Lincoln Educational Services Annual Report 2018

Plain-text annual report

U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549Form 10-K☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018Commission File Number 000-51371LINCOLN EDUCATIONAL SERVICES CORPORATION(Exact name of registrant as specified in its charter)New Jersey 57-1150621(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)200 Executive Drive, Suite 340West Orange, NJ 07052(Address of principal executive offices)(973) 736-9340(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered Common Stock, no par value per share The NASDAQ Stock Market LLC Securities 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 23,159,747 shares of common stock held by non-affiliates of the registrant issued and outstanding as of June 29, 2018, thelast business day of the registrant’s most recently completed second fiscal quarter, was $40,297,960. This amount is based on the closing price of the commonstock on the Nasdaq Global Select Market of $1.74 per share on that date. Shares of common stock held by executive officers and directors and persons whoown 5% or more of the outstanding common stock have been excluded since such persons may be deemed affiliates. This determination of affiliate status isnot a determination for any other purpose.The number of shares of the registrant’s common stock outstanding as of March 8, 2019 was 25,113,569.Documents Incorporated by ReferenceCertain information required in Part III of this Annual Report on Form 10-K will be included in a definitive proxy statement for the registrant’s annualmeeting of shareholders or an amendment to this Annual Report on Form 10-K, in either case filed with the Commission within 120 days after December 31,2018, and is incorporated by reference herein. LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESINDEX TO FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2018PART I. 1 ITEM 1.BUSINESS1 ITEM 1A.RISK FACTORS18 ITEM 1B.UNRESOLVED STAFF COMMENTS26 ITEM 2.PROPERTIES27 ITEM 3.LEGAL PROCEEDINGS27 ITEM 4.MINE SAFETY DISCLOSURES27 PART II. 27 ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES27 ITEM 6.SELECTED FINANCIAL DATA31 ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS32 ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK49 ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA49 ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE49 ITEM 9A.CONTROLS AND PROCEDURES49 ITEM 9B.OTHER INFORMATION50 PART III. 52 ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE52 ITEM 11.EXECUTIVE COMPENSATION52 ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS52 ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE52 ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES52 PART IV. 53 ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES53IndexForward-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 22 schools in 14 states,offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control and electrical and electronicsystems technology, among other programs), healthcare services (which include nursing, dental assistant and medical administrative assistant, among otherprograms), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and information technology (which consists ofinformation technology programs). The schools operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, andEuphoria Institute of Beauty Arts and Sciences and associated brand names. Most of the campuses serve major metropolitan markets and each typically offerscourses in multiple areas of study. Five of the campuses are destination schools, which attract students from across the United States and, in some cases, fromabroad. The Company’s other campuses primarily attract students from their local communities and surrounding areas. All of the campuses are nationally orregionally accredited and are eligible to participate in federal financial aid programs managed by the U.S. Department of Education (the “DOE”) andapplicable state education agencies and accrediting commissions, which allow students to apply for and access federal student loans as well as other forms offinancial aid. The Company was incorporated in New 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. As of December 31, 2018, we had 10,525 students enrolled at 22campuses. Our average enrollment for the year ended December 31, 2018 was 10,591 students which represented a decrease of 1.7% from average enrollmentin 2017. For the year ended December 31, 2018, our revenues were $263.2 million, which represented an increase of 0.5 % from the prior year. For moreinformation relating to our revenues, profits and financial condition, please refer to “Management’s Discussion and Analysis of Financial Condition andResults of Operations” and our consolidated financial statements included in this Annual 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. In addition, the SEC maintains an Internet site that contains reports, proxy andinformation statements and other information 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 existingareas of study and expand into new high-demand areas of study in the Transportation and Skilled Trades segment to capitalize on demand fromstudents and employers 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,the introduction of new programs and partnerships with industry.1Index·Expand Market. We believe that we can enter new markets and broaden the Lincoln brand by partnering with nationally recognized brands toprovide the skills needed to train our nation’s workforce. We continue to expand our industry relationships both to attract new students and to offerour graduates more employment opportunities. We continue to establish partnerships with companies like BMW, Chrysler (FCA), Hussmann,Volkswagen and Audi that will enable graduates to receive higher wages. We expect to continue investing in marketing, recruiting and retentionresources to increase enrollment.Programs and Areas of StudyWe structure our program offerings to provide our students with a practical, career-oriented education and position them for attractive entry-level jobopportunities in their chosen fields. Our diploma/certificate programs typically take between 19 to 136 weeks to complete, with tuition ranging from $7,000to $41,000. Our associate’s degree programs typically take between 64 to 98 weeks to complete, with tuition ranging from $26,000 to $37,000. As ofDecember 31, 2018, all of our schools offer diploma and certificate programs and nine of our schools are currently approved to offer associate’s degreeprograms. In order to accommodate the schedules of our students and maximize classroom utilization at some of our campuses, we typically offer coursesfour to five days a week in three shifts per day and start new classes every month. We update and expand our programs frequently to reflect the latesttechnological advances in the field, providing our students with the specific skills and knowledge required in the current marketplace. Classroom instructioncombines lectures and demonstrations by our experienced faculty with comprehensive hands-on laboratory exercises in simulated workplace environments.The following table lists the programs offered as of December 31, 2018:Current Programs OfferedArea of Study Associate's Degree Diploma and Certificate Automotive Automotive Service Management,Collision Repair & Refinishing ServiceManagement, Diesel & Truck ServiceManagement Automotive Mechanics, Automotive Technology, AutomotiveTechnology with Audi, Automotive Technology with BMWFastTrack, Automotive Technology with Mopar X-Press, AutomotiveTechnology with High Performance, Automotive Technology withVolkswagon, Collision Repair and Refinishing Technology, Diesel &Truck Mechanics, Diesel & Truck Technology, Diesel & TruckTechnology with Alternate Fuel Teechnology, Diesel & TruckTechnology with Transport Refrigeration, Diesel & Truck withAutomotive Technology, Heavy Equipment MaintenanceTechnology, Heavy Equipment and Truck Technology Skilled Trades Electronic Engineering Technology,HVAC, Electronics Systems ServiceManagement Electrical Technology, Electrical & Electronics Systems Technician,HVAC, Welding Technology, Welding with Introduction toPipefitting, CNC Health Sciences Medical Assisting Technology,Medical Office Management Medical Office Assistant, Medical Assistant, Patient Care Technician, Medical Coding & Billing, Dental Assistant, Licensed PracticalNursing Hospitality Services Culinary Arts, Cosmetology, Aesthetics, International Baking andPastry, Nail Technolgy, Therapeutic Massage & Bodywork Technician Information Technology Computer Networking and Support Computer & Network Support TechnicianAutomotive Technology. Automotive technology is our largest area of study, with 40% of our total average student enrollment for the year ended December31, 2018. Our automotive technology programs are 28 to 136 weeks in length, with tuition rates of $14,000 to $41,000. We believe we are a leading providerof automotive technology education in each of our local markets. Graduates of our programs are qualified to obtain entry level employment ranging frompositions as technicians and mechanics to various apprentice level positions. Our graduates are employed by a wide variety of companies, ranging fromautomotive and diesel dealers, to independent auto body paint and repair shops to trucking and construction companies.2IndexAs of December 31, 2018, 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.Skilled Trades. For the year ended December 31, 2018, skilled trades was our second largest area of study, representing 27% of our total average studentenrollment. Our skilled trades programs are 28 to 98 weeks in length, with tuition rates of $16,000 to $34,000. Our skilled trades programs include electrical,heating and air conditioning repair, welding, computerized numerical control and electronic & electronic systems technology. Graduates of our programs arequalified to obtain entry level employment positions such as electrician, cable installer, welder, wiring and heating, ventilating and air conditioning, orHVAC installer. Our graduates are employed by a wide variety of employers, including residential and commercial construction, telecommunicationsinstallation companies and architectural firms. As of December 31, 2018, we offered skilled trades programs at 14 campuses.Health Sciences. For the year ended December 31, 2018, 26% of our total average student enrollment was in our health science program. Our health scienceprograms are 35 to 104 weeks in length, with tuition rates of $13,000 to $30,000. Graduates of our programs are qualified to obtain positions such as licensedpractical nurse, registered nurse, dental assistant, medical assistant, medical administrative assistant, and claims examiner. Our graduates are employed by awide variety of employers, including hospitals, laboratories, insurance companies, and doctors' offices. Our practical nursing and medical assistant programsare our largest health science programs. As of December 31, 2018, we offered health science programs at 10 of our campuses.Hospitality Services. For the year ended December 31, 2018, 5% of our total average student enrollment was in our hospitality services programs. Ourhospitality services programs are 19 to 88 weeks in length, with tuition rates of $7,000 to $21,000. 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, 2018, weoffered culinary programs at two campuses.Information Technology. For the year ended December 31, 2018, 2% of our total average student enrollment was in our information technology programs.Our information technology programs are 40 to 80 weeks in length, with tuition rates of $20,000 to $33,000. We have focused our current informationtechnology, or IT, program offerings on those that are most in demand, such as our computer and network support technician. Our graduates obtain entrylevel positions with both small and large corporations. As of December 31, 2018, we offered these programs at four of our campuses.Recent DevelopmentsOn July 9, 2018, New England Institute of Technology at Palm Beach, Inc. (“NEIT”), a wholly-owned subsidiary of the Company, entered into a commercialcontract (the “Sale Agreement”) with Elite Property Enterprise, LLC, pursuant to which NEIT agreed to sell to Elite Property Enterprise, LLC the real propertyowned by NEIT located at 1126 53rd Court North, Mangonia Park, Palm Beach County, Florida and the improvements and certain personal property locatedthereon (the “Mangonia Park Property”), for a cash purchase price of $2,550,000. On August 23, 2018, NEIT consummated the sale of the Mangonia ParkProperty. At closing, NEIT paid a real estate brokerage fee equal to 5% of the gross sales price and other customary closing costs and expenses. Pursuant tothe provisions of the Company’s credit facility with its lender, Sterling National Bank, the net cash proceeds of the sale of the Mangonia Park Property weredeposited into an account with the lender to serve as additional security for loans and other financial accommodations provided to the Company and itssubsidiaries under the credit facility. In December 2018, the funds were used to repay the outstanding principal balance of the loans outstanding under thecredit facility and such repayment permanently reduced the revolving loan availability under the credit facility.Effective December 31, 2018, the Company completed the teach-out and ceased operation of its Lincoln College of New England (“LCNE”) campus atSouthington, Connecticut. The decision to close the LCNE campus followed the previously reported placement of LCNE on probation by the college’sinstitutional accreditor, the New England Association of Schools and Colleges (“NEASC”). After evaluating alternative options, the Company concludedthat teaching out and closing the campus was in the best interest of the Company and its students. Subsequent to formalizing the LCNE closure decision inAugust 2018, the Company partnered with Goodwin College, another NEASC- accredited institution in the region, to assist LCNE students to complete theirprograms of study. The majority of the LCNE students will continue their education at Goodwin College thereby limiting some of the Company’s closingcosts. The revenue, net loss and ending population of LCNE, as of December 31, 2017, were $8.4 million, $1.6 million and 397 students, respectively. TheCompany recorded net costs associated with the closure of the LCNE campus in 2018 of approximately $4.3 million, including (i) $1.6 million in connectionwith the termination of the LCNE campus lease, which is the net present value of the remaining obligation, to be paid in equal monthly installments throughJanuary 2020, (ii) approximately $700,000 of severance payments and (iii) $2.0 million of additional operating losses related to no longer enrollingadditional students during 2018. LCNE results, previously reported in the HOPS segment, are now included in the Transitional segment as of December 31,2018.3IndexMarketing 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 2018, we rolled out a new advertising campaign that included the production of creative video that aired on traditional television stations as well asthrough digital and social media channels. Our new campaign theme “Put Your Potential to Work” was also incorporated into various other communicationschannels, including billboards, radio and print. In addition, new marketing material was developed to support key program areas for us, which includeautomotive, skilled trades, healthcare, cosmetology and culinary. Marketing continued to support the efforts of our Admissions teams by developingstandardized information packages that provide prospective students consistent messaging and branding throughout all of our campuses.Referrals. Referrals from current students, high school counselors and satisfied graduates and their employers have historically represented 16% of our newenrollments. Our school administrators actively work with our current students to encourage them to recommend our programs to prospective students. Weendeavor to build and retain strong relationships with high school guidance counselors and instructors by offering annual seminars at our training facilitiesto further familiarize 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.During 2018, 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 2018, we added one field representative to our team who is focused onrecruitment 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 prospective students on the most appropriate program to increase the likelihood that ourstudents complete 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 10,525 students enrolled as of December 31, 2018 and our average enrollment for the year ended December 31, 2018 was 10,591students, a decrease of 1.7% in average enrollment from December 31, 2017. We had 10,159 students enrolled as of December 31, 2017 and our averageenrollment for that year was 10,772 students, a decrease of 9.2% in average enrollment from December 31, 2016.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.4IndexJob 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, 2018, we had approximately 1,884 employees, including 468 full-time faculty and 364 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 2019 and 2022. Webelieve that we have good relationships with these unions and with our employees.CompetitionThe for-profit, post-secondary education industry is highly competitive and highly fragmented with no one provider controlling significant market share. Direct competition between career-oriented schools 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.5IndexRegulatory 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, 2018,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 by the DOE subject usto significant regulatory scrutiny in the form of numerous standards that each of our schools must satisfy in order to participate in the Title IV Programs. Toparticipate in the Title IV Programs, a school must be authorized to offer its programs of instruction by the applicable state education agencies in the states inwhich it is physically located, be accredited by an accrediting commission recognized by the DOE and be certified as an eligible institution by the DOE. TheDOE defines an eligible institution to consist of both a main campus and its additional locations, if any. Each of our schools is either a main campus or anadditional location of a main campus. Each of our schools is subject to extensive regulatory requirements imposed by state education agencies, accreditingcommissions, and the DOE. Because the DOE periodically revises its regulations and changes its interpretations of existing laws and regulations, we cannotpredict with certainty how Title IV Program requirements will be applied in all circumstances. Our schools also participate in other federal and state financialaid 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.Our schools are subject to extensive, ongoing regulation by each of these states. State laws typically establish standards for instruction, curriculum,qualifications of faculty, location and nature of facilities and equipment, administrative procedures, marketing, recruiting, financial operations, studentoutcomes and other operational matters. State laws and regulations may limit our ability to offer educational programs and to award degrees, diplomas orcertificates. For example, the governor of New York has proposed increased oversight of for-profit schools operating in New York, which would include ourQueens campus, including, but not limited to, proposed regulations that, among other things, would limit the percentage of funding from taxpayers to 80percent (which would be a stricter standard than required by the DOE) and require a school to spend at least 50 percent of its budget on instruction andlearning. The implementation of these regulations could have a significant impact on our operations in New York and on the Company. In addition,legislation has been proposed in Maryland that would apply to certain for-profit schools operating in Maryland, which would include our Columbia campus,and that, among other things, would limit the percentage of revenue that an institution could receive from federal or state funds, or from loans or grantsprovided or guaranteed by the institution, in at least two of the institution’s three most recent fiscal years and would require the institution to provide anextensive list of disclosures to prospective students prior to enrollment, registration or payment. The implementation of this law or any related regulationscould have a significant impact on our operations in Maryland and on the Company. We cannot predict the timing or ultimate scope of any final laws andregulations that New York, Maryland, or other states might issue on these or other topics in the future. Some states prescribe standards of financialresponsibility that are different from, and in certain cases more stringent than, those prescribed by the DOE. Some states require schools to post a surety bond.We have posted surety bonds on behalf of our schools and education representatives with multiple states 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.6IndexDue 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, 2018, 22of our campuses are accredited by the Accrediting Commission of Career Schools and Colleges, or ACCSC. The following is a list of the dates on which eachcampus was accredited by its accrediting commission, the date by which its accreditation must be renewed and the type of accreditation.Accrediting Commission of Career Schools and Colleges Reaccreditation DatesSchool Last Accreditation Letter Next Accreditation Type of AccreditationPhiladelphia, PA2 November 26, 2018 May 1, 2023 NationalUnion, NJ1 May 29, 2014 February 1, 20194 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 May 15, 2018 November 1, 2021 NationalNew Britain, CT June 5, 2018 January 1, 2023 NationalShelton, CT2 March 5, 2014 September 1, 20184 NationalQueens, NY1 September 4, 2018 June 1, 2023 NationalEast Windsor, CT2 October 17, 2017 February 1, 2023 NationalSouth Plainfield, NJ1 September 2, 2014 August 1, 2019 NationalIselin, NJ May 15, 2018 May 15, 2023 NationalMoorestown, NJ3 May 15, 2018 May 15, 2023 NationalParamus, NJ3 May 15, 2018 May 15, 2023 NationalLincoln, RI3 May 15, 2018 May 15, 2023 NationalSomerville, MA3 May 15, 2018 May 15, 2023 NationalSummerlin, NV3 May 15, 2018 May 15, 2023 NationalMarietta, GA3 May 15, 2018 May 15, 2022 National 1Branch campus of main campus in Indianapolis, IN2Branch campus of main campus in New Britain, CT3Branch campus of main campus in Iselin, NJ4Campus undergoing re-accreditation. Campus has received written confirmation that it remains accredited pending consideration of its applicationfor reaccreditation.7IndexThe Company received a letter dated January 31, 2019 from ACCSC, which indicated that the ACCSC commission voted to continue our schools onfinancial reporting with a subsequent review scheduled for ACCSC’s August 2019 meeting. The commission continued the financial reporting status basedon the net working capital deficit, accumulated deficit, and net loss reported in the nine-month financial statements submitted to ACCSC. The commissionrecognized the Company’s continued efforts to improve its financial position through, among other things, closing underperforming schools and growingstudent enrollments, and determined that, while improvements are being realized, additional monitoring of the Company’s financial position is warranted. The letter requires us to submit certain financial information to ACCSC by July 12, 2019 for consideration at ACCSC’s August 2019 meeting.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 the current gainful employment regulations issued by the DOE, institutions may be required tocertify that they have 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.8IndexRegulation 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 four institutions as of December 31, 2018, collectively consisting of four 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 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 September 30, 2020Indianapolis, IN December 31, 20181,2New Britain, CT March 31, 20201Provisionally certified.2Institution is on a month-to-month approval during the re-certification process.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. One institution, namely Indianapolis, is provisionally certified by the DOE. This institution generates 51% of the Company’srevenue. Indianapolis is provisionally certified based on the existence of pending program reviews with DOE. The Title IV Program reviews at our Unionand Indianapolis schools, which was the basis for provisional certification, have been resolved and are now closed. An institution that is provisionallycertified receives fewer due process rights than those received by other institutions in the event the DOE takes certain adverse actions against the institution,is required to obtain prior DOE approvals of new campuses and educational programs, and may be subject to heightened scrutiny by the DOE. However,provisional certification does not otherwise limit an institution’s access to Title IV Program funds.9IndexThe 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, but it is notknown if or when Congress will pass final legislation that amends the 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. Our programs with rates in the zone are not subject to loss of Title IV eligibility unless theyaccumulate a combination of zone and failing rates for four consecutive years (or failing rates for two out of any three consecutive years). Each of ourprograms with failing rates will lose its Title IV eligibility if it receives 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 gainful employment rates for the 2016 debt measure year, although it could begin that process at any time. While we did submit an appeal, we have not received any final decision from the DOE. However, that appeal is no longer relevant as all students in thatfailing program have since been taught out as December 31, 2018.10IndexThe 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, 2018.Reporting Segment PassingPrograms ZonePrograms FailingPrograms Transportation 92.9% 7.1% 0.0%HOPS 96.1% 3.9% 0.0%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, 2018. 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 ZonePrograms FailingPrograms Transportation $7,800,000 $- HOPS $2,400,000 $1,000,000 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, ProgramModification,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 AssistantZoneTeachout1Gainful 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.In August 2018, the DOE published proposed regulations that would eliminate the existing gainful employment regulations. The DOE indicated that itsplans include, but are not limited to, publishing outcomes data at the program level on a DOE website such as the College Scorecard or some other website. The DOE permitted the submission of public comments to the proposed regulations until September 13, 2018. Any regulations published in final form byNovember 1, 2018 typically would have taken effect on July 1, 2019, but we cannot provide any assurances as to the timing or content of any suchregulations. However, the DOE announced that it would not publish the regulations in final form by November 1, 2018 and has not yet issued the finalregulations. If the regulations are published prior to November 1, 2019, they typically would take effect on July 1, 2020 unless the DOE is willing and ableto provide for an earlier implementation date. We cannot provide any assurance as to the timing, content, and ultimate effective date of any such finalregulations.11IndexIn June 2018, the DOE announced the further extension of the compliance date for certain other gainful employment disclosure requirements until July 1,2019. The DOE stated that institutions are still required to comply with other gainful employment disclosure requirements in the interim.On August 18, 2017, the DOE announced new deadlines for submitting notices of intent to file alternate earnings appeals of gainful employment rates and forsubmitting alternate 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 thealternate earnings appeal was February 1, 2018. We cannot predict when the DOE will calculate and issue new draft or final gainful employment rates in thefuture. We also cannot predict whether the gainful employment rulemaking process or the extension of certain gainful employment deadlines may result inthe DOE delaying the issuance of new draft or final gainful employment rates in the future.Borrower 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 the borrower defense to repayment regulations until July 1, 2019 to ensure that there would be adequatetime to conduct negotiated rulemaking and, as necessary, develop revised regulations. However, a federal court ruled that the delay in the effective date ofthe regulations was unlawful and, on October 16, 2018, denied a request to extend a stay preventing the regulations from taking effect. The DOE has not yetissued subsequent guidance regarding how the DOE will implement the regulations. There is ongoing litigation challenging the regulations, but we cannotprovide any assurance as to whether the litigation could result in the future suspension or invalidation of some or all of those regulations.The DOE published proposed regulations on July 31, 2018 that would modify the defense to repayment regulations, including regulations regarding, amongother things, (i) acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of certain Title IV loans; (ii)permitting the use of arbitration clauses and class action waivers in enrollment agreements and (iii) triggering events that would result in recalculating aschool’s financial responsibility score and require the school to post a letter of credit or other surety. We are in the process of evaluating the proposedregulations. Any regulations published in final form by November 1, 2018 typically would have taken effect on July 1, 2019. However, the DOE announcedthat it would not publish the regulations in final form by November 1, 2018 and has not yet issued the final regulations. If the regulations are published priorto November 1, 2019, they typically would take effect on July 1, 2020 unless the DOE is willing and able to provide for an earlier implementation date. Wecannot provide any assurance as to the timing, content, and ultimate effective date of any such final regulations. We cannot predict how the DOE willinterpret and enforce current borrower defense to repayment rules, or any final rules that may arise out of the DOE’s ongoing rulemaking process, or how thecurrent or future rules may impact our schools’ participation in the Title IV Programs; however, the current and future rules could have a material adverseeffect 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 creditbased on expanded standards of financial responsibility. See “Regulatory Environment – Financial Responsibility Standards.”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.12IndexWe have calculated that, for our 2018 fiscal year, our institutions' 90/10 Rule percentages ranged from 74% to 84%. For 2017 and 2016, 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.Student Loan Defaults. The HEA limits participation in Title IV Programs by institutions whose former students defaulted on the repayment of federallyguaranteed or funded student loans above a prescribed rate (the “cohort default rate”). The DOE calculates these rates based on the number of students whohave defaulted, not the dollar amount of such defaults. The cohort default rate is calculated on a federal fiscal year basis and measures the percentage ofstudents who enter repayment of a loan during the federal fiscal year and default on the loan on or before the end of the federal fiscal year or the subsequenttwo federal fiscal years.Under the HEA, an institution whose Federal Family Education Loan, or FFEL, and Federal Direct Loan, or FDL, cohort default rate is 30% or greater for threeconsecutive federal fiscal years loses eligibility to participate in the FFEL, FDL, and Pell programs for the remainder of the federal fiscal year in which theDOE determines that such institution has lost its eligibility and for the two subsequent federal fiscal years. An institution whose FFEL and FDL cohortdefault rate for any single federal fiscal year exceeds 40% loses its eligibility to participate in the FFEL and FDL programs for the remainder of the federalfiscal year in which the DOE determines that such institution has lost its eligibility and for the two subsequent federal fiscal years. If an institution’s three-year cohort default rate equals or exceeds 30% in two of the three most recent federal fiscal years for which the DOE has issued cohort default rates, theinstitution may be placed on provisional certification status and could be required to submit a letter of credit to the DOE.In September 2018, the DOE released the final cohort default rates for the 2015 federal fiscal year. These are the most recent final rates published by theDOE. The rates for our existing institutions for the 2015 federal fiscal year range from 8.7% to 13.2%. None of our institutions had a cohort default rateequal to or greater than 30% for the 2015 federal fiscal year.In February 2019, the DOE released draft three-year cohort default rates for the 2016 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 2019. The draft rates for our institutions for the 2016federal fiscal year range from 8.3% to 16.6%. 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.13IndexIf 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·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 calculated our composite score to be 1.1. This score is subject to determination by the DOE based on its review of ourconsolidated audited financial statements for the 2017 fiscal year, but we have not received a determination yet from the DOE. We believe it is likely that theDOE 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 anyother requirements that the DOE might impose in its discretion. For the 2018 fiscal year, we have calculated our composite score to be 1.1. This score issubject to determination by the DOE once it receives and reviews our consolidated audited financial statements for the 2018 fiscal year, but we believe it islikely that the DOE will determine that our institutions are “in the zone” and that we will be required to operate under the Zone Alternative requirements aswell 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 delayed the effectivedate of a majority of the borrower defense to repayment regulations until July 1, 2019 to ensure that there would be adequate time to conduct negotiatedrulemaking and, as necessary, develop revised regulations. However, a federal court ruled that the delay in the effective date of the regulations was unlawfuland, on October 16, 2018, denied a request to extend a stay preventing the regulations from taking effect. The DOE has not yet issued subsequent guidanceregarding how the DOE will implement the regulations. There is ongoing litigation challenging the regulations, but we cannot provide any assurance as towhether the litigation could result in the future suspension or invalidation of some or all of those regulations.The expanded financial responsibility regulations could result in the DOE recalculating and reducing our composite score to account for DOE estimates ofpotential losses under one or more of the extensive list of triggering circumstances and also could result in the imposition of conditions and requirementsincluding a requirement to provide financial protection in amounts that are difficult to predict, calculated by the DOE under potentially subjective standardsand, in some cases, could be based solely on the existence of proceedings or circumstances that ultimately may lack merit or otherwise not result in liabilitiesor losses.For example, one of the triggering circumstances in the regulations is if an institution’s accrediting agency requires the institution to submit a teach-out planthat covers the closing of the institution or one of its locations. We notified the DOE that we intended to close our Southington campus and that ouraccrediting agency required a teach-out plan. The DOE could attempt to recalculate our composite score, could seek to treat all Title IV funds received bythe school in its most recently completed fiscal year at that campus as a loss in the recalculation, and could seek to impose a letter of credit based on thereduced composite score. However, it is uncertain whether the DOE would apply the regulation to the accrediting agency’s request for a teach-out plan whichoccurred after the July 1, 2017 effective date of the regulations, but prior to the expiration of the stay of the regulation on October 16, 2018; whether theDOE’s recalculation of the composite score would result in a letter of credit requirement; or whether the DOE would require a letter of credit given that thecampus is currently closed.14IndexThe regulations indicate that the letter of credit or other form of financial protection required for an institution under the regulations must equal 10 percent ofthe total amount of Title IV Program funds received by the institution during its most recently completed fiscal year plus any additional amount that the DOEdetermines is necessary to fully cover any estimated losses unless the institution demonstrates that the additional amount is unnecessary to protect, or iscontrary to, the Federal interest. The regulations state that the DOE maintains the full amount of financial protection until the DOE determines that theinstitution has a composite score of 1.0 or greater based on a review of the institution’s audited financial statements for the fiscal year in which all losses fromthe aforementioned events have been fully recognized or if the recalculated composite score is 1.0 or greater and the aforementioned events have ceased toexist. Consequently, it is difficult to predict the amount or duration of any letter of credit requirement that the DOE might impose under the regulation. Therequirement to submit a letter of credit or to accept other conditions or restrictions could have a material adverse effect on our schools’ business and results ofoperations.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.Negotiated Rulemaking. On October 15, 2018, the DOE published a notice in the Federal Register announcing its intent to establish a negotiatedrulemaking committee and three subcommittees to develop proposed regulations related to several matters, including, but not limited to, requirements foraccrediting agencies in their oversight of member institutions and programs; criteria used by the DOE to recognize accrediting agencies; simplification of theDOE’s recognition and review of accrediting agencies; clarification of the core oversight responsibilities amongst accrediting agencies, states and the DOE tohold institutions accountable; clarification of the permissible arrangements between an institution of higher education and another organization to provide aportion of an educational program; roles and responsibilities of institutions and accrediting agencies in the teach-out process; regulatory changes required toensure equitable treatment of brick-and-mortar and distance education programs; regulatory changes required to enable expansion of direct assessmentprograms, distance education, and competency-based education; regulatory changes required to clarify disclosure and other requirements of stateauthorization; protections to ensure that accreditors recognize and respect institutional mission and evaluate an institution’s policies and educationalprograms based on that mission; simplification of state authorization requirements related to distance education; defining “regular and substantiveinteraction” as it relates to distance education; defining the term “credit hour”; defining the requirements related to the length of educational programs andentry level requirements for the occupation; addressing regulatory barriers in the DOE’s institutional eligibility and general provision regulations; addressingdirect assessment programs and competency-based education; and other matters. On January 7, 2019, the DOE released a set of draft proposed regulations forconsideration and negotiation by the negotiated rulemaking committee and subcommittees. The draft proposed regulations also cover additional topicsincluding, but not limited to, amendments to current regulations regarding the clock to credit hour conversion formula; the requirements for measuring thelengths of certain educational programs; the requirements for returning unearned Title IV funds received for students who withdraw before completing theireducational programs; and the requirements for measuring a student’s satisfactory academic progress. The proposed changes to the regulations remainsubject to further change during the negotiated rulemaking process. The committee and subcommittees are in the process of meeting during the first threemonths of 2019. We cannot provide any assurances as to the timing, content or impact of any final regulations arising from the negotiated rulemakingprocess.15IndexSubstantial Misrepresentation. The DOE’s regulations prohibit an institution that participates in the Title IV Programs from engaging in substantialmisrepresentation of the nature of its educational programs, financial charges, graduate employability or its relationship with the DOE. A “misrepresentation”includes any false, erroneous, or misleading statement (whether made in writing, visually, orally, or through other means) that is made by an eligibleinstitution, by one of its representatives, or by a third party that provides to the institution educational programs, marketing, advertising, recruiting, oradmissions services and that is made to a student, prospective student, any member of the public, an accrediting or state agency, or to DOE. The DOE definesa “substantial misrepresentation” to include any misrepresentation on which the person to whom it was made could reasonably be expected to rely, or hasreasonably relied, to that person’s detriment. The definition of “substantial misrepresentation” is broad and, therefore, it is possible that a statement made bythe institution or one of its service providers or representatives could be construed by the DOE to constitute a substantial misrepresentation. If the DOEdetermines that one of our institutions has engaged in substantial misrepresentation, the DOE may impose sanctions or other conditions upon the institutionincluding, but not limited to, initiating an action to fine the institution or limit, suspend, or terminate its eligibility to participate in the Title IV Programs andmay seek to discharge students’ loans and impose liabilities upon the institution.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.Change of Control. In addition to school acquisitions, other types of transactions can also cause a change of control. The DOE, most state educationagencies and our accrediting commissions have standards pertaining to the change of control of schools, but these standards are not uniform. DOEregulations describe some transactions that constitute a change of control, including the transfer of a controlling interest in the voting stock of an institutionor the institution's parent corporation. For a publicly traded corporation, DOE regulations provide that a change of control occurs in one of two ways: (a) if aperson acquires ownership and control of the corporation so that the corporation is required to file a Current Report on Form 8-K with the Securities andExchange Commission disclosing the change of control or (b) if the corporation has a shareholder that owns at least 25% of the total outstanding votingstock of the corporation and is the largest shareholder of the corporation, and that shareholder ceases to own at least 25% of such stock or ceases to be thelargest shareholder. These standards are subject to interpretation by the DOE. A significant purchase or disposition of our common stock could bedetermined by the DOE to be a change of control under this standard.Most of the states and our accrediting commissions include the sale of a controlling interest of common stock in the definition of a change of controlalthough some agencies could determine that the sale or disposition of a smaller interest would result in a change of control. A change of control under thedefinition of one of these agencies would require the affected school to reaffirm its state authorization or accreditation. Some agencies would requireapproval prior to a sale or disposition that would result in a change of control in order to maintain authorization or accreditation. The requirements to obtainsuch reaffirmation from the states and our accrediting commissions vary widely.A change of control could occur as a result of future transactions in which 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. Our institution in Indianapolis is provisionally certified and required to obtain priorDOE approval of new degree, non-degree, and short-term training educational programs. Our Iselin institution also is subject to prior approval requirementsfor substantive changes such as new campuses and educational programs as a result of its accrediting agency’s loss of DOE recognition, and the DOE hasindicated that such changes only will be approved in limited circumstances. If an institution erroneously determines that an educational program is eligiblefor purposes of Title IV Programs, the institution would likely be liable for repayment of Title IV Program funds provided to students in that educationalprogram. Our expansion plans are based, in part, on our ability to add new educational programs at our existing schools.16IndexSome 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;·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 theproductivity of our employees, 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.If one of our schools fails to comply with accrediting or state licensing requirements, such school and its main and/or branch campuses could be subject tothe loss of state licensure or accreditation, which in turn could result in a loss of eligibility to participate in Title IV Programs. If the DOE 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.”17IndexSignificant 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.Item 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 2018, 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 2018, which would have a significant impact on our business and results of operations.18IndexCongress 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.The DOE has changed its regulations, and may make other changes in the future, in a manner which could require us to incur additional costs inconnection with our administration of the Title IV Programs, affect our ability to remain eligible to participate in the Title IV Programs, imposerestrictions on our participation in the Title IV Programs, affect the rate at which students enroll in our programs, or otherwise have a significantimpact on our business and results of operations.In 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.”In August 2018, the DOE published proposed regulations that would eliminate the existing gainful employment regulations. The DOE indicated that itsplans include, but are not limited to, publishing outcomes data at the program level on a DOE website such as the College Scorecard or some other website. The DOE permitted the submission of public comments to the proposed regulations until September 13, 2018. Any regulations published in final form byNovember 1, 2018 typically would have taken effect on July 1, 2019. However, the DOE announced that it would not publish the regulations in final formby November 1, 2018 and has not yet issued the final regulations. If the regulations are published prior to November 1, 2019, they typically would takeeffect on July 1, 2020 unless the DOE is willing and able to provide for an earlier implementation date. We cannot provide any assurance as to the timing,content, and ultimate effective date of any such final regulations.In June 2018, the DOE announced the further extension of the compliance date for certain other gainful employment disclosure requirements until July 1,2019. The DOE stated that institutions are still required to comply with other gainful employment disclosure requirements in the interim.On August 18, 2017, the DOE announced in the Federal Register new deadlines for submitting notices of intent to file alternate earnings appeals of gainfulemployment rates 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 andthe deadline to file the alternate earnings appeal was February 1, 2018. We cannot predict when the DOE will calculate and issue new draft or final gainfulemployment rates in the future. We also cannot predict whether the gainful employment rulemaking process or the extension of certain gainful employmentdeadlines may result in the DOE delaying the issuance of 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;19Index·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 had 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. However, a federal court ruled that the delay in the effective date of the regulations was unlawfuland, on October 16, 2018, denied a request to extend a stay preventing the regulations from taking effect. The DOE has not yet issued subsequent guidanceregarding how the DOE will implement the regulations. There is ongoing litigation challenging the regulations, but we cannot provide any assurance as towhether the litigation could result in the future suspension or invalidation of some or all of those regulations.The DOE published proposed regulations on July 31, 2018 that would modify the defense to repayment regulations, including regulations regarding, amongother things, acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of certain Title IV loans. The proposedregulations also include regulations regarding other topics such as permitting the use of arbitration clauses and class action waivers in enrollment agreementsand triggering events that would result in recalculating a school’s financial responsibility score and require the school to post a letter of credit or othersurety. We are in the process of evaluating the proposed regulations. Any regulations published in final form by November 1, 2018 typically would havetaken effect on July 1, 2019. However, the DOE announced that it would not publish the regulations in final form by November 1, 2018 and has not yetissued the final regulations. If the regulations are published prior to November 1, 2019, they typically would take effect on July 1, 2020 unless the DOE iswilling and able to provide for an earlier implementation date. We cannot provide any assurance as to the timing, content, and ultimate effective date of anysuch final regulations. We cannot predict how the DOE will interpret and enforce the current borrower defense to repayment rules, or any final rules that mayarise out of the DOE’s ongoing rulemaking process, or how the current or future rules may impact our schools’ participation in the Title IV Programs;however, the current and future rules could have a material adverse effect on our schools’ business and results of operations, and the broad sweep of the rulesmay, in the future, require our schools to submit a letter of credit based on expanded standards of financial responsibility. See “Regulatory Environment –Financial Responsibility Standards.” We cannot predict how the DOE would interpret and enforce current or future borrower defense to repayment rules orhow 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, mayimpact our schools’ participation in the Title IV programs; however, the new rules could have a material adverse effect on our schools’ business and results ofoperations, 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 financialresponsibility.On October 15, 2018, the DOE published a notice in the Federal Register announcing its intent to establish a negotiated rulemaking committee and threesubcommittees to develop proposed regulations related to several matters. See “Regulatory Environment – Negotiated Rulemaking.”. On January 7, 2019,the DOE released a set of draft proposed regulations for consideration and negotiation by the negotiated rulemaking committee and subcommittees. Thedraft proposed regulations also cover additional topics including, but not limited to, amendments to current regulations regarding the clock to credit hourconversion formula for measuring the lengths of certain educational programs, the return of unearned Title IV funds received for students who withdrawbefore completing their educational programs, and the measurement of student academic progress. The proposed changes to the regulations remain subject tofurther change during the negotiated rulemaking process and we continue to monitor and review those proposals as they evolve. The committee andsubcommittees are scheduled to meet during the first three months of 2019. At this time, we cannot provide any assurances as to the timing, content or impactof any final regulations arising from this planned negotiated rulemaking process.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 that establishexpanded standards of financial responsibility that could result in a requirement that we submit to the DOE a substantial letter of credit or other form offinancial protection in an amount determined by the DOE, and be subject to other conditions and requirements, based on any one of an extensive list oftriggering circumstances. See “Regulatory Environment – Financial Responsibility Standards.” Any obligation to post one or more letters of credit wouldincrease our costs of regulatory compliance. Our inability to obtain a required letter of credit or limitations on, or termination of, our participation in Title IVPrograms could limit our students' access to various government-sponsored student financial aid programs, which could significantly reduce our studentpopulation and revenues.20IndexWe 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. See “RegulatoryEnvironment – Accreditation.,” If any of our schools fails to comply with accrediting commission requirements, the institution and its main and/or branchcampuses are subject to the loss of accreditation or may be placed on probation or a special monitoring or reporting status which, if the noncompliance withaccrediting commission requirements is not resolved, could result in loss of accreditation. Loss of accreditation by any of our main campuses would result inthe termination of eligibility of that school and all of its branch campuses to participate in Title IV Programs and could cause us to close the school and itsbranches, which could have a significant adverse impact on our business 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.Our institutions would lose eligibility to participate in Title IV Programs if the percentage of their revenues derived from those programs exceeds 90%,which could reduce our student population and revenues.Under the HEA reauthorization, a proprietary institution that derives more than 90% of its total revenue from Title IV Programs for two consecutive fiscalyears becomes immediately ineligible to participate in Title IV Programs and may not reapply for eligibility until the end of at least two fiscal years. Aninstitution with revenues exceeding 90% for a single fiscal year 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.”21IndexWe are subject to sanctions if we fail to comply with the DOE’s regulations regarding prohibitions against substantial misrepresentations, which couldincrease our cost of regulatory compliance and decrease our profit margin.The DOE’s regulations prohibit an institution that participates in the Title IV Programs from engaging in substantial misrepresentation of the nature of itseducational programs, financial charges, graduate employability or its relationship with the DOE. See “Regulatory Environment – SubstantialMisrepresentation.” If the DOE determines that one of our institutions has engaged in substantial misrepresentation, the DOE may impose sanctions or otherconditions upon the institution including, but not limited to, initiating an action to fine the institution or limit, suspend, or terminate its eligibility toparticipate in the Title IV Programs and may seek to discharge students’ loans and impose liabilities upon the institution.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.Our business could be adversely impacted by additional legislation, regulations, or investigations regarding private student lending because studentsattending our schools rely on private student loans to pay tuition and other institutional charges.The U.S. Consumer Financial Protection Bureau (“CFPB”), under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, has 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.22IndexRISKS 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.Our 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.23IndexA 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, 2018, goodwill associated with our acquisitions increased to approximately 10.0% from9.4% of total assets at December 31, 2017. On at least an annual basis, we assess whether there has been an impairment in the value of goodwill. If thecarrying value of the tested asset exceeds its estimated fair value, impairment is deemed to have occurred. In this event, the amount is written down to fairvalue. Under current accounting rules, this would result in a charge to operating earnings. Any determination requiring the write-off of a significant portionof goodwill would negatively affect our results of operations and total capitalization, which could be material.We 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, 2018, the teaching professionals at six of our campuses are represented by unions and covered by collective bargaining agreements thatexpire between 2019 and 2022. 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.24IndexAnti-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·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.25IndexSystem 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.Changes 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 addition, we are subject to examination of our income tax returnsby the Internal Revenue Service and the taxing authorities of various states. We regularly assess the likelihood of adverse outcomes resulting from taxexaminations to determine the adequacy of our provision for income taxes and we have accrued tax and related interest for potential adjustments to taxliabilities for prior years. However, there can be no assurance that the outcomes from these tax examinations will not have a material effect, either positive ornegative, on our business, financial conditions and results of operation.ITEM 1B.UNRESOLVED STAFF COMMENTSNone.26IndexITEM 2.PROPERTIESAs of December 31, 2018, we leased all of our facilities, except for our campuses in Nashville, Tennessee, Grand Prairie, Texas, and Denver, Colorado, andformer school property in Suffield, Connecticut, which we own. We continue to re-evaluate our facilities to maximize our facility utilization and efficiencyand to allow us to introduce new programs and attract more students. As of December 31, 2018, all of our existing leases expire between 2019 and 2030.The following table provides information relating to our facilities as of December 31, 2018, including our corporate office:Location Brand Approximate Square FootageLas Vegas, Nevada Euphoria Institute 19,000Southington, Connecticut Former 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 88,000Allentown, 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 Culinary Institute 47,000Somerville, Massachusetts Lincoln Technical Institute 33,000South Plainfield, New Jersey Lincoln Technical Institute 60,000Union, New Jersey Lincoln Technical Institute 56,000Nashville, Tennessee Lincoln College of Technology 281,000West Orange, New Jersey Corporate Office 52,000Plymouth Meeting, Pennsylvania Corporate Office 4,000Suffield, Connecticut Former Lincoln Technical Institute 132,000We believe that our facilities are suitable for their present intended purposes.ITEM 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 StockOur common stock, no par value per share, is quoted on the Nasdaq Global Select Market under the symbol “LINC”.27IndexOn March 8, 2019, the last reported sale price of our common stock on the Nasdaq Global Select Market was $3.10 per share. As of March 8, 2019, based onthe information provided by Continental Stock Transfer & Trust Company, there were 10 stockholders of record of our common stock.Dividend PolicyThe Company has not declared or paid any cash dividends on its common stock since the Company’s Board of Directors discontinued our quarterly cashdividend program in February 2015. The Company has no current intentions to resume the payment of cash dividends in the foreseeable future.Share RepurchasesThe Company did not repurchase any shares of our common stock during the fourth quarter of the fiscal year ended December 31, 2018.28IndexStock Performance GraphThis stock performance graph compares our total cumulative stockholder return on our common stock for the five years ended December 31, 2018 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, 2013 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.29IndexEquity Compensation Plan InformationWe have various equity compensation plans under which equity securities are authorized for issuance. Information regarding these securities as of December31, 2018 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 139,000 $12.14 2,050,638 Equity compensation plans not approved by security holders - - - Total 139,000 $12.14 2,050,638 30IndexITEM 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, 2018 and historical consolidated balance sheet data at December 31, 2018 and 2017 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, 2015 and 2014 and historical consolidated balance sheet data as ofDecember 31, 2016, 2015 and 2014 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. 2018 2017 2016 2015 2014 (In thousands, except per share amounts) Statement of Operations Data, Year Ended December 31: Revenue $263,200 $261,853 $285,559 $306,102 $325,022 Cost and expenses: Educational services and facilities 125,373 129,413 144,426 151,647 164,352 Selling, general and administrative 141,244 138,779 148,447 151,797 168,441 Loss (gain) on sale of assets 537 (1,623) 233 1,738 (58)Impairment of goodwill and long-lived assets - - 21,367 216 40,836 Total costs and expenses 267,154 266,569 314,473 305,398 373,571 Operating (loss) income (3,954) (4,716) (28,914) 704 (48,549)Other: Interest income 31 56 155 52 153 Interest expense (2,422) (7,098) (6,131) (8,015) (5,613)Other income - - 6,786 4,151 297 Loss from continuing operations before income taxes (6,345) (11,758) (28,104) (3,108) (53,712)Provision (benefit) for income taxes 200 (274) 200 242 (4,225)Loss from continuing operations (6,545) (11,484) (28,304) (3,350) (49,487)Loss from discontinued operations, net of income taxes - - - - (6,646)Net loss $(6,545) $(11,484) $(28,304) $(3,350) $(56,133)Basic Loss per share from continuing operations $(0.27) $(0.48) $(1.21) $(0.14) $(2.17)Loss per share from discontinued operations - - - - (0.29)Net loss per share $(0.27) $(0.48) $(1.21) $(0.14) $(2.46)Diluted Loss per share from continuing operations $(0.27) $(0.48) $(1.21) $(0.14) $(2.17)Loss per share from discontinued operations - - - - (0.29)Net loss per share $(0.27) $(0.48) $(1.21) $(0.14) $(2.46)Weighted average number of common shares outstanding: Basic 24,423 23,906 23,453 23,167 22,814 Diluted 24,423 23,906 23,453 23,167 22,814 Other Data: Capital expenditures $4,697 $4,755 $3,596 $2,218 $7,472 Depreciation and amortization from continuing operations 8,421 8,702 11,066 14,506 19,201 Number of campuses 22 23 28 31 31 Average student population from continuing operations 10,591 10,772 11,864 12,981 14,010 Cash dividend declared per common share $- $- $- $- $0.18 Balance Sheet Data, At December 31: Cash, cash equivalents and restricted cash $45,946 $54,554 $47,715 $61,041 $42,299 Working (deficit) capital (1) (7,470) (2,766) (1,733) 33,818 29,585 Total assets 146,038 155,213 163,207 210,279 213,707 Total debt (2) 48,769 52,593 41,957 58,224 65,181 Total stockholders' equity 39,866 45,813 54,926 80,997 83,010 All amounts have been restated to give effect to the HOPS segments which has been reclassified to continuing operations in 2016, 2015 and 2014.(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 two-year period ended December 31, 2015 incurred in connection with a sale-leaseback transaction.31IndexITEM 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 22 schools in 14 states,offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control and electrical and electronicsystems technology, among other programs), healthcare services (which include nursing, dental assistant and medical administrative assistant, among otherprograms), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and information technology (which includesinformation technology). The schools operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, and EuphoriaInstitute of Beauty Arts and Sciences and associated brand names. Most of the campuses serve major metropolitan markets and each typically offers coursesin multiple areas of study. Five of the campuses are destination schools, which attract students from across the United States and, in some cases, from abroad.The Company’s other campuses primarily attract students from their local communities and surrounding areas. All of the campuses are nationally orregionally accredited and are eligible to participate in federal financial aid programs by the U.S. Department of Education (the “DOE”) and applicable stateeducation agencies and accrediting commissions which allow 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.On July 9, 2018, New England Institute of Technology at Palm Beach, Inc. (“NEIT”), a wholly-owned subsidiary of the Company, entered into a commercialcontract (the “Sale Agreement”) with Elite Property Enterprise, LLC, pursuant to which NEIT agreed to sell to Elite Property Enterprise, LLC the real propertyowned by NEIT located at 1126 53rd Court North, Mangonia Park, Palm Beach County, Florida and the improvements and certain personal property locatedthereon (the “Mangonia Park Property”), for a cash purchase price of $2,550,000. On August 23, 2018, NEIT, consummated the sale of the Mangonia ParkProperty. At the closing, NEIT paid a real estate brokerage fee equal to 5% of the gross sales price and other customary closing costs and expenses. Pursuantto the provisions of the Company’s credit facility with its lender, Sterling National Bank, the net cash proceeds of the sale of the Mangonia Park Propertywere deposited into an account with the lender to serve as additional security for loans and other financial accommodations provided to the Company and itssubsidiaries under the credit facility. In December 2018, the funds were used to repay the outstanding principal balance of the loans outstanding under thecredit facility and such repayment permanently reduced the revolving loan availability under the credit facility.Effective December 31, 2018, the Company completed the teach-out and ceased operation of its Lincoln College of New England (“LCNE”) campus atSouthington, Connecticut. The decision to close the LCNE campus followed the previously reported placement of LCNE on probation by the college’sinstitutional accreditor, the New England Association of Schools and Colleges (“NEASC”). After evaluating alternative options, the Company concludedthat teaching out and closing the campus was in the best interest of the Company and its students. Subsequent to formalizing the LCNE closure decision inAugust 2018, the Company partnered with Goodwin College, another NEASC- accredited institution in the region, to assist LCNE students to complete theirprograms of study. The majority of the LCNE students will continue their education at Goodwin College thereby limiting some of the Company’s closingcosts. The revenue, net loss and ending population of LCNE, as of December 31, 2017, were $8.4 million, $1.6 million and 397 students, respectively. TheCompany recorded net costs associated with the closure of the LCNE campus in 2018 of approximately $4.3 million, including (i) $1.6 million in connectionwith the termination of the LCNE campus lease, which is the net present value of the remaining obligation, to be paid in equal monthly installments throughJanuary 2020, (ii) approximately $700,000 of severance payments and (iii) $2.0 million of additional operating losses related to no longer enrollingadditional students during 2018. LCNE results, previously reported in the HOPS segment, are now included in the Transitional segment as of December 31,2018.As of December 31, 2018, we had 10,525 students enrolled at 22 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.32IndexOur 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 19 to 136 weeks, our associate’s degree programs range from 64 to 98 weeks, and students attend classes for different amounts of timeper week depending on the school and program in which they are enrolled. Because we start new students every month, our total student population changesmonthly. The number of students enrolling or re-entering our programs each month is driven by the demand for our programs, the effectiveness of ourmarketing and advertising, the availability of financial aid and other sources of funding, the number of recent high school graduates, the job market andseasonality. Our retention and graduation rates are influenced by the quality and commitment of our teachers and student services personnel, theeffectiveness of our programs, the placement rate and success of our graduates and the availability of financial aid. Although similar courses have comparabletuition 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% of our revenue on a cash basis while the remainder is primarily derived from state grants and cash payments made by students duringboth 2018 and 2017. The Higher Education Act of 1965, as amended (the “HEA”) requires institutions to use the cash basis of accounting when determiningits 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.The additional financing that we are providing to students may expose us to greater credit risk and can impact our liquidity. However, we believe that theserisks are somewhat mitigated due to the following:·Our internal financing is provided to students only after all other funding resources have been exhausted; thus, by the time this funding is available,students have completed approximately two-thirds of their curriculum and are more likely to graduate;·Funding for students who interrupt their education is typically covered by Title IV funds as long as they have been properly packaged for financialaid; and·Creditworthy criteria to demonstrate 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.33IndexCRITICAL 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.Prior to adoption of ASU 2014-09Revenues are derived primarily from programs taught at our schools. Tuition revenues, textbook sales and one-time fees, such as nonrefundable applicationfees and course material fees, are recognized on a straight-line basis over the length of the applicable program as the student proceeds through the program,which is the period of time from a student’s start date through his or her graduation date (including internships or externships, if any, occurring prior tograduation), and we complete the performance of teaching the student entitling us to the revenue. Other revenues, such as tool sales and contract trainingrevenues, are recognized as goods are delivered or training completed. On an individual student basis, tuition earned in excess of cash received is recorded asaccounts 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 commencing a program by attending class and reassess collectabilityof tuition and fees when a student withdraws from a course. We calculate the amount to be returned under Title IV and its stated refund policy to determineeligible charges and, if there is a balance due from the student after this calculation, we expect payment from the student. We have a process to pursueuncollected accounts whereby, based upon the student’s financial means and ability to pay, a payment plan is established with the student to ensure thatcollectability is reasonable. We continuously monitor our historical collections to identify potential trends that may impact our determination thatcollectability of receivables for withdrawn students is realizable. If a student withdraws from a program prior to a specified date, any paid but unearnedtuition is refunded. Refunds are calculated and paid in accordance with federal, state and accrediting agency standards. Generally, the amount to be refundedto a student is calculated based upon the period of time the student has attended classes and the amount of tuition and fees paid by the student as of his or herwithdrawal date. These refunds typically reduce deferred tuition revenue and cash on our consolidated balance sheets as we generally do not recognizetuition revenue in our consolidated statements of income (loss) until the related refund provisions have lapsed. Based on the application of our refundpolicies, we may be entitled to incremental revenue on the day the student withdraws from one of our schools. We record revenue for students who withdrawfrom one of our schools when payment is received because collectability on an individual student basis is not reasonably assured.After adoption of ASU 2014-09On January 1, 2018, we adopted the new standard on revenue recognition, ASU 2014-09, using the modified retrospective approach of ASU 2016-10. Theadoption of the guidance in ASU 2014-09 as amended by ASU 2016-10 did not have a material impact on the measurement or recognition of revenue in anyprior or current reporting periods and there was no adjustment to retained earnings. The core principle of the new standard is that a company shouldrecognize revenue to depict the transfer of promised goods or services to students in an amount that reflects the consideration to which the company expectsto be entitled in exchange for such goods or services.Substantially all of our revenues are considered to be revenues from contracts with students. The related accounts receivable balances are recorded in ourbalance sheets as student accounts receivable. We do not have significant revenue recognized from performance obligations that were satisfied in priorperiods, and we do not have any transaction price allocated to unsatisfied performance obligations other than in our unearned tuition. We record revenue forstudents who withdraw from one of our schools only to the extent that it is probable that a significant reversal in the amount of cumulative revenuerecognized will not occur. Unearned tuition represents contract liabilities primarily related to our tuition revenue. We have elected not to provide disclosureabout transaction prices allocated to unsatisfied performance obligations if contract durations are less than one-year, or if we have the right to considerationfrom a student in an amount that corresponds directly with the value provided to the student for performance obligations completed to date. We haveassessed the costs incurred to obtain a contract with a student and determined them to be immaterial.Allowance for uncollectible accounts. Based upon experience and judgment, we establish an allowance for uncollectible accounts with respect to tuitionreceivables. We use an internal group of collectors in our collection efforts. In establishing our allowance for uncollectible accounts, we consider, amongother things, current and expected economic conditions, a student's status (in-school or out-of-school), whether or not a student is currently makingpayments, and overall collection history. Changes in trends in any of these areas may impact the allowance for uncollectible accounts. The receivablesbalances of withdrawn students with delinquent obligations are reserved for based on our collection history. Although we believe that our reserves areadequate, if the financial condition of our students deteriorates, resulting in an impairment of their ability to make payments, additional allowances may benecessary, which will result in increased selling, general and administrative expenses in the period such determination is made.34IndexOur bad debt expense as a percentage of revenues for the years ended December 31, 2018, 2017 and 2016 was 6.7%, 5.2% and 5.1%, respectively. Ourexposure to changes in our bad debt expense could impact our operations. A 1% increase in our bad debt expense as a percentage of revenues for the yearsended December 31, 2018, 2017 and 2016 would have resulted in an increase in bad debt expense of $2.6 million, $2.6 million and $2.9 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, 2018, goodwill was approximately $14.5 million, or 10.0%, of our totalassets, which was flat from approximately $14.5 million, or 9.4%, of our total assets at December 31, 2017.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, 2018 and December 31, 2017, 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.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.35IndexWe 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, 2018 and2017, 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 took effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35% to21%; (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) limitation 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 impacted fiscalyear 2017.In accordance with SAB 118, we completed our analysis of the Tax Act resulting in no material adjustments from the provisional amounts recorded duringthe prior year. The Tax Act did not have a material impact on our financial statements because we are under a full valuation allowance.36IndexResults of Continuing Operations for the Three Years Ended December 31, 2018The 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, 2018 2017 2016 Revenue 100.0% 100.0% 100.0%Costs and expenses: Educational services and facilities 47.6% 49.4% 50.6%Selling, general and administrative 53.7% 53.0% 52.0%(Gain) loss on sale of assets 0.2% -0.6% 0.1%Impairment of goodwill and long-lived assets 0.0% 0.0% 7.5%Total costs and expenses 101.5% 101.8% 110.2%Operating (loss) income -1.5% -1.8% -10.2%Interest expense, net -0.9% -2.7% -2.0%Other income 0.0% 0.0% 2.4%Loss from operations before income taxes -2.4% -4.5% -9.8%Provision (benefit) for income taxes 0.1% -0.1% 0.1%Net loss -2.5% -4.4% -9.9%Year Ended December 31, 2018 Compared to Year Ended December 31, 2017Consolidated Results of OperationsRevenue. Revenue increased $1.3 million to $263.2 million for the year ended December 31, 2018 from $261.9 million in the prior year comparable period. The revenue increase was a result of five consecutive quarters of start growth which drove a 9.5% and 1.2% increase in average population in both ourHealthcare and Other Professions segment and Transportation and Skilled Trades segment. Excluding our Transitional segment (which represents campusesthat have closed) which had revenue of $5.8 million and $16.9 million during the years ended December 31, 2018 and 2017, respectively, revenue wouldhave increased by $12.4 million, or 5.1%, year over year. The increase in revenue was despite student population at the beginning of the year being down 77students compared to the prior year.Total student starts increased 5.6% for the year ended December 31, 2018 as compared to the prior year comparable period. Excluding the Transitionalsegment, student starts would have increased 7.7% year over year. We continue to attribute this growth to our investments in marketing, enhanced highschool programs and improved admissions process driving more consistency from lead to start.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 $4.0 million, or 3.1%, to $125.4 million for the yearended December 31, 2018 from $129.4 million in the prior year comparable period. The expense reductions were primarily due to the Transitional segment,which accounted for $7.6 million in cost savings, partially offset by $2.1 million in additional books and tools expense and $1.2 million in additionalinstructional expenses. The increase in books and tools expense and instructional expense was a direct correlation between providing laptops for a growingnumber of program offerings and an increased student population year over year.Educational services and facilities expenses, as a percentage of revenue, decreased to 47.6% for the year ended December 31, 2018 from 49.4% in the prioryear comparable period.Selling, general and administrative expense. Our selling general and administrative expense increased $2.5 million, or 1.8%, to $141.2 million for the yearended December 31, 2018 from $138.8 million in the prior year comparable period. Increased costs were driven by $3.8 million of additional bad debtexpense and $2.9 million of marketing investments. Partially offsetting the increased expenses were cost savings of $4.4 million derived from theTransitional segment.Bad debt expense has increased mainly due to larger accounts receivable balances driven by higher population and thus higher revenue of $12.4 million, or5.1%, excluding the Transitional segment. Also, we are seeing more students graduating with accounts receivable balances as a result of our institutionalloan program which began offering the option to defer all payments post-graduation. This change was effective approximately two years ago. Furthermore,there has been a shift in our program mix during the year from longer duration programs to shorter more condensed programs. The shifts in program mix haveimpacted disbursement of Title IV funds and, as a result, has contributed to a higher accounts receivable balance year over year.37IndexMarketing investments during the year ended December 31, 2018 were approximately $2.9 million higher than the prior year comparable period. Whilemarketing investments have increased during 2018 as expected, the cost to obtain prospective students has remained essentially flat when compared to theprior year. Marketing dollars are providing a return on investment and are expected to yield start growth over the next several quarters.Selling general and administrative expenses, as a percentage of revenue, increased to 53.7% for the year ended December 31, 2018 from 53% in the prior yearcomparable period.Bad debt expense as a percentage of revenue was 6.7% for the year ended December 31, 2018, compared to 5.2% for the same period in 2017.As of December 31, 2018, we had total outstanding loan commitments to our students of $63.1 million, as compared to $51.9 million at December 31, 2017. The increase was due to higher student population and thus an increased number of students electing to take our institutional loans to finance their educationcosts that are not covered by a third party or financial aid. Despite the growth in student population, the overall percentage of starts with institutional loansin 2018 remained relatively consistent with the prior year. Our institutional loans constitute loans of last resort, available to assist our most financiallychallenged students.(Loss)/gain on sale of fixed assets. Loss on sale of assets increased to $0.5 million for the year ended December 31, 2018, from a gain on sale of asset of$1.6 million in the prior year comparable period. The $2.1 million increase was primarily driven by a $0.4 million loss on the sale of the Mangonia Park,Florida property on August 23, 2018 and a $1.5 million gain in the prior year resulting from the sale of the West Palm Beach, Florida property on August 14,2017.Net interest expense. Net interest expense for the year ended December 31, 2018 decreased by $4.7 million, or 66%, to $2.4 million from $7.0 million in theprior year comparable period. The decrease was the result of the termination of our previous term loan which had significantly higher interest rates and therelated fees and expenses associated with its early termination, which occurred on March 31, 2017. Additional interest expense was also incurred in the prioryear in relation to an $8.0 million bridge loan secured by our West Palm Beach, Florida property, which was repaid in August 2017.Income taxes. Our provision for income taxes was $0.2 million, or 3.2% of pretax loss, for the year ended December 31, 2018, compared to a benefit forincome taxes of $0.3 million, or 2.3% 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 the recognition of a full valuation allowance. Income tax expenseresulted from various minimal state tax expenses.In accordance with SAB 118, we completed our analysis of the Tax Act resulting in no material adjustments from the provisional amounts recorded duringthe prior year. The Tax Act did not have a material impact on our financial statements because we are under a full valuation allowance.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 $23.5 million, or 99.2% 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 80% of the decline. The Transportationand Skilled Trades segment starts were slightly down 1.6% and the HOPS segment starts increased by 3.7% for the year ended December 31, 2017 ascompared to the prior year comparable period.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 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 $14 million, or 93.4% of the decrease. The remainder of the $1 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 $1.5million due to fully depreciated assets. Partially, offsetting the decreases are $0.5 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.38IndexSelling, 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 $13.4 million in cost reductions. Partially offsetting the cost reductions are $2.8 million in additional sales and marketingexpense and $1 million in increased administrative expense.The $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 revolving credit facility with Sterling National Bank. Partially offsetting these increases were reductionsin interest expense resulting from lower debt outstanding in combination with more favorable terms under the current credit facility compared to the terms ofa 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, eliminated the corporate alternative minimum tax (the “AMT”) and changed 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 had not completed our analysis of the tax effects of enactment of the Tax Act; however, we made a reasonable estimate of theeffects 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 the future,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 a decreaserelated 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 fiscal year 2017 loss due to the recognition of a full valuation allowance.39IndexSegment Results of OperationsThe for-profit education industry has been impacted by numerous regulatory changes, a changing economy and an onslaught of negative media attention. Asa result of these challenges, student populations have declined and operating costs have increased. Over the past few years, the Company has closed over tenlocations and exited its online business. In 2017, the Company completed the teach-out of its Center City Philadelphia, Pennsylvania; NortheastPhiladelphia, Pennsylvania; West Palm Beach, Florida; Brockton, Massachusetts; and Lowell, Massachusetts schools. All of these schools were previouslyincluded in our HOPS segment and as of December 31, 2017, they have all been closed.On August 20, 2018, the Company decided to teach-out the LCNE campus at Southington, Connecticut. LCNE results, which was previously reported in theHOPS segment, is now included in the Transitional segment as of December 31, 2018. The Company completed the teach-out and exited the LCNE campuson December 31, 2018.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.For all prior periods presented, the Company reclassified its Marietta, Georgia campus from the HOPS segment to the Transportation and Skilled Tradessegment. This reclassification occurred to address how the Company evaluates performance and allocates resources and was approved by the Company’sBoard of Directors.40IndexThe following table present results for our three reportable segments for the years ended December 31, 2018 and 2017: Twelve Months Ended December 31, 2018 2017 % Change Revenue: Transportation and Skilled Trades $185,263 $181,328 2.2%Healthcare and Other Professions 72,135 63,641 13.3%Transitional 5,802 16,884 -65.6%Total $263,200 $261,853 0.5% Operating Income (Loss): Transportation and Skilled Trades $17,661 $17,795 -0.8%Healthcare and Other Professions 6,469 3,937 64.3%Transitional (5,994) (6,926) 13.5%Corporate (22,090) (19,522) -13.2%Total $(3,954) $(4,716) 16.2% Starts: Transportation and Skilled Trades 8,294 7,763 6.8%Healthcare and Other Professions 4,023 3,673 9.5%Transitional 140 363 -61.4%Total 12,457 11,799 5.6% Average Population: Transportation and Skilled Trades 7,042 6,961 1.2%Healthcare and Other Professions 3,312 3,024 9.5%Transitional 237 787 -69.9%Total 10,591 10,772 -1.7% End of Period Population: Transportation and Skilled Trades 6,988 6,626 5.5%Healthcare and Other Professions 3,537 3,136 12.8%Transitional - 397 -100.0%Total 10,525 10,159 3.6%Year Ended December 31, 2018 Compared to Year Ended December 31, 2017Transportation and Skilled TradesStudent start results increased 6.8% to 8,294 for the year ended December 31, 2018 from 7,763 in the prior year comparable period.Operating income remained essentially flat at $17.7 million and $17.8 million for the years ended December 31, 2018 and 2017 respectively. Activityduring the year was mainly driven by the following factors:·Revenue increased by $3.9 million to $185.3 million for the year ended December 31, 2018, as compared to $181.3 million in the prior yearcomparable period. The increase in revenue was primarily driven by five consecutive quarters of start growth, most notably a 6.8% increase instudent starts, during the year ended December 31, 2018 in addition to a 1% increase in average revenue per student primarily due to tuition rateincreases partially offset by changes in program mix from longer to shorter programs. The increase in revenue was despite starting the year with278 fewer students than that of the prior year.·Educational services and facilities expense increased by $1.0 million, or 1.1%, to $85.4 million for the year ended December 31, 2018 from$84.4 million in the prior year comparable period. This increase was driven by $1.2 million in additional books and tools expense partially. Increased books and tools expense was a collaboration between a growing number of program offerings requiring laptops in addition to agrowing student population. Reductions in facilities expense was a result of fully depreciated assets.·Selling general and administrative expense increased by $3.0 million, primarily resulting from a $2.4 million increase in bad debt expense inaddition to a $1.4 million increase in marketing investment as detailed in the consolidated results of operations. Partially offsetting the costswere savings of $1.2 million in salaries and benefits expense resulting from operational efficiencies.41IndexHealthcare and Other ProfessionsStudent start results increased 9.5% to 4,023 for the year ended December 31, 2018 from 3,673 in the prior year comparable period.Operating income increased 64.3% to $6.5 million for the year ended December 31, 2018 from $3.9 million in the prior year comparable period. The $2.5million change was mainly driven by the following factors:·Revenue increased $8.5 million, or 13.3%, to $72.1 million for the year ended December 31, 2018 as compared to $63.6 million in the prioryear comparable period. The increase in revenue was driven by a 9.5% increase in average student population in combination with a 3.4%increase in average revenue per student resulting from tuition increases.·Educational services and facilities expense increased by $2.6 million to $34.7 million for the year ended December 31, 2018 from $32.1 millionin the prior year comparable period. This increase was primarily driven by increased instructional expense and books and tools expenseresulting from a 9.5% increase in average student population.·Selling general and administrative expenses increased by $3.4 million, or 12.2%, to $30.9 million for the year ended December 31, 2018 ascompared to $27.6 million in the prior year comparable period. This increase was primarily driven by additional bad debt expense andmarketing expense as detailed in the consolidated results of operations.TransitionalThe following table lists the schools that are categorized in the Transitional segment which are all closed as of December 31, 2018:CampusDate ClosedSouthington, ConnecticutDecember 31, 2018Northeast Philadelphia, PennsylvaniaSeptember 30, 2017Center City Philadelphia, PennsylvaniaAugust 31, 2017West Palm Beach, FloridaSeptember 30, 2017Brockton, MassachusettsDecember 31, 2017Lowell, MassachusettsDecember 31, 2017Revenue for the campuses in the above table have been classified in the Transitional segment for comparability for the years ended December 31, 2018 and2017. Revenue was $5.8 million and $16.9 million for the years ended December 31, 2018 and 2017, respectively. The decrease in revenue was due to onecampus classified in the Transitional segment compared to five campuses classified in the segment in the prior year. The Transitional segment during theyear ended December 31, 2018 and 2017 includes the Lincoln College of New England campus at Southington, Connecticut.Operating loss was $6.0 million and $6.9 million for the years ended December 31, 2018 and 2017, respectively.Corporate and OtherThis category includes unallocated expenses incurred on behalf of the entire Company. Corporate and other expenses were $22.1 million for the year endedDecember 31, 2018 as compared to $19.5 million in the prior year comparable period. The $2.6 million increase was primarily driven by a $0.4 million losson the sale of property in 2018 and a $1.5 million gain in the prior year resulting from the sale of property in 2017.42IndexThe following table presents 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 $181,328 $182,276 -0.5%Healthcare and Other Professions 63,641 62,870 1.2%Transitional 16,884 40,413 -58.2%Total $261,853 $285,559 -8.3% Operating Income (Loss): Transportation and Skilled Trades $17,795 $21,578 -17.5%Healthcare and Other Professions 3,937 (9,392) -141.9%Transitional (6,926) (16,995) 59.2%Corporate (19,522) (24,105) 19.0%Total $(4,716) $(28,914) 83.7% Starts: Transportation and Skilled Trades 7,763 7,892 -1.6%Healthcare and Other Professions 3,673 3,543 3.7%Transitional 363 1,791 -79.7%Total 11,799 13,226 -10.8% Average Population: Transportation and Skilled Trades 6,961 7,072 -1.6%Healthcare and Other Professions 3,024 2,939 2.9%Transitional 787 1,853 -57.5%Total 10,772 11,864 -9.2% End of Period Population: Transportation and Skilled Trades 6,626 6,904 -4.0%Healthcare and Other Professions 3,136 2,935 6.8%Transitional 397 1,396 -71.6%Total 10,159 11,235 -9.6%Year Ended December 31, 2017 Compared to Year Ended December 31, 2016Transportation and Skilled TradesStudent start results decreased by 1.6% to 7,763 for the year ended December 31, 2017 from 7,892 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 $3.8 million, or 17.5%, to $17.8 million for the year ended December 31, 2017 from $21.6 million in the prior yearcomparable period mainly driven by the following factors:·Revenue decreased to $181.3 million for the year ended December 31, 2017, as compared to $182.3 million in the comparable prior yearperiod. The slight decrease in revenue was primarily driven by a 1.6% decrease in average student population, partially offset by a 1.1%increase in average revenue per student.·Educational services and facilities expense decreased by $1.2 million, or 1.4%, mainly due to reductions in depreciation expense attributable toassets that have fully depreciated.·Selling, general and administrative expense increased by $4.2 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 $1.5 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.43IndexHealthcare and Other ProfessionsStudent start results had increased by 3.7% to 3,673 for the year ended December 31, 2017 from 3,543 in the prior year comparable period. This increaserepresents 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 $3.9 million compared to an operating loss of $9.4 million in the prior year comparable period. The $13.3 million change was mainly driven by the following factors:·Revenue increased to $63.6 million for the year ended December 31, 2017, as compared to $62.9 million in the prior year comparable period. The increase in revenue is mainly attributable to a 2.9% increase in average population, partially offset by a lower carry in population year overyear and a 1.6% decline in average revenue per student due to tuition decreases at certain campuses.·Educational services and facilities expense remained essentially flat at $32.1 million and $32 million for the years ended December 31, 2017and 2016, respectively.·Selling, general and administrative expenses increased by $1.5 million, or 5.9%, mainly due to a $1.2 million increase in sales and marketingexpense as a result of increased spending in an effort to increase student population and brand awareness and a $0.2 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 $14.3 million as a result of non-cash, pre-tax charges during the year ended December31, 2016.TransitionalThe following table lists the schools that are categorized in the Transitional segment which are all closed as of December 31, 2017:CampusDate ClosedSouthington, ConnecticutDecember 31, 2018Center City Philadelphia, PennsylvaniaAugust 31, 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 $16.9 million for the year ended December 31, 2017 as compared to $40.4 million in the prior year comparable period mainly due to thecampus closures.Operating loss decreased by $10.1 million to $6.9 million for the year ended December 31, 2017 from $17 million in the prior year comparable period. Thedecrease was due to campus closures.Corporate and OtherThis 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 2019.44IndexLIQUIDITY AND CAPITAL RESOURCESOur primary capital requirements are for facilities expansion and maintenance, and the development of new programs. Our principal sources of liquidity havebeen cash provided by operating activities and borrowings under our credit facility. The following chart summarizes the principal elements of our cash flowfor each of the three years in the period ended December 31, 2018: Cash Flow SummaryYear Ended December 31, 2018 2017 2016 (In thousands) Net cash used in operating activities $(1,694) $(11,321) $(6,107)Net (cash used) provided by in investing activities $(2,349) $10,707 $(3,145)Net (cash used) provided by in financing activities $(4,565) $7,453 $(4,074)As of December 31, 2018, the Company had a net debt balance of $3.4 million compared to a net cash balance of $1.2 million as of December 31, 2017. Thenet debt balance is calculated as our cash, cash equivalents and both short and long-term restricted cash less both short and long-term portion of the creditagreement. The decrease in cash position can mainly be attributed to the repayment net of borrowings of $4.1 million under our line of credit facility and anet loss during the year ended December 31, 2018, partially offset by other working capital items.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. However, our financial and population results continue to improve as evidenced by our start growth for the last fiveconsecutive quarters. As a result, we believe that our likely sources of cash should be sufficient to fund operations for the next twelve months and thereafterfor 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.Our 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 2018. 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. For more information, see “Risks Related to Our Industry” found under theheading“ Risk Factors” in Item 1A of this Annual Report.Operating ActivitiesNet cash used in operating activities was $1.7 million for the year ended December 31, 2018 compared to $11.3 million in the prior year comparable period. The decrease in cash used in operating activities for the year ended December 31, 2018 as compared to the year ended December 31, 2017 is primarily due toa reduction in net loss from operations as well as changes in other working capital such as accounts receivable, accounts payable, accrued expenses andunearned tuition.Investing ActivitiesNet cash used in investing activities was $2.3 million for the year ended December 31, 2018 compared to net cash provided by investing activities of $10.7million in the prior year comparable period. The decrease of $13.1 million was primarily the result of the sale of the West Palm Beach, Florida property onAugust 14, 2017, resulting in cash inflows of $15.5 million in the prior year. This was partially offset by the sale of the Mangonia Park, Florida property onAugust 23, 2018 which generated a cash inflow of $2.3 million in the current year.45IndexOne 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 real property in Grand Prairie, Texas; Nashville, Tennessee; and Denver, Colorado and our formerschool property located in Suffield, Connecticut.Capital expenditures are expected to approximate 2% of revenues in 2019. 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 $4.6 million for the year ended December 31, 2018 as compared to cash provided by financing activities of $7.5million in the prior year comparable period. The decrease of $12 million was due to net payments on borrowing of $4.1 million for the year ended December31, 2018, as compared to net borrowings of $9.1 million in the prior year comparable period. Also contributing to the change year over year were outflows inthe prior year of $1.2 million relating to the write-off of previously capitalized expenditures upon execution of our current credit facility.Net payments on borrowings consisted of: (a) total borrowing to date under our secured credit facility of $31 million; and (b) $35.1 million in totalrepayments made by the Company.Credit AgreementOn March 31, 2017, the Company obtained a secured credit facility (the “Credit Facility”) from Sterling National Bank (the “Bank”) pursuant to a CreditAgreement dated March 31, 2017 among the Company, the Company’s subsidiaries and the Bank, which was subsequently amended on November 29, 2017,February 23, 2018, July 11, 2018 and, most recently, on March 6, 2019 (as amended, the “Credit Agreement”). Prior to the most recent amendment of theCredit Agreement (the “Fourth Amendment”), the financial accommodations available to the Borrowers under the Credit Agreement consisted of (a) a $25million revolving loan facility designated as “Facility 1”, (b) a $25 million revolving loan facility (including a sublimit amount for letters of credit of $10million) designated as “Facility 2” and (c) a $15 million revolving credit loan designated as “Facility 3”.Pursuant to the terms of the Fourth Amendment and upon its effectiveness, Facility 1 was converted into a term loan (the “Term Loan”) in the originalprincipal amount of $22,700,649.31 (such amount being the entire unpaid principal and accrued interest outstanding under Facility 1 as of the effective dateof the Fourth Amendment), which matures on March 31, 2024 (the “Term Loan Maturity Date”). The Fourth Amendment provides for the repayment of theTerm Loan in monthly installments as follows: (a) on April 1, 2019 and on the same day of each month thereafter through and including June 30, 2019,accrued interest only; (b) on July 1, 2019 and on the same day of each month thereafter through and including December 31, 2019, the principal amount of$189,172.08 plus accrued interest; (c) on January 1, 2020 and on the same day of each month thereafter through and including June 30, 2020, accruedinterest only; (d) on July 1, 2020 and on the same day of each month thereafter through and including December 31, 2020, the principal amount of$567,516.24 plus accrued interest; (e) on January 1, 2021 and on the same day of each month thereafter through and including June 30, 2021, accruedinterest only; (f) on July 1, 2021 and on the same day of each month thereafter through and including December 31, 2021, the principal amount of$378,344.16 plus accrued interest; (g) on January 1, 2022 and on the same day of each month thereafter through and including June 30, 2022, accruedinterest only; (h) on July 1, 2022 and on the same day of each month thereafter through and including December 31, 2022, the principal amount of$378,344.16 plus accrued interest; (i) on January 1, 2023 and on the same day of each month thereafter through and including June 30, 2023, accrued interestonly; (j) on July 1, 2023 and on the same day of each month thereafter through and including December 31, 2023, the principal amount of $378,344.16 plusaccrued interest; (k) on January 1, 2024 and on the same day of each month thereafter through and including the Term Loan Maturity Date, accrued interestonly; and (l) on the Term Loan Maturity Date, the remaining outstanding principal amount of the Term Loan, together with accrued interest, will be due andpayable. In the event of a sale of any campus, school or business of the Borrowers permitted under the Credit Agreement, 25% of the net proceeds of any suchsale must be used to pay down the outstanding principal amount of the Term Loan in inverse order of maturity.The Fourth Amendment changed the maturity date of Facility 2 from May 31, 2020 to April 30, 2020. The maturity date for Facility 3 is May 31, 2019.Under 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 secured bycash collateral in an amount equal to 100% of the aggregate stated amount of the letters of credit issued and revolving loans outstanding through theproceeds of the Term Loan or other available cash of the Company. Notwithstanding such requirement, pursuant to the terms of the Fourth Amendment, a$2.5 million revolving loan was advanced under Facility 2 at the closing of the Fourth Amendment on March 6, 2019 without any requirement for cashcollateral and, in the Bank’s sole discretion, an additional $2.5 million of revolving loans may be advanced under Facility 2 without any requirement forcash collateral, consisting of (a) a $1.25 million revolving loan within 15 days after the Bank’s receipt of the Company’s financial statements for the fiscalquarter ending March 31, 2019 and (b) a $1.25 million revolving loan within 15 days after the Bank’s receipt of the Company’s financial statements for thefiscal quarter ending June 30, 2019. The $2.5 million revolving loan advanced under Facility 2 at the closing of the Fourth Amendment and the additional$2.5 million of revolving loans that may be advanced under Facility 2 in the discretion of the Bank, in each case without any requirement for cash collateral,must be repaid on November 1, 2019 and, prior to their repayment, the Borrowers are required to make monthly payments of accrued interest only on suchrevolving loans.46IndexThe Term Loan bears interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.85% and (y) 6.00%. Revolving loans outstandingunder Facility 1 prior to its conversion to a term loan also bore interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.85% and (y)6.00%. Revolving loans advanced under Facility 2 that are cash collateralized will bear interest at a rate per annum equal to the greater of (x) the Bank’sprime rate and (y) 3.50%. Pursuant to the Fourth Amendment, revolving loans advanced under Facility 2 that are not secured by cash collateral will bearinterest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.85% and (y) 6.00%. Revolving loans under Facility 3 bear interest at a rateper annum equal to the greater of (x) the Bank’s prime rate and (y) 3.50%.Under the terms of the Fourth Amendment, the Bank is entitled to receive an unused facility fee on the average daily unused balance of Facility 2 at a rate perannum equal to 0.50%, which fee is payable quarterly in arrears.The Fourth Amendment provides that in the event the Bank’s prime rate is greater than or equal to 6.50% while any loans are outstanding, the Borrowers maybe required to enter into a hedging contract in form and content satisfactory to the Bank.The Fourth Amendment requires the Borrowers to give the Bank the first opportunity to provide any and all traditional banking services required by theBorrowers, including, but not limited to, treasury management, loans and other financing services, on terms mutually acceptable to the Borrowers and theBank, in accordance with the terms set forth in the Fourth Amendment. In the event that loans provided under the Credit Agreement are repaid throughreplacement financing, the Fourth Amendment requires that the Borrowers pay to the Bank an exit fee in an amount equal to 1.25% of the total amount repaidand the face amount of all letters of credit replaced in connection with the replacement financing; provided, however, that no exit fee will be required in theevent the Bank or the Bank’s affiliate arranges or provides the replacement financing or the payoff of the applicable loans occurs after March 5, 2021.In connection with the effectiveness of the Fourth Amendment, the Borrowers paid to the Bank a one-time modification fee in the amount of $50,000.Pursuant to the Credit Agreement, in December 2018, the net proceeds of the sale of the Mangonia Park Property, which were held in a non-interest bearingcash collateral account at and by the Bank as additional collateral for the loans outstanding under the Credit Agreement, were applied to the outstandingprincipal balance of revolving loans outstanding under Facility 1 and, as a result of such repayment, the revolving loan availability under Facility 1 waspermanently reduced to $22.7 million.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 and mortgageson four parcels of real property owned by the Company in Colorado, Tennessee and Texas, at which three of the Company’s schools are located, as well as aformer school property owned by the Company located in Connecticut.At the closing of the Credit Facility, the Company drew $25 million under Facility 1, which was used to repay the Company’s previous credit facility and topay transaction costs associated with closing the Credit Facility.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 require the Company to maintain, on deposit in one or more non-interest bearing accounts, a minimum of $5 million inquarterly average aggregate balances, which, if not maintained, results in a fee of $12,500 payable to the Bank for that quarter.In addition to the foregoing, the Credit Agreement contains customary representations, warranties and affirmative and negative covenants, includingfinancial covenants that (i) restrict capital expenditures tested on a fiscal year end basis; (i) prohibit the incurrence of a net loss commencing on December 31,2019; and (iii) require a minimum adjusted EBITDA tested quarterly on a rolling twelve month basis. The Fourth Amendment (i) modifies the minimumadjusted EBITDA required; (ii) eliminates the requirement for a minimum funded debt to adjusted EBITDA ratio; and (iii) requires the maintenance of amaximum funded debt to adjusted EBITDA ratio tested quarterly on a rolling twelve month basis. The Credit Agreement contains events of defaultcustomary for facilities of this type. As of December 31, 2018, the Company is in compliance with all covenants.47IndexAs of December 31, 2018, the Company had $49.3 million outstanding under the Credit Facility; offset by $0.5 million of deferred finance fees. As ofDecember 31, 2017, the Company had $53.4 million outstanding under the Credit Facility, offset by $0.8 million of deferred finance fees, which werewritten-off. As of December 31, 2018 and December 31, 2017, letters of credit in the aggregate outstanding principal amount of $1.8 million and $7.2million, respectively, were outstanding under the Credit Facility. For the three months ended March 31, 2019, the Company is required to increase its lettersof credit by $2.8 million related to state bond requirements which requires the Company to increase its restricted cash balance by $2.8 million.Long-term debt and lease obligations consist of the following: As of December 31, 2018 2017 Credit agreement $49,301 $53,400 Deferred financing fees (532) (807)Subtotal 48,769 52,593 Less current maturities (15,000) - Total long-term debt $33,769 $52,593 As of December 31, 2018, we had outstanding loan commitments to our students of $63.1 million, as compared to $51.9 million at December 31, 2017. Loancommitments, net of interest that would be due on the loans through maturity, were $46.2 million at December 31, 2018, as compared to $38.5 million atDecember 31, 2017.Climate ChangeClimate change has not had and is not expected to have a significant impact on our operations.Contractual ObligationsCurrent portion of Long-Term Debt, Long-Term Debt and Lease Commitments. As of December 31, 2018, 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, 2018: Payments Due by Period Total Less than1 year 1-3 years 3-5 years Morethan 5years Credit facility $49,301* $15,000 $34,301 $- $- Operating leases 73,431 16,939 24,891 13,991 17,610 Total contractual cash obligations $122,732 $31,939 $59,192 $13,991 $17,610 * Excludes deferred finance fees of $0.5 million.OFF-BALANCE SHEET ARRANGEMENTSWe had no off-balance sheet arrangements as of December 31, 2018, except for surety bonds. At December 31, 2018, we posted surety bonds in the totalamount of approximately $12.7 million. Cash collateralized letters of credit of $1.8 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.48IndexOutlookSimilar 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 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.Effect of InflationInflation has not had and is not expected to have a significant impact on our operations.ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are exposed to certain market risks as part of our on-going business operations. Our obligations under our credit facility are secured by a lien onsubstantially all of our assets and any assets that we or our subsidiaries may acquire in the future. Outstanding borrowings under our credit facility bearinterest at the rate of 8.35% as of December 31, 2018. As of December 31, 2018, we had $49.3 million outstanding under our credit facility.Based on our outstanding debt balance as of December 31, 2018, 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, 2018 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.49IndexInternal Control Over Financial ReportingDuring the quarter ended December 31, 2018, 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. We implemented internal controls to ensure we adequately evaluated ourcontracts and properly assessed the impact of the new accounting standards related to leases on our financial statements to facilitate their adoption onJanuary 1, 2019. There were no significant changes to our internal control over financial reporting due to the adoption of the new standard.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, 2018, 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, 2018, the Company’s internal control over financial reporting is effective.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.The Company’s independent auditors, Deloitte & Touche LLP, an independent registered public accounting firm, audited the Company’s internal controlover financial reporting as of December 31, 2018, as stated in their report included in this Form 10-K that follows.ITEM 9B.OTHER INFORMATION(a) On March 6, 2019, the Company and its wholly-owned subsidiaries ( collectively with the Company, the “Borrowers”) entered into a fourthamendment (the “Fourth Amendment”) of the Credit Agreement dated as of March 31, 2017 (as previously amended, the “Credit Agreement”) among theBorrowers and its lender, Sterling National Bank (the “Bank”).Prior to the Fourth Amendment and as previously reported, the credit facilities available to the Borrowers under the Credit Agreement consisted of (a) a $25million revolving loan facility designated as “Facility 1”, (b) a $25 million revolving loan facility (including a sublimit amount for letters of credit of $10million) designated as “Facility 2” and (c) a $15 million revolving credit loan facility designated as “Facility 3”. Pursuant to the terms of the FourthAmendment and upon its effectiveness, Facility 1 was converted into a term loan (the “Term Loan”) in the original principal amount of $22,700,649.31 (suchamount being the entire unpaid principal and accrued interest outstanding under Facility 1 as of the effective date of the Fourth Amendment), which matureson March 31, 2024 (the “Term Loan Maturity Date”). The Term Loan bears interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus2.85% and (y) 6.00%. Revolving loans outstanding under Facility 1 prior to its conversion to a term loan also bore interest at a rate per annum equal to thegreater of (x) the Bank’s prime rate plus 2.85% and (y) 6.00%.The Fourth Amendment provides for the repayment of the Term Loan in monthly installments as follows: (a) on April 1, 2019 and on the same day of eachmonth thereafter through and including June 30, 2019, accrued interest only; (b) on July 1, 2019 and on the same day of each month thereafter through andincluding December 31, 2019, the principal amount of $189,172.08 plus accrued interest; (c) on January 1, 2020 and on the same day of each monththereafter through and including June 30, 2020, accrued interest only; (d) on July 1, 2020 and on the same day of each month thereafter through andincluding December 31, 2020, the principal amount of $567,516.24 plus accrued interest; (e) on January 1, 2021 and on the same day of each monththereafter through and including June 30, 2021, accrued interest only; (f) on July 1, 2021 and on the same day of each month thereafter through andincluding December 31, 2021, the principal amount of $378,344.16 plus accrued interest; (g) on January 1, 2022 and on the same day of each monththereafter through and including June 30, 2022, accrued interest only; (h) on July 1, 2022 and on the same day of each month thereafter through andincluding December 31, 2022, the principal amount of $378,344.16 plus accrued interest; (i) on January 1, 2023 and on the same day of each monththereafter through and including June 30, 2023, accrued interest only; (j) on July 1, 2023 and on the same day of each month thereafter through andincluding December 31, 2023, the principal amount of $378,344.16 plus accrued interest; (k) on January 1, 2024 and on the same day of each monththereafter through and including the Term Loan Maturity Date, accrued interest only; and (l) on the Term Loan Maturity Date, the remaining outstandingprincipal amount of the Term Loan, together with accrued interest, will be due and payable. In the event of a sale of any campus, school or business of theBorrowers permitted under the Credit Agreement, 25% of the net proceeds of any such sale must be used to pay down the outstanding principal amount of theTerm Loan in inverse order of maturity.50IndexThe Fourth Amendment changed the maturity date of Facility 2 from May 31, 2020 to April 30, 2020. The maturity date for Facility 3 was not changed bythe Fourth Amendment and remains May 31, 2019.The Fourth Amendment did not modify the Credit Agreement’s requirement that all revolving loans advanced under Facility 2 and draws for letters of creditunder Facility 2 be fully cash collateralized. Notwithstanding such requirement, pursuant to the terms of the Fourth Amendment, a $2.5 million revolvingloan was advanced under Facility 2 at the closing of the Fourth Amendment without any requirement for cash collateral and, in the Bank’s sole discretion, anadditional $2.5 million of revolving loans may be advanced under Facility 2 without any requirement for cash collateral, consisting of (a) a $1.25 millionrevolving loan within 15 days after the Bank’s receipt of the Company’s financial statements for the fiscal quarter ending March 31, 2019 and (b) a $1.25million revolving loan within 15 days after the Bank’s receipt of the Company’s financial statements for the fiscal quarter ending June 30, 2019. The $2.5million revolving loan advanced under Facility 2 at the closing of the Fourth Amendment and the additional $2.5 million of revolving loans that may beadvanced under Facility 2 in the discretion of the Bank, in each case without any requirement for cash collateral, must be repaid on November 1, 2019 and,prior to their repayment, the Borrowers are required to make monthly payments of accrued interest only on such revolving loans. Pursuant to the FourthAmendment, revolving loans advanced under Facility 2 that are not secured by cash collateral will bear interest at a rate per annum equal to the greater of (x)the Bank’s prime rate plus 2.85% and (y) 6.00% and revolving loans advanced under Facility 2 that are cash collateralized will bear interest at a rate perannum equal to the greater of (x) the Bank’s prime rate and (y) 3.50%.Under the terms of the Fourth Amendment, the Bank is entitled to receive an unused facility fee on the average daily unused balance of Facility 2 at a rate perannum equal to 0.50%, which fee is payable quarterly in arrears.The Fourth Amendment provides that in the event the Bank’s prime rate is greater than or equal to 6.50% while any loans are outstanding, the Borrowers maybe required to enter into a hedging contract in form and content satisfactory to the Bank.With respect to the financial covenants contained in the Credit Agreement, the Fourth Amendment (i) modifies the minimum adjusted EBITDA required, (ii)eliminates the requirement for a minimum funded debt to adjusted EBITDA ratio and (iii) requires the maintenance of a maximum funded debt to adjustedEBITDA ratio.The Fourth Amendment requires the Borrowers to give the Bank the first opportunity to provide any and all traditional banking services required by theBorrowers, including, but not limited to, treasury management, loans and other financing services, on terms mutually acceptable to the Borrowers and theBank, in accordance with the terms set forth in the Fourth Amendment. In the event that loans provided under the Credit Agreement are repaid throughreplacement financing, the Fourth Amendment requires that the Borrowers pay to the Bank an exit fee in an amount equal to 1.25% of the total amount repaidand the face amount of all letters of credit replaced in connection with the replacement financing; provided, however, that no exit fee will be required in theevent the Bank or the Bank’s affiliate arranges or provides the replacement financing or the payoff of the applicable loans occurs after March 5, 2021.In connection with the effectiveness of the Fourth Amendment, the Borrowers paid to the Bank a one-time modification fee in the amount of $50,000.The foregoing description of the Fourth Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the FourthAmendment filed as Exhibit 10.6 to this Annual Report on Form 10-K, which is incorporated herein by reference.(b) On March 8, 2019, the board of directors of the Company approved an amendment of the Company’s Bylaws (as amended, the “Amended Bylaws”),effective immediately, to include a new Article XI. The new Article XI provides for the designation of the United States District Court for the District of NewJersey (or in the event that such court lacks jurisdiction to hear such action, a Superior Court of the State of New Jersey) as the sole and exclusive forum forcertain types of litigation unless the Company consents in writing to the selection of an alternative forum. The foregoing description of the Amended Bylawsis not complete and is qualified in its entirety by reference to the complete text of the Amended Bylaws, a copy of which is filed as Exhibit 3.2 to this AnnualReport on Form 10-K and incorporated by reference herein.51IndexPART III.Certain information required by this item will be included in a definitive proxy statement for the Company’s annual meeting of shareholders or anamendment to this Annual Report on Form 10-K, in either case filed with the Securities and Exchange Commission within 120 days after December 31, 2018,and is incorporated by reference herein.ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEDirectors and Executive OfficersCertain information required by this Item 10 of Part III is incorporated by reference from a definitive proxy statement or an amendment to this Annual Reporton Form 10-K that will be filed with the Securities and Exchange Commission within 120 days after December 31, 2018.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.lincolntech.edu. 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 COMPENSATIONThe information required by this Item 11 of Part III is incorporated by reference from a definitive proxy statement or an amendment to this Annual Report onForm 10-K that will be filed with the Securities and Exchange Commission within 120 days after December 31, 2018.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSThe information required by this Item 12 of Part III is incorporated by reference from a definitive proxy statement or an amendment to this Annual Report onForm 10-K that will be filed with the Securities and Exchange Commission within 120 days after December 31, 2018.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by this Item 13 of Part III is incorporated by reference from a definitive proxy statement or an amendment to this Annual Report onForm 10-K that will be filed with the Securities and Exchange Commission within 120 days after December 31, 2018.ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICESThe information required by this Item 14 of Part III is incorporated by reference from a definitive proxy statement or an amendment to this Annual Report onForm 10-K that will be filed with the Securities and Exchange Commission within 120 days after December 31, 2018.52IndexPART IV.ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES1.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 (incorporated by reference to the Company’s Form 8-K filedAugust 16, 2017). 3.1Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement onForm S-1/A (Registration No. 333-123644) filed June 7, 2005). 3.2*Bylaws of the Company, as amended on March 8, 2019 4.1Specimen Stock Certificate evidencing shares of common stock (Incorporated by reference to the Company’s Registration Statement on FormS-1/A (Registration No. 333-123644) filed June 21, 2005). 10.1Credit Agreement, dated as of March 31, 2017, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and SterlingNational Bank (Incorporated by reference to the Company’s Form 8-K filed April 6, 2017). 10.2Credit Agreement, dated as of April 28, 2017, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and SterlingNational Bank (Incorporated by reference to the Company’s Form 8-K filed May 4, 2017). 10.3First Amendment to Credit Agreement, dated as of November 29, 2017, among the Company, Lincoln Technical Institute, Inc. and itssubsidiaries, and Sterling National Bank (Incorporated by reference to the Company’s Form 8-K filed December 1, 2017) 10.4Second Amendment to Credit Agreement, dated as of February 23, 2018, among the Company, Lincoln Technical Institute, Inc. and itssubsidiaries, and Sterling National Bank (Incorporated by reference to the Company’s Form 8-K filed February 26, 2018) 10.5Third Amendment to Credit Agreement, dated as of July 11, 2018, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries,and Sterling National Bank (Incorporated by reference to the Company’s Form 8-K filed July 13, 2018). 10.6*Fourth Amendment to Credit Agreement, dated as of March 6, 2019, among the Company, Lincoln Technical Institute, Inc. and itssubsidiaries, and Sterling National Bank 10.7Commercial Contract, dated as of July 9, 2018, between New England Institute of Technology at Palm Beach, Inc. and Elite PropertyEnterprise, LLC (Incorporated by reference to the Company’s Form 8-K filed July 13, 2018). 10.8Employment Agreement, dated as of November 8, 2017, between the Company and Scott M. Shaw (Incorporated by reference to theCompany’s Quarterly Report on Form 10-Q filed November 13, 2017).53Index10.9Employment Agreement, dated as of November 7, 2018, between the Company and Scott M. Shaw (Incorporated by reference to theCompany’s Quarterly Report on Form 10-Q filed November 9, 2018). 10.10Employment Agreement, dated as of November 8, 2017, between the Company and Brian K. Meyers (Incorporated by reference to theCompany’s Quarterly Report on Form 10-Q filed November 13, 2017). 10.11Employment Agreement, dated as of November 7, 2018, between the Company and Brian K. Meyers (Incorporated by reference to theCompany’s Quarterly Report on Form 10-Q filed November 9, 2018). 10.12Change in Control Agreement, dated as of November 8, 2017, between the Company and Deborah Ramentol (Incorporated by reference to theCompany’s Quarterly Report on Form 10-Q filed November 13, 2017). 10.13Change in Control Agreement, dated as of November 7, 2018, between the Company and Stephen M. Buchenot (Incorporated by reference tothe Company’s Quarterly Report on Form 10-Q filed November 9, 2018). 10.14Lincoln Educational Services Corporation Amended and Restated 2005 Long-Term Incentive Plan (Incorporated by reference to theCompany’s Form 8-K filed May 6, 2013). 10.15Lincoln Educational Services Corporation Amended and Restated 2005 Non-Employee Directors Restricted Stock Plan (Incorporated byreference to the Company’s Registration Statement on Form S-8 (Registration No. 333-211213) filed May 6, 2016). 10.16Lincoln Educational Services Corporation 2005 Deferred Compensation Plan (Incorporated by reference to the Company’s RegistrationStatement on Form S-1 (Registration No. 333-123644) filed March 29, 2005). 10.17Form of Stock Option Agreement under our 2005 Long-Term Incentive Plan (Incorporated by reference to the Company’s Annual Report onForm 10-K for the year ended December 31, 2007). 10.18Form of Restricted Stock Agreement under our 2005 Long-Term Incentive Plan (Incorporated by reference to the Company’s Annual Reporton Form 10-K for the year ended December 31, 2012). 10.19Form of Performance-Based Restricted Stock Award Agreement under our Amended & Restated 2005 Long-Term Incentive Plan(Incorporated by reference to the Company’s Form 8-K filed May 5, 2011). 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, 2018, 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.*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 193454IndexSIGNATURESPursuant 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 12, 2019 LINCOLN EDUCATIONAL SERVICES CORPORATION By:/s/ Brian Meyers Brian Meyers Executive Vice President, Chief Financial Officer andTreasurer (Principal Accounting and Financial Officer) POWER OF ATTORNEYKNOW 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 12, 2019Scott M. Shaw /s/ Brian K. Meyers Executive Vice President, Chief Financial Officer andTreasurer (Principal Accounting and Financial Officer) March 12, 2019Brian K. Meyers /s/ Alvin O. Austin Director March 12, 2019Alvin O. Austin /s/ Peter S. Burgess Director March 12, 2019Peter S. Burgess /s/ James J. Burke, Jr. Director March 12, 2019James J. Burke, Jr. /s/ Celia H. Currin Director March 12, 2019Celia H. Currin /s/ Ronald E. Harbour Director March 12, 2019Ronald E. Harbour /s/ J. Barry Morrow Director March 12, 2019J. Barry Morrow 55IndexINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page NumberReports of Independent Registered Public Accounting FirmF-2Consolidated Balance Sheets as of December 31, 2018 and 2017F-4Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016F-6Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018, 2017 and 2016F-7Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2018, 2017 and 2016F-8Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016F-9Notes to Consolidated Financial StatementsF-11 Schedule II-Valuation and Qualifying AccountsF-33F-1IndexREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo 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, 2018 and 2017, and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows foreach of the three years in the period ended December 31, 2018, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to asthe "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, 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, 2018, 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 12, 2019, 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 12, 2019F-2IndexREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo 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, 2018, 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, 2018, 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, 2018, of the Company and our report dated March 12, 2019, 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 12, 2019F-3IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share amounts) December 31, 2018 2017 ASSETS CURRENT ASSETS: Cash and cash equivalents $17,571 $14,563 Restricted cash 16,775 7,189 Accounts receivable, less allowance of $15,590 and $12,806 at December 31, 2018 and 2017, respectively 18,675 15,791 Inventories 1,451 1,657 Prepaid income taxes and income taxes receivable 178 207 Assets held for sale - 2,959 Prepaid expenses and other current assets 2,461 2,352 Total current assets 57,111 44,718 PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $171,109and $163,946 at December 31, 2018 and 2017, respectively 49,292 52,866 OTHER ASSETS: Noncurrent restricted cash 11,600 32,802 Noncurrent receivables, less allowance of $1,403 and $978 at December 31, 2018 and 2017, respectively 12,175 8,928 Deferred income taxes, net 424 424 Goodwill 14,536 14,536 Other assets, net 900 939 Total other assets 39,635 57,629 TOTAL $146,038 $155,213 See notes to consolidated financial statements.F-4IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share amounts)(Continued) December 31, 2018 2017 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of credit agreement $15,000 $- Unearned tuition 22,545 24,647 Accounts payable 14,107 10,508 Accrued expenses 10,605 11,771 Other short-term liabilities 2,324 558 Total current liabilities 64,581 47,484 NONCURRENT LIABILITIES: Long-term credit agreement 33,769 52,593 Pension plan liabilities 4,271 4,437 Accrued rent 3,410 4,338 Other long-term liabilities 141 548 Total liabilities 106,172 109,400 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, no par value - 10,000,000 shares authorized, no shares issued and outstanding at December 31, 2018and 2017 - - Common stock, no par value - authorized 100,000,000 shares at December 31, 2018 and 2017, issued andoutstanding 30,552,333 shares at December 31, 2018 and 30,624,407 shares at December 31, 2017 141,377 141,377 Additional paid-in capital 29,484 29,334 Treasury stock at cost - 5,910,541 shares at December 31, 2018 and 2017 (82,860) (82,860)Accumulated deficit (44,073) (37,528)Accumulated other comprehensive loss (4,062) (4,510)Total stockholders' equity 39,866 45,813 TOTAL $146,038 $155,213 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, 2018 2017 2016 REVENUE $263,200 $261,853 $285,559 COSTS AND EXPENSES: Educational services and facilities 125,373 129,413 144,426 Selling, general and administrative 141,244 138,779 148,447 Loss (gain) on sale of assets 537 (1,623) 233 Impairment of goodwill and long-lived assets - - 21,367 Total costs and expenses 267,154 266,569 314,473 OPERATING LOSS (3,954) (4,716) (28,914)OTHER: Interest income 31 56 155 Interest expense (2,422) (7,098) (6,131)Other income - - 6,786 LOSS BEFORE INCOME TAXES (6,345) (11,758) (28,104)PROVISION (BENEFIT) FOR INCOME TAXES 200 (274) 200 NET LOSS $(6,545) $(11,484) $(28,304)Basic Net loss per share $(0.27) $(0.48) $(1.21)Diluted Net loss per share $(0.27) $(0.48) $(1.21)Weighted average number of common shares outstanding: Basic 24,423 23,906 23,453 Diluted 24,423 23,906 23,453 See notes to consolidated financial statementsF-6IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands) December 31, 2018 2017 2016 Net loss $(6,545) $(11,484) $(28,304)Other comprehensive income Employee pension plan adjustments 448 1,591 971 Comprehensive loss $(6,097) $(9,893) $(27,333)See notes to consolidated financial statementsF-7IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(In thousands, except share amounts) Retained Accumulated Additional Earnings Other Common Stock Paid-in Treasury (Accumulated Comprehensive Shares Amount Capital Stock Deficit) Loss Total BALANCE - January 1,2016 29,727,555 $141,377 $27,292 $(82,860) $2,260 $(7,072) $80,997 Net loss - - - - (28,304) - (28,304)Employee pension planadjustments - - - - - 971 971 Stock-basedcompensation expenseRestricted stock 1,029,267 - 1,440 - - - 1,440 Net share settlement forequity-basedcompensation (71,805) - (178) - - - (178)BALANCE - December31, 2016 30,685,017 141,377 28,554 (82,860) (26,044) (6,101) 54,926 Net loss - - - - (11,484) - (11,484)Employee pension planadjustments - - - - - 1,591 1,591 Stock-basedcompensation expenseRestricted stock 128,810 - 1,220 - - - 1,220 Net share settlement forequity-basedcompensation (189,420) - (440) - - - (440)BALANCE - December31, 2017 30,624,407 141,377 29,334 (82,860) (37,528) (4,510) 45,813 Net loss - - - - (6,545) - (6,545)Employee pension planadjustments - - - - - 448 448 Stock-basedcompensation expense Restricted stock 135,568 - 522 - - - 522 Net share settlement forequity-basedcompensation (207,642) - (372) - - - (372)BALANCE - December31, 2018 30,552,333 $141,377 $29,484 $(82,860) $(44,073) $(4,062) $39,866 See notes to consolidated financial statements.F-8IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2018 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(6,545) $(11,484) $(28,304)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 8,421 8,702 11,066 Amortization of deferred finance costs 369 583 949 Write-off of deferred finance charges - 2,161 - Deferred income taxes - (424) - Loss (gain) on disposition of assets 537 (1,623) 223 Gain on capital lease termination, net - - (6,710)Impairment of goodwill and long-lived assets - - 21,367 Fixed asset donation - (19) (123)Provision for doubtful accounts 17,705 13,720 14,592 Stock-based compensation expense 522 1,220 1,440 Deferred rent (958) (1,312) (489)(Increase) decrease in assets: Accounts receivable (23,836) (15,733) (15,700)Inventories 206 30 201 Prepaid income taxes and income taxes receivable 29 55 87 Prepaid expenses and current assets (109) 532 412 Other assets (191) (1,163) (1,701)Increase (decrease) in liabilities: Accounts payable 3,753 (3,193) 742 Accrued expenses (1,136) (3,613) 1,195 Unearned tuition (2,102) (131) (6,854)Other liabilities 1,641 371 1,500 Total adjustments 4,851 163 22,197 Net cash used in operating activities (1,694) (11,321) (6,107)CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,697) (4,755) (3,596)Proceeds from sale of property and equipment 2,348 15,462 451 Net cash (used in) provided by investing activities (2,349) 10,707 (3,145)CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 31,000 75,900 - Payments on borrowings (35,099) (66,766) (387)Payment of deferred finance fees (94) (1,241) (645)Net share settlement for equity-based compensation (372) (440) (178)Payments under capital lease obligations - - (2,864)Net cash (used in) provided by financing activities (4,565) 7,453 (4,074)NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (8,608) 6,839 (13,326)CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of year 54,554 47,715 61,041 CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of year $45,946 $54,554 $47,715 See notes to consolidated financial statements.F-9IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Continued) Year Ended December 31, 2018 2017 2016 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $2,030 $2,790 $5,265 Income taxes $191 $139 $150 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Liabilities accrued for or noncash purchases of fixed assets $265 $1,447 $2,048 See notes to consolidated financial statements.F-10IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2018 AND 2017 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2018(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 22schools 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. The schools operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, andEuphoria Institute of Beauty Arts and Sciences and associated brand names. Most of the campuses serve major metropolitan markets and each typically offerscourses in multiple areas of study. Five of the campuses are destination schools, which attract students from across the United States and, in some cases, fromabroad. The Company’s other campuses primarily attract students from their local communities and surrounding areas. All of the campuses are nationally orregionally accredited and are eligible to participate in federal financial aid programs by the U.S. Department of Education (the “DOE”) and applicable stateeducation agencies and accrediting commissions 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.On July 9, 2018, New England Institute of Technology at Palm Beach, Inc. (“NEIT”), a wholly-owned subsidiary of the Company, entered into a commercialcontract (the “Sale Agreement”) with Elite Property Enterprise, LLC, pursuant to which NEIT agreed to sell to Elite Property Enterprise, LLC the real propertyowned by NEIT located at 1126 53rd Court North, Mangonia Park, Palm Beach County, Florida and the improvements and certain personal property locatedthereon (the “Mangonia Park Property”), for a cash purchase price of $2,550,000. On August 23, 2018, NEIT, consummated the sale of the Mangonia ParkProperty. At the closing, NEIT paid a real estate brokerage fee equal to 5% of the gross sales price and other customary closing costs and expenses. Pursuantto the provisions of the Company’s Credit Agreement with its lender, Sterling National Bank, the net cash proceeds of the sale of the Mangonia Park Propertywere deposited into an account with the lender to serve as additional security for loans and other financial accommodations provided to the Company and itssubsidiaries under the credit facility. In December 2018, the funds were used to repay the outstanding principal balance of the loans outstanding under thecredit facility and such repayment permanently reduced the revolving loan availability under the credit facility designated as Facility 1 under the Company’sCredit Agreement to $22.7 million.Effective December 31, 2018, the Company completed the teach-out and ceased operation of its Lincoln College of New England (“LCNE”) campus atSouthington, Connecticut. The decision to close the LCNE campus followed the previously reported placement of LCNE on probation by the college’sinstitutional accreditor, the New England Association of Schools and Colleges (“NEASC”). After evaluating alternative options, the Company concludedthat teaching out and closing the campus was in the best interest of the Company and its students. Subsequent to formalizing the LCNE closure decision inAugust 2018, the Company partnered with Goodwin College, another NEASC- accredited institution in the region, to assist LCNE students to complete theirprograms of study. The majority of the LCNE students will continue their education at Goodwin College thereby limiting some of the Company’s closingcosts. The revenue, net loss and ending population of LCNE, as of December 31, 2017, were $8.4 million, $1.6 million and 397 students, respectively. [TheCompany recorded closing cost associated with the closure of the LCNE campus in 2018 of approximately $1.6 million in connection with the termination ofthe LCNE campus lease, which is the net present value of the remaining obligation, to be paid in equal monthly installments through January 2020 andapproximately $700,000 of severance payments. LCNE results, previously reported in the HOPS segment, are now included in the Transitional segment as ofDecember 31, 2018.]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, 2018, the Company’s sources of cash primarilyincluded cash and cash equivalents of $45.95 million (of which $28.4 million is restricted). Refer to Note 8 for more information on the Company’s revolvingloan facility. The Company is also continuing to take actions to improve cash flow by aligning its cost structure to its student population.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.F-11IndexCash 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 amounts of $11.6 million and $32.8 million as of December 31, 2018 and 2017, respectively, ofrestricted cash are included in long-term assets in the consolidated balance sheets as the restrictions are greater than one year. Refer to Note 8 for moreinformation 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.Rent Expense—Rent expense related to operating leases where scheduled rent increases exist, is determined by expensing the total amount of rent due overthe life of the operating lease on a straight-line basis. The difference between the rent paid under the terms of the lease and the rent expensed on a straight-line basis is included in accrued rent and other long-term liabilities on the accompanying consolidated balance sheets.Advertising Costs—Costs related to advertising are expensed as incurred and approximated $29.4 million, $27.0 million and $28.0 million for the yearsended December 31, 2018, 2017 and 2016, 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, and changes that restrict the activities of the acquired business, and a variety of other circumstances. If the Company determines thatan 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 period thedetermination 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, 2018 and 2017, we conducted our annual test for goodwill impairment and determined we did not have an impairment. At December 31,2016, we conducted our annual test for goodwill impairment and determined we had an impairment of $9.9 million.F-12IndexImpairment 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 years ended December 31, 2018 and 2017, there were no long-lived asset impairments.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, 2018,exceeded the balance insured by the FDIC Corporation (“FDIC”) by approximately $45.3 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, 2018 and 2017.Use of Estimates in the Preparation of Financial Statements—The preparation of financial statements in conformity with generally accepted accountingprinciples in the United States (“GAAP’) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilitiesand disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expensesduring the period. On an ongoing basis, the Company evaluates the estimates and assumptions, including those related to revenue recognition, bad debts,impairments, fixed assets, income taxes, benefit plans and certain accruals. Actual results could differ from those estimates.Stock-Based Compensation Plans—The Company measures the value of stock options on the grant date at fair value, using the Black-Scholes optionvaluation model. The Company amortizes the fair value of stock options, net of estimated forfeitures, utilizing straight-line amortization of compensationexpense over the requisite service period of the grant.The Company measures the value of service and performance-based restricted stock on the fair value of a share of common stock on the date of the grant. TheCompany amortizes the fair value of service-based restricted stock utilizing straight-line amortization of compensation expense over the requisite serviceperiod of the grant.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 11.F-13IndexThe Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31,2018 and 2017, 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.New Accounting PronouncementsIn August 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2018-14, “Compensation –Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for DefinedBenefit Plans.” This ASU adds, modifies and clarifies several disclosure requirements for employers that sponsor defined benefit pension or otherpostretirement plans. This guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. We are currently assessing theeffect that this ASU will have on our consolidated financial statements and related disclosures.In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASUNo. 2018-13"), which eliminates, adds and modifies certain fair value measurement disclosure requirements of Accounting Standards Codification 820, FairValue Measurement. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,2019. Early adoption is permitted. The Company has decided not to early adopt the amendments. The adoption of ASU No. 2018-13 is not expected to havea material impact on the Company's consolidated financial statements.In June 2018, FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting ("ASU No. 2018-07") intended to reduce costand complexity and to improve financial reporting for share-based payments issued to nonemployees. This ASU expands the scope of Topic 718,Compensation - Stock Compensation ("Topic 718"), to include share-based payment transactions for acquiring goods and services from nonemployees. Anentity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and theattribution of cost. The Company adopted ASU No. 2018-07 on January 1, 2019. The adoption of the standard did not have a material impact on theCompany's consolidated financial statements. The Company will evaluate the impact of ASU No. 2018-07 for future awards to nonemployees subsequent tothe effective date.The FASB has issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718) — Scope of Modification Accounting.” ASU 2017-09 applies toentities that change the terms or conditions of a share-based payment award. The FASB adopted ASU 2017-09 to provide clarity and reduce diversity inpractice as well as cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to the modification of the terms andconditions of a share-based payment award. The amendments provide guidance on determining which changes to the terms and conditions of share-basedpayment award require an entity to apply modification accounting under Topic 718. ASU 2017-09 is effective for all entities for annual periods, includinginterim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, forpublic business entities for reporting periods for which financial statements have not yet been issued. The Company adopted ASU 2017-09 on January 1,2018. The adoption of ASU 2017-09 had no impact on the Company’s consolidated financial statements.In February 2018, the FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220)”. The updated guidance allows entitiesto reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retainedearnings in their consolidated financial statements. Under the Tax Act, deferred taxes were adjusted to reflect the reduction of the historical corporate incometax rate to the newly enacted corporate income tax rate, which left the tax effects on items within accumulated other comprehensive income stranded at aninappropriate tax rate. The updated guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years.Early adoption is permitted in any interim period and should be applied either in the period of adoption or retrospectively to each period (or periods) inwhich the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The adoption of ASU No. 2018-02 is not expected tohave a material impact on the Company's consolidated financial statements.In 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 January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business ("ASU No. 2017-01"). Under the amendments in this update, anacquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs to be considered abusiness. In acquisitions where outputs are not present, FASB has developed more stringent criteria for sets of transferred assets and activities withoutoutputs. The Company adopted ASU No. 2017-01 on January 1, 2018. There was no material impact associated with the adoption of the standard.F-14IndexIn 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. We adopted the new standard effectiveJanuary 1, 2018. The amendments were applied using a retrospective transition method to each period presented. The Company includes in its cash andcash-equivalent balances in the consolidated statements of cash flows those amounts that have been classified as restricted cash and restricted cashequivalents for each of the periods presented. 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. We adopted the new standard effective January 1,2018. The adoption of ASU 2016-15 had no impact on the Company’s consolidated financial statements.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, which supersedes previously existing revenue recognition guidance, creates a five-step model forrevenue recognition requiring companies to exercise judgment when considering contract terms and relevant facts and circumstances. The five-step modelrequires (1) identifying the contract, (2) identifying the separate performance obligations in the contract, (3) determining the transaction price, (4) allocatingthe transaction price to the separate performance obligations and (5) recognizing revenue at the time that each performance obligation is satisfied. Thestandard also requires expanded disclosures surrounding revenue recognition. The standard is effective for fiscal periods beginning after December 15, 2017and 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 ASU 2016-10 results in the revenue for the majority of the Company's student contracts beingrecognized over time which is consistent with the Company's previous revenue recognition model. For all student contracts, there is continuous transfer ofcontrol to the student and the number of performance obligations under ASU 2016-10 is consistent with those identified under the existing standard. Theimpact of the adoption of the new standard on revenue recognition for student contracts is immaterial on its consolidated financial statements. See additionalinformation in Note 4.In February 2016, the FASB issued ASU No. 2016-02, Leases ("ASU No. 2016-02"). This guidance amends the existing accounting considerations andtreatments for leases through the creation of Topic 842, Leases, to increase transparency and comparability among organizations by requiring the recognitionof right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Lessees and lessors are required to disclose qualitative and quantitative informationabout leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from such leases.In July 2018, FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases ("ASU No. 2018-10”) to further clarify, correct andconsolidate various areas previously discussed in ASU 2016-02. FASB also issued ASU No. 2018-11, Leases: Targeted Improvements ("ASU 2018-11") toprovide entities another option for transition and lessors with a practical expedient. The transition option allows entities to not apply ASU No. 2016-02 incomparative periods in the financial statements in the year of adoption. The practical expedient offers lessors an option to not separate non-lease componentsfrom the associated lease components when certain criteria are met.The amendments in ASU No. 2016-02, ASU No. 2018-10 and ASU No. 2018-11 are effective for fiscal years beginning after December 15, 2018, includinginterim periods within those fiscal years, and allow for modified retrospective adoption with early adoption permitted. The Company adopted theamendments on January 1, 2019 using the modified retrospective approach and elected the transition relief package of practical expedients by applyingprevious accounting conclusions under ASC 840 to all leases that existed prior to the transition date. As a result, the Company did not reassess (1) whetherexisting or expired contracts contain leases, 2) lease classification for any existing or expired leases and 3) whether lease origination costs qualified as initialdirect costs. The Company did not elect the practical expedient to use hindsight in determining a lease term and impairment of the ROU assets at theadoption date. Additionally, the Company did not separate lease components from non-lease components for the specified asset classes.The Company established a corporate implementation team, which engages with cross-functional representatives from all its businesses. The Companyutilized a bottom-up approach to analyze the impact of the standard on its lease contract portfolio by reviewing current accounting policies and practices toidentify potential differences that would result from applying the requirements of the new standard to lease arrangements. In addition, the Companyidentified and implemented the appropriate changes to its business processes, systems and controls to support recognition and disclosure under the newstandard.The Company determines if an arrangement is a lease at inception. A ROU asset represents the Company’s right to use an underlying asset for the lease termand lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are to be recognized atcommencement date based on the present value of lease payments over the lease term. As most of the Company’s operating leases do not provide an implicitrate, the Company uses an incremental borrowing rate based on the information available on the adoption date in determining the present value of leasepayments. The implicit rate is to be applied when readily determinable. The operating lease ROU assets will also include any lease payments made andexclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise thatoption. Lease expense for lease payments will be recognized on a straight-line basis over the lease term. Finance leases are to be included in property andequipment, other current liabilities, and other long-term liabilities within the consolidated balance sheets. Upon adoption of the new leasing standards, weexpect to recognize a lease liability between $46 million and $49 million and a right-to-use asset between $42 million and $45 million on our consolidatedbalance sheet. The impact to retained earnings is expected to be immaterial.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, 2018, 2017 and 2016, approximately 78%, 78% and 79%, respectively, of net revenues on a cash basis were indirectly derived from fundsdistributed under Title IV Programs.For the years ended December 31, 2018, 2017 and 2016, 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.F-16 Year Ended December 31, 2018 2017 2016 Basic shares outstanding 24,423,479 23,906,395 23,453,427 Dilutive effect of stock options - - - Diluted shares outstanding 24,423,479 23,906,395 23,453,427 IndexIf 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 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 2018 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 2018 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 2017 and 2016 fiscal years reflecting a composite score of 1.1 and 1.5,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.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, 2018, 2017 and 2016,respectively were as follows:For the years ended December 31, 2018, 2017 and 2016, options to acquire 50,422, 570,306, and 773,078 shares, respectively, were excluded from the abovetable because the Company reported a net loss for the year and, therefore, their impact on reported loss per share would have been antidilutive. For the yearsended December 31, 2018, 2017 and 2016, options to acquire 139,000, 167,667, and 218,167 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.4.REVENUE RECOGNITIONPrior to adoption of ASU 2014-09Revenues are derived primarily from programs taught at our schools. Tuition revenues, textbook sales and one-time fees, such as nonrefundable applicationfees and course material fees, are recognized on a straight-line basis over the length of the applicable program as the student proceeds through the program,which is the period of time from a student’s start date through his or her graduation date (including internships or externships, if any, occurring prior tograduation), and we complete the performance of teaching the student entitling us to the revenue. Other revenues, such as tool sales and contract trainingrevenues, are recognized as goods are delivered or training completed. On an individual student basis, tuition earned in excess of cash received is recorded asaccounts 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 commencing a program by attending class and reassess collectabilityof tuition and fees when a student withdraws from a course. We calculate the amount to be returned under Title IV and its stated refund policy to determineeligible charges and, if there is a balance due from the student after this calculation, we expect payment from the student. We have a process to pursueuncollected accounts whereby, based upon the student’s financial means and ability to pay, a payment plan is established with the student to ensure thatcollectability is reasonable. We continuously monitor our historical collections to identify potential trends that may impact our determination thatcollectability of receivables for withdrawn students is realizable. If a student withdraws from a program prior to a specified date, any paid but unearnedtuition is refunded. Refunds are calculated and paid in accordance with federal, state and accrediting agency standards. Generally, the amount to be refundedto a student is calculated based upon the period of time the student has attended classes and the amount of tuition and fees paid by the student as of his or herwithdrawal date. These refunds typically reduce deferred tuition revenue and cash on our consolidated balance sheets as we generally do not recognizetuition revenue in our consolidated statements of income (loss) until the related refund provisions have lapsed. Based on the application of our refundpolicies, we may be entitled to incremental revenue on the day the student withdraws from one of our schools. We record revenue for students who withdrawfrom one of our schools when payment is received because collectability on an individual student basis is not reasonably assured.F-17IndexAfter adoption of ASU 2014-09On January 1, 2018, we adopted the new standard on revenue recognition, ASU 2014-09, using the modified retrospective approach of ASU 2016-10. Theadoption of the guidance in ASU 2014-09 as amended by ASU 2016-10 did not have a material impact on the measurement or recognition of revenue in anyprior or current reporting periods and there was no adjustment to retained earnings. The core principle of the new standard is that a company shouldrecognize revenue to depict the transfer of promised goods or services to students in an amount that reflects the consideration to which the company expectsto be entitled in exchange for such goods or services.Substantially all of our revenues are considered to be revenues from contracts with students. The related accounts receivable balances are recorded in ourbalance sheets as student accounts receivable. We do not have significant revenue recognized from performance obligations that were satisfied in priorperiods, and we do not have any transaction price allocated to unsatisfied performance obligations other than in our unearned tuition. We record revenue forstudents who withdraw from one of our schools only to the extent that it is probable that a significant reversal in the amount of cumulative revenuerecognized will not occur. Unearned tuition represents contract liabilities primarily related to our tuition revenue. We have elected not to provide disclosureabout transaction prices allocated to unsatisfied performance obligations if contract durations are less than one-year, or if we have the right to considerationfrom a student in an amount that corresponds directly with the value provided to the student for performance obligations completed to date. We haveassessed the costs incurred to obtain a contract with a student and determined them to be immaterial.Unearned tuition is the only significant contract asset or liability impacted by our adoption of ASU 2016-10. Unearned tuition in the amount of $22.5million and $24.6 million is recorded in the current liabilities section of the accompanying consolidated balance sheets as of December 31, 2018 andDecember 31, 2017, respectively. The change in the contract liability balance during the year ended December 31, 2018 is the result of payments received inadvance of satisfying performance obligations, offset by revenue recognized during that period. Revenue recognized for the year ended December 31, 2018that were included in the contract liability balance at the beginning of the year was $24.5 million.F-18IndexThe following table depicts the timing of revenue recognition: Year ended December 31, 2018 Transportation andSkilled TradesSegment Healthcare andOther ProfessionsSegment TransitionalSegment Consolidated Timing of Revenue Recognition Services transferred at a point in time $10,351 $3,834 $72 $14,257 Services transferred over time 174,912 68,301 5,730 248,943 Total revenues $185,263 $72,135 $5,802 $263,200 Year ended December 31, 2017 Transportation andSkilled TradesSegment Healthcare andOther ProfessionsSegment TransitionalSegment Consolidated Timing of Revenue Recognition Services transferred at a point in time $8,987 $2,860 $28 $11,875 Services transferred over time 172,341 60,781 16,856 249,978 Total revenues $181,328 $63,641 $16,884 $261,853 Year ended December 31, 2016 Transportation andSkilled TradesSegment Healthcare andOther ProfessionsSegment TransitionalSegment Consolidated Timing of Revenue Recognition Services transferred at a point in time $8,856 $2,765 $556 $12,177 Services transferred over time 173,421 60,105 39,856 273,382 Total revenues $182,277 $62,870 $40,412 $285,559 5.GOODWILLChanges in the carrying amount of goodwill during the years ended December 31, 2018 and 2017 are as follows: GrossGoodwillBalance AccumulatedImpairmentLosses NetGoodwillBalance Balance as of January 1, 2017 $117,176 $102,640 $14,536 Adjustments - - - Balance as of December 31, 2017 117,176 102,640 14,536 Adjustments - - - Balance as of December 31, 2018 $117,176 $102,640 $14,536 As of December 31, 2018 and 2017, the goodwill balance of $14.5 million is related to the Transportation and Skilled Trades segment.F-19Index6.PROPERTY, EQUIPMENT AND FACILITIESProperty, equipment and facilities consist of the following: Useful life(years) At December 31, 2018 2017 Land - $6,969 $6,969 Buildings and improvements 1-25 128,431 127,027 Equipment, furniture and fixtures 1-7 83,766 81,772 Vehicles 3 916 883 Construction in progress - 319 161 220,401 216,812 Less accumulated depreciation and amortization (171,109) (163,946) $49,292 $52,866 Depreciation and amortization expense of property, equipment and facilities was $8.4 million, $8.7 million and $11.0 million for the years ended December31, 2018, 2017 and 2016, respectively.As discussed in Note 1, the Company sold its property in Mangonia Park Palm Beach County, Florida and associated assets.7.ACCRUED EXPENSESAccrued expenses consist of the following: At December 31, 2018 2017 Accrued compensation and benefits $4,337 $3,114 Accrued rent and real estate taxes 3,057 3,151 Other accrued expenses 3,211 5,506 $10,605 $11,771 8.LONG-TERM DEBTLong-term debt consist of the following: At December 31, 2018 2017 Credit agreement $49,301 $53,400 Deferred financing fees (532) (807) 48,769 52,593 Less current maturities (15,000) - $33,769 $52,593 On March 31, 2017, the Company obtained a secured credit facility (the “Credit Facility”) from Sterling National Bank (the “Bank”) pursuant to a CreditAgreement dated March 31, 2017 among the Company, the Company’s subsidiaries and the Bank, which was subsequently amended on November 29, 2017,February 23, 2018, July 11, 2018 and, most recently, on March 6, 2019 (as amended, the “Credit Agreement”). Prior to the most recent amendment of theCredit Agreement (the “Fourth Amendment”), the financial accommodations available to the Borrowers under the Credit Agreement consisted of (a) a $25million revolving loan facility designated as “Facility 1”, (b) a $25 million revolving loan facility (including a sublimit amount for letters of credit of $10million) designated as “Facility 2” and (c) a $15 million revolving credit loan designated as “Facility 3”.Pursuant to the terms of the Fourth Amendment and upon its effectiveness, Facility 1 was converted into a term loan (the “Term Loan”) in the originalprincipal amount of $22.7 million (such amount being the entire unpaid principal and accrued interest outstanding under Facility 1 as of the effective date ofthe Fourth Amendment), which matures on March 31, 2024 (the “Term Loan Maturity Date”). The Fourth Amendment provides for the repayment of theTerm Loan in monthly installments as follows: (a) on April 1, 2019 and on the same day of each month thereafter through and including June 30, 2019,accrued interest only; (b) on July 1, 2019 and on the same day of each month thereafter through and including December 31, 2019, the principal amount of$10.2 million plus accrued interest; (c) on January 1, 2020 and on the same day of each month thereafter through and including June 30, 2020, accruedinterest only; (d) on July 1, 2020 and on the same day of each month thereafter through and including December 31, 2020, the principal amount of $0.6million plus accrued interest; (e) on January 1, 2021 and on the same day of each month thereafter through and including June 30, 2021, accrued interestonly; (f) on July 1, 2021 and on the same day of each month thereafter through and including December 31, 2021, the principal amount of $0.4 million plusaccrued interest; (g) on January 1, 2022 and on the same day of each month thereafter through and including June 30, 2022, accrued interest only; (h) on July1, 2022 and on the same day of each month thereafter through and including December 31, 2022, the principal amount of $0.4 million plus accrued interest;(i) on January 1, 2023 and on the same day of each month thereafter through and including June 30, 2023, accrued interest only; (j) on July 1, 2023 and onthe same day of each month thereafter through and including December 31, 2023, the principal amount of $0.4 million plus accrued interest; (k) on January1, 2024 and on the same day of each month thereafter through and including the Term Loan Maturity Date, accrued interest only; and (l) on the Term LoanMaturity Date, the remaining outstanding principal amount of the Term Loan, together with accrued interest, will be due and payable. In the event of a saleof any campus, school or business of the Borrowers permitted under the Credit Agreement, 25% of the net proceeds of any such sale must be used to paydown the outstanding principal amount of the Term Loan in inverse order of maturity.F-20IndexThe Fourth Amendment changed the maturity date of Facility 2 from May 31, 2020 to April 30, 2020. The maturity date for Facility 3 is May 31, 2019.Under 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 secured bycash collateral in an amount equal to 100% of the aggregate stated amount of the letters of credit issued and revolving loans outstanding through theproceeds of the Term Loan or other available cash of the Company. Notwithstanding such requirement, pursuant to the terms of the Fourth Amendment, a$2.5 million revolving loan was advanced under Facility 2 at the closing of the Fourth Amendment on March 6, 2019 without any requirement for cashcollateral and, in the Bank’s sole discretion, an additional $2.5 million of revolving loans may be advanced under Facility 2 without any requirement forcash collateral, consisting of (a) a $1.25 million revolving loan within 15 days after the Bank’s receipt of the Company’s financial statements for the fiscalquarter ending March 31, 2019 and (b) a $1.25 million revolving loan within 15 days after the Bank’s receipt of the Company’s financial statements for thefiscal quarter ending June 30, 2019. The $2.5 million revolving loan advanced under Facility 2 at the closing of the Fourth Amendment and the additional$2.5 million of revolving loans that may be advanced under Facility 2 in the discretion of the Bank, in each case without any requirement for cash collateral,must be repaid on November 1, 2019 and, prior to their repayment, the Borrowers are required to make monthly payments of accrued interest only on suchrevolving loans.The Term Loan bears interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.85% and (y) 6.00%. Revolving loans outstandingunder Facility 1 prior to its conversion to a term loan also bore interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.85% and (y)6.00%. Revolving loans advanced under Facility 2 that are cash collateralized will bear interest at a rate per annum equal to the greater of (x) the Bank’sprime rate and (y) 3.50%. Pursuant to the Fourth Amendment, revolving loans advanced under Facility 2 that are not secured by cash collateral will bearinterest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.85% and (y) 6.00%. Revolving loans under Facility 3 bear interest at a rateper annum equal to the greater of (x) the Bank’s prime rate and (y) 3.50%.Under the terms of the Fourth Amendment, the Bank is entitled to receive an unused facility fee on the average daily unused balance of Facility 2 at a rate perannum equal to 0.50%, which fee is payable quarterly in arrears.The Fourth Amendment provides that in the event the Bank’s prime rate is greater than or equal to 6.50% while any loans are outstanding, the Borrowers maybe required to enter into a hedging contract in form and content satisfactory to the Bank.The Fourth Amendment requires the Borrowers to give the Bank the first opportunity to provide any and all traditional banking services required by theBorrowers, including, but not limited to, treasury management, loans and other financing services, on terms mutually acceptable to the Borrowers and theBank, in accordance with the terms set forth in the Fourth Amendment. In the event that loans provided under the Credit Agreement are repaid throughreplacement financing, the Fourth Amendment requires that the Borrowers pay to the Bank an exit fee in an amount equal to 1.25% of the total amount repaidand the face amount of all letters of credit replaced in connection with the replacement financing; provided, however, that no exit fee will be required in theevent the Bank or the Bank’s affiliate arranges or provides the replacement financing or the payoff of the applicable loans occurs after March 5, 2021.In connection with the effectiveness of the Fourth Amendment, the Borrowers paid to the Bank a one-time modification fee in the amount of $50,000.Pursuant to the Credit Agreement, in December 2018, the net proceeds of the sale of the Mangonia Park Property, which were held in a non-interest bearingcash collateral account at and by the Bank as additional collateral for the loans outstanding under the Credit Agreement, were applied to the outstandingprincipal balance of revolving loans outstanding under Facility 1 and, as a result of such repayment, the revolving loan availability under Facility 1 waspermanently reduced to $22.7 million.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 and mortgageson four parcels of real property owned by the Company in Colorado, Tennessee and Texas, at which three of the Company’s schools are located, as well as aformer school property owned by the Company located in Connecticut.At the closing of the Credit Facility, the Company drew $25 million under Facility 1, which was used to repay the Company’s previous credit facility and topay transaction costs associated with closing the Credit Facility.F-21IndexEach 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 require the Company to maintain, on deposit in one or more non-interest bearing accounts, a minimum of $5 million inquarterly average aggregate balances, which, if not maintained, results in a fee of $12,500 payable to the Bank for that quarter.In addition to the foregoing, the Credit Agreement contains customary representations, warranties and affirmative and negative covenants, includingfinancial covenants that (i) restrict capital expenditures tested on a fiscal year end basis; (i) prohibit the incurrence of a net loss commencing on December 31,2019; and (iii) require a minimum adjusted EBITDA tested quarterly on a rolling twelve month basis. The Fourth Amendment (i) modifies the minimumadjusted EBITDA required; (ii) eliminates the requirement for a minimum funded debt to adjusted EBITDA ratio; and (iii) requires the maintenance of amaximum funded debt to adjusted EBITDA ratio tested quarterly on a rolling twelve month basis. The Credit Agreement contains events of defaultcustomary for facilities of this type. As of December 31, 2018, the Company is in compliance with all covenants.As of December 31, 2018, the Company had $49.3 million outstanding under the Credit Facility; offset by $0.5 million of deferred finance fees. As ofDecember 31, 2017, the Company had $53.4 million outstanding under the Credit Facility, offset by $0.8 million of deferred finance fees, which werewritten-off. As of December 31, 2018 and December 31, 2017, letters of credit in the aggregate outstanding principal amount of $1.8 million and $7.2million, respectively, were outstanding under the Credit Facility. For the three months ended March 31, 2019, the Company is required to increase its lettersof credit by $2.8 million related to state bond requirements which requires the Company to increase its restricted cash balance by $2.8 million.Scheduled maturities of long-term debt at December 31, 2018 are as follows:Year ending December 31, 2019 $15,000*2020 33,769 2021 - 2022 - 2023 - Thereafter - $48,769 * Includes deferred finance fees of $0.5 million.9.STOCKHOLDERS' EQUITYRestricted StockThe Company has two stock incentive plans: a Long-Term Incentive Plan (the “LTIP”) and a Non-Employee Directors Restricted Stock Plan (the “Non-Employee Directors Plan”).Under the LTIP, certain employees received awards of restricted shares of common stock based on service and performance. The number of shares granted toeach employee is based on the fair market value of a share of common stock on the date of grant.On February 23, 2018, restricted shares of common stock of the Company were granted to certain employees of the Company, which shares vestedimmediately. There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares; however, the recipientcan only sell or otherwise transfer the shares after the expiration of a specified period of time ranging from 120 to 240 days following the date of grant.On May 13, 2016 and January 16, 2017, performance-based restricted shares were granted to certain employees of the Company, which vest on March 15,2017 and March 15, 2018 based upon the attainment of a financial metric during each fiscal year ending December 31, 2016 and 2017. These shares werefully vested as of March 31, 2018 and are held without restriction.On June 2, 2014 and December 18, 2014, performance-based restricted shares were granted to certain employees of the Company, which vest over three yearsbased upon the attainment of (i) a specified operating income margin during any one or more of the fiscal years in the period beginning January 1, 2015 andending December 31, 2017 and (ii) the attainment of earnings before interest, taxes, depreciation and amortization targets during each of the fiscal yearsended December 31, 2015 through 2017. There is no restriction on the right to vote or the right to receive dividends with respect to any of these restrictedshares.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.F-22IndexIn 2018, 2017 and 2016, the Company completed a net share settlement for 207,642, 189,420 and 71,805 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 2018, 2017 and/or 2016, 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, $0.4 million and $0.2 million in 2018,2017 and 2016, 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.The following is a summary of transactions pertaining to restricted stock: Shares WeightedAverage GrantDate Fair ValuePer Share 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 Granted 135,568 1.60 Cancelled - - Vested (707,654) 1.82 Nonvested restricted stock outstanding at December 31, 2018 35,908 2.23 The restricted stock expense for each of the years ended December 31, 2018, 2017 and 2016 was $0.5 million, $1.2 million and $1.4 million, respectively.The unrecognized restricted stock expense as of December 31, 2018 and 2017 was less than $0.1 million and $0.3 million, respectively. As of December 31,2018, unrecognized restricted stock expense will be expensed over the weighted-average period of approximately 5 months. As of December 31, 2018,outstanding restricted shares under the LTIP had an aggregate intrinsic value of $0.1 million. For the year ended December 31, 2017, 52,398 shares werecancelled as the performance criteria was not met.Stock OptionsDuring 2018, 2017 and 2016 there were no new stock option grants. The following is a summary of transactions pertaining to the option plans: Shares WeightedAverageExercise PricePer Share WeightedAverageRemainingContractualTerm AggregateIntrinsic Value Outstanding January 1, 2016 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 - Cancelled (28,667) 11.98 Outstanding December 31, 2018 139,000 12.14 2.53 years - Vested as of December 31, 2018 139,000 12.14 2.53 years - Exercisable as of December 31, 2018 139,000 12.14 2.53 years - As of December 31, 2018, there are no unrecognized pre-tax compensation expense for unvested stock option awards.F-23IndexThe following table presents a summary of options outstanding at December 31, 2018: At December 31, 2018 Stock Options Outstanding Stock Options Exercisable Range of Exercise Prices Shares ContractualWeightedAverage life(years) WeightedAverage ExercisePrice Shares WeightedAverage ExercisePrice $4.00-$13.99 91,000 3.17 $7.79 91,000 $7.79 $14.00-$19.99 17,000 0.84 19.98 17,000 19.98 $20.00-$25.00 31,000 1.59 20.62 31,000 20.62 139,000 2.53 12.14 139,000 12.14 10.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, 2018 2017 2016 CHANGES IN BENEFIT OBLIGATIONS: Benefit obligation-beginning of year $23,492 $22,916 $23,341 Service cost 28 29 28 Interest cost 755 840 888 Actuarial (gain) loss (1,951) 721 (255)Benefits paid (1,219) (1,014) (1,086)Benefit obligation at end of year 21,105 23,492 22,916 CHANGE IN PLAN ASSETS: Fair value of plan assets-beginning of year 19,055 17,548 17,792 Actual return on plan assets (1,000) 2,521 842 Benefits paid (1,220) (1,014) (1,086)Fair value of plan assets-end of year 16,835 19,055 17,548 BENEFIT OBLIGATION IN EXCESS OF FAIR VALUE FUNDED STATUS: $(4,270) $(4,437) $(5,368)For the year ended December 31, 2018, the actuarial gain of $1.9 million was due to the increase in the discount rate from 3.36% to 4.01%.Amounts recognized in the consolidated balance sheets consist of: At December 31, 2018 2017 2016 Noncurrent liabilities $(4,270) $(4,437) $(5,368)Amounts recognized in accumulated other comprehensive loss consist of: Year Ended December 31, 2018 2017 2016 Accumulated loss $(6,428) $(6,876) $(8,467)Deferred income taxes 2,366 2,366 2,366 Accumulated other comprehensive loss $(4,062) $(4,510) $(6,101)The accumulated benefit obligation was $21.1 million and $23.5 million at December 31, 2018 and 2017, respectively.F-24IndexThe following table provides the components of net periodic cost for the plan: Year Ended December 31, 2018 2017 2016 COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $28 $29 $28 Interest cost 755 840 888 Expected return on plan assets (1,104) (1,058) (1,118)Recognized net actuarial loss 601 850 991 Net periodic benefit cost $280 $661 $789 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 $0.6 million.The following tables present plan assets using the fair value hierarchy as of December 31, 2018 and 2017. 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 Marketsfor IdenticalAssets Significant OtherObservable Inputs SignificantUnobservableInputs (Level 1) (Level 2) (Level 3) Total Equity securities $5,428 $- $- $5,428 Fixed income 5,852 - - 5,852 International equities 3,734 - - 3,734 Real estate 795 - - 795 Cash and equivalents 1,026 - - 1,026 Balance at December 31, 2018 $16,835 $- $- $16,835 Quoted Prices inActive Marketsfor Identical Assets Significant OtherObservable Inputs SignificantUnobservableInputs (Level 1) (Level 2) (Level 3) Total Equity 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 Fair value of total plan assets by major asset category as of December 31: 2018 2017 Equity securities 32% 36%Fixed income 35% 36%International equities 22% 18%Real estate 5% 6%Cash and equivalents 6% 4%Total 100% 100%Weighted-average assumptions used to determine benefit obligations as of December 31: 2018 2017 2016 Discount rate 4.01% 3.36% 3.81%Rate of compensation increase 2.50% 2.50% 2.50%F-25IndexWeighted-average assumptions used to determine net periodic pension cost for years ended December 31: 2018 2017 2016 Discount rate 4.01% 3.36% 3.81%Rate of compensation increase 2.50% 2.50% 2.50%Long-term rate of return 6.25% 6.00% 6.25%As this plan was frozen to non-union employees on December 31, 1994, the difference between the projected benefit obligation and accumulated benefitobligation is not significant in any year.The Company invests plan assets based on a total return on investment approach, pursuant to which the plan assets include a diversified blend of equity andfixed income investments toward a goal of maximizing the long-term rate of return without assuming an unreasonable level of investment risk. The Companydetermines the level of risk based on an analysis of plan liabilities, the extent to which the value of the plan assets satisfies the plan liabilities and the plan'sfinancial condition. The investment policy includes target allocations ranging from 30% to 70% for equity investments, 20% to 60% for fixed incomeinvestments and 0% to 10% for cash equivalents. The equity portion of the plan assets represents growth and value stocks of small, medium and largecompanies. The Company measures and monitors the investment risk of the plan assets both on a quarterly basis and annually when the Company assessesplan liabilities.The Company uses a building block approach to estimate the long-term rate of return on plan assets. This approach is based on the capital marketsassumption that the greater the volatility, the greater the return over the long term. An analysis of the historical performance of equity and fixed incomeinvestments, together with current market factors such as the inflation and interest rates, are used to help make the assumptions necessary to estimate a long-term rate of return on plan assets. Once this estimate is made, the Company reviews the portfolio of plan assets and makes adjustments thereto that theCompany believes are necessary to reflect a diversified blend of equity and fixed income investments that is capable of achieving the estimated long-termrate of return without assuming an unreasonable level of investment risk. The Company also compares the portfolio of plan assets to those of other pensionplans to help assess the suitability and appropriateness of the plan's investments.The Company does not expect to make contributions to the plan in 2019. 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 each of the years ended December 31, 2018 and 2017,respectively.Information about the expected benefit payments for the plan is as follows:Year Ending December 31, 2019 $1,335 2020 1,347 2021 1,350 2022 1,368 2023 1,382 Years 2024-2028 6,859 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 31,2018, 2017 and 2016, the Company's expense for the 401(k) plan amounted to $0.1 million, $0.1 million and $0.7 million, respectively.F-26Index11.INCOME TAXESComponents of the provision for income taxes were as follows: Year Ended December 31, 2018 2017 2016 Current: Federal $- $- $- State 200 150 200 Total 200 150 200 Deferred: Federal - (424) - State - - - Total - (424) - Total (benefit) provision $200 $(274) $200 Effective Tax rateThe reconciliation of the effective tax rate to the U.S. Statutory Federal Income tax rate was: Year Ended December 31, 2018 2017 2016 Loss before taxes $(6,345) $(11,758) $(28,104) Expected tax benefit $(1,332) 21.0% $(4,115) 35.0% $(9,836) 35.0%State tax benefit (net offederal) 200 (3.2) 150 (1.3) 200 (0.7)Valuation allowance 1,230 (19.4) (13,920) 118.4 9,726 (34.6)Federal tax reform -deferred rate change 49 (0.8) 17,671 (150.3) - - Other 53 (0.8) (60) 0.5 110 (0.4)Total $200 (3.2%) $(274) 2.3% $200 (0.7%)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 took effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35% to21%; (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) limitation 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 impacted fiscalyear 2017.Our provision for income taxes was $0.2 million, or (3.2%) of pretax loss, for the year ended December 31, 2018, compared to a benefit for income taxes of$0.3 million, or 2.3% of pretax loss, in the prior year comparable period. No federal or state income tax benefit was recognized for the current period loss dueto the recognition of a full valuation allowance. Income tax expense resulted from various minimal state tax expenses.The deferred tax provision benefit in the prior year was due to recognition of $ 0.4 million of valuation allowance for the AMT credits. The tax expense inprior year included an adjustment to measure net deferred tax assets at the new U.S. tax rate of 21%. The expense was offset with a corresponding release ofvaluation allowance. In accordance with Staff Accounting Bulletin 118 ("SAB 118"), we completed our analysis of the Tax Act resulting in no material adjustments from theprovisional amounts recorded during the prior year. The Tax Act did not have a material impact on our financial statements because we are under a fullvaluation allowance.F-27IndexDeferred Taxes and Valuation AllowanceThe components of the non-current deferred tax assets/(liabilities) were as follows: At December 31, 2018 2017 Gross noncurrent deferred tax assets (liabilities) Allowance for bad debts $4,828 $3,792 Accrued rent 1,833 1,723 Accrued benefits - 105 Stock-based compensation 18 387 163J interest limitation 19 - Depreciation 16,259 15,520 Goodwill (98) 594 Other intangibles 211 291 Pension plan liabilities 1,163 1,221 Net operating loss carryforwards 17,927 17,367 AMT credit 424 424 Gross noncurrent deferred tax assets, net 42,584 41,424 Less valuation allowance (42,160) (41,000)Noncurrent deferred tax assets, net $424 $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 deferred tax assets except the deferred tax assets forAMT credits which can be realized to offset regular tax liability or refunded. As a result, as of December 31, 2018 and 2017, the Company has recorded avaluation allowance of $42.2 million and $41.0 million, respectively, against its net deferred tax assets. With respect to AMT credit deferred tax asset, it isexpected that 50% will be refunded upon the filings of Company's 2018 federal Corporate income tax return is filed.As of December 31, 2018, the Company has net operating loss (“NOL”) carryforwards of $60.3 million. Of the $60.3 million NOL carryforwards, $52.7million will start expiring in 2029 and ending in 2038 if unused. The net operating losses of $7.6 million generated in current year can be carried overindefinitely under the Tax Act. Utilization of the NOL carryforwards may be subject to a substantial limitation due to ownership change limitations that mayoccur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state and foreignprovisions. These ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future taxable incomeand tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over athree-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders orpublic groups.As of December 31, 2018, 2017 and 2016, the Company no longer has any liability for uncertain tax positions. The Company recognizes accrued interestand 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 2014.F-28Index12.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, 2018 Carrying Quoted Prices inActive Marketsfor IdenticalAssets Significant OtherObservable Inputs SignificantUnobservableInputs Amount (Level 1) (Level 2) (Level 3) Total Financial Assets: Cash and cash equivalents $17,571 $17,571 $- $- $17,571 Restricted cash 28,375 28,375 - - 28,375 Prepaid expenses and other current assets 2,461 - 2,461 - 2,461 Financial Liabilities: Accrued expenses $10,605 $- $10,605 $- $10,605 Other short term liabilities 2,324 - 2,324 - 2,324 Credit facility 48,769 - 43,096 - 43,096 December 31, 2017 Carrying Quoted Prices inActive Marketsfor IdenticalAssets Significant OtherObservable Inputs SignificantUnobservable 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 We estimate fair value of Facility 1 and Facility 2 of the revolving credit facility based on a present value analysis utilizing aggregate market yields obtainedfrom independent pricing sources for similar financial instruments. The carrying value for Facility 3 of the revolving credit facility approximates fair valuedue to the fact that the borrowings were made in close proximity to December 31, 2017.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.13.SEGMENT REPORTINGThe for-profit education industry has been impacted by numerous regulatory changes, a changing economy and an onslaught of negative media attention. Asa result of these challenges, student populations have declined and operating costs have increased. Over the past few years, the Company has closed over tenlocations and exited its online business. In 2017, the Company completed the teach-out of its Center City Philadelphia, Pennsylvania; NortheastPhiladelphia, Pennsylvania; West Palm Beach, Florida; Brockton, Massachusetts; and Lowell, Massachusetts schools. All of these schools were previouslyincluded in our HOPS segment and as of December 31, 2017, they have all been closed.In August 2018, the Company decided to cease operations, effective December 31, 2018, of its Lincoln College of New England (“LCNE”) campus atSouthington, Connecticut. LCNE results, which was previously reported in the HOPS segment, is now included in the Transitional segment as of December31, 2018. The Company completed the teach-out and exited the LCNE campus on December 31, 2018.F-29IndexIn 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.For all prior periods presented, the Company reclassified its Marietta, Georgia campus from the HOPS segment to the Transportation and Skilled Tradessegment. This reclassification occurred to address how the Company evaluates performance and allocates resources and was approved by the Company’sBoard of Directors.Summary financial information by reporting segment is as follows: For the Year Ended December 31, Revenue Operating (Loss) Income 2018 % ofTotal 2017 % ofTotal 2016 % ofTotal 2018 2017 2016 Transportationand SkilledTrades $185,263 70.4% $181,328 69.2% $182,276 63.8% $17,661 $17,795 $21,578 Healthcare andOtherProfessions 72,135 27.4% 63,641 24.3% 62,870 22.0% 6,469 3,937 (9,392)Transitional 5,802 2.3% 16,884 6.4% 40,413 14.2% (5,994) (6,926) (16,995)Corporate - 0.0% - 0.0% - 0.0% (22,090) (19,522) (24,105)Total $263,200 100% $261,853 100% $285,559 100% $(3,954) $(4,716) $(28,914) Total Assets December 31, 2018 December 31, 2017 Transportation and Skilled Trades $92,070 $81,751 Healthcare and Other Professions 14,078 8,297 Transitional 527 4,812 Corporate 39,363 60,353 Total $146,038 $155,213 F-30Index14.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:Year Ending December 31, OperatingLeases 2019 $16,939 2020 14,183 2021 10,708 2022 8,180 2023 5,811 Thereafter 17,610 $73,431 Rent expense, included in operating expenses in the accompanying consolidated statements of operations for the three years ended December 31, 2018, 2017and 2016 is $17.8 million, $17.4 million and $20.7 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, 2018, the Company had outstanding net loan commitments to its students to assist them in financing their education ofapproximately $46.2 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.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 $3.1 million at December 31, 2018.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, 2018, the Company has posted surety bonds in the total amount of approximately $12.7 million.15.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 $1.8 million and $2.4 million for theyear ended December 31, 2018 and 2017, 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-31Index16.UNAUDITED QUARTERLY FINANCIAL INFORMATIONThe following tables have been updated to reflect changes in discontinued operations. Quarterly financial information for 2018 and 2017 is as follows: Quarter 2018 First Second Third Fourth Revenue $61,889 $61,120 $70,078 $70,113 Net (loss) income (6,874) (4,104) (600) 5,033 Basic Net (loss) earnings per share $(0.28) $(0.17) $(0.02) $0.21 Diluted Net (loss) earnings per share $(0.28) $(0.17) $(0.02) $0.20 Weighted average number of common shares outstanding: Basic 24,138 24,486 24,533 24,533 Diluted 24,138 24,486 24,533 24,562 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 F-32IndexLINCOLN EDUCATIONAL SERVICES CORPORATIONSchedule II—Valuation and Qualifying Accounts(in thousands)Description Balance atBeginningof Period Charged toExpense AccountsWritten-off Balance atEnd ofPeriod Allowance accounts for the year ended: December 31, 2018 Student receivable allowance $13,784 $17,705 $(14,496) $16,993 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 F-33IndexExhibit 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 (incorporated by reference to the Company’s Form 8-K filedAugust 16, 2017). 3.1Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement onForm S-1/A (Registration No. 333-123644) filed June 7, 2005). 3.2*Bylaws of the Company, as amended on March 8, 2019 4.1Specimen Stock Certificate evidencing shares of common stock (Incorporated by reference to the Company’s Registration Statement on FormS-1/A (Registration No. 333-123644) filed June 21, 2005). 10.1Credit Agreement, dated as of March 31, 2017, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and SterlingNational Bank (Incorporated by reference to the Company’s Form 8-K filed April 6, 2017). 10.2Credit Agreement, dated as of April 28, 2017, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and SterlingNational Bank (Incorporated by reference to the Company’s Form 8-K filed May 4, 2017). 10.3First Amendment to Credit Agreement, dated as of November 29, 2017, among the Company, Lincoln Technical Institute, Inc. and itssubsidiaries, and Sterling National Bank (Incorporated by reference to the Company’s Form 8-K filed December 1, 2017) 10.4Second Amendment to Credit Agreement, dated as of February 23, 2018, among the Company, Lincoln Technical Institute, Inc. and itssubsidiaries, and Sterling National Bank (Incorporated by reference to the Company’s Form 8-K filed February 26, 2018) 10.5Third Amendment to Credit Agreement, dated as of July 11, 2018, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries,and Sterling National Bank (Incorporated by reference to the Company’s Form 8-K filed July 13, 2018). 10.6*Fourth Amendment to Credit Agreement, dated as of March 6, 2019, among the Company, Lincoln Technical Institute, Inc. and itssubsidiaries, and Sterling National Bank 10.7Commercial Contract, dated as of July 9, 2018, between New England Institute of Technology at Palm Beach, Inc. and Elite PropertyEnterprise, LLC (Incorporated by reference to the Company’s Form 8-K filed July 13, 2018). 10.8Employment Agreement, dated as of November 8, 2017, between the Company and Scott M. Shaw (Incorporated by reference to theCompany’s Quarterly Report on Form 10-Q filed November 13, 2017). 10.9Employment Agreement, dated as of November 7, 2018, between the Company and Scott M. Shaw (Incorporated by reference to theCompany’s Quarterly Report on Form 10-Q filed November 9, 2018). 10.10Employment Agreement, dated as of November 8, 2017, between the Company and Brian K. Meyers (Incorporated by reference to theCompany’s Quarterly Report on Form 10-Q filed November 13, 2017). 10.11Employment Agreement, dated as of November 7, 2018, between the Company and Brian K. Meyers (Incorporated by reference to theCompany’s Quarterly Report on Form 10-Q filed November 9, 2018). 10.12Change in Control Agreement, dated as of November 8, 2017, between the Company and Deborah Ramentol (Incorporated by reference to theCompany’s Quarterly Report on Form 10-Q filed November 13, 2017). 10.13Change in Control Agreement, dated as of November 7, 2018, between the Company and Stephen M. Buchenot (Incorporated by reference tothe Company’s Quarterly Report on Form 10-Q filed November 9, 2018). 10.14 Lincoln Educational Services Corporation Amended and Restated 2005 Long-Term Incentive Plan (Incorporated by reference to theCompany’s Form 8-K filed May 6, 2013).Index10.15Lincoln Educational Services Corporation Amended and Restated 2005 Non-Employee Directors Restricted Stock Plan (Incorporated byreference to the Company’s Registration Statement on Form S-8 (Registration No. 333-211213) filed May 6, 2016). 10.16Lincoln Educational Services Corporation 2005 Deferred Compensation Plan (Incorporated by reference to the Company’s RegistrationStatement on Form S-1 (Registration No. 333-123644) filed March 29, 2005). 10.17Form of Stock Option Agreement under our 2005 Long-Term Incentive Plan (Incorporated by reference to the Company’s Annual Report onForm 10-K for the year ended December 31, 2007). 10.18Form of Restricted Stock Agreement under our 2005 Long-Term Incentive Plan (Incorporated by reference to the Company’s Annual Reporton Form 10-K for the year ended December 31, 2012). 10.19Form of Performance-Based Restricted Stock Award Agreement under our Amended & Restated 2005 Long-Term Incentive Plan(Incorporated by reference to the Company’s Form 8-K filed May 5, 2011). 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, 2018, 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.*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 1934Exhibit 3.2BYLAWSOFLINCOLN EDUCATIONAL SERVICES CORPORATIONAs last amended on March 8, 2019.Table of ContentsSectionPageARTICLE I OFFICES SECTION 1.01. Registered Office1SECTION 1.02. Other Offices1ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 2.01. Annual Meetings1SECTION 2.02. Special Meetings1SECTION 2.03. Notice and Business of Meetings1SECTION 2.04. Waiver of Notice4SECTION 2.05. Adjournments5SECTION 2.06. Quorum5SECTION 2.07. Voting5SECTION 2.08. Action Without Meeting6SECTION 2.09. Organization6 ARTICLE III BOARD SECTION 3.01. General Powers6SECTION 3.02. Number and Term of Office6SECTION 3.03. Resignation7SECTION 3.04. Removal7SECTION 3.05. Vacancies7SECTION 3.06. Meetings7SECTION 3.07. Committees of the Board9SECTION 3.08. Directors’ Consent in Lieu of Meeting9SECTION 3.09. Compensation9SECTION 3.10. Interested Directors; Quorum9iARTICLE IV OFFICERS SECTION 4.01. Officers10SECTION 4.02. Authority and Duties10SECTION 4.03. Term of Office, Resignation and Removal10SECTION 4.04. Vacancies10SECTION 4.05. The Chairman10SECTION 4.06. The Chief Executive Officer11SECTION 4.07. The President11SECTION 4.08. The Chief Operating Officer. The Chief Operating Officer shall perform such duties as may be prescribed from time to time by theChairman, the Chief Executive Officer or the Board.11SECTION 4.09. Vice Presidents11SECTION 4.10. The Secretary11SECTION 4.11. Assistant Secretaries11SECTION 4.12. The Treasurer12SECTION 4.13. Assistant Treasurers12 ARTICLE V CHECKS, DRAFTS, NOTES, AND PROXIES SECTION 5.01. Checks, Drafts and Notes12SECTION 5.02. Execution of Proxies12 ARTICLE VI SHARES AND TRANSFERS OF SHARES SECTION 6.01. Certificates Evidencing Shares12SECTION 6.02. Stock Ledger13SECTION 6.03. Transfers of Shares13SECTION 6.04. Addresses of Stockholders13SECTION 6.05. Lost, Destroyed and Mutilated Certificates13SECTION 6.06. Regulations14SECTION 6.07. Fixing Date for Determination of Stockholders of Record14 ARTICLE VII SEAL SECTION 7.01. Seal14iiARTICLE VIII FISCAL YEAR SECTION 8.01. Fiscal Year14 ARTICLE IX INDEMNIFICATION AND INSURANCE SECTION 9.01. Indemnification14SECTION 9.02. Directors, Trustees, Officers and Employees of Other Companies15SECTION 9.03. Indemnification Not Exclusive15SECTION 9.04. Insurance15 ARTICLE X AMENDMENTS SECTION 10.01. General Procedure16 ARTICLE XI FORUM SELECTION SECTION 11.01. Forum Selection16iiiBYLAWSOFLINCOLN EDUCATIONAL SERVICES CORPORATIONARTICLE IOFFICESSECTION 1.01. Registered Office. The registered office of Lincoln Educational Services Corporation (the “Corporation”) in the State ofNew Jersey shall be at the principal office of the corporation and the registered agent in charge thereof shall be Alexandra Luster.Other Offices. TheCorporation may also have an office or offices at any other place or places within or without the State of New Jersey as the Board of the Corporation (the“Board”) may from time to time determine or the business of the Corporation may from time to time require.MEETINGS OF STOCKHOLDERSSECTION 2.01. Annual Meetings. The annual meeting of stockholders of the Corporation for the election of directors of the Corporation,and for the transaction of such other business as may properly come before such meeting, shall be held at such place, date and time as shall be fixed by theBoard and designated in the notice or waiver of notice of such annual meeting.SECTION 2.02. Special Meetings. Special meetings of stockholders for any purpose or purposes may be called by the Chairman of theBoard or the President or by the Board pursuant to a resolution duly adopted by a majority of the members of the entire Board, to be held at such place, dateand time as shall be designated in the notice or waiver of notice thereof. Only business within the purposes described in the notice required by Section 2.03of this Article II may be conducted at the special meeting. The Superior Court, at the request of holder or holders of not less than 10% of the shares entitled tovote at the meeting, may call a special meeting of stockholders of the Corporation pursuant to Section 14A:5‑3 of the New Jersey Business Corporation Act(“NJBCA”).SECTION 2.03. Notice and Business of Meetings. (a) General. Except as otherwise provided by law, written notice of each meeting ofstockholders shall be given either by delivering a notice personally or mailing a notice to each stockholder of record entitled to vote thereat. If mailed, thenotice shall be directed to the stockholder in a postage‑prepaid envelope at his address as it appears on the stock books of the Corporation unless, prior to thetime of mailing, he or she shall have filed with the Secretary a written request that notices intended for him be mailed to some other address, in which case itshall be mailed to the address designated in such request. Notice of each meeting of stockholders shall be in such form as is approved by the Board and shallstate the purpose or purposes for which the meeting is called, the date and time when and the place where it is to be held, and shall be delivered personally ormailed not more than sixty (60) days and not less than ten (10) days before the day of the meeting. Except as otherwise provided by law, the business whichmay be transacted at any special meeting of stockholders shall consist of and be limited to the purpose or purposes so stated in such notice. The Secretary oran Assistant Secretary or the transfer agent of the Corporation shall, after giving such notice, make an affidavit stating that notice has been given, which shallbe filed with the minutes of such meeting.(b) Advance Notice Provisions for Business to Be Transacted at Annual Meeting. (i) No business may be transacted at an annualmeeting of stockholders, other than business that is either (A) specified in the notice of meeting (or any supplement thereto) given by the President or theChairman or at the direction of the Board (or any duly authorized committee thereof), (B) otherwise properly brought before the annual meeting by or at thedirection of the Board (or any duly authorized committee thereof) or (C) otherwise properly brought before the annual meeting by any stockholder of theCorporation who (1) is a stockholder of record on both (x) the date of the giving of the notice provided for in this Section 2.03 and (y) the record date for thedetermination of stockholders entitled to vote at such annual meeting, (2) complies with the notice procedures set forth in this Section 2.03(b) and (3) meetsthe other qualifications established from time to time by the U.S. Securities and Exchange Commission.(ii) In addition to any other applicable requirements and unless otherwise provided by law, for business to be properly brought before anannual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.(A) To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not lessthan one hundred twenty (120) days nor more than one hundred fifty (150) days prior to the first anniversary of the date the proxy statement wasreleased to shareholders for the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting isadvanced by more than thirty (30) days or delayed by more than sixty (60) days from such anniversary date, notice by the stockholder to be timelymust be delivered not earlier than the one hundred fiftieth (150th) day prior to such annual meeting and not later than the close of business on thelater of the one hundred twentieth (120th) day prior to such annual meeting or the tenth (10th) day following the day on which publicannouncement of the date of such meeting is first made; provided further that for purposes of the annual meeting of stockholders held followingthe end of the fiscal year ending on December 31, 2005, the date the proxy statement was released to shareholders for the preceding year’s annualmeeting shall be deemed to be April 30, 2005.(B) To be in proper written form, a stockholder’s notice to the Secretary must set forth as to each matter such stockholder proposes tobring before the annual meeting (1) a brief description of the business desired to be brought before the annual meeting and the reasons forconducting such business at the annual meeting, (2) the name and record address of such stockholder, (3) the class or series and number of sharesof capital stock of the Corporation which are owned beneficially or of record by such stockholder, (4) a description of all arrangements orunderstandings between such stockholder and any other person or persons (including their names) in connection with the proposal of suchbusiness by such stockholder and any material interest of such stockholder in such business and (5) a representation that such stockholder intendsto appear in person or by proxy at the annual meeting to bring such business before the meeting. As used in these by‑laws, “beneficially owned”means all shares which such person is deemed to beneficially own pursuant to Rules 13d‑3 and 13d‑5 under the Securities Exchange Act of 1934,as amended (the “Exchange Act”).2(iii) No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting inaccordance with the procedures set forth in this Section 2.03, provided, however, that, once business has been properly brought before the annual meeting inaccordance with such procedures, nothing in this Section 2.03 shall be deemed to preclude discussion by any stockholder of any such business. If thechairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures,the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.(c) Advance Notice Provisions for Election of Directors. (i) In addition to any other applicable requirements and unless otherwiseprovided by law, for a nomination for election of a director to be made by a stockholder of the Corporation, such stockholder must (A) be a stockholder ofrecord on both (1) the date of the giving of the notice provided for in this Section 2.03 and (2) the record date for the determination of stockholders entitledto vote at such annual meeting and (B) have given timely notice thereof in proper written form to the Secretary of the Corporation. If a stockholder is entitledto vote only for a specific class or category of directors at a meeting of the stockholders, such stockholder’s right to nominate one or more persons for electionas a director at the meeting shall be limited to such class or category of directors.(ii) To be timely in connection with the annual meeting of the stockholders, a stockholder’s notice shall be delivered to the Secretary atthe principal executive offices of the Corporation not less than one hundred twenty (120) days nor more than one hundred fifty (150) days prior to the firstanniversary of the date the proxy statement was released to shareholders for the preceding year’s annual meeting; provided, however, that in the event thatthe date of the annual meeting is advanced by more than thirty (30) days or delayed by more than sixty (60) days from such anniversary date, notice by thestockholder to be timely must be delivered not earlier than the one hundred fiftieth (150th) day prior to such annual meeting and not later than the close ofbusiness on the later of the one hundred twentieth (120th) day prior to such annual meeting or the tenth (10th) day following the day on which publicannouncement of the date of such meeting is first made; provided further that for purposes of the annual meeting of stockholders held following the end ofthe fiscal year ending on December 31, 2005, the date the proxy statement was released to shareholder’s for the preceding year’s annual meeting shall bedeemed to be April 30, 2005. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to theBoard, any stockholder entitled to vote for the election of such director(s) at such meeting and satisfying the requirements specified in Section 2.03(c)(i) maynominate a person or persons (as the case may be) for election to such position(s) as are specified in the Corporation’s notice of such meeting, but only if thestockholder notice required by Section 2.03(c)(iii) hereof shall be delivered to the Secretary at the principal executive office of the Corporation not later thanthe close of business on the tenth (10th) day following the first day on which the date of the special meeting and either the names of all nominees proposedby the Board to be elected at such meeting or the number of directors to be elected shall have been publicly announced.3(iii) To be in proper written form, a stockholder’s notice to the Secretary must be set forth (A) as to each person whom the stockholderproposes to nominate for election as a director (1) the name, age, business address and residence address of the person, (2) the principal occupation oremployment of the person, (3) the class or series and number of shares of capital stock of the Corporation, if any, which are owned beneficially or of record bythe person and (4) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to bemade in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulationspromulgated thereunder; and (B) as to the stockholder giving notice (1) the name and record address of such stockholder, (2) the class or series and number ofshares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (3) a description of all arrangements orunderstandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which thenomination(s) are to be made by such stockholder, (4) a representation that such stockholder intends to appear in person or by proxy at the annual meeting tonominate the person(s) named in its notice and (5) any other information relating to such stockholder that would be required to be disclosed in a proxystatement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Actand the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as anominee and to serve as a director if elected.(iv) No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forthin this Section 2.03(c). If the chairman of an annual meeting determines that a nomination was not made in accordance with the foregoing procedures, thechairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.(v) This Section 2.03(c) shall not apply to any nomination of a director in an election in which only the holders of one or more series ofPreferred Stock of the Corporation issued pursuant to Article IV of the Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”) areentitled to vote (unless otherwise provided in the terms of such series of Preferred Stock).(d) Definition of Publicly Announced. For purposes of this Section 2.03, a matter shall be deemed to have been “publicly announced” ifsuch matter is disclosed in a press release reported by the Dow Jones News Service, the Associated Press or a comparable national news service or in adocument publicly filed by the Corporation with the Securities and Exchange Commission.SECTION 2.04. Waiver of Notice. Notice of any annual or special meeting of stockholders need not be given to any stockholder who filesa written waiver of notice with the Secretary, signed by the person entitled to notice, whether before or after such meeting. Neither the business to betransacted at, nor the purpose of, any meeting of stockholders need be specified in any written waiver of notice thereof. Attendance of a stockholder at ameeting, in person or by proxy, without protesting prior to the conclusion of said meeting the transaction of any business on the grounds that the notice ofsuch meeting was inadequate or improperly given.4SECTION 2.05. Adjournments. Whenever a meeting of stockholders, annual or special, is adjourned to another date, time or place, noticeneed not be given of the adjourned meeting if the date, time and place thereof are announced at the meeting at which the adjournment is taken. If theadjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shallbe given to each stockholder entitled to vote thereat. At the adjourned meeting, any business may be transacted which might have been transacted at theoriginal meeting.SECTION 2.06. Quorum. Except as otherwise provided by law or the Certificate of Incorporation, the recordholders of a majority of theshares entitled to vote thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, whetherannual or special. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or byvote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at aduly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal ofenough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken bythe holders of a majority of the vote cast, excluding abstentions, at any meeting at which a quorum is present shall be valid and binding upon theCorporation; provided, however, that directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at themeeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided bythe statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person orrepresented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by thestatute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of thevotes cast, including abstentions, by the holders of shares of such class or classes or series shall be the act of such class or classes or series.SECTION 2.07. Voting. Except as otherwise provided in the Certificate of Incorporation, each stockholder entitled to vote at any meetingof stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Theability of the stockholders to engage in cumulative voting is specifically denied. If the Certificate of Incorporation provides for more or less than one votefor any share on any matter, every reference in these Bylaws to a majority or other proportion of shares of stock shall refer to such majority or other proportionof the votes of such shares of stock. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for suchstockholder by proxy, but no such proxy shall be voted or acted upon after eleven months from its date, unless the proxy provides for a longer period. Suchproxy shall be filed with the Secretary before such meeting of stockholders. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if,and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power, regardless of whether the interest with which it is coupledis an interest in the stock itself or an interest in the Corporation generally pursuant to Section 14A:5‑19 of the NJBCA. A stockholder may revoke any proxywhich is not irrevocable by attending the meeting and voting in person by written ballot or by filing an instrument in writing revoking the proxy or anotherduly executed proxy bearing a later date with the Secretary. Voting at meetings of stockholders need not be by written ballot unless so directed by thechairman of the meeting or the Board or otherwise required by law.Action Without Meeting. Action may be taken by the stockholders without a meetingonly by written consent adopted by all the stock holders entitled to vote thereon in accordance with Section 14A:5‑6 of the NJBCA.5SECTION 2.09. Organization. (a) At every meeting of stockholders, the Chairman of the Board, or, if a Chairman has not been appointedor is absent, the Chief Executive Officer, or if a Chief Executive Officer has not been appointed or is absent, the President, or, if the President is absent, achairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. TheSecretary, or, in his or her absence, an Assistant Secretary directed to do so by the Chief Executive Officer, or President, shall act as secretary of the meeting.(b) The Board shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary,appropriate or convenient. Subject to such rules and regulations of the Board, if any, the chairman of the meeting shall have the right and authority toprescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for theproper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures formaintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the Corporation andtheir duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed forthe commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the pollsfor balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board or the chairman of the meeting, meetings ofstockholders shall not be required to be held in accordance with rules of parliamentary procedure.ARTICLE IIIBOARDSECTION 3.01. General Powers. The business and affairs of the Corporation shall be managed by the Board, which may exercise all suchpowers of the Corporation and do all such lawful acts and things as are not by law, the Certificate of Incorporation or these Bylaws directed or required to beexercised or done by stockholders.SECTION 3.02. Number and Term of Office. The number of directors constituting the Board shall be the number, not less than three normore than 11, as shall be fixed from time to time by the Board. Directors need not be stockholders. If for any cause, the directors shall not have been electedat an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the mannerprovided in these Bylaws. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent director.6SECTION 3.03. Resignation. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation tospecify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board. If no such specification is made, it shallbe deemed effective upon receipt by the Secretary. When one or more directors shall resign from the Board, effective at a future date, a majority of thedirectors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when suchresignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whoseplace shall be vacated and until his successor shall have been duly elected and qualified.SECTION 3.04. Removal. Subject to the rights of the holders of any series of Preferred Stock then outstanding, (a) any director, or theentire Board, may be removed from office at any time, but only for cause, by the affirmative vote of the holders of record of outstanding shares representing atleast a majority of the voting power of all the shares of capital stock of the Corporation then entitled to vote generally in the election of directors, votingtogether as a single class, and (b) any director may be removed from office at any time, but only for cause, by the affirmative vote of a majority of the entireBoard.SECTION 3.05. Vacancies. Unless otherwise provided in the Certificate of Incorporation, any vacancies on the Board resulting from death,resignation, disqualification, removal or other causes, and any newly created directorships resulting from any increase in the number of directors, shall befilled only by the affirmative vote of a majority of the remaining directors, even though less than a quorum of the Board. Any director elected in accordancewith the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until suchdirector's successor shall have been elected and qualified. A vacancy on the Board shall be deemed to exist under this Bylaw in the case of the death,removal or resignation of any director. Notwithstanding the above, in the event that the Board shall fail to fill such a vacancy, the stockholders may fill suchvacancy at an annual stockholders meeting or at a special meeting of stockholders called for that purpose.SECTION 3.06. Meetings. (a) Annual Meetings. The annual meeting of the Board shall be held immediately before or after the annualmeeting of stockholders and may be at the place where such meeting is held. No notice of an annual meeting of the Board shall be necessary and suchmeeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.(b) Regular Meetings. Except as hereinafter otherwise provided, regular meetings of the Board shall be held in the office of theCorporation required to be maintained pursuant to Section 1.02 hereof. Unless otherwise restricted by the Certificate of Incorporation, regular meetings ofthe Board may also be held at any place within or without the State of New Jersey which has been designated by resolution of the Board or the writtenconsent of all directors.7(c) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board may be held at anytime and place within or without the State of New Jersey whenever called by the Chairman of the Board, the President, the Chief Financial Officer or any twoof the directors.(d) Telephone Meetings. Any member of the Board, or of any committee thereof, may participate in a meeting by means of conferencetelephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in ameeting by such means shall constitute presence in person at such meeting.(e) Notice of Meetings. Notice of the time and place of all special meetings of the Board shall be orally or in writing, by telephone,facsimile, electronic mail, telegraph or telex, during normal business hours, at least twenty‑four (24) hours before the date and time of the meeting, or sent inwriting to each director by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived inwriting at any time before or after the meeting and will be waived by any director by attendance thereat, without protesting the lack of proper notice prior tothe conclusion of the meeting.(f) Waiver of Notice. The transaction of all business at any meeting of the Board, or any committee thereof, however called or noticed, orwherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after themeeting, each of the directors not present shall sign a written waiver of notice. All such waivers shall be filed with the corporate records or made a part of theminutes of the meeting.(g) Quorum and Manner of Acting. A majority of the total number of directors then in office shall be present in person at any meeting ofthe Board in order to constitute a quorum for the transaction of business at such meeting, and the vote of a majority of those directors present at any suchmeeting at which a quorum is present shall be necessary for the passage of any resolution or act of the Board, except as otherwise expressly required by law,the Certificate of Incorporation or these Bylaws. In the absence of a quorum for any such meeting, a majority of the directors present thereat may adjournsuch meeting from time to time for up to ten (10) days until a quorum shall be present if the time and place of the adjourned meeting is given at the originalmeeting.(h) Organization. At each meeting of the Board, one of the following shall act as chairman of the meeting and preside, in the followingorder of precedence: (i)the Chairman; (ii)the President; (iii)any director chosen by a majority of the directors present.The Secretary or, in the case of his absence, any person (who shall be an Assistant Secretary, if an Assistant Secretary is present) whom the chairman of themeeting shall appoint shall act as secretary of such meeting and keep the minutes thereof.8SECTION 3.07. Committees of the Board. The Board may, by resolution passed by a majority of the whole Board, designate one or morecommittees, each committee to consist of one or more directors. The Board may designate one or more directors as alternate members of any committee, whomay replace any absent or disqualified member at any meeting of such committee. Any such committee, to the extent provided in the resolution of the Boarddesignating such committee, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of theCorporation subject to applicable law, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, thatno such committee shall have such power or authority in reference to making, altering or replacing any bylaw of the corporation, electing or appointing anydirector or removing any officer or director, submitting to shareholders any action that requires shareholder approval or amending or repealing anyresolutions theretofore adopted by the Board which by its terms is amendable or repealable only by the Board. Each committee of the Board shall keepregular minutes of its proceedings and report the same to the Board at the next following Board meeting following the committee meeting; provided,however, that when the meeting of the Board is held within two days after the committee meeting, such report shall, if not made at the first meeting, be madeto the Board at its second meeting following such committee meeting.SECTION 3.08. Directors’ Consent in Lieu of Meeting. Any action required or permitted to be taken at any meeting of the Board or of anycommittee thereof may be taken without a meeting, without prior notice and without a vote, if a consent in writing or by electronic transmission, setting forththe action so taken, shall be signed by all the members of the Board or such committee and such consent or electronic transmission or transmissions is filedwith the minutes of the proceedings of the Board or such committee. Such filing shall be in paper form if the minutes are maintained in paper form and shallbe in electronic form if the minutes are maintained in electronic form.SECTION 3.09. Compensation. Unless otherwise restricted by the Certificate of Incorporation, the Board may determine the compensationof directors by an affirmative vote of a majority of directors in office. In addition, as determined by the Board, directors may be reimbursed by theCorporation for their expenses, if any, in the performance of their duties as directors. No such compensation or reimbursement shall preclude any directorfrom serving the Corporation in any other capacity and receiving compensation therefor.SECTION 3.10. Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors orofficers, or between the Corporation and any other corporation, partnership, limited liability company, joint venture, trust, association or other organizationor other entity in which one or more of its directors or officers serve as directors, officers, trustees or in a similar capacity or have a financial interest, shall bevoid or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors orcommittee thereof which authorizes the contract or transaction, or solely because the directors’ or officers’ votes are counted for such purpose, if: (i) thematerial facts as to the directors’ or officers’ relationship or interest and as to the contract or transaction are disclosed or are known to the Board or thecommittee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinteresteddirectors, even though the disinterested directors be less than a quorum or by unanimous written consent, provided, in either case, at least one director soconsenting is disinterested; or (ii) the material facts as to the directors’ or officers’ relationship or interest and as to the contract or transaction are disclosed orare known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by a vote of the stockholders; or(iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or thestockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of acommittee which authorizes the contract or transaction.9ARTICLE IVOFFICERSSECTION 4.01. Officers. The officers of the Corporation shall be the Chairman, the Chief Executive Officer, the President, the ChiefOperating Officer, the Secretary and a Treasurer and may include one or more Vice Presidents and one or more Assistant Secretaries and one or more AssistantTreasurers. Any two or more offices may be held by the same person.SECTION 4.02. Authority and Duties. All officers shall have such authority and perform such duties in the management of the Corporationas may be provided in these Bylaws or, to the extent not so provided, by resolution of the Board.SECTION 4.03. Term of Office, Resignation and Removal. (a) Each officer shall be appointed by the Board and shall hold office for suchterm as may be determined by the Board. Each officer shall hold office until his successor has been appointed and qualified or his earlier death or resignationor removal in the manner hereinafter provided. The Board may require any officer to give security for the faithful performance of his duties.(b) Any officer may resign at any time by giving written notice to the Board, the Chairman, the Chief Executive Officer or the Secretary. Such resignation shall take effect at the time specified in such notice or, if the time be not specified, upon receipt thereof by the Board, the Chairman, theChief Executive Officer or the Secretary, as the case may be. Unless otherwise specified therein, acceptance of such resignation shall not be necessary tomake it effective.(c) All officers and agents appointed by the Board shall be subject to removal, with or without cause, at any time by the Board or, ifelected by stockholders, by the action of the recordholders of a majority of the shares entitled to vote thereon.SECTION 4.04. Vacancies. Any vacancy occurring in any office of the Corporation, for any reason, shall be filled by action of the Board. Unless earlier removed pursuant to Section 4.03 hereof, any officer appointed by the Board to fill any such vacancy shall serve only until such time as theunexpired term of his predecessor expires unless reappointed by the Board.SECTION 4.05. The Chairman. The Chairman shall have the power to call special meetings of stockholders, to call special meetings of theBoard and, if present, to preside at all meetings of stockholders and all meetings of the Board. The Chairman shall perform all duties incident to the office ofChairman of the Board and all such other duties as may from time to time be assigned to him by the Board or these Bylaws.10SECTION 4.06. The Chief Executive Officer. The Chief Executive Officer shall be the chief executive officer of the Corporation and shallhave general and active management and control of the business and affairs of the Corporation, subject to the control of the Board, and shall see that allorders and resolutions of the Board are carried into effect. The Chief Executive Officer shall perform all duties incident to the office of Chief ExecutiveOfficer and all such other duties as may from time to time be assigned to him by the Board or these Bylaws.SECTION 4.07. The President. The President shall perform such duties as may be prescribed from time to time by the Chairman, the ChiefExecutive Officer or the Board, and in the absence or disability of the Chief Executive Officer, shall perform the duties and exercise the powers of the ChiefExecutive Officer.SECTION 4.08. The Chief Operating Officer. The Chief Operating Officer shall perform such duties as may be prescribed from time to timeby the Chairman, the Chief Executive Officer or the Board.SECTION 4.09. Vice Presidents. Vice Presidents, if any, in order of their seniority or in any other order determined by the Board, shallgenerally assist the Chief Executive Officer and perform such other duties as the Board or the Chief Executive Officer shall prescribe.SECTION 4.10. The Secretary. The Secretary shall, to the extent practicable, attend all meetings of the Board and all meetings ofstockholders and shall record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform the same duties for anycommittee of the Board when so requested by such committee. He or she shall give or cause to be given notice of all meetings of stockholders and of theBoard, shall perform such other duties as may be prescribed by the Board, the Chairman or the Chief Executive Officer and shall act under the supervision ofthe Chairman. He or she shall keep in safe custody the seal of the Corporation and affix the same to any instrument that requires that the seal be affixed to itand which shall have been duly authorized for signature in the name of the Corporation and, when so affixed, the seal shall be attested by his signature or bythe signature of the Treasurer of the Corporation (the “Treasurer”) or an Assistant Secretary or Assistant Treasurer of the Corporation. He or she shall keep insafe custody the certificate books and stockholder records and such other books and records of the Corporation as the Board, the Chairman or the ChiefExecutive Officer may direct and shall perform all other duties incident to the office of Secretary and such other duties as from time to time may be assignedto him by the Board, the Chairman or the Chief Executive Officer.SECTION 4.11. Assistant Secretaries. Assistant Secretaries of the Corporation (“Assistant Secretaries”), if any, in order of their seniority orin any other order determined by the Board, shall generally assist the Secretary and perform such other duties as the Board or the Secretary shall prescribe,and, in the absence or disability of the Secretary, shall perform the duties and exercise the powers of the Secretary.11SECTION 4.12. The Treasurer. The Treasurer shall have the care and custody of all the funds of the Corporation and shall deposit suchfunds in such banks or other depositories as the Board, or any officer or officers, or any officer and agent jointly, duly authorized by the Board, shall, fromtime to time, direct or approve. He or she shall disburse the funds of the Corporation under the direction of the Board and the Chief Executive Officer. He orshe shall keep a full and accurate account of all moneys received and paid on account of the Corporation and shall render a statement of his accountswhenever the Board, the Chairman or the Chief Executive Officer shall so request. He or she shall perform all other necessary actions and duties inconnection with the administration of the financial affairs of the Corporation and shall generally perform all the duties usually appertaining to the office oftreasurer of a corporation. When required by the Board, he or she shall give bonds for the faithful discharge of his duties in such sums and with such suretiesas the Board shall approve.SECTION 4.13. Assistant Treasurers. Assistant Treasurers of the Corporation (“Assistant Treasurers”), if any, in order of their seniority or inany other order determined by the Board, shall generally assist the Treasurer and perform such other duties as the Board or the Treasurer shall prescribe, and,in the absence or disability of the Treasurer, shall perform the duties and exercise the powers of the Treasurer.ARTICLE VCHECKS, DRAFTS, NOTES, AND PROXIESSECTION 5.01. Checks, Drafts and Notes. All checks, drafts and other orders for the payment of money, notes and other evidences ofindebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shallbe determined, from time to time, by resolution of the Board.SECTION 5.02. Execution of Proxies. The Chairman or the Chief Executive Officer, or, in the absence or disability of both of them, thePresident or any Vice President, may authorize, from time to time, the execution and issuance of proxies to vote shares of stock or other securities of othercorporations held of record by the Corporation and the execution of consents to action taken or to be taken by any such corporation. All such proxies andconsents, unless otherwise authorized by the Board, shall be signed in the name of the Corporation by the Chairman, the Chief Executive Officer, thePresident or any Vice President.ARTICLE VISHARES AND TRANSFERS OF SHARESSECTION 6.01. Certificates Evidencing Shares. Shares shall be evidenced by certificates in such form or forms as shall be approved by theBoard; provided that the Board may provide by resolution or resolutions that some or all of any class or classes or series of stock shall be uncertificatedshares; provided further that any such resolution shall not apply to any shares represented by a certificate theretofore issued until such certificate issurrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board every holder of uncertificated shares shall be entitled tohave a certificate signed by or in the name of the Corporation (as provided below) representing the number of shares and setting forth the information setforth in NJBCA 14A:7-11(6). Certificates shall be issued in consecutive order and shall be numbered in the order of their issue, and shall be signed by theChairman, the Vice Chairman, the Chief Executive Officer, the President or any Vice President and by the Secretary, any Assistant Secretary, the Treasurer orany Assistant Treasurer. Any or all of the signatures on the certificate may be a facsimile. In the event any officer, transfer agent or registrar who has signedor whose facsimile signature has been placed upon a certificate shall have ceased to hold such office, transfer agent or registrar or to be employed by theCorporation before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if such officer had held such office onthe date of issue. Certificates representing shares of stock of the Corporation may bear such legends regarding restrictions on transfer or other matters as anyofficer or officers of the Corporation may determine to be lawful or appropriate. The Corporation shall not have the power to issue a certificate in bearer form.12SECTION 6.02. Stock Ledger. A stock ledger in one or more counterparts shall be kept by the Secretary, in which shall be recorded thename and address of each person, firm or corporation owning the shares evidenced by each certificate evidencing shares issued by the Corporation, thenumber of shares evidenced by each such certificate, the date of issuance thereof and, in the case of cancellation, the date of cancellation. Except asotherwise expressly required by law, the person in whose name shares stand on the stock ledger of the Corporation shall be deemed the owner andrecordholder thereof for all purposes.SECTION 6.03. Transfers of Shares. Registration of transfers of shares shall be made only in the stock ledger of the Corporation uponrequest of the registered holder of such shares, or of his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, andupon the surrender of the certificate or certificates evidencing such shares properly endorsed or accompanied by a stock power duly executed, together withsuch proof of the authenticity of signatures as the Corporation may reasonably require.SECTION 6.04. Addresses of Stockholders. Each stockholder shall designate to the Secretary an address at which notices of meetings andall other corporate notices may be served or mailed to such stockholder, and, if any stockholder shall fail to so designate such an address, corporate noticesmay be served upon such stockholder by mail directed to the mailing address, if any, as the same appears in the stock ledger of the Corporation or at the lastknown mailing address of such stockholder.SECTION 6.05. Lost, Destroyed and Mutilated Certificates. Each recordholder of shares shall promptly notify the Corporation of any loss,destruction or mutilation of any certificate or certificates evidencing any share or shares of which he or she is the recordholder. The Board may, in itsdiscretion, cause the Corporation to issue a new certificate in place of any certificate theretofore issued by it and alleged to have been mutilated, lost, stolenor destroyed, upon the surrender of the mutilated certificate or, in the case of loss, theft or destruction of the certificate, upon satisfactory proof of such loss,theft or destruction, and the Board may, in its discretion, require the recordholder of the shares evidenced by the lost, stolen or destroyed certificate or hislegal representative to give the Corporation a bond sufficient to indemnify the Corporation against any claim made against it on account of the alleged loss,theft or destruction of any such certificate or the issuance of such new certificate.13SECTION 6.06. Regulations. The Board may make such other rules and regulations as it may deem expedient, not inconsistent with theseBylaws, concerning the issue, transfer and registration of certificates evidencing shares.SECTION 6.07. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholdersentitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distributionor allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawfulaction, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60days prior to any other such action. A determination of the stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to anyadjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.ARTICLE VIISEALSECTION 7.01. Seal. The Board may approve and adopt a corporate seal, which shall be in the form of a circle and shall bear the full nameof the Corporation, the year of its incorporation and the words “Corporate Seal New Jersey”.ARTICLE VIIIFISCAL YEARSECTION 8.01. Fiscal Year. The fiscal year of the Corporation shall end on the thirty-first day of December of each year unless changed byresolution of the Board.ARTICLE IXINDEMNIFICATION AND INSURANCESECTION 9.01. Indemnification. Any former, present or future director, officer or employee of the Corporation or the legal representativeof any such director, officer or employee shall be indemnified by the Corporation:(a) against reasonable costs, disbursements and counsel fees paid or incurred where such person has been successful in the defense on themerits or otherwise of any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding, and any appealtherein and any inquiry or investigation which could lead to such action, suit or proceeding, or in defense of any claim, issue or matter therein,brought by reason of such person’s being or having been such director, officer or employee, and14(b) with respect to the defense of any such action, suit, proceeding, inquiry or investigation for which indemnification is not made under(a) above, against reasonable costs, disbursements (which shall include amounts paid in satisfaction of settlements, judgments, fines and penalties,exclusive, however, of any amount paid or payable to the Corporation) and counsel fees if such person acted in good faith and in a manner suchperson reasonably believed to be in or not opposed to the best interests of the Corporation, and in connection with any criminal proceeding suchperson also had no reasonable cause to believe the conduct was unlawful, with the determination as to whether the applicable standard of conductwas met to be made by a majority of the members of the Board (sitting as a committee of the Board) who were not parties to such inquiry,investigation, action, suit or proceeding or by any one or more disinterested counsel to whom the question may be referred by the Board;provided, however, in connection with any proceeding by or in the right of the Corporation, no indemnification shall be provided as to any personadjudged by any court to be liable to the Corporation except as and to the extent determined by such court.The termination of any such inquiry, investigation, action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea ofnolo contendere or its equivalent shall not of itself create a presumption that such person did not meet the standards of conduct set forth in subsection (b)above.Reasonable costs, disbursements and counsel fees incurred by such person in connection with any inquiry, investigation, action, suit orproceeding may be paid by the Corporation in advance in the final disposition of such matter if authorized by a majority of the Board (sitting as a committeeof the Board) not parties to such matter upon receipt by the Corporation of an undertaking by or on behalf of such person to repay such amount unless it isultimately determined that such person is entitled to be indemnified as set forth herein.SECTION 9.02. Directors, Trustees, Officers and Employees of Other Companies. The Board may, at any regular or special meeting of theBoard, by resolution, accord similar indemnification (prospective or retroactive) to any director, trustee, officer or employee of any other company who isserving as such at the request of the Corporation and any officer, director or employee of any constituent corporation absorbed by the Corporation in aconsolidation or merger, or the legal representative of any such director, trustee, officer or employee.SECTION 9.03. Indemnification Not Exclusive. The indemnification and advancement of expenses provided for in this Article IX shall notexclude any other rights to which any person contemplated by this Article IX may be entitled as a matter of law or which may be lawfully granted; providedthat no indemnification shall be made to or on behalf of such person if a judgment or other final adjudication adverse to such person establishes that his orher acts or omissions (a) were in breach of his or her duty of loyalty to the Corporation or its stockholders, (b) were not in good faith or involved a knowingviolation of law or (c) resulted in receipt by such person of an improper personal benefit.SECTION 9.04. Insurance. The Corporation may purchase and maintain insurance to protect itself and any person contemplated by thisArticle IX against any expenses incurred in any proceeding and any liabilities asserted against him or her by reason of his or her being or having been adirector, officer or employee, whether or not the Corporation would have the power to indemnify him or her against such expenses and liabilities under theprovisions of this Article IX. The Corporation may purchase such insurance from, or such insurance may be reinsured in whole or in part by, an insurer ownedby or otherwise affiliated with the Corporation, whether or not such insurer does business with other insureds.15ARTICLE XAMENDMENTSSECTION 10.01.General Procedure. The Board of Directors shall have power to make, alter and repeal Bylaws of the Corporation by a voteof a majority of all of the directors at any regular or special meeting of the Board, provided that, unless every director shall be present at such meeting, thenotice or waiver of notice of such meeting shall have specified or summarized the proposed action. The stockholders may make, alter, and repeal Bylaws ofthe Corporation by a vote of a majority of the stockholders at any meeting, provided that the notice or waiver of notice of such meeting shall have specifiedor summarized the proposed action.ARTICLE XIFORUM SELECTIONSECTION 11.01.Forum Selection. Unless the Corporation consents in writing to the selection of an alternative forum, the sole andexclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action by one or more shareholders asserting a claimof a breach of fiduciary duty owed by a director or officer or former director or officer, to the Corporation or the Corporation’s shareholders or a breach of thecertificate of incorporation or bylaws, (iii) any action brought by one or more shareholders asserting a claim against the Corporation or its directors orofficers, or former directors or officers, arising under the certificate of incorporation or these bylaws (as either may be amended from time to time) or under theNew Jersey Business Corporation Act, N.J.S. 14A:1-1 et seq.; (iv) any other State law claim, including a class action asserting a breach of a duty to disclose ora similar claim brought by one or more shareholders against the corporation, its directors or officers, or its former directors or officers; or (vi) any other claimbrought by one or more shareholders which is governed by the internal affairs doctrine or an analogous doctrine, shall be the United States District Court forthe District of New Jersey, or in the event that such court lacks jurisdiction to hear such action, a Superior Court of the State of New Jersey.In the event that any action the subject matter of which is within the scope of the preceding sentence is filed in a court other than a courtlocated within the State of New Jersey (a “Foreign Action”) in the name of any shareholder or shareholders, such shareholder or shareholders shall be deemedto have consented to (i) the personal jurisdiction of the State and Federal courts located within the State of New Jersey in connection with any action broughtin any such court to enforce the preceding sentence and (ii) having service of process made upon such shareholder or shareholders in any such action byservice upon such shareholder’s or shareholders’ counsel in the Foreign Action as agent for such shareholder.16Any shareholder or shareholders who file an action in breach of the requirement contained in this ARTICLE XI shall be liable for allreasonable costs incurred in enforcing the requirement, including, without limitation, reasonable attorneys’ fees of the defendants.Bylaws were last revised on March 8, 2019.17Exhibit 10.6FOURTH AMENDMENT TO CREDIT AGREEMENTTHIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is made as of this 6th day of March, 2019 by and betweenLINCOLN EDUCATIONAL SERVICES CORPORATION, a New Jersey corporation; LINCOLN TECHNICAL INSTITUTE, INC.; a New Jersey corporation;NASHVILLE ACQUISITION, L.L.C., a Delaware limited liability company; NEW ENGLAND ACQUISITION, LLC, a Delaware limited liability company;EUPHORIA ACQUISITION, LLC, a Delaware limited liability company; NEW ENGLAND INSTITUTE OF TECHNOLOGY AT PALM BEACH, INC., aFlorida corporation; LCT ACQUISITION, LLC, a Delaware limited liability company; NN ACQUISITION, LLC, a Delaware limited liability company andLTI HOLDINGS, LLC, a Colorado limited liability company (individually and collectively, jointly and severally, the “Borrower”), and STERLINGNATIONAL BANK (the “Bank”).R E C I T A L S:A. Pursuant to that certain Credit Agreement dated as of March 31, 2017, as amended by that certain First Amendment to Credit Agreement byand among Borrower and the Bank dated as of November 29, 2017, as further amended by that certain Second Amendment to Credit Agreement by andamong Borrower and the Bank dated as of February 23, 2018, and as further amended by that certain Third Amendment to Credit Agreement by and amongBorrower and the Bank dated as of July 11, 2018 (as the same has been and may be further amended from time to time, the “Credit Agreement”), the Bankagreed to make available to Borrower (i) that certain line of credit facility in the amount of $30,000,000, comprised of a $25,000,000 revolving loandesignated as “Tranche A” and a $5,000,000 non-revolving loan designated as “Tranche B” (“Facility 1”), (ii) that certain line of credit facility in the amountof $25,000,000 (“Facility 2”), which includes a $10,000,000 sublimit for letters of credit, and (iii) that certain line of credit facility in the amount of$15,000,000 (“Facility 3”) (collectively, as amended, modified, supplemented, extended and restated from time to time, the “Loans”). The $5,000,000 non-revolving loan drawn under Tranche B has been repaid and the maximum principal amount of Facility 1 has been permanently reduced to $25,000,000.00.B. Borrower has requested that the Bank modify the terms of the Credit Agreement to, among other things, (i) convert the entire outstandingprincipal balance of Facility 1 to a term loan, (ii) advance up to $5,000,000 under Facility 2 without the requirement of cash collateral for such revolvingloan and (iii) revise certain financial covenants, and Bank has agreed to such modifications to the Credit Agreement in accordance with and subject to theterms and conditions hereof.NOW, THEREFORE, in consideration of the foregoing, the terms and conditions set forth in this Amendment, and other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows:1. Recitals. The Recitals are incorporated as if fully set forth herein.2. Capitalized Terms. Capitalized terms used but not defined in this Amendment shall have the meanings set forth in the Credit Agreement.13. Amendments to the Credit Agreement.(a) Amended Definitions. The following definitions set forth in Section 1.1 of the Credit Agreement are hereby amended and restated to read asfollows:“Adjusted EBITDA” means, for the period under review, for the Borrower on a consolidated basis, an amount equal to Net Income for suchperiod plus the following to the extent deducted in calculating such Net Income: costs associated with the closing of the Lincoln Collegeof New England campus in Southington, Connecticut (i) in the amount of (A) $6,000,000 during the Fiscal Quarter ended December 31,2018, (B) $5,863,000 during the Fiscal Quarter ending March 31, 2019, (C) $4,964,000 during the Fiscal Quarter ending June 30, 2019 and(D) $3,099,000 during the Fiscal Quarter ending September 30, 2019 only, and (ii) amounts to be approved by Bank in any fiscal periodthereafter; it being understood and agreed that the add backs for the fiscal periods noted in clauses (i)(A)-(D) and (ii) shall be one-timeadjustments only and shall not carry forward to any subsequent fiscal periods) and other one-time charges with Bank’s approval; theamount of depreciation and amortization expense for such period; with the Bank’s consent, impairment of goodwill and long-lived assetsfor such period; Interest Expense; the provision for federal, state, local and foreign income taxes payable for such period; and other non-cash expenses related to stock-based compensation and pension expense for such period, in each case as determined in accordance withGAAP; and severance costs (limited to an aggregate sum of $1,000,000 incurred during any Fiscal Year).“Facility 1” means, prior to the date of the Fourth Amendment, that certain revolving line of credit facility described in Recital A of theFourth Amendment and, from and after the date of the Fourth Amendment, that certain term loan, in the original principal amount of$22,700,649.31 made pursuant to the Facility 1 Note.“Facility 1 Note” means that certain Note in the original principal amount of up to $30,000,000.00 evidencing the Loan made underFacility 1, of which there remains outstanding $22,700,649.31 as of the date of the Fourth Amendment.“Facility 2” means that certain $25,000,000 revolving line of credit, which includes a sublimit amount for Letters of Credit of $10,000,000,secured by a cash collateral account funded in an aggregate amount equal to the amount of any Revolving Loans made thereunder and theStated Amount of issued Letters of Credit, pursuant to the terms provided for in Section 2.1(c) hereof and in the Pledge Agreement, for thepurposes set forth in Section 6.8 of the Credit Agreement.“Loans” means, collectively, the Revolving Loans and the Term Loan.“Note” means, collectively, the Facility 1 Note and each Revolving Note.“Revolving Facility Amount” has the meaning ascribed thereto in Section 2.1(a).“Revolving Maturity Date” means, (i) as to Facility 2, April 30, 2020, or such earlier date upon which the Revolving Facility shallterminate or the Revolving Facility shall otherwise equal zero and (ii) as to Facility 3, May 31, 2019.2“Revolving Note” means a collective reference to the promissory note evidencing the Revolving Loans and/or the Letters of Credit issuedunder Facility 2, as applicable, payable to the order of the Bank in form acceptable to the Bank.(b) New Definitions. The following definitions are hereby inserted into Section 1.1 of the Credit Agreement:“Fourth Amendment” means that certain Fourth Amendment to Credit Agreement dated as of March 6, 2019 by and between the Borrowerand the Bank.“Term Loan” has the meaning ascribed thereto in Section 2.1(e).“Term Maturity Date” means March 31, 2024.(c) Deleted Definitions. The following definitions are hereby deleted in their entirety from Section 1.1 of the Credit Agreement, and anyreferences thereto are removed from the Credit Agreement:“Tranche A”“Tranche B”(d) Section 2.1(a) of the Credit Agreement is hereby deleted in its entirety and the following is inserted in its place:“(a) Revolving Loans Under Facility 2. Subject to the terms and conditions hereof, the Bank may make revolving credit loans (each a“Revolving Loan” and, collectively, the “Revolving Loans”) under Facility 2 to the Borrower from time to time during the AvailabilityPeriod in an aggregate principal amount at any one time outstanding which does not exceed $25,000,000 (inclusive of the sublimitavailable for the issuance of Letters of Credit of up to $10,000,000). During the Availability Period, within the foregoing limits and subjectto the terms and conditions set forth herein, the Borrower may borrow, repay pursuant to Section 2.6 and reborrow under this Section 2.1with respect to Facility 2. Subject to the provisions of Section 4 of the Fourth Amendment, all Revolving Loans under Facility 2, otherthan those Revolving Loans to be advanced pursuant to Section 4 of the Fourth Amendment, shall be fully cash collateralized.”The following is hereby inserted after the last sentence of Section 2.1(b) in connection with Letters of Credit issued under Facility 2:“All requirements, covenants, and obligations of the Borrower pursuant to this Credit Agreement shall survive the Revolving Maturity Dateand/or the termination of Facility 2 for so long as any Letter of Credit remains outstanding.”(e) Section 2.1 of the Credit Agreement is hereby amended to include the following as Section 2.1(e):3“(e) Subject to the terms and conditions hereof, all revolving loans and interest outstanding under Facility 1 as of the date of the FourthAmendment shall be automatically converted into a term loan (the “Term Loan”) and the Borrower shall repay the Term Loan pursuant toSection 2.5 of the Credit Agreement. Amounts repaid under the Term Loan may not be reborrowed.”(f) Section 2.5 of the Credit Agreement is hereby deleted in its entirety and the following is inserted in its place:“Section 2.5 Repayment of the Loans.(a) Repayment of the Revolving Loans. The Borrower hereby unconditionally promises to pay to the order of the Bank thethen unpaid principal amount of each Revolving Loan on the Revolving Maturity Date.(b) Repayment of the Term Loan.(i) Commencing on April 1, 2019, and continuing on the same day of each month thereafter through and including June30, 2019, the Term Loan shall be payable in consecutive monthly installments of accrued interest only.(ii) Commencing on July 1, 2019, and continuing on the same day of each month thereafter through and includingDecember 31, 2019, the outstanding principal amount of the Term Loan shall be payable in consecutive monthly installments of$189,172.08 plus accrued interest.(iii) Commencing on January 1, 2020, and continuing on the same day of each month thereafter through and includingJune 30, 2020, the Term Loan shall be payable in consecutive monthly installments of accrued interest only.(iv) Commencing on July 1, 2020, and continuing on the same day of each month thereafter through and includingDecember 31, 2020, the outstanding principal amount of the Term Loan shall be payable in consecutive monthly installments of$567,516.24, plus accrued interest.(v) Commencing on January 1, 2021, and continuing on the same day of each month thereafter through and includingJune 30, 2021, the Term Loan shall be payable in consecutive monthly installments of accrued interest only.(vi) Commencing on July 1, 2021, and continuing on the same day of each month thereafter through and includingDecember 31, 2021, the outstanding principal amount of the Term Loan shall be payable in consecutive monthly installments of$378,344.16 plus accrued interest.(vii) Commencing on January 1, 2022, and continuing on the same day of each month thereafter through and includingJune 30, 2022, the Term Loan shall be payable in consecutive monthly installments of accrued interest only.4(viii) Commencing on July 1, 2022, and continuing on the same day of each month thereafter through and includingDecember 31, 2022, the outstanding principal amount of the Term Loan shall be payable in consecutive monthly installments of$378,344.16 plus accrued interest.(ix) Commencing on January 1, 2023, and continuing on the same day of each month thereafter through and includingJune 30, 2023, the Term Loan shall be payable in consecutive monthly installments of accrued interest only.(x) Commencing on July 1, 2023, and continuing on the same day of each month thereafter through and includingDecember 31, 2023, the outstanding principal amount of the Term Loan shall be payable in consecutive monthly installments of$378,344.16 plus accrued interest.(xi) Commencing on January 1, 2024, and continuing on the same day of each month thereafter through and includingthe Term Maturity Date, the Term Loan shall be payable in consecutive monthly installments of accrued interest only.(xii) On the Term Maturity Date, the remaining outstanding principal amount of the Term Loan, together with accruedinterest, shall be immediately due and payable.(g) Section 2 of the Credit Agreement is hereby amended to include the following as Section 2.8:“Section 2.8 Mandatory Prepayments of the Term Loan. In the event of a sale of any campus, school, or business, Borrower shall pay to theBank, at the closing thereof, an amount equal to twenty-five percent (25%) of the net proceeds (i.e., the gross purchase price less customaryand reasonable closing costs and expenses) of any such sale, which amount shall be applied to the outstanding principal amount of theTerm Loan in inverse order of maturity. For the avoidance of doubt, such mandatory prepayment shall not excuse Borrower from makingregular monthly payments of principal, but shall reduce the balloon payment to be made upon the Term Loan Maturity.”(h) Section 3.1(A)(a)(i) of the Credit Agreement is hereby deleted in its entirety and the following is inserted in its place:“A. Term Loan under Facility 1 and Revolving Loans under Facility 2(a) (i) Facility 1: The Borrower shall pay to the Bank interest on the Term Loan for the period commencing on the date of theFourth Amendment until the Term Loan shall be paid in full, at a rate per annum equal to the greater of (x) the Prime Rate plus 2.85%,and (y) 6.00%. Any change in the interest rate resulting from a change in the Prime Rate shall be effective as of the opening ofbusiness on the day on which such change in the Prime Rate becomes effective.”5(i) Subsection (a)(ii) of Section 3.1(A) of the Credit Agreement is hereby deleted in its entirety and the following is inserted in its place:“(ii) Facility 2: The Borrower shall pay to the Bank interest on the unpaid principal amount of each Revolving Loan made by theBank to the Borrower under Facility 2 for the period commencing on the date of such Revolving Loan until such Revolving Loan shallbe paid in full, at a rate per annum equal to the greater of (x) the Prime Rate plus 0.00%, and (y) 3.50%. Notwithstanding the foregoing,with regard to any advances made pursuant to Facility 2 which are not secured by cash collateral, Borrower shall pay to the Bankinterest on the unpaid principal amount of each such Revolving Loan for the period commencing on the date of such Revolving Loanuntil such Revolving Loan shall be paid in full, at a rate per annum equal to the greater of (x) the Prime Rate plus 2.85%, and (y)6.00%.”(j) Section 3.3 of the Credit Agreement is hereby deleted in its entirety and the following is inserted in its place:“Section 3.3 Unused Facility Fee. The Borrowers agree to pay to the Bank an unused facility fee (“Unused Facility Fee”) on theaverage daily unused balance of Facility 2 from and including the Effective Date to but excluding the Revolving Maturity Date at arate per annum equal to one-half of one percent (0.50%). The Unused Facility Fee is calculated based on a year of 360 days for theactual number of days elapsed. The accrued Unused Facility Fee shall be paid on the first day of each Fiscal Quarter, in arrears. For theavoidance of doubt, there is no Unused Facility Fee due upon the average daily unused balance of Facility 3 at any time.”(k) Section 6.18 of the Credit Agreement is hereby deleted in its entirety and the following inserted in its place:“Borrower agrees to permit the Bank and its appraisers to have access to the Mortgaged Property, in order to obtain a current appraisalof the Mortgaged Property, at the sole cost and expense of Borrower, once every two (2) years, and at any time upon the occurrence ofan Event of Default.”(l) Section 7.6(i) of the Credit Agreement is hereby deleted in its entirety. For the avoidance of doubt, no sale of any school, business or campusby the Borrower shall occur without the Bank’s prior written consent, to be granted in the Bank’s sole and absolute discretion.(m) Section 7.18(a) of the Credit Agreement is hereby deleted in its entirety and the following inserted in its place:“(a) Capital Expenditures. The Borrower will not make unfunded Capital Expenditures during any Fiscal Year, tested annually at eachFiscal Year end, in excess of $6,000,000, without the prior written approval of the Bank.”(n) Section 7.18(b) of the Credit Agreement is hereby deleted in its entirety and the following inserted in its place:6“(b) Minimum Adjusted EBITDA. The Borrower shall maintain a minimum Adjusted EBITDA, tested quarterly on a rolling twelve monthbasis, as follows:1Q19$7,000,0002Q19$7,250,0003Q19$9,000,0004Q19$11,000,000Commencing with the Fiscal Year 2020, the Borrower shall deliver to the Bank detailed financial projections for the upcoming Fiscal Yearby January 31 of each such Fiscal Year and, thereafter, the Bank shall determine, in its reasonable discretion, the acceptable minimumAdjusted EBITDA levels that the Borrower must maintain for such Fiscal Year. The Bank shall notify Borrower of such determination inwriting no later than 30 days after delivery of the financial projections.”(o) Section 7.18(e) of the Credit Agreement is hereby deleted in its entirety and the following inserted in its place:“(e) Maximum Funded Debt to Adjusted EBITDA Ratio. The Borrower shall maintain a maximum Funded Debt to Adjusted EBITDARatio, tested on a rolling twelve month basis, in the corresponding quarter of each year as follows:1Q3.00 to 1.002Q3.00 to 1.003Q2.50 to 1.004Q2.00 to 1.00Compliance with this covenant shall be determined on a rolling twelve month basis and shall be measured commencing as of the FiscalQuarter ended March 31, 2019. For the avoidance of doubt, nothing herein shall relieve the Borrower from compliance with all existingcovenants for the Fiscal Quarter ending December 31, 2018.”4. Additional Advance. (a) On the date hereof, the Bank shall make a Revolving Loan in the principal amount of Two Million Five HundredThousand Dollars ($2,500,000.00) under Facility 2 to the Borrower.(b) The Bank may, in its sole and absolute discretion, make additional Revolving Loans under Facility 2 to the Borrower as follows: (a)a Revolving Loan in the principal amount of One Million Two Hundred Fifty Thousand Dollars ($1,250,000.00) after receipt of the financial statementsrequired by Section 6.1(a) for the Fiscal Quarter ending March 31, 2019 and (b) a Revolving Loan in the principal amount of One Million Two Hundred FiftyThousand Dollars ($1,250,000.00) after receipt of the financial statements required by Section 6.1(a) for the Fiscal Quarter ending June 30, 2019. The Bankshall make each such additional Revolving Loan to the Borrower or notify the Borrower of its decision not to make such additional Revolving Loan within15 days after the Bank’s receipt of the financial statements for such Fiscal Quarters. Notwithstanding Section 2.1(c), there shall be no cash collateralrequirement for any Revolving Loans made pursuant to this Section 4. All principal amounts advanced by the Bank pursuant to this Section 4, together withaccrued interest, shall be due and payable on November 1, 2019. Prior to November 1, 2019, the Borrower shall be obligated to make monthly payments ofaccrued interest only on Revolving Loans made under Facility 2 pursuant to this paragraph.75. Reappraisal. Notwithstanding anything in Section 6.18 to the contrary, is expressly acknowledged and agreed by the Borrower that the Bankwill reappraise the Mortgaged Property within thirty (30) days of the date hereof, and that such cost shall be borne by the Borrower.6. Banking Services; First Opportunity Right. (a) Throughout the term of the Loans, the Borrower shall give the Bank the first opportunity toprovide any and all traditional banking services required by the Borrower, including but not limited to treasury management, loans and other financingservices (each a “Financial Service”), on such terms and conditions as may be mutually acceptable to the Borrower and the Bank, all in accordance with theprovisions set forth below.(b) Prior to seeking any Financial Service from a third party, Borrower shall provide to the Bank written notice (the “Right of First OfferNotice”) of its intention to obtain a Financial Service, which notice shall (i) set forth in reasonable detail the terms of the Financial Service sought and (ii)offer to the Bank, for a period of three (3) Business Days from the date of delivery of the Right of First Offer Notice, the opportunity to provide the FinancialService sought. The Bank shall within such three (3) Business Day period, either advise the Borrower, in writing, that (i) the Bank is not interested in offeringthe Financial Service to the Borrower or (ii) the Bank is interested in offering the Financial Service to the Borrower and requests information and materialsrelating to the Financial Service sought by the Borrower (the “Financial Service Information/Materials”), only to the extent, however, that the FinancialService Information/Materials are reasonably necessary in order for the Bank to sufficiently evaluate the Financial Service for purposes of potentially issuingan “Indicative Term Sheet”, as referenced below.(c) On or prior to the date which is twelve (12) Business Days after receipt of all or substantially all of the Financial ServiceInformation/Materials, the Bank shall either (i) notify the Borrower that the Bank is not interested in pursuing the Financial Service or (ii) deliver to theBorrower the Indicative Term Sheet. An “Indicative Term Sheet” shall mean a document describing the proposed basic business terms and conditions uponwhich the Bank proposes to provide the Financial Service sought by the Borrower, it being understood that the Indicative Term Sheet shall not be bindingupon the Bank and shall in no event be deemed a commitment by the Bank to provide the Financial Service and shall not impose any obligation on Bankwhatsoever.7. Exit Fee. In consideration of the terms and conditions set forth in this Fourth Amendment, and other good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged by the Borrower, upon the repayment of any of the Loans or other credit facilities, if any, throughreplacement financing, the Borrower shall pay to the Bank, in addition to the payoff amount, in good and available funds, an amount equal to one and one-quarter percent (1.25%) (the "Exit Fee") of the total payoff amount as well as the face amount of all letters of credit replaced in connection with saidreplacement financing. Notwithstanding the foregoing, the Exit Fee shall not be due and payable in the event (i) the Bank or an affiliate or subsidiary of theBank arranges or provides replacement financing for the Loans or (ii) the payoff of the applicable Loan(s) occurs after March 5, 2021 (the Borrowercovenants, however, that in good faith it will not extend the closing date of said replacement financing for purposes of avoiding the Exit Fee).88. Hedging Contract Required. In the event that the Prime Rate is greater than or equal to 6.50% while any Loans are outstanding, Borrowermay be required to enter into a Hedging Contract in form and content satisfactory to the Bank for the remaining duration of the Loans and in a notionalamount up to the outstanding principal balance of the Loans in the Bank’s sole discretion. A Hedging Contract may be available through the Bank or anaffiliate provider, but Borrower shall not be obligated to obtain the Hedging Contract from the Bank or any affiliate provider of the Bank. In the event thatthe Borrower shall obtain the Hedging Contract from the Bank or an affiliate provider of the Bank, the Collateral for the Loans set forth herein and in theother Loan Documents shall secure such Hedging Contract. In the event a Hedging Contract shall be provided by a service provider other than the Bank orits affiliate provider, the Collateral for the Loans set forth herein and in the other Loan Documents shall not secure such Hedging Contract. Early terminationof the Hedging Contract will be settled at the market value of any such Hedging Contract, and may result in a payment from or a payment to the Borrower tobe determined at the time of termination.9. Expiration of Facility 3. It is expressly understood and agreed that Facility 3 shall expire on May 31, 2019, and shall not be renewed.10. Reaffirmation of Credit Agreement. Borrower acknowledges and reaffirms its obligations under the Credit Agreement, and Borroweracknowledges and agrees that it has no claims against the Bank, or any offsets or defenses with respect to the payment of any sums due under the Facilities orany Loan Document, or with respect to the enforcement of the Loan Documents.11. Confirmation of Representations and Warranties. Borrower hereby (a) confirms that all of the representations and warranties set forth in theCredit Agreement are true and correct in all material respects (provided that if any representation or warranty is by its terms qualified by concepts ofmateriality, such representation or warranty is true and correct in all respects), except to the extent any representation or warranty relates to a specific date inwhich case such representation or warranty shall be true and correct as of such earlier date, and (b) covenants to perform its obligations under the CreditAgreement and all other Loan Documents.12. Conditions to Effectiveness. This Amendment shall become effective as of the date on which each of the following conditions has beensatisfied (the “Effective Date”):(a) Each Borrower shall have delivered to the Bank this Amendment duly executed by an authorized officer of each Borrower;(b) Each Borrower shall have delivered to the Bank resolutions of its board of directors or other governing body authorizing theexecution and delivery to the Bank of this Amendment; and(c) all representations and warranties of Borrower contained herein shall be true and correct as of the Effective Date, except to the extentthat such representation or warranty relates to a specific date, in which case such representation and warranty was true as of such earlier date, and such partiesdelivery of their respective signatures hereto shall be deemed to be its certification thereof.913. Fees and Expenses. In consideration of the Bank entering into this Amendment, Borrower shall be responsible for the payment of a one-timemodification fee in the amount of Fifty Thousand Dollars ($50,000.00), as well as the Bank’s counsel’s fees incurred in connection herewith, including thepreparation of this Amendment, and certain other loan administrative matters related to the Loan Documents.14. Reference to the Effect on the Credit Agreement. Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “thisAgreement,” “hereunder,” “hereof,” “herein” or words of similar import shall mean and be a reference to the Credit Agreement as modified by thisAmendment.15. Affirmation. Except as specifically modified pursuant to the terms hereof, the Credit Agreement, and all other Loan Documents (and allcovenants, terms, conditions and agreements therein), shall remain in full force and effect, and are hereby ratified and confirmed in all respects by Borrower. Borrower covenants and agrees to comply with all of the terms, covenants and conditions of the Loan Documents, as modified hereby, notwithstanding anyprior course of conduct, waivers, releases or other actions or inactions on the Bank’s part which might otherwise constitute or be construed as a waiver of oramendment to such terms, covenants and conditions.16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCEWITH, THE LAWS OF THE STATE OF NEW JERSEY, WITHOUT REFERENCE TO THE CONFLICTS OR CHOICE OF LAW PRINCIPLESTHEREOF.17. Headings. Section headings in this Amendment are included for convenience of reference only and shall not constitute a part of thisAmendment for any other purpose.18. Counterparts. This Amendment may be executed in counterparts, and all counterparts taken together shall be deemed to constitute one andthe same instrument.[signatures appear on successive pages]10IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the year and date first set forth above. BORROWER: LINCOLN EDUCATIONAL SERVICES CORPORATION By:/s/Brian K. Meyers Brian K. Meyers Chief Financial Officer LINCOLN TECHNICAL INSTITUTE, INC. By:/s/Brian K. Meyers Brian K. Meyers Treasurer NASHVILLE ACQUISITION, L.L.C. By:/s/Brian K. Meyers Brian K. Meyers Treasurer NEW ENGLAND ACQUISITION, LLC By:/s/Brian K. Meyers Brian K. Meyers Treasurer11 EUPHORIA ACQUISITION, LLC By:/s/Brian K. Meyers Brian K. Meyers Treasurer NEW ENGLAND INSTITUTE OFTECHNOLOGY AT PALM BEACH,INC. By:/s/Brian K. Meyers Brian K. Meyers Treasurer LCT ACQUISITION, LLC By:/s/Brian K. Meyers Brian K. Meyers Treasurer NN ACQUISITION, LLC By:/s/Brian K. Meyers Brian K. Meyers Treasurer LTI HOLDINGS, LLC By:/s/Brian K. Meyers Brian K. Meyers Treasurer12 BANK: STERLING NATIONAL BANK By:/s/ Mark Smith Mark Smith Managing Director13Exhibit 21.1Subsidiaries of the CompanyThe following is a list of Lincoln Educational Services Corporation’s subsidiaries as of December 31, 2018:NameJurisdiction Lincoln Technical Institute, Inc. (wholly owned)New Jersey New England 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.)DelawareExhibit 23CONSENT 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 12, 2019,relating to 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, 2018./s/ Deloitte & Touche LLPParsippany, New JerseyMarch 12, 2019EXHIBIT 31.1CERTIFICATIONI, 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, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.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 12, 2019 /s/ Scott Shaw Scott Shaw Chief Executive Officer EXHIBIT 31.2CERTIFICATIONI, Brian Meyers, certify that:1.I have reviewed this Annual Report on Form 10-K of Lincoln Educational Services Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: March 12, 2019 /s/ Brian Meyers Brian Meyers Chief Financial Officer EXHIBIT 32CERTIFICATIONPursuant to 18 U.S.C. 1350 as adopted bySection 906 of the Sarbanes-Oxley Act of 2002Each 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, 2018 (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; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Date: March 12, 2019 /s/ Scott Shaw Scott Shaw Chief Executive Officer /s/ Brian Meyers Brian Meyers Chief Financial Officer

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