Lincoln Educational Services
Annual Report 2014

Plain-text annual report

U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549Form 10-K☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2014Commission File Number 000-51371LINCOLN EDUCATIONAL SERVICES CORPORATION(Exact name of registrant as specified in its charter)New Jersey 57-1150621(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)200 Executive Drive, Suite 340West Orange, NJ 07052(Address of principal executive offices)(973) 736-9340(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Title of each className of exchange on which registeredCommon Stock, no par value per shareThe NASDAQ Stock Market LLCSecurities registered pursuant to Section 12(g) of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒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 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). Yes ☒ 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 bestof 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 Form10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer ☐Accelerated filer ☒Non-accelerated filer ☐Smaller reporting company ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒The aggregate market value of the 22,049.396 shares of common stock held by non-affiliates of the registrant issued and outstanding as of June 30, 2013, thelast business day of the registrant’s most recently completed second fiscal quarter, was $99,001,788. This amount is based on the closing price of the commonstock on the Nasdaq Global Select Market of $4.49 per share on June 30, 2014. Shares of common stock held by executive officers and directors and personswho own 5% or more of outstanding common stock have been excluded since such persons may be deemed affiliates. This determination of affiliate status isnot a determination for any other purpose.The number of shares of the registrant’s common stock outstanding as of March 12, 2015 was 23,844,905.Documents Incorporated by Reference Portions of the Proxy Statement for the Registrant’s 2015 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report onForm 10-K. With the exception of those portions that are specifically incorporated by reference in this Annual Report on Form 10-K, such Proxy Statementshall not be deemed filed as part of this Report or incorporated by reference herein. LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESINDEX TO FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2014PART I. 1ITEM 1.BUSINESS1ITEM 1A.RISK FACTORS19ITEM 1B.UNRESOLVED STAFF COMMENTS30ITEM 2.PROPERTIES31ITEM 3.LEGAL PROCEEDINGS32ITEM 4.MINE SAFETY DISCLOSURES32 PART II. 33ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES33ITEM 6.SELECTED FINANCIAL DATA36ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS38ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK49ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA49ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE50ITEM 9A.DISCLOSURE CONTROLS AND PROCEDURES50ITEM 9B.OTHER INFORMATION50 PART III. 51ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE51ITEM 11.EXECUTIVE COMPENSATION51ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS51ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE51ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES51 PART IV. 52ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULE52IndexForward-Looking StatementsThis Annual Report on Form 10-K contains “forward-looking statements,” within the meaning of Section 21E of the Securities Exchange Act of1934, as amended, which include information relating to future events, future financial performance, strategies, expectations, competitive environment,regulation and availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new programs;expectations that regulatory developments or other matters will not have a material adverse effect on our consolidated financial position, results of operationsor liquidity; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operating results and futureeconomic performance; and statements of management’s goals and objectives and other similar expressions concerning matters that are not historical facts.Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,”“estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of thetimes at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time thosestatements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that couldcause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that couldcause such differences include, but are not limited to:·our failure to comply with the extensive regulatory framework applicable to our industry or our failure to obtain timely regulatory approvals inconnection with a change of control of our company or acquisitions;·our success in updating and expanding the content of existing programs and developing new programs in a cost-effective manner or on a timelybasis;·risks associated with changes in applicable federal laws and regulations including pending rulemaking by the U.S. Department of Education;·uncertainties regarding our ability to comply with federal laws and regulations regarding the 90/10 rule and cohort default rates;·risks associated with opening new campuses and closing existing campuses;·risks associated with integration of acquired schools;·industry competition;·our ability to continue to execute our growth strategies;·conditions and trends in our industry;·general economic conditions; and·other factors discussed under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition andResults of Operations.”Forward-looking statements speak only as of the date the statements are made. Except as required under the federal securities laws and rules andregulations of the SEC, we undertake no obligation to update or revise forward-looking statements to reflect actual results, changes in assumptions orchanges in other factors affecting forward-looking information. We caution you not to unduly rely on the forward-looking statements when evaluating theinformation presented herein.IndexPART I.ITEM 1.BUSINESSOVERVIEWWe are a leading provider of diversified career-oriented post-secondary education as measured by total enrollment. As of December 31, 2014, we operated31 campuses in 15 states. We offer recent high school graduates and working adults degree and diploma programs in five areas of study: automotivetechnology, health sciences, skilled trades, hospitality services and business and information technology. For the year ended December 31, 2014, ourautomotive technology program, our health sciences program, our skilled trades program, our hospitality services program and our business and informationtechnology program accounted for approximately 42%, 29%, 15%, 9%, and 5%, respectively, of our average enrollment. As of December 31, 2014, we had13,278 students enrolled. Our average enrollment for the year ended December 31, 2014 was 14,010 students, which represented a decrease of 5.4% fromaverage enrollment in 2013 of 14,804 students. For the year ended December 31, 2014, our revenues were $325.0 million, which represented a decrease of4.8% from the year ended December 31, 2013. For the year ended December 31, 2013, our revenues were $341.5 million, which represented a decrease of10.2% from the year ended December 31, 2012. For more information relating to our revenues, profits and financial condition, please refer to “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included in this Annual Report onForm 10-K.Our schools operate under the Lincoln Technical Institute, Lincoln College of Technology, Lincoln College of New England, Lincoln Culinary Institute, andEuphoria Institute of Beauty Arts and Sciences brand names. Most of our campuses serve major metropolitan markets and each typically offers courses inmultiple areas of study. Five of our campuses are destination schools, which attract students from across the United States and, in some cases, from abroad.Our other campuses primarily attract students from their local communities and surrounding areas. All of our campuses are nationally or regionallyaccredited and are eligible to participate in federal financial aid programs by the U.S. Department of Education, or DOE, and applicable state educationagencies and accrediting commissions which allow students to apply for and access federal student loans as well as other forms of financial aid.We believe that we provide our students with the highest quality career-oriented training available for our areas of study in our markets. We offer programs inareas of study that we believe are typically underserved by traditional providers of post-secondary education and for which we believe there exists significantdemand among students and employers. Furthermore, we believe our convenient class scheduling, career focused curricula and emphasis on job placementoffer our students valuable advantages that have been neglected by the traditional academic sector. By combining substantial hands-on training withtraditional classroom-based training led by experienced instructors, we believe we offer our students a unique opportunity to develop practical job skills inmany of the key areas of expected job demand. We believe these job skills enable our students to compete effectively for employment opportunities and topursue on-going salary and career advancement.Each of our schools is a reporting unit and an operating segment. Our operating segments have been aggregated into one reportable segment because, in ourjudgment, the reporting units have similar products, production processes, types of customers, methods of distribution, regulatory environment and economiccharacteristics.We are a New Jersey corporation organized in 2003.AVAILABLE INFORMATIONOur website is www.lincolnedu.com. We make available on this website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reportson Form 8-K, annual proxy statement on Schedule 14A and amendments to those reports as soon as reasonably practicable after we electronically file orfurnish such materials to the Securities and Exchange Commission. You can access this information on our website, free of charge, by clicking on “InvestorRelations.” The information contained on or connected to our website is not a part of this Annual Report on Form 10-K.BUSINESS STRATEGYOur goal is to strengthen our position as a leading and diversified provider of career‑oriented post-secondary education by continuing to pursue thefollowing strategy: Expand Existing Areas of Study and Existing Facilities. We believe we can leverage our operations to expand our program offerings in existing areas ofstudy and expand into new areas of study to capitalize on demand from students and employers in our target markets. Whenever possible, we seek to replicateprograms across our campuses.1IndexMaximize Utilization of Existing Facilities. We are focused on improving capacity utilization of existing facilities through increased enrollments, theintroduction of new programs and partnerships with industry. In 2014, we continued to partner with several high schools in New Jersey to provide studentswith introductory classes in automotive technologies and entered into several partnerships with industry including Chrysler, Raytheon, and BMW. Weexpect to continue investing in marketing, recruiting and retention resources to increase enrollment. Expand Market. We believe that we can enter new markets and broaden the Lincoln brand by partnering with nationally well-known brands to provide theskills needed to train our nation’s workforce. PROGRAMS AND AREAS OF STUDYWe structure our program offerings to provide our students with a practical, career-oriented education and position them for attractive entry-level jobopportunities in their chosen fields. Our diploma/certificate programs typically take between 22 to 106 weeks to complete, with tuition ranging from $5,000to $36,000. Our associate’s degree programs typically take between 48 to 156 weeks to complete, with tuition ranging from $17,000 to $70,000. Ourbachelor’s degree programs typically take between 104 and 208 weeks to complete, with tuition ranging from $40,000 to $80,000. As of December 31, 2014,all of our schools offer diploma and certificate programs, 14 of our schools are currently approved to offer associate’s degree programs and two schools areapproved to offer bachelor’s degree programs. In order to accommodate the schedules of our students and maximize classroom utilization at some of ourcampuses we typically offer courses four to five days a week in three shifts per day and start new classes every month. Other campuses are structured morelike a traditional college and start classes every quarter. We update and expand our programs frequently to reflect the latest technological advances in thefield, providing our students with the specific skills and knowledge required in the current marketplace. Classroom instruction combines lectures anddemonstrations by our experienced faculty with comprehensive hands-on laboratory exercises in simulated workplace environments.2IndexThe following table lists the programs offered as of December 31, 2014 with the average number of students enrolled in each area of study for the year endedDecember 31, 2014:Programs OfferedArea of Study Bachelor'sDegree Associate's Degree Diploma and Certificate AverageEnrollment Percent ofTotalEnrollment Automotive Auto ServiceTechnology Automotive ServiceManagement, AutomotiveTechnology, Collision Repair &Refinishing ServiceManagement, Diesel & TruckService Management Automotive Mechanics, AutomotiveTechnology, Automotive Technology withBMW FastTrack, Automotive Technologywith Mopar X-Press, AutomotiveTechnology with High Performance,Collision Repair and RefinishingTechnology, Diesel & Truck Mechanics,Diesel & Truck Technology, Diesel &Truck Technology with TransportRefrigeration, Diesel & Truck withAutomotive Technology, HeavyEquipment Maintenance Technology,Heavy Equipment and Truck Technology,Motorcycle Technology 5,874 42% Health Sciences HealthInformationAdministration,RN to BSN Medical Assisting Technology,Dental Office Management, ChildDevelopment, Health InformationTechnology, Medical OfficeManagement, Mortuary Science,Occupational Therapy Assistant,Dental Hygiene, DentalAdministrative Assistant, SurgicalTechnology, Advanced MedicalCoding & Billing, Nursing Medical Office Assistant, MedicalAssistant, Patient Care Technician,Pharmacy Technician, Medical Coding &Billing, Dental Assistant, Licensed PracticalNursing, Medical Assistant w/Basic X-ray,Basic X-Ray Technician, SurgicalTechnologist 4,133 29% Skilled Trades - Electronic EngineeringTechnology, HVAC, ElectronicsSystems Service Management Electrical Technology, Electronics SystemsTechnician, HVAC, Welding Technology,CNC 2,114 15%3IndexPrograms Offered (Continued)Area of Study Bachelor'sDegree Associate's Degree Diploma or Certificate AverageEnrollment Percent ofTotalEnrollment HospitalityServices CulinaryManagement,InternationalBaking andPastry Culinary Arts, SalonManagement, InternationalBaking and Pastry, ItalianCulinary Arts Culinary Arts, Cosmetology, Aesthetics,Italian Culinary Arts, International Bakingand Pastry, Nail Technolgy, TherapeuticMassage & Bodywork Technician 1,202 9% Business andInformationTechnology BusinessManagement,CriminalJustice,FuneralServiceManagement PC Systems & NetworkingTechnology, BusinessAdministration, Criminal Justice,Business Management,Broadcasting andCommunications, Paralegal,Computer Networking andSecurity, Accounting, HumanServices, Dental Hygiene Criminal Justice, Computer Networking andSecurity, Computer & Network SupportTechnician 687 5% Total: 14,010 100%Automotive Technology. Automotive technology is our largest area of study, with 42% of our total average student enrollment for the year ended December31, 2014. Our automotive technology programs are 28 to 155 weeks in length, with tuition rates of $11,000 to $50,000. We believe we are a leading providerof automotive technology education in each of our local markets. Graduates of our programs are qualified to obtain entry level employment ranging frompositions as technicians and mechanics to various apprentice level positions. Our graduates are employed by a wide variety of companies, ranging fromautomotive and diesel dealers, to independent auto body paint and repair shops to trucking and construction companies.As of December 31, 2014, 13 campuses offered programs in automotive technology and most of these campuses offer other technical programs. Our campusesin East Windsor, Connecticut; Nashville, Tennessee; Grand Prairie, Texas; Indianapolis, Indiana; and Denver, Colorado are destination campuses, attractingstudents throughout the United States and, in some cases, from abroad.Health Sciences. For the year ended December 31, 2014, health sciences was our second largest area of study, representing 29% of our total average studentenrollment. Our health science programs are 24 to 208 weeks in length, with tuition rates of $5,000 to $76,000. Graduates of our programs are qualified toobtain positions such as licensed practical nurse, registered nurse, dental assistant, medical assistant, medical administrative assistant, EKG technician, claimsexaminer and pharmacy technician. Our graduates are employed by a wide variety of employers, including hospitals, laboratories, insurance companies,doctors' offices and pharmacies. Our practical nursing and medical assistant programs are our largest health science programs. As of December 31, 2014, weoffered health science programs at 17 of our campuses.Skilled Trades. For the year ended December 31, 2014, 15% of our total average student enrollment was in our skilled trades programs. Our skilled tradesprograms are 36 to 98 weeks in length, with tuition rates of $16,500 to $31,000. Our skilled trades programs include electrical, heating and air conditioningrepair, welding, computerized numerical control and electronic system technician. Graduates of our programs are qualified to obtain entry level employmentpositions such as electrician, cable installer, welder, wiring and heating, ventilating and air conditioning, or HVAC installer. Our graduates are employed by awide variety of employers, including residential and commercial construction, telecommunications installation companies and architectural firms. As ofDecember 31, 2014, we offered skilled trades programs at 13 campuses.Hospitality Services. For the year ended December 31, 2014, 9% of our total average student enrollment was in our hospitality services programs. Ourhospitality services programs are 22 to 142 weeks in length, with tuition rates of $6,500 to $60,000. Our hospitality programs include culinary, therapeuticmassage, cosmetology and aesthetics. Graduates work in salons, spas or cruise ships or are self-employed. We offer massage programs at three campuses andcosmetology programs at four campuses. Our culinary graduates are employed by restaurants, hotels, cruise ships and bakeries. As of December 31, 2014, weoffered culinary programs at four campuses.4IndexBusiness and Information Technology. For the year ended December 31, 2014, 5% of our total average student enrollment was in our business andinformation technology programs, which include our diploma and degree criminal justice programs. Our business and information technology programs are30 to 208 weeks in length, with tuition rates of $13,000 to $80,000. We have focused our current information technology, or IT, program offerings on thosethat are most in demand, such as our computer networking and security and computer and network support technician. Our IT and business graduates work inentry level positions for both small and large corporations. Our criminal justice graduates work in the security industry and for various government agenciesand departments. As of December 31, 2014, we offered these programs at 12 of our campuses.MARKETING AND STUDENT RECRUITMENTWe utilize a variety of marketing and recruiting methods to attract students and increase enrollment. Our marketing and recruiting efforts are targeted atpotential students who are entering the workforce, or who are underemployed or unemployed and require additional training to enter or re-enter theworkforce.Marketing and Advertising. Our marketing program utilizes integrated advertising such as the Internet, television, and various print media, direct mail, andevent marketing campaigns and represented the majority of our new enrollments. These campaigns are enhanced by student and alumni referrals. Internetlead generation is our most successful medium, built upon successful search engine optimization and specific keywords. Our website inquiries incorporateintegrated campaigns that direct potential students to the Lincoln website where they may request additional information on a program of interest. Ourinternal systems enable us to closely monitor and track the effectiveness of each advertisement on a daily or weekly basis and make adjustments accordinglyto enhance efficiency and limit our student acquisition costs. In 2015, we started a marketing campaign as “Lincoln Tech, America’s Technical Institute”.Referrals. Referrals from current students, high school counselors and satisfied graduates and their employers have historically represented 16% to 25% ofour new enrollments. Our school administrators actively work with our current students to encourage them to recommend our programs to potential students.We continue to build strong relationships with high school guidance counselors and instructors by offering annual seminars at our training facilities tofurther educate these individuals on the strengths of our programs. Graduates who have gone on to enjoy success in the workforce frequently recommend ourprograms, as do employers who are pleased with the performance of our graduates whom they have hired.Recruiting. Our recruiting efforts are conducted by a group of approximately 240 field and campus-based representatives who meet directly with potentialstudents during presentations conducted at high schools, in the potential student's home or during a visit to one of our campuses.Field-Based Recruiting. Our field-based recruiting representatives make presentations at high schools to attract students to both our local and destinationcampuses. Our field-based representatives also visit directly with potential students in their homes. During 2014, we recruited approximately 25% of ourstudents directly out of high school. During the second half of 2014, we restructured our destination salesforce by eliminating certain representatives fromthe field and replacing them with fewer centralized representatives operating from a call center. In addition, we are piloting a new comprehensive customerrelationship management software by Salesforce which is designed to improve the student’s experience by enhancing student engagement throughcontinuing communication over the student’s life cycle. In addition, the software provides a means to better manage productivity and communicate acrossfunctional departments.Campus-Inquiries. When a potential student contacts us as a result of our marketing and outreach efforts, an admissions representative contacts thepotential student to follow up on an individual basis. The admissions representative provides information on the programs of interest available at the campuslocation selected by the potential student and offers an appointment to visit the school and tour the school's facilities.STUDENT ADMISSIONS, ENROLLMENT AND RETENTIONAdmissions. In order to attend our schools, students must complete an application and pass an entrance assessment. While each of our programs hasdifferent admissions criteria, we screen all applications and counsel the students on the most appropriate program to increase the likelihood that our studentscomplete the requisite coursework and obtain and sustain employment following graduation.Enrollment. We enroll students continuously throughout the year, with our largest classes enrolling in late summer or early fall following high schoolgraduation. We had 13,278 students enrolled as of December 31, 2014 and our average enrollment for the year ended December 31, 2014 was 14,010students, a decrease of 5.4% in average enrollment from December 31, 2013. We had 13,561 students enrolled as of December 31, 2013 and our averageenrollment for the year ended December 31, 2013 was 14,804 students, a decrease of 12.7% in average enrollment from December 31, 2012.Retention. To maximize student retention, the staff at each school is trained to recognize the early warning signs of a potential drop and to assist and advisestudents on academic, financial, employment and personal matters. We monitor our retention rates by instructor, course, program and school. When we noticethat a particular instructor or program is experiencing a higher than normal dropout rate, we quickly seek to determine the cause of the problem and attemptto correct it. When we identify that a student is having trouble academically, we offer tutoring.5IndexJOB PLACEMENTWe believe that assisting our graduates in securing employment after completing their program of study is critical to our ability to attract high qualitystudents. In addition, we believe that high job placement rates result in low student loan default rates, an important requirement for continued participation inTitle IV Programs. See "Regulatory Environment—Regulation of Federal Student Financial Aid Programs." Accordingly, we dedicate significant resources tomaintaining an effective graduate placement program. Our non-destination schools work closely with local employers to ensure that we are training studentswith skills that employers need. Each school has an advisory council made up of local employers who provide us with direct feedback on how well we arepreparing our students to succeed in the workplace. This enables us to tailor our programs to the market. The placement staff in each of our destinationschools maintains databases of potential employers throughout the country, allowing us to more effectively assist our graduates in securing employment intheir career field upon graduation. Throughout the year, we hold numerous job fairs at our facilities where we provide the opportunity for our students to meetand interact with potential employers. In addition, many of our schools have internship programs that provide our students with opportunities to work withemployers prior to graduation. For example, some of the students in our automotive programs have the opportunity to complete a portion of their hands-ontraining in an actual work environment. In addition, some of our allied health students are required to participate in an externship program during which theywork in the field as part of their career training. We also assist students with resume writing, interviewing and other job search skills.FACULTY AND EMPLOYEESWe hire our faculty in accordance with established criteria, including relevant work experience, educational background and accreditation and stateregulatory standards. We require meaningful industry experience of our teaching staff in order to maintain the quality of instruction in all of our programsand to address current and industry-specific issues in our course content. In addition, we provide intensive instructional training and continuing education,including quarterly instructional development seminars, annual reviews, technical upgrade training, faculty development plans and weekly staff meetings.The staff of each school typically includes a school director, a director of graduate placement, an education director, a director of student services, a financial-aid director, an accounting manager, a director of admissions and instructors, all of whom are industry professionals with experience in our areas of study.As of December 31, 2014, we had approximately 2,572 employees, including 670 full-time faculty and 381 part-time instructors. At six of our campuses, theteaching professionals are represented by unions. These employees are covered by collective bargaining agreements that expire between 2015 and 2018. Webelieve that we have good relationships with these unions and our employees.COMPETITIONThe for-profit, post-secondary education industry is highly competitive and highly fragmented, with no one provider controlling significant market share.Direct competition between career-oriented schools and traditional four-year colleges or universities is limited. Thus, our main competitors are other for-profit, career-oriented schools, as well as public and private two-year junior and community colleges. Competition is generally based on location, the type ofprograms offered, the quality of instruction, placement rates, reputation, recruiting and tuition rates. Public institutions are generally able to charge lowertuition than our schools, due in part to government subsidies and other financial sources not available to for-profit schools. In addition, some of our othercompetitors have a more extensive network of schools and campuses than we do, which enables them to recruit students more efficiently from a widergeographic area. Nevertheless, we believe that we are able to compete effectively in our local markets because of the diversity of our program offerings,quality of instruction, the strength of our brands, our reputation and our graduates’ success in securing employment after completing their program of study.We compete with other institutions that are eligible to receive Title IV funding. This includes four-year, not-for-profit public and private colleges anduniversities, community colleges and all for-profit institutions whether they are four years, two years or less. Our competition differs in each marketdepending on the curriculum that we offer. For example, a school offering automotive, allied health and skilled trades programs will have a different group ofcompetitors than a school offering allied health, business/IT and skilled trades. Also, because schools can add new programs within six to twelve months,competition can emerge relatively quickly. Moreover, with the introduction of online learning, the number of competitors in each market has increasedbecause students can now attend classes from an online institution.Our primary competition for students are community colleges and other career schools, both for-profit and not-for-profit. We focus on programs that are inhigh demand. We compete against community colleges by seeking to offer more frequent start dates, more flexible hours, better instructional resources, morehands on training, shorter program length and greater assistance with job placement. We compete against the other career schools by seeking to offer a higherquality of education and higher quality instructional equipment. On average, each of our schools has at least three direct competitors and at least a dozenindirect competitors. As we continue to add courses and degree programs, our competitors within a given market increase.6IndexENVIRONMENTAL MATTERSWe use hazardous materials at our training facilities and campuses, and generate small quantities of waste such as used oil, antifreeze, paint and car batteries.As a result, our facilities and operations are subject to a variety of environmental laws and regulations governing, among other things, the use, storage anddisposal of solid and hazardous substances and waste, and the clean-up of contamination at our facilities or off-site locations to which we send or have sentwaste for disposal. We are also required to obtain permits for our air emissions and to meet operational and maintenance requirements. In the event we do notmaintain compliance with any of these laws and regulations, or are responsible for a spill or release of hazardous materials, we could incur significant costsfor clean-up, damages, and fines or penalties. Climate change has not had and is not expected to have a significant impact on our operations.REGULATORY ENVIRONMENTStudents attending our schools finance their education through a combination of family contributions, individual resources, private loans and federalfinancial aid programs. Each of our schools participates in the federal programs of student financial aid authorized under Title IV of the Higher Education Actof 1965, as amended (“Title IV Programs”), which are administered by the DOE. For the year ended December 31, 2014, approximately 80% (calculated basedon cash receipts) of our revenues were derived from the Title IV Programs. Students obtain access to federal student financial aid through a DOE prescribedapplication and eligibility certification process. Student financial aid funds are generally made available to students at prescribed intervals throughout theirpredetermined expected length of study. Students typically use the funds received from the federal financial aid programs to pay their tuition and fees and, insome cases, for living expenses or other costs of attendance.In connection with the students' receipt of federal financial aid under the Title IV Programs, our schools are subject to extensive regulation by governmentalagencies and licensing and accrediting bodies. In particular, the Higher Education Act of 1965, as amended, and the regulations issued thereafter by the DOE,subject us to significant regulatory scrutiny in the form of numerous standards that each of our schools must satisfy in order to participate in the Title IVPrograms. To participate in the Title IV Programs, a school must be authorized to offer its programs of instruction by the applicable state education agenciesin the states in which it is physically located, be accredited by an accrediting commission recognized by the DOE and be certified as an eligible institutionby the DOE. The DOE defines an eligible institution to consist of both a main campus and its additional locations, if any. Each of our schools is either a maincampus or an additional location of a main campus. Each of our schools is subject to extensive regulatory requirements imposed by state education agencies,accrediting commissions, and the DOE. Because the DOE periodically revises its regulations and changes its interpretations of existing laws and regulations,we cannot predict with certainty how Title IV Program requirements will be applied in all circumstances. Our schools also participate in other federal andstate financial aid programs that assist students in paying the cost of their education.State AuthorizationEach of our schools must be authorized by the applicable education agencies in the states in which the school is physically located, and in some cases otherstates, in order to operate and to grant degrees, diplomas or certificates to its students. State agency authorization is also required in each state in which aschool is physically located in order for the school to become and remain eligible to participate in Title IV Programs. If we are found not to be in compliancewith the applicable state regulation and a state seeks to restrict one or more of our business activities within its boundaries, we may not be able to recruit orenroll students in that state and may have to stop providing services in that state, which could have a significant impact on our business and results ofoperations. Currently, each of our schools is authorized by the applicable state education agencies in the states in which the school is physically located andin which it recruits students.Our schools are subject to extensive, ongoing regulation by each of these states. State laws typically establish standards for instruction, curriculum,qualifications of faculty, location and nature of facilities and equipment, administrative procedures, marketing, recruiting, financial operations, studentoutcomes and other operational matters. State laws and regulations may limit our ability to offer educational programs and to award degrees, diplomas orcertificates. Some states prescribe standards of financial responsibility that are different from, and in certain cases more stringent than, those prescribed by theDOE. Some states require schools to post a surety bond. We have posted surety bonds on behalf of our schools and education representatives with multiplestates in a total amount of approximately $15.1 million. The DOE published new regulations that took effect on July 1, 2011 (the “2011 DOE Rules”), that expand the requirements for an institution to beconsidered legally authorized in the state in which it is physically located for Title IV purposes. In some cases, the regulations will require states to revisetheir current requirements and/or to license schools in order for institutions to be deemed legally authorized in those states and, in turn, to participate in TitleIV Programs. If the states do not amend their requirements where necessary and if schools do not receive approvals where necessary that comply with thesenew requirements, then the institution could be deemed to lack the state authorization necessary to participate in Title IV Programs. The DOE stated when itpublished the final regulations that it will not publish a list of states that meet, or fail to meet, the requirements, and it is uncertain how the DOE will interpretthese requirements in each state.7IndexIf any of our schools fail to comply with state licensing requirements, they are subject to the loss of state licensure or authorization. If any one of our schoolslost its authorization from the education agency of the state in which the school is located, or failed to comply with the DOE’s state authorizationrequirements, that school would lose its eligibility to participate in Title IV Programs, the Title IV eligibility of its related additional locations could beaffected, the impacted schools would be unable to offer its programs, and we could be forced to close the schools. If one of our schools lost its stateauthorization from a state other than the state in which the school is located, the school would not be able to recruit students or to operate in that state.Due to state budget constraints in certain states in which we operate, it is possible that those states may continue to reduce the number of employees in, orcurtail the operations of, the state education agencies that oversee our schools. A delay or refusal by any state education agency in approving any changes inour operations that require state approval could prevent us from making such changes or could delay our ability to make such changes. States periodicallychange their laws and regulations applicable to our schools and such changes could require us to change our practices and could have a significant impact onour business and results of operations.AccreditationAccreditation is a non-governmental process through which a school submits to ongoing qualitative and quantitative review by an organization of peerinstitutions. Accrediting commissions primarily examine the academic quality of the school's instructional programs, and a grant of accreditation is generallyviewed as confirmation that the school's programs meet generally accepted academic standards. Accrediting commissions also review the administrative andfinancial operations of the schools they accredit to ensure that each school has the resources necessary to perform its educational mission.Accreditation by an accrediting commission recognized by the DOE is required for an institution to be certified to participate in Title IV Programs. In order tobe recognized by the DOE, accrediting commissions must adopt specific standards for their review of educational institutions. As of December 31, 2014, 16of our campuses are accredited by the Accrediting Commission of Career Schools and Colleges, or ACCSC; 18 of our campuses are accredited by theAccrediting Council for Independent Colleges and Schools, or ACICS; one of our campuses is accredited by the New England Association of Schools andColleges of Technology, or NEASC; and one of our campuses is accredited by the Accrediting Bureau of Health Education Schools, or ABHES. All of theseaccrediting commissions are recognized by the DOE. The following is a list of the dates on which each campus was accredited by its accrediting commission,the date by which its accreditation must be renewed and the type of accreditation.Accrediting Commission of Career Schools and Colleges Reaccreditation DatesSchool Last Accreditation Letter Next Accreditation Type of AccreditationPhiladelphia, PA2 September 30, 2013 May 1, 2018 NationalUnion, NJ1 May 29, 2014 February 1, 2019 NationalMahwah, NJ1 March 10, 2010 August 1, 20143 NationalMelrose Park, IL2 June 2, 2010 November 1, 20143 NationalDenver, CO1 March 9, 2011 February 1, 2016 NationalColumbia, MD March 7, 2012 February 1, 2017 NationalGrand Prairie, TX1 December 7, 2011 August 1, 2016 NationalAllentown, PA1 March 7, 2012 January 1, 2017 NationalNashville, TN1 November 30, 2012 May 1, 2017 NationalIndianapolis, IN November 30, 2012 November 1, 2017 NationalNew Britain, CT June 4, 2014 January 1, 2018 NationalShelton, CT2 March 5, 2014 September 1, 2018 NationalQueens, NY1 June 4, 2013 June 1, 2018 NationalHartford, CT June 2, 2010 November 1, 20143 NationalEast Windsor, CT2 December 4, 2013 February 1, 2018 NationalSouth Plainfield, NJ1 September 2, 2014 August 1, 2019 National1Branch campus of main campus in Indianapolis, IN2Branch campus of main campus in New Britain, CT3Campus undergoing re-accreditation. Each campus has received written confirmation that it remains accredited pending consideration of itsapplication for reaccreditation.8IndexAccrediting Council for Independent Colleges and Schools Reaccreditation DatesSchool Last Accreditation Letter Next Accreditation Type of AccreditationBrockton, MA1 August 28, 2014 December 31, 2020 NationalLincoln, RI1 August 28, 2014 December 31, 2019 NationalLowell, MA1 January 5, 2015 December 31, 2019 NationalSomerville, MA1 August 28, 2014 December 31, 2019 NationalPhiladelphia (Center City), PA1 April 26, 2013 December 31, 2016 NationalEdison, NJ April 26, 2013 December 31, 2016 NationalMarietta, GA1 August 28, 2014 December 31, 2019 NationalMoorestown, NJ1 April 26, 2013 December 31, 2016 NationalParamus, NJ1 April 26, 2013 December 31, 2016 NationalPhiladelphia (Northeast), PA1 April 26, 2013 December 31, 2016 NationalWest Palm Beach, FL1 August 28, 2014 December 31, 2019 NationalLas Vegas (Summerlin), NV1 August 29, 2014 December 31, 2019 NationalHenderson (Green Valley), NV1 January 5, 2015 December 31, 2019 National1Branch campus of main campus in Edison, NJNew England Association of Schools and Colleges of Technology Reaccreditation DatesSchool Last Accreditation Letter Comprehensive Evaluation Type of AccreditationSouthington, CT June 29, 2012 Fall 2017 RegionalAccrediting Bureau of Health Education Schools Reaccreditation DatesSchool Last Accreditation Letter Next Accreditation Type of AccreditationFern Park, FL August 4, 2014 August 31, 2015 NationalIf one of our schools fails to comply with accrediting commission requirements, the institution and its main and/or branch campuses are subject to the loss ofaccreditation or may be placed on probation or a special monitoring or reporting status which, if the noncompliance with accrediting commissionrequirements is not resolved, could result in loss of accreditation. If any one of our schools loses its accreditation, students attending that school would nolonger be eligible to receive Title IV Program funding, and we could be forced to close that school. Our school in Fern Park, Florida received a letter fromABHES in February 2015, further to a notification first received in August 2013 and 2014, directing the school to show cause why its accreditation shouldnot be withdrawn. On February 27, 2015, our Board of Directors approved a plan to cease operations at the Fern Park, Florida school which is scheduled toclose in the first quarter of 2016.Programmatic accreditation is the process through which specific programs are reviewed and approved by industry and program-specific accrediting entities.Although programmatic accreditation is not generally necessary for Title IV eligibility, such accreditation may be required to allow students to sit for certainlicensure exams or to work in a particular profession or career or to meet other requirements. Failure to obtain or maintain such programmatic accreditationmay lead to a decline in enrollments in such programs. Under new gainful employment or GE regulations issued by the DOE, institutions may be required tocertify that they have programmatic accreditation under certain circumstances. See “—Regulatory Environment – DOE Development of New Regulations.”Nature of Federal and State Support for Post-Secondary EducationThe federal government provides a substantial part of the support for post-secondary education through Title IV Programs, in the form of grants and loans tostudents who can use those funds at any institution that has been certified as eligible by the DOE. Most aid under Title IV Programs is awarded on the basis offinancial need, generally defined as the difference between the cost of attending the institution and the expected amount a student and his or her family canreasonably contribute to that cost. All recipients of Title IV Program funds must maintain a satisfactory grade point average and progress in a timely mannertoward completion of their program of study and must meet other applicable eligibility requirements for the receipt of Title IV funds. In addition, each schoolmust ensure that Title IV Program funds are properly accounted for and disbursed in the correct amounts to eligible students.9IndexStudents at our schools received grants and loans to fund their education under the following Title IV Programs: (1) the Federal Direct Loan, or FDL,Program, (2) the Federal Pell Grant, or Pell, program, (3) the Federal Supplemental Educational Opportunity Grant program, and (4) the Federal Perkins Loan,or Perkins, program.Federal Direct Loan Program. The lender under this program is the DOE rather than a bank or other lending institution. For the year ended December 31,2014, we derived approximately 55% of our Title IV revenues (calculated based on cash receipts) from the FDL Program.Pell. Under the Pell program, the DOE makes grants to students who demonstrate the greatest financial need. For the year ended December 31, 2014, wederived approximately 21% of our revenues (calculated based on cash receipts) from the Pell program.Federal Supplemental Educational Opportunity Grant. Under the Federal Supplemental Educational Opportunity Grant program, the DOE issues grantswhich are designed to supplement Pell grants for students with the greatest financial needs. An institution is required to make a 25% matching contributionfor all funds received from the DOE under this program. For the year ended December 31, 2014, we received less than 1% of our revenues (calculated basedon cash receipts) from the Federal Supplemental Educational Opportunity Grant program.Perkins. Perkins loans are made from a revolving institutional account, 75% of which is funded by the DOE and the remainder by the school receiving thefunds. Each school is responsible for collecting payments on Perkins loans from its former students and lending those funds to currently enrolled students.Defaults by students on their Perkins loans reduce the amount of funds available in the applicable school's revolving account to make loans to additionalstudents, but the school does not have any obligation to guarantee the loans or repay the defaulted amounts. For the year ended December 31, 2014, all of ourschools have ceased awarding loans under the Perkins program and, therefore, we did not derive any of our revenues (calculated based on cash receipts) fromthe Perkins program. One of our schools continues to receive repayments of prior Perkins loans from students.Other Financial Assistance ProgramsSome of our students receive financial aid from federal sources other than Title IV Programs, such as programs administered by the U.S. Department ofVeterans Affairs and under the Workforce Investment Act. In addition, some states also provide financial aid to our students in the form of grants, loans orscholarships. The eligibility requirements for state financial aid and these other federal aid programs vary among the funding agencies and by program. Statesthat provide financial aid to our students are facing significant budgetary constraints. Some states have reduced the level of state financial aid for ourstudents. Due to state budgetary shortfalls and constraints in certain states in which we operate, we believe that the overall level of state financial aid for ourstudents is likely to continue to decrease in the near term, but we cannot predict how significant any such reductions will be or how long they will last.Federal budgetary shortfalls and constraints, or decisions by federal lawmakers to limit or prohibit access by our institutions or their students to federalfinancial aid, could result in a decrease in the level of federal financial aid for our students.In addition to Title IV and other government-administered programs, all of our schools participate in alternative loan programs for their students. Alternativeloans fill the gap between what the student receives from all financial aid sources and what the student may need to cover the full cost of their education.Students or their parents can apply to a number of different lenders for this funding at current market interest rates.10IndexRegulation of Federal Student Financial Aid ProgramsTo participate in Title IV Programs, an institution must be authorized to offer its programs by the relevant state education agencies in the state in which it isphysically located, be accredited by an accrediting commission recognized by the DOE and be certified as eligible by the DOE. The DOE will certify aninstitution to participate in Title IV Programs only after reviewing and approving an institution’s application to participate in the Title IV Programs. TheDOE defines an institution to consist of both a main campus and its additional locations, if any. Under this definition, for DOE purposes, we had thefollowing 7 institutions as of December 31, 2014, collectively consisting of 7 main campuses and 24 additional locations:Main Instituion/Campus(es) Additional Location(s)Edison, NJ Moorestown, NJ Paramus, NJ Philadelphia, PA (Center City) Philadelphia, PA (Northeast) Somerville, MA Lowell, MA Brockton, MA Lincoln, RI Marietta, GA West Palm Beach, FL Henderson, NV (Green Valley) Las Vegas, NV (Summerlin)Hartford, CT New Britain, CT Shelton, CT Philadelphia, PA East Windsor, CT Melrose Park, ILFern Park, FL Indianapolis, IN Grand Prairie, TX Nashville, TN Denver, CO Union, NJ Mahwah, NJ Queens, NY Allentown, PA South Plainfield, NJColumbia, MD Southington, CT The DOE typically provides provisional certification to an institution following a change in ownership resulting in a change of control and also mayprovisionally certify an institution for other reasons, including, but not limited to, noncompliance with certain standards of administrative capability andfinancial responsibility. Two of our seven institutions (Edison and Indianapolis) are provisionally certified based on the existence of pending programreviews with DOE. An institution that is provisionally certified receives fewer due process rights than those received by other institutions in the event theDOE takes certain adverse actions against the institution, is required to obtain prior DOE approvals of new campuses and educational programs, and may besubject to heightened scrutiny by the DOE. However, provisional certification does not otherwise limit an institution’s access to Title IV Program funds.The DOE, accrediting commissions and state education agencies have responsibilities for overseeing compliance with Title IV Program requirements. As aresult, each of our schools is subject to detailed oversight and review, and must comply with a complex framework of laws and regulations. Because the DOEperiodically revises its regulations and changes its interpretation of existing laws and regulations, we cannot predict with certainty how the Title IV Programrequirements will be applied in all circumstances.Significant factors relating to Title IV Programs that could adversely affect us include the following:Congressional Action. Political and budgetary concerns significantly affect Title IV Programs. Congress periodically revises the Higher Education Act of1965, as amended (“HEA”) and other laws governing Title IV programs. On August 14, 2008, the Higher Education Opportunity Act, Public Law 110-315,reauthorized the Title IV HEA programs through at least September 30, 2014. The HEA was automatically extended through September 30, 2015. Congresswill be considering reauthorization of the Title IV HEA programs, but it is unknown when Congress will complete that process or what changes will be madeto the HEA or other laws affecting Federal student aid.11IndexIn addition, Congress reviews and determines federal appropriations for Title IV Programs on an annual basis. Congress can also make changes in the lawsaffecting Title IV Programs in the annual appropriations bills and in other laws it enacts between the HEA reauthorizations. Because a significant percentageof our revenues are derived from Title IV Programs, any action by Congress that significantly reduces Title IV Program funding or the ability of our schools orstudents to participate in Title IV Programs could reduce our student enrollment and our revenues. Congressional action may also increase our administrativecosts and require us to modify our practices in order for our schools to comply fully with Title IV Program requirements. For example, changes to the HEAeliminated federal student aid eligibility, with certain exceptions, for all students who first enroll on or after July 1, 2012 and who do not have a certificate ofgraduation from a school providing secondary education or the recognized equivalent of such a certificate. See “– Regulatory Environment – Ability toBenefit Regulations.”We cannot predict what, if any, legislation or other actions will be taken or proposed by Congress in connection with the reauthorization of the HEA or withother activities of Congress. Any action by Congress that significantly reduces funding for Title IV Programs or that limits or restricts the ability of ourschools, programs, or students to receive funding through those programs, or that imposes new restrictions or constraints upon our business or operationscould result in increased administrative costs and decreased profit margin. In addition, current requirements for student or school participation in Title IVprograms may change or one or more of the present Title IV programs could be replaced by other programs with materially different student or schooleligibility requirements. If we cannot comply with the provisions of the HEA, as they may be amended, or if the cost of such compliance is excessive, or iffunding is materially reduced, our revenues or profit margin could be materially adversely affected.DOE Development of New Regulations. The DOE issued final regulations on October 29, 2010, with a general effective date of July 1, 2011, and whichincluded, but were not limited to: revisions to the incentive compensation rule, a significant expansion of the notice and approval requirements for addingnew academic programs and new reporting and disclosure requirements for such programs, the definition of high school diploma for the purpose ofestablishing institutional eligibility to participate in the Title IV programs and student eligibility to receive Title IV aid, ability to benefit students,misrepresentation of information provided to students and prospective students, incentive compensation, state authorization as a component of institutionaleligibility, agreements between institutions of higher education, verification of information included on student aid applications, satisfactory academicprogress, monitoring grade point averages, retaking coursework, return of Title IV funds with respect to term‑based programs with modules or compressedcourses and with respect to taking attendance, and the timeliness and method of disbursements of Title IV funds. The topics covered in these regulations alsoincluded a new federal definition of a “credit hour” for federal student aid purposes. The new definition has resulted in changes to the number of credit hoursawarded for certain of our educational programs and in changes to the amount of federal student aid available to students enrolled in such programs. Theimplementation of all of the October 2010 final regulations required us to change certain of our practices to comply with these requirements. The changes toour practices have had and may continue to have, and any inability by us to comply with these regulations after the effective date could have, a significantimpact on our business and results of operations. On June 13, 2011, the DOE published final regulations in the Federal Register regarding gainful employment that were scheduled to take effect on July 1,2012 and would apply to all educational programs that are subject to the DOE requirement of preparing students for gainful employment in a recognizedoccupation. Such educational programs include all of the Title IV-eligible educational programs at each of our institutions.On June 30, 2012, the United States District Court for the District of Columbia issued a decision that vacated most of the gainful employment regulations andremanded those regulations to the DOE for further action. On July 6, 2012, the DOE issued an electronic announcement acknowledging that the Court hadvacated the repayment rate metric as well as the debt-to-income gainful employment metrics that would have gone into effect on July 1, 2012. The DOE alsonoted that institutions are not required to comply with related regulations relating to gainful employment reporting requirements and adding neweducational programs, but are required to comply with requirements to disclose certain information about educational programs.In June 2013, the DOE announced its intention to establish a negotiated rulemaking committee to prepare new gainful employment regulations, which wouldreplace those vacated by the District Court. The DOE held negotiating sessions with the committee beginning in September 2013 and concluding inDecember 2013. In October 2014, the DOE issued final regulations on gainful employment requiring each educational program to achieve threshold rates intwo debt measure categories related to an annual debt to annual earnings ratio and an annual debt to discretionary income ratio. The various formulas arecalculated under complex methodologies and definitions outlined in the final regulations and, in some cases, are based on data that may not be readilyaccessible to institutions. The regulations outline various scenarios under which programs could lose Title IV eligibility for failure to achieve threshold ratesin one or more measures over certain periods of time ranging from two to four years. The regulations also require an institution to provide warnings tostudents in programs which may lose Title IV eligibility at the end of an award year. The final regulations also contain other provisions that, among otherthings, include disclosure, reporting, new program approval, and certification requirements. The certification requirements will require each institution tocertify to the DOE that each gainful employment program is programmatically accredited, if such accreditation is required by a Federal governmental entityor by governmental entity in the state in which the institution is physically located.12IndexThe final regulations have a general effective date of July 1, 2015. The implementation of new gainful employment regulations, or any other changes theDOE may propose and implement, could require us to eliminate certain educational programs, could result in the loss of our students’ access to Title IVProgram funds for the affected programs, and could have a significant impact on the rate at which students enroll in our programs and on our business andresults of operations. Based on our preliminary analysis the majority of our programs will not be effected and we should be able to alter the affected programsto meet the new regulations.While the new regulations take effect on July 1, 2015, the initial burden to the institution will be on reporting and disclosure requirements. The Departmentof Education is scheduled to begin publishing Debt/Earnings Rates as early as 2016 with punitive actions coming in 2018. The Company believes thisregulation will have a small impact on the business.The DOE published additional new regulations in 2014 on other topics, including regulations related to adverse credit for borrowers of PLUS loans andrelated to certain campus safety and security related requirements. The DOE also considered during negotiated rulemaking sessions in 2014, but did notpublish, regulations on other topics including: clock to credit hour conversion for programs offered in credit hours that do not transfer into degree programsand are subject to the federal conversion formula for determining credit hours; and state authorization for programs offered through distance education orcorrespondence education; and state authorization for foreign locations of institutions located in a state.The DOE intends to use the negotiated rulemaking process during 2015 to develop new regulations on these and potentially other topics. These regulationstypically would be subject to a notice and comment period during which the public comments on proposed regulations and the DOE responds to commentsand publishes final regulations. We cannot predict the ultimate content of any new regulations that may emerge from the negotiated rulemaking process in2015 or the potential impact of such regulations on us or our institutions. The implementation of any new regulations by DOE could have a significantimpact on the rate at which students enroll in our programs and on our business and results of operations. The "90/10 Rule." Under the HEA reauthorization, a proprietary institution that derives more than 90% of its total revenue from Title IV Programs, or 90/10Rule percentage, for two consecutive fiscal years becomes immediately ineligible to participate in Title IV Programs and may not reapply for eligibility untilthe end of at least two fiscal years. An institution with revenues exceeding 90% for a single fiscal year ending after August 14, 2008 will be placed onprovisional certification and may be subject to other enforcement measures. If an institution violated the 90/10 Rule and became ineligible to participate inTitle IV Programs but continued to disburse Title IV Program funds, the DOE would require the institution to repay all Title IV Program funds received by theinstitution after the effective date of the loss of eligibility. We have calculated that, for our 2014 fiscal year, our seven institutions' 90/10 Rule percentages ranged from 76% to 86%. For 2013 and 2012 none of ourexisting institutions derived more than 90% of their revenues from Title IV Programs. We regularly monitor compliance with this requirement to minimizethe risk that any of our institutions would derive more than the maximum percentage of its revenues from Title IV Programs for any fiscal year. Ourcalculations are subject to review by the DOE. If Congress or the DOE were to amend the 90/10 Rule to treat other forms of federal financial aid as Title IV revenue for 90/10 purposes, to lower the 90%threshold, or to otherwise change the calculation methodology (each of which has been proposed by some Congressional members in proposed legislation),or to make other changes to the 90/10 Rule, those changes could make it more difficult for our institutions to comply with the 90/10 Rule. If any of ourinstitutions loses eligibility to participate in Title IV Programs, that loss would cause adversely affect our students’ access to various government-sponsoredstudent financial aid programs, and would have a significant impact on the rate at which our students enroll in our programs and on our business and resultsof operations. Student Loan Defaults. The HEA limits participation in Title IV Programs by institutions whose former students defaulted on the repayment of federallyguaranteed or funded student loans above a prescribed rate (the “cohort default rate”). The DOE calculates these rates based on the number of students whohave defaulted, not the dollar amount of such defaults. The cohort default rate is calculated on a federal fiscal year basis and measures the percentage ofstudents who enter repayment of a loan during the federal fiscal year and default on the loan on or before the end of the federal fiscal year or the subsequenttwo federal fiscal years.Under the HEA, an institution whose Federal Family Education Loan, or FFEL, and Federal Direct Loan, or FDL, cohort default rate is 30% or greater for threeconsecutive federal fiscal years loses eligibility to participate in the FFEL, FDL, and Pell programs for the remainder of the federal fiscal year in which theDOE determines that such institution has lost its eligibility and for the two subsequent federal fiscal years. An institution whose FFEL and FDL cohortdefault rate for any single federal fiscal year exceeds 40% loses its eligibility to participate in the FFEL and FDL programs for the remainder of the federalfiscal year in which the DOE determines that such institution has lost its eligibility and for the two subsequent federal fiscal years. If an institution’s three-year cohort default rate equals or exceeds 30% in two of the three most recent federal fiscal years for which the DOE has issued cohort default rates, theinstitution may be placed on provisional certification status.In September 2014, the DOE released the final cohort default rates for the 2011 federal fiscal year. These are the most recent final rates published by theDOE. The rates for our existing institutions for the 2011 federal fiscal year range from 16.6% to 26.5%. None of our institutions had a cohort default rateequal to or greater than 30% for the 2011 federal fiscal year or for the 2010 or 2009 federal fiscal years.13IndexIn February 2015, the DOE released draft three-year cohort default rates for the 2012 federal fiscal year. The draft cohort default rates are subject to changepending receipt of the final cohort default rates, which the DOE is expected to publish in September 2015. The weighted average cohort default rate for 2012was 16.8%. None of our existing institutions had draft cohort default rates of 30% or more.Financial Responsibility Standards.All institutions participating in Title IV Programs must satisfy specific standards of financial responsibility. The DOE evaluates institutions for compliancewith these standards each year, based on the institution's annual audited financial statements, as well as following a change in ownership resulting in achange of control of the institution.The most significant financial responsibility measurement is the institution's composite score, which is calculated by the DOE based on three ratios: ·The equity ratio, which measures the institution's capital resources, ability to borrow and financial viability;·The primary reserve ratio, which measures the institution's ability to support current operations from expendable resources; and·The net income ratio, which measures the institution's ability to operate at a profit.The DOE assigns a strength factor to the results of each of these ratios on a scale from negative 1.0 to positive 3.0, with negative 1.0 reflecting financialweakness and positive 3.0 reflecting financial strength. The DOE then assigns a weighting percentage to each ratio and adds the weighted scores for the threeratios together to produce a composite score for the institution. The composite score must be at least 1.5 for the institution to be deemed financiallyresponsible without the need for further oversight.If an institution's composite score is below 1.5, but is at least 1.0, it is in a category denominated by the DOE as "the zone." Under the DOE regulations,institutions that are in the zone typically may be permitted by the DOE to continue to participate in the title IV programs by choosing one of twoalternatives: 1) the “Zone Alternative” under which an institution is required to make disbursements to students under the Heightened Cash Monitoring 1(HCM1) payment method and to notify the DOE within 10 days after the occurrence of certain oversight and financial events or 2) submit a letter of credit tothe DOE equal to 50 percent of the Title IV funds received by our institutions during the most recent fiscal year. The DOE permits an institution toparticipate under the “Zone Alternative” for a period of up to three consecutive fiscal years. Under the HCM1 payment method, the institution is required tomake Title IV disbursements to eligible students and parents before it requests or receives funds for the amount of those disbursements from the DOE. Aslong as the student accounts are credited before the funding requests are initiated, an institution is permitted to draw down funds through the DOE’selectronic system for grants management and payments for the amount of disbursements made to eligible students. Unlike the HCM2 and reimbursementpayment methods, the HCM1 payment method typically does not require schools to submit documentation to the DOE and wait for DOE approval beforedrawing down Title IV funds.If an institution's composite score is below 1.0, the institution is considered by the DOE to lack financial responsibility. If the DOE determines that aninstitution does not satisfy the DOE's financial responsibility standards, depending on its composite score and other factors, that institution may establish itsfinancial responsibility on an alternative basis by, among other things:·Posting a letter of credit in an amount equal to at least 50% of the total Title IV Program funds received by the institution during the institution'smost recently completed fiscal year;·Posting a letter of credit in an amount equal to at least 10% of such prior year's Title IV Program funds, accepting provisional certification,complying with additional DOE monitoring requirements and agreeing to receive Title IV Program funds under an arrangement other than the DOE'sstandard advance funding arrangement; and/or·Complying with additional DOE monitoring requirements and agreeing to receive Title IV Program funds under an arrangement other than theDOE's standard advance funding arrangement.The DOE has evaluated the financial responsibility of our institutions on a consolidated basis. We have submitted to the DOE our audited financialstatements for the 2013 fiscal year reflecting a composite score of 1.4, based upon our calculations. We chose the “Zone Alternative” option described abovebecause, among other things, it does not require us to submit a letter of credit to the DOE and because the HCM1 payment method is less burdensome thanthe HCM2 or reimbursement methods of payment that the DOE has the authority to impose. We believe that, prior to moving to the HCM1 payment methodon October 22, 2014, our procedures for processing Title IV payments were similar to those now required under the HCM1 payment method. As of this date,we have not identified any impact on our ability to make disbursements of Title IV funds to our students or to receive funds for the amount of thosedisbursements from the DOE.14IndexFor the 2014 fiscal year, we have calculated our composite score to be 1.3. This number is subject to determination by the DOE once it receives and reviewsour audited financial statements for the 2014 fiscal year. Our composite score for 2013 was 1.4. The DOE regulations generally permit institutions with acomposite score of between 1.0 and 1.4 to participate under the Zone Alternative for a period of up to three consecutive fiscal years. We believe that if ourcomposite score is below 1.5 for three consecutive years we will be able to continue to operate under the Zone Alternative; however, this determination ismade solely by the DOE. If our composite score drops below 1.0 in a given year or if our composite score remains between 1.0 and 1.4 for three or moreconsecutive years, we may be required to meet alternative requirements for continuing to participate in Title IV programs by submitting a letter of credit,complying with monitoring requirements, disbursing Title IV funds under the HCM1, HCM2, or reimbursement payment methods, and complying with otherrequirements and conditions. Our existing credit agreement, which expires April 5, 2016, gives us the ability to draw up to $20 million under the revolvingline of credit less letters of credit, except that during the period commencing on December 1, 2015 through January 15, 2016 we are required to reduce theoutstanding revolving loans other than letters of credit to $0. If we unable to sell our held for sale assets, leverage our other owned properties or obtain otherfinancing in 2015, our composite score may be less than 1.0 as of December 31, 2015.Return of Title IV Funds. An institution participating in Title IV Programs must calculate the amount of unearned Title IV Program funds that have beendisbursed to students who withdraw from their educational programs before completing them, and must return those unearned funds to the DOE or theapplicable lending institution in a timely manner, which is generally within 45 days from the date the institution determines that the student has withdrawn.If an institution is cited in an audit or program review for returning Title IV Program funds late for 5% or more of the students in the audit or program reviewsample, the institution may be required to post a letter of credit in favor of the DOE in an amount equal to 25% of the total amount of Title IV Program fundsthat should have been returned for students who withdrew in the institution's previous fiscal year. None of our institutions are currently required to submit aletter of credit to the DOE based on late return of Title IV funds.School Acquisitions. When a company acquires a school that is eligible to participate in Title IV Programs, that school undergoes a change of ownershipresulting in a change of control as defined by the DOE. Upon such a change of control, a school's eligibility to participate in Title IV Programs is generallysuspended until it has applied for recertification by the DOE as an eligible school under its new ownership, which requires that the school also re-establish itsstate authorization and accreditation. The DOE may temporarily and provisionally certify an institution seeking approval of a change of control under certaincircumstances while the DOE reviews the institution's application. The time required for the DOE to act on such an application may vary substantially. DOErecertification of an institution following a change of control will be on a provisional basis. Our expansion plans are based, in part, on our ability to acquireadditional schools and have them certified by the DOE to participate in Title IV Programs. Our expansion plans take into account the approval requirementsof the DOE and the relevant state education agencies and accrediting commissions.Change of Control. In addition to school acquisitions, other types of transactions can also cause a change of control. The DOE, most state educationagencies and our accrediting commissions have standards pertaining to the change of control of schools, but these standards are not uniform. DOEregulations describe some transactions that constitute a change of control, including the transfer of a controlling interest in the voting stock of an institutionor the institution's parent corporation. For a publicly traded corporation, DOE regulations provide that a change of control occurs in one of two ways: (a) if aperson acquires ownership and control of the corporation so that the corporation is required to file a Current Report on Form 8-K with the Securities andExchange Commission disclosing the change of control or (b) if the corporation has a shareholder that owns at least 25% of the total outstanding votingstock of the corporation and is the largest shareholder of the corporation, and that shareholder ceases to own at least 25% of such stock or ceases to be thelargest shareholder. These standards are subject to interpretation by the DOE. A significant purchase or disposition of our common stock could bedetermined by the DOE to be a change of control under this standard.Most of the states and our accrediting commissions include the sale of a controlling interest of common stock in the definition of a change of controlalthough some agencies could determine that the sale or disposition of a smaller interest would result in a change of control. A change of control under thedefinition of one of these agencies would require the affected school to reaffirm its state authorization or accreditation. Some agencies would requireapproval prior to a sale or disposition that would result in a change of control in order to maintain authorization or accreditation. The requirements to obtainsuch reaffirmation from the states and our accrediting commissions vary widely.A change of control could occur as a result of future transactions in which our company or schools are involved. Some corporate reorganizations and somechanges in the board of directors are examples of such transactions. Moreover, the potential adverse effects of a change of control could influence futuredecisions by us and our stockholders regarding the sale, purchase, transfer, issuance or redemption of our stock. In addition, the adverse regulatory effect of achange of control also could discourage bids for shares of common stock and could have an adverse effect on the market price of our shares.Opening Additional Schools and Adding Educational Programs. For-profit educational institutions must be authorized by their state education agenciesand be fully operational for two years before applying to the DOE to participate in Title IV Programs. However, an institution that is certified to participate inTitle IV Programs may establish an additional location and apply to participate in Title IV Programs at that location without reference to the two-yearrequirement, if such additional location satisfies all other applicable DOE eligibility requirements. Our expansion plans are based, in part, on our ability toopen new schools as additional locations of our existing institutions and take into account the DOE's approval requirements.15IndexA student may use Title IV Program funds only to pay the costs associated with enrollment in an eligible educational program offered by an institutionparticipating in Title IV Programs. Generally, unless otherwise required by the DOE, an institution that is eligible to participate in Title IV Programs may adda new educational program without DOE approval if that new program leads to an associate’s level or higher degree and the institution already offersprograms at that level, or if that program prepares students for gainful employment in the same or a related occupation as an educational program that haspreviously been designated as an eligible program at that institution and meets minimum length requirements. Institutions that are provisionally certifiedmay be required to obtain approval of certain educational programs. Two of our institutions (Edison and Indianapolis) are provisionally certified andrequired to obtain prior DOE approval of new degree, non-degree, and short-term training educational programs. Under the new gainful employmentregulations that take effect on July 1, 2015, institutions that are provisionally certified or that are subject to other requirements, including, but not limited to,for example, receiving Title IV funds under the cash monitoring or reimbursement methods, may be required to obtain approval of all new educationalprograms. Each of our institutions is required to disburse Title IV funds under the HCM1 payment method and, therefore, may be required to obtain theDOE’s prior approval before adding a new educational program. If an institution erroneously determines that an educational program is eligible for purposesof Title IV Programs, the institution would likely be liable for repayment of Title IV Program funds provided to students in that educational program. Ourexpansion plans are based, in part, on our ability to add new educational programs at our existing schools.Some of the state education agencies and our accrediting commission also have requirements that may affect our schools' ability to open a new campus,establish an additional location of an existing institution or begin offering a new educational program. Any institution required to submit retention orplacement data to the ACICS may be required to obtain prior permission from the ACICS for the initiation of any new program. We do not believe that thesestandards will create significant obstacles to our expansion plans.Administrative Capability. The DOE assesses the administrative capability of each institution that participates in Title IV Programs under a series ofseparate standards. Failure to satisfy any of the standards may lead the DOE to find the institution ineligible to participate in Title IV Programs or to place theinstitution on provisional certification as a condition of its participation. These criteria require, among other things, that the institution:·Comply with all applicable federal student financial aid regulations;·Have capable and sufficient personnel to administer the federal student financial aid programs;·Administer Title IV programs with adequate checks and balances in its system of internal controls over financial reporting;·Divides the function of authorizing and disbursing or delivering Title IV Program Funds so that no office has the responsibility for both functions;·Establish and maintain records required under the Title IV regulations;·Develop and apply an adequate system to identify and resolve discrepancies in information from sources regarding a student’s application forfinancial aid under Title IV;·Have acceptable methods of defining and measuring the satisfactory academic progress of its students;·Refer to the Office of the Inspector General any credible information indicating that any applicant, student, employee or agent of the school hasbeen engaged in any fraud or other illegal conduct involving Title IV Programs;·Not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is cause fordebarment or suspension;·Provide financial aid counseling to its students;·Submit in a timely manner all reports and financial statements required by the regulations; and·Not otherwise appear to lack administrative capability.Failure by an institution to satisfy any of these or other administrative capability criteria could cause the institution to be subject to sanctions or other actionsby the DOE or to lose its eligibility to participate in Title IV Programs, which would have a significant impact on our business and results of operations.Ability to Benefit Regulations. Under certain circumstances, an institution had been permitted to admit non-high school graduates, or "ability to benefit,"students, into certain of its programs of study and allow those students to receive Title IV Program funds to the extent eligible. In order for ability to benefitstudents to be eligible for Title IV Program participation, the institution was required to comply with the ability to benefit requirements set forth in the TitleIV Program requirements. The basic evaluation method to determine that a student has the ability to benefit from the program is the student's achievement ofa minimum score on a test approved by the DOE and independently administered in accordance with DOE regulations. The HEA also permitted students todemonstrate their ability to benefit and become eligible to receive Title IV funds upon satisfactory completion of six credit hours or the equivalentcoursework. In addition to the testing requirements, the DOE regulations also prohibit ability to benefit student enrollments from constituting 50% or more ofthe total enrollment of the institution.16IndexRestrictions on Payment of Commissions, Bonuses and Other Incentive Payments. An institution participating in Title IV Programs may not provide anycommission, bonus or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any person or entityengaged in any student recruiting or admission activities or in making decisions regarding the awarding of Title IV Program funds. The DOE’s regulationsestablished twelve “safe harbors” identifying types of compensation that could be paid without violating the incentive compensation rule. On October 29,2010, the DOE adopted final rules that took effect on July 1, 2011 and amended the incentive compensation rule by, among other things, eliminating thetwelve safe harbors (and thereby reducing the scope of permissible payments under the rule) and expanding the scope of payments and employees subject tothe rule. The DOE has stated that it does not intend to provide private guidance regarding particular compensation structures in the future and will enforcethe regulations as written. We cannot predict how the DOE will interpret and enforce the revised incentive compensation rule. The implementation of thefinal regulations required us to change our compensation practices and has had and will continue to have a significant impact on the rate at which studentsenroll in our programs and on our business and results of operations.Eligibility and Certification Procedures. Each institution must periodically apply to the DOE for continued certification to participate in Title IVPrograms. The institution must also apply for recertification when it undergoes a change in ownership resulting in a change of control. The institution alsomay come under DOE review when it undergoes a substantive change that requires the submission of an application, such as opening an additional locationor raising the highest academic credential it offers.The DOE typically provides provisional certification to an institution following a change in ownership resulting in a change of control and also mayprovisionally certify an institution for other reasons, including, but not limited to, noncompliance with certain standards of administrative capability andfinancial responsibility. Two of our seven institutions (Edison and Indianapolis) are provisionally certified based on the existence of pending programreviews with DOE. An institution that is provisionally certified receives fewer due process rights than those received by other institutions in the event theDOE takes certain adverse actions against the institution, is required to obtain prior DOE approvals of new campuses and educational programs, and may besubject to heightened scrutiny by the DOE. However, provisional certification does not otherwise limit an institution’s access to Title IV Program funds.All institutions are recertified on various dates for various amounts of time. The following table sets forth the expiration dates for each of our institutions'current program participation agreements:Institution Expiration Date of CurrentProgram ParticipationAgreementColumbia, MD September 30, 2017Edison, NJ September 30, 20161Indianapolis, IN June 30, 20161New Britain, CT June 30, 2016Southington, CT June 30, 2017Fern Park, FL June 30, 2017Hartford, CT September 30, 20171Provisionally certified.Compliance with Regulatory Standards and Effect of Regulatory Violations. Our schools are subject to audits, program reviews, and site visits by variousfederal and state regulatory agencies, including, but not limited to, the DOE, the DOE's Office of Inspector General, state education agencies, and the U.S.Department of Veterans Affairs and by our accrediting commissions. In addition, each of our institutions must retain an independent certified publicaccountant to conduct an annual audit of the institution's administration of Title IV Program funds. The institution must submit the resulting audit report tothe DOE for review.By letter dated February 9, 2015, the Accrediting Bureau of Health Education Schools, or ABHES, notified our school in Fern Park, Florida that ABHES haddeferred action on the school’s application for a continued grant of accreditation and directed the school to show cause why its accreditation should not bewithdrawn. ABHES is the institutional accreditor for the Fern Park school. The February 9, 2015, correspondence identified two findings of allegednoncompliance with certain ABHES accreditation requirements related to financial standards and program outcomes. ABHES has stated that the institution’scurrent grant of accreditation is continued through August 31, 2015. The Fern Park school’s response to the show cause directive is due no later than May 1,2015. In response, ABHES could elect to continue the accreditation of the campus or take another action, including withdrawal of accreditation. OnFebruary 27, 2015, our Board of Directors approved a plan to cease operations at the Fern Park, Florida school which is scheduled to close in the first quarterof 2016.On January 2, 2013, the DOE notified our New Britain, Connecticut, campus that an on-site Program Review was scheduled to begin on January 28, 2013. The Program Review assessed the institution’s administration of Title IV, HEA programs for the 2011-2012 and 2012-2013 award years. The ProgramReview concluded on January 31, 2013. On April 22, 2013, the DOE issued a Program Review Report that required our New Britain campus to respond toinformation provided in the report. Our New Britain campus responded to the Program Review Report in correspondence that was received by the DOE onJuly 18, 2013. On September 29, 2014, the DOE issued a Final Program Review Determination (FPRD) that closed the review, identified liabilities resultingfrom the DOE’s review, and also noted some issues that required our New Britain campus to respond to the DOE. Our New Britain campus responded to theDOE’s request and is currently waiting for the DOE’s response. The liabilities calculated in the FPRD resulted in a payment of $102.75 to the DOE.17IndexOn January 7, 2013, the DOE notified our Columbia, Maryland campus that an on-site Program Review was scheduled to begin on March 4, 2013. TheProgram Review assessed the institution’s administration of Title IV, HEA Programs in which the campus participated for the 2011-2012 and 2012-13 awardyears. The Columbia, Maryland campus has not yet received the Program Review report from the DOE.On April 26, 2013, the DOE notified our Union, New Jersey campus that an on-site Program Review was scheduled to begin on May 20, 2013. The ProgramReview assessed the institution’s administration of Title IV, HEA Programs in which the campus participated for the 2011-2012 and 2012-13 award years. The Union, New Jersey campus has not yet received the Program Review report from the DOE.If one of our schools fails to comply with accrediting or state licensing requirements, such school and its main and/or branch campuses could be subject tothe loss of state licensure or accreditation, which in turn could result in a loss of eligibility to participate in Title IV Programs. If the DOE determined that oneof our institutions improperly disbursed Title IV Program funds or violated a provision of the HEA or DOE regulations, the institution could be required torepay such funds and related costs to the DOE and lenders, and could be assessed an administrative fine. The DOE could also place the institution onprovisional certification and/or transfer the institution to the reimbursement or cash monitoring system of receiving Title IV Program funds, under which aninstitution must disburse its own funds to students and document the students' eligibility for Title IV Program funds before receiving such funds from theDOE. An institution that is operating under this "Heightened Cash Monitoring, Type 1 status," is required to credit student accounts before drawing downfunds under Title IV Programs and to draw down funds in an amount no greater than the previous disbursement to students and parents. Additionally, aninstitution's compliance audit is required to contain verification that this did occur throughout the year providing timely information regarding any of thefollowing oversight and financial events:·Any adverse action, including a probation or similar action, taken against the institution by its accrediting agency;·Any event that causes the institution, or related entity to realize any liability that was noted as a contingent liability in the institution's or relatedentity's most recent audited financial statements;·Any violation by the institution of any loan agreement;·Any failure of the institution to make a payment in accordance with its debt obligations that results in a creditor filing suit to recover funds underthose obligations;·Any withdrawal of owner's equity from the institution by any means, including by declaring a dividend; or·Any extraordinary losses, as defined under Accounting Standards Codification 220-20.Operating under the zone requirements may also require the institution to submit its financial statement and compliance audits earlier than the datepreviously required and require the institution to provide information about its current operations and future plans. An institution that continues to fail tomeet the financial responsibility standards set by the DOE or does not comply with the zone requirements may lose its eligibility to continue to participate inTitle IV funding.Significant violations of Title IV Program requirements by us or any of our institutions could be the basis for a proceeding by the DOE to limit, suspend orterminate the participation of the affected institution in Title IV Programs or to civil or criminal penalties. Generally, such a termination extends for 18months before the institution may apply for reinstatement of its participation. There is no DOE proceeding pending to fine any of our institutions or to limit,suspend or terminate any of our institutions' participation in Title IV Programs.We and our schools are also subject to complaints and lawsuits relating to regulatory compliance brought not only by federal and state regulatory agenciesand our accrediting bodies, but also by third parties, such as present or former students or employees and other members of the public. If we are unable tosuccessfully resolve or defend against any such complaint or lawsuit, we may be required to pay money damages or be subject to fines, limitations, loss offederal funding, injunctions or other penalties. Moreover, even if we successfully resolve or defend against any such complaint or lawsuit, we may have todevote significant financial and management resources in order to reach such a result.18IndexItem 1A.RISK FACTORSThe following risk factors and other information included in this Form 10-K should be carefully considered. The risks and uncertainties described beloware not the only ones we face.RISKS RELATED TO OUR INDUSTRYIf we fail to demonstrate "administrative capability" to the DOE, our business could suffer.DOE regulations specify extensive criteria an institution must satisfy to establish that it has the requisite "administrative capability" to participate in Title IVPrograms. For a description of these criteria, see “Regulatory Environment – Administrative Capability.”Other standards provide that an institution may be found to lack administrative capability and be placed on provisional certification if its student loandefault rate under the FFEL and FDL program is 30% or greater for at least two of the three most recent federal fiscal years for which the DOE has issued three-year rates.If an institution fails to satisfy any of these criteria or any other DOE regulation, the DOE may, among other things:·Require the repayment of Title IV funds;·Impose a less favorable payment system for the institution's receipt of Title IV funds;·Place the institution on provisional certification status; or·Commence a proceeding to impose a fine or to limit, suspend or terminate the participation of the institution in Title IV Programs.If we are found not to have satisfied the DOE's "administrative capability" requirements, one or more of our institutions, including its additional locations,could be limited in its access to, or lose, Title IV Program funding. A decrease in Title IV funding could adversely affect our revenue, as we receivedapproximately 80% of our revenue (calculated based on cash receipts) from Title IV Programs in 2014, which would have a significant impact on ourbusiness and results of operations.Failure of our schools to comply with the extensive regulatory requirements for school operations could result in financial penalties, restrictions on ouroperations and loss of external financial aid funding, which could affect our revenues and impose significant operating restrictions on us.Our schools are subject to extensive regulation by federal and state governmental agencies and by accrediting commissions. In particular, the HEA and theregulations promulgated thereunder by the DOE, set forth numerous standards that our schools must satisfy to participate in various federal student financialassistance programs under Title IV Programs. In 2014, we derived approximately 80% of our revenues, calculated based on cash receipts, from Title IVPrograms. To participate in Title IV Programs, each of our schools must receive and maintain authorization by the applicable education agencies in the statein which each school is physically located, be accredited by an accrediting commission recognized by the DOE and be certified as an eligible institution bythe DOE. These regulatory requirements cover the vast majority of our operations, including our educational programs, facilities, instructional andadministrative staff, administrative procedures, marketing, recruiting, student performances and outcomes, financial operations and financial condition.These regulatory requirements also affect our ability to acquire or open additional schools, add new educational programs, expand existing educationalprograms, and change our corporate structure and ownership.If any of our schools fails to comply with applicable regulatory requirements, the school and its related main campus and/or additional locations could besubject to, among other things, the loss of state licensure or accreditation, the loss of eligibility to participate in and receive funds under the Title IVPrograms, the loss of the ability to grant degrees, diplomas and certificates, provisional certification, or the imposition of liabilities or monetary penalties,each of which could adversely affect our revenues and impose significant operating restrictions upon us. In addition, the loss by any of our schools of itsaccreditation, its state authorization or license, or its eligibility to participate in Title IV Programs constitutes an event of default under our credit agreement. An event of default on our credit agreement could result in the acceleration of all amounts then outstanding under our credit agreement. The variousregulatory agencies periodically revise their requirements and modify their interpretations of existing requirements and restrictions. We cannot predict withcertainty how any of these regulatory requirements will be applied or whether each of our schools will be able to comply with these requirements or anyadditional requirements instituted in the future.Congress has changed, and may make other changes, to the laws applicable to, or reduce funding for, Title IV Programs, which could reduce ourstudent population, revenues or profit margin.Political and budgetary concerns significantly affect Title IV programs. Congress periodically revises the HEA and other laws governing Title IV HEAPrograms and annually determines the funding level for each Title IV Program. On August 14, 2008, the Higher Education Opportunity Act, Public Law 110-315 reauthorized the Title IV programs through at least September 30, 2014. The HEA was automatically extended through September 30, 2015. Congresswill be considering reauthorization of the Title IV HEA programs, but it is unknown when Congress will complete that process or what changes will be madeto the HEA or other laws affecting Federal student aid. Any action by Congress that significantly reduces funding for Title IV Programs or the ability of ourschools or students to receive funding through those programs could result in increased administrative costs and decreased profit margin.19IndexIn addition, Congress reviews and determines federal appropriations for Title IV Programs on an annual basis. Congress can also make changes in the lawsaffecting Title IV Programs in the annual appropriations bills and in other laws it enacts between the HEA reauthorizations. Because a significant percentageof our revenues are derived from Title IV Programs, any action by Congress that significantly reduces Title IV Program funding or the ability of our schools orstudents to participate in Title IV Programs could reduce our student enrollment and our revenues. Congressional action may also increase our administrativecosts and require us to modify our practices in order for our schools to comply fully with Title IV Program requirements.We cannot predict what if any legislation or other actions will be taken or proposed by Congress in connection with the reauthorization of the HEA or withother activities of Congress. Any action by Congress that significantly reduces funding for Title IV Programs or that limits or restricts the ability of ourschools, programs, or students to receive funding through those programs or that imposes new restrictions or constraints upon our business or operationscould result in increased administrative costs and decreased profit margin. In addition, current requirements for student or school participation in Title IVprograms may change or one or more of the present Title IV programs could be replaced by other programs with materially different student or schooleligibility requirements. If we cannot comply with the provisions of the HEA, as they may be revised, or if the cost of such compliance is excessive, or iffunding is materially reduced, our revenues or profit margin could be materially adversely affected.Congress has made recent changes to the law that have and could continue to have an adverse effect on our business.On December 23, 2011, President Obama signed into law the Consolidated Appropriations Act, 2012 (Public Law 112-74) (the “Appropriations Act”). Thenew law significantly impacted the federal student aid programs authorized under Title IV of HEA.Ability-to-Benefit — The Appropriations Act also eliminated federal student aid eligibility for all students without a “certificate of graduation from a schoolproviding secondary education or the recognized equivalent of such a certificate.” The Appropriations Act makes an exception for students who havecompleted a secondary school education in a home school setting that is treated as a home school or private school under state law. Therefore, students whodo not have a high school diploma or a recognized equivalent (e.g., a GED), or do not meet the home school requirements, and who first enroll in a programof study on or after July 1, 2012, are not eligible to receive Title IV student aid. Students will qualify for Title IV student aid under one of the ability-to-benefit (ATB) alternatives if the student was enrolled in a Title IV eligible program prior to July 1, 2012. Those alternatives include the student passing anindependently-administered, approved ATB test or successfully completing at least six credit hours or 225 clock hours of postsecondary education. A studentwho does not possess a high school diploma, or a recognized equivalent, but who is enrolled in a Title IV eligible program any time prior to July 1, 2012 maybe eligible to receive Title IV student assistance after July 1, 2012. We ceased enrolling ability to benefit students effective July 1, 2012.The DOE has changed its regulations, and may make other changes in the future, in a manner which could require us to incur additional costs inconnection with our administration of the Title IV programs, affect our ability to remain eligible to participate in the Title IV programs, imposerestrictions on our participation in the Title IV programs, affect the rate at which students enroll in our programs, or otherwise have a significantimpact on our business and results of operations.In June 2013, the DOE announced its intention to establish a negotiated rulemaking committee to prepare new gainful employment regulations, which wouldreplace those vacated by the District Court. The DOE held negotiating sessions with the committee beginning in September 2013 and concluding inDecember 2013. In October 2014, the DOE issued final regulations on gainful employment requiring each educational program to achieve threshold rates intwo debt measure categories related to an annual debt to annual earnings ratio and an annual debt to discretionary income ratio. The various formulas arecalculated under complex methodologies and definitions outlined in the final regulations and, in some cases, are based on data that may not be readilyaccessible to institutions. The regulations outline various scenarios under which programs could lose Title IV eligibility for failure to achieve threshold ratesin one or more measures over certain periods of time ranging from two to four years. The regulations also require an institution to provide warnings tostudents in programs which may lose Title IV eligibility at the end of an award year. The final regulations also contain other provisions that, among otherthings, include disclosure, reporting, new program approval, and certification requirements. The certification requirements will require each institution tocertify to the DOE that each GE program is programmatically accredited, if such accreditation is required by a Federal governmental entity or bygovernmental entity in the state in which the institution is physically locatedThe final regulations have a general effective date of July 1, 2015. The implementation of new gainful employment regulations, or any other changes theDOE may propose and implement, could require us to eliminate certain educational programs, could result in the loss of our students’ access to Title IVProgram funds for the affected programs, and could have a significant impact on the rate at which students enroll in our programs and on our business andresults of operations. Based on our preliminary analysis the majority of our programs will not be effected and we should be able to alter the affected programsto meet the new regulations.The DOE published additional new regulations in 2014 on other topics, including regulations related to adverse credit for borrowers of PLUS loans andrelated to certain campus safety and security related requirements. The DOE also considered during negotiated rulemaking sessions in 2014, but did notpublish, regulations on other topics including clock to credit hour conversion for programs offered in credit hours that do not transfer into degree programsand are subject to the federal conversion formula for determining credit hours; and state authorization for programs offered through distance education orcorrespondence education; and state authorization for foreign locations of institutions located in a state.20IndexThe DOE intends to use the negotiated rulemaking process during 2015 to develop new regulations on these and potentially other topics. These regulationstypically would be subject to a notice and comment period during which the public comments on proposed regulations and the DOE responds to commentsand publishes final regulations. We cannot predict the ultimate content of any new regulations that may emerge from the negotiated rulemaking process in2015 or the potential impact of such regulations on us or our institutions. The implementation of any new regulations by DOE could have a significantimpact on the rate at which students enroll in our programs and on our business and results of operations.If we or our eligible institutions do not meet the financial responsibility standards prescribed by the DOE, we may be required to post letters of credit orour eligibility to participate in Title IV Programs could be terminated or limited, which could significantly reduce our student population and revenues.To participate in Title IV Programs, an eligible institution must satisfy specific measures of financial responsibility prescribed by the DOE or post a letter ofcredit in favor of the DOE and possibly accept other conditions on its participation in Title IV Programs. Any obligation to post one or more letters of creditwould increase our costs of regulatory compliance. Our inability to obtain a required letter of credit or limitations on, or termination of, our participation inTitle IV Programs could limit our students' access to various government-sponsored student financial aid programs, which could significantly reduce ourstudent population and revenues.Each year, based on the financial information submitted by an eligible institution that participates in Title IV Programs, the DOE calculates three financialratios for the institution: an equity ratio, a primary reserve ratio and a net income ratio. Each of these ratios is scored separately and then combined into acomposite score to measure the institution's financial responsibility. The composite score must be at least 1.5 for the institution to be deemed financiallyresponsible without the need for further oversight.If an institution’s composite score is below 1.5, but is at least 1.0, it is in a category denominated by the DOE as “the zone.” Under DOE regulations,institutions that are in the zone typically may be permitted by the DOE to continue to participate in the title IV programs by choosing one of twoalternatives: 1) the “Zone Alternative” under which we are required to make disbursements to students under the Heightened Cash Monitoring 1 (HCM1)payment method and to notify the DOE within 10 days after the occurrence of certain oversight and financial events or 2) submit a letter of credit to the DOEequal to 50 percent of the Title IV funds received by our institutions during the most recent fiscal year. The DOE permits an institution to participate underthe “Zone Alternative for a period of up to three consecutive fiscal years. Under the HCM1 payment method, the institution is required to make Title IVdisbursements to eligible students and parents before it requests or receives funds for the amount of those disbursements from the DOE. As long as thestudent accounts are credited before the funding requests are initiated, we are permitted to draw down funds through the DOE’s electronic system for grantsmanagement and payments for the amount of disbursements made to eligible students. Unlike the HCM2 and reimbursement payment methods, the HCM1payment method typically does not require schools to submit documentation to the DOE and wait for DOE approval before drawing down Title IV funds.If an institution's composite score is below 1.0, the institution is considered by the DOE to lack financial responsibility. If the DOE determines that aninstitution does not satisfy the DOE’s financial responsibility standards, depending on its composite score and other factors, that institution may establish itsfinancial responsibility on an alternative basis by, among other things:·Posting a letter of credit in an amount equal to at least 50% of the total Title IV Program funds received by the institution during the institution'smost recently completed fiscal year;·Posting a letter of credit in an amount equal to at least 10% of such prior year's Title IV Program funds, accepting provisional certification,complying with additional DOE monitoring requirements and agreeing to receive Title IV Program funds under an arrangement other than the DOE'sstandard advance funding arrangement; and/or·Complying with additional DOE monitoring requirements and agreeing to receive Title IV Program funds under an arrangement other than theDOE's standard advance funding arrangement.The DOE has evaluated the financial responsibility of our institutions on a consolidated basis. We have submitted to the DOE our audited financialstatements for the 2013 fiscal year reflecting a composite score of 1.4, based upon our calculations. We chose the “Zone Alternative” option described abovebecause, among other things, it does not require us to submit a letter of credit to the DOE and because the HCM1 payment method is less burdensome thanthe HCM2 or reimbursement methods of payment that the DOE has the authority to impose. We believe that, prior to moving to the HCM1 payment methodon October 22, 2014, our procedures for processing Title IV payments were similar to those now required under the HCM1 payment method. As of this date,we have not identified any impact on our ability to make disbursements of Title IV funds to our students or to receive funds for the amount of thosedisbursements from the DOE.21IndexFor the 2014 fiscal year, we have calculated our composite score to be 1.3. This number is subject to determination by the DOE once it receives and reviewsour audited financial statements for the 2014 fiscal year. Our composite score for 2013 was 1.4. The DOE regulations generally permit institutions with acomposite score of between 1.0 and 1.4 to participate under the Zone Alternative for a period of up to three consecutive fiscal years. We believe that if ourcomposite score is below 1.5 for three consecutive years we will be able to continue to operate under the Zone Alternative; however, this determination ismade solely by the DOE. If our composite score drops below 1.0 in a given year or if our composite score remains between 1.0 and 1.4 for three or moreconsecutive years, we may be required to meet alternative requirements for continuing to participate in Title IV programs by submitting a letter of credit,complying with monitoring requirements, disbursing Title IV funds under the HCM1, HCM2, or reimbursement payment methods, and complying with otherrequirements and conditions. Our existing credit agreement, which expires April 5, 2016, gives us the ability to draw up to $20 million under the revolvingline of credit less letters of credit, except that during the period commencing on December 1, 2015 through January 15, 2016 we are required to reduce theoutstanding revolving loans other than letters of credit to $0. If we unable to sell our held for sale assets, leverage our other owned properties or obtain otherfinancing in 2015, our composite score may be less than 1.0 as of December 31, 2015.We are subject to fines and other sanctions if we pay impermissible commissions, bonuses or other incentive payments to individuals involved in certainrecruiting, admissions or financial aid activities, which could increase our cost of regulatory compliance and adversely affect our results of operations.An institution participating in Title IV Programs may not provide any commission, bonus or other incentive payment based directly or indirectly on successin enrolling students or securing financial aid to any person involved in any student recruiting or admission activities or in making decisions regarding theawarding of Title IV Program funds. The DOE’s regulations established twelve “safe harbors” identifying types of compensation that could be paid withoutviolating the incentive compensation rule. On October 29, 2010, the DOE issued final rules effective July 1, 2011 that amended the incentive compensationrule by, among other things, eliminating the twelve safe harbors (and thereby reducing the scope of permissible payments under the rule) and expanding thescope of payments and employees subject to the rule. The DOE has stated that it does not intend to provide private guidance regarding particularcompensation structures in the future and will enforce the regulations as written. We cannot predict how the DOE will interpret and enforce the revisedincentive compensation rule. The implementation of the final regulations required us to change our compensation practices and has had and may continue tohave a significant impact on the rate at which students enroll in our programs and on our business and results of operations. If we are found to have violatedthis law, we could be fined or otherwise sanctioned by the DOE or we could face litigation filed under the qui tam provisions of the Federal False Claims Act.If our schools do not maintain their state authorizations and their accreditation, they may not participate in Title IV Programs, which could adverselyaffect our student population and revenues.An institution that grants degrees, diplomas or certificates must be authorized by the appropriate education agency of the state in which it is located and, insome cases, other states. Requirements for authorization vary substantially among states. The school must be authorized by each state in which it isphysically located in order for its students to be eligible for funding under Title IV Programs. Loss of state authorization by any of our schools from theeducation agency of the state in which the school is located would end that school's eligibility to participate in Title IV Programs and could cause us to closethe school. If any of our schools fail to comply with state licensing requirements, they are subject to the loss of state licensure or authorization. If any one of our schoolslost its authorization from the education agency of the state in which the school is located, that school and its related main campus and/or additionallocations would lose its eligibility to participate in Title IV Programs, be unable to offer its programs and we could be forced to close that school. If one ofour schools lost its state authorization from a state other than the state in which the school is located, the school would not be able to recruit students or tooperate in that state. A school also must be accredited by an accrediting commission recognized by the DOE in order to participate in Title IV Programs. Accreditation is a non-governmental process through which an institution submits to qualitative review by an organization of peer institutions, based on the standards of theaccrediting agency and the stated aims and purposes of the institution, including achieving and maintaining stringent retention, completion and placementoutcomes. Certain states require institutions to maintain accreditation as a condition of continued authorization to grant degrees. The HEA requiresaccrediting commissions recognized by the DOE to review and monitor many aspects of an institution's operations and to take appropriate disciplinary actionwhen the institution fails to comply with the accrediting agency's standards. See “Regulatory Environment – Accreditation.” If one of our schools fails tocomply with accrediting commission requirements, the institution and its main and/or branch campuses are subject to the loss of accreditation or may beplaced on probation or a special monitoring or reporting status which, if the noncompliance with accrediting commission requirements is not resolved, couldresult in loss of accreditation. Our school in Fern Park, Florida received a letter from ABHES in February 2015 directing the school to show cause why itsaccreditation should not be withdrawn. See “Regulatory Environment – Compliance with Regulatory Standards and Effect of Regulatory Violations.” Lossof accreditation by any of our main campuses would result in the termination of eligibility of that school and all of its branch campuses to participate in TitleIV Programs and could cause us to close the school and its branches, which could have a significant impact on our business and operations. On February 27,2015, our Board of Directors approved a plan to cease operations at the Fern Park, Florida school which is scheduled to close in the first quarter of 2016.22IndexProgrammatic accreditation is the process through which specific programs are reviewed and approved by industry- and program-specific accrediting entities.Although programmatic accreditation is not generally necessary for Title IV eligibility, such accreditation may be required to allow students to sit for certainlicensure exams or to work in a particular profession or career or to meet other requirements. Failure to obtain or maintain such programmatic accreditationmay lead to a decline in enrollments in such programs. Moreover, under new gainful employment regulations issued by the DOE, institutions may berequired to certify that they have programmatic accreditation under certain circumstances. See “—Regulatory Environment – DOE Development of NewRegulations.” Failure to comply with these new requirements, which take effect on July 1, 2015, could impact the Title IV eligibility of educationalprograms that are required to maintain such programmatic accreditation.Our institutions would lose eligibility to participate in Title IV Programs if the percentage of their revenues derived from those programs exceeds 90%,which could reduce our student population and revenues. Under the HEA reauthorization, a proprietary institution that derives more than 90% of its total revenue from Title IV programs for two consecutive fiscalyears becomes immediately ineligible to participate in Title IV programs and may not reapply for eligibility until the end of at least two fiscal years. Aninstitution with revenues exceeding 90% for a single fiscal year ending after August 14, 2008 will be placed on provisional certification and may be subjectto other enforcement measures. If an institution violated the 90/10 Rule and became ineligible to participate in Title IV Programs but continued to disburseTitle IV Program funds, the DOE would require the institution to repay all Title IV Program funds received by the institution after the effective date of the lossof eligibility. We have calculated that, for our 2014 fiscal year, our existing institutions' 90/10 Rule percentages ranged from 76% to 86%. For 2014, none of our existinginstitutions derived more than 90% of their revenues from Title IV Programs. We regularly monitor compliance with this requirement to minimize the riskthat any of our institutions would derive more than the maximum percentage of its revenues from Title IV Programs for any fiscal year. Our calculations aresubject to review by the DOE. If Congress or the DOE were to amend the 90/10 Rule to treat other forms of federal financial aid as Title IV revenue for 90/10 purposes, to lower the 90%threshold, or to otherwise change the calculation methodology (each of which has been proposed by some Congressional members in proposed legislation),to make other changes to the 90/10 Rule, or if there were a reduction in funding in other forms of federal or state financial aid, those changes could make itmore difficult for our institutions to comply with the 90/10 Rule. If any of our institutions loses eligibility to participate in Title IV Programs, that loss wouldcause an event of default under our credit agreement, would also adversely affect our students’ access to various government-sponsored student financial aidprograms, and would have a significant impact on the rate at which our students enroll in our programs and on our business and results of operations.Our institutions would lose eligibility to participate in Title IV Programs if their former students defaulted on repayment of their federal student loansin excess of specified levels, which could reduce our student population and revenues.An institution may lose its eligibility to participate in some or all Title IV Programs if the rates at which the institution's current and former students defaulton their federal student loans exceed specified percentages. The DOE calculates these rates based on the number of students who have defaulted, not thedollar amount of such defaults. The DOE calculates an institution's cohort default rate (as defined by the DOE regulations) on an annual federal fiscal yearbasis as the rate at which borrowers scheduled to begin repayment on their loans in the federal fiscal year default on those loans during the federal fiscal yearor the subsequent two federal fiscal yearsAn institution whose FFEL and FDL cohort default rate is 30% or greater for three consecutive federal fiscal years loses eligibility to participate in the FFEL,FDL, and Pell programs for the remainder of the federal fiscal year in which the DOE determines that such institution has lost its eligibility and for the twosubsequent federal fiscal years. An institution whose FFEL and FDL cohort default rate for any single federal fiscal year exceeds 40% loses its eligibility toparticipate in the FFEL and FDL programs for the remainder of the federal fiscal year in which the DOE determines that such institution has lost its eligibilityand for the two subsequent federal fiscal years. If an institution’s cohort default rate equals or exceeds 30% in two of the three most recent federal fiscal yearsfor which the DOE has issued cohort default rates, the institution may be placed on provisional certification status.In September 2014, the DOE released the final cohort default rates for the 2011 federal fiscal year. These are the most recent final rates published by theDOE. The rates for our existing institutions for the 2011 federal fiscal year range from 16.6% to 26.5%. None of our institutions had a final cohort defaultrate equal to or greater than 30% for the 2011 federal fiscal year.In February 2015, the DOE released draft three-year cohort default rates for the 2012 federal fiscal year. The draft cohort default rates are subject to changepending receipt of the final cohort default rates, which the DOE is expected to publish in September 2015. The weighted average cohort default rate for 2012was 16.8%. None of our existing institutions had draft cohort default rates of 30% or more.If former students defaulted on repayment of their federal student loans in excess of specified levels, our institutions would lose eligibility to participate inTitle IV Programs, which could decrease our student population and revenues.23IndexWe are subject to sanctions if we fail to correctly calculate and timely return Title IV Program funds for students who withdraw before completing theireducational program, which could increase our cost of regulatory compliance and decrease our profit margin.An institution participating in Title IV Programs must correctly calculate the amount of unearned Title IV Program funds that have been credited to studentswho withdraw from their educational programs before completing them and must return those unearned funds in a timely manner, generally within 45 days ofthe date the institution determines that the student has withdrawn. If the unearned funds are not properly calculated and timely returned, we may have to posta letter of credit in favor of the DOE or may be otherwise sanctioned by the DOE, which could increase our cost of regulatory compliance and adversely affectour results of operations.If regulators do not approve our acquisition of a school that participates in Title IV Programs, the acquired school would no longer be permitted toparticipate in Title IV Programs, which could impair our ability to operate the acquired school as planned or to realize the anticipated benefits fromthe acquisition of that school.If we acquire a school that participates in Title IV Programs, we must obtain approval from the DOE and applicable state education agencies and accreditingcommissions in order for the school to be able to continue operating and participating in Title IV Programs. An acquisition can result in the temporarysuspension of the acquired school's participation in Title IV Programs unless we submit to the DOE a timely and materially complete application forrecertification and the DOE issues a temporary provisional program participation agreement. If we are unable to timely re-establish the state authorization,accreditation or DOE certification of the acquired school, our ability to operate the acquired school as planned or to realize the anticipated benefits from theacquisition of that school could be impaired.Issuance or sales of a substantial amount of our common stock could result in a change in control under the DOE standards, the standards of stateeducation agencies, and/or the standards of certain institutional accrediting agencies, and could require each of our schools to apply for recertificationfor continued ability to participate in Title IV Programs and reaffirmation of their state authorizations and accreditations. The failure to obtain therequired recertifications and reaffirmations could have a significant impact on our results of operations.The DOE, most state education agencies and our accrediting commissions each have standards pertaining to a change in control of schools that are notuniform and are subject to interpretation by these respective agencies. A change in control under the definition of one of these agencies requires the affectedschool to reaffirm the applicable DOE approval, state authorization or accreditation. Each school that undergoes a change in control under the standards ofthe DOE must apply for recertification for continued ability to participate in Title IV Programs. Some agencies would require approval prior to a sale ordisposition that would result in a change in control in order to maintain authorization or accreditation. The requirements to obtain such reaffirmation fromthe states and our accrediting commissions vary widely. See “Regulatory Environment – Change of Control.”A change of control could occur as a result of future transactions in which our company or schools are involved. Some corporate reorganizations and somechanges in the board of directors are examples of such transactions. Moreover, the potential adverse effects of a change of control could influence futuredecisions by us and our stockholders regarding the sale, purchase, transfer, issuance or redemption of our stock. In addition, the adverse regulatory effect of achange of control also could discourage bids for your shares of common stock and could have an adverse effect on the market price of our shares. If we fail to apply for or obtain approvals from the DOE and applicable state education agencies and accrediting commissions, our institutions could losetheir approval to participate in the Title IV Programs, their accreditation, and their authority to operate in the applicable states, which would have asignificant impact on our results of operation. Regulatory agencies or third parties may conduct compliance reviews, bring claims or initiate litigation against us. If the results of these reviews orclaims are unfavorable to us, our results of operations and financial condition could be adversely affected.Because we operate in a highly regulated industry, we are subject to compliance reviews and claims of noncompliance and lawsuits by government agenciesand third parties. If the results of these reviews or proceedings are unfavorable to us, or if we are unable to defend successfully against third-party lawsuits orclaims, we may be required to pay money damages or be subject to fines, limitations on the operations of our business, loss of federal funding, injunctions orother penalties. Even if we adequately address issues raised by an agency review or successfully defend a third-party lawsuit or claim, we may have to divertsignificant financial and management resources from our ongoing business operations to address issues raised by those reviews or defend those lawsuits orclaims. Certain of our institutions are subject to ongoing reviews and proceedings. See “Regulatory Environment – State Authorization,” “RegulatoryEnvironment – Accreditation,” and “Regulatory Environment - Compliance with Regulatory Standards and Effect of Regulatory Violations.”Our failure to comply with regulations promulgated by the DOE could result in financial penalties, or the limitation, suspension, or termination of ourcontinued participation in the Title IV programs.Students attending our schools finance their education through a combination of family contributions, individual resources, private loans and federalfinancial aid programs. Each of our schools participates in the federal programs of student financial aid authorized under the Title IV Programs, which areadministered by the DOE. For the year ended December 31, 2014, approximately 80% (calculated based on cash receipts) of our revenues were derived fromthe Title IV Programs. Students obtain access to federal student financial aid through a DOE prescribed application and eligibility certification process.Student financial aid funds are generally made available to students at prescribed intervals throughout their predetermined expected length of study.Students typically use the funds received from the federal financial aid programs to pay their tuition and fees.24IndexIn connection with the students' receipt of federal financial aid, our schools are subject to extensive regulation by governmental agencies and licensing andaccrediting bodies. In particular, the Title IV Programs, and the regulations issued thereafter by the DOE, subject us to significant regulatory scrutiny in theform of numerous standards that each of our schools must satisfy in order to participate in the various federal student financial aid programs. The DOE haspublished new regulations, proposed other regulations, and may propose additional regulations in the future that are applicable to our institutions. Failure ofan institution to comply with new or existing DOE regulations could result in sanctions that could have a significant impact on our business, including, butnot limited to: ·loss of eligibility to participate in Title IV Programs;·requirement to repay Title IV funds and related costs to the DOE and lenders;·transfer of the institution to the heightened cash monitoring level two method of payment or to the reimbursement method of payment, whichwould adversely affect the timing of the institution's receipt of Title IV funds;·requirement to post a letter of credit in favor of the DOE as a condition for continued Title IV certification;·requirement to provide timely information regarding certain oversight and financial events;·proceedings to impose a fine or to limit, suspend or terminate the institution's participation in Title IV Programs;·an emergency action to suspend the institution's participation in Title IV Programs without prior notice or a prior opportunity for a hearing;·denial or refusal to consider an institution's application for renewal of its certification to participate in Title IV Programs; or·referral of a matter for possible civil or criminal investigation.Our regulatory environment and our reputation may be negatively influenced by the actions of other postsecondary institutions.In recent years, regulatory investigations and civil litigation have been commenced against several postsecondary educational institutions. Theseinvestigations and lawsuits have alleged, among other things, deceptive trade practices and non-compliance with DOE regulations. These allegations haveattracted adverse media coverage and have been the subject of federal and state legislative hearings. Although the media, regulatory and legislative focus hasbeen primarily on the allegations made against these specific companies, broader allegations against the overall postsecondary sector may negatively impactpublic perceptions of postsecondary educational institutions, including us. Such allegations could result in increased scrutiny and regulation by the DOE,U.S. Congress, accrediting bodies, state legislatures or other governmental authorities on all postsecondary institutions, including us.A decline in the overall growth of enrollment in postsecondary institutions, or in our core disciplines, could cause us to experience lower enrollment atour schools, which could negatively impact our future growth.Enrollment in degree-granting, postsecondary institutions over the next ten years is expected to be slower than in the prior ten years. In addition, the numberof high school graduates eligible to enroll in degree-granting, postsecondary institutions is expected to fall before resuming a growth pattern for theforeseeable future. Although, as of December 31, 2014, only 18.3% of our students were enrolled in degree-granting programs (primarily at the associate'sdegree level), our strategy is to expand our degree granting offerings. In order to increase our current growth rates in degree granting programs, we will needto attract a larger percentage of students in existing markets and expand our markets by creating new academic programs. In addition, if job growth in thefields related to our core disciplines is weaker than expected, as a result of any regional or national economic downturn or otherwise, fewer students may seekthe types of diploma or degree granting programs that we offer and seek to offer. Our failure to attract new students, or the decisions by prospective studentsto seek diploma or degree programs in other disciplines, would have an adverse impact on our future growth.Our business could be adversely impacted by additional legislation, regulations, or investigations regarding private student lending because studentsattending our schools rely on private student loans to pay tuition and other institutional charges.The U.S. Consumer Financial Protection Bureau (“CFPB”), under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, has supervisoryauthority over private education loan providers. The CFPB has been active in conducting investigations into the private student loan market and issuingseveral reports with findings that are critical of the private student loan market. The CFPB has initiated investigations into the lending practices of otherinstitutions in the for-profit education sector. The CFPB has issued procedures for further examination of private education loans and published requests forinformation regarding repayment plans and regarding arrangements between schools and financial institutions. We cannot predict whether any of thisactivity, or other activities, will result in Congress, the CFPB or other regulators adopting new legislation or regulations, or conducting new investigations,into the private student loan market or into the loans received by our students to attend our institutions. Any new legislation, regulations, or investigationsregarding private student lending could limit the availability of private student loans to our students, which could have a significant impact on our businessand operations.25IndexRISKS RELATED TO OUR BUSINESSIf we are unable to improve our liquidity by monetizing certain of our assets or by securing other forms of financing, our cash flows and operationscould be adversely affected.For the last several years, we and the proprietary school sector generally have faced various forms of adversity which have contributed to deterioratingearnings growth. Government regulations have negatively impacted earnings by making it more difficult for potential students to obtain loans, which whencoupled with the overall economic environment have hindered potential students from enrolling in our schools. In light of these factors, we have incurredsignificant operating losses as a result of lower student population. We also recorded a pre-tax goodwill impairment charge of $39.0 million for the yearended December 31, 2014 as a result of a significant decline in market capitalization. Despite these events, we believe that our likely sources of cash shouldbe sufficient to fund operations for the next twelve months. Our available sources of cash primarily include cash from operations, cash and cash equivalentson hand at December 31, 2014 of $12.3 million and the ability to draw up to $20 million under the revolving line of credit less letters of credit that wasextended through April 2016. To fund our business plans, including any anticipated future losses, purchase commitments, capital expenditures, principal andinterest payments on borrowings and to satisfy the DOE financial responsibility standards, we have the ability to leverage our owned real estate that is notclassified as held for sale. We are also continuing to take actions to improve cash flow by aligning our cost structure to our student population.In addition to the aforementioned current sources of capital that will provide short term liquidity, we also plan to sell approximately $50.9 million in assetswhich are currently classified as held for sale and are expected to be sold within one year. We also are currently exploring various other alternatives includingdebt financing vehicles and strategic partnerships. However, at this time we have no commitments to obtain any additional funds, and there can be noassurance such funds will be available on acceptable terms or at all. If we are unable to sell our assets classified as held for sale, leverage certain of ourproperties or obtain additional funding, our financial condition and results of operations may be materially adversely affected. We may not be able to successfully integrate acquisitions into our business, which may materially adversely affect our business, financial condition,results of operations and could cause the market value of our common stock to decline. Since 1999, we have acquired a number of schools and we intend to continue to grow our business through acquisitions and internal expansion of ourprograms. The anticipated benefits of an acquisition may not be achieved unless we successfully integrate the acquired school or schools into our operationsand are able to effectively manage, market and apply our business strategy to any acquired schools. Integration challenges include, among others, regulatoryapprovals, significant capital expenditures, assumption of known and unknown liabilities and our ability to control costs. The successful integration of futureacquisitions may also require substantial attention from our senior management and the senior management of the acquired schools, which could decrease thetime that they devote to the day-to-day management of our business. The difficulties of integration may initially be increased by the necessity of integratingpersonnel with disparate business backgrounds and corporate cultures. Management's focus on the integration of acquired schools and on the application ofour business strategy to those schools could interrupt or cause loss of momentum in our other ongoing activities. Our inability to properly manage or supportthe growth may have a significant impact on our business, financial condition, and results of operations and could cause the market value of our commonstock to decline.Failure on our part to establish and operate additional schools or campuses or effectively identify suitable expansion opportunities could reduce ourability to implement our growth strategy.As part of our business strategy, we anticipate opening and operating new schools or campuses. Establishing new schools or campuses poses uniquechallenges and requires us to make investments in management and capital expenditures, incur marketing expenses and devote financial and other resourcesthat are different, and in some cases greater than those required with respect to the operation of acquired schools.To open a new school or campus, we would be required to obtain appropriate state and accrediting commission approvals, which may be conditioned ordelayed in a manner that could significantly affect our growth plans. In addition, to be eligible for federal Title IV Program funding, a new school or campuswould have to be certified by the DOE and would require federal authorization and approvals. In the case of entirely separate, freestanding U.S. schools, aminimum of two years' operating history is required to be eligible for Title IV Program funding. We cannot be sure that we will be able to identify suitableexpansion opportunities or that we will be able to successfully integrate or profitably operate any new schools or campuses. A failure by us to effectivelyidentify suitable expansion opportunities and to establish and manage the operations of newly established schools or online offerings could make any newlyestablished schools or our online programs unprofitable or more costly to operate than we had planned.Our success depends in part on our ability to update and expand the content of existing programs and develop new programs in a cost-effective mannerand on a timely basis.Prospective employers of our graduates increasingly demand that their entry-level employees possess appropriate technological skills. These skills arebecoming more sophisticated in line with technological advancements in the automotive, diesel, information technology, or IT, skilled trades, healthcareindustries and hospitality services. Accordingly, educational programs at our schools must keep pace with those technological advancements. The expansionof our existing programs and the development of new programs may not be accepted by our students, prospective employers or the technical educationmarket. Even if we are able to develop acceptable new programs, we may not be able to introduce these new programs as quickly as our competitors or asquickly as employers demand. If we are unable to adequately respond to changes in market requirements due to financial constraints, unusually rapidtechnological changes or other factors, our ability to attract and retain students could be impaired, our placement rates could suffer and our revenues could beadversely affected.26IndexIn addition, if we are unable to adequately anticipate the requirements of the employers we serve, we may offer programs that do not teach skills useful toprospective employers or students seeking a technical or career-oriented education which could affect our placement rates and our ability to attract and retainstudents, causing our revenues to be adversely affected.We may not be able to retain our key personnel or hire and retain the personnel we need to sustain and grow our business.Our success has depended, and will continue to depend, largely on the skills, efforts and motivation of our executive officers who generally have significantexperience within the post-secondary education industry. Our success also depends in large part upon our ability to attract and retain highly qualifiedfaculty, school directors, administrators and corporate management. Due to the nature of our business, we face significant competition in the attraction andretention of personnel who possess the skill sets that we seek. In addition, key personnel may leave us and subsequently compete against us. Furthermore, wedo not currently carry "key man" life insurance on any of our employees. The loss of the services of any of our key personnel, or our failure to attract andretain other qualified and experienced personnel on acceptable terms, could have an adverse effect on our ability to operate our business efficiently and toexecute our growth strategy.If we are unable to hire, retain and continue to develop and train our employees responsible for student recruitment, the effectiveness of our studentrecruiting efforts would be adversely affected.In order to support revenue growth, we need to hire new employees dedicated to student recruitment and retain and continue to develop and train our currentstudent recruitment personnel. Our ability to develop a strong student recruiting team may be affected by a number of factors, including our ability tointegrate and motivate our student recruiters; our ability to effectively train our student recruiters; the length of time it takes new student recruiters to becomeproductive; regulatory restrictions on the method of compensating student recruiters; the competition in hiring and retaining student recruiters; and ourability to effectively manage a multi-location educational organization. If we are unable to hire, develop or retain our student recruiters, the effectiveness ofour student recruiting efforts would be adversely affected.Competition could decrease our market share and cause us to lower our tuition rates.The post-secondary education market is highly competitive. Our schools compete for students and faculty with traditional public and private two-year andfour-year colleges and universities and other proprietary schools, many of which have greater financial resources than we do. Some traditional public andprivate colleges and universities, as well as other private career-oriented schools, offer programs that may be perceived by students to be similar to ours. Mostpublic institutions are able to charge lower tuition than our schools, due in part to government subsidies and other financial resources not available to for-profit schools. Some of our competitors also have substantially greater financial and other resources than we have which may, among other things, allow ourcompetitors to secure strategic relationships with some or all of our existing strategic partners or develop other high profile strategic relationships, or devotemore resources to expanding their programs and their school network, or provide greater financing alternatives to their students, all of which could affect thesuccess of our marketing programs. In addition, some of our competitors have a larger network of schools and campuses than we do, enabling them to recruitstudents more effectively from a wider geographic area. If we are unable to compete effectively with these institutions for students, our student enrollmentand revenues will be adversely affected.We may be required to reduce tuition or increase spending in response to competition in order to retain or attract students or pursue new marketopportunities. As a result, our market share, revenues and operating margin may be decreased. We cannot be sure that we will be able to compete successfullyagainst current or future competitors or that the competitive pressures we face will not adversely affect our revenues and profitability.We may experience business interruptions resulting from natural disasters, inclement weather, transit disruptions, or other events in one or more of thegeographic areas in which we operate.We may experience business interruptions resulting from natural disasters, inclement weather, transit disruptions, or other events in one or more of thegeographic areas in which we operate. These events could cause us to close schools temporarily or permanently and could affect student recruitingopportunities in those locations, causing enrollment and revenues to decline.27IndexOur financial performance depends in part on our ability to continue to develop awareness and acceptance of our programs among high schoolgraduates and working adults looking to return to school.The awareness of our programs among high school graduates and working adults looking to return to school is critical to the continued acceptance andgrowth of our programs. Our inability to continue to develop awareness of our programs could reduce our enrollments and impair our ability to increase ourrevenues or maintain profitability. The following are some of the factors that could prevent us from successfully marketing our programs:·Student dissatisfaction with our programs and services;·Diminished access to high school student populations;·Our failure to maintain or expand our brand or other factors related to our marketing or advertising practices; and·Our inability to maintain relationships with automotive, diesel, healthcare, skilled trades, IT and hospitality services manufacturers, suppliers andemployers.If students fail to pay their outstanding balances, our profitability will be adversely affected.We offer a variety of payment plans to help students pay the portion of their education expense not covered by financial aid programs. These balances areunsecured and not guaranteed. Although we have reserved for estimated losses related to unpaid student balances, losses in excess of the amounts we havereserved for bad debts will result in a reduction in our profitability.An increase in interest rates could adversely affect our ability to attract and retain students.Interest rates have reached historical lows in recent years, creating a favorable borrowing environment for our students. Much of the financing our studentsreceive is tied to floating interest rates. Increases in interest rates result in a corresponding increase in the cost to our existing and prospective students offinancing their education which could result in a reduction in the number of students attending our schools and could adversely affect our results ofoperations and revenues. Higher interest rates could also contribute to higher default rates with respect to our students' repayment of their education loans.Higher default rates may in turn adversely impact our eligibility for Title IV Program participation or the willingness of private lenders to make private loanprograms available to students who attend our schools, which could result in a reduction in our student population.Seasonal and other fluctuations in our results of operations could adversely affect the trading price of our common stock.Our results of operations fluctuate as a result of seasonal variations in our business, principally due to changes in total student population. Studentpopulation varies as a result of new student enrollment, graduations and student attrition. Historically, our schools have had lower student populations in ourfirst and second quarters and we have experienced large class starts in the third and fourth quarters and student attrition in the first half of the year. Our secondhalf growth is largely dependent on a successful recruiting season. Our expenses, however, do not vary significantly over the course of the year with changesin our student population and net revenues. We expect quarterly fluctuations in results of operations to continue as a result of seasonal enrollment patterns.Such patterns may change, however, as a result of acquisitions, new school openings, new program introductions and increased enrollments of adult students.These fluctuations may result in volatility or have an adverse effect on the market price of our common stock.Our total assets include substantial intangible assets. In the event that our schools do not achieve satisfactory operating results, we may be required towrite-off of a significant portion of unamortized intangible assets which would negatively affect our results of operations.Our total assets reflect substantial intangible assets. At December 31, 2014, goodwill and identified intangibles, net, associated with our acquisitionsdecreased to approximately 10.9% from 21.0% of total assets at December 31, 2013. On at least an annual basis, we assess whether there has been animpairment in the value of goodwill and other intangible assets with indefinite lives. If the carrying value of the tested asset exceeds its estimated fair value,impairment is deemed to have occurred. In this event, the amount is written down to fair value. Under current accounting rules, this would result in a chargeto operating earnings. Any determination requiring the write-off of a significant portion of goodwill or unamortized identified intangible assets wouldnegatively affect our results of operations and total capitalization, which could be material.In 2014, we tested goodwill and long-lived assets for impairment and determined that impairments existed which resulted in a pre-tax charge of $43.0 million($2.1 million included in discontinued operations).In 2013, we tested goodwill and long-lived assets for impairment and determined that impairments existed which resulted in a pre-tax charge of $6.2 million($2.3 million included in discontinued operations).28IndexWe cannot predict our future capital needs, and if we are unable to secure additional financing when needed, our operations and revenues would beadversely affected.We may need to raise additional capital in the future to fund acquisitions, working capital requirements, expand our markets and program offerings orrespond to competitive pressures or perceived opportunities. We cannot be sure that additional financing will be available to us on favorable terms, or at allparticularly during times of uncertainty in the financial markets similar to that which is currently being experienced. If adequate funds are not available whenrequired or on acceptable terms, we may be forced to forego attractive acquisition opportunities, cease our operations and, even if we are able to continue ouroperations, our ability to increase student enrollment and revenues would be adversely affected.Our schools' failure to comply with environmental laws and regulations governing our activities could result in financial penalties and other costswhich could adversely impact our results of operations.We use hazardous materials at some of our schools and generate small quantities of waste, such as used oil, antifreeze, paint and car batteries. As a result, ourschools are subject to a variety of environmental laws and regulations governing, among other things, the use, storage and disposal of solid and hazardoussubstances and waste, and the clean-up of contamination at our facilities or off-site locations to which we send or have sent waste for disposal. In the event wedo not maintain compliance with any of these laws and regulations, or are responsible for a spill or release of hazardous materials, we could incur significantcosts for clean-up, damages, and fines or penalties which could adversely impact our results of operations.Approximately 48% of our schools are concentrated in the states of New Jersey, Connecticut and Pennsylvania and a change in the general economic orregulatory conditions in these states could increase our costs and have an adverse effect on our revenues.As of December 31, 2014, we operated 31 campuses in 15 states. 15 of those schools are located in the states of New Jersey, Connecticut and Pennsylvania.As a result of this geographic concentration, any material change in general economic conditions in New Jersey, Connecticut or Pennsylvania could reduceour student enrollment in our schools located in these states and thereby reduce our revenues. In addition, the legislatures in the states of New Jersey,Connecticut and/or Pennsylvania could change the laws in those states or adopt regulations regarding private, for-profit post-secondary coeducationinstitutions which could place additional burdens on us. If we were unable to comply with any such new legislation, we could be prohibited from operatingin those jurisdictions, which could reduce our revenues.A substantial decrease in student financing options, or a significant increase in financing costs for our students, could have a significant impact on ourstudent population, revenues and financial results.The consumer credit markets in the United States have recently suffered from increases in default rates and foreclosures on mortgages. Adverse marketconditions for consumer and federally guaranteed student loans could result in providers of alternative loans reducing the attractiveness and/or decreasingthe availability of alternative loans to post-secondary students, including students with low credit scores who would not otherwise be eligible for credit-based alternative loans. Prospective students may find that these increased financing costs make borrowing prohibitively expensive and abandon or delayenrollment in post-secondary education programs. Private lenders could also require that we pay them new or increased fees in order to provide alternativeloans to prospective students. If any of these scenarios were to occur, our students’ ability to finance their education could be adversely affected and ourstudent population could decrease, which could have a significant impact on our financial condition, results of operations and cash flows.In addition, any actions by the U.S. Congress or by states that significantly reduce funding for Title IV Programs or other student financial assistanceprograms, or the ability of our students to participate in these programs, or establish different or more stringent requirements for our schools to participate inthose programs, could have a significant impact on our student population, results of operations and cash flows.Anti-takeover provisions in our amended and restated certificate of incorporation, our amended and restated bylaws and New Jersey law coulddiscourage a change of control that our stockholders may favor, which could negatively affect our stock price.Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws and applicable provisions of the New JerseyBusiness Corporation Act may make it more difficult and expensive for a third party to acquire control of us even if a change of control would be beneficialto the interests of our stockholders. These provisions could discourage potential takeover attempts and could adversely affect the market price of ourcommon stock. For example, applicable provisions of the New Jersey Business Corporation Act may discourage, delay or prevent a change in control byprohibiting us from engaging in a business combination with an interested stockholder for a period of five years after the person becomes an interestedstockholder. Furthermore, our amended and restated certificate of incorporation and amended and restated bylaws:·Authorize the issuance of blank check preferred stock that could be issued by our board of directors to thwart a takeover attempt;·Prohibit cumulative voting in the election of directors, which would otherwise allow holders of less than a majority of stock to elect some directors;29Index·Require super-majority voting to effect amendments to certain provisions of our amended and restated certificate of incorporation;·Limit who may call special meetings of both the board of directors and stockholders;·Prohibit stockholder action by non-unanimous written consent and otherwise require all stockholder actions to be taken at a meeting of thestockholders;·Establish advance notice requirements for nominating candidates for election to the board of directors or for proposing matters that can be actedupon by stockholders at stockholders' meetings; and·Require that vacancies on the board of directors, including newly created directorships, be filled only by a majority vote of directors then in office.We can issue shares of preferred stock without shareholder approval, which could adversely affect the rights of common stockholders.Our amended and restated certificate of incorporation permits us to establish the rights, privileges, preferences and restrictions, including voting rights, offuture series of our preferred stock and to issue such stock without approval from our stockholders. The rights of holders of our common stock may suffer as aresult of the rights granted to holders of preferred stock that may be issued in the future. In addition, we could issue preferred stock to prevent a change incontrol of our company, depriving common stockholders of an opportunity to sell their stock at a price in excess of the prevailing market price.System disruptions to our technology infrastructure could impact our ability to generate revenue and could damage the reputation of our institutions.The performance and reliability of our technology infrastructure is critical to our reputation and to our ability to attract and retain students. We license thesoftware and related hosting and maintenance services for our online platform and our student information system from third-party software providers. Anysystem error or failure, or a sudden and significant increase in bandwidth usage, could result in the unavailability of systems to us or our students. Any suchsystem disruptions could impact our ability to generate revenue and affect our ability to access information about our students and could also damage thereputation of our institutions.We are subject to privacy and information security laws and regulations due to our collection and use of personal information, and any violations ofthose laws or regulations, or any breach, theft or loss of that information, could adversely affect our reputation and operations.Our efforts to attract and enroll students result in us collecting, using and keeping substantial amounts of personal information regarding applicants, ourstudents, their families and alumni, including social security numbers and financial data. We also maintain personal information about our employees in theordinary course of our activities. Our services, the services of many of our health plan and benefit plan vendors, and other information can be accessedglobally through the Internet. We rely extensively on our network of interconnected applications and databases for day to day operations as well as financialreporting and the processing of financial transactions. Our computer networks and those of our vendors that manage confidential information for us orprovide services to our student may be vulnerable to unauthorized access, inadvertent access or display, theft or misuse, hackers, computer viruses, or thirdparties in connection with hardware and software upgrades and changes. Such unauthorized access, misuse, theft or hacks could evade our intrusion detectionand prevention precautions without alerting us to the breach or loss for some period of time or may never be detected. Regular patching of our computersystems and frequent updates to our virus detection and prevention software with the latest virus and malware signatures may not catch newly introducedmalware and viruses or “zero-day” viruses, prior to their infecting our systems and potentially disrupting our data integrity, taking sensitive information oraffecting financial transactions. While we utilize security and business controls to limit access to and use of personal information, any breach of student oremployee privacy or errors in storing, using or transmitting personal information could violate privacy laws and regulations resulting in fines or otherpenalties. A wide range of high profile data breaches in 2014 has led to renewed interest in federal data and cybersecurity legislation that could increase ourcosts and/or require changes in our operating procedures or systems. A breach, theft or loss of personal information held by us or our vendors, or a violation ofthe laws and regulations governing privacy could have a material adverse effect on our reputation or result in lawsuits, additional regulation, remediation andcompliance costs or investments in additional security systems to protect our computer networks, the costs of which may be substantial.ITEM 1B.UNRESOLVED STAFF COMMENTSNone.30IndexITEM 2.PROPERTIESAs of December 31, 2014, we leased all of our facilities, except for our campuses in West Palm Beach, Florida, Nashville, Tennessee, Grand Prairie, Texas, andDenver, Colorado, all of which we own. Four of our facilities (Union, New Jersey; Allentown, Pennsylvania; Philadelphia, Pennsylvania; and one of ourfacilities in Grand Prairie, Texas) were also accounted for by us under a finance lease obligation. We continue to re-evaluate our facilities to maximize ourfacility utilization and efficiency and to allow us to introduce new programs and attract more students. As of December 31, 2014, all of our existing leasesexpire between February 2015 and October 2032. The following table provides information relating to our facilities as of December 31, 2014, including our corporate office: Location Brand Approximate Square FootageHenderson, Nevada Euphoria Institute 18,000Las Vegas, Nevada Euphoria Institute 19,000Southington, Connecticut Lincoln College of New England 113,000Columbia, Maryland Lincoln College of Technology 110,000Denver, Colorado Lincoln College of Technology 212,000Grand Prairie, Texas Lincoln College of Technology 146,000Indianapolis, Indiana Lincoln College of Technology 189,000Marietta, Georgia Lincoln College of Technology 30,000Melrose Park, Illinois Lincoln College of Technology 88,000West Palm Beach, Florida Lincoln College of Technology 117,000Hartford, Connecticut Lincoln Technical Institute 367,000Allentown, Pennsylvania Lincoln Technical Institute 26,000Brockton, Massachusetts Lincoln Technical Institute 22,000East Windsor, Connecticut Lincoln Technical Institute 289,000Edison, New Jersey Lincoln Technical Institute 64,000Fern Park, Florida Lincoln Technical Institute 46,000Lincoln, Rhode Island Lincoln Technical Institute 59,000Lowell, Massachusetts Lincoln Technical Institute 21,000Mahwah, New Jersey Lincoln Technical Institute 79,000Moorestown, New Jersey Lincoln Technical Institute 35,000New Britain, Connecticut Lincoln Technical Institute 35,000Northeast Philadelphia, Pennsylvania Lincoln Technical Institute 25,000Paramus, New Jersey Lincoln Technical Institute 30,000Philadelphia, Pennsylvania Lincoln Technical Institute 36,000Philadelphia, Pennsylvania Lincoln Technical Institute 29,000Queens, New York Lincoln Technical Institute 48,000Shelton, Connecticut Lincoln Technical Institute 47,000Somerville, Massachusetts Lincoln Technical Institute 33,000South Plainfield, New Jersey Lincoln Technical Institute 60,000Union, New Jersey Lincoln Technical Institute 56,000Nashville, Tennessee Lincoln College of Technology 278,000West Orange, New Jersey Corporate Office 52,000Plymouth Meeting, Pennsylvania Corporate Office 6,000Melbourne, Florida Florida Medical Training Institute 11,000Jacksonville, Florida Florida Medical Training Institute 7,000Tampa, Florida Florida Medical Training Institute 8,000Miami, Florida Florida Medical Training Institute 7,000Coral Springs, Florida Florida Medical Training Institute 7,000We believe that our facilities are suitable for their present intended purposes.31IndexITEM 3.LEGAL PROCEEDINGSIn the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims, including, but not limited to, claims involvingstudents or graduates and routine employment matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations andclaims asserted against us, we do not believe that any currently pending legal proceeding to which we are a party will have a material effect on our business,financial condition, results of operations or cash flows.On November 21, 2012, we received a Civil Investigation Demand from the Attorney General of the Commonwealth of Massachusetts relating to theirinvestigation of whether we and certain of our academic institutions have complied with certain Massachusetts state consumer protection and finance laws.On July 29, 2013 and January 17, 2014, we received follow-up Civil Investigative Demands. Pursuant to the Civil Investigative Demands, the AttorneyGeneral has requested from us and certain of our academic institutions documents and detailed information from the time period January 1, 2008 to thepresent. The Company has responded to this request and intends to continue cooperating with the Attorney General’s Office.In accordance with applicable accounting guidance, the Company establishes a loss contingency for litigation and regulatory matters when those matterspresent loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. A losscontingency in the amount of $1.0 million was established for the year ended December 31, 2014. The Company continues to monitor the matter for furtherdevelopments that could affect the amount of the liability that has been established. ITEM 4.MINE SAFETY DISCLOSURESNot applicable.32IndexPART II.ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket for our Common StockOur common stock is quoted on the Nasdaq Global Select Market under the symbol “LINC”.The following table sets forth the range of high and low sales prices per share for our common stock, as reported by the Nasdaq Global Select Market, for theperiods indicated and the cash dividends per share declared on our common stock: Price Range of Common Stock High Low Dividend Fiscal Year Ended December 31, 2014 First Quarter $5.27 $3.63 $0.07 Second Quarter $4.49 $3.56 $0.07 Third Quarter $4.57 $2.21 $0.02 Fourth Quarter $3.66 $2.42 $0.02 Price Range of Common Stock High Low Dividend Fiscal Year Ended December 31, 2013 First Quarter $6.59 $5.00 $0.07 Second Quarter $7.02 $5.12 $0.07 Third Quarter $6.99 $4.58 $0.07 Fourth Quarter $5.56 $4.48 $0.07 On March 12, 2015, the last reported sale price of our common stock on the Nasdaq Global Select Market was $2.88 per share. As of March 12, 2015, basedon the information provided by Continental Stock Transfer & Trust Company, there were 34 stockholders of record of our common stock.Dividend PolicyOn October 29, 2014, our Board of Directors declared a quarterly cash dividend of $0.02 per share of common stock outstanding, which was paid onDecember 31, 2014 to shareholders of record on December 15, 2014. On February 27, 2015, our Board of Directors discontinued the quarterly cash dividend.33IndexStock Performance GraphThis stock performance graph compares our total cumulative stockholder return on our common stock during the period from January 4, 2010 throughDecember 31, 2014 with the cumulative return on the Russell 2000 Index and a Peer Issuer Group Index. The peer issuer group consists of the companiesidentified below, which were selected on the basis of the similar nature of their business. The graph assumes that $100 was invested on January 4, 2010, andany dividends were reinvested on the date on which they were paid.The information provided under the heading "Stock Performance Graph" shall not be considered "filed" for purposes of Section 18 of the SecuritiesExchange Act of 1934 or incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to theextent that we specifically incorporate it by reference into a filing.Companies in the Peer Group include Apollo Group, Inc., Career Education Corp., DeVry, Inc., ITT Educational Services, Inc., Strayer Education, Inc. andUniversal Technical Institute, Inc. 34IndexSecurities Authorized for Issuance under Equity Compensation PlansWe have various equity compensation plans under which equity securities are authorized for issuance. Information regarding these securities as of December31, 2014 is as follows:Plan Category Number ofSecurities to beissued uponexercise ofoutstandingoptions, warrantsand rights Weighted-averageexercise price ofoutstanding options,warrants and rights Number ofsecuritiesremainingavailable for futureissuance underequitycompensationplans (excludingsecurities reflectedin column) Equity compensation plans approved by security holders 424,167 $13.65 908,231 Equity compensation plans not approved by security holders - - - Total 424,167 $13.65 908,231 35IndexITEM 6.SELECTED FINANCIAL DATASELECTED FINANCIAL INFORMATIONThe following table sets forth our selected historical consolidated financial and operating data as of the dates and for the periods indicated. You should readthese data together with Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financialstatements and the notes thereto included elsewhere in this Annual Report on Form 10-K. The selected historical consolidated statement of operations datafor each of the years in the three-year period ended December 31, 2014 and historical consolidated balance sheet data at December 31, 2014 and 2013 havebeen derived from our audited consolidated financial statements which are included elsewhere in this Annual Report on Form 10-K. The selected historicalconsolidated statements of operations data for the fiscal years ended December 31, 2011 and 2010 and historical consolidated balance sheet data as ofDecember 31, 2012, 2011 and 2010 have been derived from our consolidated financial information not included in this Annual Report on Form 10-K. Ourhistorical results are not necessarily indicative of our future results. 2014 2013 2012 2011 2010 (In thousands, except per share amounts) Statement of Operations Data, Year Ended December 31: Revenue $325,022 $341,512 $380,163 $456,722 $543,734 Cost and expenses: Educational services and facilities 164,352 169,049 178,271 196,639 210,684 Selling, general and administrative 168,441 175,978 189,488 216,846 242,320 (Gain) loss on sale of assets (58) (501) (75) 4 (15)Impairment of goodwill and long-lived assets 40,836 3,908 25,221 8,290 4,850 Total costs and expenses 373,571 348,434 392,905 421,779 457,839 Operating (loss) income (48,549) (6,922) (12,742) 34,943 85,895 Other: Interest income 153 37 2 17 30 Interest expense (5,613) (4,667) (4,475) (4,369) (4,522)Other income 297 18 14 18 45 (Loss) income from continuing operations before incometaxes (53,712) (11,534) (17,201) 30,609 81,448 (Benefit) provision for income taxes (1) (4,225) 19,591 (2,282) 13,053 31,117 (Loss) income from continuing operations (49,487) (31,125) (14,919) 17,556 50,331 (Loss) gain from discontinued operations, net of income taxes (6,646) (20,161) (22,267) (16) 19,400 Net (loss) income $(56,133) $(51,286) $(37,186) $17,540 $69,731 Basic (Loss) earnings per share from continuing operations $(2.17) $(1.38) $(0.67) $0.80 $2.06 (Loss) earnings per share from discontinued operations (0.29) (0.90) (1.01) (0.00) 0.79 Net (loss) income per share $(2.46) $(2.28) $(1.68) $0.80 $2.86 Diluted (Loss) earnings per share from continuing operations $(2.17) $(1.38) $(0.67) $0.79 $2.01 (Loss) earnings per share from discontinued operations (0.29) (0.90) (1.01) (0.00) 0.78 Net (loss) income per share $(2.46) $(2.28) $(1.68) $0.79 $2.79 Weighted average number of common shares outstanding: Basic 22,814 22,513 22,195 22,020 24,418 Diluted 22,814 22,513 22,195 22,155 25,024 Other Data: Capital expenditures $7,472 $6,538 $8,839 $38,119 $42,352 Depreciation and amortization from continuing operations 19,201 21,808 23,979 25,320 24,067 Number of campuses 31 33 33 34 34 Average student population from continuing operations (2) 14,010 14,804 16,961 21,396 26,221 Cash dividend declared per common share $0.18 $0.28 $0.28 $0.07 $1.00 Balance Sheet Data, At December 31: Cash and cash equivalents and restricted cash $42,299 $67,386 $61,708 $26,524 $66,689 Working capital (deficit) (3) 29,585 47,041 40,939 1,540 (4,176)Total assets 213,707 305,949 346,774 362,251 412,822 Total debt (4) 65,181 90,116 73,527 36,508 56,945 Total stockholders' equity 83,010 145,196 198,477 239,025 222,485 36IndexAll amounts have been restated to give effect to discontinued operations in 2014 and 2013.(1) (Benefit) provision for income taxes includes a valuation allowance from continuing operations of $46.7 million and $23.5 million for the year endedDecember 31, 2014 and 2013, respectively.(2) Average student population includes diploma and above students and excludes short certificate programs.(3) Working capital (deficit) is defined as current assets less current liabilities.(4) Total debt consists of long-term debt including current portion, capital leases, auto loans and a finance obligation of $9.7 million for each of the yearsin the five-year period ended December 31, 2014 incurred in connection with a sale-leaseback transaction as further described in Note 8 to the consolidatedfinancial statements included elsewhere in this Annual Report on Form 10-K.37IndexITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSYou should read the following discussion together with the “Selected Financial Data,” “Forward Looking Statements” and the consolidated financialstatements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements thatare based on management’s current expectations, estimates and projections about our business and operations. Our actual results may differ materiallyfrom those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under“Risk Factors” and “Forward Looking Statements” and elsewhere in this Annual Report on Form 10-K.GENERALWe are a leading provider of diversified career-oriented post-secondary education as measured by total enrollment. We offer recent high school graduates andworking adults degree and diploma programs in five areas of study: automotive technology, health sciences, skilled trades, hospitality services and businessand information technology. Each area of study is specifically designed to appeal to and meet the educational objectives of our student population, whilealso satisfying the criteria established by industry and employers. The resulting diversification limits dependence on any one industry for enrollment growthor placement opportunities and broadens potential branches for introducing new programs. As of December 31, 2014, we enrolled 13,278 students at our 31campuses across 15 states. Of those schools, 15 are located in the states of New Jersey, Connecticut and Pennsylvania.Our campuses, a majority of which serve major metropolitan markets, are located throughout the United States. Five of our campuses are destination schools,which attract students from across the United States and, in some cases, from abroad. Our other campuses primarily attract students from their localcommunities and surrounding areas. All of our schools are either nationally or regionally accredited and are eligible to participate in federal financial aidprograms.Our revenues consist primarily of student tuition and fees derived from the programs we offer. Our revenues are reduced by scholarships granted to ourstudents. We recognize revenues from tuition and one-time fees, such as application fees, ratably over the length of a program, including internships orexternships that take place prior to graduation. We also earn revenues from our bookstores, dormitories, cafeterias and contract training services. These non-tuition revenues are recognized upon delivery of goods or as services are performed and represent less than 10% of our revenues.Tuition varies by school and by program and on average we increase tuition once a year by 2-3%. Our ability to raise tuition is influenced by the markets weserve, by the rate of tuition at other post-secondary schools and by regulatory requirements. We expect to be able to continue to raise tuition based onpermitting market circumstances.Our revenues are directly dependent on the average number of students enrolled in our schools and the courses in which they are enrolled. Our averageenrollment is impacted by the number of new students starting, re-entering, graduating and withdrawing from our schools. In addition, our diploma/certificateprograms range from 22 to 106 weeks, our associate’s degree programs range from 48 to 156 weeks, and our bachelor’s degree programs range from 104 to208 weeks, and students attend classes for different amounts of time per week depending on the school and program in which they are enrolled. Because westart new students every month, our total student population changes monthly. The number of students enrolling or re-entering our programs each month isdriven by the demand for our programs, the effectiveness of our marketing and advertising, the availability of financial aid and other sources of funding, thenumber of recent high school graduates, the job market and seasonality. Our retention and graduation rates are influenced by the quality and commitment ofour teachers and student services personnel, the effectiveness of our programs, the placement rate and success of our graduates and the availability offinancial aid. Although similar courses have comparable tuition rates, the tuition rates vary among our numerous programs.The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay asubstantial portion of their tuition and other education-related expenses. The largest of these programs are Title IV Programs which representedapproximately 80% of our revenue on a cash basis while approximately 20% was derived from state grants and cash payments made by students during 2014and 2013. The HEA requires institutions to use the cash basis of accounting when determining its compliance with the 90/10 rule.We extend credit for tuition and fees to many of our students that attend our campuses. Our credit risk is mitigated through the student’s participation infederally funded financial aid programs unless students withdraw prior to the receipt by us of Title IV funds for those students. Under Title IV Programs, thegovernment funds a certain portion of a students’ tuition, with the remainder, referred to as “the gap,” financed by students themselves under private partyloans, including credit extended by us. The gap amount has continued to increase over the last several years as we have raised tuition on average for the lastseveral years by 2-3% per year and restructured certain programs to reduce the amount of financial aid available to students, while funds received from TitleIV Programs increased at lower rates.38Index The additional financing that we are providing to students may expose us to greater credit risk and can impact our liquidity. However, we believe that theserisks are somewhat mitigated due to the following: ·Our internal financing is provided to students only after all other funding resources have been exhausted; thus, by the time this funding is available,students have completed approximately two-thirds of their curriculum and are more likely to graduate;·Funding for students who interrupt their education is typically covered by Title IV funds as long as they have been properly packaged for financialaid; and·Creditworthy criteria to demonstrate student’s ability to pay.The operating expenses associated with an existing school do not increase or decrease proportionally as the number of students enrolled at the schoolincreases or decreases. We categorize our operating expenses as:·Educational services and facilities. Major components of educational services and facilities expenses include faculty compensation andbenefits, expenses of books and tools, facility rent, maintenance, utilities, depreciation and amortization of property and equipment used in theprovision of education services and other costs directly associated with teaching our programs excluding student services which is included inselling, general and administrative expenses.·Selling, general and administrative. Selling, general and administrative expenses include compensation and benefits of employees who are notdirectly associated with the provision of educational services (such as executive management and school management, finance and centralaccounting, legal, human resources and business development), marketing and student enrollment expenses (including compensation andbenefits of personnel employed in sales and marketing and student admissions), costs to develop curriculum, costs of professional services, baddebt expense, rent for our corporate headquarters, depreciation and amortization of property and equipment that is not used in the provision ofeducational services and other costs that are incidental to our operations. Selling, general and administrative expenses also includes the cost ofall student services including financial aid and career services. All marketing and student enrollment expenses are recognized in the periodincurred.DISCONTINUED OPERATIONS2014 EventOn December 3, 2014, our Board of Directors approved a plan to cease operations at five training sites in Florida. We performed a cost benefit analysis onseveral schools and concluded that the training sites contained a high fixed cost component and has had difficulty attracting enough students due to highcompetition to maintain a stable profit margin. Accordingly, we ceased operations at these campuses as of December 31, 2014. This was a strategic shift toclose all of our training sites and all locations that do not accept Title IV payments. The results of operations of these campuses are reflected as discontinuedoperations in the consolidated financial statements.The results of operations at these five training sites for the three year periods ended December 31, 2014 were as follows (in thousands): Year Ended December 31, 2014 2013 2012 Revenue $2,140 $3,512 $2,610 Loss before income tax (6,731) (2,635) (1,274)Income tax benefit (85) - (508)Net loss from discontinued operations $(6,646) $(2,635) $(766)Amounts include impairments of goodwill and long-lived assets for these campuses of $2.1 million for the year ended December 31, 2014.2013 EventOn June 18, 2013, our Board of Directors approved a plan to cease operations at four campuses in Ohio and one campus in Kentucky consisting of ourDayton institution and its branch campuses. Federal legislation implemented on July 1, 2012 that prohibits “ability to benefit” (“ATB”) students fromparticipating in federal student financial aid programs led to a dramatic decrease in the number of students attending these five campuses. Accordingly, theCompany ceased operations at these campuses as of December 31, 2013. The results of operations of these campuses are reflected as discontinued operationsin the consolidated financial statements.39IndexThe results of operations at these five campuses for the two year periods ended December 31, 2013 were as follows (in thousands): Year Ended December 31, 2013 2012 Revenue $7,724 $19,924 Loss before income tax (17,287) (13,641)Income tax expense (benefit) 239 (5,444)Net loss from discontinued operations $(17,526) $(8,197)Amounts include impairments of goodwill and long-lived assets for these campuses of $2.3 million and $8.7 million for the years ended December 31, 2013and 2012, respectively.2012 EventOn July 31, 2012, our Board of Directors approved a plan to cease operations at seven campuses. The adjustments made to our business model to better alignwith the DOE’s increased emphasis on student outcomes and our efforts to comply with the 90/10 rule and cohort default rates greatly impacted thepopulation at these campuses. In addition, the current economic environment and regulatory changes under the Consolidated Appropriations Act, 2012,which eliminated the ability to enroll ATB students, have made these campuses no longer viable. Accordingly, we ceased operations at these campuses as ofDecember 31, 2012. The results of operations are reflected as discontinued operations in the consolidated financial statements.The results of operations at these seven campuses for the one year periods ended December 31, 2012 were as follows (in thousands): Year EndedDecember 31, 2012 Revenue $8,500 Loss before income tax (22,142)Income tax benefit (8,837)Net loss from discontinued operations $(13,305)Amounts include impairments of goodwill and long-lived assets for these campuses of $9.5 million for the year ended December 31, 2012.CRITICAL ACCOUNTING POLICIES AND ESTIMATESOur discussions of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of financial statements in conformitywith GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. On an ongoingbasis, we evaluate our estimates and assumptions, including those related to revenue recognition, bad debts, fixed assets, goodwill and other intangibleassets, income taxes and certain accruals. Actual results could differ from those estimates. The critical accounting policies discussed herein are not intendedto be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated byGAAP and does not result in significant management judgment in the application of such principles. We believe that the following accounting policies aremost critical to us in that they represent the primary areas where financial information is subject to the application of management's estimates, assumptionsand judgment in the preparation of our consolidated financial statements.Revenue recognition. Revenues are derived primarily from programs taught at our schools. Tuition revenues and one-time fees, such as nonrefundableapplication fees, and course material fees are recognized on a straight-line basis over the length of the applicable program, which is the period of time from astudent's start date through his or her graduation date, including internships or externships that take place prior to graduation. If a student withdraws from aprogram prior to a specified date, any paid but unearned tuition is refunded. Refunds are calculated and paid in accordance with federal, state and accreditingagency standards. Other revenues, such as tool sales and contract training revenues are recognized as services are performed or goods are delivered. On anindividual student basis, tuition earned in excess of cash received is recorded as accounts receivable, and cash received in excess of tuition earned is recordedas unearned tuition.Allowance for uncollectible accounts. Based upon experience and judgment, we establish an allowance for uncollectible accounts with respect to tuitionreceivables. We use an internal group of collectors in our collection efforts. In establishing our allowance for uncollectible accounts, we consider, amongother things, current and expected economic conditions, a student's status (in-school or out-of-school), whether or not a student is currently makingpayments, and overall collection history. Changes in trends in any of these areas may impact the allowance for uncollectible accounts. The receivablesbalances of withdrawn students with delinquent obligations are reserved for based on our collection history. Although we believe that our reserves areadequate, if the financial condition of our students deteriorates, resulting in an impairment of their ability to make payments, additional allowances may benecessary, which will result in increased selling, general and administrative expenses in the period such determination is made.40IndexOur bad debt expense as a percentage of revenues for the years ended December 31, 2014, 2013 and 2012 was 4.7%, 4.1% and 5.1%, respectively. Ourexposure to changes in our bad debt expense could impact our operations. A 1% increase in our bad debt expense as a percentage of revenues for the yearsended December 31, 2014, 2013 and 2012 would have resulted in an increase in bad debt expense of $3.3 million, $3.4 million and $3.8 million,respectively.We do not believe that there is any direct correlation between tuition increases, the credit we extend to students and our loan commitments. Our loancommitments to our students are made on a student-by-student basis and are predominantly a function of the specific student’s financial condition. We onlyextend credit to the extent there is a financing gap between the tuition and fees charged for the program and the amount of grants, loans and parental loanseach student receives. Each student’s funding requirements are unique. Factors that determine the amount of aid available to a student include whether theyare dependent or independent students, Pell grants awarded, Federal Direct loans awarded, Plus loans awarded to parents and family contributions. As a result,it is extremely difficult to predict the number of students that will need us to extend credit to them. Our tuition increases have averaged 2-3% annually andhave not meaningfully impacted overall funding requirements, since the amount of financial aid funding available to students in recent years has increased atgreater rates than our tuition increases.Because a substantial portion of our revenues are derived from Title IV Programs, any legislative or regulatory action that significantly reduces the fundingavailable under Title IV Programs or the ability of our students or schools to participate in Title IV Programs could have a material effect on the realizabilityof our receivables.Goodwill. We test our goodwill for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred, bycomparing its fair value to its carrying value. Impairment may result from, among other things, deterioration in the performance of the acquired business,adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of the acquired business, and avariety of other circumstances. If we determine that impairment has occurred, we are required to record a write-down of the carrying value and charge theimpairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill and otherindefinite-lived intangible assets, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of theacquired assets. Changes in strategy or market conditions could significantly impact these judgments in the future and require an adjustment to the recordedbalances.Goodwill represents a significant portion of our total assets. As of December 31, 2014, goodwill was approximately $22.2 million, or 10.4%, of our totalassets which decreased from approximately $62.5 million, or 20.4% at December 31, 2013. This decrease was due to the impairment of goodwill in the threemonths ended September 30, 2014.We test our goodwill for impairment using a two-step approach. The first step is conducted utilizing the multiple of earnings and discounted cash flowapproach and comparing the carrying value of our reporting units to their implied fair value. If necessary, the second step is conducted comparing theimplied fair value of goodwill for our reporting units with the carrying amount of that goodwill.At December 31, 2014, we conducted our annual test for goodwill impairment and determined we did not have an impairment. The fair value of our reportingunits were determined using Level 3 inputs included in our multiple of earnings and discounted cash flow approach. We concluded that as of September 30,2014 there was an indicator of potential impairment as a result of a decrease in market capitalization and, accordingly, we tested goodwill for impairment. The test indicated that 10 of our reporting units were impaired, which resulted in a pre-tax non-cash charge of $39.0 million for the three months endedSeptember 30, 2014 ($1.9 million of which is included in discontinued operations).At December 31, 2013, we conducted our annual test for goodwill impairment and determined we did not have an impairment. The fair value of our reportingunits were determined using Level 3 inputs included in our multiple of earnings and discounted cash flow approach. As of June 30, 2013, we concluded thatcurrent period losses at two reporting units, which resulted in a deterioration of current and projected cash flows, was an indicator of potential impairmentand, accordingly, tested goodwill and long-lived assets for impairment. The tests indicated that these two reporting units were impaired, which resulted in apre-tax non-cash charge of $3.1 million for the three months ended June 30, 2013.At December 31, 2012, we tested goodwill for impairment and determined that an impairment of approximately $18.3 million ($4.5 million included indiscontinued operations) existed for seven of our reporting units. We concluded that the decrease in our market capitalization as of June 30, 2012 was anindicator of potential impairment and, accordingly, we tested goodwill for impairment. The tests indicated that five of our reporting units were impaired as aresult of lower than expected student population, which resulted in a pre-tax charge of $15.4 million in the second quarter of 2012 ($8.4 million included indiscontinued operations). The fair values of these reporting units were estimated using the expected present value of future cash flows. No other reportingunit’s carrying goodwill amount exceeded or approximated its implied value.Stock-based compensation. We currently account for stock-based employee compensation arrangements by using the Black-Scholes valuation model andutilize straight-line amortization of compensation expense over the requisite service period of the grant. We make an estimate of expected forfeitures at thetime options are granted.41IndexThe fair value of the stock options used to compute stock-based compensation is the estimated present value at the date of grant using the Black-Scholesoption pricing model. During 2014 and 2013, there were no new stock option grants. The weighted average fair values of options granted during 2012 was$2.52 using the following weighted average assumptions for grants: At December 31, 2012 Expected volatility 51.25%Expected dividend yield 4%Expected life (term) 4.65 Years Risk-free interest rate 0.87%Weighted-average exercise price during the year $7.79 The expected volatility considers the volatility of our common stock that has been traded for a period commensurate with the expected life. The expectedterm of options granted represents the period of time that options granted are expected to be outstanding based on historical experience. The risk-free rateused is based on the published U.S. Treasury yield curve in effect at the time of grant for instruments with a similar life. The 2012 expected dividend yieldpresumes a set dividend rate based on the current dividend yield.Income taxes. We account for income taxes in accordance with FASB ASC Topic 740, “Income Taxes” (“ASC 740”). This statement requires an asset and aliability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets and liabilities existingat each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered. In accordance with ASC 740, we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable. Avaluation allowance is required to be established or maintained when, based on currently available information, it is more likely than not that all or a portionof a deferred tax asset will not be realized. In accordance with ASC 740, our assessment considers whether there has been sufficient income in recent years andwhether sufficient income is expected in future years in order to utilize the deferred tax asset. In evaluating the realizability of deferred income tax assets weconsidered, among other things, historical levels of income, expected future income, the expected timing of the reversals of existing temporary reportingdifferences, and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits.Significant judgment is required in determining the future tax consequences of events that have been recognized in our consolidated financial statementsand/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidatedfinancial position or results of operations. Changes in, among other things, income tax legislation, statutory income tax rates, or future income levels couldmaterially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reportingperiods. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2014 and2013, the interest and penalties expense associated with uncertain tax positions are not significant to our results of operations or financial position.42IndexResults of Continuing Operations for the Three Years Ended December 31, 2014The following table sets forth selected consolidated statements of continuing operations data as a percentage of revenues for each of the periods indicated: Year Ended December 31, 2014 2013 2012 Revenue 100.0% 100.0% 100.0%Costs and expenses: Educational services and facilities 50.6% 49.5% 46.9%Selling, general and administrative 51.8% 51.5% 49.8%Gain on sale of assets 0.0% -0.1% 0.0%Impairment of goodwill and long-lived assets 12.5% 1.1% 6.7%Total costs and expenses 114.9% 102.0% 103.4%Operating loss -14.9% -2.0% -3.4%Interest expense, net -1.6% -1.4% -1.1%Loss from continuing operations before income taxes -16.5% -3.4% -4.5%(Benefit) provision for income taxes -1.3% 5.7% -0.6%Loss from continuing operations -15.2% -9.1% -3.9%Year Ended December 31, 2014 Compared to Year Ended December 31, 2013Revenue. Revenue decreased by $16.5 million, or 4.8%, to $325.0 million for the year ended December 31, 2014 from $341.5 million for the year endedDecember 31, 2013. The decrease stems from the fact that we experienced a 5.4% decline in average student population, which decreased to approximately14,000 students from 14,800 students for the respective periods, offset by a 0.6% increase in average revenue per student mainly due to tuition rate increasesdiluted by scholarships. We began 2014 with approximately 1,800 or 11.4%, fewer students than we had on January 1, 2013.Increased scholarship awards also contributed to the revenue decline. Scholarships are recognized ratably over the term of the student’s program. This hasresulted in an increase in discounts applied for students currently attending our programs by $3.4 million for 2014 as compared to 2013. While scholarshipshave negatively impacted revenue, we believe we provide more students the opportunity to pursue their educational goals by assisting in their affordabilitychallenge.Furthermore, 2014 revenue was reduced by a loss of revenue and student refunds in connection with the merger of our Las Vegas, Nevada and Hamden,Connecticut campuses with their respective neighboring campuses.For a general discussion of trends in our student enrollment, see “- Seasonality and Outlook” below.Educational services and facilities expense. Our educational services and facilities expense decreased by $4.7 million, or 2.8%, to $164.4 million for theyear ended December 31, 2014 from $169.0 million for the year ended December 31, 2013. The expense reductions were primarily due to a $4.1 million, or4.8%, decrease in instructional expenses and a $0.3 million, or 2.0%, decrease in books and tools expense.Instructional expense savings were a result of a reduction in the number of instructors and other related costs resulting from lower average student population.Similarly, the decrease in books and tools expense is also attributable to the decrease in average student population of approximately 800 students in 2014.Our facilities expenses was essentially flat year over year. We experienced an increase in insurance offset by lower rent expense as a result of a reducednumber of campuses and lower depreciation expense primarily due to long-lived asset impairment charges.Our educational expenses contain a high fixed cost component and are not as scalable as some of our other expenses. As our student population decreases,we typically experience a reduction in average class size and, therefore, are not always able to align these expenses with the corresponding decrease inpopulation. As a result, educational services and facilities expenses, as a percentage of revenue, increased to 50.6% for the year ended December 31, 2014from 49.5% for the year ended December 31, 2013.Selling, general and administrative expense. Our selling, general and administrative expense decreased by $7.5 million, or 4.3%, to $168.4 million for theyear ended December 31, 2014 from $176.0 million for the year ended December 31, 2013. Administrative expense was lower by $2.5 million, or 2.7%, aftergiving effect to one-time charges of $1.8 million for severances costs as a result of management restructuring and a $1.0 million expense related to a losscontingency relating to the Company’s campuses in Massachusetts. The decrease was primarily driven by a reduction of salaries and benefit costs due to asmaller workforce year over year.43IndexBad debt expense as a percentage of revenue was 4.7% for the year ended December 31, 2014, compared to 4.1% for the same period in 2013. Bad debt wasnegatively impacted by a combination of a slight deterioration in our collection history and a small increase in day’s sales outstanding. The company is inthe process of centralizing various aspects of the financial aid process to enhance the student customer service experience, improve quality control andreduce bad debt.Sales and marketing expenses decreased $4.0 million, or 6.3% as a result of a reduction in marketing expenses of $1.5 million and $2.5 million in salesexpense in 2014 compared to 2013. The reduction in sales expense was mainly attributable to a reduction in the number of admissions representativesdedicated to the destination schools as a result of the Company’s decision to replace select representatives who cover large territories with a centralized callcenter staff eliminating travel costs and reducing salary expense. These changes yielded significant cost-savings and were a major component of our costrationalization. We continue to focus on our recruitment strategies while remaining compliant with the incentive compensation regulations. In an effort toenhance the admissions process and results, the Company has invested in a new customer relationship management software designed to improvecommunications and efficiencies with the objective of positively impacting enrollments and start rate.During 2014, we reduced our marketing expenses resulting in a decrease year over year mainly due to a decrease in average student population partiallyoffset by production costs associated with our new marketing campaign as “Lincoln Tech, America’s Technical Institute”. Additionally, as a result of the twomerging campuses in 2014, we realized expense reductions of approximately $0.5 million in marketing expense.Student services expense also decreased by $1.0 million, or 5.8%, to $16.0 million for 2014 as a result of our smaller student population.As a percentage of revenues, selling, general and administrative expense for the year ended December 31, 2014 increased to 51.8% from 51.5% for the yearended December 31, 2013.As of December 31, 2014, we had outstanding loan commitments to our students of $34.1 million, as compared to $36.5 million at December 31, 2013. Loancommitments, net of interest that would be due on the loans through maturity, were $24.1 million at December 31, 2014, as compared to $26.5 million atDecember 31, 2013. Loan commitments decreased as a result of lower population and fewer campuses.Impairment of goodwill and long-lived assets. We tested our goodwill and long-lived assets as of December 31, 2014 and determined there is no goodwillimpairment, however, we recorded a $1.5 million long-lived asset impairment charge in connection with one asset group. As of September 30, 2014 we testedgoodwill and long-lived assets for impairment and determined that an impairment of approximately $41.4 million existed for 10 reporting units related togoodwill and six asset groups related to long-lived assets and intangible assets ($2.1 million is included in discontinued operations).Previously, as of June 30, 2013, we determined that an impairment of approximately $4.5 million existed for two of our reporting units and four asset groupsrelated to goodwill and long-lived assets ($0.7 million is included in discontinued operations); at March 31, 2013, we determined that an impairment ofapproximately $1.7 million existed for two asset groups related to long-lived assets ($1.6 million is included in discontinued operations).Net interest expense. Our net interest expense for the year ended December 31, 2014 increased by $0.8 million compared to prior year due to financing feesexpensed associated with changes in our credit facility.Income taxes. Our benefit for income taxes for the year ended December 31, 2014 was $4.2 million, or 7.9% of pretax loss, compared to a provision forincome taxes of $19.6 million, or 169.9%, of pretax income for the year ended December 31, 2013.Prior to 2014, we had a deferred tax liability related to an indefinite life intangible that was not available to offset the net deferred tax asset when evaluatingthe amount of the valuation allowance needed. As a result of our impairment of goodwill in the third quarter of 2014, the deferred tax liability related to theindefinite life intangible of $4.5 million was reversed resulting in a decrease in the valuation allowance needed. This release of the valuation allowanceresulted in an income tax benefit.We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred taxassets. A significant piece of objective negative evidence was the cumulative losses incurred by us in recent years. On the basis of this evaluation, therealization of our deferred tax assets was not deemed to be more likely than not and thus we maintained a valuation allowance on our net deferred tax assetsas of December 31, 2014.44IndexYear Ended December 31, 2013 Compared to Year Ended December 31, 2012Revenue. Revenue decreased by $38.7 million, or 10.2%, to $341.5 million for the year ended December 31, 2013 from $380.2 million for the year endedDecember 31, 2012. The decrease was primarily attributable to a 12.7% decrease in average student population, which decreased to approximately 14,800for the year ended December 31, 2013 from 17,000 for the year ended December 31, 2012, partially offset by a 2.9% increase in average revenue per student.We began 2013 with approximately 2,400, or 13.5%, fewer students than we had on January 1, 2012.The average student population was negatively impacted by regulatory changes under the Appropriations Act, which eliminated our ability to enroll ATBstudents as well as our decision in early 2012 to stop enrolling fully online students. In addition, we believe current economic conditions have increased thenumber of potential students who are hesitant to incur debt and therefore, have not enrolled in our schools. These factors have led to a significant decline instudent starts and average student population.Average revenue per student increased 2.9% for the year ended December 31, 2013 from the year ended December 31, 2012, primarily from tuition increasesthat averaged 3%.For a general discussion of trends in our student enrollment, see “- Seasonality and Outlook” below.Educational services and facilities expense. Our educational services and facilities expense decreased by $9.2 million, or 5.2%, to $169.0 million for theyear ended December 31, 2013 from $178.3 million for the year ended December 31, 2012. This decrease in educational services and facilities expense wasdue to a $7.4 million, or 8.0%, decrease in instructional expenses, and a $1.4 million, or 7.9%, decrease in books and tools expense.The decrease in instructional expenses was primarily due to a reduction in the number of instructors and other related costs at our campuses resulting from alower student population. The decrease in books and tools expense was attributable to a decline in student starts of approximately 2,400 for the year endedDecember 31, 2013 compared to the year ended December 31, 2012.Our education expenses contain a high fixed cost component and are not as leverageable as some of our other expenses. As our student population decreases,we typically experience reductions in average class size and, therefore, are not always able to align these expenses with the corresponding decrease inpopulation.As a result, educational services and facilities expenses, as a percentage of revenue, increased to 49.5% for the year ended December 31, 2013 from 46.9% forthe year ended December 31, 2012.Selling, general and administrative expense. Our selling, general and administrative expense for the year ended December 31, 2013 was $176.0 million, adecrease of $13.5 million, or 7.1%, from $189.5 million for the year ended December 31, 2012. This decrease was primarily due to a $9.6 million, or 9.3%,decrease in administrative expenses, a $2.9 million, or 4.2%, decrease in sales and marketing expenses and a $1.0 million, or 5.5%, decrease in studentservices expenses.The decrease in administrative expenses was due to a $5.4 million reduction in bad debt expense and a reduction in compensation and benefits.The bad debt expense as a percentage of revenue was 4.1% for the year ended December 31, 2013, compared to 5.1% for the year ended December 31, 2012.The reduction in bad debt as a percentage of revenue was due to our focused efforts on the financial aid processes and collection activities.The decrease in sales and marketing expenses was primarily due to a reduction in marketing expenses as well as a reduction in the number of admissionsrepresentatives in order to align our cost structure to our student population.As a percentage of revenues, selling, general and administrative expense for the year ended December 31, 2013 increased to 51.5% from 49.8% for the yearended December 31, 2012.As of December 31, 2013, we had outstanding loan commitments to our students of $36.5 million as compared to $34.7 million at December 31, 2012. Loancommitments, net of interest that would be due on the loans through maturity, were $26.5 million at December 31, 2013 as compared to $25.0 million atDecember 31, 2012.45IndexImpairment of goodwill and long-lived assets. We test our goodwill and long-lived assets and have determined the following: (a) there have been no newimpairments as of December 31, 2013; (b) at June 30, 2013, we determined that an impairment of approximately $4.5 million existed for two of our reportingunits and four asset groups related to goodwill and long-lived assets ($0.7 million is included in discontinued operations); (c) at March 31, 2013, wedetermined that an impairment of approximately $1.7 million existed for two asset groups related to long-lived assets ($1.6 million is included indiscontinued operations); (d) at December 31, 2012, we determined that an impairment of approximately $19.7 million existed for seven of our reportingunits and four asset groups related to long lived assets; and (e) at June 30, 2012, we determined that an impairment charge of approximately $23.7 millionexisted for five reporting units related to goodwill and 10 asset groups related to long-lived assets($9.4 million included in discontinued operations).Net interest expense. Our net interest expense for the year ended December 31, 2013 was $4.6 million essentially flat compared to the year ended December31, 2012.Income taxes. Our provision for income taxes for the year ended December 31, 2013 was $19.6 million, or (169.9%) of pretax loss, compared to a benefit forincome taxes of $2.8 million, or 13.3%, of pretax loss for the year ended December 31, 2012. The effective tax rate increase was primarily due to a $24.5million valuation allowance recorded for the year ended December 31, 2013.We assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred taxassets. A significant piece of objective negative evidence was the cumulative losses incurred by us in recent years. On the basis of this evaluation we believeit is more likely than not that we will realize the net deferred tax assets. As a result, as of December 31, 2013, we recorded a valuation allowance against thenet deferred tax assets, excluding the indefinite life assets which generated a deferred tax liability.LIQUIDITY AND CAPITAL RESOURCESOur primary capital requirements are for facilities expansion and maintenance, and the development of new programs. Our principal sources of liquidity havebeen cash provided by operating activities and borrowings under our credit agreement. The following chart summarizes the principal elements of our cashflow for each of the three years in the period ended December 31, 2014: Cash Flow Summary Year Ended December 31, 2014 2013 2012 (In thousands) Net cash provided by operating activities $12,022 $3,246 $15,986 Net cash used in investing activities $(7,405) $(5,788) $(10,187)Net cash (used in) provided by financing activities $(5,204) $(46,280) $29,385 As of December 31, 2014, we had cash, cash equivalents, and restricted cash of $42.3 million, including $30.0 million of restricted cash representing adecrease of approximately $25.1 million as compared to $67.4 million of cash, cash equivalents, and restricted cash as of December 31, 2013. This decreaseis primarily due a $24.5 million reduction in borrowings under our credit facility to $30.0 million as of December 31, 2014 compared to $54.5 million for thecomparable period of 2013. In addition, we repaid $54.5 million of borrowings under our Credit Facility in the first quarter of 2014 which was included inrestricted cash as of December 31, 2013. Similarly, in the first quarter of 2015 we repaid $30.0 million of borrowings under our Credit Facility included inrestricted cash as of December 31, 2014. In the third quarter of 2014 the quarterly cash dividend was decreased from $0.07 to $0.02 and was discontinued for2015. The discontinuation of the cash dividend will provide additional funds for future investments.For the last several years, we and the proprietary school sector generally have faced various forms of adversity which have contributed to deterioratingearnings growth. Government regulations have negatively impacted earnings by making it more difficult for potential students to obtain loans, which whencoupled with the overall economic environment have hindered potential students from enrolling in our schools. In light of these factors, we have incurredsignificant operating losses as a result of lower student population. We also recorded a pre-tax goodwill impairment charge of $39.0 million for the yearended December 31, 2014 as a result of a significant decline in market capitalization. Despite these events, we believe that our likely sources of cash shouldbe sufficient to fund operations for the next twelve months. Our available sources of cash primarily include cash from operations, cash and cash equivalentson hand at December 31, 2014 of $12.3 million and the ability to draw up to $20 million under the revolving line of credit less letters of credit that wasextended through April 2016. To fund our business plans, including any anticipated future losses, purchase commitments, capital expenditures, principal andinterest payments on borrowings and to satisfy the DOE financial responsibility standards, we have the ability to leverage our owned real estate that is notclassified as held for sale. We are also continuing to take actions to improve cash flow by aligning our cost structure to our student population.In addition to the aforementioned current sources of capital that will provide short term liquidity, we also plan to sell approximately $50.9 million in assetswhich are currently classified as held for sale and are expected to be sold within one year. We also are currently exploring various other alternatives includingdebt financing vehicles and strategic partnerships. However, at this time we have no commitments to obtain any additional funds, and there can be noassurance such funds will be available on acceptable terms or at all. If we are unable to sell our assets classified as held for sale, leverage certain of ourproperties or obtain additional funding, our financial condition and results of operations may be materially adversely affected.46IndexOur primary source of cash is tuition collected from our students. The majority of students enrolled at our schools rely on funds received under variousgovernment-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses. The largest of theseprograms are Title IV Programs which represented approximately 80% of our cash receipts relating to revenues in 2014. Students must apply for a new loanfor each academic period. Federal regulations dictate the timing of disbursements of funds under Title IV Programs and loan funds are generally provided bylenders in two disbursements for each academic year. The first disbursement is usually received approximately 31 days after the start of a student's academicyear and the second disbursement is typically received at the beginning of the sixteenth week from the start of the student's academic year. Certain types ofgrants and other funding are not subject to a 30-day delay. In certain instances, if a student withdraws from a program prior to a specified date, any paid butunearned tuition or prorated Title IV financial aid is refunded according to federal, state and accrediting agency standards.As a result of the significance of the Title IV funds received by our students, we are highly dependent on these funds to operate our business. Any reductionin the level of Title IV funds that our students are eligible to receive or any impact on our ability to be able to receive Title IV funds would have a significantimpact on our operations and our financial condition. See “Risk Factors” in Item 1A, included in our Annual Report on Form 10-K for the year endedDecember 31, 2014.Operating ActivitiesNet cash provided by operating activities was $12.0 million for the year ended December 31, 2014 as compared to $3.2 million for the year ended December31, 2013. The $8.8 million increase in net cash primarily resulted from a $7.4 million net tax refunds and other working capital items.Investing ActivitiesNet cash used in investing activities for the year ended December 31, 2014 was $7.4 million compared to $5.8 million for the year ended December 31, 2013.Our primary use of cash in investing activities was capital expenditures associated with investments in training technology, classroom furniture, and newprogram build outs.During 2014 we have strategically utilized our cash resources to develop and expand our new Computer Numerical Control (CNC) program which was firstlaunched in late 2013 at our Indianapolis and Grand Prairie campuses. In 2014, we have further expanded our CNC program into our Mahwah campus andexpect to successfully launch this program at our New Britain campus in mid to late 2015. Additionally, we have also upgraded our HVAC program at ourEast Windsor and New Britain locations.We currently lease a majority of our campuses. We own our campuses in Grand Prairie, Texas; West Palm Beach, Florida; Nashville, Tennessee; Cincinnati(Tri-County), Ohio; Suffield, Connecticut; and Denver, Colorado. We have three properties that are held for sale.Capital expenditures are expected to approximate 1% to 3% of revenues in 2015 as compared to 2% in 2014. We expect to fund future capital expenditureswith cash generated from operating activities and cash from our real estate monetization.Financing ActivitiesNet cash used in financing activities was $5.2 million for the year ended December 31, 2014, as compared to $46.3 million for the year ended December 31,2013. The decrease of $41.1 million was primarily attributable to $24.5 million of net payments from borrowings for the year ended December 31, 2014 ascompared to net proceeds from borrowings of $17.0 million for the year ended December 31, 2013.Credit Agreement. On April 5, 2012, we, as borrower, and certain of our wholly-owned subsidiaries, as guarantors, entered into a secured revolving creditagreement with a syndicate of four lenders led by Bank of America, N.A., as administrative agent and letter of credit issuer (the “Credit Facility”). The April5, 2012 agreement, along with subsequent amendments dated December 29, 2014, June 18, 2013, December 20, 2013 and March 4, 2015, are collectivelyreferred to as the “Credit Agreement.”As of December 31, 2013, the aggregate principal amount available under the Credit Facility was $60 million. Effective January 16, 2014, this amount wasreduced to $40 million. Effective January 15, 2015, this amount was reduced to $20 million. During the period commencing on December 1, 2015 throughJanuary 15, 2016 the Company is required to reduce the outstanding revolving loans, other than letters of credit obligations, to $0. The Credit Facility maybe used to finance capital expenditures and permitted acquisitions, to pay transaction expenses, for the issuance of letters of credit and for general corporatepurposes. The Credit Agreement includes a $25 million letter of credit sublimit which is reduced to $20 million effective January 15, 2015. Borrowingsunder the Credit Facility are secured by a first priority lien on substantially all of our and our subsidiaries’ the tangible and intangible assets of the Companyand its subsidiaries including real estate. The term of the Credit Facility was 36 months, maturing on April 5, 2015 which was extended on March 4, 2015 foran additional 12 months with an expiration date of April 5, 2016.The Credit Agreement provides that the lenders will receive first priority lien on substantially all of our tangible and intangible non-real property assets ofour and our subsidiaries as well as a first priority lien on substantially all real property owned by our and our subsidiaries and that all net proceeds of futuresales of real property by our and our subsidiaries be used to prepay revolving loans and permanently reduce the principal amount of revolving loansavailable under the Credit Facility.47IndexIn 2014, amounts borrowed as revolving loans under the Credit Facility will bear interest, at our option, at either (i) an interest rate based on LIBOR andadjusted for any reserve percentage obligations under Federal Reserve Bank regulations (the “Eurodollar Rate”) for specified interest periods or (ii) the BaseRate (as defined in the Credit Agreement), in each case, plus an applicable margin rate as determined under the Credit Agreement. The “Base Rate”, asdefined under the Credit Agreement, is the highest of (a) the rate of interest announced from time to time by Bank of America, N.A. as its prime rate, (b) theFederal Funds rate plus 0.50% and (c) a daily rate equal to the one-month LIBOR rate plus 1.0%. Pursuant to the Amendment, the margin interest rate issubject to adjustment within a range of 2.50% to 6.00% based upon changes in our consolidated leverage ratio and depending on whether we have chosenthe Eurodollar Rate or the Base Rate option. Letters of credit will require a fee equal to the applicable margin rate multiplied by the daily amount availableto be drawn under each issued letter of credit plus an agreed upon fronting fee and customary issuance, presentation, amendment and other processing feesassociated with letters of credit.At December 31, 2014, we had outstanding letters of credit aggregating $7.1 million, which were primarily comprised of letters of credit for the Department ofEducation, or DOE, matters and real estate leases.The Credit Agreement contains customary representations, warranties and covenants including consolidated adjusted net worth, consolidated leverage ratio,consolidated fixed charge coverage ratio, minimum financial responsibility composite score, cohort default rate and other financial covenants, certainrestrictions on capital expenditures as well as affirmative and negative covenants and events of default customary for facilities of this type. In addition, weare paying fees to the lenders that are customary for facilities of this type. As of December 31, 2014 we are in compliance with all financial covenants. As of December 31, 2014 2013 Credit agreement $30,000 $54,500 Finance obligation 9,672 9,672 Capital lease-property (with a rate of 8.0%) 25,509 25,944 Subtotal 65,181 90,116 Less current maturities (30,471) (435)Total long-term debt $34,710 $89,681 Climate ChangeClimate change has not had and is not expected to have a significant impact on our operations.Contractual ObligationsCurrent portion of Long-Term Debt, Long-Term Debt and Lease Commitments. As of December 31, 2014, our current portion of long-term debt and long-term debt consisted of borrowings under our Credit Facility, the finance obligation in connection with our sale-leaseback transaction in 2001, and amountsdue under capital lease obligations. We lease offices, educational facilities and various equipment for varying periods through the year 2032 at basic annualrentals (excluding taxes, insurance, and other expenses under certain leases).The following table contains supplemental information regarding our total contractual obligations as of December 31, 2014: Payments Due by Period Total Less than 1year 1-3 years 3-5 years More than 5years Credit agreement (including interest) (1) $30,000 $30,000 $- $- $- Capital leases (including interest) 47,543 2,494 5,234 5,356 34,459 Operating leases 100,266 19,666 30,735 26,105 23,760 Rent on finance obligation 3,128 1,564 1,564 - - Total contractual cash obligations $180,937 $53,724 $37,533 $31,461 $58,219 (1)Amounts outstanding under the Credit Agreement were repaid on January 14, 2015.OFF-BALANCE SHEET ARRANGEMENTSWe had no off-balance sheet arrangements as of December 31, 2014, except for our letters of credit and surety bonds. Letters of credit of $7.1 million areprimarily comprised of letters of credit for DOE matters and security deposits in connection with certain of our real estate leases. We are required to postsurety bonds on behalf of our campuses and education representatives with multiple states to maintain authorization to conduct our business. At December31, 2014, we posted surety bonds in the total amount of approximately $15.1 million. These off-balance sheet arrangements do not adversely impact ourliquidity or capital resources.48IndexSEASONALITY AND OUTLOOKSeasonalityOur revenue and operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in total student population.Student population varies as a result of new student enrollments, graduations and student attrition. Historically, our schools have had lower studentpopulations in our first and second quarters and we have experienced larger class starts in the third quarter and higher student attrition in the first half of theyear. Our second half growth is largely dependent on a successful high school recruiting season. We recruit our high school students several months ahead oftheir scheduled start dates, and thus, while we have visibility on the number of students who have expressed interest in attending our schools, we cannotpredict with certainty the actual number of new student enrollments and the related impact on revenue. Our expenses, however, typically do not varysignificantly over the course of the year with changes in our student population and revenue. During the first half of the year, we make significantinvestments in marketing, staff, programs and facilities to meet our second half of the year targets and, as a result, such expenses do not fluctuate significantlyon a quarterly basis. To the extent new student enrollments, and related revenue, in the second half of the year fall short of our estimates, our operating resultscould be negatively impacted. We expect quarterly fluctuations in operating results to continue as a result of seasonal enrollment patterns. Such patterns maychange as a result of new school openings, new program introductions, and increased enrollments of adult students and/or acquisitions.OutlookSimilar to many companies in the proprietary education sector, we have experienced significant deterioration in student enrollments over the last severalyears. This can be attributed to many factors including the economic environment, numerous regulatory changes such as changes to admissions advisorcompensation policies, elimination of ATB, changes to the 90/10 Rule and cohort default rates, gainful employment and modifications to Title IV amountsand eligibility. With this said, we believe the market is stabilizing as evidenced by our starts declining by only 3% in 2014.As the economy continues to improve and the unemployment rate continue to decline our student enrollment has been negatively impacted due to a portionof our potential student base which has entered the workforce prematurely without obtaining any post-secondary training. Offsetting this short term declinein available students is the fact that an increasing number of the “baby boom” generation are retiring from the workforce. The retirement of baby boomerscoupled with a growing economy has resulted in additional employers looking to us to help solve their workforce needs. With schools in 15 states, we are avery attractive employment solution for large regional and national employers.To fund our business plans, including any anticipated future losses, purchase commitments, capital expenditures, principal and interest payments onborrowings and to satisfy the DOE financial responsibility standards, we have the ability to leverage our owned real estate including selling our assets thatare classified as held for sale. We are also continuing to take actions to improve cash flow by aligning our cost structure to our student population. Effect of InflationInflation has not had and is not expected to have a significant impact on our operations.ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are exposed to certain market risks as part of our on-going business operations. We have a credit agreement with a syndicate of banks. Our obligationsunder the credit agreement are secured by a lien on substantially all of our assets and our subsidiaries and any assets that we or our subsidiaries may acquirein the future, including a pledge of substantially all of our subsidiaries’ common stock. Outstanding borrowings bear interest at the rate of 7.25% (ascalculated in the credit agreement) as of December 31, 2014. As of December 31, 2014, we had $30.0 million outstanding under our credit agreement.Based on our outstanding debt balance as of December 31, 2014, a change of one percent in the interest rate would have caused a change in our interestexpense of approximately $0.3 million, or less than $0.01 per basic share, on an annual basis. Changes in interest rates could have an impact however on ouroperations, which are greatly dependent on students’ ability to obtain financing. Any increase in interest rates could greatly impact our ability to attractstudents and have an adverse impact on the results of our operations. The remainder of our interest rate risk is associated with miscellaneous capitalequipment leases, which is not significant.ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATASee “Index to Consolidated Financial Statements” on page F-1 on this Annual Report on Form 10-K.49IndexITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A.DISCLOSURE CONTROLS AND PROCEDURESEvaluation of disclosure controls and proceduresOur Chief Executive Officer and Chief Financial Officer, after evaluating, together with management, the effectiveness of our disclosure controls andprocedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of December 31, 2014 have concluded that our disclosure controls and procedures areeffective to reasonably ensure that material information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Actof 1934, as amended is recorded, processed, summarized and reported within the time periods specified by Securities and Exchange Commissions’ Rules andForms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure.Internal Control Over Financial ReportingDuring the quarter ended December 31, 2014, there has been no change in our internal control over financial reporting that has materially affected, or isreasonably likely to materially affect, our internal control over financial reporting.Management’s Annual Report on Internal Control over Financial ReportingThe management of Lincoln Educational Services Corporation (the “Company”) is responsible for establishing and maintaining adequate internal controlover financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control system was designed toprovide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles.Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014, based on the framework set forthby the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on itsassessment, management believes that, as of December 31, 2014, the Company’s internal control over financial reporting is effective.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.The Company’s independent auditors, Deloitte & Touche LLP, an independent registered public accounting firm, audited the Company’s internal controlover financial reporting as of December 31, 2014, as stated in their report included in this Form 10-K that follows. /s/ Shaun McAlmont Shaun McAlmont Chief Executive Officer March 16, 2015 /s/ Brian MeyersBrian MeyersChief Financial OfficerMarch 16, 2015 ITEM 9B.OTHER INFORMATION On March 12, 2015, the Company entered into (a) an employment agreement with Brian K. Meyers, Executive Vice President and Chief Financial Officer;and (b) an amendment to its employment agreement, dated June 4, 2014, with Kenneth M. Swisstack, Executive Vice President and General Counsel.Employment Agreement of Mr. Meyers. The employment agreement with Mr. Meyers has a term expiring on December 31, 2016 pursuant to which Mr.Meyers will receive an annual base salary of $301,337 and an annual performance bonus determined by the Company’s compensation committee each year.Upon a termination by the Company without Cause or Mr. Meyers’ resignation for Good Reason (in each case as such terms are defined in the employmentagreement), Mr. Meyers will receive, subject to his execution of a release, (i) one and one-half times his annual base salary plus an amount equal to theaverage annual bonus paid to him in the immediately preceding two years, (ii) a prorated annual bonus for the year of termination and (iii) a cash paymentequal to the estimated employer portion of insurance premiums payable under the Company’s healthcare plan for one year (subject to reduction if Mr. Meyersbecomes covered under a subsequent healthcare plan).Upon a Change in Control of the Company (as defined in the employment agreement), (i) the term of the employment agreement will be automaticallyextended for an additional two-year term commencing on the date of the change in control and (ii) all outstanding equity awards held by Mr. Meyers willvest in full. The employment agreement also provides that if (x) any amounts due to Mr. Meyers pursuant to the employment agreement or any other plan orarrangement constitute a parachute payment for purposes of Section 280G of the Internal Revenue Code and (y) the aggregate amount that he would receive(after taking into account all taxes, including excise taxes) will be less than three times his base amount (as defined under the Code) less one dollar, then thepayment will be reduced to three times his base amount less one dollar.The employment agreement also contains a two-year post-employment non-competition agreement and standard non-solicitation and confidentialityprovisions.Amended Employment Agreement of Mr. Swisstack. The terms of Mr. Swisstack’s original employment agreement, dated June 2, 2014, remain in full forceand effect, except that the term of Mr. Swisstack’s agreement has been extended to December 31, 2016 and his annual base salary is now $306,000.The descriptions of the agreements contained herein do not purport to be complete and are qualified in their entirety by reference to the agreements, copies ofwhich are attached hereto as Exhibits 10.9 and 10.10 and are incorporated herein by reference. 50IndexPART III.ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEDirectors and Executive OfficersThe information required by this item is incorporated herein by reference to our definitive Proxy Statement to be filed in connection with our 2015 AnnualMeeting of Shareholders.Code of EthicsWe have adopted a Code of Conduct and Ethics applicable to our directors, officers and employees and certain other persons, including our Chief ExecutiveOfficer and Chief Financial Officer. A copy of our Code of Ethics is available on our website at www.lincolnedu.com. If any amendments to or waivers fromthe Code of Conduct are made, we will disclose such amendments or waivers on our website.ITEM 11.EXECUTIVE COMPENSATIONInformation required by Item 11 of Part III is incorporated by reference to our definitive Proxy Statement to be filed in connection with our 2015 AnnualMeeting of Shareholders.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSInformation required by Item 12 of Part III is incorporated by reference to our definitive Proxy Statement to be filed in connection with our 2015 AnnualMeeting of Shareholders.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEInformation required by Item 13 of Part III is incorporated by reference to our definitive Proxy Statement to be filed in connection with our 2015 AnnualMeeting of Shareholders.ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICESInformation required by Item 14 of Part III is incorporated by reference to our definitive Proxy Statement to be filed in connection with our 2015 AnnualMeeting of Shareholders.51IndexPART IV.ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULE1.Financial StatementsSee “Index to Consolidated Financial Statements” on page F-1 of this Annual Report on Form 10-K.2.Financial Statement ScheduleSee “Index to Consolidated Financial Statements” on page F-1 of this Annual Report on Form 10-K.3.Exhibits Required by Securities and Exchange Commission Regulation S-KExhibitNumber Description 3.1 Amended and Restated Certificate of Incorporation of the Company (1). 3.2 Amended and Restated By-laws of the Company (2). 4.1 Management Stockholders Agreement, dated as of January 1, 2002, by and among Lincoln Technical Institute, Inc., Back to SchoolAcquisition, L.L.C. and the Stockholders and other holders of options under the Management Stock Option Plan listed therein (1). 4.2 Assumption Agreement and First Amendment to Management Stockholders Agreement, dated as of December 20, 2007, by and amongLincoln Educational Services Corporation, Lincoln Technical Institute, Inc., Back to School Acquisition, L.L.C. and the ManagementInvestors parties therein (3). 4.3 Registration Rights Agreement, dated as of June 27, 2005, between the Company and Back to School Acquisition, L.L.C. (2). 4.4 Specimen Stock Certificate evidencing shares of common stock (1). 10.1 Credit Agreement, dated as of April 5, 2012, among the Company, the Guarantors from time to time parties thereto, the Lenders from time totime parties thereto and Bank of America, N.A., as Administrative Agent (4). 10.2 First Amendment to the Credit Agreement, dated as of June 18, 2013, among the Company, the Guarantors from time to time parties thereto,the Lenders from time to time parties thereto and Bank of America, N.A., as Administrative Agent (5). 10.3 Second Amendment to the Credit Agreement, dated as of December 20, 2013, among the Company, the Guarantors from time to time partiesthereto, the Lenders from time to time parties thereto and Bank of America, N.A., as Administrative Agent (6). 10.4 Third Amendment to the Credit Agreement, dated as of December 29, 2014, among the Company, the Guarantors from time to time partiesthereto, the Lenders from time to time parties thereto and Bank of America, N.A., as Administrative Agent (7). 10.5 Fourth Amendment and Waiver to the Credit Agreement, dated as of March 4, 2015, among the Company, the Guarantors from time to timeparties thereto, the Lenders from time to time parties thereto and Bank of America, N.A., as Administrative Agent (8). 10.6 Employment Agreement, dated as of January 30, 2015, between the Company and Shaun E. McAlmont (9). 10.7 Employment Agreement, dated as of January 30, 2015, between the Company and Scott M. Shaw (9). 10.8 Employment Agreement, dated as of June 2, 2014, between the Company and Kenneth M. Swisstack (10). 10.9* Amendment to Employment Agreement, dated as of March 12, 2015, between the Company and Kenneth M. Swisstack. 52Index10.10* Employment Agreement, dated as of March 12, 2015, between the Company and Brian K. Meyers. 10.11 Lincoln Educational Services Corporation Amended and Restated 2005 Long-Term Incentive Plan (11). 10.12 Lincoln Educational Services Corporation 2005 Non-Employee Directors Restricted Stock Plan (12). 10.13 Lincoln Educational Services Corporation 2005 Deferred Compensation Plan (1). 10.14 Lincoln Technical Institute Management Stock Option Plan, effective January 1, 2002 (1). 10.15 Form of Stock Option Agreement, dated January 1, 2002, between Lincoln Technical Institute, Inc. and certain participants (1). 10.16 Form of Stock Option Agreement under our 2005 Long-Term Incentive Plan (13). 10.17 Form of Restricted Stock Agreement under our 2005 Long-Term Incentive Plan (14). 10.18 Form of Performance-Based Restricted Stock Award Agreement under our Amended & Restated 2005 Long-Term Incentive Plan (15). 10.19 Management Stock Subscription Agreement, dated January 1, 2002, among Lincoln Technical Institute, Inc. and certain managementinvestors (1). 10.20 Stock Repurchase Agreement, dated as of December 15, 2009, among Lincoln Educational Services Corporation and Back to SchoolAcquisition, L.L.C (16). 21.1* Subsidiaries of the Company. 23* Consent of Independent Registered Public Accounting Firm. 31.1 * Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 * Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 * Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002. 101** The following financial statements from Lincoln Educational Services Corporation’s Annual Report on Form 10-K for the year endedDecember 31, 2014, filed on March 16, 2015, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated BalanceSheets, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Comprehensive (Loss) Income, (v) ConsolidatedStatement of Changes in Stockholders’ Equity and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail. (1)Incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration No. 333-123644).(2)Incorporated by reference to the Company’s Form 8-K filed June 28, 2005.(3)Incorporated by reference to the Company’s Registration Statement on Form S-3 (Registration No. 333-148406).(4)Incorporated by reference to the Company’s Form 8-K filed April 11, 2012.(5)Incorporated by reference to the Company’s Form 8-K filed June 20, 2013.(6)Incorporated by reference to the Company’s Form 8-K filed December 27, 2013.(7)Incorporated by reference to the Company’s Form 8-K filed January 5, 2015.(8)Incorporated by reference to the Company’s Form 8-K filed March 10, 2015.53Index(9)Incorporated by reference to the Company’s Form 8-K filed February 5, 2015.(10)Incorporated by reference to the Company’s Annual Report on Form 10-Q filed August 8, 2014.(11)Incorporated by reference to the Company’s Form 8-K filed May 6, 2013.(12)Registration Statement on Form S-8 (Registration No. 333-188240).(13)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.(14)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.(15)Incorporated by reference to the Company’s Form 8-K filed May 5, 2011.(16)Incorporated by reference to the Company’s Form 8-K filed December 21, 2009.*Filed herewith.**As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of1933 and Section 18 of the Securities Exchange Act of 193454IndexSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.Date: March 16, 2015 LINCOLN EDUCATIONAL SERVICES CORPORATION By:/s/ Brian Meyers Brian Meyers Executive Vice President, Chief Financial Officer and Treasurer (Principal Accounting and Financial Officer)Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. SignatureTitleDate /s/ Shaun E. McAlmont March 16, 2015Shaun McAlmontChief Executive Officer and Director /s/ Brian K. MeyersExecutive Vice President, Chief Financial Officer andMarch 16, 2015Brian MeyersTreasurer (Principal Accounting and Financial Officer) /s/ Alvin O. AustinDirectorMarch 16, 2015Alvin O. Austin /s/ Peter S. BurgessDirectorMarch 16, 2015Peter S. Burgess /s/ James J. Burke, Jr.DirectorMarch 16, 2015James J. Burke, Jr. /s/ Celia H. CurrinDirectorMarch 16, 2015Celia H. Currin /s/ Douglas G. DelGrossoDirectorMarch 16, 2015Douglas G. DelGrosso /s/ Ronald E. HarbourDirectorMarch 16, 2015Ronald E. Harbour /s/ Charles F. KalmbachDirectorMarch 16, 2015Charles F. Kalmbach /s/ Alexis P. MichasDirectorMarch 16, 2015Alexis P. Michas /s/ J. Barry MorrowDirectorMarch 16, 2015J. Barry Morrow IndexINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page NumberReports of Independent Registered Public Accounting FirmF-2Consolidated Balance Sheets as of December 31, 2014 and 2013F-4Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012F-6Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2014, 2013 and 2012F-7Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2014, 2013 and 2012F-8Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012F-9Notes to Consolidated Financial StatementsF-11 Schedule II-Valuation and Qualifying AccountsF-33 F-1IndexREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofLincoln Educational Services CorporationWest Orange, New Jersey We have audited the accompanying consolidated balance sheets of Lincoln Educational Services Corporation and subsidiaries (the "Company") as ofDecember 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive (loss) income, changes in stockholders' equity, and cashflows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule listed in the Index at Item15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express anopinion on the financial statements and financial statement schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Lincoln Educational ServicesCorporation and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in theperiod ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, suchfinancial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all materialrespects, the information set forth therein.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal controlover financial reporting as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2015 expressed an unqualified opinion on theCompany's internal control over financial reporting. /s/ DELOITTE & TOUCHE LLP Parsippany, New JerseyMarch 16, 2015 F-2IndexREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofLincoln Educational Services CorporationWest Orange, New JerseyWe have audited the internal control over financial reporting of Lincoln Educational Services Corporation and subsidiaries (the "Company") as of December31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of theTreadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessmentof the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over FinancialReporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principalfinancial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofthe company's assets that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override ofcontrols, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on thecriteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s consolidatedbalance sheet as of December 31, 2014 and the related consolidated statements of operations, comprehensive (loss) income, changes in stockholders’ equity,cash flows and financial statement schedule for the year ended December 31, 2014, and our report dated March 16, 2015 expressed an unqualified opinion onthose consolidated financial statements and financial statement schedule./s/ DELOITTE & TOUCHE LLP Parsippany, New JerseyMarch 16, 2015 F-3IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) December 31, 2014 2013 ASSETS CURRENT ASSETS: Cash and cash equivalents $12,299 $12,886 Restricted cash 30,000 54,500 Accounts receivable, less allowance of $12,193 and $13,787 at December 31, 2014 and 2013, respectively 13,533 16,127 Inventories 1,486 2,269 Prepaid income taxes and income taxes receivable 879 8,517 Assets held for sale, net 50,930 6,310 Prepaid expenses and other current assets 3,937 3,013 Total current assets 113,064 103,622 PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $136,910and $146,795 at December 31, 2014 and 2013, respectively 69,740 127,332 OTHER ASSETS: Noncurrent receivables, less allowance of $1,016 and $982 at December 31, 2014 and 2013, respectively 6,235 6,869 Deferred finance charges 158 1,163 Deferred income taxes, net - - Goodwill 22,207 62,465 Other assets, net 2,303 4,498 Total other assets 30,903 74,995 TOTAL $213,707 $305,949 See notes to consolidated financial statements. F-4IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) (Continued) December 31, 2014 2013 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of credit agreement $30,000 $- Current portion of capital lease obligations 471 435 Unearned tuition 26,469 30,195 Accounts payable 11,894 14,603 Accrued expenses 13,865 10,655 Other short-term liabilities 780 693 Total current liabilities 83,479 56,581 NONCURRENT LIABILITIES: Long-term credit agreement - 54,500 Long-term capital lease obligations 25,038 25,509 Long-term finance obligation 9,672 9,672 Pension plan liabilities 5,299 1,522 Deferred income taxes, net - 4,528 Accrued rent 6,852 7,695 Other long-term liabilities 357 746 Total liabilities 130,697 160,753 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, no par value - 10,000,000 shares authorized, no shares issued and outstanding at December 31, 2014and 2013 - - Common stock, no par value - authorized 100,000,000 shares at December 31, 2014 and 2013, issued andoutstanding 29,933,086 shares at December 31, 2014 and 29,919,761 shares at December 31, 2013 141,377 141,377 Additional paid-in capital 26,350 24,177 Treasury stock at cost - 5,910,541 shares at December 31, 2014 and 2013 (82,860) (82,860)Retained earnings 5,610 66,064 Accumulated other comprehensive loss (7,467) (3,562)Total stockholders' equity 83,010 145,196 TOTAL $213,707 $305,949 See notes to consolidated financial statements.F-5IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31, 2014 2013 2012 REVENUE $325,022 $341,512 $380,163 COSTS AND EXPENSES: Educational services and facilities 164,352 169,049 178,271 Selling, general and administrative 168,441 175,978 189,488 Gain on sale of assets (58) (501) (75)Impairment of goodwill and long-lived assets 40,836 3,908 25,221 Total costs and expenses 373,571 348,434 392,905 OPERATING LOSS (48,549) (6,922) (12,742)OTHER: Interest income 153 37 2 Interest expense (5,613) (4,667) (4,475)Other income 297 18 14 LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (53,712) (11,534) (17,201)(BENEFIT) PROVISION FOR INCOME TAXES (4,225) 19,591 (2,282)LOSS FROM CONTINUING OPERATIONS (49,487) (31,125) (14,919)LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES (6,646) (20,161) (22,267)NET LOSS $(56,133) $(51,286) $(37,186)Basic Loss per share from continuing operations $(2.17) $(1.38) $(0.67)Loss per share from discontinued operations (0.29) (0.90) (1.01)Net loss per share $(2.46) $(2.28) $(1.68)Diluted Loss per share from continuing operations $(2.17) $(1.38) $(0.67)Loss per share from discontinued operations (0.29) (0.90) (1.01)Net loss per share $(2.46) $(2.28) $(1.68)Weighted average number of common shares outstanding: Basic 22,814 22,513 22,195 Diluted 22,814 22,513 22,195 See notes to consolidated financial statements F-6IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (In thousands) December 31, 2014 2013 2012 Net loss $(56,133) $(51,286) $(37,186)Other comprehensive loss Employee pension plan adjustments, net of taxes of $0, $1,283 and $25 for the years endedDecember 31, 2014, 2013 and 2012, respectively (3,905) 3,214 (60)Comprehensive loss $(60,038) $(48,072) $(37,246) See notes to consolidated financial statements F-7IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands, except share amounts) Common Stock AdditionalPaid-in Treasury Retained AccumulatedOtherComprehensive Shares Amount Capital Stock Earnings Loss Total BALANCE - January 1, 2012 28,548,274 $141,377 $19,535 $(82,860) $167,689 $(6,716) $239,025 Net loss - - - - (37,186) - (37,186)Employee pension plan adjustments, net oftaxes - - - - - (60) (60)Stock-based compensation expense Restricted stock 1,213,621 - 3,982 - - - 3,982 Stock options - - 358 - - - 358 Tax deficiency of stock-based awards andcanceled - - (667) - - - (667)Net share settlement for equity-basedcompensation (102,438) - (531) - - - (531)Cash dividend of $0.28 per common share - - - - (6,444) - (6,444)BALANCE - December 31, 2012 29,659,457 141,377 22,677 (82,860) 124,059 (6,776) 198,477 Net loss - - - - (51,286) - (51,286)Employee pension plan adjustments, net oftaxes - - - - - 3,214 3,214 Stock-based compensation expense Restricted stock 400,779 - 2,893 - - - 2,893 Stock options - - 102 - - - 102 Tax deficiency of stock-based awards andcanceled - - (698) - - - (698)Net share settlement for equity-basedcompensation (140,475) - (797) - - - (797)Cash dividend of $0.28 per common share - - - - (6,709) - (6,709)BALANCE - December 31, 2013 29,919,761 141,377 24,177 (82,860) 66,064 (3,562) 145,196 Net loss - - - - (56,133) - (56,133)Employee pension plan adjustments, net oftaxes - - - - - (3,905) (3,905)Stock-based compensation expense Restricted stock 158,308 - 2,517 - - - 2,517 Stock options - - 104 - - - 104 Net share settlement for equity-basedcompensation (144,983) - (448) - - - (448)Cash dividend of $0.18 per common share - - - - (4,321) - (4,321)BALANCE - December 31, 2014 29,933,086 $141,377 $26,350 $(82,860) $5,610 $(7,467) $83,010 See notes to consolidated financial statements. F-8IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2014 2013 2012 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(56,133) $(51,286) $(37,186)Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 19,338 23,701 26,848 Amortization of deferred finance costs 818 474 - Deferred income taxes (4,528) 26,490 (14,229)Loss (gain) on disposition of assets 41 (506) (71)Impairment of goodwill and long-lived assets 42,958 6,194 43,364 Fixed asset donation (92) (37) - Provision for doubtful accounts 15,500 15,532 21,056 Stock-based compensation expense 2,621 2,995 4,340 Deferred rent (740) (888) 421 (Increase) decrease in assets, net of acquisition of business: Accounts receivable (14,470) (15,049) (19,202)Inventories 372 408 421 Prepaid income taxes and income taxes receivable 7,638 (1,432) 4,053 Prepaid expenses and current assets (986) (106) (1,274)Other assets 231 (1,177) 999 Increase (decrease) in liabilities, net of acquisition of business: Accounts payable (2,732) 1,461 (2,180)Accrued expenses 3,806 829 (1,688)Pension plan liabilities (271) (672) (718)Unearned tuition (1,190) (4,453) (9,466)Other liabilities (159) 768 498 Total adjustments 68,155 54,532 53,172 Net cash provided by operating activities 12,022 3,246 15,986 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (7,472) (6,538) (8,839)Proceeds from sale of property and equipment 67 750 124 Acquisition of business, net of cash acquired - - (1,472)Net cash used in investing activities (7,405) (5,788) (10,187)CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 47,500 59,500 37,500 Payments on borrowings (72,000) (42,500) - Reclassifications of proceeds from borrowings to restricted cash 24,500 (54,500) - Payment of deferred finance fees - (863) (659)Net share settlement for equity-based compensation (448) (797) (531)Dividends paid (4,321) (6,709) (6,444)Principal payments under capital lease obligations (435) (411) (481)Net cash (used in) provided by financing activities (5,204) (46,280) 29,385 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (587) (48,822) 35,184 CASH AND CASH EQUIVALENTS—Beginning of year 12,886 61,708 26,524 CASH AND CASH EQUIVALENTS—End of year $12,299 $12,886 $61,708 See notes to consolidated financial statements. F-9IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Continued) Year Ended December 31, 2014 2013 2012 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $4,597 $4,209 $4,184 Income taxes $145 $410 $226 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Liabilities accrued for or noncash purchases of fixed assets $1,613 $93 $1,789 See notes to consolidated financial statements. F-10IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2014 AND 2013 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2014(In thousands, except share and per share amounts, schools, training sites, campuses and unless otherwise stated) 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activities—Lincoln Educational Services Corporation and Subsidiaries (the "Company") is a provider of diversified career-oriented post-secondaryeducation. The Company offers recent high school graduates and working adults degree and diploma programs in five principal areas of study: AutomotiveTechnology, Health Science, Skilled Trades, Hospitality Services and Business and Information Technology. The Company currently has 31 schools and fivetraining sites in 15 states across the United States. Liquidity—For the last several years, the Company and the proprietary school sector generally have faced various forms of adversity which have contributedto deteriorating earnings growth. Government regulations have negatively impacted earnings by making it more difficult for potential students to obtainloans, which when coupled with the overall economic environment have hindered potential students from enrolling in its schools. In light of these factors,the Company has incurred significant operating losses as a result of lower student population. The Company also recorded a pre-tax goodwill impairmentcharge of $39.0 million for the year ended December 31, 2014 as a result of a significant decline in market capitalization. Despite these events, the Companybelieves that its likely sources of cash should be sufficient to fund operations for the next twelve months. The Company’s available sources of cash primarilyinclude cash from operations, cash and cash equivalents on hand at December 31, 2014 of $12.3 million and the ability to draw up to $20 million under therevolving line of credit less letters of credit that was extended through April 2016. To fund the Company’s business plans, including any anticipated futurelosses, purchase commitments, capital expenditures, principal and interest payments on borrowings and to satisfy the DOE financial responsibility standards,the Company has the ability to leverage its owned real estate that is not classified as held for sale. The Company is also continuing to take actions to improvecash flow by aligning its cost structure to its student population.In addition to the aforementioned current sources of capital that will provide short term liquidity, the Company also plans to sell approximately $50.9million in assets which are currently classified as held for sale and are expected to be sold within one year. The Company also is currently exploring variousother alternatives including debt financing vehicles and strategic partnerships. However, at this time the Company has no commitments to obtain anyadditional funds, and there can be no assurance such funds will be available on acceptable terms or at all. Principles of Consolidation—The accompanying consolidated financial statements include the accounts of Lincoln Educational Services Corporation andits wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Revenue Recognition—Revenue is derived primarily from programs taught at the schools. Tuition revenue and one-time fees, such as nonrefundableapplication fees, registration fees, and course material fees are recognized on a straight-line basis over the length of the applicable program. If a studentwithdraws from a program prior to a specified date, any paid but unearned tuition is refunded. Other revenues, such as tool sales and contract trainingrevenues are recognized as services are performed or goods are delivered. On an individual student basis, tuition earned in excess of cash received is recordedas accounts receivable, and cash received in excess of tuition earned is recorded as unearned tuition. Refunds are calculated and paid in accordance withfederal, state and accrediting agency standards. Cash and Cash Equivalents—Cash and cash equivalents include all cash balances and highly liquid short-term investments, which mature within threemonths of purchase. Restricted Cash—Restricted cash consists of deposits maintained at financial institutions under a cash collateralized agreement under the Company’s creditagreement. Refer to Note 8 for more information on the credit agreement.Accounts Receivable—The Company reports accounts receivable at net realizable value, which is equal to the gross receivable less an estimated allowancefor uncollectible accounts. Noncurrent accounts receivable represent amounts due from graduates in excess of 12 months from the balance sheet date. Allowance for uncollectible accounts—Based upon experience and judgment, an allowance is established for uncollectible accounts with respect to tuitionreceivables. In establishing the allowance for uncollectible accounts, we consider, among other things, current and expected economic conditions, a student'sstatus (in-school or out-of-school), whether or not a student is currently making payments, and overall collection history. Changes in trends in any of theseareas may impact the allowance for uncollectible accounts. The receivables balances of withdrawn students with delinquent obligations are reserved forbased on our collection history. F-11IndexFair Value of Financial Instruments—The carrying value of cash and cash equivalents approximates fair value at December 31, 2014 and 2013. In addition,the carrying value of all borrowings under the credit agreement approximates fair value at December 31, 2014 and 2013. The account receivable, netbalances are presented within current and non-current assets on the consolidated balance sheets. It is not practicable to estimate the fair value of thesefinancial instruments, since observable market data is not readily available, and no reasonable estimation methodology exists.Inventories—Inventories consist mainly of textbooks, computers, tools and supplies. Inventories are valued at the lower of cost or market on a first-in, first-out basis. Property, Equipment and Facilities—Depreciation and Amortization—Property, equipment and facilities are stated at cost. Major renewals andimprovements are capitalized, while repairs and maintenance are expensed when incurred. Upon the retirement, sale or other disposition of assets, costs andrelated accumulated depreciation are eliminated from the accounts and any gain or loss is reflected in operating (loss) income. For financial statementpurposes, depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, and amortizationof leasehold improvements is computed over the lesser of the term of the lease or its estimated useful life. Rent Expense—Rent expense related to operating leases where scheduled rent increases exist, is determined by expensing the total amount of rent due overthe life of the operating lease on a straight-line basis. The difference between the rent paid under the terms of the lease and the rent expensed on a straight-line basis is included in accrued rent and other long-term liabilities on the accompanying consolidated balance sheets.Advertising Costs—Costs related to advertising are expensed as incurred and approximated $27.5 million, $29.0 million and $30.1 million from continuingoperations for the years ended December 31, 2014, 2013 and 2012, respectively. These amounts are included in selling, general and administrative expensesin the consolidated statements of operations. Goodwill and Other Intangible Assets— The Company tests its goodwill for impairment annually, or whenever events or changes in circumstances indicatean impairment may have occurred, by comparing its reporting unit’s carrying value to its implied fair value. Impairment may result from, among other things,deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations, reductions in marketvalue of the Company, including changes that restrict the activities of the acquired business, and a variety of other circumstances. If the Company determinesthat an impairment has occurred, it is required to record a write-down of the carrying value and charge the impairment as an operating expense in the periodthe determination is made. In evaluating the recoverability of the carrying value of goodwill and other indefinite-lived intangible assets, the Company mustmake assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or marketconditions could significantly impact these judgments in the future and require an adjustment to the recorded balances.At December 31, 2014, the Company conducted its annual test for goodwill impairment and determined it did not have an impairment. The fair value of theCompany’s reporting units were determined using Level 3 inputs included in its multiple of earnings and discounted cash flow approach. The Companyconcluded that as of September 30, 2014 there was an indicator of potential impairment as a result of a decrease in market capitalization and, accordingly, theCompany tested goodwill for impairment. The test indicated that 10 of the Company’s reporting units were impaired, which resulted in a pre-tax non-cashcharge of $39.0 million for the three months ended September 30, 2014 ($1.9 million of which is included in discontinued operations). At December 31, 2013, the Company conducted its annual test for goodwill impairment and determined it did not have an impairment. The fair value of theCompany’s reporting units were determined using Level 3 inputs included in its multiple of earnings and discounted cash flow approach. As of June 30,2013, the Company concluded that current period losses at two reporting units, which resulted in a deterioration of current and projected cash flows, was anindicator of potential impairment and, accordingly, tested goodwill and long-lived assets for impairment. The tests indicated that these two reporting unitswere impaired, which resulted in a pre-tax non-cash charge of $3.1 million for the three months ended June 30, 2013.At December 31, 2012, the Company tested goodwill for impairment and determined that an impairment of approximately $18.3 million ($4.5 millionincluded in discontinued operations) existed for seven of its reporting units. The Company concluded that the decrease in the Company’s marketcapitalization as of June 30, 2012 was an indicator of potential impairment and, accordingly, the Company tested goodwill for impairment. The testsindicated that five of the Company’s reporting units were impaired as a result of lower than expected student population, which resulted in a pre-tax charge of$15.4 million in the second quarter of 2012 ($8.4 million included in discontinued operations). The fair values of these reporting units were estimated usingthe expected present value of future cash flows. No other reporting unit’s carrying goodwill amount exceeded or approximated its implied value. F-12IndexImpairment of Long-Lived Assets—The Company reviews the carrying value of our long-lived assets and identifiable intangibles for possible impairmentwhenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company evaluates long-lived assets forimpairment by examining estimated future cash flows using Level 3 inputs. These cash flows are evaluated by using weighted probability techniques as wellas comparisons of past performance against projections. Assets may also be evaluated by identifying independent market values. If the Company determinesthat an asset’s carrying value is impaired, it will record a write-down of the carrying value of the asset and charge the impairment as an operating expense inthe period in which the determination is made.The Company concluded that for the three months ended December 31, 2014 and September 30, 2014, there was sufficient evidence to conclude that therewas an impairment of certain long-lived assets at one and six of the Company’s campuses, respectively. Long-lived assets had been tested at these campusesas a result of certain financial indicators such as the Company’s history of losses, current respective period losses, as well as future projected losses at thesecampuses. The long-lived assets impairment resulted in a pre-tax charge of $1.5 million for leasehold improvements as of December 31, 2014 and $1.9million for leasehold improvements and $0.5 million ($0.2 million included in discontinued operations) for intangible assets as of September 30, 2014.The Company concluded that for the three months ended December 31, 2013, there was no long-lived asset impairment. The Company concluded that as ofJune 30, 2013 and March 31, 2013, there was sufficient evidence to conclude that there were impairments of certain long-lived assets at four and two of ourcampuses, respectively. Long lived assets had been tested at these campuses as a result of certain financial indicators such as our history of losses, our currentrespective period losses, as well as future projected losses at these campuses. The long-lived assets impairment resulted in a pre-tax charge of $1.4 million($0.7 million included in discontinued operations) and $1.7 million ($1.6 million included in discontinued operations) for leasehold improvements as ofJune 30, 2013 and March 31, 2013, respectively.The Company concluded that as of December 31, 2012 and June 30, 2012, there was an indicator of potential impairment and, accordingly, the Companytested long-lived assets for impairment and determined that certain long-lived assets at four and 10 of its campuses were impaired. This resulted in a pre-taxcharge of $1.3 million ($0.9 million included in discontinued operations) for leasehold improvements as of December 31, 2012 and $8.3 million ($4.4million in discontinued operations) as of June 30, 2012, which included leasehold improvements of $8.1 million and $0.2 million in definite-livedintangible assets respectively.Concentration of Credit Risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporarycash investments. The Company places its cash and cash equivalents with high credit quality financial institutions. The Company's cash balances withfinancial institutions typically exceed the Federal Deposit Insurance limit of $0.25 million. The Company's cash balances on deposit at December 31, 2014,exceeded the balance insured by the FDIC Corporation (“FDIC”) by approximately $41.2 million. The Company has not experienced any losses to date on itsinvested cash. The Company extends credit for tuition and fees to many of its students. The credit risk with respect to these accounts receivable is mitigated through thestudents' participation in federally funded financial aid programs unless students withdraw prior to the receipt of federal funds for those students. In addition,the remaining tuition receivables are primarily comprised of smaller individual amounts due from students. With respect to student receivables, the Company had no significant concentrations of credit risk as of December 31, 2014 and 2013. Use of Estimates in the Preparation of Financial Statements—The preparation of financial statements in conformity with generally accepted accountingprinciples in the United States (“GAAP’) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilitiesand disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expensesduring the period. On an ongoing basis, the Company evaluates the estimates and assumptions, including those related to revenue recognition, bad debts,impairments, fixed assets, income taxes, benefit plans and certain accruals. Actual results could differ from those estimates. Stock-Based Compensation Plans—The Company measures the value of stock options on the grant date at fair value, using the Black-Scholes optionvaluation model. The Company amortizes the fair value of stock options, net of estimated forfeitures, utilizing straight-line amortization of compensationexpense over the requisite service period of the grant.The Company measures the value of service and performance-based restricted stock on the fair value of a share of common stock on the date of the grant. TheCompany amortizes the fair value of service based restricted stock utilizing straight-line amortization of compensation expense over the requisite serviceperiod of the grant. F-13IndexThe Company amortizes the fair value of the performance-based restricted stock based on determination of the probable outcome of the performancecondition. If the performance condition is expected to be met, then the Company amortizes the fair value of the number of shares expected to vest utilizingstraight-line basis over the requisite performance period of the grant. However, if the associated performance condition is not expected to be met, then theCompany does not recognize the stock-based compensation expense. Income Taxes—The Company accounts for income taxes in accordance with FASB ASC Topic 740, “Income Taxes” (“ASC 740”). This statement requires anasset and a liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets andliabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered. In accordance with ASC 740, the Company assesses our deferred tax asset to determine whether all or any portion of the asset is more likely than notunrealizable. A valuation allowance is required to be established or maintained when, based on currently available information, it is more likely than notthat all or a portion of a deferred tax asset will not be realized. In accordance with ASC 740, our assessment considers whether there has been sufficientincome in recent years and whether sufficient income is expected in future years in order to utilize the deferred tax asset. In evaluating the realizability ofdeferred income tax assets, the Company considered, among other things, historical levels of income, expected future income, the expected timing of thereversals of existing temporary reporting differences, and the expected impact of tax planning strategies that may be implemented to prevent the potentialloss of future income tax benefits. Significant judgment is required in determining the future tax consequences of events that have been recognized in ourconsolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have amaterial impact on our consolidated financial position or results of operations. Changes in, among other things, income tax legislation, statutory income taxrates, or future income levels could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to varysignificantly among financial reporting periods. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31,2014 and 2013, the interest and penalties expense associated with uncertain tax positions are not significant to the Company’s results of operations orfinancial position.Start-up Costs—Costs related to the start of new campuses are expensed as incurred.New Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard related to revenue recognition, which requires an entity torecognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new standard will replacemost of the existing revenue recognition standards in GAAP when it becomes effective on January 1, 2017. Early adoption is not permitted. The new standardcan be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the change recognized at the date ofthe initial application. The Company is assessing the potential impact of the new standard on financial reporting and has not yet selected a transition method.In April 2014, FASB issued amended guidance on the use and presentation of discontinued operations in an entity's consolidated financial statements. Thenew guidance restricts the presentation of discontinued operations to business circumstances when the disposal of business operations represents a strategicshift that has or will have a major effect on an entity's operations and financial results. The guidance becomes effective on January 1, 2015. Adoption is on aprospective basis. The Company early adopted as of December 31, 2014 and based on the guidance did not present the schools that are held for sale asdiscontinued operations in the consolidated financial statements. As discussed in Note 4, the Company did include the five training sites from Florida indiscontinued operations in the consolidated financial statements for the year ended December 31, 2014 as they qualify under the amended guidance.2.FINANCIAL AID AND REGULATORY COMPLIANCE Financial Aid The Company’s schools and students participate in a variety of government-sponsored financial aid programs that assist students in paying the cost of theireducation. The largest source of such support is the federal programs of student financial assistance under Title IV of the Higher Education Act of 1965, asamended, commonly referred to as the Title IV Programs, which are administered by the U.S. Department of Education (the "DOE"). During the years endedDecember 31, 2014, 2013 and 2012, approximately 80%, 80% and 81%, respectively, of net revenues on a cash basis were indirectly derived from fundsdistributed under Title IV Programs. F-14IndexFor the year ended December 31, 2014, 2013 and 2012, the Company calculated that no individual DOE reporting entity received more than 90% of itsrevenue, determined on a cash basis under DOE regulations, from Title IV, HEA Program Funds. The Company’s calculations may be subject to review by theDOE. Under DOE regulations, a proprietary institution that derives more than 90% of its total revenue from the Title IV programs for two consecutive fiscalyears becomes immediately ineligible to participate in the Title IV programs and may not reapply for eligibility until the end of two fiscal years. Aninstitution with revenues exceeding 90% for a single fiscal year ending after August 14, 2008 will be placed on provisional certification and may be subjectto other enforcement measures. If one of the Company’s institutions violated the 90/10 Rule and became ineligible to participate in Title IV Programs butcontinued to disburse Title IV Program funds, the DOE would require the institution to repay all Title IV Program funds received by the institution after theeffective date of the loss of eligibility. Regulatory Compliance To participate in Title IV Programs, a school must be authorized to offer its programs of instruction by relevant state education agencies, be accredited by anaccrediting commission recognized by the DOE and be certified as an eligible institution by the DOE. For this reason, the schools are subject to extensiveregulatory requirements imposed by all of these entities. After the schools receive the required certifications by the appropriate entities, the schools mustdemonstrate their compliance with the DOE regulations of the Title IV Programs on an ongoing basis. Included in these regulations is the requirement thatthe Company must satisfy specific standards of financial responsibility. The DOE evaluates institutions for compliance with these standards each year, basedupon the institution’s annual audited financial statements, as well as following a change in ownership resulting in a change of control of the institution.Under regulations which took effect July 1, 1998, the DOE calculates the institution's composite score for financial responsibility based on its (i) equity ratio,which measures the institution's capital resources, ability to borrow and financial viability; (ii) primary reserve ratio, which measures the institution's abilityto support current operations from expendable resources; and (iii) net income ratio, which measures the institution's ability to operate at a profit. Thiscomposite score can range from -1 to +3. The composite score must be at least 1.5 for the institution to be deemed financially responsible without the need for further oversight. If an institution’scomposite score is below 1.5, but is at least 1.0, it is in a category denominated by the DOE as “the zone.” Under the DOE regulations, institutions that are inthe zone typically may be permitted by the DOE to continue to participate in the title IV programs by choosing one of two alternatives: 1) the “ZoneAlternative” under which we are required to make disbursements to students under the Heightened Cash Monitoring 1 (HCM1) payment method and tonotify the DOE within 10 days after the occurrence of certain oversight and financial events or 2) submit a letter of credit to the DOE equal to 50 percent ofthe Title IV funds received by our institutions during the most recent fiscal year. The DOE permits an institution to participate under the “Zone Alternative”for a period of up to three consecutive fiscal years. Under the HCM1 payment method, the institution is required to make Title IV disbursements to eligiblestudents and parents before it requests or receives funds for the amount of those disbursements from the DOE. As long as the student accounts are creditedbefore the funding requests are initiated, we are permitted to draw down funds through the DOE’s electronic system for grants management and payments forthe amount of disbursements made to eligible students. Unlike the HCM2 and reimbursement payment methods, the HCM1 payment method typically doesnot require schools to submit documentation to the DOE and wait for DOE approval before drawing down Title IV funds. If an institution's composite score is below 1.0, the institution is considered by the DOE to lack financial responsibility. If the DOE determines that aninstitution does not satisfy the DOE's financial responsibility standards, depending on its composite score and other factors, that institution may establish itsfinancial responsibility on an alternative basis by, among other things: ·Posting a letter of credit in an amount equal to at least 50% of the total Title IV Program funds received by the institution during the institution'smost recently completed fiscal year;·Posting a letter of credit in an amount equal to at least 10% of such prior year's Title IV Program funds, accepting provisional certification,complying with additional DOE monitoring requirements and agreeing to receive Title IV Program funds under an arrangement other than the DOE'sstandard advance funding arrangement; and/or·Complying with additional DOE monitoring requirements and agreeing to receive Title IV Program funds under an arrangement other than theDOE's standard advance funding arrangement.The DOE has evaluated the financial responsibility of our institutions on a consolidated basis. The Company has submitted to the DOE our audited financialstatements for the 2013 fiscal year reflecting a composite score of 1.4, based upon its calculations. The Company chose the “Zone Alternative” optiondescribed above because, among other things, it does not require the Company to submit a letter of credit to the DOE and because the HCM1 paymentmethod is less burdensome than the HCM2 or reimbursement methods of payment that the DOE has the authority to impose. The Company believes that,prior to moving to the HCM1 payment method on October 22, 2014, its procedures for processing Title IV payments were similar to those now required underthe HCM1 payment method. As of this date, the Company not identified any impact on our ability to make disbursements of Title IV funds to its students orto receive funds for the amount of those disbursements from the DOE. F-15 Year Ended December 31, 2014 2013 2012 Basic shares outstanding 22,814,105 22,513,391 22,195,407 Dilutive effect of stock options - - - Diluted shares outstanding 22,814,105 22,513,391 22,195,407 IndexFor the 2014 fiscal year, the Company calculated its composite score to be 1.3. This number is subject to determination by the DOE once it receives andreviews the Company’s audited financial statements for the 2014 fiscal year. The Company’s composite score for 2013 was 1.4. The DOE regulationsgenerally permit institutions with a composite score of between 1.0 and 1.4 to participate under the Zone Alternative for a period of up to three consecutivefiscal years. The Company believes that if its composite score is below 1.5 for three consecutive years it will be able to continue to operate under the ZoneAlternative; however, this determination is made solely by the DOE. If the composite score drops below 1.0 in a given year or if the composite score remainsbetween 1.0 and 1.4 for three or more consecutive years, the Company may be required to meet alternative requirements for continuing to participate in TitleIV programs by submitting a letter of credit, complying with monitoring requirements, disbursing Title IV funds under the HCM1, HCM2, or reimbursementpayment methods, and complying with other requirements and conditions. The Company’s existing credit agreement, which expires April 5, 2016, gives itthe ability to draw up to $20 million under the revolving line of credit less letters of credit except that during the period commencing on December 1, 2015through January 15, 2016 the Company is required to reduce the outstanding revolving loans other than letters of credit to $0. If the Company is unable tosell its held for sale assets, leverage its other owned properties or obtain other financing in 2015, the composite score may be less than 1.0 as of December 31,2015.3.WEIGHTED AVERAGE COMMON SHARES The weighted average number of common shares used to compute basic and diluted income per share for the years ended December 31, 2014, 2013 and 2012,respectively were as follows:For the year ended December 31, 2014, 2013 and 2012, options to acquire 119,722; 222,707; and 71,989 shares were excluded from the above table becausethe Company reported a net loss for the year and therefore their impact on reported loss per share would have been antidilutive. For the years endedDecember 31, 2014, 2013 and 2012, options to acquire 795,985; 657,083; and 216,908 shares; respectively, were excluded from the above table becausethey have an exercise price that is greater than the average market price of the Company’s common stock and therefore their impact on reported (loss)earnings per share would have been antidilutive.In 2011, 2013 and 2014, the Company issued certain members of management performance shares that vest when certain performance conditions are met. Asof December 31, 2014, these performance conditions were not met. Accordingly, 360,402 and 441,552 shares of outstanding performance shares have beenexcluded from the computation of diluted earnings per share for the year ended December 31, 2014 and 2013, respectively. Refer to Note 9 for moreinformation on performance shares.4.DISCONTINUED OPERATIONS 2014 EventOn December 3, 2014, the Company’s Board of Directors approved a plan to cease operations at five training sites in Florida. The Company performed a costbenefit analysis on several schools and concluded that the training sites contained a high fixed cost component and has had difficulty attracting enoughstudents due to high competition to maintain a stable profit margin. Accordingly, the Company ceased operations at these campuses as of December 31,2014. This was a strategic shift to close all of the Company’s training sites and all locations that do not accept Title IV payments. The results of operationsof these campuses are reflected as discontinued operations in the consolidated financial statements. F-16 Year Ended December 31, 2014 2013 2012 Revenue $2,140 $3,512 $2,610 Loss before income tax (6,731) (2,635) (1,274)Income tax benefit (85) - (508)Net loss from discontinued operations $(6,646) $(2,635) $(766) Year Ended December 31, 2013 2012 Revenue $7,724 $19,924 Loss before income tax (17,287) (13,641)Income tax expense (benefit) 239 (5,444)Net loss from discontinued operations $(17,526) $(8,197) Year EndedDecember 31, 2012 Revenue $8,500 Loss before income tax (22,142)Income tax benefit (8,837)Net loss from discontinued operations $(13,305)IndexThe results of operations at these five training sites for the three year periods ended December 31, 2014 were as follows (in thousands): Amounts include impairments of goodwill and long-lived assets for these campuses of $2.1 million for the year ended December 31, 2014.2013 EventOn June 18, 2013, the Company’s Board of Directors approved a plan to cease operations at four campuses in Ohio and one campus in Kentucky consistingof the Company’s Dayton institution and its branch campuses. Federal legislation implemented on July 1, 2012 that prohibits “ability to benefit” (“ATB”)students from participating in federal student financial aid programs led to a dramatic decrease in the number of students attending these five campuses. Accordingly, the Company ceased operations at these campuses as of December 31, 2013. The results of operations of these campuses are reflected asdiscontinued operations in the consolidated financial statements.The results of operations at these five campuses for the two year periods ended December 31, 2013 were as follows (in thousands): Amounts include impairments of goodwill and long-lived assets for these campuses of $2.3 million and $8.7 million for the years ended December 31, 2013and 2012, respectively.2012 EventOn July 31, 2012, the Company’s Board of Directors approved a plan to cease operations at seven campuses. The adjustments made to the Company’sbusiness model to better align with the DOE’s increased emphasis on student outcomes and the Company’s efforts to comply with the 90/10 rule and cohortdefault rates greatly impacted the population at these campuses. In addition, the current economic environment and regulatory changes under theConsolidated Appropriations Act, 2012, which eliminated the ability to enroll ATB students, have made these campuses no longer viable. Accordingly, theCompany ceased operations at these campuses as of December 31, 2012. The results of operations are reflected as discontinued operations in theconsolidated financial statements.The results of operations at these seven campuses for the one year periods ended December 31, 2012 were as follows (in thousands):Amounts include impairments of goodwill and long-lived assets for these campuses of $9.5 million for the year ended December 31, 2012. F-17 GrossGoodwillBalance AccumulatedImpairmentLosses NetGoodwillBalance Balance as of January 1, 2013 $117,176 $(51,649) $65,527 Goodwill impairment (1) - (3,062) (3,062)Balance as of December 31, 2013 117,176 (54,711) 62,465 Asset held for sale (2) (1,304) - (1,304)Goodwill impairment (1) - (38,954) (38,954)Balance as of December 31, 2014 $115,872 $(93,665) $22,207 Index5.GOODWILL AND OTHER INTANGIBLES Changes in the carrying amount of goodwill during the years ended December 31, 2014 and 2013 are as follows: (1)$1.8 million and $12.8 million included in discontinued operations in the years ended December 31, 2014 and 2013, respectively.(2)Refer to Note 6 for more information on assets held for sale.Intangible assets, which are included in other assets in the accompanying consolidated balance sheets, consisted of the following: Indefinite TradeName Trade Name Accreditation Curriculum Non-compete Total Gross carrying amount at December 31,2013 $180 $335 $1,166 $1,124 $200 $3,005 Impairment (1) (180) (25) (102) (574) (200) (1,081)Gross carrying amount at December 31,2014 - 310 1,064 550 - 1,924 Accumulated amortization at December 31,2013 - 228 - 828 68 1,124 Impairment (1) - (12) - (448) (95) (555)Amortization - 48 - 89 27 164 Accumulated amortization at December 31,2014 - 264 - 469 - 733 Net carrying amount at December 31,2014 $- $46 $1,064 $81 $- $1,191 Weighted average amortization period(years) 7 Indefinite 10 (1)Refer to Note 1 for more information related to the impairment. F-18Year Ending December 31, 2015 $65 2016 22 2017 20 2018 19 2019 1 $127 Index StudentContracts IndefiniteTradeName Trade Name Accreditation Curriculum Non-compete Total Gross carrying amount at December 31, 2012 $25 $180 $366 $1,268 $1,124 $200 $3,163 Write-off (25) - (31) (102) - - (158)Gross carryingamount at December 31,2013 - 180 335 1,166 1,124 200 3,005 Accumulated amortization at December 31,2012 25 - 209 - 670 28 932 Write-off (25) - (31) - - - (56)Amortization - - 50 - 158 40 248 Accumulated amortization at December 31,2013 - - 228 - 828 68 1,124 Net carrying amount at December 31, 2013 $- $180 $107 $1,166 $296 $132 $1,881 Weighted average amortization period(years) Indefinite 7 Indefinite 9 3 Amortization of intangible assets for the years ended December 31, 2014, 2013 and 2012 was approximately $0.2 million, $0.4 million and $0.3 million,respectively. The following table summarizes the estimated future amortization expense: F-19 Usefullife (years) At December 31, 2014 2013 Land - $5,338 $17,562 Buildings and improvements 1-25 128,973 178,089 Equipment, furniture and fixtures 1-7 71,005 76,769 Vehicles 3 1,300 1,282 Construction in progress - 34 425 206,650 274,127 Less accumulated depreciation and amortization (136,910) (146,795) $69,740 $127,332 Index6.PROPERTY, EQUIPMENT AND FACILITIES Property, equipment and facilities consist of the following: Included above in buildings and improvements are buildings acquired under capital leases as of December 31, 2014 and 2013 of $26.8 million, each net ofaccumulated depreciation of $10.6 million and $8.8 million, respectively.Included above in equipment, furniture and fixtures are assets acquired under capital leases as of December 31, 2014 and 2013 of $0.4 million and $0.4million, respectively, net of accumulated depreciation of $0.4 million and $0.4 million, respectively. Included above in buildings and improvements is capitalized interest as of December 31, 2014 and 2013 of $0.6 million, respectively, net of accumulateddepreciation of $0.5 million and $0.4 million, respectively. Depreciation and amortization expense of property, equipment and facilities was $19.1 million, $23.3 million and $26.4 million for the years endedDecember 31, 2014, 2013 and 2012, respectively. The Company is exploring all options to monetize its assets and as part of the process has decided to put two campuses for sale as of the three months endedDecember 31, 2014. The Company believes this will strengthen its balance sheet and cash position. The Company anticipates that these properties will besold during 2015. Accordingly, the assets have been reflected as “held for sale” in the accompanying consolidated balance sheet.The Company closed its campuses in Suffield, Connecticut in 2012 and Cincinnati, Ohio (Tri-County) in 2013. During 2013, the Company decided to sellthese properties as they were no longer pertinent to continuing operations. The Company anticipated that these properties would be sold during 2014. Accordingly, the assets have been reflected as “held for sale” in the accompanying consolidated balance sheet at December 31, 2013. As of December 31,2014, the Suffield campus is still held for sale and is expected to be sold shortly. The Tri-County campus is no longer for sale.The assets held for sale as a result of the closures consist of the following: At December 31,2014 At December 31,2013 Inventories $411 $- Accounts receivable, less allowance of $1,545 at December 31, 2014 1,527 - Noncurrent receivables, less allowance of $95 at December 31, 2014 671 - Property, equipment and facilities - at cost, net of accumluated depreciation and amortization of$17,843 and $1,418 at December 31, 2014 and 2013, respectively 50,252 6,310 Goodwill 1,304 - Unearned tuition (2,536) - Accrued expenses (699) - Assets held for sale, net $50,930 $6,310 F-20 At December 31, 2014 2013 Accrued compensation and benefits $5,787 $5,128 Accrued rent and real estate taxes $3,251 $2,245 Other accrued expenses 4,827 3,282 $13,865 $10,655 At December 31, 2014 2013 Credit agreement (a) $30,000 $54,500 Finance obligation (b) 9,672 9,672 Capital lease-property (with a rate of 8.0%) (c) 25,509 25,944 65,181 90,116 Less current maturities (30,471) (435) $34,710 $89,681 Index7.ACCRUED EXPENSES Accrued expenses consist of the following: 8.LONG-TERM DEBT AND LEASE OBLIGATIONS Long-term debt and lease obligations consist of the following: (a) On April 5, 2012, the Company, as borrower, and certain of its wholly-owned subsidiaries, as guarantors, entered into a secured revolving credit agreementwith a syndicate of four lenders led by Bank of America, N.A., as administrative agent and letter of credit issuer (the “Credit Facility”). The April 5, 2012agreement, along with subsequent amendments dated June 18, 2013, December 20, 2013, December 29, 2014 and March 4, 2015, are collectively referred toas the “Credit Agreement.” As of December 31, 2013, the aggregate principal amount available under the Credit Facility was $60 million. Effective January 16, 2014, this amount wasreduced to $40 million. Effective January 15, 2015, this amount was reduced to $20 million. During the period commencing on December 1, 2015 throughJanuary 15, 2016 the Company is required to reduce the outstanding revolving loans, other than letters of credit obligations, to $0. The Credit Facility maybe used to finance capital expenditures and permitted acquisitions, to pay transaction expenses, for the issuance of letters of credit and for general corporatepurposes. The Credit Agreement includes a $25 million letter of credit sublimit which is reduced to $20 million effective January 15, 2015. Borrowingsunder the Credit Facility are secured by a first priority lien on substantially all of the tangible and intangible assets of the Company and its subsidiariesincluding real estate. The term of the Credit Facility was 36 months, maturing on April 5, 2015 which was extended on March 4, 2015 for an additional 12months with an expiration date of April 5, 2016.The Credit Agreement provides that the lenders will receive first priority lien on substantially all of the tangible and intangible non-real property assets of theCompany and its subsidiaries as well as a first priority lien on substantially all real property owned by the Company and its subsidiaries and that all netproceeds of future sales of real property by the Company and its subsidiaries be used to prepay revolving loans and permanently reduce the principal amountof revolving loans available under the Credit Facility.In 2014, amounts borrowed as revolving loans under the Credit Facility will bear interest, at the Company’s option, at either (i) an interest rate based onLIBOR and adjusted for any reserve percentage obligations under Federal Reserve Bank regulations (the “Eurodollar Rate”) for specified interest periods or(ii) the Base Rate (as defined in the Credit Agreement), in each case, plus an applicable margin rate as determined under the Credit Agreement. The “BaseRate”, as defined under the Credit Agreement, is the highest of (a) the rate of interest announced from time to time by Bank of America, N.A. as its prime rate,(b) the Federal Funds rate plus 0.50% and (c) a daily rate equal to the one-month LIBOR rate plus 1.0%. Pursuant to the Amendment, the margin interest rateis subject to adjustment within a range of 2.50% to 6.00% based upon changes in the Company’s consolidated leverage ratio and depending on whether theCompany has chosen the Eurodollar Rate or the Base Rate option. Letters of credit will require a fee equal to the applicable margin rate multiplied by thedaily amount available to be drawn under each issued letter of credit plus an agreed upon fronting fee and customary issuance, presentation, amendment andother processing fees associated with letters of credit.At December 31, 2014, the Company had outstanding letters of credit aggregating $7.1 million, which were primarily comprised of letters of credit for theDepartment of Education, or DOE, matters and real estate leases. F-21Year ending December 31, 2015 $30,471 2016 10,244 2017 748 2018 810 2019 877 Thereafter 22,031 $65,181 IndexThe Credit Agreement contains customary representations, warranties and covenants including consolidated adjusted net worth, consolidated leverage ratio,consolidated fixed charge coverage ratio, minimum financial responsibility composite score, cohort default rate and other financial covenants, certainrestrictions on capital expenditures as well as affirmative and negative covenants and events of default customary for facilities of this type. In addition, theCompany is paying fees to the lenders that are customary for facilities of this type. As of December 31, 2014 the Company is in compliance with all financialcovenants.As of December 31, 2014, the Company had $30.0 million outstanding under the Credit Agreement. The interest rate on borrowings under the CreditAgreement during the year ended December 31, 2014 was 7.25%. All amounts outstanding on December 31, 2014 were repaid on January 14, 2015. TheCompany had $54.5 million outstanding under the Credit Agreement as of December 31, 2013. The interest rate on this borrowing was 7.25%.(b) The Company completed a sale and a leaseback of several facilities on December 28, 2001. The Company retained a continuing involvement in the leaseand as a result it is prohibited from utilizing sale-leaseback accounting. Accordingly, the Company has treated this transaction as a finance lease. Rentpayments under this obligation for the three years in the period ended December 31, 2014 were $1.6 million, respectively. These payments have beenreflected in the accompanying consolidated statements of operations as interest expense for all periods presented since the effective interest rate on theobligation is greater than the scheduled payments. The lease expiration date is December 31, 2016.(c) In 2009, the Company assumed real estate capital leases in Fern Park, Florida and Hartford, Connecticut. These leases bear interest at 8% and expire in2032 and 2031, respectively.Scheduled maturities of long-term debt and lease obligations at December 31, 2014 are as follows: 9. STOCKHOLDERS' EQUITYRestricted StockThe Company has two stock incentive plans: a Long-Term Incentive Plan (the “LTIP”) and a Non-Employee Directors Restricted Stock Plan (the “Non-Employee Directors Plan”).Under the LTIP, certain employees received awards of restricted shares of common stock based on service and performance. The number of shares granted toeach employee is based on the fair market value of a share of common stock on the date of grant.All service-based restricted shares granted prior to February 23, 2011 vest ratably on the first through fifth anniversaries of the grant date. The service-basedrestricted shares granted on or after February 23, 2011 vest ratably on the grant date and the first through fourth anniversaries of the grant date except for theservice-based restricted shares granted on March 2, 2012 which vest fully on the first anniversary of the grant date.On June 2, 2014 and December 18, 2014, performance-based shares were granted which vest over three years based upon the attainment of (i) a specifiedoperating income margin during any one or more of the fiscal years in the period beginning January 1, 2015 and ending December 31, 2017 and (ii) theattainment of earnings before interest, taxes, depreciation and amortization targets during each of the fiscal years ended December 31, 2015 through 2017. There is no vesting period on the right to vote or the right to receive dividends on any of the restricted shares.On April 29, 2013, performance-based shares were granted which vest over four years based upon the attainment of (i) a specified operating income marginduring any one or more of the fiscal years in the period beginning January 1, 2013 and ending December 31, 2016 and (ii) the attainment of earnings beforeinterest, taxes, depreciation and amortization targets during each of the fiscal years ended December 31, 2013 through 2016. There is no vesting period onthe right to vote or the right to receive dividends on any of the restricted shares. F-22 Shares WeightedAverage Grant Date Fair ValuePer Share Nonvested restricted stock outstanding at December 31, 2012 1,341,084 $7.79 Granted 434,308 5.62 Cancelled (33,529) 16.70 Vested (493,917) 7.41 Nonvested restricted stock outstanding at December 31, 2013 1,247,946 6.77 Granted 337,100 3.50 Cancelled (178,792) 6.47 Vested (480,435) 5.36 Nonvested restricted stock outstanding at December 31, 2014 925,819 5.04 IndexOn April 29, 2011, performance-based shares were granted which vest over four years based upon the attainment of (i) a specified operating income marginduring any one or more of the fiscal years in the period beginning January 1, 2011 and ending December 31, 2014 and (ii) the attainment of earnings beforeinterest, taxes, depreciation and amortization targets during each of the fiscal years ended December 31, 2011 through 2014. There is no vesting period onthe right to vote or the right to receive dividends on any of the restricted shares.Pursuant to the Non-Employee Directors Plan, each non-employee director of the Company receives an annual award of restricted shares of common stock onthe date of the Company’s annual meeting of shareholders. The number of shares granted to each non-employee director is based on the fair market value of ashare of common stock on that date. The restricted shares vest on the first anniversary of the grant date; however, there is no vesting period on the right tovote or the right to receive dividends on these restricted shares.In 2014, 2013 and 2012, the Company completed a net share settlement for 144,983, 140,475 and 102,438 restricted shares and stock options exercised,respectively, on behalf of certain employees that participate in the LTIP upon the vesting of the restricted shares pursuant to the terms of the LTIP or exerciseof the stock options. The net share settlement was in connection with income taxes incurred on restricted shares or stock option exercises that vested andwere transferred to the employee during 2014, 2013 and/or 2012, creating taxable income for the employee. At the employees’ request, the Company willpay these taxes on behalf of the employees in exchange for the employees returning an equivalent value of restricted shares or stock options to theCompany. These transactions resulted in a decrease of approximately $0.4 million, $0.8 million and $0.5 million in 2014, 2013 and 2012, respectively, toequity as the cash payment of the taxes effectively was a repurchase of the restricted shares or stock options granted in previous years.The following is a summary of transactions pertaining to restricted stock:The restricted stock expense for each of the years ended December 31, 2014, 2013 and 2012 was $2.5 million, $2.9 million and $4.0 million, respectively.The unrecognized restricted stock expense as of December 31, 2014 and 2013 was $4.2 million and $7.4 million, respectively. As of December 31, 2014,unrecognized restricted stock expense will be expensed over the weighted-average period of approximately 2.12 years. As of December 31, 2014,outstanding restricted shares under the LTIP had an aggregate intrinsic value of $2.6 million. F-23 At December 31,2012 Expected volatility 51.25%Expected dividend yield 4%Expected life (term) 4.65 Years Risk-free interest rate 0.87%Weighted-average exercise price during the year $7.79 IndexStock OptionsThe fair value of the stock options used to compute stock-based compensation is the estimated present value at the date of grant using the Black-Scholesoption pricing model. During 2014 and 2013 there were no new stock option grants. The weighted average fair values of options granted during 2012 was$2.52 using the following weighted average assumptions for grants: The expected volatility considers the volatility of the Company common stock that has been traded for a period commensurate with the expected life. Theexpected term of options granted represents the period of time that options granted are expected to be outstanding based on historical experience. The risk-free rate used is based on the published U.S. Treasury yield curve in effect at the time of grant for instruments with a similar life. The 2012 expected dividendyield presumes a set dividend rate based on the current dividend yield.The following is a summary of transactions pertaining to the option plans: Shares Weighted AverageExercise PricePer Share Weighted AverageRemaining Contractual Term AggregateIntrinsic Value Outstanding December 31, 2011 533,375 $16.60 4.68 years $- Granted 157,000 7.79 Cancelled (34,500) 12.26 - Outstanding December 31, 2012 655,875 14.72 4.89 years - Cancelled (108,750) 14.64 - Outstanding December 31, 2013 547,125 14.73 4.56 years - Cancelled (122,958) 18.49 Outstanding December 31, 2014 424,167 13.65 4.18 years - Vested or expected to vest as of December 31, 2014 415,035 13.77 4.11 years - Exercisable as of December 31, 2014 378,507 14.35 3.82 years - As of December 31, 2014, unrecognized pre-tax compensation expense for all unvested stock option awards is approximately $20 thousand which will beexpensed over the weighted-average period of approximately 0.2 years.The following table presents a summary of options outstanding at December 31, 2014: At December 31, 2014 Stock Options Outstanding Stock Options Exercisable Range of Exercise Prices Shares ContractualWeightedAverage life (years) Weighted Average Price Shares WeightedExercise Price $4.00-$13.99 232,334 5.27 $9.50 186,674 $9.92 $14.00-$19.99 133,333 2.50 17.86 133,333 17.86 $20.00-$25.00 58,500 3.67 20.48 58,500 20.48 424,167 4.18 13.65 378,507 14.35 F-24 At December 31, 2014 2013 2012 Noncurrent liabilities $(5,299) $(1,522) $(6,901) Year Ended December 31, 2014 2013 2012 Accumulated loss $(9,833) $(5,928) $(11,276)Deferred income taxes 2,366 2,366 4,500 Accumulated other comprehensive loss $(7,467) $(3,562) $(6,776)Index10.PENSION PLAN The Company sponsors a noncontributory defined benefit pension plan covering substantially all of the Company's union employees. Benefits are providedbased on employees' years of service and earnings. This plan was frozen on December 31, 1994 for non-union employees. The following table sets forth the plan's funded status and amounts recognized in the consolidated financial statements: Year Ended December 31, 2014 2013 2012 CHANGES IN BENEFIT OBLIGATIONS: Benefit obligation-beginning of year $20,314 $23,169 $21,233 Service cost 23 37 35 Interest cost 892 790 872 Actuarial loss (gain) 4,149 (2,614) 1,926 Benefits paid (1,079) (1,068) (897)Benefit obligation at end of year 24,299 20,314 23,169 CHANGE IN PLAN ASSETS: Fair value of plan assets-beginning of year 18,792 16,268 14,639 Actual return on plan assets 1,017 2,919 1,807 Employer contributions 270 673 719 Benefits paid (1,079) (1,068) (897)Fair value of plan assets-end of year 19,000 18,792 16,268 BENEFIT OBLIGATION IN EXCESS OF FAIR VALUE FUNDED STATUS: $(5,299) $(1,522) $(6,901) For the year ended December 31, 2014, the actuarial loss of 4.1 million was due to the decrease in the discount rate from 4.46% to 3.66% of $2.1 million andthe change in the mortality assumption of $2.0 million. The mortality table was changed from the RP-2000 Annuitants and Non-Annuitants Mortality Tablesfor males and females projected with Scale AA to the valuation year with an additional 7 years and 15 years projected for Annuitants and Non-Annuitants,respectively to the Generational RP-2014 Separate Annuitant and Non-Annuitant Mortality Tables, projected with Scale MP-2014, for males and females.Amounts recognized in the consolidated balance sheets consist of: Amounts recognized in accumulated other comprehensive loss consist of: The accumulated benefit obligation was $24.3 million and $20.3 million at December 31, 2014 and 2013, respectively. F-25 Quoted Prices inActive Marketsfor IdenticalAssets Significant OtherObservable Inputs SignificantUnobservable Inputs (Level 1) (Level 2) (Level 3) Total Equity securities $9,566 $- $- $9,566 Fixed income 6,099 - - 6,099 International equities 3,328 - - 3,328 Cash and equivalents 7 - - 7 Balance at December 31, 2014 $19,000 $- $- $19,000 Quoted Prices inActive Markets for IdenticalAssets Significant OtherObservable Inputs Significant Unobservable Inputs (Level 1) (Level 2) (Level 3) Total Equity securities $9,491 $- $- $9,491 Fixed income 5,787 - - 5,787 International equities 3,484 - - 3,484 Cash and equivalents 30 - - 30 Balance at December 31, 2013 $18,792 $- $- $18,792 2014 2013 2012 Equity securities 50% 51% 46%Fixed income 32% 31% 36%International equities 18% 18% 18%Cash and equivalents 0% 0% 0%Total 100% 100% 100%IndexThe following table provides the components of net periodic cost for the plan: Year Ended December 31, 2014 2013 2012 COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $23 $37 $35 Interest cost 892 790 872 Expected return on plan assets (1,287) (1,141) (1,021)Recognized net actuarial loss 513 955 1,056 Net periodic benefit cost $141 $641 $942 The estimated net loss, transition obligation and prior service cost for the plan that will be amortized from accumulated other comprehensive loss into netperiodic benefit cost over the next year is $0.9 million.Employee pension plan adjustments of $3.9 million for the year ended December 31, 2014 includes $0.5 million of recognized actuarial losses reclassifiedfrom accumulated other comprehensive income.The following tables present plan assets using the fair value hierarchy as of December 31, 2014 and 2013. The fair value hierarchy has three levels based onthe reliability of inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using observable prices that are based on inputs not quoted in active markets but observable by market data, whileLevel 3 includes the fair values estimated using significant non-observable inputs. The level in the fair value hierarchy within which the fair valuemeasurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Fair value of total plan assets by major asset category as of December 31: F-26 2014 2013 2012 Discount rate 3.66% 4.46% 3.55%Rate of compensation increase 6.75% 2.00% 1.75% 2014 2013 2012 Discount rate 4.46% 3.55% 4.10%Rate of compensation increase 1.13% 2.00% 4.00%Long-term rate of return 7.00% 7.00% 7.00%Year Ending December 31, 2015 $1,132 2016 1,187 2017 1,269 2018 1,360 2019 1,390 Years 2020-2024 7,129 IndexWeighted-average assumptions used to determine benefit obligations as of December 31: Weighted-average assumptions used to determine net periodic pension cost for years ended December 31: As this plan was frozen to non-union employees on December 31, 1994, the difference between the projected benefit obligation and accumulated benefitobligation is not significant in any year. The Company invests plan assets based on a total return on investment approach, pursuant to which the plan assets include a diversified blend of equity andfixed income investments toward a goal of maximizing the long-term rate of return without assuming an unreasonable level of investment risk. The Companydetermines the level of risk based on an analysis of plan liabilities, the extent to which the value of the plan assets satisfies the plan liabilities and the plan'sfinancial condition. The investment policy includes target allocations ranging from 30% to 70% for equity investments, 20% to 60% for fixed incomeinvestments and 0% to 10% for cash equivalents. The equity portion of the plan assets represents growth and value stocks of small, medium and largecompanies. The Company measures and monitors the investment risk of the plan assets both on a quarterly basis and annually when the Company assessesplan liabilities. The Company uses a building block approach to estimate the long-term rate of return on plan assets. This approach is based on the capital marketsassumption that the greater the volatility, the greater the return over the long term. An analysis of the historical performance of equity and fixed incomeinvestments, together with current market factors such as the inflation and interest rates, are used to help make the assumptions necessary to estimate a long-term rate of return on plan assets. Once this estimate is made, the Company reviews the portfolio of plan assets and makes adjustments thereto that theCompany believes are necessary to reflect a diversified blend of equity and fixed income investments that is capable of achieving the estimated long-termrate of return without assuming an unreasonable level of investment risk. The Company also compares the portfolio of plan assets to those of other pensionplans to help assess the suitability and appropriateness of the plan's investments. The Company does not expect to make contributions to the plan in 2015. However after considering the funded status of the plan, movements in thediscount rate, investment performance and related tax consequences, the Company may choose to make additional contributions to the plan in any givenyear. The total amount of the Company’s contributions paid under its pension plan was $0.3 million and $0.7 million for the years ended December 31, 2014 and2013, respectively. Information about the expected benefit payments for the plan is as follows: The Company has a 401(k) defined contribution plan for all eligible employees. Employees may contribute up to 25% of their compensation into the plan.The Company will contribute an additional 30% of the employee's contributed amount up to 6% of compensation. For the years ended December 31, 2014,2013 and 2012, the Company's expense for the 401(k) plan amounted to $1.6 million, $1.9 million and $2.0 million, respectively. F-27 Year Ended December 31, 2014 2013 2012 Current: Federal $- $(7,369) $9,720 State 200 709 2,226 Total 200 (6,660) 11,946 Deferred: Federal (3,828) 21,103 (11,394)State (597) 5,148 (2,834)Total (4,425) 26,251 (14,228) Total provision (benefit) $(4,225) $19,591 $(2,282)Index11.INCOME TAXES Components of the provision for income taxes from continuing operations were as follows: The components of the deferred tax assets are as follows: At December 31, 2014 2013 Deferred tax assets Current: Accrued vacation $- $79 Allowance for bad debts 5,527 5,502 Total current deferred tax assets 5,527 5,581 Deferred tax assets Noncurrent: Allowance for bad debts 399 392 Accrued rent 3,255 3,669 Stock-based compensation 907 1,509 Depreciation 15,754 10,670 Goodwill 1,002 - Other intangibles 452 434 Pension plan liabilities 2,115 608 Net operating loss carryforwards 14,332 6,285 Sale leaseback-deferred gain 2,580 2,531 AMT credit 424 424 Total noncurrent deferred tax assets 41,220 26,522 Total deferred tax assets 46,747 32,103 Less valuation allowance (46,747) (31,679)Deferred tax assets, net of valuation allowance - 424 Deferred tax liabilities Noncurrent: Goodwill - (4,952)Total deferred tax liabilities - (4,952)Total net noncurrent deferred tax (liabilities) assets - (4,528)Total net deferred tax (liabilities) assets $- $(4,528)Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existingdeferred tax assets. A significant piece of objective negative evidence was the cumulative losses incurred by the Company in recent years. F-28 Year Ended December 31, 2014 2013 2012 Balance at January 1, $- $135 $100 Decrease for tax positions of prior years - (135) (100)Increase for tax positions of current year - - 135 Balance at December 31, $- $- $135 IndexOn the basis of this evaluation the Company believes it is not more likely than not that it will realize its net deferred tax assets. As a result, as of December31, 2014 and 2013, the Company has recorded a valuation allowance of $46.7 million and $31.7 million, respectively, against its net deferred tax assets,excluding the indefinite life assets which generated a deferred tax liability.The difference between the actual tax provision and the tax provision that would result from the use of the Federal statutory rate is as follows: Year Ended December 31, 2014 2013 2012 Loss from continuing operations beforetaxes $(53,712) $(11,534) $(17,201) Expected tax benefit $(18,799) 35.0% $(4,037) 35.0% $(6,020) 35.0%State tax benefit (net of federal) (1,494) 2.8 (92) 0.8 (395) 2.3 Permanent impairment 6,539 (12.2) - - 3,588 (20.9)Valuation allowance 9,344 (17.4) 23,490 (203.7) - - Other 185 (0.3) 230 (2.0) 545 (3.2)Total $(4,225) 7.9% $19,591 -169.9% $(2,282) 13.2%As of December 31, 2014 and 2013, the Company has NOL carryforwards of $32.3 million and $12.3 million, respectively, which, if unused, will expirebeginning in 2027 and ending in 2034. Of these NOLs, $7.8 million and $7.8 million are limited in the amount that can be utilized in a given year due to aSection 382 limitation for December 31, 2014 and 2013, respectively.The following table summarizes the activity related to the Company’s uncertain tax positions:As of December 31, 2014 and 2013, the Company no longer has any liability for uncertain tax positions. Included in the balance of unrecognized taxbenefits at December 31, 2012 is an unrecognized tax benefits of $0.1 million.The Company recognizes accrued interest and penalties related to uncertain tax positions in income tax expense. During the years ended December 31,2012, the interest and penalties expense associated with uncertain tax positions are not significant to its results of operations or financial position.The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states. The Company is no longer subject to U.S.federal income tax examinations for years before 2010 and generally, is no longer subject to state and local income tax examinations by tax authorities foryears before 2009.12.SEGMENT REPORTING Each of the Company’s schools is a reporting unit and an operating segment. The Company’s operating segments have been aggregated into one reportablesegment because, in the Company’s judgment, the reporting units have similar products, production processes, types of customers, methods of distribution,regulatory environment and economic characteristics. F-29Year Ending December 31, FinanceObligation OperatingLeases Capital Leases 2015 $1,564 $19,666 $2,494 2016 1,564 15,892 2,556 2017 - 14,843 2,678 2018 - 14,028 2,678 2019 - 12,077 2,678 Thereafter - 23,760 34,460 3,128 100,266 47,544 Less amount representing interest (3,128) - (22,035) $- $100,266 $25,509 Index13.COMMITMENTS AND CONTINGENCIES Lease Commitments—The Company leases office premises, educational facilities and various equipment for varying periods through the year 2032 at basicannual rentals (excluding taxes, insurance, and other expenses under certain leases) as follows: On December 28, 2001, the Company completed a sale and a leaseback of four owned facilities to a third party for net proceeds of approximately$8.8 million. The initial term of the lease is 15 years with two ten-year extensions. The lease is an operating lease that starts at $1.2 million in the first yearand increases annually by the consumer price index. The lease includes an option near the end of the initial lease term to purchase the facilities at fair value,as defined. The net proceeds received have been reflected in the consolidated balance sheet as a finance obligation. The lease payments are included as acomponent of interest expense. Rent expense, included in operating expenses in the accompanying consolidated statements of operations for the three years ended December 31, 2014, 2013and 2012 is $20.5 million, $21.1 million and $21.3 million, respectively. Interest expense related to the financing obligation in the accompanyingstatements of operations for the years ended December 31, 2014, 2013 and 2012 is $1.6 million, $1.5 million, and $1.5 million respectively.Litigation and Regulatory Matters—In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims, including, butnot limited to, claims involving students or graduates and routine employment matters. Although we cannot predict with certainty the ultimate resolution oflawsuits, investigations and claims asserted against us, we do not believe that any currently pending legal proceeding to which we are a party will have amaterial effect on our business, financial condition, results of operations or cash flows.On November 21, 2012, we received a Civil Investigation Demand from the Attorney General of the Commonwealth of Massachusetts relating to theirinvestigation of whether we and certain of our academic institutions have complied with certain Massachusetts state consumer protection and finance laws.On July 29, 2013 and January 17, 2014, we received follow-up Civil Investigative Demands. Pursuant to the Civil Investigative Demands, the AttorneyGeneral has requested from us and certain of our academic institutions documents and detailed information from the time period January 1, 2008 to thepresent. The Company has responded to this request and intends to continue cooperating with the Attorney General’s Office.In accordance with applicable accounting guidance, the Company establishes a loss contingency for litigation and regulatory matters when those matterspresent loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. A losscontingency in the amount of $1.0 million was established for the year ended December 31, 2014. The Company continues to monitor the matter for furtherdevelopments that could affect the amount of the liability that has been established. Student Loans—At December 31, 2014, the Company had outstanding net loan commitments to its students to assist them in financing their education ofapproximately $24.1 million.Vendor Relationship—The Company is party to an agreement with Matco Tools (“Matco”) which expire on July 31, 2017. The Company has agreed togrant Matco exclusive access to the 12 campuses and its students and instructors. This exclusivity includes but is not limited to, all other tool manufacturersand/or tool distributors, by whatever means, during the term of the agreement. Under the agreement, the Company will be provided on an advancecommission basis, credits in branded tools, tools storage, equipment, and diagnostics products over the term of the contract.The Company is party to an agreement with Snap-on Industrial (“Snap-on”) which expire on December 31, 2015. The Company has agreed to grant Snap-onexclusive rights to one automotive campus to display advertising and supply certain tools. The Company earns credits that are redeemable for certain toolsand equipment based on the sales to students and to the Company. F-30IndexExecutive Employment Agreements—The Company entered into employment contracts with key executives that provide for continued salary payments ifthe executives are terminated for reasons other than cause, as defined in the agreements. The future employment contract commitments for such employeeswere approximately $5.0 million at December 31, 2014. Change in Control Agreements—In the event of a change of control several key executives will receive continued salary payments based on theiremployment agreements. Surety Bonds—Each of the Company’s campuses must be authorized by the applicable state education agency in which the campus is located to operate andto grant degrees, diplomas or certificates to its students. The campuses are subject to extensive, ongoing regulation by each of these states. In addition, ourcampuses are required to be authorized by the applicable state education agencies of certain other states in which our campuses recruit students. TheCompany is required to post surety bonds on behalf of our campuses and education representatives with multiple states to maintain authorization to conductour business. At December 31, 2014, the Company has posted surety bonds in the total amount of approximately $15.1 million.14.UNAUDITED QUARTERLY FINANCIAL INFORMATION Quarterly financial information for 2014 and 2013 is as follows: Quarter 2014 First Second Third (1) Fourth (2) Revenue $79,202 $76,389 $83,982 $85,449 (Loss) income from continuing operations (10,291) (10,944) (35,364) 7,112 Loss from discontinued operations (803) (652) (2,717) (2,474)Net (loss) income (11,094) (11,596) (38,081) 4,638 Basic (Loss) earnings per share from continuing operations $(0.45) $(0.48) $(1.55) $0.31 Loss per share from discontinued operations (0.04) (0.03) (0.12) (0.11)Net (loss) earnings per share $(0.49) $(0.51) $(1.67) $0.20 Diluted (Loss) earnings per share from continuing operations $(0.45) $(0.48) $(1.55) $0.31 Loss per share from discontinued operations (0.04) (0.03) (0.12) (0.11)Net (loss) earnings per share $(0.49) $(0.51) $(1.67) $0.20 Weighted average number of common shares outstanding: Basic 22,723 22,800 22,843 22,888 Diluted 22,723 22,800 22,843 23,004 (1)Includes impairment of goodwill and long-lived assets from continuing operations of $39.3 million.(2)Includes impairment of long-lived assets from continuing operations of $1.5 million. F-31Index Quarter 2013 First Second Third Fourth Revenue $85,387 $80,943 $87,740 $87,441 (Loss) income from continuing operations (4,884) (6,280) 564 (20,525)Loss from discontinued operations (2,603) (3,098) (2,840) (11,620)Net loss (7,487) (9,378) (2,276) (32,145)Basic (Loss) earnings per share from continuing operations $(0.22) $(0.28) $0.03 $(0.91)Loss per share from discontinued operations (0.11) (0.14) (0.13) (0.51)Net loss per share $(0.33) $(0.42) $(0.10) $(1.42)Diluted (Loss) earnings per share from continuing operations $(0.22) $(0.28) $0.02 $(0.91)Loss per share from discontinued operations (0.11) (0.14) (0.12) (0.51)Net loss per share $(0.33) $(0.42) $(0.10) $(1.42) Weighted average number of common shares outstanding: Basic 22,414 22,497 22,528 22,618 Diluted 22,414 22,497 22,811 22,618 15.DIVIDENDS During 2014, 2013 and 2012, the Board of Directors declared cash dividends of $0.18, $0.28 and $0.28 per share of common stock outstanding, respectively. On February 27, 2015, our Board of Directors discontinued the quarterly cash dividend.16.SUBSEQUENT EVENT On February 27, 2015, our Board of Directors approved a plan to cease operations at the Fern Park, Florida school which is scheduled to close in the firstquarter of 2016. F-32IndexLINCOLN EDUCATIONAL SERVICES CORPORATION Schedule II—Valuation and Qualifying Accounts (in thousands, continuing and discontinued operations) Description Balance atBeginningof Period Charged to Expense AccountsWritten-off Balance at End ofPeriod Allowance accounts for the year ended: December 31, 2014 Student receivable allowance $14,769 $15,500 $(15,420) $14,849 December 31, 2013 Student receivable allowance $18,829 $15,532 $(19,592) $14,769 December 31, 2012 Student receivable allowance $21,858 $21,056 $(24,085) $18,829 F-33Exhibit 10.9 [LESC LETTERHEAD]March 12, 2015Mr. Kenneth M. Swisstackc/o Lincoln Educational Services Corporation200 Executive Drive, Suite 340West Orange, New Jersey 07052Dear Ken:Reference is made to the Employment Agreement dated as of June 2, 2014 (the “Employment Agreement”), between Lincoln Educational ServicesCorporation, a New Jersey corporation (the “Company”) and you. Capitalized terms used herein and not otherwise defined shall have the meanings ascribedto them in the Employment Agreement. It is our mutual intention to amend the Employment Agreement as set forth below, and accordingly, the parties heretoagree as follows:1. Section 2.2 of the Employment Agreement is hereby deleted in its entirety and the following inserted in its place:“2.2 Term of Employment. The Executive’s employment under this Agreement shall terminate on December 31, 2016, unless terminated earlierpursuant to Section 5 or extended pursuant to Section 6.1 (the “Employment Period”).”2. Section 3.1 of the Employment Agreement is hereby deleted in its entirety and the following inserted in its place:“3.1 Base Salary. Subject to the provisions of Sections 5 and 6, the Executive shall be entitled to receive a base salary (the “Base Salary”) at arate of $306,000 per annum, such rate to be effective as of January 1, 2015. Such rate may be adjusted upwards, but not downwards, from time-to-time by the Board or the Committee, in their sole discretion. The Base Salary shall be paid in equal installments on a biweekly basis or inaccordance with the Company’s current payroll practices, less all required deductions. The Base Salary shall be pro-rated for any period of serviceless than a full year.”This letter agreement constitutes an amendment to all applicable provisions of the Employment Agreement. All of the other provisions of the EmploymentAgreement, that are not modified hereunder, shall remain in full force and effect. Please confirm your agreement to the foregoing by signing the enclosed counterpart copy of this letter in the space provided below and returning such signedcounterpart to the Company, whereupon, after full execution by both parties, this letter will constitute an agreement between us. Sincerely, Lincoln Educational Services Corporation By:/s/ Shaun E. McAlmont Name:Shaun E. McAlmont Title:Chief Executive OfficerAccepted and Agreed:/s/ Kenneth M. SwisstackKenneth M. SwisstackDate: March 12, 2015 Exhibit 10.10 EMPLOYMENT AGREEMENT (this “Agreement”), dated as of March 12, 2015, between LINCOLN EDUCATIONAL SERVICESCORPORATION, a New Jersey corporation (the “Company”), and Brian K. Meyers (the “Executive”).WHEREAS, the Executive is currently employed by the Company;WHEREAS, the parties desire to enter into an agreement setting forth the terms and conditions of the Executive’s employment with theCompany;NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows:1. EFFECTIVENESS OF AGREEMENT.This Agreement shall become effective as of the date hereof.2. EMPLOYMENT AND DUTIES.2.1 Position and Duties. The Company hereby continues to employ the Executive, and the Executive agrees to serve, as Executive VicePresident, Chief Financial Officer and Treasurer of the Company, upon the terms and conditions contained in this Agreement. The Executive shall report tothe Chief Executive Officer of the Company and perform the duties and services for the Company commensurate with the Executive’s position. Except asmay otherwise be approved in advance by the Company’s Board of Directors (the “Board”) or the Compensation Committee of the Board (the “Committee”),the Executive shall render his services exclusively to the Company during his employment under this Agreement and shall devote substantially all of hisworking time and efforts to the business and affairs of the Company.2.2 Term of Employment. The Executive’s employment under this Agreement shall terminate on December 31, 2016, unless terminatedearlier pursuant to Section 5 or extended pursuant to Section 6.1 (the “Employment Period”).2.3 Location of Work. The Executive shall be based in the United States in West Orange, New Jersey. However, the Executive agrees toundertake whatever domestic and worldwide travel is required by the Company. The Executive shall not be required or permitted to relocate without themutual, written consent of the Executive and the Company.3. COMPENSATION.3.1 Base Salary. Subject to the provisions of Sections 5 and 6, the Executive shall be entitled to receive a base salary (the “Base Salary”)at a rate of $301,337 per annum, such rate to be effective as of January 1, 2015. Such rate may be adjusted upwards, but not downwards, from time to time bythe Board or the Committee, in their sole discretion. The Base Salary shall be paid in equal installments on a biweekly basis or in accordance with theCompany’s current payroll practices, less all required deductions. The Base Salary shall be pro-rated for any period of service less than a full year. 3.2 Annual Bonus. Subject to the provisions of Sections 5 and 6, the Executive shall be eligible to earn an annual bonus for 2014 andeach full calendar year thereafter during the Employment Period (the “Annual Bonus”), the amount of which shall be based upon performance targets or suchother criteria that are determined by the Board or the Committee pursuant to the provisions of the Company’s Key Management Team IncentiveCompensation Plan ( the “Incentive Plan”) in effect for the applicable calendar year. The Company shall pay the Annual Bonus to the Executive no later thanMarch 15th following the end of the applicable fiscal year. The Annual Bonus shall be prorated for any year in which the Executive’s employment isterminated due to death or Disability, as defined in Appendix A. If during the Employment Period the Executive’s employment is terminated by theCompany (or any successor thereto) for Cause, as defined in Exhibit A, or the Executive resigns from his employment other than for Good Reason, as definedin Exhibit A, prior to the payout of any Annual Bonus due for a completed calendar, the Executive shall not receive such Annual Bonus.3.3 Reimbursement of Expenses. The Company shall reimburse the Executive for reasonable travel and other business expenses incurredby him in the fulfillment of his duties hereunder upon presentation by the Executive of an itemized account of such expenditures, in accordance withCompany practices.4. EMPLOYEE BENEFITS.4.1 General. The Executive shall, during the Employment Period, be included, to the extent eligible thereunder, in all employee benefitplans, programs and arrangements (including, without limitation, any plans, programs or arrangements providing for retirement benefits, profit sharing,disability benefits, health and life insurance or vacation and paid holidays) that shall be established by the Company for, or made available to, its seniorexecutives. In addition, the Company shall furnish the Executive with coverage by the Company’s customary director and officer indemnificationarrangements, subject to applicable law.4.2 Automobile. During the Employment Period, the Company shall provide the Executive with an automobile for business and personaluse and pay for associated costs, including automobile insurance, parking and fuel, in accordance with the Company’s practices as consistently applied toother key employees.5. TERMINATION OF EMPLOYMENT.5.1 Effect of an Involuntary Termination. Subject to the provisions of Sections 6 and 9.5, if during the Employment Period there is an“Involuntary Termination” (as defined below) of the Executive’s employment, the Company shall pay to the Executive:(i) an amount equal to one and one-half times the sum of (x) the Executive’s annual Base Salary, at a rate in effect at the date of suchtermination plus (y) the average of the Annual Bonuses paid to the Executive for the two years immediately prior to the year in which theInvoluntary Termination occurs;(ii) all outstanding reasonable travel and other business expenses that he incurred as of the date of his termination; 2(iii) an additional cash amount equal to the Company’s estimate of the employer portion of the premiums that would be necessary tocontinue the Executive’s health care coverage until the first anniversary of the date of such Involuntary Termination; provided, however, that if priorto payment of such cash amount the Executive becomes covered under another group health plan (which coverage, once obtained, must be promptlydisclosed by the Executive to the Company), such cash amount shall be prorated to cover only the period from the date of the Executive’sInvoluntary Termination until the date on which such alternate coverage starts; and(iv) a prorated Annual Bonus for the year in which the Involuntary Termination occurs, calculated by multiplying (A) the Annual Bonusto which the Executive would have been entitled under Section 3.2 if his employment had continued through the end of such year by (B) a prorationfraction the numerator of which is the number of days in such calendar year up to and including the date of the Executive’s Involuntary Terminationand the denominator of which is 365.The Executive shall also be entitled to receive any other accrued compensation and benefits otherwise payable to him as of the date of his termination,including, without limitation, any Annual Bonus due for a completed calendar year. All payments made under Sections 5.1(i), (ii) and (iii) above shall bemade by the Company (or its successor) in a lump-sum amount on the 60th day following the Executive’s termination of employment, and payment madeunder Section 5.1(iv) above shall be made by the Company (or its successor) in a lump-sum amount on the date that bonuses for the year in which theExecutive’s Involuntary Termination occurs are paid generally to the Company’s senior executives (but no later than March 15th of the year following theyear in which the Executive’s Involuntary Termination occurs).The Company shall not be required to make the payments and provide the benefits provided for under this Section 5.1 unless (1) the Executive executes anddelivers to the Company, within sixty days following the Executive’s termination of employment, a Waiver and Release (relating to the Executive’s releaseof claims against the Company Group (as defined below) in the form provided by the Company, and the Waiver and Release has become effective andirrevocable in its entirety, and (2) the Executive remains in material compliance with the restrictive covenants set forth in Section 9 of this Agreement. TheExecutive’s failure or refusal to sign the Waiver and Release (or the revocation of such Waiver and Release in accordance with applicable laws) or theExecutive’s failure to materially comply with the restrictive covenants in Section 9 shall result in the forfeiture of the payments and benefits payable underthis Section 5.1.For purposes of this Agreement, “Involuntary Termination” means the termination of the Executive’s employment (i) by the Company (or any successorthereto) without Cause, as defined in Appendix A, or (ii) by the Executive for Good Reason, as defined in Appendix A.5.2 Effect of a Termination for Cause or Resignation without Good Reason. Subject to the provisions of Sections 3.2 and 6, if during theEmployment Period, the Executive’s employment is terminated by the Company (or any successor thereto) for Cause or the Executive resigns from hisemployment other than for Good Reason, the Company shall pay to the Executive, any (i) accrued but unpaid Base Salary earned through the date of histermination, (ii) unreimbursed expenses, plus (iii) accrued but unpaid employee benefits set forth in Section 4.1 above as determined in accordance with theprovisions of the applicable employee benefit plans or programs of the Company. 35.3 Effect of a Termination due to Death or Disability. Subject to the provisions of Sections 3.2 and 6, if during the Employment Period,the Executive’s employment is terminated by the Company (or any successor thereto) due to death or Disability, as defined in Appendix A, the Companyshall pay to the Executive, or if applicable his estate:(i) accrued but unpaid Base Salary earned through the date of his termination and any Annual Bonus due but not yet paid for acompleted calendar year;(ii) a prorated Annual Bonus for the year in which the termination of employment occurs, calculated by multiplying (A) the Executive’starget Annual Bonus for that year by (B) a proration fraction the numerator of which is the number of days in such calendar year up to and includingthe date of the Executive’s termination of employment and the denominator of which is 365;(iii) all outstanding reasonable travel and other business expenses that the Executive incurred as of the date of his termination; and(iv) accrued but unpaid employee benefits set forth in Section 4.1 above as determined in accordance with the provisions of theapplicable employee benefit plans or programs of the Company.In addition, upon the Executive’s termination of employment due to death or Disability, all outstanding stock options and restricted stock awarded to theExecutive shall become fully vested, and stock options shall become immediately exercisable and will remain exercisable for one year from the date oftermination (or, if earlier, until the stock option’s normal expiration date); provided, however, that if the applicable stock option award specifically providesfor a longer post-employment period to exercise such option, such longer period shall apply.6. EFFECT OF A CHANGE IN CONTROL.6.1 New Term of Employment. Notwithstanding anything to the contrary in this Agreement, upon the occurrence of a Change in Control,as defined in Appendix A, during the Employment Period, the Company (or its successor) shall renew this Agreement for a period of two years commencingon the date of the Change in Control and ending on the second anniversary of the date of the Change in Control.6.2 Acceleration of Equity Awards. Notwithstanding anything to the contrary in any of the Equity Award Documents, as defined inAppendix A, upon a Change in Control, all outstanding stock options and restricted stock granted by the Company or any of its affiliates to the Executiveshall become fully vested, and stock options shall become immediately exercisable, on the date of the Change in Control. 47. REDUCTION OF PAYMENTS.If any amounts due to the Executive under this Agreement and any other agreement, plan or arrangement of or with the Company or any ofits affiliates constitute a “parachute payment,” as such term is defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”),and the amount of the parachute payment, reduced by all federal, state and local taxes applicable thereto, including the excise tax imposed pursuant toSection 4999 of the Code, is less than the amount the Executive would receive if he was paid three times his “base amount”, as defined in Section 280G(b)(3)of the Code, less $1.00, reduced by all federal, state and local taxes applicable thereto, then the aggregate of the amounts constituting the parachute paymentwill be reduced (or returned by the Executive if it has already been paid to him) to an amount that will equal three times the Executive’s base amount less$1.00. Any determination to be made with respect to this Section 7 shall be made by an accounting firm jointly selected by the Company and the Executiveand paid for by the Company, and which may be the Company’s independent auditors.8. NO ADDITIONAL RIGHTS.The Executive shall have no right to receive any compensation or benefits upon his termination or resignation of employment, except (i) asexpressly set forth in Sections 5 and 6 above, where applicable, or (ii) as determined in accordance with the provisions of the employee benefit plans orprograms of the Company.9. RESTRICTIVE COVENANTS.9.1 Noncompetition. During the term of the Executive’s employment with the Company (or any successor thereto) and continuing fortwo years thereafter, the Executive shall not, without the prior written consent of the Company, directly or indirectly, own, manage, operate, join, control, orparticipate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any Competing Business, whether forcompensation or otherwise; provided, however, that the Executive shall be permitted to hold, directly or indirectly, less than 1% of any class of securities ofany entity that is listed on a national securities exchange or on the NASDAQ National Market System. Notwithstanding the foregoing, this Section 9.1 shallcease to apply upon the termination of the Executive’s employment with the Company (or any successor thereto) resulting from an Involuntary Termination.For purposes of this Agreement, “Competing Business” means any business within the United States that involves for-profit, post-secondary education.9.2 Nonsolicitation. During the term of the Executive’s employment with the Company (or any successor thereto) and continuing for oneyear thereafter, the Executive shall not, without the prior written consent of the Company, directly or indirectly, as a sole proprietor, member of a partnership,stockholder, investor, officer or director of a corporation, or as an employee, associate, consultant or agent of any person, partnership, corporation or otherbusiness organization or entity other than the Company or any of its subsidiaries or affiliates (the “Company Group”) (i) solicit or endeavor to entice awayfrom any member of the Company Group, any person or entity who is, or was on the date of this Agreement, employed by, or serving as a key consultant of,any member of the Company Group or (ii) solicit or endeavor to entice away from any member of the Company Group, any person or entity who is, or was onthe date of this Agreement, a customer or client (or reasonably anticipated to become a customer or client) of any member of the Company Group. 59.3 Confidentiality. The Executive shall not at any time, except in performance of his obligations to the Company Group under theprovisions of this Agreement and as an employee of the Company, directly or indirectly, disclose or use any secret or protected information that he may learnor has learned by reason of his association with any member of the Company Group. The term “protected information” includes trade secrets and confidentialand proprietary business information of the Company Group, including, but not limited to, customers (including potential customers), sources of supply,processes, methods, plans, apparatus, specifications, materials, pricing information, intellectual property (including applications and rights in discoveries,inventions or patents), internal memoranda, marketing plans, contracts, finances, personnel, research and internal policies, but shall exclude any informationwhich (i) is or becomes available to the public or is generally known in the industry or industries in which the Company Group operates other than as a resultof disclosure by the Executive in violation of this Section 9.3 or (ii) the Executive is required to disclose under any applicable laws, regulations or directivesof any government agency, tribunal or authority having jurisdiction in the matter or under subpoena or other process of law.9.4 Exclusive Property. The Executive confirms that all protected information is and shall remain the exclusive property of the CompanyGroup. All business records, papers and documents kept or made by the Executive relating to the business of the Company shall be and remain the propertyof the Company Group.9.5 Compliance with Restrictive Covenants. Without intending to limit any other remedies available to the Company Group and exceptas required by law, in the event that the Executive breaches or threatens to breach any of the covenants set forth in this Section 9, (i) the Company Groupshall be entitled to seek a temporary restraining order and/or a preliminary or permanent injunction restraining the Executive from engaging in activitiesprohibited by this Section 9 or such other relief as may be required to enforce any of such covenants and (ii) all obligations of the Company to makepayments and provide benefits under this Agreement shall immediately cease.10. ARBITRATION.10.1 General. Subject to Section 9.5 above, any dispute or controversy arising under or in connection with this Agreement that cannot bemutually resolved by the Executive and the Company shall be settled exclusively by arbitration in West Orange, New Jersey before three arbitrators ofexemplary qualifications and stature. The Executive and the Company shall each select one arbitrator. The arbitrators selected by the Executive and theCompany shall jointly select the third arbitrator. Judgment may be entered on the arbitrators’ award in any court having jurisdiction. The Executive and theCompany hereby agree that the arbitrators shall be empowered to enter an equitable decree mandating specific enforcement of the provisions of thisAgreement. 610.2 Associated Costs. The cost of the arbitration shall be borne by the parties in the manner determined by the arbitrators. If, however, thedispute concerns contractual rights that arise in the event of or subsequent to a Change in Control, the costs of arbitration (and any reasonable attorney’s feesincurred by the Executive) shall be borne by the Company, unless the arbitrators determine that the Executive commenced such arbitration on unfounded orunreasonable grounds.11. SECTION 409A OF THE CODE.11.1 General. This Agreement is intended to be exempt from or meet the requirements of Section 409A of the Code, and shall beinterpreted and construed consistent with that intent.11.2 Deferred Compensation. Notwithstanding any other provision of this Agreement, to the extent that the right to any payment(including the provision of benefits) hereunder provides for the “deferral of compensation” within the meaning of Section 409A(d)(1) of the Code, thepayment shall be paid (or provided) in accordance with the following:(i) If the Executive is a “Specified Employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code on the date of the Executive’stermination of employment, then no such payment shall be made or commence during the period beginning on the date of the Executive’stermination of employment and ending on the date that is six months and one day following the Executive’s termination of employment or, ifearlier, on the date of the Executive’s death.(ii) Payments with respect to reimbursements of expenses shall be made in accordance with Company policy and in no event later thanthe last day of the calendar year following the calendar year in which the relevant expense is incurred. No reimbursement during any calendar yearshall affect the amounts eligible for reimbursement in any other calendar year, except, in each case, to the extent that the right to reimbursement doesnot provide for a “deferral of compensation” within the meaning of Section 409A of the Code.(iii) The Company shall not accelerate any payment or the provision of any benefits under this Agreement or make or provide any suchpayment or benefits if such payment or provision of such benefits would, as a result, be subject to tax under Section 409A of the Code. If, in thegood faith judgment of the Company, any provision of this Agreement could cause the Executive to be subject to adverse or unintended taxconsequences under Section 409A of the Code, such provision shall be modified by the Company in its sole discretion to maintain, to the maximumextent practicable, the original intent of the applicable provision without violating the requirements of Section 409A of the Code. It is understoodthat each installment is a separate payment, and that the timing of payment is within the control of the Company. 7(iv) The provisions of this Section 11 shall apply notwithstanding any provisions of this Agreement related to the timing of paymentsfollowing the Executive’s termination of employment.12. MISCELLANEOUS.12.1 Communications. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed tohave been duly given or made as of the date delivered, or on the fifth business day after mailed if delivered personally or mailed by registered or certifiedmail (postage prepaid, return receipt requested), to the relevant party at the following address (or at such other address for a party as shall be specified by likenotice, except that notices of change of address shall be effective upon receipt):if to the Company:200 Executive Drive, Suite 340West Orange, New Jersey 07052Attention: Chief Executive Officerif to the Executive:200 Executive Drive, Suite 340West Orange, New Jersey 0705212.2 Waiver of Breach; Severability. a) The waiver by the Executive or the Company of a breach of any provision of this Agreement bythe other party hereto shall not operate or be construed as a waiver of any subsequent breach by either party.(b) The parties hereto recognize that the laws and public policies of various jurisdictions may differ as to the validity and enforceabilityof covenants similar to those set forth herein. It is the intention of the parties that the provisions of this Agreement be enforced to the fullest extentpermissible under the laws and policies of each jurisdiction in which enforcement may be sought, and that the unenforceability (or the modification toconform to such laws or policies) of any provisions hereof shall not render unenforceable, or impair, the remainder of the provisions hereof. Accordingly, if atthe time of enforcement of any provision hereof, a court of competent jurisdiction holds that the restrictions stated herein are unreasonable undercircumstances then existing, the parties hereto agree that the maximum period, scope, or geographic area reasonable under such circumstances shall besubstituted for the stated period, scope or geographical area and that such court shall be allowed to revise the restrictions contained herein to cover themaximum period, scope and geographical area permitted by law.12.3 Assignment; Successors. No right, benefit or interest hereunder shall be assigned, encumbered, charged, pledged, hypothecated or besubject to any setoff or recoupment by the Executive. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of theCompany.12.4 Entire Agreement. This Agreement and the Equity Award Documents represent the entire agreement of the parties and shall supersedeany and all previous contracts, arrangements or understandings between the Company and the Executive relating to the subject matter hereof. ThisAgreement may be amended at any time by mutual written agreement of the parties hereto. 812.5 Withholding. The payment of any amount pursuant to this Agreement shall be subject to applicable withholding and payroll taxes,and such other deductions as may be required under the Company’s employee benefit plans, if any.12.6 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey.12.7 Headings. The headings in this Agreement are for convenience only and shall not be used to interpret or construe any of itsprovisions.12.8 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all ofwhich together shall constitute one and the same instrument. 9IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and the Executive has hereunto set his hand as ofthe day and year first written above.LINCOLN EDUCATIONAL SERVICES CORPORATIONBy: /s/ Shaun E. McAlmontName: Shaun E. McAlmontTitle: Chief Executive OfficerEXECUTIVE/s/ Brian K. MeyersBrian K. Meyers 10APPENDIX A“Cause” shall mean, with respect to the Executive, the following:(a)prior to a Change in Control, (i) the Executive’s willful failure to perform the duties of his employment in any material respect, (ii)malfeasance or gross negligence in the performance of the Executive’s duties of employment, (iii) the Executive’s conviction of afelony under the laws of the United States or any state thereof (whether or not in connection with his employment), (iv) theExecutive’s intentional or reckless disclosure of protected information respecting any member of the Company Group’s businessto any individual or entity which is not in the performance of the duties of his employment, (v) the Executive’s commission of anact or acts of sexual harassment that would normally constitute grounds for termination, or (vi) any other act or omission by theExecutive (other than an act or omission resulting from the exercise by the Executive of good faith business judgment), which ismaterially injurious to the financial condition or business reputation of any member of the Company Group; provided, however,that in the case of (i) and (ii) above, the Executive shall not be deemed to have been terminated for cause unless he has receivedwritten notice of the alleged basis therefor from the Company, and fails to remedy the matter within 30 days after he has receivedsuch notice, except that no such “cure opportunity” shall be required in the case of two separate episodes occurring within any 12-month period that give the Company the right to terminate for cause for such reason; or(b)on or after a Change in Control, (i) the Executive’s willful failure to perform the duties of his employment in any material respect,(ii) malfeasance or gross negligence in the performance of the Executive’s duties of employment, (iii) the Executive’s convictionof a felony under the laws of the United States or any state thereof (whether or not in connection with his employment), or (iv) theExecutive’s intentional or reckless disclosure of protected information respecting any member of the Company Group’s businessto any individual or entity which is not in the performance of the duties of his employment; provided, however, that in the case of(i) and (ii) above, the Executive shall not be deemed to have been terminated for cause unless he has received written notice of thealleged basis therefor from the Company, and fails to remedy the matter within 30 days after he has received such notice, exceptthat no such “cure opportunity” shall be required in the case of two separate episodes occurring within any 12-month period thatgive the Company the right to terminate for cause for such reason.“Change in Control” shall mean:(a)when a “person” (as defined in Section 3(a)(9) of the Exchange Act), including a “group” (as defined in Section 13(d) and 14(d) ofthe Exchange Act), either directly or indirectly becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act)of 25% or more of either (i) the then outstanding Common Stock, or (ii) the combined voting power of the then outstanding votingsecurities of the Company entitled to vote generally in the election of directors; provided, however, that the following acquisitionsshall not constitute a Change in Control: (1) any acquisition directly from the Company; (2) any acquisition by the Company; or(3) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporationcontrolled by the Company; A-1(b)when, during any period of 24 consecutive months during the Employment Period, the individuals who, at the beginning of suchperiod, constitute the Board (the “Company Incumbent Directors”) cease for any reason other than death to constitute at least amajority thereof; provided, however, that a director who was not a director at the beginning of such 24-month period shall bedeemed to be a Company Incumbent Director if such director was elected by, or on the recommendation of or with the approval ofat least two-thirds of the directors of the Company, who then qualified as Company Incumbent Directors;(c)when the stockholders of the Company approve a reorganization, merger or consolidation of the Company without the consent orapproval of a majority of the Company Incumbent Directors;(d)consummation of a merger, amalgamation or consolidation of the Company with any other corporation, the issuance of votingsecurities of the Company in connection with a merger, amalgamation or consolidation of the Company or sale or otherdisposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation (each, a“Business Combination”), unless, in each case of a Business Combination, immediately following such Business Combination, allor substantially all of the individuals and entities who were the beneficial owners of the Common Stock outstanding immediatelyprior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then outstanding shares ofcommon stock and 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in theelection of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, anentity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly orthrough one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such BusinessCombination, of the Common Stock; or(e)a complete liquidation or dissolution of the Company or the sale or other disposition of all or substantially all of the assets of theCompany; A-2 “Disability” shall mean the inability of the Executive to perform substantially his duties and responsibilities to the Company or any of its subsidiaries byreason of a physical or mental disability or infirmity (a) for a continuous period of six months or (b) at such earlier time as the Executive submits medicalevidence of such disability to the reasonable satisfaction of the Committee that the Executive has a physical or mental disability or infirmity that shall likelyprevent him from substantially performing his duties and responsibilities for six months or longer. The date of such Disability shall be on the last day of suchsix-month period or the day on which the Committee determines that the Executive has a physical or mental disability or infirmity as provided in clause (b)herein.“Good Reason” shall mean, with respect to the Executive, the occurrence of any of the following (without his written consent): (a) a reduction in theExecutive’s Base Salary or target Annual Bonus; (b) an adverse change in the Executive’s title, authority, duties, responsibilities or reporting lines asspecified in Section 2.1 of this Agreement; (c) the relocation of the Executive’s principal place of employment to a location more than 10 miles from WestOrange, New Jersey; (d) a failure by the Company to pay material compensation when due in connection with the Executive’s employment; or (e) a materialbreach of this Agreement by the Company; provided, however, that, if any such Good Reason is reasonably susceptible to cure, then the Executive shall notterminate his employment hereunder unless the Executive first provides the Company with written notice of his intention to terminate and of the grounds forsuch termination, and the Company has not, within 10 business days following receipt of such written notice, cured such Good Reason.“Equity Award Documents” shall mean (a) any option agreements, restricted stock agreements or other equity award agreements under the Company’s 2005Long-Term Incentive Plan and (b) any stock pledge agreement or promissory note relating to the Executive’s stock options, shares of Company commonstock underlying such options or restricted stock. A-3Exhibit 21.1 Subsidiaries of the Company The following is a list of Lincoln Educational Services Corporation’s subsidiaries as of December 31, 2014: NameJurisdiction Lincoln Technical Institute, Inc. (wholly owned)New Jersey New England Acquisition LLC (wholly owned through Lincoln Technical Institute, Inc.)Delaware Southwestern Acquisition LLC (wholly owned through Lincoln Technical Institute, Inc.)Delaware Nashville Acquisition, LLC (wholly owned through Lincoln Technical Institute, Inc.)Delaware Euphoria Acquisition, LLC (wholly owned through Lincoln Technical Institute, Inc.)Delaware New England Institute of Technology at Palm Beach, Inc. (wholly owned through Lincoln Technical Institute, Inc.)Florida LTI Holdings, LLC (wholly owned through Lincoln Technical Institute, Inc.)Colorado LCT Acquisition, LLC (wholly owned through Lincoln Technical Institute, Inc.)Delaware NN Acquisition, LLC (wholly owned through Lincoln Technical Institute, Inc.)Delaware Exhibit 23 Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in Registration Statement No. 333-126066, 333-132749, 333-138715, 333-158923, 333-173880 and 333-188240 on Form S-8 of our reports dated March 16, 2015, relating to the consolidated financial statements and financial statement schedule of LincolnEducational Services Corporation and subsidiaries (the “Company”), and the effectiveness of Lincoln Educational Services Corporation and subsidiaries’internal control over financial reporting appearing in this Annual Report on Form 10-K of Lincoln Educational Services Corporation for the year endedDecember 31, 2014./s/ DELOITTE & TOUCHE LLP Parsippany, New JerseyMarch 16, 2015 EXHIBIT 31.1 CERTIFICATION I, Shaun McAlmont, certify that: 1.I have reviewed this Annual Report on Form 10-K of Lincoln Educational Services Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: March 16, 2015 /s/ Shaun McAlmont Shaun McAlmont Chief Executive Officer EXHIBIT 31.2 CERTIFICATION I, Brian Meyers, certify that: 1.I have reviewed this Annual Report on Form 10-K of Lincoln Educational Services Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date: March 16, 2015 /s/ Brian Meyers Brian Meyers Chief Financial Officer EXHIBIT 32CERTIFICATIONPursuant to 18 U.S.C. 1350 as adopted bySection 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned, Shaun McAlmont, Chief Executive Officer of Lincoln Educational Services Corporation (the “Company”), and BrianMeyers, Chief Financial Officer of the Company, has executed this certification in connection with the filing with the Securities and Exchange Commissionof the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (the “Report”). Each of the undersigned hereby certifies that, to his respective knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: March 16, 2015 /s/ Shaun McAlmont Shaun McAlmont Chief Executive Officer /s/ Brian Meyers Brian Meyers Chief Financial Officer 

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