if an
institution meets certain requirements. Each institution collects payments on
Perkins loans from its former students and loans those funds to currently
enrolled students. Collection and disbursement of Perkins loans is the
responsibility of each participating institution. During the 2000-2001 award
year, the Company collected approximately $378,100 from its former students in
repayment of Perkins loans. In the 2000-2001 award year, the Company's required
matching contribution was approximately $20,634. The Perkins loans disbursed to
students in the Company's institutions in the 2000-2001 award year represented
less than 1% of the Company's net U.S. tuition revenue.

FWS. Under the FWS program, federal funds are made available to pay up to
75% of the cost of part-time employment of eligible students, based on their
financial need, to perform work for the institution or for off-campus public or
non-profit organizations. During the 2000-2001 award year, the Company's
institutions and other organizations provided matching contributions totaling
approximately $102,000. At least 7% of an institution's FWS allocation must be
used to fund student employment in community service positions. FWS

earnings are not restricted to tuition and fees. However, in the 2000-2001
award year, the federal share of FWS earnings represented less than 1% of the
Company's net U.S. tuition revenue.

Federal Oversight of the Title IV Programs

The substantial amount of federal funds disbursed through the Title IV
Programs coupled with the large numbers of students and institutions
participating in those programs have led to an increased level of DOE
regulatory oversight of institutions. If an institution's cohort default rate
(the percentage of its students or former students who default on their student
loans within approximately 18 months of being required to commence repayment)
exceeds 25 % for three consecutive federal fiscal years, the institution, with
limited exceptions, becomes ineligible to participate in the Title IV Programs.
Each institution which participates in the Title IV Programs must annually
submit to the DOE an audit by an independent accounting firm of that
institution's compliance with Title IV Program requirements, as well as audited
financial statements. The DOE also conducts compliance reviews, which include
on-site evaluations of several hundred institutions each year, and directs
student loan guaranty agencies to conduct additional reviews relating to the
FFEL programs. In addition, the Office of the Inspector General of the DOE
conducts audits and investigations of institutions in certain circumstances.
Under the HEA, accrediting agencies and state licensing agencies also have
responsibilities for overseeing institutions' compliance with Title IV Program
requirements. As a result, each participating institution, including each of
the Company's institutions, is subject to frequent and detailed oversight and
must comply with a complex framework of laws and regulations or risk being
required to repay funds, to pay civil penalties, or be declared ineligible to
participate in the Title IV Programs. In addition, because the HEA is subject
to amendment by Congress, and because DOE periodically revises its regulations
(e.g., in November 1997, the DOE published new regulations with respect to
financial responsibility standards which took effect July 1, 1998) and may
announce new or changed interpretation of existing laws and regulations, there
can be no assurance that the legal requirements for participation in the Title
IV Programs will remain the same in the future or that DOE will agree with the
Company's current understanding of each Title IV Program requirement.

Largely as a result of this increased oversight, the DOE has reported that
over 1,000 institutions have either ceased to be eligible for or have
voluntarily relinquished their participation in some or all of the Title IV
Programs since October 1, 1992. This has reduced competition among institutions
with respect to certain markets and educational programs.

Cohort Default Rates. A significant component of the increased regulatory
oversight has been the imposition of limitations on participation in the Title
IV Programs by institutions whose former students defaulted on the repayment of
federally guaranteed or funded student loans at an ''excessive'' rate. Since
the DOE began to impose sanctions on institutions with cohort default rates
above certain levels, the DOE has reported that over 1,000 institutions have
lost their eligibility to participate in some or all of the Title IV Programs.
However, many institutions, including all of the Company's institutions, have
responded by implementing aggressive student loan default management programs
aimed at reducing the likelihood of students failing to repay their loans in a
timely manner. An institution's cohort default rates under the FFEL programs
are calculated on an annual basis as the rate at which student borrowers
scheduled to begin repayment on their loans in one federal fiscal year default
on those loans by the end of the next federal fiscal year. Any institution
whose cohort default rate equals or exceeds 25% for any one of the three most
recent federal fiscal years may be found by the DOE to lack administrative
capability and, on that basis, placed on provisional certification status for
up to three years. Provisional certification status does not limit an
institution's access to Title IV Program funds but does subject that
institution to closer review by the DOE and possible summary adverse action if
that institution commits violations of Title IV Program requirements. Any
institution whose cohort default rates equal or exceed 25% for three
consecutive years will no longer be eligible to participate in the FFEL
programs for the remainder of the federal fiscal year in which the DOE
determines that such institution has lost its eligibility and for the two
subsequent federal fiscal years. In addition, an institution whose cohort
default rate for any federal fiscal year exceeds 40% may have its eligibility
to participate in all of the Title IV Programs limited, suspended or
terminated. Since the calculation of cohort default rates involves the
collection of data from many non-governmental agencies (i.e., lenders, private
guarantors or services), as well as the DOE, the HEA provides a

formal process for the review and appeal of the accuracy of cohort default
rates before the DOE takes any action against an institution based on such
rates. In addition to the foregoing, if an institution's cohort default rate
for loans under the Perkins program exceeds 15% for any federal award year
(i.e., July 1 through June 30), that institution may be placed on provisional
certification status for up to three years. Furthermore, as a result of the
1998 Amendments to the HEA, institutions that are ineligible to participate in
the Title IV loan program due to student loan default rates will also become
ineligible to participate in the Pell Grant Program.

The DOE's published federal fiscal year 1999 cohort default rates for all
proprietary institutions is 9.3% and for proprietary institutions offering 4
year degrees is 8.2%. For the last three years, none of the Company's
institutions had a cohort default rate above 7%. The specific cohort default
rate percentages for the Company's institutions are as follows:

DOE fiscal year: ASPP U of S MIM WSU
- ---------------- ---- ------ ---- ----

1997...... 2.2% 4.9% 7.0% 5.4%
1998...... 0.8% 2.6% 6.8% 4.0%
1999...... 1.4% 3.4% 4.5% 3.7%

Financial Responsibility Standards. All institutions participating in the
Title IV Programs must satisfy a series of specific standards of financial
responsibility. Institutions are evaluated for compliance with those
requirements in several circumstances, including as part of the DOE's
recertification process, on an annual basis as each institution submits its
audited financial statements to the DOE, and in connection with a change of
ownership resulting in a change of control of an institution. Under standards
in effect prior to July 1, 1998, (and still in effect with respect to financial
review upon a change in ownership), each institution's audited balance sheet
must demonstrate an acid test ratio (defined as the ratio of cash, cash
equivalents and current accounts receivable to current liabilities) of at least
1:1 at the end of each fiscal year. Another standard requires that each
institution have a positive tangible net worth at the end of each fiscal year.
The DOE measures an institution's compliance with the financial responsibility
standards on the basis of the audited financial statements of the institution
itself, but it may request the financial statements of the institution's parent
company or other related entities in performing its financial responsibility
review.

In November 1997, the DOE issued new regulations, which took effect July 1,
1998, and revised the DOE's standards of financial responsibility as applied to
an institution's annual audited financial statements. These new standards
replace the numeric tests described above with three ratios: an equity ratio, a
primary reserve ratio and a net income ratio, which are weighted and added
together to produce a composite score for the institution.

Under the new standards, an institution need only satisfy a composite score
standard. The ratio methodology of these standards takes into account an
institution's total financial resources and determines a combined score of the
measures of those resources along a common scale (from negative 1.0 to positive
3.0). It allows a relative strength in one measure to mitigate a relative
weakness in another measure.

If an institution achieves a composite score of at least 1.5, it is
financially responsible without further oversight. If an institution achieves a
composite score from 1.0 to 1.4, it is in the ''zone'' and is subject to
additional monitoring, but may continue to participate as a financially
responsible institution, for up to three years. Additional monitoring may
require the school to (i) notify the DOE, within 10 days of certain changes,
such as an adverse accrediting action; (ii) file its financial statements
earlier than the six-month requirement following the close of the fiscal year;
and (iii) subject the school to a cash monitoring payment method. If an
institution has a composite score below 1.0, it fails to meet the financial
responsibility standards unless it qualifies under an alternative standard
(i.e., (i) a letter of credit equal to 50% of the Title IV Program funds
expended from the prior fiscal year or (ii) a letter of credit equal to at
least 10% of the Title IV Program funds expended from the prior fiscal year
plus provisional certification status and either or the reimbursement payment
of Title IV funds or heightened cash monitoring).

Based upon the companies financial statements as of August 31, 2001, the
company believes that on a stand alone basis,the composite score for each of
ASPP, UOS and MIM exceeds 1.5 and that the composite score for WSU exceeds 1.0.

Restrictions on Acquiring or Opening Additional Schools and Adding
Educational Programs. An institution which undergoes a change of ownership
resulting in a change in control must be reviewed and recertified for
participation in the Title IV Programs under its new ownership. Pending
recertification, the DOE suspends Title IV Program funding to that
institution's students, except for certain Title IV Program funds that were
committed under the prior owner, although such suspension can be avoided if the
institution submits a materially complete application for approval within ten
business days of closing on the transaction. If an institution is recertified
following a change of ownership, it may be on a provisional basis. During the
time an institution is provisionally certified, it may be subject to closer
review by the DOE and to summary adverse action for violations of Title IV
Program requirements, but provisional certification does not otherwise limit an
institution's access to Title IV Program funds.

In addition, the HEA generally requires that proprietary institutions be
fully operational for two years before applying to participate in the Title IV
Programs. However, under the HEA and applicable regulations, an institution
that is certified to participate in the Title IV Programs may establish an
additional location and apply to participate in the Title IV Programs at that
location without reference to the two-year requirement, if such additional
location satisfies all other applicable eligibility requirements, including
that the additional location be approved by the institution's accrediting
agency and by the appropriate government licensing agency in the state where
the additional location is located. The Company's expansion plans are based, in
large part, on its ability to acquire schools that can be recertified and to
open additional locations as part of its existing institutions. The Company
believes that its ability to open additional locations as part of existing
institutions is the most feasible means of expansion, because its existing
institutions are currently certified as eligible to participate in Title IV
Programs and students enrolled at the new additional locations will have more
ready access to Title IV Program funds. In addition, pursuant to regulations
scheduled that took effect July 1, 2000, institutions no longer will be
required, under most circumstances, to obtain DOE approval of an additional
location before disbursing Title IV Program funds to eligible students at those
locations.

Generally, if an institution eligible to participate in the Title IV
Programs adds an educational program after it has been designated as an
eligible institution, the institution must apply to the DOE to have the
additional program designated as eligible. However, an institution is not
obligated to obtain DOE approval of an additional program that leads to a
professional, graduate, bachelor's or associate degree or which prepares
students for gainful employment in the same or related recognized occupation as
an educational program that has previously been designated as an eligible
program at that institution and meets certain minimum length requirements.
Furthermore, short-term educational programs, which generally consist of those
programs that provide at least 300 but less than 600 clock hours of
instruction, are eligible only for FFEL funding and only if they have been
offered for a year and the institution can demonstrate, based on an attestation
by an independent auditor, that 70% of all students who enroll in such programs
complete them within a prescribed time and 70% of those students who graduate
from such programs obtain employment in the recognized occupation for which
they were trained within a prescribed time. In the event that an institution
erroneously determines that an educational program is eligible for purposes of
the Title IV Programs without the DOE's express approval, the institution would
likely be liable for repayment of Title IV Program funds provided to students
in that educational program. The Company does not believe that the DOE's
regulations will create significant obstacles to its plans to add new programs
because any new programs offered by its campuses will lead to professional,
graduate, bachelor's or associate degrees or prepare students for gainful
employment in the same or related recognized occupation as education programs
which were previously offered by the Company's campuses.

Certain of the state authorizing agencies, the Ontario Student Assistance
Plan (''OSAP''), and accrediting agencies with jurisdiction over the Company's
campuses also have requirements that may, in certain instances, limit the
ability of the Company to open a new campus, acquire an existing campus,
establish an additional

location of an existing institution or begin offering a new educational
program. The Company does not believe that such standards will have a material
adverse effect on the Company or its expansion plans, because the standards for
approval of new programs or expanding institutions are generally no more
stringent than the standards applied by the states, OSAP and accrediting
agencies in originally granting accreditation and licensure to the campuses.
Compliance with state and OSAP standards generally requires notification of the
proposed change and, in some states, approval by the accrediting agency. Based
on its current practice of meeting or exceeding both state and accrediting
agency standards, the Company believes that it will be able to obtain any
accreditation or state approvals to initiate new programs or expand its
campuses. If the Company were unable to meet those standards, its ability to
add programs or expand its campuses would be materially adversely affected.

The ''90/10 Rule'' (formerly the ''85/15 Rule''). Under a provision of the
HEA commonly referred to as the ''90/10 Rule,'' a proprietary institution, such
as each of the Company's U.S. institutions, would cease being eligible to
participate in the Title IV Programs if, on a cash accounting basis, more than
90% of its net revenues for the prior fiscal year was derived from the Title IV
Programs. Prior to the 1998 Amendments to the HEA, the allowable portion of
cash revenues derived from Title IV programs could not exceed 85%. Any
institution that violates this rule immediately becomes ineligible to
participate in the Title IV Programs and is unable to apply to regain its
eligibility until the following fiscal year. The Company has calculated that,
since this requirement took effect in 1995, none of the Company's U.S.
institutions derived more than 80% of its net revenue (on a cash basis) from
the Title IV Programs for any award year, and that for fiscal 2001 the range
for the Company's U.S. institutions was from approximately 48% to approximately
59%. The Company regularly monitors compliance with this requirement in order
to minimize the risk that any of its U.S. institutions would derive more than
the maximum allowed percentage of its revenue from the Title IV Programs for
any fiscal year. If an institution appeared likely to approach the maximum
percentage threshold in any given fiscal year, the Company would evaluate the
appropriateness of making changes in student funding and financing to ensure
compliance with the Rule.

Restrictions on Payment of Bonuses, Commissions or Other Incentives. The HEA
prohibits an institution from providing any commission, bonus or other
incentive payment based directly or indirectly on success in securing
enrollments or financial aid to any person or entity engaged in any student
recruitment, admission or financial aid awarding activity for programs eligible
for Title IV Program funds. The Company believes that its current compensation
plans are in compliance with HEA standards.

State Authorization in the United States

Each of the Company's campuses is authorized to offer educational programs
and grant degrees or diplomas by the state in which such campus is located. The
level of regulatory oversight varies substantially from state to state. State
laws establish standards for instruction, qualifications of faculty, location
and nature of facilities, financial policies and responsibility and other
operational matters. State laws and regulations may limit the ability of the
Company to obtain authorization to operate in certain states, to award degrees
or diplomas or offer new degree programs. Certain states prescribe standards of
financial responsibility that are different from those prescribed by the DOE.
The Company believes that each of its campuses is in substantial compliance
with state authorizing and licensure laws.

Canadian Regulation

The Ontario Ministry of Education and Training (''OMET'') provides financial
assistance to eligible students through OSAP, which includes two main
components, the CSL program and the Ontario Student Loans Program (''OSLP'')
program. To maintain its right to administer OSAP, an institution, such as the
PrimeTech campuses in Toronto, must, among other things, be registered and in
good standing under the PVSA and abide by the rules, regulations and
administrative manuals of the CSL, OSLP and other OSAP-related programs. In
order to attain initial eligibility, an institution must establish, among other
things, that it has been in good standing under the PVSA for at least 12
months, that it has offered an eligible program for at least 12 months and that
it has graduated at least one class in an eligible program that satisfies
specific requirements with respect to class

size and graduation rate. In addition, the institution must offer full-time
programs at the postsecondary level, award a diploma or certificate upon
successful completion of the program, have minimum admission requirements for
entering students, require students to participate fully in their studies,
monitor students' progress and maintain academic records, and advise OMET
before taking any action that could result in its failing to meet OMET's
requirements. When applying for initial eligibility an institution must also
file with OMET a request for OSAP designation with a description of the
procedures to be implemented to administer the OSAP financial aid office.
During the first two years of initial eligibility, the institution must have
its administration of OSAP independently audited, and full eligibility will not
be granted unless these audits establish that the institution has properly
administered OSAP. The institution can only administer CSL funds, and cannot
administer OSLP funds, until it has gained full eligibility. Once an
institution has gained OSAP eligibility, the institution must advise OMET
before it takes any material action that may result in its failure or inability
to meet any rules, regulations or requirements related to OSAP. All of the
Company's Canadian campuses are fully eligible to administer CSL and OSLP Funds.

In order for an OSAP-eligible institution to establish a new branch of an
existing eligible institution, it must obtain an OSAP-designation from OMET,
either as a separate institution if the branch administers OSAP without the
involvement of the main campus, or as part of the same institution, if OSAP is
administered through the main campus of the institution. The Company does not
believe that OSAP's requirements will create significant obstacles to its plans
to acquire additional institutions or open new branches in Ontario.

Institutions participating in OSAP, such as the PrimeTech campuses in
Ontario, cannot submit applications for loans to students enrolled in
educational programs that have not been designated as OSAP-eligible by OMET. To
be eligible, among other things, a program must be registered with the Private
Vocational Schools Unit, must be of a certain minimum length and must lead to a
diploma or certificate. Each of the PrimeTech educational programs has been
designated OSAP eligible by OMET and the Company does not anticipate that these
program approval requirements will create significant problems with respect to
its plans to add new educational programs.

An institution cannot automatically acquire OSAP-designation through
acquisition of other OSAP-eligible institutions. When there is a change of
ownership, including a change in controlling interest, in a non-incorporated
OSAP-eligible institution, OMET will require evidence of the institution's
continued capacity to properly administer the program before extending OSAP
designation to the new owner. Under OSAP regulations, a change or
reorganization which significantly affects the institution's administration of
OSAP funds such that the institution's prior record of administering such funds
is no longer relevant results in the OMET considering the institution to be a
new institution. Given that OMET periodically revises its regulations and other
requirements and changes its interpretations of existing laws and regulations,
there can be no assurance that OMET will agree with the Company's understanding
of each OMET requirement.

PrimeTech is required to audit its OSAP administration annually, and OMET is
authorized to conduct its own audits of the administration of the OSAP programs
by any OSAP-eligible institution. The Company has complied with these
requirements on a timely basis. Based on its most recent annual compliance
audits, PrimeTech has been found to be in substantial compliance with the
requirements of OSAP, and the Company believes that it continues to be in
substantial compliance with these requirements. OMET has the authority to take
any measures it deems necessary to protect the integrity of the administration
of OSAP. If OMET deems a failure to comply to be minor, OMET will advise the
institution of the deficiency and provide the institution with the opportunity
to remedy the asserted deficiency. If OMET deems the failure to comply to be
serious in nature, OMET has the authority to: (i) condition the institution's
continued OSAP designation upon the institution's meeting specific requirements
during a specific time frame; (ii) refuse to extend the institution's OSAP
eligibility to the OSLP program; (iii) suspend the institution's OSAP
designation; or (iv) revoke the institution's OSAP designation. In addition,
when OMET determines that any non-compliance in an institution's OSAP
administration is serious, OMET has the authority to contract with an
independent auditor, at the expense of the institution, to conduct a full audit
in order to quantify the deficiencies and to require repayment of all loan
amounts. In addition, OMET may impose a penalty up to the amount of the damages
assessed in the independent audit.

As noted above, PrimeTech is subject to the PVSA. The Company may not
operate a private vocational school in the province of Ontario unless such
school is registered under the PVSA. Upon payment of the prescribed fee and
satisfaction of the conditions prescribed by the regulations under the PVSA and
by the Private Vocational Schools Unit of the OMET, an applicant or registrant
such as PrimeTech is entitled to registration or renewal of registration to
conduct or operate a private vocational school unless: (1) it cannot reasonably
be expected to be financially responsible in the conduct of the private
vocational school; (2) the past conduct of the officers or directors provides
reasonable grounds for belief that the operations of the campus will not be
carried on in accordance with relevant law and with integrity and honesty; (3)
it can reasonably be expected that the course or courses of study or the method
of training offered by the private vocational school will not provide the skill
and knowledge requisite for employment in the vocation or vocations for which
the applicant or registrant is offering instruction; or (4) the applicant is
carrying on activities that are, or will be, if the applicant is registered, in
contravention of the PVSA or the regulations under the PVSA. An applicant for
registration to conduct or operate a private vocational school is required to
submit with the application a bond in an amount determined in accordance with
the regulations under the PVSA. PrimeTech is currently registered under the
PVSA at all of its campuses, and the Company does not believe that there will
be any impediment to renewal of such registrations on an annual basis.

The PVSA provides that a ''registration'' is not transferable. However, the
Private Vocational Schools Unit of OMET takes the position that a purchase of
shares of a private vocational school does not invalidate the school's
registration under the PVSA. The Company does not believe that the Offering
will invalidate the registration of PrimeTech.

If a corporation is convicted of violating the PVSA or the regulations under
the PVSA, the maximum penalty that may be imposed on the corporation is $25,000.

The legislative, regulatory and other requirements relating to student
financial assistance programs in Ontario are subject to change by applicable
governments due to political and budgetary pressures, and any such change may
affect the eligibility for student financial assistance of the students
attending PrimeTech, which, in turn, could materially adversely affect the
Company's business, results of operations or financial condition.

ITEM 2. PROPERTIES

Our corporate headquarters are located in Chicago, Illinois, and our 18
campuses are located in the United States and one Canadian province. Each
campus contains teaching facilities, including modern classrooms. Admissions
and administrative offices are also located at each campus.

We lease all of our facilities, except the primary University of Sarasota
facility in Sarasota, Florida, and Western State University in Fullerton,
California, which we own. As of August 31, 2001 we owned approximately 128,295
square feet and leased approximately 375,000 square feet. The leases have
remaining terms ranging from two years to nine years.

We actively monitor facility capacity in light of our current utilization
and projected enrollment growth. We believe that our schools can acquire any
necessary additional capacity on reasonably acceptable terms. We devote capital
resources to facility improvements and expansions as necessary.

The following table sets forth certain information as of August 31, 2001
with respect to the principal properties of the Company and its subsidiaries.
The Company believes that its facilities are in substantial compliance with
applicable environmental laws and with the Americans With Disabilities Act.

Square
Campus Footage
------ -------

American Schools of Professional Psychology
Illinois School of Professional Psychology/Chicago............... 31,726
Illinois School of Professional Psychology/Chicago Northwest..... 10,469
Minnesota School of Professional Psychology...................... 10,442
Georgia School of Professional Psychology........................ 13,274
American School of Professional Psychology/Virginia.............. 13,437
American School of Professional Psychology/Hawaii................ 13,352
Arizona School of Professional Psychology........................ 13,399
Florida School of Professional Psychology........................ 6,632
American School of Professional Psychology/San Francisco Bay Area 10,226
Washington School of Professional Psychology..................... 10,273

University of Sarasota
University of Sarasota/Honore Campus............................. 22,903
University of Sarasota/Tampa Campus.............................. 6,632
University of Sarasota/Orange Campus............................. 10,829

Medical Institute of Minnesota................................... 57,316

PrimeTech Institute
PrimeTech Institute/City Campus.................................. 9,199
PrimeTech Institute/Scarborough.................................. 13,289

Ventura.......................................................... 9,040

John Marshall Law School......................................... 49,215

Western State University College of Law.......................... 86,295

The Connecting Link.............................................. 4,400

ITEM 3. LEGAL PROCEEDINGS

The Company is not party to other legal proceedings that it believes would,
individually or in the aggregate, have a material adverse effect on its
consolidated results of operations or consolidated financial condition.

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

No matters were submitted to a vote of our security holders during the
fourth quarter of 2001.

On October 31, 2001 the Company held a Special Meeting of Stockholders to
consider and vote upon a proposal to approve the Agreement and Plan of Merger
dated July 9, 2001 between Argosy Education Group and Education Management
Corporation. The proposal of merger was voted on and approved by the
stockholders the tabulation of the vote is as follows:

Votes For.... 5,771,888
Votes Against 0
Abstentions.. 730

PART II

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

Our Class "A" Common Stock has been quoted on the Nasdaq National Market
(the "National Market") under the symbol "ARGY" since March 9, 1999.

The following table sets forth the range of high and low sales prices per
share for our Class "A" Common Stock as reported on The Nasdaq National
Market, where the stock trades under the symbol "ARGY," for the periods
indicated. The initial public offering price of our Class "A" Common Stock on
March 8, 1999 was $14.00 per share.

High Low
---- ---

1999-2000
First Quarter.. $ 9.000 $3.531
Second Quarter. $ 6.125 $4.125
Third Quarter.. $ 7.500 $4.813
Fourth Quarter. $ 8.750 $5.188
2000-2001
First Quarter.. $ 7.438 $5.750
Second Quarter. $ 7.500 $4.500
Third Quarter.. $ 7.188 $5.400
Fourth Quarter. $11.700 $5.950

The closing price of our Class "A" Common Stock as reported on the
National Market on November 9, 2001 was $11.90 per share. As of November 9,
2001, there were 7 holders of record of our Common Stock.

Dividend Policy

The Company intends to retain future earnings to finance its growth and
development and therefore does not anticipate paying any cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Board after taking into account various factors, including
the Company's financial condition, operating results, current and anticipated
cash needs and plans for expansion. Pursuant to restrictive convenants set
forth in-the-company's credit agreement the company is limited from declaring
or paying dividends in excess-of 25% of consolidated net income in any quarter.
In addition, if the Company is required to satisfy DOE financial responsibility
standards on a consolidated basis, the Company may need to restrict or withhold
payment of dividends or refrain from obtaining dividends or other funds from
its subsidiaries in order to meet DOE standards.

ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following selected historical consolidated financial and other data are
qualified by reference to, and should be read in conjunction with, our
consolidated financial statements and the related notes thereto appearing
elsewhere herein and ''Management's Discussion and Analysis of Financial
Condition and Results of Operations.'' Our selected statement of operations
data set forth below for the five years in the period ended August 31, 2001,
and the balance sheet data as of August 31, 2001, 2000, 1999, 1998 and 1997 are
derived from our audited consolidated financial statements.

Years Ended August 31,
-------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(dollars in thousands)

Statement of Operations Data:
Net revenue............................................ $58,170 $44,058 $36,866 $29,352 $20,460
------- ------- ------- ------- -------
Operating expenses:
Cost of education................................... 29,048 20,746 18,489 15,075 10,661
Selling expenses.................................... 6,329 3,837 1,616 1,102 516
General and administrative expenses................. 22,622 15,107 11,588 9,104 5,432
Related party general and administrative expense(2). -- -- 668 2,271 993
Impairment charge related to dispositions........... 1,499 -- -- -- --
------- ------- ------- ------- -------
Total operating expenses........................ 59,498 39,690 32,361 27,552 17,602
------- ------- ------- ------- -------
Income (loss) from operations.......................... (1,328) 4,368 4,505 1,800 2,858
Loss attributable to John Marshall(5).................. (872) (1,925) -- -- --
Interest income........................................ 643 854 695 357 497
Interest expense....................................... (596) (300) (567) (601) (107)
Other income (expense), net............................ 9 (73) (6) (12) (48)
------- ------- ------- ------- -------
Total other income (expense), net...................... (816) (1,444) 122 (256) 342
Income (loss) before provision for income taxes........ (2,144) 2,924 4,627 1,544 3,200
Provision for income taxes............................. (452) 1,263 44 29 37
------- ------- ------- ------- -------
Net income............................................. $(1,692) $ 1,661 $ 4,583 $ 1,515 $ 3,163
======= ======= ======= ======= =======
Basic and diluted (loss) earnings per share............ $ (0.26) $ 0.25 $ 0.78 $ 0.31 $ 0.65
======= ======= ======= ======= =======
Other Data:
EBITDA(2).............................................. 903 $ 5,922 $ 5,910 $ 2,738 $ 3,296
EBITDA margin(2)....................................... 1.6% 13.4% 16.0% 9.3% 16.1%
Cash flows from:
Operating activities................................ $ 5,352 $ 4,159 $ 3,713 $ 2,582 $ 3,908
Investing activities................................ (9,447) (2,822) (5,938) (731) (9,123)
Financing activities................................ 7,855 (2,185) 8,508 (3,348) 5,193
Capital expenditures, net.............................. 1,808 1,875 1,889 597 341
Student population(3).................................. 5,700 5,344 4,542 4,514 3,253
Number of campuses(4).................................. 19 17 17 10 8

As of August 31,
-------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(dollars in thousands)

Balance Sheet Data:
Cash, cash equivalents and short-term Investments...... $11,840 $15,899 $15,007 $ 3,843 $ 6,728
Working capital........................................ 5,191 13,607 12,817 2,459 4,412
Total assets........................................... 55,709 35,300 34,319 23,475 17,580
Long-term debt (excluding current maturities).......... 14,497 2,604 2,998 5,165 6,354
Shareholders' equity................................... 24,215 26,050 25,604 8,922 7,448

- --------
(1) Represents amounts paid to Management Corp., an affiliate of Dr. Markovitz,
for services rendered by Dr. Markovitz during the period presented. Dr.
Markovitz is the sole shareholder and employee of Management Corp. Prior to
the initial public offering, Dr. Markovitz did not receive any compensation
for services rendered to the Company, other than through this management
fee. Upon completion of the offering, the relationship with Management
Corp. was terminated, and Dr. Markovitz has become an employee of the
Company. Dr. Markovitz has entered into an employment agreement that
provides for an initial annual base salary of $200,000 plus
performance-based compensation, which is to be paid in the form of stock
options. Although this represents a significant change in the way Dr.
Markovitz is compensated for the services he provides to the Company, the
nature of the services provided by Dr. Markovitz has not changed.
(2) ''EBITDA'' equals income from operations (which excludes losses
attributable to John Marshall prior to 2001 aquisition) plus depreciation
and amortization. EBITDA margin is EBITDA as a percentage of net revenue.
EBITDA and EBITDA margin are presented because such data is used by certain
investors to assess liquidity and ability to generate cash. The Company
considers EBITDA to be an indicative measure of the Company's operating
performance because EBITDA can be used to measure the Company's ability to
service debt, fund capital expenditures and expand its business; however,
such information should not be considered as an alternative to net income,
operating profit, cash flows from operations, or any other operating or
liquidity performance measure provided by GAAP. Cash advances to John
Marshall and cash expenditures for various long-term assets, interest
expense and income taxes that have been and will be incurred are not
reflected in the EBITDA presentation and could be material to an investor's
understanding of the Company's liquidity and profitability. The Company's
method of calculating of EBITDA may not be comparable to that of other
companies.
(3) Reflects actual student population as of the beginning of the Fall school
year, not including participants in Ventura test preparation programs.
(4) Reflects the total number of campuses operated by the Company as of the end
of the period indicated.
(5) Represents losses incurred from September 1, 1999, the date of the
management agreement with John Marshall, through March 1, 2001, the date of
the acquisition.

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

The following discussion and analysis should be read in conjunction with the
Selected Historical Consolidated Financial Data and the Company's consolidated
financial statements and notes thereto appearing elsewhere herein.

Background and Overview

The Company provides for-profit postgraduate education with a primary focus
on doctoral level programs. For the 2000-2001 school year, the Company's
schools had approximately 5,700 students enrolled representing 50 states and 20
foreign countries. The Company's schools offer programs in clinical psychology,
education, business, allied health professions and information technology and
are approved and accredited to offer doctoral, law, master's, bachelor's and
associate degrees as well as to award diplomas. Approximately 61% of the
Company's students are enrolled in doctoral programs. The Company operates 18
campuses in nine states and the Province of Ontario, Canada.

The Company's principal sources of revenue are tuition, workshop fees and
sales of related study materials. Students attending the Company's schools
finance their education through a combination of individual resources
(including earnings from full or part-time employment), government-sponsored
financial aid and other sources, including family contributions and
scholarships provided by the Company. During fiscal 2001, approximately 60 of
the Company's net cash receipts were derived indirectly from the Title IV
Programs.

The Company derived approximately 94% and 93% of its net revenue from
tuition in fiscal 2001 and fiscal 2000, respectively. Tuition payments are made
at the beginning of each term, and the start date for each

term varies by school and program. Payment of each term's tuition may be made
by cash or financial aid. If a student withdraws from school prior to the
completion of the term, the Company refunds a portion of the tuition already
paid, based upon the number of classes the student has attended. For students
receiving financial aid, the timing of the refunds for withdrawal is based on
federal, state and accrediting agency standards. The scholarships that the
Company grants to certain students are recorded as a reduction of tuition
revenue. Tuition revenue is recognized ratably over the term of each program.
Revenue from Ventura workshops is recognized on the date of the workshops.
Revenue from sales of related study materials is recognized on the date of
shipment.

The Company's schools charge tuition at varying amounts, depending not only
on the particular school, but also upon the type of program and the specific
curriculum. Each of the Company's schools typically implements a tuition
increase annually. The size of these increases differs from year to year and
among campuses and programs. Tuition for the Company's schools as of September
1, 2001 represents an approximate increase of 5.7% over the same date in 2000.

The Company also generates revenue from workshop materials, textbook sales
and property rental. In both fiscal 2001 and fiscal 2000, approximately 6.7%
and 7% of the Company's net revenue was derived from these sources.

The Company categorizes its expenses as cost of education, selling, general
and administrative and related party general and administrative. Cost of
education expenses generally consists of expenses directly attributable to the
educational activity at the schools. These include salaries and benefits of
faculty and student support personnel, the cost of educational supplies and
facilities (including rents on school leases), and all other school occupancy
costs. Selling expenses include recruiters salaries and benefits and direct and
indirect marketing and advertising expenses. General and administrative
expenses include salaries and benefits of personnel in accounting, human
resources, corporate and school administration functions and all corporate
office expenses. Also included in general and administrative expenses are
depreciation expense associated with computer laboratories, equipment,
furniture and fixtures, and amortization expense associated with intangible
assets, consisting primarily of goodwill, intellectual property and covenants
not-to-compete with previous owners of the schools or campuses.

The related party general and administrative expense represented a
management fee paid to MCM Management Corp. Dr. Markovitz is the sole
shareholder and employee of MCM Management Corp. Prior to the initial public
offering (the "Offering"), Dr. Markovitz did not receive any compensation for
services rendered to the Company, other than through the management fee. Upon
completion of the Offering, the relationship with MCM Management Corp. was
terminated, and Dr. Markovitz has become an employee of the Company. Dr.
Markovitz has entered into an employment agreement with the Company that
provides for an initial annual base salary of $200,000 plus performance-based
compensation, which is to be paid in the form of stock options. Although this
represents a significant change in the way Dr. Markovitz is compensated for the
services he provides to the Company, the nature of the services provided by Dr.
Markovitz has not changed.

The Company has two business segments: 1) Schools and 2) Test Preparation
Materials and Workshops (''Test Preparation''). These segments are managed as
separate strategic business units due to the distinct nature of their
operations. The Schools Segment, which represents the operations of ASPP, U of
S, MIM, Western State, John Marshall Law School, The Connecting Link and
PrimeTech, provides programs in psychology, education, business, law, health
science professions, network engineering and software programming. All
operations of the Schools Segment are located in the United States with the
exception of PrimeTech which is located in Canada. The Test Preparation Segment
offers courses and materials for post-graduate psychology license examinations
in the United States.

EDMC Acquisition

On July 9, 2001, the Company entered into an Agreement and Plan of Merger
with Education Management Corporation ("EDMC") and HAC, Inc., a wholly-owned
subsidiary of EDMC, pursuant to which HAC will

merge with and into the Company, with the Company continuing as the surviving
corporation. In the merger, holders of the Company's common stock will receive
$12.00 per share, without interest, for each share of all of the Company's
outstanding common stock. EDMC also entered into a Stock Purchase Agreement
with Dr. Markovitz providing for the purchase of his shares of Argosy common
stock at $12.00 per share, subject to rescission if the merger contemplated by
the Merger Agreement is not consummated by December 31, 2001. The purchase of
Dr. Markovitz's shares was completed on September 26, 2001.

On October 31, 2001, a special shareholders meeting was held and the Company
announced its shareholders voted in favor of an Agreement and Plan of Merger by
and among the Company, EDMC and HAC Inc., a wholly owned subsidiary of
Education management. The agreement was approved at a special shareholder
meeting.

There are approximately 6.5 million AEG shares outstanding. The merger is
expected to close in December 2001, and is subject to customary conditions,
including regulatory approvals of the U.S. Department of Education and other
accrediting agencies such as the American Bar Association. At the effective
time of the merger, the separate corporate existence of HAC, Inc. will cease
and the Company will continue as a wholly-owned subsidiary of Education
Management.

Recent Acquisitions

In April 2000, the Washington School of Professional Psychology (WSPP)
gained its regional accreditation from the North Central Association of
Colleges and Schools (NCA) and officially became a regionally accredited
campus. This was the final step in a purchase agreement for WSPP and resulted
in a payment of approximately $100,000 to the former owner.

On March 1, 2001, the Company acquired Western State, in Fullerton,
California pursuant to the terms of the Stock Purchase Agreement dated as of
November 14, 2000, between Argosy and Western State. Consideration for the
purchase consisted of $9.4 million in cash and the assumption of $3.9 million
in debt, purchase price adjustments as provided for in the purchase agreement.
This transaction was accounted for as a purchase business combination in
accordance with Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations," and, accordingly, the results of operations of Western State
have been included in the Company's financial statements from March 1, 2001.
Goodwill in amount $3.2 million was recorded for the amount of the purchase
price in excess of the fair value of assets assumed and is being amortized over
the estimated useful life of 15 years.

The acquisition of John Marshall was made through a purchase of the assets
of John Marshall on March 1, 2001. The Company exercised its option to purchase
all of the operating assets and assumed the liabilities of John Marshall for
cash of $0.1 million and net advances of $0.7 million contributed to John
Marshall prior to the acquisition. This transaction was accounted for as a
purchase business combination in accordance with Accounting Principles Board
("APB") Opinion No. 16, "Business Combinations," and, accordingly, the results
of operations of John Marshall have been included in the Company's financial
statements from March 1, 2001. The preliminary purchase price allocation
resulted in negative goodwill of $0.1 million. This negative goodwill was
subsequently allocated to write down the long-lived assets of John Marshall. As
of, and prior to the acquisition, the Company maintained a long-term management
arrangement with John Marshall beginning in September 1999. The arrangement
included a management agreement, with a 10-year option to purchase John
Marshall exercisable at the Company's discretion and a line of credit of $0.6
million between the Company and John Marshall. As of, February 28, 2001 the
Company had advanced $0.5 million under the line of credit and approximately
$3.6 million in operating cash under the management agreement. These advances,
net of John Marshall operating losses operations, were included in other
long-term assets. As provided for under the agreement, the Company received a
management fee based upon John Marshall's net revenue. The management fee has
been eliminated from the consolidated financial statements.

In 1987, the Georgia Supreme Court mandated that John Marshall obtain
American Bar Association ("ABA") accreditation before 2003 in order for John
Marshall graduates to take the Georgia Bar Exam. On June 8, 2001, the Georgia
Supreme Court handed down an order to extend John Marshall's accreditation
through 2008. This extension will continue to allow students to take the state
bar exam as the school works toward gaining ABA accreditation. The ABA has to
date not granted such accreditation.

Also on March 1, 2001, the Company acquired all of the outstanding common
stock of The Connecting Link, a privately held provider of continuing
professional education for kindergarten to grade 12 teachers for a purchase
price of approximately $1.8 million in cash. This transaction was accounted for
as a purchase business combination in accordance with Accounting Principles
Board ("APB") Opinion No. 16, "Business Combinations," and, accordingly, the
results of operations of The Connecting Link have been included in the
Company's financial statements from March 1, 2001. Goodwill in the amount $1.9
million was recorded for the amount of the purchase price in excess of the fair
value of assets acquired and is being amortized over the estimated useful life
of 15 years.

Results of Operations

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

Year Ended August 31,
--------------------
2001 2000 1999
----- ----- -----

Statement of Operations Data:
Net revenue......................................... 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Cost of education................................ 49.9 47.0 50.2
Selling expenses................................. 10.9 8.7 4.4
General and administrative expenses.............. 38.9 34.3 31.4
Disposal of assets............................... 2.6 -- --
Related party general and administrative expense. -- -- 1.8
----- ----- -----
Total operating expenses..................... 102.3 90.0 87.8
----- ----- -----
Income (loss) from operations....................... (2.3) 10.0 12.2
Interest/other income (expense), net................ (1.4) (3.3) 0.3
----- ----- -----
Income (loss) before provision for income taxes..... (3.7) 6.7 12.5
Provision (benefit) for income taxes................ (0.8) 2.9 0.1
----- ----- -----
Net income.......................................... (2.9)% 3.8% 12.4%
===== ===== =====

Year Ended August 31, 2001 Compared to Year Ended August 31, 2000

Net Revenue. Net revenue increased 32% from $44.1 million in fiscal 2000 to
$58.2 million in fiscal 2001. The revenue increase is primarily due to internal
growth and tuition increases and increased revenue related to the acquisition
of Western State, John Marshall and The Connecting Link on March 1, 2001. The
acquisitions of John Marshall, Western State, and Connecting Link contributed
$6.3 million of revenue in fiscal 2001.

Cost of Education. Cost of education increased 39.9% from $20.7 million in
fiscal 2000 to $29.0 million in fiscal 2001, due to additional teaching costs
to meet the growth in the number of students attending the schools. Cost of
education increased by $5.5 million related to the acquisitions of Western
State, John Marshall and The Connecting Link on the March 1, 2001. As a
percentage of net revenue, cost of education increased slightly from 47.0% in
fiscal 2000 to 49.9% in fiscal 2001.

Selling Expenses. Selling expenses increased 65.0% from $3.8 million in
fiscal 2000 to $6.3 million in fiscal 2001. As a percentage of revenue, selling
expenses increased from 8.7% to 10.9% primarily due to the addition of
admissions representatives and additional advertising at all of the Argosy
schools. This is an integral part of the Company's marketing strategy. In
addition, an increase of $0.6 million resulted from the acquisitions of Western
State, John Marshall, and The Connecting Link on March 1, 2001.

General and Administrative Expenses. General and Administrative expenses
increased 49.8% from $15.1 million in fiscal 2000 to $22.6 million in fiscal
2001 and as a percentage of net revenue increased from 34.3% to 38.9% in fiscal
2001 as compared to fiscal 2000. General and administrative costs increased
$2.3 million due to the acquisitions of Western State, John Marshall and The
Connecting Link on March 1, 2001. In addition, general and administrative
expenses increased approximately $.4 million due to expenses incurred in the
Company's merger with EDMC. Also, general and administrative cost increased
$0.9 million due to expensing of the warrants issued for general and academic
services. On September 1, 2000, the Company entered into a Consulting Agreement
with Leeds Equity Associates, LP. This agreement encompasses the performance of
Company requested services over the six-month term of the agreement. Payment
was represented by a stock purchase warrant providing for the purchase of
200,000 shares of the Company's Class A common stock at a purchase price of
$6.48 per share and with a seven year exercise. Finally, the remaining
increases in general and administrative expenses for fiscal 2001 were due to
additional management payroll costs to support the Company's growth strategy.

Disposal of Assets. Under the EDMC Merger Agreement, EDMC retained the
ability, at their election and upon notice to the Company, to cause the Company
to dispose of John Marshall Law School and/or PrimeTech (the "Excluded
Operations"). EDMC has so elected. Under the Stock Purchase Agreement, Dr.
Markovitz agreed, upon the Company's request, to purchase the Excluded
Operations for nominal consideration. The Company has so requested. Dr.
Markovitz purchased PrimeTech for $1.00 effective October 31, 2001 and is
expected to purchase John Marshall for $1.00 effective November 30, 2001. As a
result:

. the net assets of the Excluded Operations are considered to be
impaired,

. the net assets of the Excluded Operations were adjusted to the
purchase price of $1.00 each as of August 31, 2001, and

. an impairment charge of $1.5 million ($1.0 million for PrimeTech;
$0.5 million for John Marshall) was recorded in operations in the
fourth quarter of fiscal 2001.

On a pro forma basis, excluding John Marshall and Primetech which are being
disposed of in the first fiscal quarter of 2002, the Company would have
reported revenues of $55.8 million for fiscal 2001 up 33% from revenues of
$41.9 million for fiscal 2000. The proforma net income for fiscal 2001 would
have been $1.9 million as compared to $3.4 million in fiscal 2000.

Other Expense Net. Other expenses, net decreased from $1.4 million in fiscal
2000 to $0.8 million in fiscal 2001. This decrease in fiscal 2001 was due
primarily to equity losses resulting from the Company's investment in John
Marshall Law School, which decreased from $1.9 million in fiscal 2000 to $0.9
million in fiscal 2001. As a result of the acquisition of John Marshall, on
March 1, 2001, the Company began fully consolidating the operations of John
Marshall. Other expense, net, for the year ended August 31, 2001, included
losses attributable to John Marshall for the six month period prior to the
acquisition, as compared to a full fiscal year of losses during the year ended
August 31, 2000. This decrease was partially offset by higher interest expense
of $0.4 million related to additional borrowings on the Company's line of
credit during 2001.

Provision (credit) for Income Taxes. The Company recorded an income tax
benefit of approximately $0.5 million for fiscal 2001, as compared to a
provision of approximately $1.3 million for the prior year. The current year
benefit reflects the tax deductions associated with the losses incurred in
2001. The Company's effective income tax rate dropped from 43.2% to 21.1%, due
primarily to valuation allowances established for operating and capital loss
carryforwards that will be lost in connection with the disposition of John
Marshall and PrimeTech and a nondeductible charge associated with the issuance
of a stock warrant.

Net income (loss) decreased, from $1.7 million of net income in fiscal 2000
to a net loss of $1.7 million in fiscal 2001 due to the reasons discussed above.

Year Ended August 31, 2000 Compared to Year Ended August 31, 1999

Net Revenue. Net revenues increased 19.8% from $36.9 million in fiscal 1999
to $44.1 million in fiscal 2000, primarily due to increased revenue at all
schools owned in both fiscal 1999 and 2000. For schools owned by the Company
during fiscal 1999, revenue increased by 16.1% primarily due to internal
growth. Additional revenue was recognized from tuition increases and the
addition of new satellite campus and new programs. Also, the fiscal 1999 totals
include revenue from PrimeTech only for the nine months following its
acquisition as compared to twelve months of revenues in fiscal 2000.

Cost of Education. Cost of education increased 12.2% from $18.5 million in
fiscal 1999 to $20.7 million in fiscal 2000, due to additional teaching costs
to meet the growth in the number of students attending the schools, the
development of new satellite campuses and programs and the acquisition of
PrimeTech. As a percentage of net revenue, cost of education decreased from
50.2% in fiscal 1999 to 47.0% in fiscal 2000 due to efficiencies in the student
services area.

Selling Expenses. Selling expenses increased 137.4% from $1.6 million in
fiscal 1999 to $3.8 million in fiscal 2000. As a percentage of revenue, selling
expenses increased from 4.4% to 8.7% due to the addition of recruiters in all
of the Argosy schools and a more aggressive marketing strategy. In addition,
the acquisition of PrimeTech in the early part of fiscal 1999 has three more
months of selling expenses in fiscal 2000 and generally requires more costly
advertising media than the other Argosy companies.

General and Administrative Expenses. General and administrative expenses
increased 30.4% from $11.6 million in fiscal 1999 to $15.1 million in fiscal
2000 and, as a percentage of net revenue, general and administrative expenses
increased from 31.4% to 34.3%. The increase is primarily due to increases in
payroll costs, additional expenses incurred as a public company, additional
costs of start up operations, and additional depreciation expense due to the
continued investment in the Company's equipment and computer systems. In
addition, charges totaling $0.2 million were recorded in relation to the final
settlement of matters arising in connection with the purchase of MIM and a
settlement of a minor dispute.

Related Party General and Administrative Expense. Related party general and
administrative expenses, which represents amounts paid to a company owned by
the majority shareholder that provided management services for the Company and
its schools, was $0.7 million in fiscal 1999. Upon consummation of the initial
public offering, the relationship with the related company was terminated.

Interest/Other Income (Expense), Net. Interest/other income (expense), net,
changed from income of $0.1 million for fiscal 1999 to $1.4 million of net
expense for fiscal 2000 and, as a percentage of net revenue, decreased from
0.3% to (3.3)%. This increase in expense was due primarily to $1.9 million of
equity losses resulting from the Company's investment in John Marshall.
Interest income increased from $0.7 million for fiscal 1999 to $0.9 million for
fiscal 2000 primarily as a result of a full year of use of the proceeds from
the initial public offering that increased cash and investments. Interest
expense decreased 47.1% from fiscal 1999 to fiscal 2000 due to the pay down of
certain debts and the implementation of a credit agreement at more favorable
rates than the facilities it replaced.

Provision for Income Taxes. The provision for income taxes increased from
$0.04 million in fiscal 1999 to $1.3 million in fiscal 2000, due to the
Company's change to a C Corporation on March 8, 1999. Upon the termination of
its S Corporation status in the third quarter of 1999, the Company recorded a
deferred income tax asset and corresponding reduction of income tax expense of
$0.8 million. In addition, there was a negligible tax charge for the first half
of fiscal 1999 while the Company was an S Corporation.

Net Income. Net income decreased 63.8% from $4.6 million in fiscal 1999 to
$1.7 million in fiscal 2000 due primarily to the increase in income taxes of
$1.2 million and equity losses of $1.9 million resulting from losses relating
to the Company's investment in John Marshall.

Seasonality; Variations in Quarterly Results of Operations

The Company has experienced seasonality in its results of operations
primarily due to the pattern of student enrollments at most of the Company's
schools. Historically, the Company's lowest quarterly net revenue and income
have been in the fourth fiscal quarter (June through August) due to lower
student enrollment during the summer months at most of the Company's schools,
while the Company's expenses remain relatively constant over the course of a
year. The Company expects that this seasonal trend will continue.

The following table sets forth unaudited quarterly financial data for the
fiscal years ended August 31, 2001 and 2000 and, for the fiscal years, such
data expressed as a percentage of the Company's totals with respect to such
information for the applicable quarters. The Company believes that this
information includes all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of such quarterly information
when read in conjunction with the consolidated financial statements included
elsewhere herein. The operating results for any quarter are not necessarily
indicative of the results for any future period.

Fiscal Year Ended August 31, 2001 Fiscal Year Ended August 31, 2000
---------------------------------- ----------------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- ------- ------- ------- ------- -------
(unaudited)
(dollars in thousands)

Net revenue........... $13,304 $12,527 $16,769 $15,570 $11,614 $10,576 $12,617 $ 9,251
% of fiscal year total 22.9% 21.6% 28.7% 26.8 26.4% 24.0% 28.6% 21.0%
Income from operations $ 1,304 $ 950 $ 1,904 $(5,486) $ 1,587 $ 1,266 $ 2,649 $(1,134)
% of fiscal year total 98.2% 72.2% 143.3% (413.1)% 36.3% 29.0% 60.7% (26.0)%
Net income............ $ 540 $ 111 $ 1,097 $(3,440) $ 936 $ 439 $ 1,363 $ 1,077
Earnings per share.... $ 0.08 $ 0.02 $ 0.17 $ 0.53 $ 0.14 $ 0.07 $ 0.21 $ (0.17)

Liquidity and Capital Resources

Since its formation, the Company has financed its operating activities
primarily through cash generated from operations. Acquisitions have been
financed primarily through debt instruments. Net cash provided by operating
activities increased to $5.4 million in the year ended August 31, 2001 as
compared to $4.1 million in the year ended August 31, 2000. The Company had
working capital of $5.2 million as of August 31, 2001 which was $8.4 million
lower than working capital as of August 31, 2000. The decrease in working
capital was due to increased deferred revenue and liabilities assumed in the
acquisitions of Western State, John Marshall, and The Connecting Link.

During 1999, the Company entered into a credit agreement with a syndicate of
banks ("Credit Agreement"), which provides for revolving credit borrowings of
up to $20 million. On July 20, 2001 the credit agreement was amended to provide
for borrowings up to $12.5 million and included the amendment of the other
terms which are included in the discussion following. Borrowings under the
Credit Agreement bear interest at a variable rate equal to (at the Company's
option) the principal lender's prime rate as in effect from time to time or the
London Inter-Bank Offered Rate plus, in each case, a margin of between 50 and
250 basis points, depending on the type of loan and the Company's ratio of
funded debt to EBITDA. The interest rate being charged on amounts outstanding
at August 31, 2001 was 7%. In addition, the Credit Agreement provides for an
unused commitment fee of 37.5 basis points on commitments available but unused
under the Credit Agreement, as well as certain other customary fees. The Credit
Agreement provides for a blanket lien on all material assets of the Company and
a pledge of the capital stock of all the Company's material subsidiaries, as
well as guarantees from all such subsidiaries. The Credit Agreement restricts
the Company and its subsidiaries' ability to take certain actions, including
incurring additional indebtedness or altering the Company's current method of
doing business. The Credit Agreement also contains certain financial covenants
and ratios that may have the effect of restricting the Company's ability to
take certain actions in light of their impact on the Company's financial
condition or results of operations. The Credit Agreement terminates on July 20,
2003. As of August 31, 2001 and August 31, 2000, outstanding borrowings under
this Credit Agreement totaled approximately $8,850,000 and $350,000,
respectively.

On March 1, 2001 the Company borrowed $5.0 million on its $12.5 million line
of credit with Bank of America which is scheduled to expire on July 20, 2003
and bears interest at a base rate plus an applicable margin. The borrowing is
classified as long term. An additional borrowing of $3.5 million was drawn on
August 31, 2001 and was repaid in September 2001. On November 15, the
outstanding borrowing on the Company's line of credit totaled $5.4 million.

As of August 31, 2001, the Company was not in compliance with certain
financial covenants and ratios required to be maintained by its Credit
Agreement. The Company has obtained a waiver form the bank to the credit
agreement modifying the financial covenants and ratios to allow the Company to
maintain compliance under its credit agreement.

Capital expenditures were $1.8 million in both fiscal 2000 and fiscal 2001.
The Company continues to invest in upgrading school equipment and facilities
and enhancing the capabilities of the Company's computer system. Capital
expenditures are expected to continue to increase as the student population
increases and the Company continues to upgrade and expand current facilities
and equipment. The Company has no other commitments for material capital
expenditures.

Operating Cash Flow

The Company's cash flow from operation increased $1.2 million in fiscal 2001
to $5.4 million from $4.2 million in fiscal 2000. The increase was primarily
due to increase in depreciation and amortization expense and changes in other
current assets and liabilities.

The Company's cash flow from operations on a long-term basis is dependent on
the receipt of funds from the Title IV Programs. For fiscal 2001, the Company's
U.S. institutions derived approximately 52% to 72% of their net revenue (on a
cash basis) from the Title IV Programs. The HEA and its implementing
regulations establish specific standards of financial responsibility,
administrative capability and other requirements that must be satisfied in
order to qualify for participation in the Title IV Programs.

The DOE requires that Title IV Program funds collected by an institution for
unbilled tuition be kept in separate cash or cash equivalent accounts until the
students are billed for the portion of their program related to these Title IV
Program funds. In addition, all funds transferred to the Company through
electronic funds transfer programs are held in a separate cash account until
certain conditions are satisfied. As of August 31, 2001, the Company held an
immaterial amount of funds in these separate accounts. The restrictions on any
cash held in these accounts have not significantly affected the Company's
ability to fund daily operations.

The Company adopted a repurchase program for the Company's Class A Common
Stock of up to 500,000 shares. Shares of Class A Common Stock may be purchased
by the Company from time to time through open market purchases and private
purchases, as available. Under this program, the Company has repurchased
482,000 shares as of August 31, 2001 at a total cost of approximately
$2,131,000.

Recent Accounting Pronouncements

On December 3, 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, to provide guidance
on the recognition, presentation, and disclosure of revenue in financial
statements. The SAB outlines basic criteria that must be met before registrants
may recognize revenue, including persuasive evidence of the existence of an
arrangement, the delivery of products or services, a fixed and determinable
sales price, and reasonable assurance of collection. Through August 31, 2000,
the Company has recognized application, technology and registration fees as
revenue upon receipt. Prior to the release of SAB 101, the Company's revenue
recognition policy was in compliance with generally accepted accounting
principles. The Company reviewed its revenue recognition policy related to the
revenue for application, registration, and technology fees and determined that
revenue generated from these fees is diminimus and that the cost to the
administer the services related to these fees approximates the related revenue.
As a result the company continues to recognize the revenue generated from these
fees upon receipt.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, as amended by SFAS No. 137 "Accounting
for Derivative Instruments and Hedging Activities." The statement requires the
recognition of all derivatives as either assets or liabilities in the balance
sheet and the measurement of those instruments at fair value, and was effective
for the Company on September 1, 2000. The Company did not hold derivative
instruments or participate in hedging activities during the fiscal year ended
August 31, 2001. Therefore, the adoption of FAS 133 had no effect on the
operating results or financial position of the Company for the year ended
August 31, 2001.

In June 2001, Statement of Financial Accounting Standard (SFAS) No. 141,
"Business Combinations," was issued. The statement addresses financial
accounting and reporting for business combinations and supersedes APB Opinion
No. 16, "Business Combinations," and FASB statement No. 38 "Accounting for
Preacquisition Contingencies of Purchased Enterprises." The statement requires
that all business combinations initiated after June 30, 2001 be accounted for
using the purchase method. SFAS 141 is effective July 1, 2001. The Company's
adoption of SFAS 141 will not have a material impact on the Company's financial
position or results of operations.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets", which addresses financial accounting
and reporting for acquired goodwill and other intangible assets. SFAS No. 142
addresses how intangible assets that are acquired in an acquisition should be
recognized and, if necessary, amortized. It also requires that goodwill and
intangible assets that have indefinite useful lives not be amortized, but
rather tested at least annually for impairment using a fair-value-based test,
and intangible assets that have definitive useful lives be amortized over their
useful lives. In addition, SFAS No. 142 expands the disclosure requirements
about goodwill and other intangible assets in the years subsequent to their
acquisition. The Company must adopt SFAS No. 142 in fiscal year 2003 with early
adoption permitted in fiscal year 2002. Impairment losses for goodwill and
indefinite-life intangible assets that arise due to the initial application of
SFAS No. 142, if any, are to be reported as a cumulative effect of a change in
accounting principle. Goodwill and intangible assets acquired after June 30,
2001 are subject immediately to the provisions of SFAS No. 142. The Company is
in the process of determining the full impact that adoption will have on the
consolidated financial statements as well as determining when to adopt.
Goodwill amortization under the provision of SFAS No. 142, will no longer be
recorded in the Company's results of operations upon adoption of the new
standard. During fiscal 2001, the Company recorded $0.5 million of amortization
expense related to intangible assets affected by this pronouncement.

In September, 2001, the Financial Accounting Standards Board issued SFAS No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This
standard revises the measurement of and accounting for impairment of long-lived
assets. This statement is required for fiscal years beginning after December
15, 2001. This statement will not have a material effect on the financial
positions or results of operations of the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to the impact of interest rate changes, foreign
currency fluctuations and changes in the market value of its investments. The
Company does not utilize interest rate swaps, forward or option contracts on
foreign currencies or commodities, or other types of derivative financial
instruments. The Company has debt with fixed annual rates of interest ranging
from 7% to 9% totaling $6.6 million at August 31, 2001. In addition, the
Company has outstanding debt borrowed on its line of credit totaling $8.9
million at August 31, 2001 with an interest rate of 7%. The Company estimates
that the fair value of each of its debt instruments approximated its book value
on August 31, 2001.

The Company is subject to fluctuations in the value of the Canadian dollar
vis-a-vis the U.S. dollar. On October 31, 2001 the Company disposed of its
Canadian operations and therefore currently has no interest foreign currency
fluctuation exposure.

From time to time, the Company invests excess cash in marketable securities.
These investments principally consist of U.S. Treasury notes, corporate bonds,
short-term commercial paper and money market accounts, the fair value of which
approximated current market rates at August 31, 2001.

Inflation

The Company has historically implemented tuition increases each year at or
above the rate of inflation. Average tuition increases at the Company's schools
for fiscal 2001, 2000 and 1999 were 5.7%, 5.1% and 5.2%, respectively.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated balance sheets are as of August 31, 2001 and 2000 and the
consolidated statements of operations, shareholders' equity and cash flows are
for each of the years ended August 31, 2001, 2000 and 1999:

Report of Independent Public Accountants, page F-1.

Consolidated Balance Sheets, page F-2.

Consolidated Statements of Operations, page F-3.

Consolidated Statements of Cash Flows, page F-4.

Consolidated Statements of Shareholders' Equity, page F-5.

Notes to Consolidated Financial Statements, page F-7.

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

None.

PART III

ITEM 11. EXECUTIVE COMPENSATION

The information in response to this item is incorporated by reference from
the section of the 2001 Special Meeting Proxy Statement--Merger Proposal
captioned ''EXECUTIVE COMPENSATION AND CERTAIN TRANSACTIONS.''

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information in response to this item is incorporated by reference from
the section of the 2001 Special Meeting Proxy Statement--Merger Proposal
captioned ''SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS.''

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information in response to this item is incorporated by reference from
the sections of the 2001 Special Meeting Proxy Statement--Merger Proposal 2001
captioned ''EXECUTIVE COMPENSATION AND CERTAIN TRANSACTIONS'' and
''COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.''

PART IV

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

(a) The following documents are filed as part of this Form 10-K or
incorporated by reference as set forth below:

Page
----

1 and 2. Financial Statements of Argosy Education Group, Inc. and subsidiaries

Report of Independent Public Accountants................................................. F-1

Consolidated Balance Sheets as of August 31, 2001 and 2000............................... F-2

Consolidated Statements of Operations for the years ended August 31, 2001, 2000 and 1999. F-3

Consolidated Statements of Cash Flows for the years ended August 31, 2001, 2000 and
1999................................................................................... F-4

Consolidated Statements of Shareholders' Equity for the years ended August 31, 2001,
2000 and 1999.......................................................................... F-5

Notes to Consolidated Financial Statements............................................... F-7

3. Exhibits:

2.1 Merger Agreement dated July 9, 2001 between Education Management Corporation and Argosy
Education Group.*

2.2 Stock Purchase Agreement between Michael Markovitz and Education Management Corporation.*

3.1 Articles of Incorporation of the Company, Incorporated by Reference to the Company's Registration
Statement on Form S-1.

3.2 By-laws of the Company, Incorporated by Reference to the Company's Registration Statement on
Form S-1.

10.1 Argosy Education Group, Inc. 1999 Stock Incentive Plan, Incorporated by Reference to the
Company's Registration Statement on Form S-1.

10.2 Argosy Education Group, Inc. Employee Stock Discount Purchase Plan, Incorporated by
Reference to the Company's Registration Statement on Form S-1.

10.3 Tax Indemnification Agreement, dated February 10, 1999, between the Company and
Dr. Markovitz, Incorporated by Reference to the Company's Registration Statement on Form S-1.

10.4 Term Note of Academic Review, Inc. dated August 27, 1997, in favor of Northern Trust Company,
Incorporated by Reference to the Company's Registration Statement on Form S-1.

10.5 Real Estate Mortgage and Security Agreement, dated April 30, 1997, among MCM University Plaza,
Inc. and Northern Trust Bank of Florida, N.A., Incorporated by Reference to the Company's
Registration Statement on Form S-1.

10.6 Lease Agreement, dated July 21, 1995, between Park Central Corp. and U of S, Incorporated by
Reference to the Company's Registration Statement on Form S-1.

10.7 Standard Tenancy Agreement, dated December 10, 1992, between Lakeside Commons Partners and the
Company, as amended by Lease Amendment, dated March 17, 1994 between Lakeside Commons
Partners and the Company, Incorporated by Reference to the Company's Registration Statement on
Form S-1.

10.8 Tenant Lease, dated June 21, 1995, between CKSS Associates and the Company, Incorporated by
Reference to the Company's Registration Statement on Form S-1.

10.10 Lease, dated September 8, 1994, between American National Bank and Trust Company of Chicago
and The Company, as amended by Amendment to Lease, dated November 28, 1997, between
American National Bank and Trust Company of Chicago and the Company, Incorporated by
Reference to the Company's Registration Statement on Form S-1.

10.11 Lease Agreement, dated July 3, 1996, between Continental Offices Ltd. and the Company, as amended
by First Amendment, to Lease Agreement, dated July 3, 1996, between Continental Offices Ltd. and
the Company, Incorporated by Reference to the Company's Registration Statement on Form S-1.

10.12 Office Lease, dated May 28, 1997, between Presson Advisory, L.L.C. and the Company, Incorporated
by Reference to the Company's Registration Statement on Form S-1.

10.13 Lease, dated May 3, 1997, between Control Data Corporation and the Company, and amended by
Letter Agreement, dated December 8, 1994, Incorporated by Reference to the Company's Registration
to Statement on Form S-1.

10.14 Lease, dated August 1, 1997, between Oneida Realty Company and the Company, Incorporated by
Reference to the Company's Registration Statement on Form S-1.

10.15 Lease Agreement, dated May 3, 1994, between Arlington Park Realty Corporation and the Company,
Incorporated by Reference to the Company's Registration Statement on Form S-1.

10.16 Standard Industrial/Commercial Multi-Tenant Lease--Modified Net, dated November 3, 1995,
between the Gordon Family Trust and AATBS, and addenda and amendments thereto, Incorporated by
Reference to the Company's Registration Statement on Form S-1.

10.17 Lease, dated October 11, 1991, between MEPC American Properties Incorporated and Medical
Institute of Minnesota, Inc. and amendments thereto, Incorporated by Reference to the Company's
Registration Statement on Form S-1.

10.18 Indenture of Sublease, dated June 9, 1997, between Royal Bank of Canada and PrimeTech
Corporation, Incorporated by Reference to the Company's Registration Statement on Form S-1.

10.19 Lease, dated March 14, 1997, between Cumberland-Bellair Investment, Inc. and 1184266 Ontario Inc.,
Incorporated by Reference to the Company's Registration Statement on Form S-1.

10.20 Stock Purchase Agreement, dated April 15, 1998, among PrimeTech Canada Inc., George Schwartz,
P.M.T. Holdings Inc. and Michael Markovitz, Incorporated by Reference to the Company's
Registration Statement on Form S-1.

10.21 Stock Purchase Agreement, dated February 3, 1998, between Medical Institutes of America, Inc. and
Phillip Miller, Incorporated by Reference to the Company's Registration Statement on Form S-1.

10.22 Agreement to Purchase and Redeem Stock, dated August 26, 1997, among Ventura, Steven H. Santini
and Association for Advanced Training in the Behavioral Sciences, Incorporated by Reference to the
Company's Registration Statement on Form S-1.

10.23 Agreement to Purchase Assets, dated August 26, 1997, among Academic Review, Inc., an Illinois
corporation, Academic Review, Inc., a California corporation and Steven H. Santini, Incorporated by
Reference to the Company's Registration Statement on Form S-1.

10.24 Purchase and Sale Agreement, dated August 31, 1998, between University of Sarasota, Inc. and
Michael C. Markovitz, Incorporated by Reference to the Company's Registration Statement on Form
S-1.

10.25 Software License and Service Agreement, dated March 31, 1998, between SCT Software & Resource
Management Corporation and the Company, Incorporated by Reference to the Company's Registration
Statement on Form S-1.

10.26 Purchase of Services Agreement, dated January 1, 1998, between Illinois Alternatives, Inc. and the
Company, Incorporated by Reference to the Company's Registration Statement on Form S-1.

10.27 Form of Distribution Loan note, Incorporated by Reference to the Company's Registration Statement
on Form S-1.

10.28 Employment Agreement, dated February 10, 1999, between the Company and Dr. Markovitz,
Incorporated by Reference to the Company's Registration Statement on Form S-1.

10.29 Indemnification Agreement, dated February 10, 1999, between the Company and Dr. Markovitz,
Incorporated by Reference to the Company's Registration Statement on Form S-1.

10.30 Management Agreement between Argosy Education Group, Inc. and John Marshall Law School of
Georgia.*

10.31 Consulting Agreement, dated September 1, 2000, between the Company and Leeds Equity Associates,
L.P.*

10.32 Registration Agreement, dated September 1, 2000, between the Company and Leeds Equity
Associates, L.P.*

10.33 Stock Purchase Warrant, dated September 1, 2000, between the Company and Leeds Equity
Associates, L.P.*

10.34 Purchase and Sale Agreement dated November 14, 2000 between Western State University and the
Company*

21.1 List of Subsidiaries of Argosy Education Group, Inc.

23.1 Consent of Arthur Andersen LLP with respect to financial statements of Argosy Education Group, Inc.

- --------
* Filed previously.

(b) Reports on Form 8-K.

During the last quarter of the period covered by this Form 10-K, the Company
did not file any current reports on Form 8-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 27, 2001.

ARGOSY EDUCATION GROUP, INC.

/s/ CHARLES T. GRADOWSKI
By: _________________________________
Charles T. Gradowski
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----

/s/ JAMES OTTEN President November 27, 2001
------------------------
James Otten

/s/ MICHAEL C. MARKOVITZ Chairman of the Board November 27, 2001
------------------------
Michael C. Markovitz

/s/ CHARLES T. GRADOWSKi Chief Financial Officer November 27, 2001
------------------------ (Principal Financial and
Charles T. Gradowski Accounting Officer)

/s/ KAREN M. KNAB Director November 27, 2001
------------------------
Karen M. Knab

/s/ JEFFREY LEEDS Director November 27, 2001
------------------------
Jeffrey Leeds

/s/ MICHAEL W. MERCER Director November 27, 2001
------------------------
Michael W. Mercer

/s/ HAROLD J. O'DONNELL Director November 27, 2001
------------------------
Harold J. O'Donnell

/s/ KALMAN K. SHINER Director November 27, 2001
------------------------
Kalman K. Shiner

/s/ LESLIE M. SIMMONS Director November 27, 2001
------------------------
Leslie M. Simmons

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Argosy Education Group, Inc.:

We have audited the accompanying consolidated balance sheets of ARGOSY
EDUCATION GROUP, INC. (an Illinois corporation) AND SUBSIDIARIES as of August
31, 2001 and 2000, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended August 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Argosy Education Group,
Inc. and Subsidiaries as of August 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 2001 in conformity with accounting principles generally accepted in
the United States.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules included in Footnote 15 to
the financial statements are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

Arthur Andersen LLP

Chicago, Illinois
November 19, 2001

F-1

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

August 31,
----------------
2001 2000
------- -------

ASSETS
Current Assets:
Cash and cash equivalents............................................................... $11,803 $ 8,112
Short-term investments.................................................................. 37 7,787
Receivables--
Students, net of allowance for doubtful accounts of $712 and $311 at August 31,
2001 and 2000, respectively....................................................... 3,295 2,178
Other............................................................................... 361 507
Due from related entity................................................................. -- 49
Prepaid taxes........................................................................... 2,117 215
Prepaid expenses and other current assets............................................... 401 409
Deferred tax assets..................................................................... 1,143 286
------- -------
Total current assets............................................................. 19,157 19,543
------- -------
------- -------
Property and equipment, net................................................................ 22,387 6,307
------- -------
Other assets:
Non-current investments................................................................. 2,505 200
Deposits and other long term assets..................................................... 926 159
Deferred tax assets..................................................................... -- 1,680
Advances to John Marshall............................................................... -- 724
Intangibles, net........................................................................ 10,734 6,687
------- -------
Total other assets............................................................... 14,165 9,450
------- -------
Total assets..................................................................... $55,709 $35,300
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt.................................................... $ 738 $ 796
Accounts payable........................................................................ 1,933 1,162
Accrued payroll and related expenses.................................................... 2,415 634
Accrued expenses........................................................................ 1,940 584
Deferred revenue........................................................................ 6,940 2,760
------- -------
Total current liabilities........................................................ 13,966 5,936
------- -------
Long-term debt, less current maturities.................................................... 14,497 2,604
Deferred rent.............................................................................. 997 710
Deferred taxes............................................................................. 2,034 --
Commitments and contingencies..............................................................
Shareholders' equity:
Class A common stock--30,000,000 shares authorized, $.01 par value, 2,076,449 and
2,059,417 issued and outstanding at August 31, 2001 and 2000, respectively............ 21 21
Class B common stock--10,000,000 shares authorized, $.01 par value, 4,900,000
shares issued and outstanding at August 31, 2001 and 2000, respectively............... 49 49
Stock warrants.......................................................................... 860 --
Additional paid-in capital.............................................................. 25,230 25,131
Accumulated other comprehensive income.................................................. -- 1,102
Purchase price in excess of predecessor carry over basis................................ (720) (720)
Treasury stock (482,000 shares of Class A common stock at August 31, 2001 and
2000)................................................................................. (2,131) (2,131)
Retained earnings....................................................................... 906 2,598
------- -------
Total shareholders' equity....................................................... 24,215 26,050
------- -------
Total liabilities and shareholders' equity....................................... $55,709 $35,300
======= =======

The accompanying notes are an integral part of these consolidated statements

F-2

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands)

Years Ended August 31,
-------------------------
2001 2000 1999
------- ------- -------

Net Revenue................................................................. $58,170 $44,058 $36,866
Operating expenses:
Cost of education........................................................ 29,048 20,746 18,489
Selling expenses......................................................... 6,329 3,837 1,616
General and administrative expenses...................................... 22,622 15,107 11,588
Impairment charge related to business dispositions....................... 1,499 -- --
Related party general and administrative expense......................... -- -- 668
------- ------- -------
Total operating expenses............................................. 59,498 39,690 32,361
------- ------- -------
Income (loss) from operations........................................ (1,328) 4,368 4,505
------- ------- -------
Other income (expense):
Losses attributable to John Marshall..................................... (872) (1,925) --
Interest income.......................................................... 643 854 695
Interest expense......................................................... (596) (300) (567)
Other income (expense), net.............................................. 9 (73) (6)
------- ------- -------
Total other income (expense), net.................................... (816) (1,444) 122
------- ------- -------
Income (loss) before provision for income taxes...................... (2,144) 2,924 4,627
Income Taxes:
Income tax provision on C corporation income subsequent to March 8, 1999. (452) 1,263 746
Income tax provision on S corporation income prior to March 8, 1999...... -- -- 62
Deferred income taxes recorded in conjunction with termination of S
corporation election on March 8, 1999.................................. -- -- (764)
------- ------- -------
Total income taxes................................................... (452) 1,263 44
------- ------- -------
Net income (loss)........................................................... $(1,692) $ 1,661 $ 4,583
------- ------- -------
Earnings (loss) per share:
Basic.................................................................... $ (0.26) $ 0.25 $ 0.78
------- ------- -------
Weighted average shares outstanding--basic............................... 6,483 6,529 5,870
======= ======= =======
Diluted.................................................................. $ (0.26) $ 0.25 $ 0.78
======= ======= =======
Weighted average shares outstanding--diluted............................. 6,483 6,530 5,870
======= ======= =======

The accompanying notes are an integral part of these consolidated statements

F-3

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Years Ended August 31,
---------------------------
2001 2000 1999
-------- ------- --------

Cash flows from operating activities:
Net income(loss)................................................................... $ (1,692) $ 1,661 $ 4,583
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization..................................................... 2,231 1,554 1,405
Deferred taxes.................................................................... (378) (1,124) (842)
Losses attributable to John Marshall.............................................. 872 1,925 --
Issuance of stock performance grants.............................................. -- 232 --
Issuance of stock warrants........................................................ 860 -- --
Impairment charge related to business dispositions................................ 1,499 -- --
Changes in operating assets and liabilities, net of acquired businesses--
Receivables, net................................................................. 17 (1,092) (579)
Inventories...................................................................... 12 (15) 94
Prepaid expenses................................................................. (135) 392 (438)
Deposits......................................................................... (106) 7 72
Accounts payable................................................................. 870 53 (215)
Accrued payroll and related expenses............................................. 712 87 (281)
Accrued expenses................................................................. (1,235) 167 (367)
Deferred revenue................................................................. 1,504 212 151
Deferred rent.................................................................... 321 100 130
-------- ------- --------
Net cash provided by operating activities...................................... 5,352 4,159 3,713
-------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment, net............................................ (1,808) (1,875) (1,889)
Sale (purchase) of investments, net................................................ 4,333 1,449 (3,363)
Business acquisitions, net of cash acquired........................................ (11,013) (247) (186)
Advances to John Marshall.......................................................... (959) (2,149) (500)
-------- ------- --------
Net cash used in investing activities.......................................... (9,447) (2,822) (5,938)
-------- ------- --------
Cash flows from financing activities:
Issuance of common stock........................................................... 99 29 26,040
Offering costs..................................................................... -- -- (1,149)
Purchase of treasury stock......................................................... -- (2,131) --
Proceeds from issuance of long-term debt........................................... 8,500 380 150
Payments of long-term debt......................................................... (744) (463) (5,385)
Borrowings from (payments to) related entities, net................................ -- -- 57
Shareholder distributions.......................................................... -- -- (14,215)
Shareholder note receivable........................................................ -- -- 3,278
Payments to former owners of acquired businesses................................... -- -- (268)
-------- ------- --------
Net cash provided by (used in) financing activities............................ 7,855 (2,185) 8,508
-------- ------- --------
Effective exchange rate changes on cash.............................................. (67) (20) (15)
-------- ------- --------
Net increase (decrease) in cash and cash equivalents................................. 3,691 (868) 6,268
Cash and cash equivalents, beginning of year......................................... 8,112 8,980 2,712
-------- ------- --------
Cash and cash equivalents, end of year............................................... 11,803 8,112 8,980
-------- ------- --------
Supplemental disclosures of cash flow information:
Cash paid for--
Interest.......................................................................... $ 653 $ 297 $ 584
Taxes............................................................................. 1,861 1,989 1,524
======== ======= ========
Supplemental disclosure of non-cash investing and financing activities:
Acquisitions of various schools and businesses--
Fair value of assets acquired..................................................... $ 12,038 $ 100 $ 1,561
Net cash used in acquisitions..................................................... (11,013) (247) (186)
-------- ------- --------
Liabilities assumed or incurred................................................ $ 1,025 $ (147) $ 1,375
======== ======= ========

Supplemental disclosure of non-cash shareholder activities:

During 1999, the Company received marketable securities with a fair market
value of approximately $2,722,000 from the shareholder for partial repayment of
the shareholder note receivable.

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

F-4

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)

Class A Class B
Common Stock Common Stock
$.01 par value, $.01 par value,
30,000,000 shares 10,000,000 shares
authorized authorized
------------------ ------------------ Additional
Comprehensive Shares Shares Stock Paid-in
Income Outstanding Amount Outstanding Amount Warrants Capital
------------- ----------- ------ ----------- ------ -------- ----------

BALANCE, August 31, 1998.......... -- -- 4,900 $49 -- $ 6,456
Net income........................ $ 4,583 -- -- -- -- -- --
Unrealized gain on investments.... 445 -- -- -- -- -- --
-------
Comprehensive income.............. $ 5,028
=======
Shareholder distribution.......... -- -- -- -- -- (6,456)
Issuance of stock................. 2,000 $20 -- -- -- 24,871
----- --- ----- --- --- -------
BALANCE, August 31, 1999.......... 2,000 20 4,900 49 -- 24,871
----- --- ----- --- --- -------
Net income........................ $ 1,661 -- -- -- -- -- --
Foreign translation adjustment.... (9) -- -- -- -- -- --
Unrealized gain on investments.... 664 -- -- -- -- -- --
-------
Comprehensive income.............. $ 2,316
=======
Purchase of treasury stock........ -- -- -- -- -- --
Issuance of class A common stock
for stock performance grants..... 51 1 -- -- -- 231
Issuance of class A common stock
under employee stock purchase
plan............................. 8 -- -- -- 29
----- --- ----- --- --- -------
BALANCE, August 31, 2000.......... 2,059 21 4,900 49 -- 25,131
Net loss.......................... $(1,692) -- -- -- -- -- --
Foreign translation adjustment.... (64) -- -- -- -- -- --
Unrealized loss on investments.... (1,118) -- -- -- -- -- --
-------
Comprehensive loss................ $(2,874)
=======
Issuance of stock warrants........ -- -- -- -- 860 --
Issuance of class A common stock
for stock performance grants..... 9 -- -- -- -- 60
Issuance of class A common stock
under employee stock purchase
plan............................. 8 -- -- -- -- 39
Elimination of foreign translation
adjustment due to planned sale
of PrimeTech..................... -- -- -- -- -- --
----- --- ----- --- --- -------
BALANCE, August 31, 2001.......... 2,076 $21 4,900 $49 860 $25,230
===== === ===== === === =======

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

F-5

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY--(Continued)
(Dollars in thousands)

Purchase
Price in
Accumulated Excess of Treasury Stock
Other Predecessor ----------------- Total
Comprehensive Carryover Shares Retained Shareholders'
Income Basis Purchased Amount Earnings Equity
------------- ----------- --------- ------- -------- -------------

BALANCE, August 31, 1998............................. $ 2 $(720) -- $ -- $ 3,135 $ 8,922
Net income........................................... -- -- -- -- 4,583 4,583
Unrealized gain on investments....................... 445 -- -- -- -- 445
Comprehensive income.................................
Shareholder distribution............................. -- -- -- -- (6,781) (13,237)
Issuance of stock.................................... -- -- -- -- -- 24,891
------- ----- ---- ------- ------- --------
BALANCE, August 31, 1999............................. 447 (720) -- -- 937 25,604
------- ----- ---- ------- ------- --------
Net income........................................... -- -- -- -- 1,661 1,661
Foreign translation adjustment....................... (9) -- -- -- -- (9)
Unrealized gain on investments....................... 664 -- -- -- -- 664
Comprehensive income.................................
Purchase of treasury stock........................... -- -- 482 (2,131) -- (2,131)
Issuance of class A common stock for stock
performance grants.................................. -- -- -- -- -- 232
Issuance of class A common stock under
employee stock purchase plan........................ -- -- -- -- -- 29
------- ----- ---- ------- ------- --------
BALANCE, August 31, 2000............................. 1,102 (720) 482 (2,131) 2,598 26,050
Net loss............................................. (1,692) (1,692)
Foreign translation adjustment....................... (64) -- -- -- -- (64)
Unrealized loss on investments....................... (1,118) -- -- -- -- (1,118)
Comprehensive loss................................... --
Issuance of stock warrants........................... -- -- -- -- -- 860
Issuance of class A common stock for stock
performance grants.................................. -- -- -- -- -- 60
Issuance of class A common stock under
employee stock purchase plan........................ -- -- -- -- -- 39
Elimination of foreign translation adjustment due
to planned sale of PrimeTech........................ 80 -- -- -- -- 80
------- ----- ---- ------- ------- --------
BALANCE, August 31, 2001............................. $ -- $(720) $482 $(2,131) $ 906 $ 24,215
======= ===== ==== ======= ======= ========

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

F-6

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2001, 2000 AND 1999

1. Description of the Business and Basis of Presentation

The consolidated financial statements of Argosy Education Group, Inc.
(formerly known as American Schools of Professional Psychology, Inc. ("ASPP"))
(the "Company") include the accounts of the Company and its wholly-owned
subsidiaries, University of Sarasota, Inc. ("U of S"), Argosy International,
Inc. ("Ventura"), the Medical Institutes of America, Inc. ("MIA") and PrimeTech
Canada Inc., ("PrimeTech"), The Connecting Link ("TCL"), Western State
University College of Law ("WSU"), and John Marshall Law School ("JMLS"). Prior
to being subsidiaries of the Company, the companies, other than PrimeTech, were
separate entities owned by the same shareholder and John Marshall was a not-for
profit organization. Through various transactions, these companies were
contributed by the shareholder to the Company. On November 30, 1998, the
Company acquired 100% of the outstanding stock of PrimeTech. The Company
continues to conduct business under its historical name, ASPP.

The Company provides programs in psychology, education, business, law,
allied health professions, network engineering and software programming and
offers courses and materials for post-graduate psychology license examinations
in the United States. The Company operates through four business units and is
approved and accredited to offer doctoral, master's, bachelor's and associate
degrees as well as to award diplomas and non degree certificates through 17
campuses in nine states and Ontario, Canada.

The contribution by the shareholder of businesses under common control and,
as described in Note 3, the Company's purchase of MCM University Plaza, Inc.'s
stock from its shareholder have been accounted for in a manner similar to a
pooling of interests.

On March 8, 1999, the Company completed an initial public offering of Common
Stock (the "Offering"). Prior to the Offering, the Company had one class of
common stock outstanding. In connection with the Offering, the Company's
existing common stock underwent an approximate 2,941-for-one stock split which
was then converted into 4,900,000 shares of Class B Common Stock. The Company
authorized 30,000,000 shares of Class A Common Stock. The effect of the stock
split has been retroactively reflected for all periods presented in the
accompanying consolidated financial statements. The Company also authorized
5,000,000 shares of its Preferred Stock. There was no Preferred Stock issued or
outstanding as of August 31, 2001 and 2000.

In the Offering, the Company issued and sold 2,000,000 shares of Class A
Common Stock at a price of $14.00 per share. The Company received total net
proceeds, after deduction of underwriting discounts and offering costs, of
approximately $25.0 million. The net proceeds from the Offering were used to
repay $4.7 million of the Company's indebtedness, pay a distribution to the
Company's majority shareholder of $13.2 million and repay $0.9 million of
indebtedness due to the Company's shareholder in connection with the
acquisitions of MCM Plaza and PrimeTech. The remaining $6.2 million of proceeds
is available for working capital and general corporate purposes.

2. Significant Accounting Policies

The principal accounting policies of the Company are as follows:

Principles of Consolidation

The consolidated financial statements include the accounts of Argosy
Education Group, Inc. and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
The results of operations of all acquired businesses have been consolidated for
all periods subsequent to the date of acquisition.

F-7

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Advances to John Marshall

On March 1, 2001, the Company exercised its option to purchase all of the
operating assets and assumed the liabilities of John Marshall Law School ("John
Marshall") for cash of $0.1 million and net advances of $0.7 million
contributed to John Marshall before the acquisition (Note 3). Prior to the
Company's acquisition of John Marshall, the Company accounted for the advances
it made to John Marshall, under the equity method of accounting. For the year
ended August 31, 2001 and August 31, 2000, losses of John Marshall, excluding
intercompany transactions (Note 11), of approximately $0.9 million and $1.9
million have been included as other expenses in the Company's statement of
operations. These losses have been reflected as a reduction in the cash
advances made to John Marshall.

Concentration of Credit Risk

The Company extends unsecured credit for tuition to a significant portion of
the students who are in attendance at its schools. A substantial portion of
credit extended to students is repaid through the students' participation in
various federally funded financial aid programs under Title IV of the Higher
Education Act of 1965, as amended (the "Title IV Programs"). The following
table presents the amount and percentage of the Company's cash receipts
collected from the Title IV Programs for the years ended August 31, 2001, 2000
and 1999 (dollars in thousands). Such amounts were determined based upon each
U.S. institution's cash receipts for the twelve-month period ended August 31,
pursuant to the regulations of the United States Department of Education
("DOE") at 34 C.F.R. (S) 600.5:

For the Years Ended August 31,
-----------------------------
2001 2000 1999
------- ------- -------

Total Title IV funding....................................... $37,608 $20,898 $16,823
Total cash receipts.......................................... $55,977 $37,673 $31,937
------- ------- -------
Total Title IV funding as a percentage of total cash receipts 67% 55% 53%
======= ======= =======

Transfers of funds from the financial aid programs to the Company are made
in accordance with the United States DOE requirements. Changes in DOE funding
of federal Title IV Programs could impact the Company's ability to attract
students.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash in banks, highly liquid money
market accounts and commercial paper with maturities of less than three months.

Restricted Cash

Cash recieved from the U.S. Government under various student aid grant and
loan programs is considered to be restricted. Restricted cash is held in
separate bank accounts and does not become available for general use by the
Company until the financial aid is credited to the accounts of students and the
cash is transferred to an operating account. Restricted cash is not included in
the accounts of the Company and was immaterial at
August 31, 2001 and 2000.

Investments

The Company invests excess cash in investments consisting primarily of
equity securities, corporate bonds (maturing in less than one month), municipal
bonds (maturing from three to 30 years) and U.S. Government treasury notes
(maturing from one to 17 months). The investments are considered available for
sale, stated at their fair market value and classified based upon their
maturity dates.

F-8

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

At August 31, 2001 and 2000, investments consisted of the following (dollars
in thousands):

August 31,
--------------
2001 2000
------ -------

Fair value--
Equity securities....................... $ -- $ 3,514
Corporate bonds......................... -- 1,500
U.S. Government treasury notes.......... -- 2,935
Municipal and provincial bonds.......... 2,505
Term deposits........................... -- 38
------ -------
Total investments at fair value..... 2,505 7,987
Unrealized gain (loss).................. -- (1,111)
------ -------
Total investments at cost........... 2,505 $ 6,876
====== =======

Sales and maturities of investments net of purchases totaled $4.3 million
for fiscal 2001 sales and maturities of investments provided proceeds of $28.3
million and a net realized gain of $21,000.

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred and are included in
selling expenses in the accompanying consolidated statements of operations.

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are
recognized utilizing both accelerated and straight-line methods. Leasehold
improvements are amortized over their estimated useful lives or lease terms,
whichever is shorter. Maintenance, repairs and minor renewals and betterments
are expensed; major improvements are capitalized. The estimated useful lives
and cost basis of property and equipment at August 31, 2001 and 2000, are as
follows (dollars in thousands):

August 31,
---------------
2001 2000 Life
------- ------- ----------

Land........................................... $ 3,677 $ 517
Building and improvements...................... 13,347 2,307 40 years
Office equipment............................... 1,359 1,390 3-7 years
Furniture and fixtures......................... 1,060 681 5-7 years
Leasehold improvements......................... 1,360 1,106 4-10 years
Computer equipment and software................ 3,196 3,007 3-5 years
Instructional equipment and materials.......... 3,306 1,103 3-7 years
------- -------
27,305 10,111
Less--Accumulated depreciation and amortization 4,918 3,804
------- -------
$22,387 $ 6,307
======= =======

Net book value of assets under capital leases is not significant as of
August 31, 2001.

F-9

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Intangible Assets

Intangible assets include goodwill, intellectual property and covenants
not-to-compete related to business acquisitions and the buyout of a former
shareholder. Intangible assets are being amortized on a straight-line basis
over their estimated useful lives. At August 31, 2001 and 2000, the cost basis
and useful lives of intangible assets consist of the following (dollars in
thousands):

August 31,
--------------
2001 2000 Life
------- ------ -----------

Goodwill...................... $12,114 $7,552 15-40 years
Intellectual property......... 210 776 2-4 years
Covenants not-to-compete...... 252 252 5-10 years
------- ------
12,576 8,580
Less--Accumulated amortization 1,842 1,893
------- ------
$10,734 $6,687
======= ======

On an ongoing basis, the Company reviews intangible assets and other
long-lived assets for impairment whenever events or circumstances indicate that
carrying amounts may not be recoverable. To date, no such events or changes in
circumstances have occurred, other than the planned sale of John Marshall and
Primetech (see Note 15). If such events or changes in circumstances occur, the
Company will recognize an impairment loss if the undiscounted future cash flows
expected to be generated by the asset (or acquired business) are less than the
carrying value of the related asset. The impairment loss would adjust the asset
to its fair value.

Revenue Recognition

Revenue consists primarily of tuition revenue from courses taught at the
schools and workshop fees and sales of related materials. Tuition revenue from
courses taught is recognized on a straight-line basis over the length the
applicable course is taught. Revenue from workshops is recognized on the date
of the workshop. If a student withdraws, future revenue is reduced by the
amount of refund due to the student. Refunds are calculated in accordance with
federal, state and accrediting agency standards. Revenue from rental of the
Company's owned facility is recognized on a straight-line basis over the life
of the leases. Textbook sales are recorded upon shipment. Revenue from rent,
workshop materials, and textbook sales represents less than 6%, 7%, and 10% of
the Company's net revenue for the fiscal years ended August 31, 2001, 2000 and
1999, respectively. Revenue is stated net of scholarships and grants given to
the students, which totaled approximately $1,233,000 $726,000, and $657,000 for
the fiscal years ended August 31, 2001, 2000 and 1999, respectively. Deferred
revenue represents the portion of payments received but not earned and is
reflected as a current liability in the accompanying consolidated balance
sheets as such amount is expected to be earned within the next year.

SAB 101 Revenue Recognition

On December 3, 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, to provide guidance
on the recognition, presentation, and disclosure of revenue in financial
statements. The SAB outlines basic criteria that must be met before registrants
may recognize revenue, including persuasive evidence of the existence of an
arrangement, the delivery of products or services, a fixed and determinable
sales price, and reasonable assurance of collection. SAB 101 is effective
beginning the first fiscal quarter of the first fiscal year beginning after
December 15, 1999. Through August 31, 2000, the Company has recognized
application, technology and registration fees as revenue upon receipt. Prior to
the release of SAB 101, the Company's revenue recognition policy was in
compliance with generally accepted

F-10

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

accounting principles. The Company reviewed its revenue recognition policy
related to the revenue for application, registration, and technology fees and
determined that revenue generated from these fees is diminimus and that the
cost of administering the services related to these fees approximates the cost
incurred. As a result, the company continues to recognize the revenue generated
from these fees upon receipt.

Management's Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123") related to options issued to employees and
directors.

Financial Instruments

The carrying value of current assets and liabilities reasonably approximates
their fair value due to their short maturity periods. The carrying value of the
Company's debt obligations reasonably approximates their fair value as the
stated interest rate approximates current market interest rates of debt with
similar terms.

Foreign Currency Translation

The Company acquired PrimeTech, an entity with operations in Canada, on
November 30, 1998. For the years ending August 31, 2001, 2000, and 1999, and
revenues and expenses related to these operations have been translated at
average exchange rates in effect at the time the underlying transactions
occurred. Transaction gains and losses are included in income. Assets and
liabilities of this subsidiary have been translated at the year-end exchange
rate, with gains and losses resulting from such translation being included in
accumulated other comprehensive income.

Earnings Per Share

The Company had 478,550, 433,800 and 381,900 shares of its Class A common
stock under stock options at August 31, 2001, 2000 and 1999, respectively. In
addition, the Company had outstanding stock warrants of 200,000 at August 31,
2001. No shares under stock options were included in the computation of diluted
earnings per share for the year ended August 31, 2001 because the Company
incurred a loss and common stock equivalents resulting from stock options and
warrants are anti-dilutive. Of the stock options outstanding at August 31,
2000, 44,283 shares under option were deemed exercisable under the treasury
stock method where the average market price exceeded their exercise price. As a
result, 140 net shares were added to the calculation of diluted shares
outstanding at August 31, 2000. On the other hand, no shares under stock
options were included in the computation of diluted earnings per share for the
year ended August 31, 1999 because the exercise price was greater than the
average market price of the common shares.

Comprehensive Income

As of August 31, 2001 and 2000, accumulated other comprehensive income, net
of tax, was zero and $661,000, respectively. The change in other comprehensive
income relates to an unrealized holding loss of approximately $600,000 on
securities held during the year, an immaterial realized gain on the sale of
securities during the year, and the inclusion of the foreign translation
adjustment as a component of the impairment loss on the disposal of PrimeTech.

F-11

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets", which addresses financial accounting
and reporting for acquired goodwill and other intangible assets. SFAS No. 142
addresses how intangible assets that are acquired in an acquisition should be
recognized and, if necessary, amortized. It also requires that goodwill and
intangible assets that have indefinite useful lives not be amortized, but
rather tested at least annually for impairment using a fair-value-based test,
and intangible assets that have definitive useful lives be amortized over their
useful lives. In addition, SFAS No. 142 expands the disclosure requirements
about goodwill and other intangible assets in the years subsequent to their
acquisition. The Company must adopt SFAS No. 142 in fiscal year 2003, with
early adoption permitted in fiscal year 2002. Impairment losses for goodwill
and indefinite-life intangible assets that arise due to the initial application
of SFAS No. 142, if any, are to be reported as a cumulative affect of a change
in accounting principle. Goodwill and intangible assets acquired after June 30,
2001 are subject immediately to the provisions of SFAS No. 142. The Company is
in the process of determining the full impact that adoption will have on the
consolidated financial statements as well as determining when to adopt.
Goodwill amortization under the provision of SFAS No. 142, will no longer be
recorded in the Company's results of operations upon adoption of the new
standard. During fiscal 2001, the Company recorded $0.5 million of amortization
expense related to intangible assets affected by this pronouncement.

Derivative Instruments

3. Business Acquisitions

Western State

On March 1, 2001, the Company completed its acquisition of Western State
University College of Law, in Fullerton, California (''Western State'')
pursuant to the terms of the Stock Purchase Agreement dated as of November 14,
2000, between Argosy and Western State. Consideration for the purchase
consisted of $9.4 million in cash and the assumption of $3.9 million in debt,
and certain purchase price adjustments, as provided for in the purchase
agreement. This transaction was accounted for as a purchase business
combination in accordance with Accounting Principles Board ("APB") Opinion No.
16, "Business Combinations," and, accordingly, the results of operations of
Western State have been included in the Company's financial statements from
March 1, 2001.

F-12

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The purchase price was preliminarily allocated to the following (in
thousands):

Fair value of assets acquired and liabilities assumed $6,180
Goodwill............................................. 3,230
------
Total............................................. $9,410
======

The goodwill amount included above is being amortized over the estimated
useful life of 15 years.

John Marshall

As of September 1, 1999, the Company had entered into an agreement to manage
John Marshall. The agreement was for 10 years and included an option to
purchase John Marshall which was exercisable at the Company's discretion. In
addition, a line of credit of $0.6 million was established between the Company
and John Marshall. Prior to the acquisition on March 1, 2001, the Company
advanced $0.5 million under the line of credit and approximately $3.1 million
to fund operations.

The Connecting Link

Also on March 1, 2001, the Company acquired all of the outstanding common
stock of The Connecting Link, a privately held provider of continuing
professional education for kindergarten to grade 12 teachers for a purchase
price of approximately $1.8 million in cash. This transaction was accounted for
as a purchase business combination in accordance with APB Opinion No. 16,
"Business Combinations," and, accordingly, the results of operations of
Connecting Link have been included in the Company's financial statements from
March 1, 2001. The acquisition resulted in $1.9 million of goodwill, which is
being amortized over the estimated useful life of 15 years.

The following unaudited pro forma financial information presents the
combined results of operations of the Company and Western State, John Marshall,
and Connecting Link as if the acquisitions had occurred as of the beginning of
fiscal 2001 and 2000, after giving effect to certain adjustments, including
amortization of goodwill, and related income tax effects. The pro forma
financial information does not necessarily reflect the results of operations
that would have occurred had the acquisitions of Western State, John Marshall,
and The Connecting Link occurred at the beginning of fiscal 2001 and 2000.

Year ended
August 31,
----------------
2001 2000
------- -------
(unaudited)
(in thousands)

Pro Forma
Revenue........................ $63,454 $57,115
Net income..................... $(1,657) $ 1,167
Diluted (loss) income per share $ (0.26) $ $0.18

F-13

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. Debt

Debt of the Company at August 31, 2001 and 2000, consists of the following:

August 31,
----------------------
2001 2000
------- ------
(dollars in thousands)

Borrowings under credit agreement expiring July 20, 2003......................... $ 8,850 $ 350
Mortgage debt, bearing interest at 9%, requiring monthly principal and interest
payments of $18,378 through March 31, 2007 and a final payment of
$1,830,368 on April 30, 2007, secured by related real estate................... 2,065 2,099
Promissory note with the former owner of AATBS (being operated by the
Company under the name Ventura), bearing interest at 6.25% quarterly
principal and interest payments of $75,000 through October 1, 2002 and a final
payment of $375,000 on January 1, 2002, secured by the assets of AATBS......... 393 655
Promissory note with the former owner of MIM, bearing interest at 8%, requiring
monthly principal and interest payments of $9,426 through May 31, 2001,
unsecured...................................................................... -- 90
Bank note payable, bearing interest at 9%, requiring monthly principal and
interest payments of $1,462 through May 18, 2008, secured by real estate....... 89 97
Business improvement loans, bearing interest at the prime rate plus 1.5% (10.5%
at August 31, 2001), requiring monthly principal payments of $4,810 through
2002........................................................................... -- 50
Promissory note payable, bearing interest at 9.64% with monthly installments of
principal of $14,815 at August 31, 2001........................................ 138 --
Promissory note for real estate, bearing interest at 6.88% with monthly principal
and interest payments of $26,445 through March 1, 2001......................... 3,635 --
Other............................................................................ 65 59
------- -----
15,235 3,400
Less--Current maturities......................................................... 738 796
------- ------
$14,497 $2,604
======= ======

During 1999, the Company entered into a credit agreement with a syndicate of
banks ("Credit Agreement"), which provides for revolving credit borrowings of
up to $20 million. On July 20, 2001 the credit agreement was amended to reduce
available borrowings to $12.5 million and some of the other terms were amended.
Borrowings under the Credit Agreement bear interest at a variable rate equal to
(at the Company's option) the principal lender's prime rate as in effect from
time to time or the London Inter-Bank Offered Rate plus, in each case, a margin
of between 50 and 250 basis points, depending on the type of loan and the
Company's ratio of funded debt to EBITDA. The interest rate being charged on
amounts outstanding at August 31, 2001 was 8%. In addition, the Credit
Agreement provides for an unused commitment fee of 37.5 basis points on
commitments available but unused under the Credit Agreement, as well as certain
other customary fees. The Credit Agreement provides for a blanket lien on all
material assets of the Company and a pledge of the capital stock of all the
Company's material subsidiaries, as well as guarantees from all such
subsidiaries. The Credit Agreement restricts the Company and its subsidiaries'
ability to take certain actions, including incurring additional indebtedness or
altering the Company's current method of doing business. The Credit Agreement
also contains certain financial covenants and ratios that may have the effect
of restricting the Company's ability to take certain actions in light of their
impact on the Company's financial condition or results of operations. The
Credit Agreement terminates on July 20, 2003. As of August 31, 2001 and August
2000, outstanding borrowings under this Credit Agreement totaled approximately
$8,850,000 and $350,000, respectively.

F-14

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As of August 31, 2001, the Company was not in compliance with certain
financial covenants and ratios required to be maintained by the Credit
Agreement. The Company has obtained a waiver to the credit agreement from the
bank modifying the financial covenants and ratios to allow the Company to
maintain compliance under its credit agreement.

At August 31, 2001, future annual principal payments of long-term debt are
as follows (dollars in thousands):

August 31--
2002............... $ 738
2003............... 9,421
2004............... 372
2005............... 2,743
2006............... 66
2007 and thereafter 1,895
-------
$15,235
=======

5. Income Taxes

Prior to the initial public offering of the Company's common shares
completed on March 8, 1999, the Company included its income and expenses with
those of its shareholder for Federal and certain State income tax purposes (an
S Corporation election). Accordingly, the consolidated statements of operations
for the fiscal year ended August 31, 1999 do not include a provision for
Federal income taxes for the period from September 1, 1998 to March 7, 1999. In
connection with the Company's initial public offering, the Company terminated
its S Corporation election and recorded a deferred income tax asset and
corresponding income tax benefit of $764,222, arising from a change in the
Company's tax status. Beginning March 8, 1999, the Company provides for
deferred income taxes under the asset and liability method of accounting. This
method requires the recognition of deferred income taxes based upon the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.

In connection with the initial public offering, the Company and its majority
shareholder entered into a tax indemnification agreement. The agreement
provides that the Company will indemnify the majority shareholder against
additional income taxes resulting from adjustments made (as determined by an
appropriate tax authority) to the taxable income reported by the Company as an
S Corporation for the periods prior to the initial public offering, but only to
the extent those adjustments provide a tax benefit to the Company.

F-15

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The provision for income taxes for the years ended August 31, 2001, 2000 and
1999 consists of the following (dollars in thousands):

2001 2000 1999
----- ------- -----

Current:
Federal.............................................................. $(408) $ 1,955 $ 676
State................................................................ 250 432 210
----- ------- -----
Total current provision.......................................... (158) 2,387 886
Deferred:
Federal.............................................................. (581) (601) 51
State................................................................ (125) (175) 3
Foreign.............................................................. 412 (348) (132)
----- ------- -----
Total deferred benefit........................................... (294) (1,124) (78)
Initial recognition of deferred income tax benefit resulting from change
in tax status......................................................... -- -- (764)
----- ------- -----
Total income tax provision....................................... $(452) $ 1,263 $ 44
===== ======= =====

A reconciliation of the statutory Federal tax rate to the actual effective
income tax rate for the years ended August 31, 2001 and 2000, is as follows:

2001 2000
----- ----

Statutory Federal income tax rate................ 34.0% 34.0%
State income taxes, net of federal benefit....... (4.0) 4.9%
Foreign tax rate differences..................... 9.2 1.6%
Non-deductible stock warrants.................... (13.6) --
Non-deductible acquisition costs................. (3.8) --
Impact of business dispositions.................. 71.6% --
Change in valuation allowance.................... (69.8)% --
Non-deductible goodwill and other permanent items (2.5)% 2.7%
----- ----
21.1% 43.2%
===== ====

The significant components of deferred income tax assets and liabilities as
of August 31, 2001 and 2000 are as follows (dollars in thousands):

2001 2000
------- ------

Deferred income tax assets:
Canadian Tax net operating loss carryforward........ $ 1,308 $ 488
Capital loss carryforward........................... 189 --
John Marshall basis difference...................... 1,261 902
Payroll and related benefits........................ 741 160
Allowance for doubtful accounts..................... 400 123
Deferred rent....................................... 404 279
Property and equipment basis difference............. -- 97
Valuation allowance................................. (1,497) --
Other............................................... 1 3
------- ------
Total deferred income tax assets, net........... 2,807 2,052
Deferred income tax liabilities:
Property and equipment basis difference................ (3,600) --
Other............................................... (99) (86)
------- ------
Total net deferred tax assets (liabilities)..... $ (892) $1,966
======= ======

F-16

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company has a net operating loss carryforward of approximately
$3,000,000 as of August 31, 2001, related to the operating losses of PrimeTech,
a Canadian entity. A deferred tax asset of $1,308,000 has been recorded as a
result of this net operating loss carryforward. A capital loss of approximately
$472,000 is expected as a result of the loss on the sale of PrimeTech and a
related deferred tax asset of $189,000 has been recorded. A valuation allowance
of $1,497,000 has been recorded against these deferred tax assets as of August
31, 2001, as it is more likely than not that the Company will not be able to
benefit from these losses in the future.

6. Shareholders' Equity

In fiscal 2000, the Company adopted a repurchase program for the Company's
Class A Common Stock of up to 500,000 shares. Shares of Class A Common Stock
will be purchased by the Company from time to time through open market
purchases and private purchase, as available. Under this program, the Company
has repurchased 482,000 shares through August 31, 2001, at a total cost of
approximately $2,131,000.

Class A common stock and Class B common stock have identical rights except
that each share of Class B common stock is entitled to ten votes on all matters
submitted to a vote of shareholders as compared to one vote for each share of
Class A common stock and Class B common stock may be (and in certain cases are
required to be) converted into Class A common stock on a share-for-share basis.

On September 1, 2000, the Company entered into a Consulting Agreement with
Leeds Equity Associates, L.P. This partnership includes as a partner Jeffrey
Leeds, a member of the Company's board of directors. This Agreement encompasses
the performance of Company requested services over the six-month term of the
Agreement. Payment is represented by a stock purchase warrant providing for the
purchase of 200,000 shares of the Company's Class A common stock at a purchase
price of $6.48 per share and with a seven year exercise period. The warrants
are immediately exercisable and based upon the Black Scholes pricing model
valued at $860,000. The warrant value was expensed over the service period
resulting in half of the charge being recorded in the first fiscal quarter of
2001 and the remaining charge being recorded in the second quarter of 2001. No
tax benefit has been recorded as a result of this charge.

7. Stock Plans

During 1999, the Company adopted the 1999 Stock Incentive Plan. Under this
plan the Company can grant up to 750,000 options exercisable into shares of
Class A common stock to certain members of management. Most of the options vest
and become exercisable in three equal annual installments commencing with their
issuance and at the next two anniversary dates. Some options are vested at the
date of grant based on determinations made by the Company's board of directors.
The stock options expire ten years from the date of grant.

Pursuant to the terms of the merger agreement (See Note 14.) all options
granted under the Argosy Education Group, Inc. 1999 Stock Incentive Plan to
employees and directors will automatically convert at the effective time of the
merger into options to receive EDMC common stock in accordance with a
conversion formula defined within the merger agreement between the Company and
EDMC.

The following table summarizes stock option activity under the Plan:

August 31, 2001 August 31, 2000 August 31, 1999
----------------- ----------------- ----------------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
------- -------- ------- -------- ------- --------

Outstanding at beginning of year 433,800 $11.84 381,900 $13.54 -- --
Granted......................... 54,750 7.15 97,500 6.17 381,900 $13.54
Exercised....................... (8,500) 6.81 -- -- -- --
Canceled........................ (1,500) 5.75 (45,600) 14.00 -- --
------- ------ ------- ------ ------- ------
Outstanding at end of year...... 478,550 $11.89 433,800 $11.84 381,900 $13.54
======= ====== ======= ====== ======= ======
Options exercisable at year-end. 364,919 $12.64 301,600 $12.37 163,300 $12.93

F-17

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table summarizes information about stock options outstanding
at August 31, 2001:

Options Outstanding Options Exercisable
------------------- --------------------------------------
Weighted-
Average
Range of Weighted Avg. Remaining Avg. Exercise Weighted-Average
Exercise Prices Exercise Price Shares Life Shares Price Remaining Life
- --------------- -------------- ------- --------- ------- ------------- ----------------

$5.375-$7.25 $ 8.39 176,250 8.61 112,619 $9.78 8.41
$11.70 11.70 10,000 10.00 10,000 11.70 10.00
$14.00 14.00 292,300 7.55 242,300 $14.00 7.55

The Company also adopted the Employee Stock Discount Purchase Plan ("Stock
Purchase Plan") during 1999. The Stock Purchase Plan allows full-time employees
to purchase shares of Class A Common Stock through payroll deductions of up to
10% of gross pay, at a cost per share of 90% of the lowest closing price of the
stock on the Nasdaq National Market during the Plan quarter. The Company has
reserved 375,000 shares of Class A Common Stock for issuance in connection with
the Stock Purchase Plan. Through August 31, 2001, 16,831 shares of Class A
Common Stock have been issued under this Plan.

The weighted average fair value of options issued during 2001, 2000 and 1999
was $4.769, $3.642 and $9.703 and was estimated on the date of grant based on
the Black-Scholes option pricing model assuming, among other things, a
risk-free interest rate of 5.50% for 2001, 6.02% for 2000 and 5.81% for 1999;
no dividend yield; expected volatility of 78% for 2001, 63% for 2000 and 70%
for 1999 and an expected life of five years for 2001 and 2000 and 10 years for
1999. Had compensation costs for options been determined in accordance with
SFAS 123, the Company's proforma net income (loss) for the years ended August
31, 2001, 2000 and 1999 would have been approximately $(1,848,000), $764,000
and $2,783,000, respectively; and proforma diluted earnings per share would
have been $(0.29), $0.12, and $0.47, respectively for the years ended.

The pro forma disclosure is not likely to be indicative of pro forma results
which may be expected in future years. Furthermore, the compensation cost is
dependent on the number of options granted for 2001, which may vary in future
periods.

8. Leases

Facilities and Equipment Leases

The Company maintains operating leases for its educational and office
facilities and for certain office and computer equipment. The facility leases
generally require the Company to pay for pro rata increases in property taxes,
maintenance and certain operating expenses. Rent expense under operating
leases, recognized on a straight-line basis over the term of the lease
(excluding property taxes, maintenance and operation costs), totaled,
$3,647,000, $3,101,000 and $2,811,000 for the fiscal years ended August 31,
2001, 2000 and 1999, respectively.

Real Estate Rental Income

The Company leases certain space of its building owned by MCM University
Plaza, Inc. in Sarasota, Florida, to outside parties under noncancellable
operating leases.

F-18

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

At August 31, 2001, the approximate future minimum rental income and
commitments under operating leases that have initial or remaining
noncancellable lease terms in excess of one year are as follows (dollars in
thousands):

Real Estate
And Total
Lease Sublease Operating
Commitments Income Leases
----------- ----------- ---------

For the year ended August 31,
2002...................... $ 2,473 $(205) $ 2,268
2003...................... 2,567 (193) 2,374
2004...................... 2,567 (92) 2,475
2005...................... 2,015 (65) 1,950
2006...................... 1,650 (42) 1,608
2007 and thereafter....... 3,734 (169) 3,565
------- ----- -------
$15,006 $(766) $14,240
------- ----- -------

9. Commitments and Contingencies

Letters of Credit

The Company has outstanding irrevocable letters of credit totaling
approximately $380,000 as of August 31, 2001, which were primarily issued in
connection with leases for office facilities.

Litigation

From time to time, the Company is subject to occasional lawsuits,
investigations and claims arising out of the normal conduct of business.
Management does not believe the outcome of any pending claims will have a
material adverse impact on the Company's consolidated financial position or
consolidated results of operations.

10. Regulatory

The Company and its U.S. schools are subject to extensive regulation by
federal and state governmental agencies and accrediting bodies. In particular,
the Higher Education Act of 1965, as amended (the "HEA") and the regulations
promulgated thereunder by the DOE subject the Company's U.S. schools to
significant regulatory scrutiny on the basis of numerous standards that schools
must satisfy in order to participate in the various federal student financial
assistance programs under the Title IV Programs.

The standards employ a ratio methodology under which an institution need
only satisfy a single standard--the composite score standard. The ratio
methodology takes into account an institution's total financial resources and
provides a combined score of the measures of those resources along a common
scale (from negative 1.0 to positive 3.0). It allows a relative strength in one
measure to mitigate a relative weakness in another measure.

F-19

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the close of the fiscal year and (3) subject the school to a cash monitoring
payment method. If an institution achieves a composite score below 1.0, it
fails to meet the financial responsibility standards unless it qualifies under
the provisions of an alternative standard (i.e., letter of credit equal to 50%
of the Title IV program funds expended from the prior fiscal year or equal to
at least 10% of the Title IV program funds expended from the prior fiscal year
and provisional certification status). The institution may also be placed on
the cash monitoring payment method or the reimbursement payment method. Based
upon the companies financial statements as of August 31, 2001, the Company
believes that on a stand alone bases, the composite score for each of ASPP, UOS
and MIM exceeds 1.5 and that the composite score for WSU exceeds 1.0.

On October 1, 1998, legislation was enacted which reauthorized the student
financial assistance programs of the HEA ("1998 Amendments"). The 1998
Amendments continue many of the current requirements for student and
institutional participation in the Title IV Programs. The 1998 Amendments also
changed or modified some requirements. These changes and modifications include
increasing the revenues that an institution may derive from Title IV funds from
85% to 90% and revising the requirements pertaining to the manner in which
institutions must calculate refunds to students. The 1998 Amendments also
prohibit institutions that are ineligible for participation in Title IV loan
programs due to student default rates in excess of applicable thresholds from
participating in the Pell Grant program. Other changes expand participating
institutions' ability to appeal loss of eligibility owing to such default
rates. The 1998 Amendments further permit an institution to avoid the
interruption of eligibility for the Title IV Programs upon a change in
ownership, which results in a change of control by submitting a materially
complete application for decertification of eligibility within 10 business days
of such a change of ownership. None of the Company's institutions derives more
than 80% of its revenue from Title IV funds and no institution has student loan
default rates in excess of current thresholds.

The process of reauthorizing the HEA by the U.S. Congress takes place
approximately every five years. The Title IV Programs are subject to
significant political and budgetary pressures during and between
reauthorization processes.

There can be no assurance that government funding for the Title IV Programs
will continue to be available or maintained at current levels. A reduction in
government funding levels could lead to lower enrollments at the Company's
schools and require the Company to seek alternative sources of financial aid
for students enrolled in its schools. Given the significant percentage of the
Company's net revenue that is indirectly derived from the Title IV Programs,
the loss of or a significant reduction in Title IV Program funds available to
students at the Company's schools would have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
there can be no assurance that current requirements for student and
institutional participation in the Title IV Programs will not change or that
one or more of the present Title IV Programs will not be replaced by other
programs with materially different student or institutional eligibility
requirements.

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

In addition, Western State is provisionally accredited by the American Bar
Association ("ABA") and must satisfy the standards of the ABA to become fully
accredited. Western State must also respond to certain deficiencies in the
school that were identified during the ABA's most recent annual inspection of
the school in March 2001. Management does not anticipate that its provisional
accreditation will be withdrawn as a result of these deficiencies.

F-20

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

With each acquisition of an institution that is eligible to participate in
the Title IV Programs, that institution may undergo a change in ownership that
results in a change of control, as defined in the HEA and applicable
regulations. In such event, that institution becomes ineligible to participate
in the Title IV Programs and may receive and disburse only previously committed
Title IV Program funds to its students until it has applied for and received
the DOE recertification under the Company's ownership, although the
interruption in Title IV funding may be avoided if the institution submits to
the DOE a materially complete application for approval of the change in
ownership within ten days of the closing on the transaction.

11. Related-Party Transactions

Prior to the Offering, a company owned by the majority shareholder and
Chairman of the Company provided management services for the Company and its
schools. For the year ended August 31, 1999 the Company incurred and paid
expenses totaling $667,849 related to such services. Subsequent to the
Offering, such services are no longer provided by the affiliated company.

The Company paid certain administrative and other expenses on behalf of an
entity partially owned by the majority shareholder of the Company. The total
amount owed to the Company from this entity for such advances was approximately
$49,000 at August 31, 2000 and 1999. The affiliated entity paid a management
fee to the Company of approximately $72,000 during fiscal 1999. No fees were
paid in fiscal year ended August 31, 2000 and 2001. This arrangement was
terminated upon the initial public offering in March, 1999.

As of September 1, 1999, the Company entered into an agreement to manage
John Marshall. The agreement was for 10 years and included an option to
purchase John Marshall (the purchase option was exercised on March 1, 2001 (see
Note 3). A line of credit of $0.6 million was established between the Company
and John Marshall. As of February 28, 2001, the Company advanced $0.5 million
under the line of credit and approximately $3.6 million to fund operations. For
the year ended August 31, 2001, and 2000, the losses for John Marshall,
excluding intercompany transactions, of $0.9 million and $1.9 million,
respectively, have been included as other expenses in the Company's statements
of operations and have been reflected as a reduction of the advances made to
John Marshall.

On September 1, 2000, the Company entered into a Consulting Agreement with
Leeds Equity Associates, L.P. Jeffrey Leeds, a director of the Company, is a
partner in Leeds Equity and has a pecuniary interest in such entity. The
agreement encompassed the performance of certain services requested by the
Company over the six month term of the agreement. Payment is represented by a
stock purchase warrant valued at $860,000, providing for the purchase of
200,000 shares of the Company's common stock at a purchase price of $6.48 per
share and with a seven year exercise period.

12. Profit-Sharing Plan

The Company maintains a 401(k) profit-sharing plan that covers full-time
employees. Employees can contribute up to 15% of their salary to the plan.
Contributions to the plan are made at the discretion of the Board of Directors
as well as by employees in lieu of current salary. Contributions by the Company
totaled $825,000, $713,000, and $585,000 for the years ended August 31, 2001,
2000 and 1999, respectively.

13. Segment Reporting

In accordance with, the Statement of Financial Accounting Standards Board
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS No. 131"), operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the Company in deciding how to allocate resources and in
assessing performance.

F-21

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company has two business segments: 1) Schools and 2) Test Preparation
Materials and Workshops ("Test Preparation"). These segments are managed as
separate strategic business units due to the distinct nature of their
operations. The Schools Segment, which represents the operations of ASPP, U of
S, MIM and PrimeTech, Western State and The Connecting Link provides programs
in psychology, education, business, allied health professions, network
engineering and software programming. All operations of the Schools Segment are
located in the United States with the exception of PrimeTech, which is located
in Canada. The Test Preparation Segment offers courses and materials for
post-graduate psychology license examinations in the United States. For the
year ended August 31, 2001 an impairment charge of $1.4 million was charged to
the operations of the Schools Segment relating to the disposition of John
Marshall and PrimeTech (see Note 14 for further discussion).

The following table presents financial data for the years ended August 31,
2001, 2000 and 1999, for these segments (dollars in thousands):

Schools Test Preparation Consolidated
------- ---------------- ------------

2001
Revenue...................... $54,485 $3,685 58,170
Income from operations....... (2,272) 944 (1,328)
Depreciation and amortization 2,067 165 2,231
Interest revenue............. 643 -- 643
Interest expense............. 561 35 596
Net income................... (2,173) 545 (1,692)
Total assets................. 50,014 5,695 55,709
Capital expenditures......... 1,880 9 1,808
Long-lived assets............ 29,727 3,393 33,120

2000
Revenue...................... $40,529 $3,529 $44,058
Income from operations....... 3,331 1,037 4,368
Depreciation and amortization 1,369 185 1,554
Interest revenue............. 854 -- 854
Interest expense............. 248 52 300
Net income................... 1,166 495 1,661
Total assets................. 30,242 5,058 35,300
Capital expenditures......... 1,872 3 1,875
Long-lived assets............ 9,444 3,550 12,994

1999
Revenue...................... $33,176 $3,690 $36,866
Income from operations....... 3,469 1,036 4,505
Depreciation and amortization 1,028 377 1,405
Interest revenue............. 695 -- 695
Interest expense............. 401 166 567
Net income................... 3,796 787 4,583
Total assets................. 30,233 4,086 34,319
Capital expenditures......... 1,860 29 1,889
Long-lived assets............ 8,684 3,732 12,416

F-22

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14. EDMC Acquisition

On July 9, 2001, the Company entered into an Agreement and Plan of Merger
with Education Management Corporation ("EDMC") and HAC, Inc., a wholly-owned
subsidiary of EDMC, pursuant to which HAC, Inc. will merge with and into the
Company, with the Company continuing as the surviving corporation. In the
merger, holders of the Company's common stock will receive $12.00 per share,
without interest, for each share of all the Company's outstanding common stock.
EDMC also entered into a Stock Purchase Agreement with Dr. Markovitz providing
for the purchase of his shares of Argosy common stock at $12.00 per share,
subject to rescission if the merger contemplated by the Merger Agreement is not
consummated by December 31, 2001. The purchase of Dr. Markovitz's shares was
completed on September 26, 2001.

On October 31, 2001, the Company announced its shareholders voted in favor
of the Agreement and Plan of Merger by and among the Company, EDMC and HAC
Inc., a wholly-owned subsidiary of EDMC. The agreement was approved at a
special shareholder meeting.

There are approximately 6.5 million AEG shares outstanding. The merger is
expected to close in December and is subject to customary conditions, including
regulatory approvals of the U.S. Department of Education and other accrediting
agencies such as the American Bar Association. At the effective time of the
merger, the separate corporate existence of HAC, Inc. will cease and the
Company will continue as a wholly-owned subsidiary of EDMC.

. the net assets of the Excluded Operations are considered to be
impaired,

. the net assets of the Excluded Operations were adjusted to the
purchase price of $1.00 each as of August 31, 2001, and

. an impairment charge of $1.5 million ($1.0 million for PrimeTech;
$0.5 million for John Marshall) was recorded in operations in the
fourth quarter of fiscal 2001.

F-23

ARGOSY EDUCATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

15. Valuation and Qualifying Accounts

The following summarizes the activity of the allowance for doubtful accounts
(dollars in thousands):

Net
Balance at Charges to Increase Balance at
Beginning Operating Due to Disposal of End of
of Period Expenses Acquisitions Assets Period
---------- ---------- ------------ ----------- ----------

Student receivable allowance activity for
the year ended August 31, 1999......... $230 $ 47 $ 39 $ -- $316
Student receivable allowance activity for
the year ended August 31, 2000......... $316 $ (5) $ -- $ -- $311
Student receivable allowance activity for
the year ended August 31, 2001......... $311 $606 $335 $(540) $712

The following summarizes the activity of the valuation allowance against
deferred tax assets (dollars in thousands):

Balance at Net Charges Balance at
Beginning to Income End of
of Period Tax Provision Period
- - ---------- ------------- ----------

Deferred tax valuation allowance activity for the year ended
August 31, 2001(1)........................................ -- $1,497 $1,497

- --------
(1) There was no valuation allowance for the year ended August 31, 1999 and
2000.

F-24