Lincoln Educational Services Annual Report 2017

Plain-text annual report

U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 Form 10-K☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017 Commission File Number 000-51371 LINCOLN EDUCATIONAL SERVICES CORPORATION(Exact name of registrant as specified in its charter) New Jersey 57-1150621(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)200 Executive Drive, Suite 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 class Name of exchange on which registeredCommon Stock, no par value per share The 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, a smaller reporting company or emerginggrowth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.Large accelerated filer ☐Accelerated filer ☐Non-accelerated filer ☐Smaller reporting company ☒ Emerging growth company ☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐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 23,240,620 shares of common stock held by non-affiliates of the registrant issued and outstanding as of June 30, 2017, thelast business day of the registrant’s most recently completed second fiscal quarter, was $72,045,922. This amount is based on the closing price of the commonstock on the Nasdaq Global Select Market of $3.10 per share on June 30, 2017. Shares of common stock held by executive officers and directors and personswho own 5% or more of the outstanding common stock have been excluded since such persons may be deemed affiliates. This determination of affiliatestatus is not a determination for any other purpose.The number of shares of the registrant’s common stock outstanding as of March 6, 2018 was 24,703,978. Documents Incorporated by ReferencePortions of the Proxy Statement for the Registrant’s 2018 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, 2017PART I.1 ITEM 1.BUSINESS1 ITEM 1A.RISK FACTORS21 ITEM 1B.UNRESOLVED STAFF COMMENTS29 ITEM 2.PROPERTIES30 ITEM 3.LEGAL PROCEEDINGS31 ITEM 4.MINE SAFETY DISCLOSURES31 PART II.31 ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASESOF EQUITY SECURITIES31 ITEM 6.SELECTED FINANCIAL DATA34 ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS35 ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK53 ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA53 ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE53 ITEM 9A.CONTROLS AND PROCEDURES53 ITEM 9B.OTHER INFORMATION54 PART III.54 ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE54 ITEM 11.EXECUTIVE COMPENSATION54 ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS54 ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE54 ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES54 PART IV.55 ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES55 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 or will not have a material adverse effect on our consolidated financial position, results ofoperations or liquidity; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operating resultsand future economic performance; and statements of management’s goals and objectives and other similar expressions concerning matters that are nothistorical 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 existing regulatory framework applicable to our industry or our failure to obtain timely regulatoryapprovals in connection with a change of control of our company or acquisitions;·the promulgation of new regulations in our industry as to which we may find compliance challenging;·our success in updating and expanding the content of existing programs and developing new programs in a cost-effective manner or on a timelybasis;·our ability to implement our strategic plan;·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 maintaining accreditation·risks associated with opening new campuses and closing existing campuses;·risks associated with integration of acquired schools;·industry competition;·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 United States Securities and Exchange Commission (the “SEC”), we undertake no obligation to update or revise forward-lookingstatements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. We caution you not to undulyrely on the forward-looking statements when evaluating the information presented herein. IndexPART I.ITEM 1.BUSINESSOVERVIEWLincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our” and “us”, as applicable) provide diversified career-oriented post-secondary education to recent high school graduates and working adults. The Company, which currently operates 23 schools in 14 states,offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control and electronic systemstechnology, among other programs), healthcare services (which include nursing, dental assistant, medical administrative assistant and pharmacy technician,among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and business and informationtechnology (which includes information technology and criminal justice programs). The schools operate under Lincoln Technical Institute, Lincoln Collegeof Technology, Lincoln College of New England, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brandnames. Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study. Five of the campuses aredestination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attractstudents from their local communities and surrounding areas. All of the campuses are nationally or regionally accredited and are eligible to participate infederal financial aid programs managed by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accreditingcommissions, which allow students to apply for and access federal student loans as well as other forms of financial aid. The Company was incorporated inNew Jersey in 2003 but a predecessor entity had opened its first campus in Newark, New Jersey in 1946.Our business is organized into three reportable business segments: (a) Transportation and Skilled Trades, (b) Healthcare and Other Professions (“HOPS”), and(c) Transitional, which refers to businesses that have been or are currently being taught out. In November 2015, the Board of Directors of the Companyapproved a plan for the Company to divest the 18 campuses then comprising the HOPS segment due to a strategic shift in the Company’s business strategy. The Company underwent an exhaustive process to divest the HOPS schools which proved successful in attracting various purchasers but, ultimately, did notresult in a transaction that our Board believed would enhance shareholder value. By the end of 2017, we had strategically closed seven underperformingcampuses leaving a total of 11 campuses remaining under the HOPS segment. The Company believes that the closures of the aforementioned campuses havepositioned the HOPS segment and the Company to be more profitable going forward as well as maximizing returns for the Company’s shareholders.The combination of several factors, including the inability of a prospective buyer of the HOPS segment to close on the purchase, the improvements theCompany has implemented in the HOPS segment operations, the closure of seven underperforming campuses and the change in the United States governmentadministration, resulted in the Board reevaluating its divestiture plan and the determination that shareholder value would more likely be enhanced bycontinuing to operate our HOPS segment as revitalized. Consequently, in first quarter of 2017 the Board of Directors has abandoned the plan to divest theHOPS segment and the Company now intends to retain and continue to operate the remaining campuses in the HOPS segment. The results of operations ofthe campuses included in the HOPS segment are reflected as continuing operations in the consolidated financial statements.In 2016, the Company completed the teach-out of its Hartford, Connecticut, Fern Park, Florida and Henderson (Green Valley), Nevada campuses, whichoriginally operated in the HOPS segment. In 2017, the Company completed the teach-out of its Northeast Philadelphia, Pennsylvania; Center CityPhiladelphia, Pennsylvania; West Palm Beach, Florida; Brockton, Massachusetts; and Lowell, Massachusetts schools, which also were originally in ourHOPS segment and all of which were taught out and closed by December 2017 and are included in the Transitional segment as of December 31, 2017.On August 14, 2017, New England Institute of Technology at Palm Beach, Inc., a wholly-owned subsidiary of the Company, consummated the sale of the realproperty located at 2400 and 2410 Metrocentre Boulevard East, West Palm Beach, Florida, including the improvements and other personal property locatedthereon (the “West Palm Beach Property”) to Tambone Companies, LLC (“Tambone”), pursuant to a previously disclosed purchase and sale agreement (the“West Palm Sale Agreement”) entered into on March 14, 2017. Pursuant to the terms of the West Palm Sale Agreement, as subsequently amended, thepurchase price for the West Palm Beach Property was $15.8 million. As a result, the Company recorded a gain on the sale in the amount of $1.5 million. Aspreviously disclosed, the West Palm Beach Property served as collateral for a short term loan in the principal amount of $8.0 million obtained by theCompany from its lender, Sterling National Bank, on April 28, 2017, which loan matured upon the earlier of the sale of the West Palm Beach Property orOctober 1, 2017. Accordingly, on August 14, 2017, concurrently with the consummation of the sale of the West Palm Beach Property, the Company repaidthe term loan in an aggregate amount of $8.0 million, consisting of principal and accrued interest. 1IndexOn March 31, 2017, the Company entered into a new revolving credit facility with Sterling National Bank in the aggregate principal amount of up to $55million, which consists of up to $50 million of revolving loans, including a $10 million sublimit for letters of credit, and an additional $5 million non-revolving loan. The proceeds of the $5 million non-revolving loan were held in a pledged account at Sterling National Bank as required by the terms of thenew credit facility pending the completion of environmental studies undertaken at certain properties owned by the Company and mortgaged to SterlingNational Bank. Upon the completion of environmental studies that revealed that no environmental issues existed at the properties, during the quarter endedJune 30, 2017, the $5 million held in the pledged account at Sterling National Bank was released and used to repay the $5 million non-revolving loan. Thecredit facility was amended on November 29, 2017, to provide the Company with an additional $15 million revolving credit loan, resulting in an increase inthe aggregate availability under the credit facility to $65 million. The credit facility was again amended on February 23, 2018, to, among other things, effectcertain modifications to the financial covenants and other provisions of the Credit Agreement and to allow the Company to pursue the sale of certain realproperty assets. The new credit facility requires that revolving loans in excess of $25 million and all letters of credit issued thereunder be cash collateralizeddollar for dollar. The new revolving credit facility replaced a term loan facility which was repaid and terminated concurrently with the effectiveness of thenew revolving credit facility. The term of the new revolving credit facility is 38 months, maturing on May 31, 2020. The new revolving credit facility isdiscussed in further detail under the heading “Liquidity and Capital Resources” below and in Note 7 to the consolidated financial statements included in thisreport.On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). TheTax Act made broad and complex changes to the U.S. tax code which impacted 2017, including, but not limited to, reducing the U.S. federal corporate taxrate, repealing the corporate alternative minimum tax, changing how existing corporate alternative minimum tax credits can be realized either to offsetregular tax liability or to be refunded, and eliminating or limiting deduction of several expenses which were previously deductible. See below for additionalinformation regarding the impact of the Tax Act as well as Note 10 to our consolidated financial statements included in this Annual Report on Form 10-K.As of December 31, 2017, we had 10,159 students enrolled at 23 campuses. Our average enrollment for the year ended December 31, 2017 was 10,772students which represented a decrease of 9.2% from average enrollment in 2016. For the year ended December 31, 2017, our revenues were $261.9 million,which represented a decrease of 8.3 % from the prior year. For more information relating to our revenues, profits and financial condition, please refer to“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included in thisAnnual Report on Form 10-K.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.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 statements on Schedule 14A and amendments to those reports and statements as soon as reasonably practicable after weelectronically file or furnish such materials to the Securities and Exchange Commission (the “SEC”). You can access this information on our website, free ofcharge, by clicking on “Investor Relations.” The information contained on or connected to our website is not a part of this Annual Report on Form 10-K. Wewill provide paper copies of such filings free of charge upon request. The public may read and copy any materials filed by us with the SEC at the SEC's PublicReference Room at 100 F Street, NE, Washington, D.C. 20549. Information regarding the operation of the SEC's Public Reference Room is available bycalling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements and otherinformation regarding us, which is available at www.sec.gov.BUSINESS STRATEGYOur goal is to strengthen our position as a leading provider of career‑oriented post-secondary education by continuing to pursue the following 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 high-demand areas of study in the Transportation and Skilled Trades segment to capitalize on demand from students andemployers in our target markets. Whenever possible, we seek to replicate programs across our campuses.Maximize 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.Expand Market. We believe that we can enter new markets and broaden the Lincoln brand by partnering with nationally recognized brands to provide theskills needed to train our nation’s workforce. We continue to expand our industry relationships both to attract new students and to offer our graduates moreemployment opportunities. We continue to establish partnerships with companies like BMW, Chrysler (FCA), Hussmann, Volkswagen and Audi that willenable graduates to receive higher wages. We expect to continue investing in marketing, recruiting and retention resources to increase enrollment. 2IndexPROGRAMS 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 28 to 136 weeks to complete, with tuition ranging from $6,600to $38,000. Our associate’s degree programs typically take between 58 to 156 weeks to complete, with tuition ranging from $25,000 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, 2017,all of our schools offer diploma and certificate programs, ten of our schools are currently approved to offer associate’s degree programs and one school isapproved 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. 3IndexThe following table lists the programs offered as of December 31, 2017: Current Programs Offered Area of Study Bachelor'sDegree Associate's Degree Diploma and Certificate Automotive Automotive Service Management,Collision Repair & Refinishing ServiceManagement, Diesel & Truck ServiceManagement Automotive Mechanics, Automotive Technology,Automotive Technology with Audi, AutomotiveTechnology with BMW FastTrack, Automotive Technologywith Mopar X-Press, Automotive Technology with HighPerformance, Automotive Technology with Volkswagon,Collision Repair and Refinishing Technology, Diesel &Truck Mechanics, Diesel & Truck Technology, Diesel &Truck Technology with Alternate Fuel Teechnology, Diesel& Truck Technology with Transport Refrigeration, Diesel &Truck with Automotive Technology, Heavy EquipmentMaintenance Technology, Heavy Equipment and TruckTechnology Health Sciences Health InformationAdministration, RN toBSN Medical Assisting Technology, HealthInformation Technology, MedicalOffice Management, Mortuary Science,Occupational Therapy Assistant, DentalHygiene, Dental AdministrativeAssistant, Nursing Medical Office Assistant, Medical Assistant, Patient CareTechnician, Medical Coding & Billing, Dental Assistant,Licensed Practical Nursing Skilled Trades Electronic Engineering Technology,HVAC, Electronics Systems ServiceManagement Electrical Technology, Electrical & Electronics SystemsTechnician, HVAC, Welding Technology, Welding withIntroduction to Pipefitting, CNC Hospitality Services Culinary Arts, Cosmetology, Aesthetics, InternationalBaking and Pastry, Nail Technolgy, Therapeutic Massage &Bodywork Technician Business and InformationTechnology BusinessManagement,Criminal Justice,Funeral ServiceManagement Criminal Justice, BusinessManagement, Broadcasting andCommunications, ComputerNetworking and Support, HumanServices Criminal Justice, Computer & Network Support TechnicianAutomotive Technology. Automotive technology, which is our area of study with the largest enrollment, accounted for 43% of our total average studentenrollment for the year ended December 31, 2017. Our automotive technology programs are 28 to 136 weeks in length, with tuition rates of $14,000 to$38,000. We believe we are a leading provider of automotive technology education in each of our local markets. Graduates of our programs are qualified toobtain entry level employment ranging from positions as technicians and mechanics to various apprentice level positions. Our graduates are employed by awide variety of companies, ranging from automotive and diesel dealers, to independent auto body paint and repair shops to trucking and constructioncompanies. 4IndexAs of December 31, 2017, 12 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, 2017, enrollments in the programs comprising our health sciences area of study represented 27% of ourtotal average student enrollment. Our health science programs are 35 to 208 weeks in length, with tuition rates of $13,000 to $76,000. Graduates of our healthsciences programs are qualified to obtain positions such as licensed practical nurse, registered nurse, dental assistant, medical assistant, medicaladministrative assistant, and claims examiner. Our graduates are employed by a wide variety of employers, including hospitals, laboratories, insurancecompanies, doctors' offices and pharmacies. Our practical nursing and medical assistant programs are our largest health science programs. As of December 31,2017, we offered health science programs at 11 of our campuses.Skilled Trades. For the year ended December 31, 2017, 22% of our total average student enrollment was in our skilled trades programs. Our skilled tradesprograms are 28 to 92 weeks in length, with tuition rates of $17,000 to $34,000. Our skilled trades programs include electrical, heating and air conditioningrepair, welding, computerized numerical control and electronic & electronic systems technology. Graduates of our skilled trades programs are qualified toobtain entry level employment positions such as electrician, cable installer, welder, wiring and heating, ventilating and air conditioning, or HVAC installer.Our graduates are employed by a wide variety of employers, including residential and commercial construction, telecommunications installation companiesand architectural firms. As of December 31, 2017, we offered skilled trades programs at 13 campuses.Hospitality Services. For the year ended December 31, 2017, 5% of our total average student enrollment was in our hospitality services programs. Ourhospitality services programs are 28 to 66 weeks in length, with tuition rates of $6,600 to $20,000. Our hospitality programs include culinary, therapeuticmassage, cosmetology and aesthetics. Graduates work in salons, spas, cruise ships or are self-employed. We offer massage programs at one campus andcosmetology programs at one campus. Our culinary graduates are employed by restaurants, hotels, cruise ships and bakeries. As of December 31, 2017, weoffered culinary programs at one campus.Business and Information Technology. For the year ended December 31, 2017, 3% 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 are40 to 208 weeks in length, with tuition rates of $19,000 to $80,000. We have focused our current information technology, or IT, program offerings on thosethat are most in demand, such as our computer and network support technician. Our IT and business graduates work in entry level positions for both smalland large corporations. Our criminal justice graduates work in the security industry and for various government agencies and departments. As of December31, 2017, we offered these programs at 8 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 atprospective students who are high school graduates entering the workforce, or who are currently underemployed or unemployed and require additionaltraining to enter or re-enter the workforce.Marketing and Advertising. We utilize a fully integrated marketing approach in our lead generation and admissions process that includes the use oftraditional media such as television, radio, billboards, direct mail, a variety of print media and event marketing campaigns. Our digital marketing efforts,which include paid search, search engine optimization, online video and display advertising and social media, have grown significantly in recent years andcurrently drive the majority of our new student leads and enrollments. Our website’s integrated marketing campaigns direct prospective students to call us orvisit the Lincoln website where they will find details regarding our programs and campuses and can request additional information regarding the programsthat interest them. Our internal systems enable us to closely monitor and track the effectiveness of each marketing execution on a daily or weekly basis andmake adjustments accordingly to enhance efficiency and limit our student acquisition costs. In 2017, we selected a new paid search vendor with thecapability to provide enhanced analytics and improved buying efficiencies in our digital initiatives. Unlike our previous paid search vendor, our new paidsearch vendor is an authorized Google partner agency. We are now able to consolidate our paid search, video, display and retargeting efforts onto a singledigital platform to more effectively analyze our results. In 2017, we also began the development of a new creative marketing campaign that will launchduring the first quarter of 2018. The new campaign theme will be used across all digital and traditional media channels and will be replacing our previouscampaign which had been running for more than three years.Referrals. Referrals from current students, high school counselors and satisfied graduates and their employers have historically represented 15% of our newenrollments. Our school administrators actively work with our current students to encourage them to recommend our programs to prospective students. Wecontinue to build strong relationships with high school guidance counselors and instructors by offering annual seminars at our training facilities to furtherfamiliarize these individuals on the strengths of our programs.Recruiting. Our recruiting efforts are conducted by a group of approximately 250 campus-based and field representatives who meet directly withprospective students during presentations conducted at high schools, in the prospective students’ homes or during a visit to one of our campuses. 5IndexDuring 2017, we recruited approximately 23% of our students directly out of high school. Field sales continues to be a large part of our business anddeveloping local community relationships is one of our most important functions. In 2017, we added two field representatives to our team who are focusedon recruitment of prospectus students from the military in an effort to aid veterans transitioning to the civilian work force when their service commitment iscompleted. 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 10,159 students enrolled as of December 31, 2017 and our average enrollment for the year ended December 31, 2017 was 10,772students, a decrease of 9.2% in average enrollment from December 31, 2016. We had 11,235 students enrolled as of December 31, 2016 and our averageenrollment for that year was 11,864 students, a decrease of 8.6% in average enrollment from December 31, 2015.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 webecome aware that a particular instructor or program is experiencing a higher than normal dropout rate, we quickly seek to determine the cause of the problemand attempt to correct it. When we identify that a student is experiencing difficulty academically, we offer tutoring.JOB PLACEMENTWe believe that assisting our graduates in securing employment after completing their program of study is critical to our ability to attract high qualitystudents and enhancing our reputation in the industry. In addition, we believe that high job placement rates result in low student loan default rates, animportant requirement for continued participation in Title IV of the Higher Education Act of 1965, as amended (“Title IV Programs”). See "RegulatoryEnvironment—Regulation of Federal Student Financial Aid Programs." Accordingly, we dedicate significant resources to maintaining an effective graduateplacement program. Our non-destination schools work closely with local employers to ensure that we are training students with skills that employers need.Each school has an advisory council comprised of local employers who provide us with direct feedback on how well we are preparing our students to succeedin the workplace. This enables us to tailor our programs to the marketplace. The placement staff in each of our destination schools maintains databases ofpotential employers throughout the country, allowing us to more effectively assist our graduates in securing employment in their career field upongraduation. Throughout the year, we hold numerous job fairs at our facilities where we provide the opportunity for our students to meet and interact withpotential employers. In addition, many of our schools have internship programs that provide our students with opportunities to work with employers prior tograduation. For example, some of the students in our automotive programs have the opportunity to complete a portion of their hands-on training in an actualwork environment. In addition, some of our students in health sciences programs are required to participate in an externship program during which they workin 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, 2017, we had approximately 1,980 employees, including 482 full-time faculty and 379 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 2018 and 2022. Webelieve that we have good relationships with these unions and with our employees. 6IndexCOMPETITIONThe 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 like ours and traditional four-year colleges or universities is limited. Thus, our main competitors are otherfor-profit, career-oriented schools, not-for-profit public, private schools, public and private two-year junior and community colleges, most of which areeligible to receive funding under the federal programs of student financial aid authorized by Title IV Programs. Competition is generally based on location,the type of programs offered, the quality of instruction, placement rates, reputation, recruiting and tuition rates. Public institutions are generally able tocharge lower tuition than our school, due in part to government subsidies and other financial sources not available to for-profit schools. In addition, some ofour other competitors have a more extensive network of schools and campuses than we do, which enables them to recruit students more efficiently from awider geographic 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.Our competition differs in each market depending on the curriculum that we offer. For example, a school offering automotive, healthcare and skilled tradesprograms will have a different group of competitors than a school offering healthcare, business/IT and skilled trades programs. Also, because schools can addnew programs within six to twelve months, competition can emerge relatively quickly. Moreover, with the introduction of online education, the number ofcompetitors in each market has increased because students can now attend classes from an online institution. On average, each of our schools has at leastthree direct competitors and at least a dozen indirect competitors.ENVIRONMENTAL 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 personal resources, family contributions, private loans and federal financialaid programs. Each of our schools participates in the Title IV Programs, which are administered by the DOE. For the year ended December 31, 2017,approximately 78% (calculated based on cash receipts) of our revenues were derived from the Title IV Programs. Students obtain access to federal studentfinancial aid through a DOE prescribed application and eligibility certification process.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 and that impose standards that we must satisfy.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. 7IndexOur 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 $12.7 million. The DOE published regulations that took effect on July 1, 2011, that expanded the requirements for an institution to be considered legally authorized in thestate in which it is physically located for Title IV purposes. In some cases, the regulations required states to revise their current requirements and/or to licenseschools in order for institutions to be deemed legally authorized in those states and, in turn, to participate in Title IV Programs. If the states do not amendtheir requirements where necessary and if schools do not receive approvals where necessary that comply with these new requirements, then the institutioncould be deemed to lack the state authorization necessary to participate in Title IV Programs. The DOE stated when it published the final regulations that itwill not publish a list of states that meet, or fail to meet, the requirements, and it is uncertain how the DOE will interpret these requirements in each state. 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, 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, 2017, 15of our campuses are accredited by the Accrediting Commission of Career Schools and Colleges, or ACCSC; seven of our campuses are accredited by theAccrediting Council for Independent Colleges and Schools, or ACICS; and one of our campuses is accredited by the New England Association of Schoolsand Colleges of Technology, or NEASC. The following is a list of the dates on which each campus was accredited by its accrediting commission, the date bywhich its accreditation must be renewed and the type of accreditation. 8IndexAccrediting 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 11, 2015 August 1, 2019 NationalMelrose Park, IL2 March 13, 2015 November 1, 2019 NationalDenver, CO1 June 14, 2016 February 1, 2021 NationalColumbia, MD March 8, 2017 February 1, 2022 NationalGrand Prairie, TX1 June 20, 2017 August 1, 2021 NationalAllentown, PA2 March 8, 2017 February 1, 2022 NationalNashville, TN1 September 6, 2017 May 1, 2022 NationalIndianapolis, IN November 30, 2012 November 1, 20173 NationalNew Britain, CT June 5, 2014 January 1, 20183 NationalShelton, CT2 March 5, 2014 September 1, 2018 NationalQueens, NY1 June 4, 2013 June 1, 2018 NationalEast Windsor, CT2 October 17, 2017 February 1, 2023 NationalSouth Plainfield, NJ1 September 2, 2014 August 1, 2019 National 1Branch campus of main campus in Indianapolis, IN2Branch campus of main campus in New Britain, CT3Campus undergoing re-accreditation. Campus has received written confirmation that it remains accredited pending consideration of its applicationfor reaccreditation.Accrediting Council for Independent Colleges and Schools Reaccreditation Dates*School Last Accreditation Letter Next Accreditation Type of AccreditationLincoln, RI1 August 28, 2014 December 31, 2019 NationalSomerville, MA1 August 28, 2014 December 31, 2019 NationalIselin, NJ December 20, 2016 December 31, 2022 NationalMarietta, GA1 August 28, 2014 December 31, 2019 NationalMoorestown, NJ1 December 20, 2016 December 31, 2022 NationalParamus, NJ1 December 20, 2016 December 31, 2022 NationalLas Vegas (Summerlin), NV1 August 29, 2014 December 31, 2019 National1Branch campus of main campus in Iselin, NJ * ACICS accredited institutions currently undergoing initial transitioning accreditation applications with ACCSC.New England Association of Schools and Colleges of Technology Reaccreditation DatesSchool Last Accreditation Letter Comprehensive Evaluation Type of AccreditationSouthington, CT June 29, 2012 Fall 20171 Regional1Campus undergoing re-accreditation. Commission considering evaluation of the Southington school at its April 2018 meeting.Our Iselin, New Jersey school and its branch campuses (collectively, the “Iselin school”), participate in Title IV Programs under provisional status. Thisprovisional status results from a December 12, 2016 decision of the Secretary of the DOE to uphold the decision of a senior DOE official to cease recognitionof ACICS, as a nationally recognized accrediting agency and to deny ACICS’s petition for DOE recognition based on conclusions that ACICS was inviolation of various DOE regulatory criteria. ACICS had served as the accrediting agency for the Iselin school. ACICS has appealed the DOE Secretary’sdecision to Federal court; however, unless otherwise directed by the court, the DOE Secretary’s decision is not stayed during the appeal to Federal court and,therefore, ACICS is not a DOE-recognized accrediting agency. ACICS has also submitted a petition to become a recognized agency with the DOE and itsapplication will be reviewed at the May 2018 meeting of the National Advisory Committee on Institutional Quality and Integrity.9IndexWhen the DOE withdraws the recognition of an accrediting agency, the DOE may permit a postsecondary educational institution that had accreditationthrough such accrediting agency to continue its participation in Title IV Programs on a provisional basis for a period not to exceed 18 months from theDOE’s decision to withdraw its recognition of the accrediting agency. Accordingly, in connection with ACICS’s loss of recognition, the DOE has indicatedthat during an 18-month period of provisional participation commencing on December 12, 2016 an ACICS-accredited institution will be deemed to holdrecognized accreditation and, in addition, the institution is required to comply with certain conditions and restrictions, including, but not limited to, that theinstitution:·will be restricted from making major changes, such as opening new campuses, increasing the level of academic offerings or adding neweducational programs, without DOE approval, and such DOE approval will be granted only in limited circumstances;·must make certain notifications and disclosures, allow students to take a leave of absence and will not be eligible to receive Title IV Programfunds for any newly enrolled students if the students become ineligible to sit for any licensing or certification exam as a result of the loss ofaccreditation;·must make certain notifications and disclosures and will not be eligible to receive Title IV Program funds if the institution loses itsauthorization to operate and issue postsecondary credentials;·must submit periodic reports to the DOE regarding investigations, lawsuits and arbitrations;·must inform students on how to file complaints they may have previously submitted to the institution’s accrediting agency;·must submit a teach-out plan to the DOE by January 11, 2017; and·must engage its third-party auditor to evaluate certain data and compliance indicators for the institution that would have been monitored by theaccrediting agency, including financial information and measures of student achievement.The DOE informed the Company by letter dated August 31, 2017 that we are no longer required to submit periodic reports to the DOE regardinginvestigations, lawsuits and arbitrations. In addition, the DOE subsequently informed the Company by letter dated August 31, 2017 that we are no longerrequired to engage its third-party auditor to evaluate certain data and compliance indicators for the institution that would have been monitored by theaccrediting agency, including financial information and measures of student achievement. To date, the Company has satisfied all of the above referencedrequirements for an institution that has provisional participation status and has not made any major changes.The DOE also imposed additional requirements on ACICS-accredited institutions that did not meet certain milestones toward accreditation by anotherrecognized accrediting agency. An institution that did not apply for accreditation with another recognized accrediting agency by March 13, 2017 wasrequired to submit a formal teach-out agreement to the DOE and disclose to its students that it did not have an in-process application with another recognizedaccrediting agency. In addition, any institution that did not have an in-process application with another recognized accrediting agency by June 12, 2017 orhad not completed an accrediting agency site visit by February 28, 2018 would no longer be eligible to receive Title IV Program funds for any student thatenrolls after that date, would have to make additional disclosures to its students, would have to submit monthly student rosters and a record retention plan tothe DOE, and would have to deliver a letter of credit to the DOE in an amount to be determined by the DOE.Subsequent to the DOE Secretary’s decision with respect to ACICS, on December 19, 2016, the Company and the DOE executed an addendum to theCompany’s program participation agreement, in which the Company agreed to comply with the DOE’s conditions and requirements for provisionalcertification with respect to the Iselin school for a period of up to 18 months ending on June 12, 2018.We are in the process of applying to ACCSC for accreditation of our ACICS-accredited institution and its campuses. Our efforts to obtain accreditation couldbe unsuccessful and could result in the loss of the institution’s eligibility to participate in the Title IV Programs. We have met all the milestones establishedby the DOE, for the continuation in the Title IV Programs for the schools accredited by ACICS.The Company received a letter dated February 26, 2018 from ACCSC, which indicated that the ACCSC commission required that the Company submitcertain additional information to ACCSC to demonstrate that the financial structure of the Company’s system of schools is sound with resources sufficient forthe proper operation of its schools and of the discharge of the Company’s obligations to its students. If our Iselin school and its campuses are unable toobtain initial accreditation from ACCSC by June 12, 2018, then the Iselin school and its campuses will be subject to the loss of accreditation or may beplaced on probation, warning, or a special monitoring or reporting status which, if the noncompliance with accrediting commission requirements is notresolved, could result in actions by the ACCSC commission including, but not limited to, loss of accreditation or limitations on our ability to initiate asubstantive change. Loss of accreditation by any of our main campuses would result in the termination of eligibility of that school and all of its branchcampuses to participate in Title IV Programs and could cause us to close the school and its branches, which could have a significant negative impact on ourbusiness and operations. The Company is required to submit its response to ACCSC by April 5, 2018. Our application for accreditation for ACCSC will beconsidered at a May 2018 accrediting commission meeting. The Company believes they will be able to meet all requirements required by the ACCSCcommission.10IndexThe loss of DOE recognition by an institution’s accrediting agency also could result in a loss of state authorization (and, in turn, Title IV Program eligibility),programmatic accreditation, and/or authorization to participate in certain state or federal financial aid programs if accreditation by a DOE-recognizedaccrediting agency is required for the impacted campuses of our ACICS-accredited institution to qualify for such state authorization, programmaticaccreditation, or state or federal financial aid programs. We have not identified any state, federal or accrediting agencies that condition approval of ourACICS-accredited campuses on accreditation by a DOE-recognized accrediting body. However, agency requirements are imprecise or unclear in someinstances and could be subject to different interpretation by one or more agencies.If 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 or restrictions on the addition of new locations, new programs, or other substantive changes.If any one of our schools loses its accreditation, students attending that school would no longer be eligible to receive Title IV Program funding, and we couldbe forced to close that school.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 issued by the DOE, institutions may be required to certify that theyhave programmatic accreditation under certain circumstances. See “—Regulatory Environment – Gainful Employment.”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. A recipient of Title IV Program funds must maintain a satisfactory grade point average and progress in a timely mannertoward completion of his or her program of study and must meet other applicable eligibility requirements for the receipt of Title IV funds. In addition, eachschool must ensure that Title IV Program funds are properly accounted for and disbursed in the correct amounts to eligible 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 of these states have reduced the level of state financial aidavailable to our students. Due to state budgetary shortfalls and constraints in certain states in which we operate, we believe that the overall level of statefinancial aid for our students is likely to continue to decrease in the near term, but we cannot predict how significant any such reductions will be or how longthey will last. Federal budgetary shortfalls and constraints, or decisions by federal lawmakers to limit or prohibit access by our institutions or their students tofederal financial 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 his or her education.Students or their parents can apply to a number of different lenders for this funding at current market interest rates.We also extend credit for tuition and fees to many of our students that attend our campuses. 11IndexRegulation 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 five institutions as of December 31, 2017, collectively consisting of five main campuses and 18 additional locations: Main Institution/Campus(es) Additional Location(s)Iselin, NJ Moorestown, NJ Paramus, NJ Somerville, MA Lincoln, RI Marietta, GA Las Vegas, NV (Summerlin) New Britain, CT Shelton, CT Philadelphia, PA East Windsor, CT Melrose Park, IL Allentown, PA Indianapolis, IN Grand Prairie, TX Nashville, TN Denver, CO Union, NJ Mahwah, NJ Queens, NY South Plainfield, NJ Columbia, MD Southington, CT Each institution must periodically apply to the DOE for continued certification to participate in Title IV Programs. The institution also must apply forrecertification when it undergoes a change in ownership resulting in a change of control. The institution also may come under DOE review when it undergoesa substantive change that requires the submission of an application, such as opening an additional location or raising the highest academic credential itoffers. All institutions are recertified on various dates for various amounts of time. The following table sets forth the expiration dates for each of ourinstitutions' current Title IV Program participation agreements:Institution Expiration Date of CurrentProgram ParticipationAgreementColumbia, MD March 31, 2020Iselin, NJ June 12, 20181Indianapolis, IN September 30, 20181New Britain, CT March 31, 2020Southington, CT June 30, 20231Provisionally certified.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 five institutions, namely Iselin (as a result of ACICS’s loss of DOE recognition, as discussed above) and Indianapolis areprovisionally certified by the DOE; together, these two institutions generate 66% of the Company’s revenues are provisionally certified. Indianapolis isprovisionally certified based on the existence of pending program reviews with DOE (although the Title IV Program review at our Union and Indianapolisschools, which was the basis for provisional certification, have been resolved and are now closed). An institution that is provisionally certified receives fewerdue process rights than those received by other institutions in the event the DOE takes certain adverse actions against the institution, is required to obtainprior DOE approvals of new campuses and educational programs, and may be subject to heightened scrutiny by the DOE. However, provisional certificationdoes not otherwise limit an institution’s access to Title IV Program funds. Our Iselin campus also is subject to additional conditions on its Title IVparticipation based on its accrediting agency’s loss of DOE recognition, as discussed above.12IndexThe DOE is responsible for overseeing compliance with Title IV Program requirements. As a result, each of our schools is subject to detailed oversight andreview, and must comply with a complex framework of laws and regulations. Because the DOE periodically revises its regulations and changes itsinterpretation of existing laws and regulations, we cannot predict with certainty how the Title IV Program requirements 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. Congress is currently considering reauthorization of Title IV Programs and theHouse Education and Workforce Committee approved a reauthorization bill on December 13, 2017. The Senate Health, Education, Labor and PensionsCommittee has indicated it plans to develop its own reauthorization bill. However, it is not known if or when Congress will pass final legislation that amendsthe Higher Education Act or other laws affecting U.S. Federal student aid.In 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 or the DOE that significantly reduces Title IV Program funding, that limits orrestricts the ability of our schools, programs, or students to receive funding through the Title IV Programs, or that imposes new restrictions or constraints uponour business or operations could reduce our student enrollment and our revenues, and could increase our administrative costs and require us to modify ourpractices in order for our schools to comply fully with Title IV Program requirements.In addition, current requirements for student or school participation in Title IV Programs may change or one or more of the present Title IV Programs could bereplaced by other programs with materially different student or school eligibility requirements. If we cannot comply with the provisions of the HEA, as theymay be amended, or if the cost of such compliance is excessive, or if funding is materially reduced, our revenues or profit margin could be materiallyadversely affected.Gainful Employment. In October 2014, the DOE issued final gainful employment regulations requiring each educational program offered by our institutionsto achieve threshold rates in at least one of two debt measure categories related to an annual debt to annual earnings ratio and an annual debt to discretionaryincome ratio. The various formulas are calculated under complex methodologies and definitions outlined in the final regulations and, in some cases, arebased on data that may not be readily accessible to institutions, such as income information compiled by the Social Security Administration. The regulationsoutline various scenarios under which programs could lose Title IV eligibility for failure to achieve threshold rates in one or more measures over certainperiods of time ranging from two to four years. The regulations also require an institution to provide warnings to students in programs which may lose TitleIV eligibility at the end of an award year. The final regulations also contain other provisions that, among other things, include disclosure, reporting, newprogram approval, and certification requirements. The certification requirements require each institution to certify to the DOE, among other things, that eachgainful employment program is programmatically accredited, if such accreditation is required by a Federal governmental entity or by governmental entity inthe state in which the institution is physically located.The final regulations had a general effective date of July 1, 2015. In January 2017, the DOE issued the first set of gainful employment rates for each of ourprograms for the debt measure year ended June 30, 2015. Sixty of our programs achieved passing rates, 13 of our programs had rates that are in a categorycalled the “zone,” and five of our programs had failing rates. One of the five failing programs is associated with an institution that is closed as of December31, 2016. Our programs with rates in the zone are not subject to loss of Title IV eligibility unless they accumulate a combination of zone and failing rates forfour consecutive years (or failing rates for two out of any three consecutive years). Each of our programs with failing rates will lose its Title IV eligibility if itreceives a failing gainful employment rate for either of the 2016 or 2017 debt measure years. The DOE has yet to begin the process of issuing gainfulemployment rates for the 2016 debt measure year, although it could begin that process at any time. Of the four remaining failing programs two were at our Transitional campuses and have been fully taught out as of December 31, 2017. The remaining twofailing programs are expected to be fully taught out by June 30, 2018 and we are pending a response from the DOE to the official appeal we submitted onFebruary 1, 2018. If, in fact, we lose the appeal to the DOE the applicable school would need to notify its current students that it may lose Title IVeligibility. Moreover, the potential for one or more of these programs to lose their Title IV eligibility could trigger a requirement to submit a letter of creditor other financial protection to the DOE under the new Borrower Defense to Repayment Regulations that were scheduled to take effect on July 1, 2019 butwere subsequently delayed. See “Financial Responsibility Standards.”13IndexThe table below provides a summary of the percentage of total student enrollment by gainful employment program classification for each of our reportingsegments based on student enrollment as of the debt measure year ended December 31, 2017. Reporting Segment Passing Programs Zone Programs Failing Programs Transportation 93.6% 6.4% - HOPS 94.6% 4.5% 0.9%Transitional - - - The table below provides a summary of estimated yearly revenue related to the programs either in the zone or failing programs for the fiscal year endedDecember 31, 2017. The Company has implemented program modifications and tuition reductions or is teaching out the program or has appealed theprogram’s gainful employment rate. Reporting Segment Zone Programs Failing Programs Transportation $6,000,000 $- HOPS $3,200,000 $300,000 The table below provides a summary of each of the zone or failing programs and the actions implemented by the Company with respect to those particulargainful employment (“GE”) programs. GE Program Code Reporting SegmentOPEIDCIP CodeCredential LevelGE Program NameGE ClassificationActions implementedTransportation007936120503CertificateCulinary Arts/Chef TrainingZoneTeachout, ProgramModification, TuitionReductionTransportation007938470603CertificateAutobody/Collision And RepairTechnology/TechnicianZoneProgram Modification,Tuition ReducationTransportation007936470604CertificateAutomobile/Automotive MechanicesTechnology/TechnicianZoneProgram Modification,Tuition ReducationHOPS012461120401CertificateCosmetology/Cosmetologist GeneralZoneProgram ModificationHOPS007303120503CertificateCulinary Arts/Chef TrainingFailAppeal, Teachout,Program Modification,Tuition ReducationHOPS007303120599CertificateCulinary Arts and Related Services, OtherZoneTeachoutHOPS0012461470101CertificateElectrical/ Electronics EquipmentInstallationAnd Repair, GeneralFailTeachout, ProgramModificationHOPS0012461470101Associate DegreeElectrical/ Electronics EquipmentInstallationAnd Repair, GeneralZoneProgram ModificationHOPS0012461510713Associate DegreeMedical Insurance CodingSpecialist/CoderZoneTeachoutTransitional0012461120503CertificateCulinary Arts/Chef TrainingZoneTeachoutTransitional0012461120503CertificateCulinary Arts/Chef TrainingZoneTeachoutTransitional0012461470201CertificateHeating, Air Conditioning, VentilationAnd Refrigeration Maintenance Technology/TechnicianFailTeachoutTransitional0012461470604CertificateAutomobile/Automotive MechanicesTechnology/TechnicianFailTeachoutTransitional0012461470604Associate DegreeAutomobile/Automotive MechanicsTechnology/TechnicianZoneTeachoutTransitional0012461510716Associate DegreeMedical Administrative/ExecutiveAssistantAnd Medical SecretoryZoneTeachoutTransitional0012461510801Associate DegreeMedical/Clinical AssistantZoneTeachout 1Gainful Employment programs are identified by the combination of: (1) the institution’s Office of Postsecondary Education Identification number (“OPEID#”); (2) Program Classification of Instruction (“CIP”); and (3) Credential Level. On June 15, 2017, the DOE announced its intention to convene a negotiated rulemaking committee to develop proposed regulations to revise the gainfulemployment regulations. The committee may issue proposed regulations for public comment during the first half of 2018, but the DOE has not established afinal schedule for publication of proposed or final regulations. Any regulations published in final form by November 1, 2018 typically would take effect onJuly 1, 2019, but we cannot provide any assurances as to the timing or content of any such regulations.On June 30, 2017, the DOE announced the extension of the compliance date for certain gainful employment disclosure requirements from July 1, 2017 toJuly 1, 2018. The DOE stated that institutions are still required to comply with other gainful employment disclosure requirements by July 1, 2017. On August18, 2017, the DOE announced new deadlines for submitting notices of intent to file alternate earnings appeals of gainful employment rates and for submittingalternate earnings appeals of those rates. The deadline to file a notice of intent to file an appeal was October 6, 2017 and the deadline to file the alternateearnings appeal was February 1, 2018. The DOE has not announced a delay or suspension in the enforcement of any other gainful employment regulations.However, on August 8, 2017, DOE officials announced that the DOE did not have a timetable for the issuance of student completer lists to schools, which isthe first step toward generating the data for calculating new gainful employment rates. Consequently, we cannot predict when the DOE will begin the processof calculating and issuing new draft or final gainful employment rates in the future. We also cannot predict whether the gainful employment rulemakingprocess or the extension of certain gainful employment deadlines may result in the DOE delaying the issuance of new draft or final gainful employment ratesin the future. 14IndexBorrower Defense to Repayment Regulations. In January 2016, the DOE began negotiated rulemaking to develop proposed regulations regarding, amongother things, a borrower’s ability to allege acts or omissions by an institution as a defense to the repayment of certain Title IV loans and the consequences tothe borrower, the DOE, and the institution. On November 1, 2016, the DOE published in the Federal Register the final version of these regulations with ageneral effective date of July 1, 2017 and which, among other things, include rules for:·establishing new processes, and updating existing processes, for enabling borrowers to obtain from the DOE a discharge of some or all of theirfederal student loans based on circumstances such as certain acts or omissions of the institution and for the DOE to impose and collect liabilitiesagainst the institution following the loan discharges;·establishing expanded standards of financial responsibility (see “Regulatory Environment – Financial Responsibility Standards”);·requiring institutions to make disclosures to current and prospective students regarding the existence of certain of the circumstances identified in theexpanded standards of financial responsibility;·calculating a loan repayment rate for each proprietary institution under standards established by the regulations and requiring institutions to providewarnings to current and prospective students if the institution has a loan repayment rate below specified thresholds;·prohibiting certain contractual provisions imposed by or on behalf of schools on students regarding arbitration, dispute resolution, and participationin class actions; and·expanding the existing definition of misrepresentations that could result in grounds for discharge of student loans and in liabilities and sanctionsagainst the institution, including, without limitation, potential loss of Title IV eligibility.On January 19, 2017, the DOE issued new regulations that update the Department’s hearing procedures for actions to establish liability against an institutionand to establish procedural rules governing recovery proceedings under the DOE’s borrower defense to repayment regulations. The DOE delayed the effective date of a majority of these regulations until July 1, 2019 to ensure that there is adequate time to conduct negotiatedrulemaking and, as necessary, develop revised regulations. The DOE has not established a final schedule. Any regulations published in final form byNovember 1, 2018 typically would take effect on July 1, 2019, but we cannot provide any assurances as to the timing or content of any such regulations orwhether and when the DOE might end the delay in the effective date of the previously published regulations. We cannot predict how the DOE would interpret and enforce the new borrower defense to repayment rules if they take effect after the delay or how these rules,or any rules that may arise out of the negotiated rulemaking process, may impact our schools’ participation in the Title IV Programs; however, the new rulescould have a material adverse effect on our schools’ business and results of operations, and the broad sweep of the rules may, in the future, require our schoolsto submit a letter of credit based on expanded standards of financial responsibility as indicated above.The "90/10 Rule." Under the HEA, a proprietary institution that derives more than 90% of its total revenue from Title IV Programs (its “90/10 Rulepercentage”) for two consecutive fiscal years becomes immediately ineligible to participate in Title IV Programs and may not reapply for eligibility until theend of at least two fiscal years. An institution with revenues exceeding 90% for a single fiscal year will be placed on provisional certification and may besubject to other enforcement measures. If an institution violated the 90/10 Rule and became ineligible to participate in Title IV Programs but continued todisburse Title IV Program funds, the DOE would require the institution to repay all Title IV Program funds received by the institution after the effective dateof the loss of eligibility.We have calculated that, for our 2017 fiscal year, our institutions' 90/10 Rule percentages ranged from 76% to 84%. For 2016 and 2015, none of our existinginstitutions derived more than 90% of their revenues from Title IV Programs. Our calculations 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 Rule purposes, lower the 90%threshold, or otherwise change the calculation methodology (each of which has been proposed by some Congressional members in proposed legislation), ormake other changes to the 90/10 Rule, those changes could make it more difficult for our institutions to comply with the 90/10 Rule. A loss of eligibility toparticipate in Title IV Programs for any of our institutions would have a significant impact on the rate at which our students enroll in our programs and on ourbusiness and results of operations. 15IndexStudent 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 and, under new regulations that were scheduled to take effect on July 1, 2017 but weresubsequently delayed, could be required to submit a letter of credit to the DOE.In September 2017, the DOE released the final cohort default rates for the 2014 federal fiscal year. These are the most recent final rates published by theDOE. The rates for our existing institutions for the 2014 federal fiscal year range from 5.2% to 13.6%. None of our institutions had a cohort default rateequal to or greater than 30% for the 2014 federal fiscal year.In February 2018, the DOE released draft three-year cohort default rates for the 2015 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 2018. The draft rates for our institutions for the 2015federal fiscal year range from 7.6% to 13.2%. None of our 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 creditto the DOE equal to 50 percent of the Title IV Program funds received by the institution during its 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 Program disbursements to eligible students and parents before it requests or receives funds for the amount of those disbursements from theDOE. As long 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 Heightened Cash Monitoring2 (“HCM2”) and reimbursement payment methods, the HCM1 payment method typically does not require schools to submit documentation to the DOE andwait for DOE approval before drawing down Title IV Program funds. Effective July 1, 2016, a school under HCM1, HCM2 or reimbursement paymentmethods must also pay any credit balances due to a student before drawing down funds for the amount of those disbursements from the DOE, even if thestudent or parent provides written authorization for the school to hold the credit balance.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; or 16Index·Posting a letter of credit in an amount equal to at least 10% of the Title IV Program funds received by the institution during its most recentlycompleted fiscal year accepting provisional certification; complying with additional DOE monitoring requirements and agreeing to receive Title IVProgram funds under an arrangement other than the DOE's standard advance funding arrangementThe DOE has evaluated the financial responsibility of our institutions on a consolidated basis. We have submitted to the DOE our audited financialstatements for the 2016 and 2015 fiscal year reflecting a composite score of 1.5 and 1.9, respectively, based upon our calculations. The DOE reviewed our2016 composite score and concluded that we were no longer required to operate under the Zone Alternative requirements that we had operated underfollowing the DOE’s review of our 2014 composite score.For the 2017 fiscal year, we have calculated our composite score to be 1.1. This score is subject to determination by the DOE once it receives and reviews ourconsolidated audited financial statements for the 2017 fiscal year, but we believe it is likely that DOE will determine that our institutions are “in the zone”and that we will be required to operate under the Zone Alternative requirements as well as any other requirements that the DOE might impose in its discretion.On November 1, 2016, the DOE published new Borrower Defense to Repayment regulations that included expanded standards of financial responsibility thatcould result in a requirement that we submit to the DOE a substantial letter of credit or other form of financial protection in an amount determined by theDOE, and be subject to other conditions and requirements, based on any one of an extensive list of triggering circumstances. The DOE has delayed theeffective date of these regulations until July 1, 2019. If the regulations were not currently delayed, the expanded financial responsibility regulations couldresult in the DOE recalculating and reducing our composite score to account for DOE estimates of potential losses under some of the circumstances listedabove and also could result in requirements to provide financial protection in amounts that are difficult to predict, calculated by the DOE under potentiallysubjective standards and, in some cases, could be based solely on the existence of proceedings or circumstances that ultimately may lack merit or otherwisenot result in liabilities or losses. For example, the currently delayed regulations state that the letter of credit or other form of financial protection required foran institution under the provisional certification alternative must equal 10 percent of the total amount of Title IV Program funds received by the institutionduring its most recently completed fiscal year plus any additional amount that the DOE determines is necessary to fully cover any estimated losses unless theinstitution demonstrates that the additional amount is unnecessary to protect, or is contrary to, the Federal interest.Return of Title IV Program Funds. An institution participating in Title IV Programs must calculate the amount of unearned Title IV Program funds thathave been disbursed to students who withdraw from their educational programs before completing them, and must return those unearned funds to the DOE orthe applicable lending institution in a timely manner, which is generally within 45 days from the date the institution determines that the student haswithdrawn.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 or if the regulatory auditor identifies a material weakness in the institution’s report on internal controls relating to the return of unearned Title IVProgram funds, 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 Programfunds that should have been returned for students who withdrew in the institution's prior fiscal year.On January 11, 2018, the DOE sent letters to our Columbia, Maryland and Iselin, New Jersey institutions requiring each institution to submit a letter of creditto the DOE based on findings of late returns of Title IV Program funds in the annual Title IV Program compliance audits submitted to the DOE for the fiscalyear ended December 31, 2016. Our Iselin institution provided evidence demonstrating that only 3% of the Title IV Program funds returned were late. However, the DOE concluded that a letter of credit would nevertheless be required for each institution because the regulatory auditor included a finding thatthere was a material weakness in our report on internal controls relating to return of unearned Title IV Program funds. We disagree with the regulatoryauditor’s conclusion that a material weakness could exist if the error rate in the expanded audit sample is only 3% or approximately $20,000 and we believethat the regulatory auditor’s conclusion is erroneous. We requested that the DOE reconsider the letter of credit requirement; however, by letter datedFebruary 7, 2018, the DOE maintained that the refund letters of credit were necessary but agreed that the amount of each letter of credit could be based on thereturns that were required to be made by each institution in the 2017 fiscal year rather than in the 2016 fiscal year. Accordingly, we submitted letters of creditin the amounts of $0.5 million and $0.1 million to the DOE by the February 23, 2018 deadline and expect that these letters of credit will remain in place for aminimum of two years. 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. TheDOE recertification of an institution following a change of control will be on a provisional basis. Thus, any plans to expand our business through acquisitionof additional schools and have them certified by the DOE to participate in Title IV Programs must take into account the approval requirements of the DOEand the relevant state education agencies and accrediting commissions. 17IndexChange 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 the Company or our schools are involved. Some corporate reorganizations andsome changes in the board of directors of the Company are examples of such transactions. Moreover, the potential adverse effects of a change of controlcould influence future decisions by us and our stockholders regarding the sale, purchase, transfer, issuance or redemption of our stock. In addition, theadverse regulatory effect of a change of control also could discourage bids for shares of our common stock and could have an adverse effect on the marketprice 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.A 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 (Iselin and Indianapolis) are provisionally certified and requiredto obtain prior DOE approval of new degree, non-degree, and short-term training educational programs. Our Iselin institution also is subject to prior approvalrequirements for substantive changes such as new campuses and educational programs as a result of its accrediting agency’s loss of DOE recognition, and theDOE has indicated that such changes only will be approved in limited circumstances. If an institution erroneously determines that an educational program iseligible for purposes of Title IV Programs, the institution would likely be liable for repayment of Title IV Program funds provided to students in thateducational program. Our expansion 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.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 requirements;·Have capable and sufficient personnel to administer the federal student Title IV Programs;·Administer Title IV Programs with adequate checks and balances in its system of internal controls over financial reporting; 18Index·Divide 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 Program regulations;·Develop and apply an adequate system to identify and resolve discrepancies in information from sources regarding a student’s application forfinancial aid under the Title IV Program;·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, third party servicer or otheragent of the school has been 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 adequate financial aid counseling to its students;·Submit in a timely manner all reports and financial statements required by the Title IV Program regulations; and·Not otherwise appear to lack administrative capability.Failure by us to satisfy any of these or other administrative capability criteria could cause our institutions to be subject to sanctions or other actions by theDOE or to lose eligibility to participate in Title IV Programs, which would have a significant impact on our business and results of operations.Restrictions 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 (thereby reducing the scope of permissible compensatory payments under the rule) and expanding the scope of compensatory paymentsand employees subject to the rule. The DOE has stated that it does not intend to provide private guidance regarding particular compensation structures in thefuture and will enforce the regulations as written. We cannot predict how the DOE will interpret and enforce the revised incentive compensation rule. Theimplementation of the final regulations required us to change our compensation practices and has had and will continue to have a significant impact on therate at which students enroll in our programs, on the retention of our employees and on our business and results of operations.Compliance with Regulatory Standards and Effect of Regulatory Violations. Our schools are subject to audits, program reviews, site visits, and otherreviews by various federal and state regulatory agencies, including, but not limited to, the DOE, the DOE's Office of Inspector General, state educationagencies and other state regulators, the U.S. Department of Veterans Affairs and other federal agencies, and by our accrediting commissions. In addition, eachof our institutions must retain an independent certified public accountant to conduct an annual audit of the institution's administration of Title IV Programfunds. The institution must submit the resulting audit report to the DOE for review.On 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 Programs in which the campus participated for the 2011-2012 and 2012-2013 awardyears. On June 29, 2015, the DOE issued a Program Review Report that required our Columbia campus to respond to information in the report. On August 2,2017, the DOE issued its Final Program Review Determination (“FPRD”) letter to our Columbia, Maryland, school that included the DOE’s review of ourinitial response and corrective actions for the five findings originally noted in the June 29, 2015, program review report. The DOE concluded in its FPRDletter that the school had taken the corrective actions necessary to resolve and close the first four findings. However, with respect to the fifth finding, theDOE concluded that there were violations of the Clery Act, but accepted the school’s response and stated that it now considers the finding closed for programreview purposes. However, the DOE reserved the right to impose an administrative action and/or require additional corrective actions by the school inconnection with the Clery Act finding in the report. The DOE did not impose any financial liabilities in regard to any of the five findings in the FPRD letter.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 Programs in which the campus participated for the 2011-2012 and 2012-2013 award years. OnSeptember 30, 2016, the Union, New Jersey campus received a Program Review Report from the DOE. On September 29, 2017, the DOE issued its FPRD thatclosed the review and indicated that the DOE had determined the Company’s financial liability to the DOE resulting from the FPRD to be $175, which hasbeen paid by the Company to the DOE.On July 6, 2017, the DOE notified our Indianapolis, Indiana campus that an on-site Program Review was scheduled to begin on August 14, 2017. TheProgram Review assessed the institution’s administration of Title IV Programs in which the campus participated for the 2015-2016 and 2016-2017 awardyears. On February 21, 2018, the Indianapolis school received a Program Review Report from the DOE and the review was closed with no findings. Theschool continues to be provisionally certified due to this program review.19IndexIf 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 or another agencydetermined that one of our institutions improperly disbursed Title IV Program funds or violated a provision of the HEA or DOE regulations, the institutioncould be required to repay such funds and related costs to the DOE and lenders, and could be assessed an administrative fine. The DOE could also place theinstitution on provisional certification status and/or transfer the institution to the reimbursement or cash monitoring system of receiving Title IV Programfunds, under which an institution must disburse its own funds to students and document the students' eligibility for Title IV Program funds before receivingsuch funds from the DOE. See “Regulatory Environment – Financial Responsibility Standards.”Significant violations of Title IV Program requirements by the Company or any of our institutions could be the basis for the DOE to limit, suspend orterminate the participation of the affected institution in Title IV Programs or to seek civil or criminal penalties. Generally, such a termination of Title IVProgram eligibility extends for 18 months before the institution may apply for reinstatement of its participation. There is no DOE proceeding pending to fineany 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 claims and lawsuits relating to regulatory compliance brought not only by federal and state regulatory agencies andour 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 claim or lawsuit, we may be required to pay money damages or be subject to fines, limitations, loss of federalfunding, injunctions or other penalties. Moreover, even if we successfully resolve or defend against any such claim or lawsuit, we may have to devotesignificant financial and management resources in order to reach such a result. 20IndexItem 1A.RISK FACTORSThe risk factors described below and other information included elsewhere in this Form 10-K are among the numerous risked faced by our Company andshould be carefully considered before deciding to invest in, sell or retain shares of our common stock. The risks and uncertainties described below are notthe only ones we face.RISKS RELATED TO OUR INDUSTRYOur failure to comply with the extensive regulatory requirements for participation in Title IV Programs and school operations could result in financialpenalties, restrictions on our operations and loss of external financial aid funding, which could affect our revenues and impose significant operatingrestrictions on us.Our industry is highly regulated by federal and state governmental agencies and by accrediting commissions. In particular, the HEA and DOE regulationsspecify extensive criteria and numerous standards that an institution must satisfy to establish to participate in the Title IV Programs. For a description ofthese criteria, see “Regulatory Environment.”If we are found not to have satisfied the DOE's requirements for Title IV Programs funding, one or more of our institutions, including its additional locations,could be limited in its access to, or lose, Title IV Program funding, which could adversely affect our revenue, as we received approximately 78% of ourrevenue (calculated based on cash receipts) from Title IV Programs in 2017, and have a significant impact on our business and results of operations. Furthermore, if any of our schools fails to comply with applicable regulatory requirements, the school and its related main campus and/or additional locationscould be subject 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,any 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 would constitute an event of default under our creditagreement with our lender, which could result in the acceleration of all amounts then outstanding with respect to our outstanding loan obligations. Thevarious regulatory agencies applicable to our business periodically revise their requirements and modify their interpretations of existing requirements andrestrictions. We cannot predict with certainty how any of these regulatory requirements will be applied or whether each of our schools will be able to complywith these requirements or any additional requirements instituted in the future.If 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.”If we are found not to have satisfied the DOE's "administrative capability" requirements, or otherwise failed to comply with one or more DOE 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 loss or decrease inTitle IV funding could adversely affect our revenue, as we received approximately 78% of our revenue (calculated based on cash receipts) from Title IVPrograms in 2017, which would have a significant impact on our business and results of operations. Congress and the DOE may make changes to the laws and regulations applicable to, or reduce funding for, Title IV Programs, which could reduce ourstudent population, revenues or profit margin.Congress periodically revises the HEA and other laws governing Title IV Programs and annually determines the funding level for each Title IV Program. Wecannot predict what if any legislative or other actions will be taken or proposed by Congress in connection with the reauthorization of the HEA or with otheractivities of Congress. See “Regulatory Environment – Congressional Action.” Because a significant percentage of our revenues are derived from the TitleIV programs, any action by Congress or the DOE that significantly reduces funding for Title IV Programs or that limits or restricts the ability of our schools,programs, or students to receive funding through those Programs or that imposes new restrictions or constraints upon our business or operations could reduceour student enrollment and our revenues, and could increase our administrative costs and require us to modify our practices in order for our schools to complyfully with Title IV program requirements. In addition, current requirements for student or school participation in Title IV Programs may change or one ormore of the present Title IV Programs could be replaced by other programs with materially different student or school eligibility requirements. If we cannotcomply with the provisions of the HEA, as they may be revised, or if the cost of such compliance is excessive, or if funding is materially reduced, ourrevenues or profit margin could be materially adversely affected. 21IndexThe 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 October 2014, the DOE issued final regulations on gainful employment requiring each educational program to achieve threshold rates in two debt measurecategories related to an annual debt to annual earnings ratio and an annual debt to discretionary income ratio. The regulations outline various scenariosunder which programs could lose Title IV Program eligibility for failure to achieve threshold rates in one or more measures over certain periods of timeranging from two to four years. The regulations also require an institution to provide warnings to students in programs which may lose Title IV Programeligibility at the end of an award year. The final regulations also contain other provisions that, among other things, include disclosure, reporting, newprogram approval, and certification requirements. See “Regulatory Environment – Gainful Employment.” The DOE announced its intent to convene a negotiated rulemaking committee to develop proposed regulations to revise the gainful employment regulations.The DOE has not established a final schedule for publication of proposed or final regulations. Any regulations published in final form by November 1, 2018typically would take effect in July 1, 2019, but we cannot provide any assurances as to the timing or content of any such regulations.On June 30, 2017, the DOE announced the extension of the compliance date for certain gainful employment disclosure requirements from July 1, 2017 toJuly 1, 2018. The DOE stated that institutions are still required to comply with other gainful employment disclosure requirements by July 1, 2017. On August18, 2017, the DOE announced in the Federal Register new deadlines for submitting notices of intent to file alternate earnings appeals of gainful employmentrates and for submitting alternate earnings appeals of those rates. The deadline to file a notice of intent to file an appeal was October 6, 2017 and the deadlineto file the alternate earnings appeal was February 1, 2018. The DOE has not announced a delay or suspension in the enforcement of any other gainfulemployment regulations. However, on August 8, 2017, DOE officials announced that the DOE did not have a timetable for the issuance of completer lists toschools, which is the first step toward generating the data for calculating new gainful employment rates. Consequently, we cannot predict when the DOE willbegin the process of calculating and issuing new draft or final gainful employment rates in the future. We also cannot predict whether the announcement ofthe intent to initiate gainful employment rulemaking or the extension of certain gainful employment deadlines may result in the DOE delaying the issuanceof new draft or final gainful employment rates in the future.In January 2016, the DOE began negotiated rulemaking to develop proposed regulations regarding a borrower’s ability to allege acts or omissions by aninstitution as a defense to the repayment of certain Title IV loans and the consequences to the borrower, the DOE, and the institution. See “RegulatoryEnvironment – Borrower Defense to Repayment Regulations.” On November 1, 2016, the DOE published in the Federal Register the final version of theseregulations with a general effective date of July 1, 2017 and which, among other things, include rules for:·establishing new processes, and updating existing processes, for enabling borrowers to obtain from the DOE a discharge of some or all of theirfederal student loans based on circumstances such as certain acts or omissions of the institution and for the DOE to impose and collect liabilitiesagainst the institution following the loan discharges;·establishing expanded standards of financial responsibility (see “Financial Responsibility Standards”);·requiring institutions to make disclosures to current and prospective students regarding the existence of certain of the circumstances identified in theexpanded standards of financial responsibility;·calculating a loan repayment rate for each proprietary institution under standards established by the regulations and requiring institutions to providewarnings to current and prospective students if the institution has a loan repayment rate below specified thresholds;·prohibiting certain contractual provisions imposed by or on behalf of schools on students regarding arbitration, dispute resolution, and participationin class actions; and·expanding the existing definition of misrepresentations that could result in grounds for discharge of student loans and in liabilities and sanctionsagainst the institution, including, without limitation, potential loss of Title IV eligibility.On January 19, 2017, the DOE issued new regulations that update the Department’s hearing procedures for actions to establish liability against an institutionand to establish procedural rules governing recovery proceedings under the DOE’s borrower defense to repayment regulations. The DOE has delayed the effective date of a majority of these regulations until July 1, 2019 to ensure that there is adequate time to conduct negotiatedrulemaking and, as necessary, develop revised regulations. The DOE intends to issue proposed regulations for public comment during the first half of 2018,but the DOE has not established a final schedule. Any regulations published in final form by November 1, 2018 typically would take effect on July 1, 2019,but we cannot provide any assurances as to the timing or content of any such regulations or whether and when the DOE might end the delay in the effectivedate of the previously published regulations. 22IndexWe cannot predict how the DOE would interpret and enforce the new borrower defense to repayment rules if they take effect after the delay or how these rules,or any rules that may arise out of the negotiated rulemaking process or any other rules that DOE may promulgate on this or other topics, may impact ourschools’ participation in the Title IV programs; however, the new rules could have a material adverse effect on our schools’ business and results of operations,and the broad sweep of the rules may, in the future, require our schools to submit a letter of credit based on expanded standards of financial responsibility asindicated above.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. The DOE published new regulations, currentlydelayed until July 1, 2019, that establish expanded standards of financial responsibility that could result in a requirement that we submit to the DOE asubstantial letter of credit or other form of financial protection in an amount determined by the DOE, and be subject to other conditions and requirements,based on any one of an extensive list of triggering circumstances. See “Regulatory Environment – Financial Responsibility Standards.” Any obligation topost one or more letters of credit would increase our costs of regulatory compliance. Our inability to obtain a required letter of credit or limitations on, ortermination of, our participation in Title IV Programs could limit our students' access to various government-sponsored student financial aid programs, whichcould significantly reduce our student population and revenues. 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. See “Regulatory Environment -- Restrictions on Payment of Commissions, Bonuses and Other Incentive Payments.” Wecannot predict how the DOE will interpret and enforce the incentive compensation rule. The implementation of these regulations has required us to changeour compensation practices and has had and may continue to have a significant impact on the rate at which students enroll in our programs and on ourbusiness and results of operations. If we are found to have violated this law, we could be fined or otherwise sanctioned by the DOE or we could face litigationfiled under the qui tam provisions of the Federal False Claims Act. If our schools do not maintain their accreditation, they may not participate in Title IV Programs, which could adversely affect our student populationand revenues. An institution must be accredited by an accrediting commission recognized by the DOE in order to participate in Title IV Programs. Our Iselin school and itsbranch campuses are accredited by an accrediting commission that is no longer recognized by the DOE, and therefore, must obtain accreditation from a newaccrediting commission by June 12, 2018 in order to continue participating in Title IV Programs and is subject to additional conditions imposed by the DOEprior to that date. As discussed under the “Regulatory Environment – Accreditation,” we have applied to another accrediting agency, ACCSC, foraccreditation of our Iselin school and its branch campuses. If our Iselin school and its campuses are unable to obtain initial accreditation from ACCSC byJune 12, 2018, then our Iselin school and its branch campuses would lose Title IV Program eligibility as of that date. If any of our schools fails to complywith accrediting commission requirements, the institution and its main and/or branch campuses are subject to the loss of accreditation or may be placed onprobation or a special monitoring or reporting status which, if the noncompliance with accrediting commission requirements is not resolved, could result inloss of accreditation. Loss of accreditation by any of our main campuses would result in the termination of eligibility of that school and all of its branchcampuses to participate in Title IV Programs and could cause us to close the school and its branches, which could have a significant adverse impact on ourbusiness and operations. 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. Moreover, under new gainful employment regulations issued by the DOE, institutions are required tocertify that they have programmatic accreditation under certain circumstances. See “Regulatory Environment – Gainful Employment.” Failure to complywith these new requirements could impact the Title IV eligibility of educational programs that are required to maintain such programmatic accreditation. 23IndexOur 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 will be placed on provisional certification and may be subject to other enforcementmeasures. See “Regulatory Environment – 90/10 Rule.” If any of our institutions loses eligibility to participate in Title IV Programs, that loss would cause anevent of default under our credit agreement, would also adversely affect our students’ access to various government-sponsored student 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 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. See “Regulatory Environment – Student Loan Defaults.” If former students defaulted onrepayment of their federal student loans in excess of specified levels, our institutions would lose eligibility to participate in Title IV Programs, would causean 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. .We 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. Based upon the findings of an annual Title IV Program compliance audit of our Columbia, Maryland and Iselin, New Jerseyinstitutions, the Company submitted letters of credit in the amounts of $0.5 million and $0.1 million to the DOE. We are required to maintain those letters ofcredit in place for a minimum of two years. See “Regulatory Environment – Return of Title IV Program Funds.” 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 and state funding,injunctions or other penalties. Even if we adequately address issues raised by an agency review or successfully defend a third-party lawsuit or claim, we mayhave to divert significant financial and management resources from our ongoing business operations to address issues raised by those reviews or defend thoselawsuits or claims. Certain of our institutions are subject to ongoing reviews and proceedings. See “Regulatory Environment – State Authorization,”“Regulatory Environment – Accreditation,” and “Regulatory Environment - Compliance with Regulatory Standards and Effect of Regulatory Violations.”A decline in the overall growth of enrollment in post-secondary institutions, or in our core disciplines, could cause us to experience lower enrollment atour schools, which could negatively impact our future growth.Enrollment in post-secondary institutions over the next ten years is expected to be slower than in the prior ten years. In addition, the number of high schoolgraduates eligible to enroll in post-secondary institutions is expected to fall before resuming a growth pattern for the foreseeable future. In order to increaseour current growth rates in degree granting programs, we will need to attract a larger percentage of students in existing markets and expand our markets bycreating new academic programs. In addition, if job growth in the fields related to our core disciplines is weaker than expected, as a result of any regional ornational economic downturn or otherwise, fewer students may seek the types of diploma or degree granting programs that we offer or seek to offer. Our failureto attract new students, or the decisions by prospective students to seek diploma or degree programs in other disciplines, would have an adverse impact onour future growth. 24IndexOur 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 exercisedsupervisory authority over private education loan providers. The CFPB has been active in conducting investigations into the private student loan marketand issuing several reports with findings that are critical of the private student loan market. The CFPB has initiated investigations into the lending practicesof other institutions in the for-profit education sector. The CFPB has issued procedures for further examination of private education loans and publishedrequests for information regarding repayment plans and regarding arrangements between schools and financial institutions. On August 31, 2017, the DOEinformed CFPB that it was terminating an information sharing Memorandum of Understanding between the two agencies, in part because the CFPB wasacting on student complaints rather than referring them to the DOE for action. The DOE asserted full oversight responsibility for federal student loans, butnot with respect to private loans. In late November 2017, new leadership at the CFPB began taking steps to end or pause certain investigations and to restrictor reconsider some its enforcement activities. However, it is unclear the extent to which the CFPB will continue to exercise oversight authority over privateeducation loan providers.We cannot predict whether any of this activity, or other activities, will result in Congress, the DOE, the CFPB or other regulators adopting new legislation orregulations, or conducting new investigations, into the private student loan market or into the loans received by our students to attend our institutions. Anynew legislation, regulations, or investigations regarding private student lending could limit the availability of private student loans to our students, whichcould have a significant impact on our business and operations.RISKS RELATED TO OUR BUSINESSOur 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, and skilled trades. Accordingly,educational programs at our schools must keep pace with those technological advancements. The expansion of our existing programs and the development ofnew programs may not be accepted by our students, prospective employers or the technical education market. Even if we are able to develop acceptable newprograms, we may not be able to introduce these new programs as quickly as our competitors or as quickly as employers demand. If we are unable toadequately respond to changes in market requirements due to financial constraints, unusually rapid technological changes or other factors, our ability toattract and retain students could be impaired, our placement rates could suffer and our revenues could be adversely affected.In 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.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. 25IndexOur 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 employers in the automotive, diesel, skilled trades and IT services industries.An increase in interest rates could adversely affect our ability to attract and retain students.Our students and their families have benefitted from historic lows on student loan interest rates in recent years. Much of the financing our students receive istied to floating interest rates. Recently, however, student loan interest rates have been edging higher, making borrowing for education more expensive. Increases in interest rates result in a corresponding increase in the cost to our existing and prospective students of financing their education, which couldresult in a reduction in the number of students attending our schools and could adversely affect our results of operations and revenues. Higher interest ratescould also contribute to higher default rates with respect to our students' repayment of their education loans. Higher default rates may in turn adverselyimpact our eligibility for Title IV Program participation or the willingness of private lenders to make private loan programs available to students who attendour schools, which could result in a reduction in our student population.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.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 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, 2017, goodwill and identified intangibles, net, associated with our acquisitionsincreased to approximately 9.4% from 8.9% of total assets at December 31, 2016. On at least an annual basis, we assess whether there has been an impairmentin the value of goodwill and other intangible assets with indefinite lives. If the carrying value of the tested asset exceeds its estimated fair value, impairmentis deemed to have occurred. In this event, the amount is written down to fair value. Under current accounting rules, this would result in a charge to operatingearnings. Any determination requiring the write-off of a significant portion of goodwill or unamortized identified intangible assets would negatively affectour results of operations and total capitalization, which could be material. 26IndexWe 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 all. If adequate funds are not available when required or on acceptable terms, we may be forced to forego attractive acquisition opportunities, cease ouroperations and, even if we are able to continue our operations, our ability to increase student enrollment and revenues would 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.Strikes by our employees may disrupt our ability to hold classes as well as our ability to attract and retain students, which could materially adverselyaffect our operations. In addition, we contribute to multiemployer benefit plans that could result in liabilities to us if these plans are terminated or wewithdraw from them.As of December 31, 2017, the teaching professionals at six of our campuses are represented by unions and covered by collective bargaining agreements thatexpire between 2018 and 2020. Although we believe that we have good relationships with these unions and with our employees, any strikes or workstoppages by our employees could adversely impact our relationships with our students, hinder our ability to conduct business and increase costs.We also contribute to multiemployer pension plans for some employees covered by collective bargaining agreements. These plans are not administered byus, and contributions are determined in accordance with provisions of negotiated labor contracts. The Employee Retirement Income Security Act of 1974, asamended by the Multiemployer Pension Plan Amendments Act of 1980, imposes certain liabilities upon employers who are contributors to a multiemployerplan in the event of the employer’s withdrawal from, or upon termination of, such plan. We do not routinely review information on the net assets andactuarial present value of the multiemployer pension plans’ unfunded vested benefits allocable to us, if any, and we are not presently aware of any materialamounts for which we may be contingently liable if we were to withdraw from any of these plans. In addition, if any of these multiemployer plans enters“critical status” under the Pension Protection Act of 2006, we could be required to make significant additional contributions to those plans.Anti-takeover provisions in our amended and restated certificate of incorporation, our bylaws and New Jersey law could discourage a change ofcontrol that our stockholders may favor, which could negatively affect our stock price.Provisions in our amended and restated certificate of incorporation and our bylaws and applicable provisions of the New Jersey Business Corporation Actmay make it more difficult and expensive for a third party to acquire control of us even if a change of control would be beneficial to the interests of ourstockholders. These provisions could discourage potential takeover attempts and could adversely affect the market price of our common stock. For example,applicable provisions of the New Jersey Business Corporation Act may discourage, delay or prevent a change in control by prohibiting us from engaging in abusiness combination with an interested stockholder for a period of five years after the person becomes an interested stockholder. Furthermore, our amendedand restated certificate of incorporation and 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;·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 27Index·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 stockholder 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.The trading price of our common stock may continue to fluctuate substantially in the future.Our stock price has declined substantially over the past five years and has and may fluctuate significantly as a result of a number of factors, some of which arenot in our control. These factors include:·general economic conditions;·general conditions in the for-profit, post-secondary education industry;·negative media coverage of the for-profit, post-secondary education industry;·failure of certain of our schools or programs to maintain compliance under the gainful employment regulation, 90-10 Rule or with financialresponsibility standards;·the impact of DOE rulemaking and other changes in the highly regulated environment in which we operate;·the initiation, pendency or outcome of litigation, accreditation reviews and regulatory reviews, inquiries and investigations;·loss of key personnel;·quarterly variations in our operating results;·our ability to meet or exceed, or changes in, expectations of investors and analysts, or the extent of analyst coverage of us; and·decisions by any significant investors to reduce their investment in our common stock.In addition, the trading volume of our common stock is relatively low. This may cause our stock price to react more to these factors and various other factorsand may impact an investor’s ability to sell our common stock at the desired time at a price considered satisfactory. Any of these factors may adversely affectthe trading price of our common stock, regardless of our actual operating performance, and could prevent an investor from selling shares of our common stockat or above the price at which the investor purchased them.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 or result indelays and/or errors in processing student financial aid and related disbursements. Any such system disruptions could impact our ability to generate revenueand affect our ability to access information about our students and could also damage the reputation of our institutions. Any of the cyber-attacks, breaches orother disruptions or damage described above could interrupt our operations, result in theft of our and our students’ data or result in legal claims andproceedings, liability and penalties under privacy laws and increased cost for security and remediation, each of which could adversely affect our business andfinancial results. We may be required to expend significant resources to protect against system errors, failures or disruptions or to repair problems caused byany actual errors, disruptions or failures.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 storing 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 cyber-attacks and breaches, acts of vandalism, ransomware, software viruses and other similar types ofmalicious activities. Regular patching of our computer systems and frequent updates to our virus detection and prevention software with the latest virus and malware signaturesmay not catch newly introduced malware and viruses or “zero-day” viruses, prior to their infecting our systems and potentially disrupting our data integrity,taking sensitive information or affecting financial transactions. While we utilize security and business controls to limit access to and use of personalinformation, any breach of student or employee privacy or errors in storing, using or transmitting personal information could violate privacy laws andregulations resulting in fines or other penalties. A wide range of high profile data breaches in recent years has led to renewed interest in federal data andcybersecurity legislation that could increase our costs and/or require changes in our operating procedures or systems. A breach, theft or loss of personalinformation held by us or our vendors, or a violation of the laws and regulations governing privacy could have a material adverse effect on our reputation orresult in lawsuits, additional regulation, remediation and compliance costs or investments in additional security systems to protect our computer networks,the costs of which may be substantial. 28IndexChanges in U.S. tax laws or adverse outcomes from examination of our tax returns could have an adverse effect upon our financial results.We are subject to income tax requirements in various jurisdictions in the United States. Legislation or other changes in the tax laws of the jurisdictions wherewe do business could increase our liability and adversely affect our after-tax profitability. In the United States, the Tax Cuts and Jobs Act, which was enactedon December 22, 2017, could have a significant impact on our effective tax rate, net deferred tax assets and cash tax expenses. The Tax Cuts and Jobs Act,among other things, reduces the U.S. corporate statutory tax rate, repeals the corporate alternative minimum tax, changes how existing corporate alternativeminimum tax credits can be realized either to offset regular tax liability or to be refunded, and eliminates or limits deduction of several expenses which werepreviously deductible. We are currently evaluating the overall impact of the Tax Cuts and Jobs Act on our effective tax rate and balance sheet, but expectthat the impact may be significant for our fiscal year 2018 and future periods.In addition, we are subject to examination of our income tax returns by the Internal Revenue Service and the taxing authorities of various states. Weregularly assess the likelihood of adverse outcomes resulting from tax examinations to determine the adequacy of our provision for income taxes and we haveaccrued tax and related interest for potential adjustments to tax liabilities for prior years. However, there can be no assurance that the outcomes from thesetax examinations will not have a material effect, either positive or negative, on our business, financial conditions and results of operation.ITEM 1B.UNRESOLVED STAFF COMMENTSNone. 29IndexITEM 2.PROPERTIESAs of December 31, 2017, we leased all of our facilities, except for our campuses in Nashville, Tennessee, Grand Prairie, Texas, and Denver, Colorado, andformer school properties in Mangonia Park, Palm Beach County, Florida and Suffield, Connecticut, all of which we own. We continue to re-evaluate ourfacilities to maximize our facility utilization and efficiency and to allow us to introduce new programs and attract more students. As of December 31, 2017,all of our existing leases expire between December 2018 and May 2030.The following table provides information relating to our facilities as of December 31, 2017, 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 27,000Allentown, Pennsylvania Lincoln Technical Institute 26,000East Windsor, Connecticut Lincoln Technical Institute 289,000Iselin, New Jersey Lincoln Technical Institute 32,000Lincoln, Rhode Island Lincoln Technical Institute 39,000Mahwah, New Jersey Lincoln Technical Institute 79,000Moorestown, New Jersey Lincoln Technical Institute 35,000New Britain, Connecticut Lincoln Technical Institute 35,000Paramus, New Jersey Lincoln Technical Institute 30,000Philadelphia, Pennsylvania Lincoln Technical Institute 29,000Queens, New York Lincoln Technical Institute 48,000Shelton, Connecticut Lincoln Technical Institute and Lincoln CulinaryInstitute 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 281,000West Orange, New Jersey Corporate Office 52,000Plymouth Meeting, Pennsylvania Corporate Office 6,000Suffield, Connecticut 132,000We believe that our facilities are suitable for their present intended purposes. 30IndexITEM 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.ITEM 4.MINE SAFETY DISCLOSURESNot applicable.PART II.ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket for our Common Stock Our common stock, no par value per share, 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 Price Range of Common Stock High Low Dividend Fiscal Year Ended December 31, 2017 First Quarter $2.92 $1.86 $- Second Quarter $3.53 $2.74 $- Third Quarter $3.36 $2.50 $- Fourth Quarter $2.56 $2.00 $- Price Range of Common Stock High Low Dividend Fiscal Year Ended December 31, 2016 First Quarter $3.05 $1.92 $- Second Quarter $2.49 $1.37 $- Third Quarter $2.58 $1.37 $- Fourth Quarter $2.20 $1.58 $- On March 5, 2018, the last reported sale price of our common stock on the Nasdaq Global Select Market was $1.83 per share. As of March 5, 2018, based onthe information provided by Continental Stock Transfer & Trust Company, there were 32 stockholders of record of our common stock.Dividend PolicyOn February 27, 2015, our Board of Directors discontinued the quarterly cash dividend.Share RepurchasesThe Company did not repurchase any shares of our common stock during the fourth quarter of the fiscal year ended December 31, 2017. 31IndexStock Performance GraphThis stock performance graph compares our total cumulative stockholder return on our common stock for the five years ended December 31, 2017 with thecumulative return on the Russell 2000 Index and a Peer Issuer Group Index. The peer issuer group consists of the companies identified below, which wereselected on the basis of the similar nature of their business. The graph assumes that $100 was invested on December 31, 2012 and any dividends werereinvested 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 Career Education Corp., Adtalem Global Education Inc., ITT Educational Services, Inc., Strayer Education, Inc.,Bridgepoint Education, Inc., Apollo Education Group, Inc., Grand Canyon University, Inc. and Universal Technical Institute, Inc. 32IndexEquity Compensation Plan Information We have various equity compensation plans under which equity securities are authorized for issuance. Information regarding these securities as of December31, 2017 is as follows:Plan Category Number ofSecurities to beissued uponexercise ofoutstandingoptions,warrants andrights Weighted-averageexerciseprice ofoutstandingoptions,warrants andrights Number ofsecuritiesremainingavailable forfuture issuanceunder equitycompensationplans (excludingsecuritiesreflected incolumn (a)) (a) Equity compensation plans approved by security holders 167,667 $12.11 2,186,206 Equity compensation plans not approved by security holders - - - Total 167,667 $12.11 2,186,206 33IndexITEM 6.SELECTED FINANCIAL DATAThe 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, 2017 and historical consolidated balance sheet data at December 31, 2017 and 2016 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, 2014 and 2013 and historical consolidated balance sheet data as ofDecember 31, 2015, 2014 and 2013 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. 2017 2016 2015 2014 2013 (In thousands, except per share amounts) Statement of Operations Data, Year Ended December 31: Revenue $261,853 $285,559 $306,102 $325,022 $341,512 Cost and expenses: Educational services and facilities 129,413 144,426 151,647 164,352 169,049 Selling, general and administrative 138,779 148,447 151,797 168,441 175,978 (Gain) loss on sale of assets (1,623) 233 1,738 (58) (501)Impairment of goodwill and long-lived assets - 21,367 216 40,836 3,908 Total costs and expenses 266,569 314,473 305,398 373,571 348,434 Operating (loss) income (4,716) (28,914) 704 (48,549) (6,922)Other: Interest income 56 155 52 153 37 Interest expense (7,098) (6,131) (8,015) (5,613) (4,667)Other income - 6,786 4,151 297 18 Loss from continuing operations before income taxes (11,758) (28,104) (3,108) (53,712) (11,534)(Benefit) provision for income taxes (274) 200 242 (4,225) 19,591 Loss from continuing operations (11,484) (28,304) (3,350) (49,487) (31,125)Loss from discontinued operations, net of income taxes - - - (6,646) (20,161)Net loss $(11,484) $(28,304) $(3,350) $(56,133) $(51,286)Basic Loss per share from continuing operations $(0.48) $(1.21) $(0.14) $(2.17) $(1.38)Loss per share from discontinued operations - - - (0.29) (0.90)Net loss per share $(0.48) $(1.21) $(0.14) $(2.46) $(2.28)Diluted Loss per share from continuing operations $(0.48) $(1.21) $(0.14) $(2.17) $(1.38)Loss per share from discontinued operations - - - (0.29) (0.90)Net loss per share $(0.48) $(1.21) $(0.14) $(2.46) $(2.28)Weighted average number of common shares outstanding: Basic 23,906 23,453 23,167 22,814 22,513 Diluted 23,906 23,453 23,167 22,814 22,513 Other Data: Capital expenditures $4,755 $3,596 $2,218 $7,472 $6,538 Depreciation and amortization from continuing operations 8,702 11,066 14,506 19,201 21,808 Number of campuses 23 28 31 31 33 Average student population from continuing operations 10,772 11,864 12,981 14,010 14,804 Cash dividend declared per common share $- $- $- $0.18 $0.28 Balance Sheet Data, At December 31: Cash, cash equivalents and restricted cash $54,554 $47,715 $61,041 $42,299 $67,386 Working (deficit) capital (1) (2,766) (1,733) 33,818 29,585 47,041 Total assets 155,213 163,207 210,279 213,707 305,949 Total debt (2) 52,593 41,957 58,224 65,181 90,116 Total stockholders' equity 45,813 54,926 80,997 83,010 145,196 All amounts have been restated to give effect to the HOPS segments which has been reclassified to continuing operations in 2016, 2015, 2014 and 2013.(1) Working (deficit) capital is defined as current assets less current liabilities.(2) 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 theyears in the three-year period ended December 31, 2015 incurred in connection with a sale-leaseback transaction. 34IndexITEM 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.GENERALLincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our” and “us”, as applicable) provide diversified career-oriented post-secondary education to recent high school graduates and working adults. The Company, which currently operates 23 schools in 14 states,offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control and electronic systemstechnology, among other programs), healthcare services (which include nursing, dental assistant, medical administrative assistant and pharmacy technician,among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and business and informationtechnology (which includes information technology and criminal justice programs). The schools operate under Lincoln Technical Institute, Lincoln Collegeof Technology, Lincoln College of New England, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brandnames. Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study. Five of the campuses aredestination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attractstudents from their local communities and surrounding areas. All of the campuses are nationally or regionally accredited and are eligible to participate infederal financial aid programs by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accrediting commissions whichallow students to apply for and access federal student loans as well as other forms of financial aid.Our business is organized into three reportable business segments: (a) Transportation and Skilled Trades, (b) Healthcare and Other Professions (“HOPS”), and(c) Transitional, which refers to businesses that have been or are currently being taught out. In November 2015, the Board of Directors of the Companyapproved a plan for the Company to divest the 18 campuses then comprising the HOPS segment due to a strategic shift in the Company’s business strategy. The Company underwent an exhaustive process to divest the HOPS schools which proved successful in attracting various purchasers but, ultimately, did notresult in a transaction that our Board believed would enhance shareholder value. By the end of 2017, we had strategically closed seven underperformingcampuses leaving a total of 11 campuses remaining under the HOPS segment. The Company believes that the closures of the aforementioned campuses haspositioned the HOPS segment and the Company to be more profitable going forward as well as maximizing returns for the Company’s shareholders.The combination of several factors, including the inability of a prospective buyer of the HOPS segment to close on the purchase, the improvements theCompany has implemented in the HOPS segment operations, the closure of seven underperforming campuses and the change in the United States governmentadministration, resulted in the Board reevaluating its divestiture plan and the determination that shareholder value would more likely be enhanced bycontinuing to operate our HOPS segment as revitalized. Consequently, the Board of Directors has abandoned the plan to divest the HOPS segment and theCompany now intends to retain and continue to operate the remaining campuses in the HOPS segment. The results of operations of the campuses included inthe HOPS segment are reflected as continuing operations in the consolidated financial statements.In 2016, the Company completed the teach-out of its Hartford, Connecticut, Fern Park, Florida and Henderson (Green Valley), Nevada campuses, whichoriginally operated in the HOPS segment. In 2017, the Company completed the teach-out of its Northeast Philadelphia, Pennsylvania; Center CityPhiladelphia, Pennsylvania; West Palm Beach, Florida; Brockton, Massachusetts; and Lowell, Massachusetts schools, which also were originally in ourHOPS segment and all of which were taught out and closed by December 2017 and are included in the Transitional segment as of December 31, 2017. 35IndexOn August 14, 2017, New England Institute of Technology at Palm Beach, Inc., a wholly-owned subsidiary of the Company, consummated the sale of the realproperty located at 2400 and 2410 Metrocentre Boulevard East, West Palm Beach, Florida, including the improvements and other personal property locatedthereon (the “West Palm Beach Property”) to Tambone Companies, LLC (“Tambone”), pursuant to a previously disclosed purchase and sale agreement (the“West Palm Sale Agreement”) entered into on March 14, 2017. Pursuant to the terms of the West Palm Sale Agreement, as subsequently amended, thepurchase price for the West Palm Beach Property was $15.8 million. As a result, the Company recorded a gain on the sale in the amount of $1.5 million. Aspreviously disclosed, the West Palm Beach Property served as collateral for a short term loan in the principal amount of $8.0 million obtained by theCompany from its lender, Sterling National Bank, on April 28, 2017, which loan matured upon the earlier of the sale of the West Palm Beach Property orOctober 1, 2017. Accordingly, on August 14, 2017, concurrently with the consummation of the sale of the West Palm Beach Property, the Company repaidthe term loan in an aggregate amount of $8.0 million, consisting of principal and accrued interest. On March 31, 2017, the Company entered into a new revolving credit facility with Sterling National Bank in the aggregate principal amount of up to $55million, which consists of up to $50 million of revolving loans, including a $10 million sublimit for letters of credit, and an additional $5 million non-revolving loan. The proceeds of the $5 million non-revolving loan were held in a pledged account at Sterling National Bank as required by the terms of thenew credit facility pending the completion of environmental studies undertaken at certain properties owned by the Company and mortgaged to SterlingNational Bank. Upon the completion of environmental studies that revealed that no environmental issues existed at the properties, during the quarter endedJune 30, 2017, the $5 million held in the pledged account at Sterling National Bank was released and used to repay the $5 million non-revolving loan. Thecredit facility was amended on November 29, 2017, to provide the Company with an additional $15 million revolving credit loan, resulting in an increase inthe aggregate availability under the credit facility to $65 million. The credit facility was again amended on February 23, 2018, to, among other things, effectcertain modifications to the financial covenants and other provisions of the credit facility and to allow the Company to pursue the sale of certain realproperty assets. The new credit facility requires that revolving loans in excess of $25 million and all letters of credit issued thereunder be cash collateralizeddollar for dollar. The new revolving credit facility replaces a term loan facility which was repaid and terminated concurrently with the effectiveness of thenew revolving credit facility. The final maturity date for the new revolving credit facility is May 31, 2020. The new revolving credit facility is discussed infurther detail under the heading “Liquidity and Capital Resources” below and in Note 7 to the consolidated financial statements included in this report. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act. The Tax Cuts andJobs Act, among other things, made broad and complex changes to the U.S. tax code which impacted 2017, including, but not limited to, reducing the U.S.federal corporate tax rate, eliminating the corporate alternative minimum tax and changing how existing corporate alternative minimum tax credits can berealized either to offset regular tax liability or to be refunded. See additional information regarding the impact of the Tax Cuts and Jobs Act in“Management's Discussion and Analysis of Financial Condition and Results of Operations” and Note 10 to our consolidated financial statements included inthis Annual Report on Form 10-K.As of December 31, 2017, we had 10,159 students enrolled at 23 campuses.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.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 28 to 136 weeks, our associate’s degree programs range from 58 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 78% and 79% of our revenue on a cash basis while the remainder is primarily derived from state grants and cash payments made by studentsduring 2017 and 2016, respectively. The Higher Education Act of 1965, as amended (the “HEA”) requires institutions to use the cash basis of accountingwhen 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 students’ participation infederally funded financial aid programs unless students withdraw prior to the receipt by us of Title IV Program funds for those students. Under Title IVPrograms, the government funds a certain portion of a student’s tuition, with the remainder, referred to as “the gap,” financed by the students themselvesunder private party loans, including credit extended by us. The gap amount has continued to increase over the last several years as we have raised tuition onaverage for the last several years by 2-3% per year and restructured certain programs to reduce the amount of financial aid available to students, while fundsreceived from Title IV Programs increased at lower rates. 36IndexThe 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 a 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.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, textbook sales and one-time fees, such asnonrefundable application fees and course material fees, are recognized on a straight-line basis over the length of the applicable program as the studentproceeds through the program, which is the period of time from a student’s start date through his or her graduation date, including internships or externshipsthat take place prior to graduation, and we complete the performance of teaching the student which entitles us to the revenue. Other revenues, such as toolsales and contract training revenues are recognized as services are performed or goods are delivered. On an individual student basis, tuition earned in excessof cash received is recorded as accounts receivable, and cash received in excess of tuition earned is recorded as unearned tuition.We evaluate whether collectability of revenue is reasonably assured prior to the student attending class and reassess collectability of tuition and fees when astudent withdraws from a course. We calculate the amount to be returned under Title IV and its stated refund policy to determine eligible charges and, if thereis a balance due from the student after this calculation, we expect payment from the student and we have a process to pursue uncollected accounts whereby,based upon the student’s financial means and ability to pay, a payment plan is established with the student to ensure that collectability is reasonable. Wecontinuously monitor our historical collections to identify potential trends that may impact our determination that collectability of receivables for withdrawnstudents is realizable. If a student withdraws from a program prior to a specified date, any paid but unearned tuition is refunded. Refunds are calculated andpaid in accordance with federal, state and accrediting agency standards. Generally, the amount to be refunded to a student is calculated based upon the periodof time the student has attended classes and the amount of tuition and fees paid by the student as of his or her withdrawal date. These refunds typically reducedeferred tuition revenue and cash on our consolidated balance sheets as we generally do not recognize tuition revenue in our consolidated statements ofincome (loss) until the related refund provisions have lapsed. Based on the application of our refund policies, we may be entitled to incremental revenue onthe day the student withdraws from one of our schools. We record revenue for students who withdraw from one of our schools when payment is receivedbecause collectability on an individual student basis is not reasonably assured. On January 1, 2018, we were required to adopt Accounting StandardsCodification Topic 606. The new guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations tocustomers and significant judgements in measurement and recognition. See Note 1 to our consolidated financial statements included in this Annual Reporton Form 10-K for further discussion. 37IndexAllowance 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.Our bad debt expense as a percentage of revenues for the years ended December 31, 2017, 2016 and 2015 was 5.2%, 5.1% and 4.4%, 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, 2017, 2016 and 2015 would have resulted in an increase in bad debt expense of $2.6 million, $2.9 million and $3.1 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 the student’s personal resourcesand 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 increaseshave averaged 2-3% annually and have not meaningfully impacted overall funding requirements, since the amount of financial aid funding available tostudents in recent years has increased at greater 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, 2017, goodwill was approximately $14.5 million, or 9.4%, of our total assets,which was flat from approximately $14.5 million, or 8.9%, of our total assets at December 31, 2016.When we test goodwill balances for impairment, we estimate the fair value of each of our reporting units based on projected future operating results and cashflows, market assumptions and/or comparative market multiple methods. Determining fair value requires significant estimates and assumptions based on anevaluation of a number of factors, such as marketplace participants, relative market share, new student interest, student retention, future expansion orcontraction expectations, amount and timing of future cash flows and the discount rate applied to the cash flows. Projected future operating results and cashflows used for valuation purposes do reflect improvements relative to recent historical periods with respect to, among other things, modest revenue growthand operating margins. Although we believe our projected future operating results and cash flows and related estimates regarding fair values are based onreasonable assumptions, historically projected operating results and cash flows have not always been achieved. The failure of one of our reporting units toachieve projected operating results and cash flows in the near term or long term may reduce the estimated fair value of the reporting unit below its carryingvalue and result in the recognition of a goodwill impairment charge. Significant management judgment is necessary to evaluate the impact of operating andmacroeconomic changes and to estimate future cash flows. Assumptions used in our impairment evaluations, such as forecasted growth rates and our cost ofcapital, are based on the best available market information and are consistent with our internal forecasts and operating plans. In addition to cash flowestimates, our valuations are sensitive to the rate used to discount cash flows and future growth assumptions. 38IndexAt December 31, 2017 and December 31, 2015, we conducted our annual test for goodwill impairment and determined we did not have an impairment. AtDecember 31, 2016, we conducted our annual test for goodwill impairment and determined we had an impairment of $9.9 million. We concluded that as ofSeptember 30, 2015 there was an indicator of potential impairment as a result of a decrease in market capitalization and, accordingly, we tested goodwill forimpairment. The test indicated that one of our reporting units was impaired, which resulted in a pre-tax non-cash charge of $0.2 million for the three monthsended September 30, 2015. 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.We measure 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. We amortize thefair value of service-based restricted stock utilizing straight-line amortization of compensation expense over the requisite service period of the grant.We amortize the fair value of the performance-based restricted stock based on determination of the probable outcome of the performance condition. If theperformance condition is expected to be met, then we amortize the fair value of the number of shares expected to vest utilizing the straight-line basis over therequisite performance period of the grant. However, if the associated performance condition is not expected to be met, then we do not recognize the stock-based compensation expense.Income taxes. We account for income taxes in accordance with 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, 2017 and2016, we did not record any interest and penalties expense associated with uncertain tax positions. On December 22, 2017, the U.S. government enacted comprehensive tax legislation known as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Actestablishes new tax laws that will take effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35%to 21%; (2) elimination of the corporate alternative minimum tax (AMT); (3) a new limitation on deductible interest expense; (4) the repeal of the domesticproduction activity deduction; (5) limitations on the deductibility of certain executive compensation; and (6) limitations on net operating losses (NOLs)generated after December 31, 2017, to 80% of taxable income. In addition, certain changes were made to the bonus depreciation rules that will impact fiscalyear 2017.ASC 740 requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. However, due to the complexity andsignificance of the Tax Act's provisions, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin 118 (“SAB 118”), whichprovides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from theTax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income taxeffects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income taxeffects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If acompany cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of theprovisions of the tax laws that were in effect immediately before the enactment of the Tax Act.At December 31, 2017, we have not completed our analysis of the tax effects of enactment of the Tax Act; however, we have made a reasonable estimate ofthe effects of the Tax Act’s change in the federal rate and revalued our deferred tax assets based on the rates at which they are expected to reverse in thefuture, which is generally the new 21% federal corporate tax rate plus applicable state tax rate. Based on our initial analysis of the impact, we consequentlyrecorded a decrease related to deferred tax assets of $17.7 million. The expense is offset with a corresponding release of valuation allowance. 39 Year Ended December 31, 2017 2016 2015 Revenue 100.0% 100.0% 100.0%Costs and expenses: Educational services and facilities 49.4% 50.6% 49.5%Selling, general and administrative 53.0% 52.0% 49.6%(Gain) loss on sale of assets -0.6% 0.1% 0.6%Impairment of goodwill and long-lived assets 0.0% 7.5% 0.1%Total costs and expenses 101.8% 110.2% 99.8%Operating (loss) income -1.8% -10.2% 0.2%Interest expense, net -2.7% -2.0% -2.6%Other income 0.0% 2.4% 1.4%Loss from operations before income taxes -4.5% -9.8% -1.0%(Benefit) provision for income taxes -0.1% 0.1% 0.1%Net loss -4.4% -9.9% -1.1%IndexIn addition, we released the valuation allowance against AMT credits deferred tax asset and recorded a deferred tax provision benefit of $0.4 million.The Tax Act did not have a material impact on our financial statements because we are under a full valuation allowance and we do not have any significantoffshore earnings from which to record the mandatory transition tax.The Tax Act requires the Company to assess whether its valuation allowance analyses are affected by various aspects of the Tax Act. Since, as discussedherein, we have recorded provisional amounts related to certain portions of the Tax Act, any corresponding determination of the need for or change in avaluation allowance is also provisional. The Company’s valuation allowance position did not change as a result of tax reform except for AMT credits whichis discussed above and a reduction related to a change in the deferred tax rate. Results of Continuing Operations for the Three Years Ended December 31, 2017The 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, 2017 Compared to Year Ended December 31, 2016Consolidated Results of OperationsRevenue. Revenue decreased by $23.7 million, or 8.3%, to $261.9 million for the year ended December 31, 2017 from $285.6 million for the year endedDecember 31, 2016. The decrease in revenue is primarily attributable to the campuses in our Transitional segment, which have closed during 2017. Thissegment accounted for approximately $22.1 million, or 93.1% of the revenue decline.Total student starts decreased by 10.8% to approximately 11,800 from 13,200 for the year ended December 31, 2017 as compared to the prior yearcomparable period. The suspension of new student starts for the Transitional segment accounted for approximately 92.5% of the decline. TheTransportation and Skilled Trades segment starts were slightly down 1.5% and the HOPS segment starts remained essentially flat at 4,200 for the year endedDecember 31, 2017 as compared to the 2016 fiscal year.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 $15.0 million, or 10.4%, to $129.4 million for theyear ended December 31, 2017 from $144.4 million in the prior year comparable period. The decrease is mainly due to the Transitional segment, whichaccounted for approximately $13.9 million, or 92.4% of the decrease. The remainder of the $1.2 million decrease was primarily due to a decrease in facilitiesexpenses slightly offset by increased instructional expenses. Facilities expense decreased due to a decline in depreciation expense of approximately $1.6million due to fully depreciated assets. Partially, offsetting the decreases are $0.6 million in increased books and tools costs resulting from the addition oflaptops for an increasing number of program offerings in the HOPS segment. Educational services and facilities expenses, as a percentage of revenue,decreased to 49.4% for the year ended December 31, 2017 from 50.6% in the prior year comparable period.Selling, general and administrative expense. Our selling, general and administrative expense decreased by $9.7 million, or 6.5%, to $138.8 million for theyear ended December 31, 2017 from $148.5 million in the prior year comparable period. The decrease was primarily due to the Transitional segment, whichaccounted for approximately $13.6 million in cost reductions. Partially offsetting the cost reductions are $2.8 million in additional sales and marketingexpense and $1.2 million in increased administrative expense. 40IndexThe $2.8 million increase in sales and marketing expense was the result of strategic marketing spending in an effort to expand our reach in the adult market. The additional spending resulted in an increase in adult starts year over year.Administrative expense increased primarily due to a $1.2 million increase in bad debt expense and $1.6 million in closed school expenses, offset by $1.3million in reduced salaries and benefits expense. The increase in closed school expenses related to the Hartford, Connecticut campus, which closed on December 31, 2016 and was included in theTransitional segment in 2016, but has an apartment lease for student dorms which ends in September 2019. Bad debt expense as a percentage of revenue was 5.2% for the year ended December 31, 2017, compared to 5.1% for the same period in 2016. The increase inbad debt expense was the result of higher student receivable accounts, primarily driven by lower scholarship recognition and a higher number of institutionalloans. During 2017, we made modifications to the institutional loan program which expanded the program’s eligibility base and lessened the student’saffordability challenge. In addition, we experienced higher account write-offs and timing of Title IV funds receipts, which contributed to the increase in baddebt expense.As of December 31, 2017, we had total outstanding loan commitments to our students of $51.9 million, as compared to $40.0 million at December 31, 2016. The increase was due to a higher number of students packaged with institutional loans as a result of 2017 modifications to the program, which expanded theeligibility base and lessened the affordability obstacle.Gain on sale of fixed assets. Gain on sale of fixed assets increased by $1.8 million primarily due to the sale of two real properties located in West PalmBeach, Florida. The sale occurred on August 14, 2017 and resulted in a gain of $1.5 million.Impairment of goodwill and long-lived assets. We tested our goodwill and long-lived assets and determined that as of December 31, 2017 no impairmentsexisted. The fair value of the Company’s reporting units were determined using Level 3 inputs included in its multiple of earnings and discounted cash flowapproach. At December 31, 2016, we tested our goodwill and long-lived assets and determined that there was sufficient evidence to conclude that animpairment existed, which resulted in a pre-tax, non-cash charge of $21.4 million.Net interest expense. For the year ended December 31, 2017, our net interest expense increased by $1.1 million. The increase was mainly attributable to a$2.2 million non-cash write-off of previously capitalized deferred financing fees; and a $1.8 million early termination fee. These costs were incurred atMarch 31, 2017 when the Company entered into a new revolving credit facility with Sterling National Bank. Partially offsetting these increases werereductions in interest expense resulting from lower debt outstanding in combination with more favorable terms under the current credit facility compared tothe terms of a prior term loan facility provided to the Company by a former lender.Income taxes. Our benefit for income taxes was $0.3 million, or 2.3% of pretax loss, for the year ended December 31, 2017, compared to a provision forincome taxes of $0.2 million, or 0.7% of pretax loss, in the prior year comparable period.On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). TheTax Cuts and Jobs Act, among other things, eliminates the corporate alternative minimum tax (the “AMT”) and changes how existing AMT credits can berealized either to offset regular tax liability or to be refunded. As a result of this change, the Company released the valuation allowance against AMT creditsdeferred tax asset and recorded a deferred tax provision benefit of $0.4 million. Offsetting this benefit was $0.1 million of income tax expense from variousminimal state tax expenses.At December 31, 2017, we have not completed our analysis of the tax effects of enactment of the Tax Act; however, we have made a reasonable estimate ofthe effects of the Tax Act’s change in the federal rate and revalued our deferred tax assets based on the rates at which they are expected to reverse in thefuture, which is generally the new 21% federal corporate tax rate plus applicable state tax rate. Based on our initial analysis of the impact, we recorded adecrease related to deferred tax assets of $17.7 million. The expense is offset with a corresponding release of valuation allowance. No other federal or state income tax benefit was recognized for the current period loss due to the recognition of a full valuation allowance.Year Ended December 31, 2016 Compared to Year Ended December 31, 2015Consolidated Results of Operations 41IndexRevenue. Revenue decreased by $20.5 million, or 6.7%, to $285.6 million for the year ended December 31, 2016 from $306.1 million for the year endedDecember 31, 2015. The decrease in revenue can mainly be attributed to the closure of campuses in our Transitional segment during 2016, which accountedfor $11.8 million, or 57.3% of the total revenue decline, and a lower carry in population, which has been one of the main contributing factors to the declinesin revenue over the past several years. We started 2016 with approximately 1,400 fewer students than we had on January 1, 2015, which led to an 8.6%decline in average student population to approximately 11,900 as of December 31, 2016 from 13,000 in the comparable period of 2015. Partially offsettingthe revenue decline from lower student population was a 2.0% increase in average revenue per student mainly attributable to shifts in our program mix.Student start results decreased by 6.0% to approximately 13,200 from 14,100 for the year ended December 31, 2016 as compared to the prior year comparableperiod. Excluding the Transitional segment, student starts were down 1.8%. The decline in student starts was mainly a result of the underperformance of onecampus. Excluding this one campus and the Transitional segment, our starts for the year ended December 31, 2016 would have remained essentially flat ascompared to 2015.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 $7.2 million, or 4.8%, to $144.4 million for theyear ended December 31, 2016 when compared to $151.6 million in the prior year comparable period. The decrease is mainly due to the TransitionalSegment which accounted for approximately $6.6 million, or 90.8% of the decrease year over year. Instructional expense decreased by $2.4 million or 3.8%,primarily resulting from a reduction in salaries and benefits expense of $1.9 million due to historically lower medical claims in 2016 and reductions insalaries expense resulting from the HOPS segment, which was classified as held for sale as of December 31, 2016. Partially offsetting the decrease ininstructional expense were increases in books and tools and facilities expense. Books and tools increased by $1.6 million, or 12.1%, due to the purchase oflaptops provided to newly enrolled students in certain programs to enhance and expand the students overall learning experience. Facilities expenseincreased by $0.2 million, primarily resulting from two main factors: a) decreased depreciation expense of $1.8 million resulting from the suspension ofdepreciations expense for the HOPS segment, which was classified as held for sale for the year ended December 31, 2016; and b) increased rent expense of$1.6 million was the result of the transition of our finance obligation at four of our campuses to operating leases which were previously included in interestexpense.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. Educational services and facilities expenses, as a percentage of revenue, increased to 50.6% from 49.5% in the prior year comparable period.Selling, general and administrative expense. Our selling, general and administrative expense decreased by $3.4 million, or 2.2%, to $148.4 million for theyear ended December 31, 2016 from $151.8 million in the prior year. The decrease was primarily due to our Transitional segment which accounted forapproximately $2.0 million, or 60.8% of the decrease year over year.Administrative expenses decreased by $1.2 primarily resulting from reduced salaries and benefits expense, partially offset by increases in bad debt expense. Student services expense decreased by $0.8 million primarily as a result of reduced salaries and benefits expense. Partially offsetting the cost reductions wasan increase in marketing expense of $0.9 million. The increase in marketing expense was the result of additional spending made in an effort to reach morepotential students, expand brand awareness, and increase enrollments.Bad debt expense as a percentage of revenue was 5.1% for the year ended December 31, 2016, compared to 4.4% for the same period in 2015. This increasewas mainly the result of incurring additional bad debt expense from increased reserves placed on our newly reclassified Transitional segment campuses.As a percentage of revenues, selling, general and administrative expense increased to 52.0% for the year ended December 31, 2016 from 49.6% in thecomparable prior year period.As of December 31, 2016, we had total outstanding loan commitments to our students of $40.0 million, as compared to $33.4 million at December 31, 2015. Loan commitments, net of interest that would be due on the loans through maturity, were $30.0 million at December 31, 2016, as compared to $24.8 millionat December 31, 2015.Loss on sale of fixed assets. Loss on sale of assets decreased by $1.5 million primarily as a result of a non-cash charge in relation to two of our campusesthat were previously classified as held for sale in 2014. During 2015, the Company re-classed these campuses out of held for sale and booked catch-updepreciation in the amount of $2.0 million. This was partially offset by a non-cash charge in relation to three of our campuses that were previously classifiedas held for sale in 2015. During 2016, the Company re-classed these campuses out of held for sale and booked catch-up depreciation in the amount ofapproximately $0.4 million.Impairment of goodwill and long-lived assets. At December 31, 2016, we tested long-lived assets and determined that there was sufficient evidence toconclude that an impairment existed, which resulted in a pre-tax, non-cash charge of $21.4 million. As of September 30, 2015, we tested goodwill and long-lived assets for impairment and determined that one of the Company’s reporting units relating to goodwill was impaired, which resulted in a pre-tax, non-cashcharge of $0.2 million. 42IndexNet interest expense. For the year ended December 31, 2016, our net interest expense decreased by $2.0 million. The decrease in interest expense wasprimarily the result of the transition of our finance obligation at four of our campuses to operating leases coupled with the termination of the leasetermination for our Fern Park, Florida facility, which was previously accounted for as a capital lease. Partially offsetting the reduction in interest expensewas interest paid under the Company’s term loan facility entered into on July 31, 2015.Income taxes. Our provision for income taxes was $0.2 million, or 0.7% of pretax loss, for the year ended December 31, 2016, compared to $0.2 million, or7.8% of pretax loss, in the prior year comparable period. No federal or state income tax benefit was recognized for the current period loss due to therecognition of a full valuation allowance. Income tax expense resulted from various minimal state tax expenses.Segment Results of OperationsThe for-profit education industry has been impacted by numerous regulatory changes, the changing economy and an onslaught of negative media attention.As a result of these challenges, student populations have declined and operating costs have increased. Over the past few years, the Company has closed overten locations and exited its online business. In 2016, the Company ceased operations in Hartford, Connecticut; Fern Park, Florida; and Henderson (GreenValley), Nevada. In 2017, the Company completed the teach-out of its Center City Philadelphia, Pennsylvania; Northeast Philadelphia, Pennsylvania; WestPalm Beach, Florida, Brockton, Massachusetts and Lowell, Massachusetts schools. All of these schools were previously included in our HOPS segment andare included in the Transitional segment as of December 31, 2017.In the past, we offered any combination of programs at any campus. We have shifted our focus to program offerings that create greater differentiation amongcampuses and promote attainment of excellence to attract more students and gain market share. Also, strategically, we began offering continuing educationtraining to select employers who hire our graduates and this is best achieved at campuses focused on the applicable profession.As a result of the regulatory environment, market forces and our strategic decisions, we now operate our business in three reportable segments: (a) theTransportation and Skilled Trades segment; (b) the Healthcare and Other Professions segment; and (c) the Transitional segment. Our reportable segmentshave been determined based on a method by which we now evaluate performance and allocate resources. Each reportable segment represents a group of post-secondary education providers that offer a variety of degree and non-degree academic programs. These segments are organized by key market segments toenhance operational alignment within each segment to more effectively execute our strategic plan. Each of the Company’s schools is a reporting unit and anoperating segment. Our operating segments are described below.Transportation and Skilled Trades – The Transportation and Skilled Trades segment offers academic programs mainly in the career-oriented disciplines oftransportation and skilled trades (e.g. automotive, diesel, HVAC, welding and manufacturing).Healthcare and Other Professions – The Healthcare and Other Professions segment offers academic programs in the career-oriented disciplines of healthsciences, hospitality and business and information technology (e.g. dental assistant, medical assistant, practical nursing, culinary arts and cosmetology).Transitional – The Transitional segment refers to campuses that are being taught-out and closed and operations that are being phased out. The schools in theTransitional segment employ a gradual teach-out process that enables the schools to continue to operate to allow their current students to complete theircourse of study. These schools are no longer enrolling new students.The Company continually evaluates each campus for profitability, earning potential, and customer satisfaction. This evaluation takes several factors intoconsideration, including the campus’s geographic location and program offerings, as well as skillsets required of our students by their potential employers. The purpose of this evaluation is to ensure that our programs provide our students with the best possible opportunity to succeed in the marketplace with thegoals of attracting more students to our programs and, ultimately, to provide our shareholders with the maximum return on their investment. Campuses in theTransitional segment have been subject to this process and have been strategically identified for closure.We evaluate segment performance based on operating results. Adjustments to reconcile segment results to consolidated results are included under thecaption “Corporate,” which primarily includes unallocated corporate activity. 43IndexThe following table present results for our three reportable segments for the years ended December 31, 2017 and 2016: Twelve Months Ended December 31, 2017 2016 % Change Revenue: Transportation and Skilled Trades $177,099 $177,883 -0.4%Healthcare and Other Professions 76,310 77,152 -1.1%Transitional 8,444 30,524 -72.3%Total $261,853 $285,559 -8.3% Operating Income (Loss): Transportation and Skilled Trades $17,861 $21,278 -16.1%Healthcare and Other Professions 2,318 (10,917) 121.2%Transitional (5,379) (15,170) 64.5%Corporate (19,516) (24,105) 19.0%Total $(4,716) $(28,914) 83.7% Starts: Transportation and Skilled Trades 7,510 7,626 -1.5%Healthcare and Other Professions 4,157 4,148 0.2%Transitional 132 1,452 -90.9%Total 11,799 13,226 -10.8% Average Population: Transportation and Skilled Trades 6,752 6,852 -1.5%Healthcare and Other Professions 3,569 3,560 0.3%Transitional 451 1,452 -68.9%Total 10,772 11,864 -9.2% End of Period Population: Transportation and Skilled Trades 6,413 6,700 -4.3%Healthcare and Other Professions 3,746 3,587 4.4%Transitional - 948 -100.0%Total 10,159 11,235 -9.6%Year Ended December 31, 2017 Compared to Year Ended December 31, 2016Transportation and Skilled Trades Student start results decreased by 1.5% to 7,510 for the year ended December 31, 2017 from 7,626 in the prior year comparable period.Increased marketing spend targeted at the adult demographic has resulted in slightly higher adult start rates for the year ended December 31, 2017 whencompared to the prior year comparable period. However, as previously reported for the second quarter of 2017, there was a decline in starts as a result of alower than expected high school start rate. Graduating high school students make up approximately 31% of the segment’s starts. In an effort to increase highschool enrollments, the Company has made various changes to its processes and organizational structure. These shortfalls in the high school start rate haveoffset the favorable start rates for the adult start demographic.Operating income decreased by $3.4 million, or 16.1%, to $17.9 million from $21.3 million mainly driven by the following factors:·Revenue decreased to $177.1 million for the year ended December 31, 2017, as compared to $177.9 million in the comparable prior yearperiod. The slight decrease in revenue was primarily driven by a 1.5% decrease in average student population, partially offset by a 1.0%increase in average revenue per student.·Educational services and facilities expense decreased by $1.3 million, or 1.6%, mainly due to reductions in depreciation expense attributable toassets that have fully depreciated.·Selling, general and administrative expense increased by $4.0 million, primarily resulting from $1.4 million of additional bad debt expenseresulting from higher student accounts, higher account write-off’s, and timing of Title IV Program receipts and a $1.4 million increase inmarketing expense. The increase in marketing expense is part of a strategic effort to increase student population and increase brand awareness. As mentioned previously, the increased marketing spend targeted at the adult demographic has resulted in slightly higher starts year over year. This progress has been offset by lower than expected high school starts. 44IndexHealthcare and Other Professions Student start results had increased slightly by 0.2% to 4,157 for the year ended December 31, 2017 from 4,148 in the prior year comparable period. Thisincrease represents the first time in approximately three years where student starts have yielded positive results. We believe this achievement is the result ofadditional marketing spend aimed at increasing student population.Operating income for the year ended December 31, 2017 was $2.3 million compared to an operating loss of $10.9 million in the prior year comparableperiod. The $13.2 million change was mainly driven by the following factors:·Revenue decreased to $76.3 million for the year ended December 31, 2017, as compared to $77.2 million in the comparable prior year period. The decrease in revenue is mainly attributable to a lower carry in population year over year of approximately 90 students and a 1.4% decline inaverage revenue per student due to tuition decreases at certain campuses.·Educational services and facilities expense increased by $0.2 million to $39.9 million for the year ended December 31, 2017 from $39.7 millionin the prior year comparable period. The increase was attributable to a $0.3 million increase in books and tools expense resulting from theintroduction of student laptops for an increasing number of program offerings.·Selling, general and administrative expenses increased by $1.9 million, or 5.8%, mainly due to a $1.3 million increase in sales and marketingexpense as a result of increased spending in an effort to increase student population and brand awareness and a $0.4 million increase inadministrative expense as a result of increased salaries and benefits. Increased salaries and benefits resulted from the addition of administrativestaff to accommodate newly transferred students from our Northeast Philadelphia, Pennsylvania and Center City Philadelphia, Pennsylvaniacampuses, which were closed in August 2017.·Impairment of goodwill and long lived asset decreased by $16.1 million as a result of non-cash, pre-tax charges during the year ended December31, 2016.Transitional The following table lists the schools that are categorized in the Transitional segment which are all closed as of December 31, 2017:CampusDate ClosedNortheast Philadelphia, PennsylvaniaSeptember 30, 2017Center City Philadelphia, PennsylvaniaAugust 31, 2017West Palm Beach, FloridaSeptember 30, 2017Brockton, MassachusettsDecember 31, 2017Lowell, MassachusettsDecember 31, 2017Fern Park, FloridaMarch 31, 2016Hartford, ConnecticutDecember 31, 2016Henderson (Green Valley), NevadaDecember 31, 2016Revenue for the campuses in the above table have been classified in the Transitional segment for comparability for the years ended December 31, 2017 and2016.Revenue was $8.4 million for the year ended December 31, 2017 as compared to $30.5 million in the prior year comparable period mainly due to the campusclosures.Operating loss decreased by $9.8 million to $5.4 million for the year ended December 31, 2017 from $15.2 million in the prior year comparable period. Thedecrease was due to campus closures. 45IndexCorporate and Other This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and other expenses decreased by $4.6 million, or 19.0%,to $19.5 million from $24.1 million in the prior year comparable period. The decrease was primarily driven by a $1.5 million gain resulting from the sale oftwo properties located in West Palm Beach, Florida on August 14, 2017; a reduction in salaries and benefits expense of approximately $2.5 million; and a$1.4 million non-cash impairment charge in relation to one of our corporate properties that occurred in December 31, 2016. Partially offsetting thesereductions were $1.6 million in additional closed school costs. The additional closed school costs related to the closure of the Hartford, Connecticut campuson December 31, 2016. The additional expenses relating to the Hartford, Connecticut campus were due to an apartment lease for student dorms, which willend in September 2019. The following table present results for our two reportable segments for the years ended December 31, 2016 and 2015. Twelve Months Ended December 31, 2016 2015 % Change Revenue: Transportation and Skilled Trades $177,883 $183,822 -3.2%Healthcare and Other Professions $77,152 $79,978 -3.5%Transitional 30,524 42,302 -27.8%Total $285,559 $306,102 -6.7% Operating Income (Loss): Transportation and Skilled Trades $21,278 $26,777 -20.5%Healthcare and Other Professions $(10,917) $5,386 -302.7%Transitional (15,170) (7,543) -101.1%Corporate (24,105) (23,916) -0.8%Total $(28,914) $704 4207.1% Starts: Transportation and Skilled Trades 7,626 7,794 -2.2%Healthcare and Other Professions 4,148 4,195 -1.1%Transitional 1,452 2,080 -30.2%Total 13,226 14,069 -6.0% Average Population: Transportation and Skilled Trades 6,852 7,238 -5.3%Healthcare and Other Professions 3,560 3,827 -7.0%Transitional 1,452 1,916 -24.2%Total 11,864 12,981 -8.6% End of Period Population: Transportation and Skilled Trades 6,700 6,617 1.3%Healthcare and Other Professions 3,587 3,677 -2.4%Transitional 948 1,587 -40.3%Total 11,235 11,881 -5.4% 46IndexYear Ended December 31, 2016 Compared to Year Ended December 31, 2015Transportation and Skilled Trades Student start results decreased by 2.2% to 7,626 from 7,794 for the year ended December 31, 2016 as compared to the prior year comparable period. Thedecline in student starts was mainly the result of the underperformance of one campus. Excluding this campus, student starts for the year would have grown1.3% year over year.Operating income decreased by $5.5 million, or 20.5%, to $21.3 million from $26.8 million in the prior year mainly driven by the following factors:·Revenue decreased to $177.9 million for the year ended December 31, 2016, as compared to $183.8 million for the year ended December 31,2015, primarily driven by a 5.3% decrease in average student population, which decreased to approximately 6,900 from 7,200 in the prior year. The decrease in average population was a result of starting 2016 with approximately 600 fewer students than we had on January 1, 2015. Therevenue decline from a lower population was slightly offset by a 2.2% increase in average revenue per student due to a shift in program mix.·Educational services and facilities expense increased by $1.9 million mainly due to a $2.0 million, or 5.9%, increase in facilities expenseprimarily due to (a) increased rent expense of $1.3 million as a result of a modification of leases for three of our campuses, which werepreviously accounted for as finance obligations under which rent payments were previously included in interest expense; (b) $0.6 million inadditional depreciation expense resulting from the reclassification of one of our facilities out of held for sale as of December 31, 2015; and (c) a$1.5 million, or 17.4%, increase in books and tools expenses resulting from the purchase of laptops provided to newly enrolled students incertain programs to enhance and expand their overall learning experience. Partially offsetting the above increases was a $1.6 million, or 4.1%,decrease in instructional expense as a result of realigning our cost structure to meet our population.·Selling, general and administrative expenses decreased by $0.5 million primarily as a result of a $1.6 million decrease in administrative andstudent services expense due to reduced salary and benefits. Partially offsetting the decrease was a $1.1 million increase in marketing expense,which was largely the result of additional spending in a strategic effort to reach more potential students, expand brand awareness and increaseenrollments.·Loss on sale of asset decreased by $1.6 million as a result of a one-time charge in relation to one of our campuses that was previously classifiedas held for sale. During 2015, the company had reclassified this campus out of held for sale and recorded catch-up depreciation in the amount of$1.6 million.·Impairment of goodwill and long lived asset decreased by $0.2 million as a result of one-time charges in relation to one of our campuses duringthe year ended December 31, 2015.Healthcare and Other Professions Student starts decreased by 1.1% to 4,148 from 4,195 for the year ended December 31, 2016 as compared to the prior year.Operating loss increased to $10.9 million for the year ended December 31, 2016 from operating income of $5.4 million in the prior year comparable periodmainly driven by the following factors:·Revenue decreased to $77.2 million for the year ended December 31, 2016, as compared to $80.0 million in the comparable prior year period,primarily driven by a 7.0% decrease in average student population, which decreased to approximately 3,600 from 3,800 in the prior year. Thedecrease in average population was a result of starting 2016 with approximately 350 fewer students than we had on January 1, 2015. Therevenue decline from a lower population was slightly offset by a 3.6% increase in average revenue per student due to a shift in program mix.·Educational services and facilities expense decreased by $2.6 million mainly due to a $1.9 million, or 13.0%, decrease in facilities expenseprimarily due to the suspension of depreciation expense during the year ended December 31, 2016 as this segment was classified as held forsale.·Selling, general and administrative expenses remained essentially flat at $32.3 million for the year ended December 31, 2016 and 2015.·Impairment of goodwill and long lived assets of $16.1 million at December 31, 2016. 47IndexTransitional The following table lists the schools that are categorized in the Transitional segment and their status as of December 31, 2016:CampusDate ClosedNortheast Philadelphia, PennsylvaniaSeptember 30, 2017Center City Philadelphia, PennsylvaniaAugust 31, 2017West Palm Beach, FloridaSeptember 30, 2017Brockton, MassachusettsDecember 31, 2017Lowell, MassachusettsDecember 31, 2017Fern Park, FloridaMarch 31, 2016Hartford, ConnecticutDecember 31, 2016Henderson (Green Valley), NevadaDecember 31, 2016Revenue for the campuses in the above table have been classified in the Transitional segment for comparability for the year ended December 31, 2016 and2015.Revenue was $30.5 million for the year ended December 31, 2016 as compared to $42.3 million in the prior year comparable period mainly due to thecampus closures.Operating loss increased by $7.6 million to $15.2 million for the year ended December 31, 2016 from $7.5 million in the prior year comparable period. Thedecrease was due to campus closures.Corporate and Other This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and other costs increased by $0.2 million, or 0.8%, to$24.1 million for the year ended December 31, 2016 from $23.9 million in the prior year comparable period. This increase was primarily the result of a $1.4million non-cash impairment charge in relation to one of our corporate properties. Partially offsetting the increase is a $0.6 million decrease in administrativecosts resulting from a reduction in salaries and benefits expense and a $0.6 million gain resulting from the sale of certain Company assets for the year endedDecember 31, 2016.LIQUIDITY AND CAPITAL RESOURCES Our 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 facility. The following chart summarizes the principal elements of our cash flowfor each of the three years in the period ended December 31, 2017: Cash Flow SummaryYear Ended December 31, 2017 2016 2015 (In thousands) Net cash (used in) provided by operating activities $(11,321) $(6,107) $14,337 Net cash provided by (used in) investing activities $9,917 $(2,182) $(1,767)Net cash (used in) provided by financing activities $(5,097) $(9,067) $13,551 The Company had $54.6 million of cash, cash equivalents, and restricted cash at December 31, 2017 ($40.0 million of restricted cash at December 31, 2017)as compared to $47.7 million of cash, cash equivalents, and restricted cash as of December 31, 2016 ($26.7 million of restricted cash at December 31, 2016). This increase is primarily the result of borrowings under our line of credit facility partially offset by repayment under our previous term loan facility, a netloss during the year ended December 31, 2017 and seasonality of the business.For the last several years, the Company and the proprietary school sector generally have faced deteriorating earnings growth. Government regulations havenegatively impacted earnings by making it more difficult for prospective students to obtain loans, which when coupled with the overall economicenvironment have hindered prospective students from enrolling in our schools. In light of these factors, we have incurred significant operating losses as aresult of lower student population. Despite these events, we believe that our likely sources of cash should be sufficient to fund operations for the next twelvemonths and thereafter for the foreseeable future.To fund our business plans, including any anticipated future losses, purchase commitments, capital expenditures and principal and interest payments onborrowings, we leveraged our owned real estate. We are also continuing to take actions to improve cash flow by aligning our cost structure to our studentpopulation. In addition to our current sources of capital that provide short term liquidity, the Company has been making efforts to sell its Mangonia Park,Palm Beach County, Florida property and associated assets originally operated in the HOPS segment, which has been classified as held for sale. 48IndexOur 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 most significantsource of student financing is Title IV Programs, which represented approximately 78% of our cash receipts relating to revenues in 2017. Pursuant toapplicable regulations, students must apply for a new loan for each academic period. Federal regulations dictate the timing of disbursements of funds underTitle IV Programs and loan funds are generally provided by lenders in two disbursements for each academic year. The first disbursement is usually receivedapproximately 31 days after the start of a student’s academic year and the second disbursement is typically received at the beginning of the sixteenth weekfrom the start of the student's academic year. Certain types of grants and other funding are not subject to a 31-day delay. In certain instances, if a studentwithdraws from a program prior to a specified date, any paid but unearned tuition or prorated Title IV Program financial aid is refunded according to federal,state and accrediting agency standards. As a result of the significant amount of Title IV Program funds received by our students, we are highly dependent on these funds to operate our business. Anyreduction in the level of Title IV Program funds that our students are eligible to receive or any restriction on our eligibility to receive Title IV Program fundswould have a significant impact on our operations and our financial condition. See “Risk Factors” in Item 1A of this Annual Report on Form 10-K for theyear ended December 31, 2017.On January 11, 2018, the DOE sent letters to our Columbia, Maryland and Iselin, New Jersey institutions requiring each institution to submit a letter of creditto the DOE based on findings of late returns of Title IV funds in the annual Title IV compliance audits submitted to the DOE for the fiscal year endedDecember 31, 2016. Our Iselin institution provided evidence demonstrating that only 3% of the Title IV Program funds returned were late. However, the DOEconcluded that a letter of credit would nevertheless be required for each institution because the regulatory auditor included a finding that there was a materialweakness in our report on internal controls relating to return of unearned Title IV Program funds. We disagree with the regulatory auditor’s conclusion that amaterial weakness could exist if the error rate in the expanded audit sample is only 3% or approximately $20,000 and we believe that the regulatory auditor’sconclusion is erroneous. We requested the DOE to reconsider the letter of credit requirement. By letter dated February 7, 2018, DOE maintained that therefund letters of credit were necessary but agreed that the amount of each letter of credit could be based on the returns that were required to be made by eachinstitution in the 2017 fiscal year rather than the 2016 fiscal year. Accordingly, we submitted letters of credit in the amounts of $0.5 million and $0.1 millionby the February 23, 2018 deadline and expect that these letters of credit will remain in place for a minimum of two years. Operating ActivitiesNet cash used in operating activities was $11.3 million for the year ended December 31, 2017 compared to $6.1 million for the comparable period of 2016. The increase in cash used in operating activities in the year ended December 31, 2017 as compared to the year ended December 31, 2016 is primarily due toan increased net loss as well as changes in other working capital such as accounts receivable, accounts payable, accrued expenses and unearned tuition.Investing ActivitiesNet cash provided by investing activities was $9.9 million for the year ended December 31, 2017 compared to net cash used of $2.2 million in the prior yearcomparable period. The increase of $12.1 million was primarily the result of the sale of two of our three properties located in West Palm Beach, Floridaresulting in cash inflows of $15.5 million. The sale of the two properties occurred on August 14, 2017.One of our primary uses of cash in investing activities was capital expenditures associated with investments in training technology, classroom furniture, andnew program buildouts.We currently lease a majority of our campuses. We own our schools in Grand Prairie, Texas; Nashville, Tennessee; and Denver, Colorado and our formerschool properties in Mangonia Park, Palm Beach County, Florida and Suffield, Connecticut.Capital expenditures are expected to approximate 2% of revenues in 2018. We expect to fund future capital expenditures with cash generated from operatingactivities, borrowings under our revolving credit facility, and cash from our real estate monetization.Financing ActivitiesNet cash used in financing activities was $5.1 million as compared to net cash used of $9.1 million for the years ended December 31, 2017 and 2016,respectively. The decrease of $4.0 million was primarily due to two main factors: (a) net payments on borrowings of $3.4 million; and (b) $2.9 million in lease terminationfees paid in the prior year.Net borrowings consisted of: (a) total borrowing to date under our secured revolving credit facility of $75.9 million; (b) reclassification of payments ofborrowing from restricted cash of $20.3 million; (c) reclassification of proceeds from borrowings to restricted cash of $32.8 million; and (d) $66.8 million intotal repayments made by the Company. The noncurrent restricted cash balance of $32.8 million has been repaid in 2018. 49IndexCredit AgreementOn March 31, 2017, the Company entered into a secured revolving credit agreement (the “Credit Agreement”) with Sterling National Bank (the “Bank”)pursuant to which the Company obtained a credit facility in the aggregate principal amount of up to $55 million (the “Credit Facility”). The Credit Facilityconsists of (a) a $30 million loan facility (“Facility 1”), which is comprised of a $25 million revolving loan designated as “Tranche A” and a $5 million non-revolving loan designated as “Tranche B,” which Tranche B was repaid during the quarter ended June 30, 2017 and (b) a $25 million revolving loan facility(“Facility 2”), which includes a sublimit amount for letters of credit of $10 million. The Credit Agreement was subsequently amended, on November 29,2017, to provide the Company with an additional $15 million revolving credit loan (“Facility 3”), resulting in an increase in the aggregate availability underthe Credit Facility to $65 million. The Credit Agreement was again amended on February 23, 2018, to, among other things, effect certain modifications tothe financial covenants and other provisions of the Credit Agreement and to allow the Company to pursue the sale of certain real property assets. TheFebruary 23, 2018 amendment increased the interest rate for borrowings under Tranche A of Facility 1 to a rate per annum equal to the greater of (x) theBank’s prime rate plus 2.85% and (y) 6.00%. Prior to the most recent amendment of the Credit Agreement, revolving loans outstanding under Tranche A ofFacility 1 bore interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.50% and (y) 6.00%. The Credit Facility replaces a term loan facility (the “Prior Credit Facility”) which was repaid and terminated concurrently with the effectiveness of the CreditFacility. The term of the Credit Facility is 38 months, maturing on May 31, 2020, except that the term of Facility 3 will mature one year earlier, on May 31,2019.The Credit Facility is secured by a first priority lien in favor of the Bank on substantially all of the personal property owned by the Company as well asmortgages on four parcels of real property owned by the Company in Colorado, Tennessee and Texas at which three of the Company’s schools are located, aswell as a former school property owned by the Company located in Connecticut.At the closing of the Credit Facility, the Company drew $25 million under Tranche A of Facility 1, which, pursuant to the terms of the Credit Agreement, wasused to repay the Prior Credit Facility and to pay transaction costs associated with closing the Credit Facility. After the disbursements of such amounts, theCompany retained approximately $1.8 million of the borrowed amount for working capital purposes.Also, at closing, $5 million was drawn under Tranche B and, pursuant to the terms of the Credit Agreement, was deposited into an interest-bearing pledgedaccount (the “Pledged Account”) in the name of the Company maintained at the Bank in order to secure payment obligations of the Company with respect tothe costs of remediation of any environmental contamination discovered at certain of the mortgaged properties based upon environmental studies undertakenat such properties. During the quarter ended June 30, 2017, the environmental studies were completed and revealed no environmental issues existing at theproperties. Accordingly, pursuant to the terms of the Credit Agreement, the $5 million in the Pledged Account was released and used to repay the non-revolving loan outstanding under Tranche B. Upon the repayment of Tranche B, the maximum principal amount of Facility 1 was permanently reduced to$25 million.Pursuant to the terms of the Credit Agreement, all draws under Facility 2 for letters of credit or revolving loans and all draws under Facility 3 must be securedby cash collateral in an amount equal to 100% of the aggregate stated amount of the letters of credit issued and revolving loans outstanding through drawsfrom Facility 1 or other available cash of the Company.Accrued interest on each revolving loan will be payable monthly in arrears. Revolving loans under Tranche A of Facility 1 bear interest at a rate per annumequal to the greater of (x) the Bank’s prime rate plus 2.85% and (y) 6.00%. Prior to the February 23, 2018 amendment of the Credit Agreement, the interestrate for revolving loans under Tranche A of Facility 1 was equal to the greater of (x) the Bank’s prime rate plus 2.50% and (y) 6.00%. The amount borrowedunder Tranche B of Facility 1 and revolving loans under Facility 2 and Facility 3 will bear interest at a rate per annum equal to the greater of (x) the Bank’sprime rate and (y) 3.50%. Each issuance of a letter of credit under Facility 2 will require the payment of a letter of credit fee to the Bank equal to a rate per annum of 1.75% on the dailyamount available to be drawn under the letter of credit, which fee shall be payable in quarterly installments in arrears. Letters of credit totaling $6.2 millionthat were outstanding under a $9.5 million letter of credit facility previously provided to the Company by the Bank, which letter of credit facility was set tomature on April 1, 2017, are treated as letters of credit under Facility 2. The terms of the Credit Agreement provide that the Bank be paid an unused facility fee on the average daily unused balance of Facility 1 at a rate per annumequal to 0.50%, which fee is payable quarterly in arrears. In addition, the Company is required to maintain, on deposit in one or more non-interest bearingaccounts, a minimum of $5 million in quarterly average aggregate balances. If in any quarter the required average aggregate account balance is notmaintained, the Company is required to pay the Bank a fee of $12,500 for that quarter and, in the event that the Company terminates the Credit Facility orrefinances with another lender within 18 months of closing, the Company is required to pay the Bank a breakage fee of $500,000. 50IndexIn addition to the foregoing, the Credit Agreement contains customary representations, warranties and affirmative and negative covenants, includingfinancial covenants that restrict capital expenditures, prohibit the incurrence of a net loss commencing on December 31, 2018 and require a minimumadjusted EBITDA and a minimum tangible net worth, which is an annual covenant, as well as events of default customary for facilities of this type. As ofDecember 31, 2017, the Company is in compliance with all covenants.In connection with the Credit Agreement, the Company paid the Bank an origination fee in the amount of $250,000 and other fees and reimbursements thatare customary for facilities of this type. In connection with the second amendment of the Credit Agreement, the Company paid to the Bank a modificationfee in the amount of $50,000.The Company incurred an early termination premium of approximately $1.8 million in connection with the termination of the Prior Credit Facility.On April 28, 2017, the Company entered into an additional secured credit agreement with the Bank, pursuant to which the Company obtained a short termloan in the principal amount of $8 million, the proceeds of which were used for working capital and general corporate purposes. The loan, which had aninterest rate equal to the greater of the Bank’s prime rate plus 2.50% or 6.00%, was secured by two real property assets located in West Palm Beach, Florida atwhich schools operated by the Company were located and matured upon the earlier of October 1, 2017 and the date of the sale of the West Palm Beach,Florida property. The Company sold the two properties located in West Palm Beach, Florida to Tambone Companies, LLC in the third quarter of 2017 andsubsequently repaid the $8 million. As of December 31, 2017, the Company had $53.4 million outstanding under the Credit Facility; offset by $0.8 million of deferred finance fees. As ofDecember 31, 2016, the Company had $44.3 million outstanding under the Prior Credit Facility; offset by $2.3 million of deferred finance fees, which werewritten-off. As of December 31, 2017 and December 31, 2016, there were letters of credit in the aggregate outstanding principal amount of $7.2 million and$6.2 million, respectively.Long-term debt and lease obligations consist of the following: As of December 31, 2017 2016 Credit agreement $53,400 $- Term loan - 44,267 Deferred financing fees (807) (2,310)Subtotal 52,593 41,957 Less current maturities - (11,713)Total long-term debt $52,593 $30,244 As of December 31, 2017, we had outstanding loan commitments to our students of $51.9 million, as compared to $40.0 million at December 31, 2016. Loancommitments, net of interest that would be due on the loans through maturity, were $38.5 million at December 31, 2017, as compared to $30.0 million atDecember 31, 2016. Climate ChangeClimate change has not had and is not expected to have a significant impact on our operations. 51IndexContractual ObligationsCurrent portion of Long-Term Debt, Long-Term Debt and Lease Commitments. As of December 31, 2017, our current portion of long-term debt and long-term debt consisted of borrowings under our Credit Facility. We lease offices, educational facilities and various equipment for varying periods through theyear 2030 at basic annual rentals (excluding taxes, insurance, and other expenses under certain leases).The following table contains supplemental information regarding our total contractual obligations as of December 31, 2017: Payments Due by Period Total Less than1 year 1-3 years 3-5 years More than5 years Credit facility $53,400 $- $53,400 $- $- Operating leases 78,408 19,347 28,994 14,207 15,860 Total contractual cash obligations $131,808 $19,347 $82,394 $14,207 $15,860 OFF-BALANCE SHEET ARRANGEMENTSWe had no off-balance sheet arrangements as of December 31, 2017, except for surety bonds. At December 31, 2017, we posted surety bonds in the totalamount of approximately $12.7 million. Cash collateralized letters of credit of $6.5 million are primarily comprised of letters of credit for DOE matters andsecurity deposits in connection with certain of our real estate leases. We are required to post surety bonds on behalf of our campuses and educationrepresentatives with multiple states to maintain authorization to conduct our business. These off-balance sheet arrangements do not adversely impact ourliquidity or capital resources.SEASONALITY 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 and numerous regulatory changes such as changes to admissions advisorcompensation policies, elimination of “ability-to-benefit,” changes to the 90/10 Rule and cohort default rates, gainful employment and modifications toTitle IV Program amounts and eligibility. While the industry has not returned to growth, the trends are far more stable as declines have slowed.As the economy continues to improve and the unemployment rate continues to decline our student enrollment is negatively impacted due to a portion of ourpotential student base entering the workforce earlier without obtaining any post-secondary training. Offsetting this short term decline in available students isthe fact that an increasing number of individuals in the “baby boom” generation are retiring from the workforce. The retirement of baby boomers coupledwith a growing economy has resulted in additional employers looking to us to help solve their workforce needs. With schools in 14 states, we are a veryattractive 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 entered into a new credit facility as described above and continue to have theability to sell our assets that are classified as held for sale. We are also continuing to take actions to improve cash flow by aligning our cost structure to ourstudent population. 52IndexEffect 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. On March 31, 2017, the Company repaid in full and terminated apreviously existing term loan with the proceeds of a new revolving credit facility (the “Credit Facility”) provided by Sterling National Bank, which currentlyprovides the Company with aggregate availability of $65 million. The Credit Facility is discussed in further detail under the heading “Liquidity and CapitalResources” in Item 7 of this report and in Note 7 to the consolidated financial statements included in this report. Our obligations under the Credit Facility aresecured by a lien on substantially all of our assets and any assets that we or our subsidiaries may acquire in the future. Outstanding borrowings under theCredit Facility bear interest at the rate of 7.00% as of December 31, 2017. As of December 31, 2017, we had $53.4 million outstanding under the CreditFacility.Based on our outstanding debt balance as of December 31, 2017, a change of one percent in the interest rate would have caused a change in our interestexpense of approximately $0.5 million, or $0.02 per basic share, on an annual basis. Changes in interest rates could have an impact on our operations, whichare greatly dependent on our students’ ability to obtain financing and, as such, 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 of this Annual Report on Form 10-K.ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A.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, 2017 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, 2017, 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 the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control system was designed to provide reasonable assurance to theCompany’s management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, 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, 2017, the Company’s internal control over financial reporting is effective. 53IndexBecause 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, 2017, as stated in their report included in this Form 10-K that follows.ITEM 9B.OTHER INFORMATIONNone.PART 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 2018 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 2018 AnnualMeeting of Shareholders.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL 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 2018 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 2018 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 2018 AnnualMeeting of Shareholders. 54IndexPART 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 2.1Purchase and Sale Agreement, dated March 14, 2017, between New England Institute of Technology at Palm Beach, Inc. and TamboneCompanies, LLC, as amended by First Amendment to Purchase and Sale Agreement dated as of April 18, 2017, and as further amended bySecond Amendment to Purchase and Sale Agreement dated as of May 12, 2017 (1). 3.1Amended and Restated Certificate of Incorporation of the Company (2). 3.2By-laws of the Company (3). 4.1Management 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 (4). 4.2Assumption 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 (5). 4.3Registration Rights Agreement, dated as of June 27, 2005, between the Company and Back to School Acquisition, L.L.C. (3). 4.4Specimen Stock Certificate evidencing shares of common stock (6). 10.1Credit Agreement, dated as of July 31, 2015, among Lincoln Educational Services Corporation and its wholly-owned subsidiaries, theLenders and Collateral Agents party thereto, and HPF Service, LLC, as Administrative Agent (7). 10.2First Amendment to Credit Agreement, dated as of December 31, 2015, among Lincoln Educational Services Corporation and its wholly-owned subsidiaries, the Lenders and Collateral Agents party thereto, and HPF Service, LLC, as Administrative Agent (8). 10.3Second Amendment to Credit Agreement, dated as of February 29, 2016, among Lincoln Educational Services Corporation and its wholly-owned subsidiaries, the Lenders party thereto, and HPF Service, LLC, as Administrative Agent and Tranche A Collateral Agent (9). 10.4Credit Agreement, dated as of April 12, 2016, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and SterlingNational Bank (10). 10.5Credit Agreement, dated as of March 31, 2017, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and SterlingNational Bank (11). 10.6Credit Agreement, dated as of April 28, 2017, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and SterlingNational Bank (12). 55Index10.7First Amendment to Credit Agreement, dated as of November 29, 2017, among the Company, Lincoln Technical Institute, Inc. and itssubsidiaries, and Sterling National Bank (13) 10.8Second Amendment to Credit Agreement, dated as of February 23, 2018, among the Company, Lincoln Technical Institute, Inc. and itssubsidiaries, and Sterling National Bank (26) 10.9Purchase and Sale Agreement, dated as of July 1, 2016, between New England Institute of Technology at Palm Beach, Inc. and SchoolProperty Development Metrocentre, LLC (14). 10.10Employment Agreement, dated as of August 23, 2016, between the Company and Scott M. Shaw (15) 10.11Employment Agreement, dated as of November 8, 2017, between the Company and Scott M. Shaw (16). 10.12Separation and Release Agreement, dated as of January 15, 2016, between the Company and Kenneth M. Swisstack (17). 10.13Employment Agreement, dated as of August 23, 2016, between the Company and Brian K. Meyers (15). 10.14Employment Agreement, dated as of November 8, 2017, between the Company and Brian K. Meyers (16). 10.15Change in Control Agreement, dated August 31, 2016, between the Company and Deborah Ramentol (18). 10.16Separation and Release Agreement, dated as of January 24, 2018, between the Company and Deborah Ramentol (19). 10.17Change in Control Agreement, dated as of November 8, 2017, between the Company and Deborah Ramentol (20). 10.18Lincoln Educational Services Corporation Amended and Restated 2005 Long-Term Incentive Plan (21). 10.19Lincoln Educational Services Corporation Amended and Restated 2005 Non-Employee Directors Restricted Stock Plan (22). 10.20Lincoln Educational Services Corporation 2005 Deferred Compensation Plan (4). 10.21Lincoln Technical Institute Management Stock Option Plan, effective January 1, 2002 (4). 10.22Form of Stock Option Agreement, dated January 1, 2002, between Lincoln Technical Institute, Inc. and certain participants (4). 10.23Form of Stock Option Agreement under our 2005 Long-Term Incentive Plan (23). 10.24Form of Restricted Stock Agreement under our 2005 Long-Term Incentive Plan (24). 10.25Form of Performance-Based Restricted Stock Award Agreement under our Amended & Restated 2005 Long-Term Incentive Plan (25). 10.26Management Stock Subscription Agreement, dated January 1, 2002, among Lincoln Technical Institute, Inc. and certain managementinvestors (4). 21.1*Subsidiaries of the Company. 23*Consent of Independent Registered Public Accounting Firm. 24*Power of Attorney (included on the Signatures page of this Form 10-K). 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. 56Index32 *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, 2017, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) ConsolidatedStatements of Cash Flows, (iv) Consolidated Statements of Comprehensive (Loss) Income, (v) Consolidated Statement of Changes inStockholders’ 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 Form 8-K filed August 16, 2017.(2)Incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 7, 2005.(3)Incorporated by reference to the Company’s Form 8-K filed June 28, 2005.(4)Incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration No. 333-123644) filed March 29, 2005.(5)Incorporated by reference to the Company’s Registration Statement on Form S-3 (Registration No. 333-148406) filed December 28, 2007.(6)Incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 21, 2005.(7)Incorporated by reference to the Company’s Form 8-K filed August 5, 2015.(8)Incorporated by reference to the Company’s Form 8-K filed January 7, 2016.(9)Incorporated by reference to the Company’s Form 8-K filed March 4, 2016.(10)Incorporated by reference to the Company’s Form 8-K filed April 18, 2016.(11)Incorporated by reference to the Company’s Form 8-K filed April 6, 2017.(12)Incorporated by reference to the Company’s Form 8-K filed May 4, 2017.(13)Incorporated by reference to the Company’s Form 8-K filed December 1, 2017.(14)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed August 9, 2016.(15)Incorporated by reference to the Company’s Form 8-K filed August 25, 2016.(16)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 13, 2017.(17)Incorporated by reference to the Company’s Form 8-K filed January 22, 2016.(18)Incorporated by reference to the Company’s Annual Report on Form 10-K filed March 10, 2017.(19)Incorporated by reference to the Company’s Form 8-K filed January 26, 2018.(20)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 13, 2017.(21)Incorporated by reference to the Company’s Form 8-K filed May 6, 2013.(22)Incorporated by reference to the Company’s Registration Statement on Form S-8 (Registration No. 333-211213) filed May 6, 2016.(23)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.(24)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.(25)Incorporated by reference to the Company’s Form 8-K filed May 5, 2011.(26)Incorporated by reference to the Company’s Form 8-K filed February 26, 2018.*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 1934 57IndexSIGNATURESPursuant 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 9, 2018 LINCOLN EDUCATIONAL SERVICES CORPORATION By:/s/ Brian Meyers Brian Meyers Executive Vice President, Chief Financial Officer and Treasurer (Principal Accounting and Financial Officer)POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned constitutes and appoints Scott M. Shaw and Brian K. Meyers, and eachof them, as attorneys-in-fact and agents, with full power of substitution and re-substitution, for and in the name, place and stead of the undersigned, in anyand all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and all other documentsin connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do andperform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersignedmight or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact or substitute or substitutes, may lawfully do or cause to bedone by virtue hereof.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.Signature Title Date /s/ Scott M. Shaw Chief Executive Officer and Director March 9, 2018Scott M. Shaw /s/ Brian K. Meyers Executive Vice President, Chief Financial Officer andTreasurer March 9, 2018Brian K. Meyers (Principal Accounting and Financial Officer) /s/ Alvin O. Austin Director March 9, 2018Alvin O. Austin /s/ Peter S. Burgess Director March 9, 2018Peter S. Burgess /s/ James J. Burke, Jr. Director March 9, 2018James J. Burke, Jr. /s/ Celia H. Currin Director March 9, 2018Celia H. Currin /s/ Ronald E. Harbour Director March 9, 2018Ronald E. Harbour /s/ J. Barry Morrow Director March 9, 2018J. Barry Morrow 58IndexINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page NumberReports of Independent Registered Public Accounting Firm F-2Consolidated Balance Sheets as of December 31, 2017 and 2016 F-4Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015 F-6Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2017, 2016 and 2015 F-7Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2017, 2016 and 2015 F-8Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 F-9Notes to Consolidated Financial Statements F-11 Schedule II-Valuation and Qualifying Accounts F-32 F-1IndexREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Lincoln Educational Services CorporationOpinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Lincoln Educational Services Corporation and subsidiaries (the “Company”) as ofDecember 31, 2017 and 2016, 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, 2017, and the related notes and the schedule listed in the Index at Item 15 (collectivelyreferred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Companyas of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, inconformity with accounting principles generally accepted in the United States of America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sinternal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2018, expressed an unqualified opinion on theCompany's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ DELOITTE & TOUCHE LLPParsippany, New JerseyMarch 9, 2018We have served as the Company’s auditors since 1999. F-2IndexREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Lincoln Educational Services CorporationOpinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Lincoln Educational Services Corporation and subsidiaries (the “Company”) as of December31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedfinancial statements as of and for the year ended December 31, 2017, of the Company and our report dated March 9, 2018, expressed an unqualified opinionon those financial statements.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.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./s/ DELOITTE & TOUCHE LLPParsippany, New JerseyMarch 9, 2018 F-3IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share amounts) December 31, 2017 2016 ASSETS CURRENT ASSETS: Cash and cash equivalents $14,563 $21,064 Restricted cash 7,189 6,399 Accounts receivable, less allowance of $12,806 and $12,375 at December 31, 2017 and 2016, respectively 15,791 15,383 Inventories 1,657 1,687 Prepaid income taxes and income taxes receivable 207 262 Assets held for sale 2,959 16,847 Prepaid expenses and other current assets 2,352 2,894 Total current assets 44,718 64,536 PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $163,946and $157,152 at December 31, 2017 and 2016, respectively 52,866 55,445 OTHER ASSETS: Noncurrent restricted cash 32,802 20,252 Noncurrent receivables, less allowance of $978 and $977 at December 31, 2017 and 2016, respectively 8,928 7,323 Deferred income taxes, net 424 - Goodwill 14,536 14,536 Other assets, net 939 1,115 Total other assets 57,629 43,226 TOTAL $155,213 $163,207 See notes to consolidated financial statements. F-4IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share amounts)(Continued) December 31, 2017 2016 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of credit agreement and term loan $- $11,713 Unearned tuition 24,647 24,778 Accounts payable 10,508 13,748 Accrued expenses 11,771 15,368 Other short-term liabilities 558 653 Total current liabilities 47,484 66,260 NONCURRENT LIABILITIES: Long-term credit agreement and term loan 52,593 30,244 Pension plan liabilities 4,437 5,368 Accrued rent 4,338 5,666 Other long-term liabilities 548 743 Total liabilities 109,400 108,281 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, no par value - 10,000,000 shares authorized, no shares issued and outstanding at December 31, 2017and 2016 - - Common stock, no par value - authorized 100,000,000 shares at December 31, 2017 and 2016, issued andoutstanding 30,624,407 shares at December 31, 2017 and 30,685,017 shares at December 31, 2016 141,377 141,377 Additional paid-in capital 29,334 28,554 Treasury stock at cost - 5,910,541 shares at December 31, 2017 and 2016 (82,860) (82,860)Accumulated deficit (37,528) (26,044)Accumulated other comprehensive loss (4,510) (6,101)Total stockholders' equity 45,813 54,926 TOTAL $155,213 $163,207 See notes to consolidated financial statements. F-5IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts) Year Ended December 31, 2017 2016 2015 REVENUE $261,853 $285,559 $306,102 COSTS AND EXPENSES: Educational services and facilities 129,413 144,426 151,647 Selling, general and administrative 138,779 148,447 151,797 (Gain) loss on sale of assets (1,623) 233 1,738 Impairment of goodwill and long-lived assets - 21,367 216 Total costs and expenses 266,569 314,473 305,398 OPERATING (LOSS) INCOME (4,716) (28,914) 704 OTHER: Interest income 56 155 52 Interest expense (7,098) (6,131) (8,015)Other income - 6,786 4,151 LOSS BEFORE INCOME TAXES (11,758) (28,104) (3,108)(BENEFIT) PROVISION FOR INCOME TAXES (274) 200 242 NET LOSS $(11,484) $(28,304) $(3,350)Basic Net loss per share $(0.48) $(1.21) $(0.14)Diluted Net loss per share $(0.48) $(1.21) $(0.14)Weighted average number of common shares outstanding: Basic 23,906 23,453 23,167 Diluted 23,906 23,453 23,167 See notes to consolidated financial statements F-6IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME(In thousands) December 31, 2017 2016 2015 Net loss $(11,484) $(28,304) $(3,350)Other comprehensive income Employee pension plan adjustments 1,591 971 395 Comprehensive loss $(9,893) $(27,333) $(2,955)See notes to consolidated financial statements F-7IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(In thousands, except share amounts) Additional RetainedEarnings AccumulatedOther Common Stock Paid-in Treasury (Accumulated Comprehensive Shares Amount Capital Stock Deficit) Loss Total BALANCE - January 1, 2015 29,933,086 $141,377 $26,350 $(82,860) $5,610 $(7,467) $83,010 Net loss - - - - (3,350) - (3,350)Employee pension plan adjustments - - - - - 395 395 Stock-based compensation expense Restricted stock (119,791) - 1,095 - - - 1,095 Stock options - - 33 - - - 33 Net share settlement for equity-basedcompensation (85,740) - (186) - - - (186)BALANCE - December 31, 2015 29,727,555 141,377 27,292 (82,860) 2,260 (7,072) 80,997 Net loss - - - - (28,304) - (28,304)Employee pension plan adjustments - - - - - 971 971 Stock-based compensation expense Restricted stock 1,029,267 - 1,440 - - - 1,440 Net share settlement for equity-basedcompensation (71,805) - (178) - - - (178)BALANCE - December 31, 2016 30,685,017 141,377 28,554 (82,860) (26,044) (6,101) 54,926 Net loss - - - - (11,484) - (11,484)Employee pension plan adjustments - - - - - 1,591 1,591 Stock-based compensation expense Restricted stock 128,810 - 1,220 - - - 1,220 Net share settlement for equity-basedcompensation (189,420) - (440) - - - (440)BALANCE - December 31, 2017 30,624,407 $141,377 $29,334 $(82,860) $(37,528) $(4,510) $45,813 See notes to consolidated financial statements. F-8IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2017 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(11,484) $(28,304) $(3,350)Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 8,702 11,066 14,506 Amortization of deferred finance costs 583 949 554 Write-off of deferred finance charges 2,161 - - Deferred income taxes (424) - - (Gain) loss on disposition of assets (1,622) 223 1,738 Gain on capital lease termination, net - (6,710) (3,062)Impairment of goodwill and long-lived assets - 21,367 216 Fixed asset donation (19) (123) (20)Provision for doubtful accounts 13,720 14,592 13,583 Stock-based compensation expense 1,220 1,440 1,128 Deferred rent (1,312) (489) (638)(Increase) decrease in assets: Accounts receivable (15,733) (15,700) (13,216)Inventories 30 201 9 Prepaid income taxes and income taxes receivable 55 87 530 Prepaid expenses and current assets 532 412 444 Other assets (1,163) (1,701) (1,460)Increase (decrease) in liabilities: Accounts payable (3,193) 742 1,004 Accrued expenses (3,613) 1,195 (450)Unearned tuition (131) (6,854) 2,627 Other liabilities 370 1,500 194 Total adjustments 163 22,197 17,687 Net cash (used in) provided by operating activities (11,321) (6,107) 14,337 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,755) (3,596) (2,218)Restricted cash (790) 963 - Proceeds from sale of property and equipment 15,462 451 451 Net cash provided by (used in) investing activities 9,917 (2,182) (1,767)CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 75,900 - 53,500 Payments on borrowings (66,766) (387) (38,847)Reclassifications of payments from borrowings from restricted cash 20,252 - 30,000 Reclassifications of proceeds from borrowings to restricted cash (32,802) (4,993) (22,621)Proceeds of borrowings to restricted cash (5,000) - - Payment of borrowings from restricted cash 5,000 - - Payment of deferred finance fees (1,241) (645) (2,823)Net share settlement for equity-based compensation (440) (178) (186)Payments under capital lease obligations - (2,864) (5,472)Net cash (used in) provided by financing activities (5,097) (9,067) 13,551 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,501) (17,356) 26,121 CASH AND CASH EQUIVALENTS—Beginning of year 21,064 38,420 12,299 CASH AND CASH EQUIVALENTS—End of year $14,563 $21,064 $38,420 See notes to consolidated financial statements. F-9IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Continued) Year Ended December 31, 2017 2016 2015 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $2,790 $5,265 $7,159 Income taxes $139 $150 $89 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Liabilities accrued for or noncash purchases of fixed assets $1,447 $2,048 $979 See notes to consolidated financial statements. F-10IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2017 AND 2016 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2017(In thousands, except share and per share amounts, schools, training sites, campuses and unless otherwise stated)1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBusiness Activities— Lincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our” and “us”, as applicable)provide diversified career-oriented post-secondary education to recent high school graduates and working adults. The Company, which currently operates 23schools in 14 states, offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control andelectronic systems technology, among other programs), healthcare services (which include nursing, dental assistant, medical administrative assistant andpharmacy technician, among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and businessand information technology (which includes information technology and criminal justice programs). The schools operate under Lincoln Technical Institute,Lincoln College of Technology, Lincoln College of New England, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences andassociated brand names. Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study. Five of thecampuses are destination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campusesprimarily attract students from their local communities and surrounding areas. All of the campuses are nationally or regionally accredited and are eligible toparticipate in federal financial aid programs by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accreditingcommissions which allow students to apply for and access federal student loans as well as other forms of financial aid.The Company’s business is organized into three reportable business segments: (a) Transportation and Skilled Trades, (b) Healthcare and Other Professions(“HOPS”), and (c) Transitional, which refers to businesses that have been or are currently being taught out. In November 2015, the Board of Directors of theCompany approved a plan for the Company to divest the 18 campuses then comprising the HOPS segment due to a strategic shift in the Company’s businessstrategy. The Company underwent an exhaustive process to divest the HOPS schools which proved successful in attracting various purchasers but,ultimately, did not result in a transaction that our Board believed would enhance shareholder value. By the end of 2017, we had strategically closed sevenunderperforming campuses leaving a total of 11 campuses remaining under the HOPS segment. The Company believes that the closures of theaforementioned campuses has positioned the HOPS segment and the Company to be more profitable going forward as well as maximizing returns for theCompany’s shareholders.The combination of several factors, including the inability of a prospective buyer of the HOPS segment to close on the purchase, the improvements theCompany has implemented in the HOPS segment operations, the closure of seven underperforming campuses and the change in the United States governmentadministration, resulted in the Board reevaluating its divestiture plan and the determination that shareholder value would more likely be enhanced bycontinuing to operate our HOPS segment as revitalized. Consequently, the Board of Directors has abandoned the plan to divest the HOPS segment and theCompany now intends to retain and continue to operate the remaining campuses in the HOPS segment. The results of operations of the campuses included inthe HOPS segment are reflected as continuing operations in the consolidated financial statements.In 2016, the Company completed the teach-out of its Hartford, Connecticut, Fern Park, Florida and Henderson (Green Valley), Nevada campuses, whichoriginally operated in the HOPS segment. In 2017, the Company completed the teach-out of its Northeast Philadelphia, Pennsylvania; Center CityPhiladelphia, Pennsylvania; West Palm Beach, Florida; Brockton, Massachusetts; and Lowell, Massachusetts schools, which also were originally in ourHOPS segment and all of which were taught out and closed by December 2017 and are included in the Transitional segment as of December 31, 2017.On August 14, 2017, New England Institute of Technology at Palm Beach, Inc., a wholly-owned subsidiary of the Company, consummated the sale of the realproperty located at 2400 and 2410 Metrocentre Boulevard East, West Palm Beach, Florida, including the improvements and other personal property locatedthereon (the “West Palm Beach Property”) to Tambone Companies, LLC (“Tambone”), pursuant to a previously disclosed purchase and sale agreement (the“West Palm Sale Agreement”) entered into on March 14, 2017. Pursuant to the terms of the West Palm Sale Agreement, as subsequently amended, thepurchase price for the West Palm Beach Property was $15.8 million. As a result, the Company recorded a gain on the sale in the amount of $1.5 million. Aspreviously disclosed, the West Palm Beach Property served as collateral for a short term loan in the principal amount of $8.0 million obtained by theCompany from its lender, Sterling National Bank, on April 28, 2017, which loan matured upon the earlier of the sale of the West Palm Beach Property orOctober 1, 2017. Accordingly, on August 14, 2017, concurrently with the consummation of the sale of the West Palm Beach Property, the Company repaidthe term loan in an aggregate amount of $8.0 million, consisting of principal and accrued interest.Liquidity—For the last several years, the Company and the proprietary school sector have faced deteriorating earnings. Government regulations havenegatively impacted earnings by making it more difficult for potential students to obtain loans, which, when coupled with the overall economicenvironment, have discouraged potential students from enrolling in post-secondary schools. In light of these factors, the Company has incurred significantoperating losses as a result of lower student population. Despite these challenges, the Company believes that its likely sources of cash should be sufficient tofund operations for the next twelve months and thereafter for the foreseeable future. At December 31, 2017, the Company’s sources of cash primarilyincluded cash and cash equivalents of $54.5 million (of which $40.0 million is restricted) and $4.4 million of availability under the Company’s revolvingloan facility. Refer to Note 7 for more information on the Company’s revolving loan facility. The Company is also continuing to take actions to improvecash flow by aligning its cost structure to its student population. F-11IndexIn addition to the current sources of capital discussed above that provide short term liquidity, the Company has been making efforts to sell its MangoniaPark, Palm Beach County, Florida property and associated assets originally operated in the HOPS segment, which has been classified as held for sale.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—Revenues are derived primarily from programs taught at our schools. Tuition revenues, textbook sales and one-time fees, such asnonrefundable application fees and course material fees, are recognized on a straight-line basis over the length of the applicable program as the studentproceeds through the program, which is the period of time from a student’s start date through his or her graduation date, including internships or externshipsthat take place prior to graduation, and we complete the performance of teaching the student which entitles us to the revenue. Other revenues, such as toolsales and contract training revenues are recognized as services are performed or goods are delivered. On an individual student basis, tuition earned in excessof cash received is recorded as accounts receivable, and cash received in excess of tuition earned is recorded as unearned tuition.We evaluate whether collectability of revenue is reasonably assured prior to the student attending class and reassess collectability of tuition and fees when astudent withdraws from a course. We calculate the amount to be returned under Title IV and its stated refund policy to determine eligible charges and, if thereis a balance due from the student after this calculation, we expect payment from the student. We have a process to pursue uncollected accounts whereby,based upon the student’s financial means and ability to pay, a payment plan is established with the student to ensure that collectability is reasonable. Wecontinuously monitor our historical collections to identify potential trends that may impact our determination that collectability of receivables for withdrawnstudents is realizable. If a student withdraws from a program prior to a specified date, any paid but unearned tuition is refunded. Refunds are calculated andpaid in accordance with federal, state and accrediting agency standards. Generally, the amount to be refunded to a student is calculated based upon the periodof time the student has attended classes and the amount of tuition and fees paid by the student as of his or her withdrawal date. These refunds typically reducedeferred tuition revenue and cash on our consolidated balance sheets as we generally do not recognize tuition revenue in our consolidated statements ofincome (loss) until the related refund provisions have lapsed. Based on the application of our refund policies, we may be entitled to incremental revenue onthe day the student withdraws from one of our schools. We record revenue for students who withdraw from one of our schools when payment is receivedbecause collectability on an individual student basis is not reasonably assured.Cash and Cash Equivalents—Cash and cash equivalents include all cash balances and highly liquid short-term investments, which contain originalmaturities within three months of purchase. Pursuant to the Department of Education’s cash management requirements, the Company retains funds fromfinancial aid programs under Title IV of the Higher Education Act in segregated cash management accounts. The segregated accounts do not require arestriction on use of the cash and, as such, these amounts are classified as cash and cash equivalents on the consolidated balance sheet.Restricted Cash—Restricted cash consists of deposits maintained at financial institutions under a cash collateral agreement pursuant to the Company’s creditagreement and cash collateral for letters of credit. The amount of $32.8 million and $20.3 million for the years ended December 31, 2017 and 2016,respectively, of restricted cash is included in long-term assets on the consolidated balance sheet as the restriction is greater than one year. Refer to Note 7 formore information on the Company’s revolving credit facility.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, the Company considers, among other things, current and expected economicconditions, a student's status (in-school or out-of-school), whether or not a student is currently making payments, and overall collection history. Changes intrends in any of these areas may impact the allowance for uncollectible accounts. The receivables balances of withdrawn students with delinquent obligationsare reserved for based on our collection history.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. F-12IndexRent 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 $27.0 million, $28.0 million and $28.2 million for the yearsended December 31, 2017, 2016 and 2015, respectively. These amounts are included in selling, general and administrative expenses in the consolidatedstatements 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.When we test goodwill balances for impairment, we estimate the fair value of each of our reporting units based on projected future operating results and cashflows, market assumptions and/or comparative market multiple methods. Determining fair value requires significant estimates and assumptions based on anevaluation of a number of factors, such as marketplace participants, relative market share, new student interest, student retention, future expansion orcontraction expectations, amount and timing of future cash flows and the discount rate applied to the cash flows. Projected future operating results and cashflows used for valuation purposes do reflect improvements relative to recent historical periods with respect to, among other things, modest revenue growthand operating margins. Although we believe our projected future operating results and cash flows and related estimates regarding fair values are based onreasonable assumptions, historically projected operating results and cash flows have not always been achieved. The failure of one of our reporting units toachieve projected operating results and cash flows in the near term or long term may reduce the estimated fair value of the reporting unit below its carryingvalue and result in the recognition of a goodwill impairment charge. Significant management judgment is necessary to evaluate the impact of operating andmacroeconomic changes and to estimate future cash flows. Assumptions used in our impairment evaluations, such as forecasted growth rates and our cost ofcapital, are based on the best available market information and are consistent with our internal forecasts and operating plans. In addition to cash flowestimates, our valuations are sensitive to the rate used to discount cash flows and future growth assumptions.At December 31, 2017 and December 31, 2015, we conducted our annual test for goodwill impairment and determined we did not have an impairment. AtDecember 31, 2016, we conducted our annual test for goodwill impairment and determined we had an impairment of $9.9 million. We concluded that as ofSeptember 30, 2015 there was an indicator of potential impairment as a result of a decrease in market capitalization and, accordingly, we tested goodwill forimpairment. The test indicated that one of our reporting units was impaired, which resulted in a pre-tax non-cash charge of $0.2 million for the three monthsended September 30, 2015. Impairment of Long-Lived Assets—The Company reviews the carrying value of its 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 year ended December 31, 2017 and December 31, 2015, there was no long-lived asset impairment.The Company concluded that, for the year ended December 31, 2016, there was sufficient evidence to conclude that there was an impairment of certain long-lived assets which resulted in a pre-tax charge of $11.5 million.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, 2017,exceeded the balance insured by the FDIC Corporation (“FDIC”) by approximately $53.9 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, 2017 and 2016. F-13IndexUse 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.The 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 ASC Topic 740, “Income Taxes” (“ASC 740”). This statement requires an assetand a liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets and liabilitiesexisting 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 the Company’s consolidated financial position or results of operations. Changes in, among other things, income tax legislation, statutoryincome tax rates, or future income levels could materially impact the Company’s valuation of income tax assets and liabilities and could cause our incometax provision to vary significantly among financial reporting periods. See information regarding the impact of the Tax Cuts and Jobs Act in Note 10. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31,2017 and 2016, we did not record any interest and penalties expense associated with uncertain tax positions. Start-up Costs—Costs related to the start of new campuses are expensed as incurred.Reclassification—During the year ended December 31, 2017, the Company reclassified certain amounts previously included in held for sale to held for usein the 2016 Consolidated Balance Sheet. In addition, during the year ended December 31, 2017, the Company reclassified 2016 and 2015 amounts fromdiscontinued operations to continuing operations in Consolidated Statements of Operations.New Accounting PronouncementsThe Financial Accounting Standards Board (the “FASB”) has issued Accounting Standards Update (“ASU”) 2017-09, “Compensation—Stock Compensation(Topic 718) — Scope of Modification Accounting.” ASU 2017-09 applies to entities that change the terms or conditions of a share-based payment award.The FASB adopted ASU 2017-09 to provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718,Compensation—Stock Compensation, to the modification of the terms and conditions of a share-based payment award. The amendments provide guidanceon determining which changes to the terms and conditions of share-based payment award require an entity to apply modification accounting under Topic718. ASU 2017-09 is effective for all entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017.Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements havenot yet been issued. The adoption of ASU 2017-09 had no impact on the Company’s consolidated financial statements.In March 2017, the FASB issued ASU 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Costand Net Periodic Postretirement Benefit Cost." ASU 2017-07 requires that an employer report the service cost component in the same line item or items asother compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are requiredto be presented in the statement of comprehensive income separately from the service cost component and outside a subtotal of operating income. The ASU iseffective for annual periods beginning after December 15, 2017. Early adoption is permitted. The adoption of ASU 2017-07 had no impact on the Company’sconsolidated financial statements. F-14IndexIn January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 provides amendments to AccountingStandards Code (“ASC”) 350, “Intangibles - Goodwill and Other,” which eliminate Step 2 from the goodwill impairment test. Entities should perform theirgoodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount bywhich the carrying amount exceeds the reporting unit's fair value. The amendments in this update are effective prospectively during interim and annualperiods beginning after December 15, 2019, with early adoption permitted. The Company adopted the provisions of ASU 2017-04 as of April 1, 2017. Asfair values for our operating units exceed their carrying values, there has been no impact on our consolidated financial statements.In November 2016, the FASB issued ASU 2016-18: “Statement of Cash Flows (Topic 230): Restricted Cash.” This guidance was issued to address thedisparity that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments will require that thestatement of cash flows explain the change during the period in total cash, cash equivalents and restricted cash. The amendments are effective for financialstatements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments will be applied using aretrospective transition method to each period presented. The Company anticipates that the adoption will not have a material impact on the Company’sconsolidated financial statements.In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” toaddress eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments are effective for financial statementsissued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company anticipates that the adoption will nothave a material impact on the Company’s consolidated financial statements.The Company prospectively adopted ASU 2016-09, “Improvements to Employee Share Based Payment Accounting,” to the consolidated statement ofoperations for the recognition of tax benefits within the provision for taxes, which previously would have been recorded to additional paid-in capital. Theimpact for the year ended December 31, 2017 was $0. In addition, the Company retrospectively recognized no tax benefits within operating activities withinthe consolidated statements of cash flow for the year ended December 31, 2017 and 2016. The presentation requirements for cash flows related to employeetaxes paid for withheld shares had no impact to any of the periods presented in the consolidated statements of cash flows, since such cash flows havehistorically been presented in financing activities. The treatment of forfeitures has not changed as the Company is electing to continue the current process ofestimating the number of forfeitures. There was no cumulative effect adjustment required to retained earnings under the prospective method as of thebeginning of the year because all tax benefits had been previously recognized when the tax deductions related to stock compensation were utilized to reducetax payable. The Company is not recording deferred tax assets or tax losses as a result of the adoption of ASU 2016-09.In May 2014, the FASB issued a comprehensive new revenue recognition standard, ASU 2014-09, “Revenue from Contracts with Customers.” Theamendments include ASU 2016-08, “Revenue from Contracts with Customers (Topic 606)—Principal versus Agent Considerations,” issued in March 2016,which clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09, and ASU 2016-10, “Revenue from Contracts withCustomers (Topic 606)—Identifying Performance Obligations and Licensing,” issued in April 2016, which amends the guidance in ASU No. 2014-09 relatedto identifying performance obligations. The new standard will supersede previous existing revenue recognition guidance. The standard creates a five-stepmodel for revenue recognition that requires companies to exercise judgment when considering contract terms and relevant facts and circumstances. The five-step model includes (1) identifying the contract, (2) identifying the separate performance obligations in the contract, (3) determining the transaction price, (4)allocating the transaction price to the separate performance obligations and (5) recognizing revenue when each performance obligation has been satisfied.The standard also requires expanded disclosures surrounding revenue recognition. The standard is effective for fiscal periods beginning after December 15,2017 and allows for either full retrospective or modified retrospective adoption. We adopted the new standard effective January 1, 2018 using the modified retrospective approach. The Company’s revenue streams primarily consist oftuition and related services provided to students over the course of the program as well as other transactional revenue such as tools. Based on the Company'sassessment, the analysis of the contract portfolio under Topic 606 results in the revenue for the majority of the Company's student contracts being recognizedover time which is consistent with the Company's previous revenue recognition model. For all student contracts, there is continuous transfer of control to thestudent and the number of performance obligations under Topic 606 is consistent with those identified under the existing standard. The Companydetermined the impact of the adoption on revenue recognition for student contracts to be immaterial on its consolidated financial statements and disclosures. In February 2016, the FASB issued guidance requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for substantially allleases, with the exception of short-term leases. Leases will be classified as either financing or operating, with classification affecting the pattern of expenserecognition in the statements of income. The guidance is effective for annual periods, including interim periods within those periods, beginning afterDecember 15, 2018, with early adoption permitted. We are currently evaluating the impact that the update will have on the Company’s consolidatedfinancial statements. F-15Index2.FINANCIAL AID AND REGULATORY COMPLIANCEFinancial AidThe 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, 2017, 2016 and 2015, approximately 78%, 79% and 80% respectively, of net revenues on a cash basis were indirectly derived from fundsdistributed under Title IV Programs. For the years ended December 31, 2017, 2016 and 2015, the Company calculated that no individual DOE reporting entity received more than 90% of itsrevenue, determined on a cash basis under DOE regulations, from the Title IV 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, will be placed on provisional certification and may be subject to other enforcementmeasures. If one of the Company’s institutions 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.Regulatory ComplianceTo 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 institution 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. TheDOE 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 ability to support current operations from expendableresources; and (iii) net income ratio, which measures the institution's ability to operate at a profit. This composite 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 the institution is required to make disbursements to students under the Heightened Cash Monitoring 1 (HCM1) payment methodand 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 DOE in an amountdetermined by the DOE and equal to at least 50 percent of the Title IV Program funds received by the institution during the most recent fiscal year. Under theHCM1 payment method, the institution is required to make Title IV Program disbursements to eligible students and parents before it requests or receivesfunds for the amount of those disbursements from the DOE. As long as the student accounts are credited before the funding requests are initiated, theinstitution is permitted to draw down funds through the DOE’s electronic system for grants management and payments for the amount of disbursements madeto eligible students. Unlike the Heightened Cash Monitoring 2 (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 Program funds. If a Company’s compositescore is below 1.5 for three consecutive years an institution may be able to continue to operate under the Zone Alternative; however, this determination ismade solely by the DOE. If an institution’s composite score drops below 1.0 in a given year or if its composite score remains between 1.0 and 1.4 for three ormore consecutive years, it 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 Program funds under the HCM1, HCM2, or reimbursement payment methods, and complyingwith other requirements and conditions. Effective July 1, 2016, a school subject to HCM1, HCM2 or reimbursement payment methods must also pay anycredit balances due to a student before drawing down funds for the amount of those disbursements from the DOE, even if the student or his or her parentprovides written authorization for the school to hold the credit balance. The DOE permits an institution to participate under the “Zone Alternative” for aperiod of up to three consecutive fiscal years; however, this determination is made solely by the DOE. If an institution’s composite score is between 1.0 and1.4 after three or more consecutive years with a composite score below 1.5, it may be required to meet alternative requirements for continuing to participate inTitle IV Programs by submitting a letter of credit, complying with monitoring requirements, disbursing Title IV Program funds under the HCM1, HCM2, orreimbursement payment methods, and complying with other requirements and conditions.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: F-16Index·Posting a letter of credit in an amount determined by the DOE equal to at least 50% of the total Title IV Program funds received by the institutionduring the institution's most recently completed fiscal year;·Posting a letter of credit in an amount determined by the DOE equal to at least 10% of such prior year's Title IV Program funds, acceptingprovisional certification, complying with additional DOE monitoring requirements and agreeing to receive Title IV Program funds under anarrangement other than the DOE's standard advance funding arrangement.For the 2017 fiscal year, the Company calculated its composite score to be 1.1. The score is subject to determination by the DOE once it receives and reviewsthe Company’s audited financial statements for the 2017 fiscal year. The DOE has evaluated the financial responsibility of our institutions on a consolidatedbasis. The Company has submitted to the DOE our audited financial statements for the 2016 and 2015 fiscal year reflecting a composite score of 1.5 and 1.9,respectively, based upon its calculations.An institution participating in Title IV Programs must calculate the amount of unearned Title IV Program funds that have been disbursed to students whowithdraw from their educational programs before completing them, and must return those unearned funds to the DOE or the applicable lending institution ina 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 or if the regulatory auditor identifies a material weakness in the institution’s report on internal controls relating to the return of unearned Title IVProgram funds, 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 Programfunds that should have been timely returned for students who withdrew in the institution's previous fiscal year.On January 11, 2018, the DOE sent letters to our Columbia, Maryland and Iselin, New Jersey institutions requiring each institution to submit a letter of creditto the DOE based on findings of late returns of Title IV Program funds in the annual Title IV compliance audits submitted to the DOE for the fiscal year endedDecember 31, 2016. Our Iselin institution provided evidence demonstrating that only 3% of the Title IV Program funds returned were late. However, theDOE concluded that a letter of credit would nevertheless be required for each institution because the regulatory auditor included a finding that there was amaterial weakness in our report on internal controls relating to return of unearned Title IV Program funds. We disagree with the regulatory auditor’sconclusion that a material weakness could exist if the error rate in the expanded audit sample is only 3% or approximately $20,000 and we believe that theregulatory auditor’s conclusion is erroneous. We requested the DOE to reconsider the letter of credit requirement. However, by letter dated February 7, 2018,DOE maintained that the refund letters of credit were necessary but agreed that the amount of each letter of credit could be based on the returns that wererequired to be made by each institution in the 2017 fiscal year rather than the 2016 fiscal year. Accordingly, we submitted letters of credit in the amounts of$0.5 million and $0.1 million to the DOE by the February 23, 2018 deadline and expect that these letters of credit will remain in place for a minimum of twoyears. 3.WEIGHTED AVERAGE COMMON SHARESThe weighted average number of common shares used to compute basic and diluted income per share for the years ended December 31, 2017, 2016 and 2015,respectively were as follows: Year Ended December 31, 2017 2016 2015 Basic shares outstanding 23,906,395 23,453,427 23,166,977 Dilutive effect of stock options - - - Diluted shares outstanding 23,906,395 23,453,427 23,166,977 For the years ended December 31, 2017, 2016 and 2015, options to acquire 570,306; 773,078; and 119,722 shares, respectively, were excluded from theabove table because the Company reported a net loss for the year and therefore their impact on reported loss per share would have been antidilutive. For theyears ended December 31, 2017, 2016 and 2015, options to acquire 167,667; 218,167; and 391,935 shares; respectively, were excluded from the above tablebecause they have an exercise price that is greater than the average market price of the Company’s common stock and, therefore, their impact on reported lossper share would have been antidilutive.F-17Index4.GOODWILL AND OTHER INTANGIBLESChanges in the carrying amount of goodwill during the years ended December 31, 2017 and 2016 are as follows: Gross GoodwillBalance Accumulated ImpairmentLosses NetGoodwill Balance Balance as of January 1, 2016 $117,176 $93,881 $23,295 Impairment - 8,759 8,759 Balance as of December 31, 2016 117,176 102,640 14,536 Adjustments - - - Balance as of December 31, 2017 $117,176 $102,640 $14,536 As of December 31, 2017 and 2016 the goodwill balance of $14.5 million is related to the Transportation and Skilled Trades segment.Intangible assets, which are included in other assets in the accompanying consolidated balance sheets, consisted of the following: Curriculum Total Gross carrying amount at January 1, 2017 $160 $160 Additions - - Gross carrying amount at December 31, 2017 160 160 Accumulated amortization at January 1, 2017 128 128 Amortization 16 16 Accumulated amortization at December 31, 2017 144 144 Net carrying amount at December 31, 2017 $16 $16 Weighted average amortization period (years) 10 Trade Name Curriculum Total Gross carrying amount at January 1, 2016 $310 $160 $470 Additions - - - Gross carrying amount at December 31, 2016 310 160 470 Accumulated amortization at January 1, 2016 308 112 420 Amortization 2 16 18 Accumulated amortization at December 31, 2016 310 128 438 Net carrying amount at December 31, 2016 $- $32 $32 Weighted average amortization period (years) 7 10 Amortization of intangible assets for the years ended December 31, 2017, 2016 and 2015 was less than $0.1 million for each of the three years, respectively. F-18IndexThe following table summarizes the estimated future amortization expense:Year Ending December 31, 2018 $16 5.PROPERTY, EQUIPMENT AND FACILITIESProperty, equipment and facilities consist of the following: Useful life (years) At December 31, 2017 2016 Land - $6,969 $6,969 Buildings and improvements 1-25 127,027 124,826 Equipment, furniture and fixtures 1-7 81,772 79,029 Vehicles 3 883 848 Construction in progress - 161 925 216,812 212,597 Less accumulated depreciation and amortization (163,946) (157,152) $52,866 $55,445 Depreciation and amortization expense of property, equipment and facilities was $8.7 million, $11.0 million and $10.2 million for the years ended December31, 2017, 2016 and 2015, respectively.As discussed in Note 1, the Company sold two real properties in West Palm Beach, Florida in 2017 and the Company has been making efforts to sell itsremaining Mangonia Park Palm Beach County, Florida property and associated assets originally operated in the HOPS segment, which has been classified asheld for sale.6.ACCRUED EXPENSESAccrued expenses consist of the following: At December 31, 2017 2016 Accrued compensation and benefits $3,114 $7,571 Accrued rent and real estate taxes 3,151 3,365 Other accrued expenses 5,506 4,432 $11,771 $15,368 7. LONG-TERM DEBTLong-term debt consist of the following: At December 31, 2017 2016 Credit agreement $53,400 $- Term loan - 44,267 Deferred financing fees (807) (2,310) 52,593 41,957 Less current maturities - (11,713) $52,593 $30,244 F-19IndexOn March 31, 2017, the Company entered into a secured revolving credit agreement (the “Credit Agreement”) with Sterling National Bank (the “Bank”)pursuant to which the Company obtained a credit facility in the aggregate principal amount of up to $55 million (the “Credit Facility”). The Credit Facilityconsists of (a) a $30 million loan facility (“Facility 1”), which is comprised of a $25 million revolving loan designated as “Tranche A” and a $5 million non-revolving loan designated as “Tranche B,” which Tranche B was repaid during the quarter ended June 30, 2017 and (b) a $25 million revolving loan facility(“Facility 2”), which includes a sublimit amount for letters of credit of $10 million. The Credit Agreement was subsequently amended, on November 29,2017, to provide the Company with an additional $15 million revolving credit loan (“Facility 3”), resulting in an increase in the aggregate availability underthe Credit Facility to $65 million. The Credit Agreement was again amended on February 23, 2018, to, among other things, effect certain modifications tothe financial covenants and other provisions of the Credit Agreement and to allow the Company to pursue the sale of certain real property assets. TheFebruary 23, 2018 amendment increased the interest rate for borrowings under Tranche A of Facility 1 to a rate per annum equal to the greater of (x) theBank’s prime rate plus 2.85% and (y) 6.00%. Prior to the most recent amendment of the Credit Agreement, revolving loans outstanding under Tranche A ofFacility 1 bore interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.50% and (y) 6.00%.The Credit Facility replaces a term loan facility (the “Prior Credit Facility”) which was repaid and terminated concurrently with the effectiveness of the CreditFacility. The term of the Credit Facility is 38 months, maturing on May 31, 2020, except that the term Facility 3 will mature one year earlier, on May 31,2019. The Credit Facility is secured by a first priority lien in favor of the Bank on substantially all of the personal property owned by the Company as well asmortgages on four parcels of real property owned by the Company in Colorado, Tennessee and Texas at which three of the Company’s schools are located, aswell as a former school property owned by the Company located in Connecticut.At the closing of the Credit Facility, the Company drew $25 million under Tranche A of Facility 1, which, pursuant to the terms of the Credit Agreement, wasused to repay the Prior Credit Facility and to pay transaction costs associated with closing the Credit Facility. After the disbursements of such amounts, theCompany retained approximately $1.8 million of the borrowed amount for working capital purposes.Also, at closing, $5 million was drawn under Tranche B and, pursuant to the terms of the Credit Agreement, was deposited into an interest-bearing pledgedaccount (the “Pledged Account”) in the name of the Company maintained at the Bank in order to secure payment obligations of the Company with respect tothe costs of remediation of any environmental contamination discovered at certain of the mortgaged properties based upon environmental studies undertakenat such properties. During the quarter ended June 30, 2017, the environmental studies were completed and revealed no environmental issues existing at theproperties. Accordingly, pursuant to the terms of the Credit Agreement, the $5 million in the Pledged Account was released and used to repay the non-revolving loan outstanding under Tranche B. Upon the repayment of Tranche B, the maximum principal amount of Facility 1 was permanently reduced to$25 million.Pursuant to the terms of the Credit Agreement, all draws under Facility 2 for letters of credit or revolving loans and all draws under Facility 3 must be securedby cash collateral in an amount equal to 100% of the aggregate stated amount of the letters of credit issued and revolving loans outstanding through drawsfrom Facility 1 or other available cash of the Company.Accrued interest on each revolving loan will be payable monthly in arrears. Revolving loans under Tranche A of Facility 1 will bear interest at a rate perannum equal to the greater of (x) the Bank’s prime rate plus 2.85% and (y) 6.00%. Prior to the February 23, 2018 amendment of the Credit Agreement, the perannum interest rate for revolving loans outstanding under Tranche A of Facility 1 was equal to the greater of (x) the Bank’s prime rate plus 2.50% and (y)6.00%. The amount borrowed under Tranche B of Facility 1 and revolving loans under Facility 2 and Facility 3 will bear interest at a rate per annum equal tothe greater of (x) the Bank’s prime rate and (y) 3.50%.Each issuance of a letter of credit under Facility 2 will require the payment of a letter of credit fee to the Bank equal to a rate per annum of 1.75% on the dailyamount available to be drawn under the letter of credit, which fee shall be payable in quarterly installments in arrears. Letters of credit totaling $6.2 millionthat were outstanding under a $9.5 million letter of credit facility previously provided to the Company by the Bank, which letter of credit facility was set tomature on April 1, 2017, are treated as letters of credit under Facility 2. The terms of the Credit Agreement provide that the Bank be paid an unused facility fee on the average daily unused balance of Facility 1 at a rate per annumequal to 0.50%, which fee is payable quarterly in arrears. In addition, the Company is required to maintain, on deposit in one or more non-interest bearingaccounts, a minimum of $5 million in quarterly average aggregate balances. If in any quarter the required average aggregate account balance is notmaintained, the Company is required to pay the Bank a fee of $12,500 for that quarter and, in the event that the Company terminates the Credit Facility orrefinances with another lender within 18 months of closing, the Company is required to pay the Bank a breakage fee of $500,000.In addition to the foregoing, the Credit Agreement contains customary representations, warranties and affirmative and negative covenants, includingfinancial covenants that restrict capital expenditures, prohibit the incurrence of a net loss commencing on December 31, 2018 and require a minimumadjusted EBITDA and a minimum tangible net worth, which is an annual covenant, as well as events of default customary for facilities of this type. As ofDecember 31, 2017, the Company is in compliance with all covenants.In connection with the Credit Agreement, the Company paid the Bank an origination fee in the amount of $250,000 and other fees and reimbursements thatare customary for facilities of this type. In connection with the February 23, 2018 amendment of the Credit Agreement, the Company paid to the Bank amodification fee in the amount of $50,000.The Company incurred an early termination premium of approximately $1.8 million in connection with the termination of the Prior Credit Facility. F-20IndexOn April 28, 2017, the Company entered into an additional secured credit agreement with the Bank, pursuant to which the Company obtained a short termloan in the principal amount of $8 million, the proceeds of which were used for working capital and general corporate purposes. The loan, which had aninterest rate equal to the greater of the Bank’s prime rate plus 2.50% or 6.00%, was secured by two real property assets located in West Palm Beach, Florida atwhich schools operated by the Company were located and matured upon the earlier of October 1, 2017 and the date of the sale of the West Palm Beach,Florida property. The Company sold the two properties located in West Palm Beach, Florida to Tambone Companies, LLC in the third quarter of 2017 andsubsequently repaid the $8 million.As of December 31, 2017, the Company had $53.4 million outstanding under the Credit Facility; offset by $0.8 million of deferred finance fees. As ofDecember 31, 2016, the Company had $44.3 million outstanding under the Prior Credit Facility; offset by $2.3 million of deferred finance fees, which werewritten-off. As of December 31, 2017 and December 31, 2016, there were letters of credit in the aggregate outstanding principal amount of $7.2 million and$6.2 million, respectively.Scheduled maturities of long-term debt at December 31, 2017 are as follows:Year ending December 31, 2018 $- 2019 - 2020 53,400 2021 - 2022 - Thereafter - $53,400 8.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.On May 13, 2016, performance-based shares were granted which vest over two years on March 15, 2017 and March 15, 2018 based upon the attainment of afinancial responsibility ratio during each fiscal year ending December 31, 2016 and 2017. As of December 31, 2017 half of the shares have vested as thevesting criteria was achieved. There is no restriction on the right to vote or the right to receive dividends with respect to any of the restricted shares.On December 18, 2014, performance-based shares were granted which vest over four years based upon the attainment of (i) a specified operating incomemargin during any one or more of the fiscal years in the period beginning January 1, 2015 and ending December 31, 2018 and (ii) the attainment of earningsbefore interest, taxes, depreciation and amortization targets during each of the fiscal years ended December 31, 2015 through 2018. As of December 31, 2017half of the shares have vested as the vesting criteria was achieved. There is no restriction on the right to vote or the right to receive dividends with respect toany 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. There is no restriction on the right to vote or the right to receive dividends with respect to any of the restricted shares.In 2017, 2016 and 2015, the Company completed a net share settlement for 189,420, 71,805 and 85,740 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 2017, 2016 and/or 2015, 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 shares acquired upon theexercise of stock options to the Company. These transactions resulted in a decrease of approximately $0.4 million, $0.2 million and $0.2 million in 2017,2016 and 2015, respectively, to equity as the cash payment of the taxes effectively was a repurchase of the restricted shares or shares acquired through theexercise of stock options granted in previous years. F-21IndexThe following is a summary of transactions pertaining to restricted stock: Shares WeightedAverage GrantDate Fair ValuePer Share Nonvested restricted stock outstanding at December 31, 2015 450,494 $3.69 Granted 1,105,487 1.67 Cancelled (76,200) 2.98 Vested (336,182) 3.33 Nonvested restricted stock outstanding at December 31, 2016 1,143,599 1.89 Granted 181,208 2.58 Cancelled (52,398) 5.63 Vested (664,415) 1.77 Nonvested restricted stock outstanding at December 31, 2017 607,994 1.90 The restricted stock expense for each of the years ended December 31, 2017, 2016 and 2015 was $1.2 million, $1.4 million and $1.1 million, respectively.The unrecognized restricted stock expense as of December 31, 2017 and 2016 was $0.3 million and $1.5 million, respectively. As of December 31, 2017,unrecognized restricted stock expense will be expensed over the weighted-average period of approximately 3 months. As of December 31, 2017, outstandingrestricted shares under the LTIP had an aggregate intrinsic value of $1.2 million. For the year ended December 31, 2017 and 2016, respectively, 52,398 and26,200 shares were cancelled as the performance criteria was not met. Stock OptionsDuring 2017, 2016 and 2015 there were no new stock option grants. The following is a summary of transactions pertaining to the option plans: Shares Weighted AverageExercise Price Per Share WeightedAverage RemainingContractualTerm Aggregate Intrinsic Value Outstanding January 1, 2015 424,167 $13.65 4.18 years $- Cancelled (178,000) 15.20 - Outstanding December 31, 2015 246,167 12.52 3.98 years - Cancelled (28,000) 15.76 - Outstanding December 31, 2016 218,167 12.11 3.33 years - Cancelled (50,500) 12.09 Outstanding December 31, 2017 167,667 12.11 2.97 years - Vested as of December 31, 2017 167,667 12.11 2.97 years - Exercisable as of December 31, 2017 167,667 12.11 2.97 years - As of December 31, 2017, there are no unrecognized pre-tax compensation expense for unvested stock option awards.The following table presents a summary of options outstanding at December 31, 2017: At December 31, 2017 Stock Options Outstanding Stock Options Exercisable Range of Exercise Prices Shares ContractualWeightedAverage life (years) WeightedAverage ExercisePrice Shares WeightedAverage ExercisePrice $4.00-$13.99 119,667 3.22 $8.79 119,667 $8.79 $14.00-$19.99 17,000 1.84 19.98 17,000 19.98 $20.00-$25.00 31,000 2.59 20.62 31,000 20.62 167,667 2.97 12.11 167,667 12.11 F-22Index9.PENSION PLANThe 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, 2017 2016 2015 CHANGES IN BENEFIT OBLIGATIONS: Benefit obligation-beginning of year $22,916 $23,341 $24,299 Service cost 29 28 28 Interest cost 840 888 884 Actuarial loss (gain) 721 (255) (782)Benefits paid (1,014) (1,086) (1,088)Benefit obligation at end of year 23,492 22,916 23,341 CHANGE IN PLAN ASSETS: Fair value of plan assets-beginning of year 17,548 17,792 19,000 Actual return on plan assets 2,521 842 (120)Benefits paid (1,014) (1,086) (1,088)Fair value of plan assets-end of year 19,055 17,548 17,792 BENEFIT OBLIGATION IN EXCESS OF FAIR VALUE FUNDED STATUS: $(4,437) $(5,368) $(5,549)For the year ended December 31, 2017, the actuarial loss of $0.7 million was due to the decrease in the discount rate from 3.81% to 3.36%.Amounts recognized in the consolidated balance sheets consist of: At December 31, 2017 2016 2015 Noncurrent liabilities $(4,437) $(5,368) $(5,549)Amounts recognized in accumulated other comprehensive loss consist of: Year Ended December 31, 2017 2016 2015 Accumulated loss $(6,876) $(8,467) $(9,438)Deferred income taxes 2,366 2,366 2,366 Accumulated other comprehensive loss $(4,510) $(6,101) $(7,072)The accumulated benefit obligation was $23.5 million and $22.9 million at December 31, 2017 and 2016, respectively.The following table provides the components of net periodic cost for the plan: Year Ended December 31, 2017 2016 2015 COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $29 $28 $28 Interest cost 840 888 884 Expected return on plan assets (1,058) (1,118) (1,243)Recognized net actuarial loss 850 991 976 Net periodic benefit cost $661 $789 $645 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 $0.7 million. F-23IndexThe following tables present plan assets using the fair value hierarchy as of December 31, 2017 and 2016. 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.Quoted Prices inActive Markets for IdenticalAssets(Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservableInputs(Level 3) TotalEquity securities$6,856$-$-$6,856 Fixed income 6,818 - - 6,818 International equities 3,490 - - 3,490 Real estate 1,133 - - 1,133 Cash and equivalents 758 - - 758 Balance at December 31, 2017$19,055 $- $- $19,055 Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservableInputs(Level 3) Total Equity securities$8,509$-$-$8,509 Fixed income 6,548 - - 6,548 International equities 2,484 - - 2,484 Cash and equivalents 7 - - 7 Balance at December 31, 2016$17,548 $- $- $17,548 Fair value of total plan assets by major asset category as of December 31: 2017 2016 2015 Equity securities 36% 49% 48%Fixed income 36% 37% 33%International equities 18% 14% 19%Real estate 6% 0% 0%Cash and equivalents 4% 0% 0%Total 100% 100% 100%Weighted-average assumptions used to determine benefit obligations as of December 31: 2017 2016 2015 Discount rate 3.36% 3.81% 3.94%Rate of compensation increase 2.50% 2.50% 2.50%Weighted-average assumptions used to determine net periodic pension cost for years ended December 31: 2017 2016 2015 Discount rate 3.36% 3.81% 3.94%Rate of compensation increase 2.50% 2.50% 2.50%Long-term rate of return 6.00% 6.25% 6.50%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. F-24IndexThe 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 2018. 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 zero for the each of the years ended December 31, 2017 and 2016,respectively.Information about the expected benefit payments for the plan is as follows:Year Ending December 31, 2018 $1,303 2019 1,334 2020 1,347 2021 1,364 2022 1,381 Years 2023-2027 6,969 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 may contribute up to an additional 30% of the employee's contributed amount up to 6% of compensation. For the years ended December 31,2017, 2016 and 2015, the Company's expense for the 401(k) plan amounted to $0.1 million, $0.7 million and $0.7 million, respectively.10.INCOME TAXESComponents of the provision for income taxes were as follows: Year Ended December 31, 2017 2016 2015 Current: Federal $- $- $- State 150 200 242 Total 150 200 242 Deferred: Federal (424) - - State - - - Total (424) - - Total (benefit) provision $(274) $200 $242 F-25IndexThe components of the deferred tax assets are as follows: At December 31, 2017 2016 Noncurrent deferred tax assets (liabilities) Allowance for bad debts $3,792 $5,904 Accrued rent 1,723 3,191 Accrued bonus - 1,429 Accrued benefits 105 198 Stock-based compensation 387 557 Depreciation 15,520 20,372 Goodwill 594 1,959 Other intangibles 291 562 Pension plan liabilities 1,221 2,142 Net operating loss carryforwards 17,367 17,846 AMT credit 424 424 Total noncurrent deferred tax assets 41,424 54,584 Less valuation allowance (41,000) (54,584)Noncurrent deferred tax assets, net of valuation allowance $424 $- 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.On 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, 2017 and 2016, the Company has recorded a valuation allowance of $41.0 million and $54.6 million, respectively, against its net deferred tax assets. On December 22, 2017, the U.S. government enacted comprehensive tax legislation known as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Actestablishes new tax laws that will take effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35%to 21%; (2) elimination of the corporate alternative minimum tax (AMT); (3) a new limitation on deductible interest expense; (4) the repeal of the domesticproduction activity deduction; (5) limitations on the deductibility of certain executive compensation; and (6) limitations on net operating losses (NOLs)generated after December 31, 2017, to 80% of taxable income. In addition, certain changes were made to the bonus depreciation rules that will impact 2017.ASC 740, Income Taxes requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. However, due to thecomplexity and significance of the Tax Act's provisions, the SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance onaccounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactmentdate for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspectsof the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Actis incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannotdetermine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax lawsthat were in effect immediately before the enactment of the Tax Act.At December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the Tax Act; however, the Company has made areasonable estimate of the effects of the Tax Act’s change in the federal rate and revalued its deferred tax assets based on the rates at which they are expectedto reverse in the future, which is generally the new 21% federal corporate tax rate plus applicable state tax rate. Based on the Company’s initial analysis ofthe impact, it consequently recorded a decrease related to deferred tax assets of $17.7 million. The expense is offset with a corresponding release of valuationallowance. The Tax Act eliminates the corporate AMT and changes how existing corporate AMT credits can be realized either to offset regular tax liability or to berefunded. As a result of this change, the Company released the valuation allowance against corporate AMT credits deferred tax asset and recorded a deferredtax provision benefit of $0.4 million. Offsetting this benefit was $0.1 million of income tax expense from various minimal state tax expenses.The Tax Act did not have a material impact on our financial statements because we are under a full valuation allowance and we do not have any significantoffshore earnings from which to record the mandatory transition tax.The Tax Act requires the Company to assess whether its valuation allowance analyses are affected by various aspects of the Tax Act. Since, as discussedherein, we have recorded provisional amounts related to certain portions of the Tax Act, any corresponding determination of the need for or change in avaluation allowance is also provisional. The Company’s valuation allowance position did not change as a result of tax reform except for AMT credits whichis discussed above and a reduction related to the change in the deferred tax rate.F-26IndexThe 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, 2017 2016 2015 Loss before taxes $(11,758) $(28,104) $(3,108) Expected tax benefit $(4,115) 35.0% $(9,836) 35.0% $1,088 35.0%State tax benefit (net of federal) 150 (1.3) 200 (0.7) 242 7.8 Valuation allowance (13,920) 118.4 9,726 (34.6) (1,228) (39.5)Federal tax reform - deferred rate change 17,671 (150.3) - - - - Other (60) 0.5 110 (0.4) 140 4.5 Total $(274) 2.3% $200 -0.7% $242 7.8% As of December 31, 2017 and 2016, the Company has net operating loss (“NOL”) carryforwards of $57.7 million and $39.7 million, respectively, which, ifunused, will expire beginning in 2028 and ending in 2037. Utilization of the NOL carryforwards may be subject to a substantial limitation due to ownershipchange limitations that may occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similarstate and foreign provisions. These ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offsetfuture taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series oftransactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certainstockholders or public groups. As of December 31, 2017, 2016 and 2015, the Company no longer has any liability for uncertain tax positions.The Company recognizes accrued interest and penalties related to uncertain tax positions in income tax expense.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 2015 and, generally, is no longer subject to state and local income tax examinations by tax authorities foryears before 2012. F-27Index11.FAIR VALUEThe carrying amount and estimated fair value of the Company’s financial instrument assets and liabilities, which are not measured at fair value on theConsolidated Balance Sheets, are listed in the table below: December 31, 2017 Carrying Quoted Pricesin ActiveMarkets forIdenticalAssets SignificantOtherObservableInputs Significant Unobservable Inputs Amount (Level 1) (Level 2) (Level 3) Total Financial Assets: Cash and cash equivalents $14,563 $14,563 $- $- $14,563 Restricted cash 39,991 39,991 - - 39,991 Prepaid expenses and other current assets 2,352 - 2,352 - 2,352 Financial Liabilities: Accrued expenses $11,771 $- $11,771 $- $11,771 Other short term liabilities 558 - 558 - 558 Credit facility 52,593 - 47,200 - 47,200 December 31, 2016 Carrying Quoted Pricesin ActiveMarkets forIdenticalAssets SignificantOtherObservableInputs Significant Unobservable Inputs Amount (Level 1) (Level 2) (Level 3) Total Financial Assets: Cash and cash equivalents $21,064 $21,064 $- $- $21,064 Restricted cash 6,399 6,399 - - 6,399 Prepaid expenses and other current assets 2,434 - 2,434 - 2,434 Noncurrent restricted cash 20,252 20,252 - - 20,252 Financial Liabilities: Accrued expenses $12,815 $- $12,815 $- $12,815 Other short term liabilities 653 - 653 - 653 Term loan 44,267 - 40,687 - 40,687 We estimate fair value of Facility 1 of the revolving credit facility based on a present value analysis utilizing aggregate market yields obtained fromindependent pricing sources for similar financial instruments. The carrying value for Facility 2 and Facility 3 of the revolving credit facility approximates fairvalue due to the fact that the borrowings were made in close proximity to December 31, 2017. The fair value of the revolving credit facility approximates the carrying amount at December 31, 2017 as the instrument had variable interest rates thatreflected current market rates available to the Company. In addition, the Company recently amended the credit facility and, in connection therewith, theinterest rates increased slightly.The fair value of the Term loan is estimated based on a present value analysis utilizing aggregate market yields obtained from independent pricing sourcesfor similar financial instruments.The carrying amounts reported on the Consolidated Balance Sheets for Cash and cash equivalents, Restricted cash and Noncurrent restricted cashapproximate fair value because they are highly liquid.The carrying amounts reported on the Consolidated Balance Sheets for Prepaid expenses and Other current assets, Accrued expenses and Other short termliabilities approximate fair value due to the short-term nature of these items.12.SEGMENT REPORTINGThe for-profit education industry has been impacted by numerous regulatory changes, the changing economy and an onslaught of negative media attention.As a result of these challenges, student populations have declined and operating costs have increased. Over the past few years, the Company has closed overten locations and exited its online business. In 2016, the Company ceased operations in Hartford, Connecticut; Fern Park, Florida; and Henderson (GreenValley), Nevada. In 2017, the Company completed the teach-outs of its Center City Philadelphia, Pennsylvania; Northeast Philadelphia, Pennsylvania; WestPalm Beach, Florida; Brockton, Massachusetts and Lowell, Massachusetts schools. All of these schools were previously included in our HOPS segment andare included in the Transitional segment as of December 31, 2017. F-28IndexIn the past, we offered any combination of programs at any campus. We have shifted our focus to program offerings that create greater differentiation amongcampuses and promote attainment of excellence to attract more students and gain market share. Also, strategically, we began offering continuing educationtraining to select employers who hire our graduates and this is best achieved at campuses focused on the applicable profession.As a result of the regulatory environment, market forces and our strategic decisions, we now operate our business in three reportable segments: (a) theTransportation and Skilled Trades segment; (b) the Healthcare and Other Professions segment; and (c) the Transitional segment.Our reportable segments have been determined based on a method by which we now evaluate performance and allocate resources. Each reportable segmentrepresents a group of post-secondary education providers that offer a variety of degree and non-degree academic programs. These segments are organized bykey market segments to enhance operational alignment within each segment to more effectively execute our strategic plan. Each of the Company’s schools isa reporting unit and an operating segment. Our operating segments are described below.Transportation and Skilled Trades – The Transportation and Skilled Trades segment offers academic programs mainly in the career-oriented disciplines oftransportation and skilled trades (e.g. automotive, diesel, HVAC, welding and manufacturing).Healthcare and Other Professions – The Healthcare and Other Professions segment offers academic programs in the career-oriented disciplines of healthsciences, hospitality and business and information technology (e.g. dental assistant, medical assistant, practical nursing, culinary arts and cosmetology).Transitional – The Transitional segment refers to campuses that are being taught-out and closed and operations that are being phased out. The schools in theTransitional segment employ a gradual teach-out process that enables the schools to continue to operate to allow their current students to complete theircourse of study. These schools are no longer enrolling new students.The Company continually evaluates each campus for profitability, earning potential, and customer satisfaction. This evaluation takes several factors intoconsideration, including the campus’s geographic location and program offerings, as well as skillsets required of our students by their potential employers. The purpose of this evaluation is to ensure that our programs provide our students with the best possible opportunity to succeed in the marketplace with thegoals of attracting more students to our programs and, ultimately, to provide our shareholders with the maximum return on their investment. Campuses in theTransitional segment have been subject to this process and have been strategically identified for closure.We evaluate segment performance based on operating results. Adjustments to reconcile segment results to consolidated results are included under thecaption “Corporate,” which primarily includes unallocated corporate activity.Summary financial information by reporting segment is as follows: For the Year Ended December 31, Revenue Operating (Loss) Income 2017 % of Total 2016 % ofTotal 2015 % ofTotal 2017 2016 2015 Transportationand SkilledTrades $177,099 67.6% $177,883 62.3% $183,822 60.1% $17,861 $21,278 $26,777 Healthcare andOtherProfessions 76,310 29.1% 77,152 27.0% 79,978 26.1% 2,318 (10,917) 5,386 Transitional 8,444 3.3% 30,524 10.7% 42,302 13.8% (5,379) (15,170) (7,543)Corporate - 0.0% - 0.0% - 0.0% (19,516) (24,105) (23,916)Total $261,853 100% $285,559 100% $306,102 100% $(4,716) $(28,914) $704 Total Assets December 31, 2017 December 31, 2016 Transportation and Skilled Trades $81,523 $83,320 Healthcare and Other Professions 9,373 7,506 Transitional 3,965 18,874 Corporate 60,352 53,507 Total $155,213 $163,207 F-29Year Ending December 31, Operating Leases 2018 $19,347 2019 16,608 2020 12,386 2021 8,185 2022 6,022 Thereafter 15,860 78,408 Less amount representing interest - $78,408 Index13.COMMITMENTS AND CONTINGENCIESLease Commitments—The Company leases office premises, educational facilities and various equipment for varying periods through the year 2030 at basicannual rentals (excluding taxes, insurance, and other expenses under certain leases) as follows: Rent expense, included in operating expenses in the accompanying consolidated statements of operations for the three years ended December 31, 2017, 2016and 2015 is $17.4 million, $20.7 million and $18.7 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.Student Loans—At December 31, 2017, the Company had outstanding net loan commitments to its students to assist them in financing their education ofapproximately $38.5 million, net of interest.Vendor Relationship—The Company is party to an agreement with Matco Tools (“Matco”), which expires on July 31, 2019. The Company has agreed togrant Matco exclusive access to 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 which are redeemable 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 expires on December 31, 2018. The Company has agreed to grant Snap-on exclusive rights to one automotive campus to display advertising and supply certain tools. The Company earns credits that are redeemable for certaintools and equipment based on the sales to students and to the Company. Executive 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 $3.4 million at December 31, 2017. 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, theCompany’s campuses are required to be authorized by the applicable state education agencies of certain other states in which the campuses recruit students.The Company is required to post surety bonds on behalf of its campuses and education representatives with multiple states to maintain authorization toconduct its business. At December 31, 2017, the Company has posted surety bonds in the total amount of approximately $12.7 million.14.RELATED PARTYThe Company has an agreement with Matco Tools, whereby Matco will provide to the Company, on an advance commission basis, credits in Matco-brandedtools, tool storage, equipment, and diagnostics products. The chief executive officer of the parent company of Matco is considered an immediate familymember of one of the Company’s board members. The amount of the Company’s purchases from this third party were $2.4 million and $1.0 million for theyear ended December 31, 2017 and 2016, respectively. Management believes that its agreement with Matco is an arm’s length transaction and on similarterms as would have been obtained from unaffiliated third parties.F-30Index15. UNAUDITED QUARTERLY FINANCIAL INFORMATIONThe following tables have been updated to reflect changes in discontinued operations. Quarterly financial information for 2017 and 2016 is as follows: Quarter 2017 First Second Third Fourth Revenue $65,279 $61,865 $67,308 $67,401 Net (loss) income (10,929) (6,771) (1,490) 7,707 Basic Net (loss) earnings per share $(0.46) $(0.28) $(0.06) $0.32 Diluted Net (loss) earnings per share $(0.46) $(0.28) $(0.06) $0.31 Weighted average number of common shares outstanding: Basic 23,609 23,962 24,024 24,025 Diluted 23,609 23,962 24,024 24,590 Quarter 2016 First Second Third Fourth Revenue $70,644 $68,080 $74,267 $72,568 Net loss (6,068) (3,138) (471) (18,628)Basic Net loss per share $(0.26) $(0.13) $(0.02) $(0.79)Diluted Net loss per share $(0.26) $(0.13) $(0.02) $(0.79) Weighted average number of common shares outstanding: Basic 23,351 23,448 23,499 23,514 Diluted 23,351 23,448 23,499 23,514 F-31IndexLINCOLN EDUCATIONAL SERVICES CORPORATIONSchedule II—Valuation and Qualifying Accounts(in thousands)Description Balance atBeginning of Period Charged toExpense Accounts Written-off Balance at End ofPeriod Allowance accounts for the year ended: December 31, 2017 Student receivable allowance $14,794 $13,720 $(14,730) $13,784 December 31, 2016 Student receivable allowance $14,074 $14,592 $(13,872) $14,794 December 31, 2015 Student receivable allowance $14,849 $13,583 $(14,358) $14,074 F-32IndexExhibit IndexExhibitNumber Description 2.1Purchase and Sale Agreement, dated March 14, 2017, between New England Institute of Technology at Palm Beach, Inc. and TamboneCompanies, LLC, as amended by First Amendment to Purchase and Sale Agreement dated as of April 18, 2017, and as further amended bySecond Amendment to Purchase and Sale Agreement dated as of May 12, 2017 (1). 3.1Amended and Restated Certificate of Incorporation of the Company (2). 3.2By-laws of the Company (3). 4.1Management 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 (4). 4.2Assumption 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 (5). 4.3Registration Rights Agreement, dated as of June 27, 2005, between the Company and Back to School Acquisition, L.L.C. (3). 4.4Specimen Stock Certificate evidencing shares of common stock (6). 10.1Credit Agreement, dated as of July 31, 2015, among Lincoln Educational Services Corporation and its wholly-owned subsidiaries, theLenders and Collateral Agents party thereto, and HPF Service, LLC, as Administrative Agent (7). 10.2First Amendment to Credit Agreement, dated as of December 31, 2015, among Lincoln Educational Services Corporation and its wholly-owned subsidiaries, the Lenders and Collateral Agents party thereto, and HPF Service, LLC, as Administrative Agent (8). 10.3Second Amendment to Credit Agreement, dated as of February 29, 2016, among Lincoln Educational Services Corporation and its wholly-owned subsidiaries, the Lenders party thereto, and HPF Service, LLC, as Administrative Agent and Tranche A Collateral Agent (9). 10.4Credit Agreement, dated as of April 12, 2016, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and SterlingNational Bank (10). 10.5Credit Agreement, dated as of March 31, 2017, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and SterlingNational Bank (11). 10.6Credit Agreement, dated as of April 28, 2017, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and SterlingNational Bank (12). 10.7First Amendment to Credit Agreement, dated as of November 29, 2017, among the Company, Lincoln Technical Institute, Inc. and itssubsidiaries, and Sterling National Bank (13) 10.8Second Amendment to Credit Agreement, dated as of February 23, 2018, among the Company, Lincoln Technical Institute, Inc. and itssubsidiaries, and Sterling National Bank (26) 10.9Purchase and Sale Agreement, dated as of July 1, 2016, between New England Institute of Technology at Palm Beach, Inc. and SchoolProperty Development Metrocentre, LLC (14). 10.10Employment Agreement, dated as of August 23, 2016, between the Company and Scott M. Shaw (15) 10.11Employment Agreement, dated as of November 8, 2017, between the Company and Scott M. Shaw (16). 10.12Separation and Release Agreement, dated as of January 15, 2016, between the Company and Kenneth M. Swisstack (17). 10.13Employment Agreement, dated as of August 23, 2016, between the Company and Brian K. Meyers (15). Index10.14Employment Agreement, dated as of November 8, 2017, between the Company and Brian K. Meyers (16). 10.15Change in Control Agreement, dated August 31, 2016, between the Company and Deborah Ramentol (18). 10.16Separation and Release Agreement, dated as of January 24, 2018, between the Company and Deborah Ramentol (19). 10.17Change in Control Agreement, dated as of November 8, 2017, between the Company and Deborah Ramentol (20). 10.18 Lincoln Educational Services Corporation Amended and Restated 2005 Long-Term Incentive Plan (21). 10.19Lincoln Educational Services Corporation Amended and Restated 2005 Non-Employee Directors Restricted Stock Plan (22). 10.20Lincoln Educational Services Corporation 2005 Deferred Compensation Plan (4). 10.21Lincoln Technical Institute Management Stock Option Plan, effective January 1, 2002 (4). 10.22Form of Stock Option Agreement, dated January 1, 2002, between Lincoln Technical Institute, Inc. and certain participants (4). 10.23Form of Stock Option Agreement under our 2005 Long-Term Incentive Plan (23). 10.24Form of Restricted Stock Agreement under our 2005 Long-Term Incentive Plan (24). 10.25Form of Performance-Based Restricted Stock Award Agreement under our Amended & Restated 2005 Long-Term Incentive Plan (25). 10.26Management Stock Subscription Agreement, dated January 1, 2002, among Lincoln Technical Institute, Inc. and certain managementinvestors (4). 21.1*Subsidiaries of the Company. 23*Consent of Independent Registered Public Accounting Firm. 24*Power of Attorney (included on the Signatures page of this Form 10-K). 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, 2017, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) ConsolidatedStatements of Cash Flows, (iv) Consolidated Statements of Comprehensive (Loss) Income, (v) Consolidated Statement of Changes inStockholders’ 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 Form 8-K filed August 16, 2017.(2)Incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 7, 2005.(3)Incorporated by reference to the Company’s Form 8-K filed June 28, 2005.(4)Incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration No. 333-123644) filed March 29, 2005.(5)Incorporated by reference to the Company’s Registration Statement on Form S-3 (Registration No. 333-148406) filed December 28, 2007. Index(6)Incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 21, 2005.(7)Incorporated by reference to the Company’s Form 8-K filed August 5, 2015.(8)Incorporated by reference to the Company’s Form 8-K filed January 7, 2016.(9)Incorporated by reference to the Company’s Form 8-K filed March 4, 2016.(10)Incorporated by reference to the Company’s Form 8-K filed April 18, 2016.(11)Incorporated by reference to the Company’s Form 8-K filed April 6, 2017.(12)Incorporated by reference to the Company’s Form 8-K filed May 4, 2017.(13)Incorporated by reference to the Company’s Form 8-K filed December 1, 2017.(14)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed August 9, 2016.(15)Incorporated by reference to the Company’s Form 8-K filed August 25, 2016.(16)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 13, 2017.(17)Incorporated by reference to the Company’s Form 8-K filed January 22, 2016.(18)Incorporated by reference to the Company’s Annual Report on Form 10-K filed March 10, 2017.(19)Incorporated by reference to the Company’s Form 8-K filed January 26, 2018.(20)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 13, 2017.(21)Incorporated by reference to the Company’s Form 8-K filed May 6, 2013.(22)Incorporated by reference to the Company’s Registration Statement on Form S-8 (Registration No. 333-211213) filed May 6, 2016.(23)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.(24)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.(25)Incorporated by reference to the Company’s Form 8-K filed May 5, 2011.(26)Incorporated by reference to the Company’s Form 8-K filed February 26, 2018.*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 1934 Exhibit 21.1 Subsidiaries of the Company The following is a list of Lincoln Educational Services Corporation’s subsidiaries as of December 31, 2017:\ 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 Nos. 333-148406 and 333-152854 on Form S-3 and 333-126066, 333-132749, 333-138715, 333-158923, 333-173880, 333-188240, 333-138715 “POS,” 333-203806 and 333-211213 on Form S-8 of our reports dated March 9, 2018, relatingto the consolidated financial statements and financial statement schedule of Lincoln Educational Services Corporation and subsidiaries’ and theeffectiveness of Lincoln Educational Services Corporation and subsidiaries’ internal control over financial reporting, appearing in this Annual Report onForm 10-K of Lincoln Educational Services Corporation, for the year ended December 31, 2017./s/ DELOITTE & TOUCHE LLP Parsippany, New JerseyMarch 9, 2018 EXHIBIT 31.1 CERTIFICATIONI, Scott Shaw, 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,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, 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 mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likelyto materially 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 (e)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 9, 2018 /s/ Scott Shaw Scott Shaw Chief Executive Officer EXHIBIT 31.2 CERTIFICATIONI, 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,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, 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 mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likelyto materially 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 9, 2018 /s/ Brian Meyers Brian Meyers Chief Financial Officer EXHIBIT 32CERTIFICATION Pursuant to 18 U.S.C. 1350 as adopted bySection 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned, Scott Shaw, Chief Executive Officer of Lincoln Educational Services Corporation (the “Company”), and Brian Meyers,Chief Financial Officer of the Company, has executed this certification in connection with the filing with the Securities and Exchange Commission of theCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (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 9, 2018 /s/ Scott Shaw Scott Shaw Chief Executive Officer /s/ Brian Meyers Brian Meyers Chief Financial Officer

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