UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 20172019

or

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

For the transition period from _____ to _____

Commission File Number 000-51371

LINCOLN EDUCATIONAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)

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

200 Executive Drive, Suite 340 07052
West Orange, NJ 07052(Zip Code)
(Address of principal executive offices) (Zip Code)

(973) 736-9340
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐ (Do(Do not check if a smaller reporting company)
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 or revised 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 Exchange Act). Yes ☐  No ☒

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, no par value per share
LINC
The NASDAQ Stock Market LLC
As of November 8, 2017,12, 2019, there were 24,719,05525,231,710 shares of the registrant’s common stock outstanding.

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20172019

PART I.
FINANCIAL INFORMATION
 
Item 1.
1
 1
 3
 4
 5
 6
 8
Item 2.
20
Item 3.
35
Item 4.
35
PART II.
OTHER INFORMATION
35
PART II.Item 1.
35
Item 1.
Legal Proceedings
35
Item 5.
36
Item 6.
3839
 39

PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)

 
September 30,
2017
  
December 31,
2016
  
September 30,
2019
  
December 31,
2018
 
ASSETS            
CURRENT ASSETS:            
Cash and cash equivalents $7,277  $21,064  
$
11,757
  
$
17,571
 
Restricted cash  7,189   6,399  
3,997
  
16,775
 
Accounts receivable, less allowance of $13,034 and $12,375 at September 30, 2017 and December 31, 2016, respectively  18,503   15,383 
Accounts receivable, less allowance of $17,277 and $15,590 at September 30, 2019 and December 31, 2018, respectively 
22,094
  
18,675
 
Inventories  1,787   1,687  
1,899
  
1,451
 
Prepaid income taxes and income taxes receivable  195   262  
358
  
178
 
Assets held for sale  3,021   16,847 
Prepaid expenses and other current assets  2,187   2,894   
4,257
   
2,461
 
Total current assets  40,159   64,536   
44,362
   
57,111
 
              
PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $162,189 and $157,152 at September 30, 2017 and December 31, 2016, respectively  54,083   55,445 
PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $172,190 and $171,109 at September 30, 2019 and December 31, 2018, respectively  
48,209
   
49,292
 
              
OTHER ASSETS:              
Noncurrent restricted cash  -   20,252  
-
  
11,600
 
Noncurrent receivables, less allowance of $1,304 and $977 at September 30, 2017 and December 31, 2016, respectively  7,827   7,323 
Noncurrent receivables, less allowance of $2,156 and $1,403 at September 30, 2019 and December 31, 2018, respectively 
14,633
  
12,175
 
Deferred income taxes, net 
-
  
424
 
Operating lease right-of-use assets 
38,750
  
-
 
Goodwill  14,536   14,536  
14,536
  
14,536
 
Other assets, net  954   1,115   
1,247
   
900
 
Total other assets  23,317   43,226   
69,166
   
39,635
 
TOTAL $117,559  $163,207  
$
161,737
  
$
146,038
 

See notes to unaudited condensed consolidated financial statements.

1
LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
(Continued)

 
September 30,
2017
  
December 31,
2016
  
September 30,
2019
  
December 31,
2018
 
LIABILITIES AND STOCKHOLDERS' EQUITY      
LIABILITIES AND STOCKHOLDERS’ EQUITY      
CURRENT LIABILITIES:            
Current portion of credit agreement and term loan $-  $11,713 
Current portion of credit agreement 
$
7,117
  
$
15,000
 
Unearned tuition  26,200   24,778  
22,901
  
22,545
 
Accounts payable  10,423   13,748  
18,899
  
14,107
 
Accrued expenses  14,619   15,368  
9,523
  
10,605
 
Current portion of operating lease liabilities 
9,089
  
-
 
Other short-term liabilities  2,122   653   
595
   
2,324
 
Total current liabilities  53,364   66,260  
68,124
  
64,581
 
              
NONCURRENT LIABILITIES:              
Long-term credit agreement and term loan  16,721   30,244  
19,785
  
33,769
 
Pension plan liabilities  4,981   5,368  
4,149
  
4,271
 
Deferred income taxes, net 
93
  
-
 
Long-term portion of operating lease liabilities 
35,942
  
-
 
Accrued rent  4,672   5,666  
-
  
3,410
 
Other long-term liabilities  685   743   
64
   
141
 
Total liabilities  80,423   108,281   
128,157
   
106,172
 
              
COMMITMENTS AND CONTINGENCIES              
              
STOCKHOLDERS' EQUITY:        
Preferred stock, no par value - 10,000,000 shares authorized, no shares issued and outstanding at September 30, 2017 and December 31, 2016  -   - 
Common stock, no par value - authorized: 100,000,000 shares at September 30, 2017 and December 31, 2016; issued and outstanding: 30,629,596 shares at September 30, 2017 and 30,685,017 shares at December 31, 2016  141,377   141,377 
STOCKHOLDERS’ EQUITY:      
Preferred stock, no par value - 10,000,000 shares authorized, no shares issued and outstanding at September 30, 2019 and December 31, 2018 
-
  
-
 
Common stock, no par value - authorized: 100,000,000 shares at September 30, 2019 and December 31, 2018; issued and outstanding: 31,142,251 shares at September 30, 2019 and 30,552,333 shares at December 31, 2018 
141,377
  
141,377
 
Additional paid-in capital  29,073   28,554  
29,927
  
29,484
 
Treasury stock at cost - 5,910,541 shares at September 30, 2017 and December 31, 2016  (82,860)  (82,860)
Treasury stock at cost - 5,910,541 shares at September 30, 2019 and December 31, 2018 
(82,860
)
 
(82,860
)
Accumulated deficit  (45,234)  (26,044) 
(51,264
)
 
(44,073
)
Accumulated other comprehensive loss  (5,220)  (6,101)  
(3,600
)
  
(4,062
)
Total stockholders' equity  37,136   54,926 
Total stockholders’ equity  
33,580
   
39,866
 
TOTAL $117,559  $163,207  
$
161,737
  
$
146,038
 

See notes to unaudited condensed consolidated financial statements.

2
LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
 2017  2016  2017  2016  2019  2018  2019  2018 
                        
REVENUE $67,308  $74,267  $194,452  $212,991  
$
72,594
  
$
70,078
  
$
199,427
  
$
193,087
 
COSTS AND EXPENSES:                            
Educational services and facilities  34,070   37,543   99,183   110,234  
33,211
  
33,488
  
92,940
  
94,169
 
Selling, general and administrative  35,499   37,402   109,378   113,307  
37,451
  
36,087
  
111,512
  
108,091
 
Gain on sale of assets  (1,530)  (7)  (1,619)  (402)
(Gain) loss on disposition of assets  
(211
)
  
427
   
(211
)
  
537
 
Total costs & expenses  68,039   74,938   206,942   223,139   
70,451
   
70,002
   
204,241
   
202,797
 
OPERATING LOSS  (731)  (671)  (12,490)  (10,148)
OPERATING INCOME (LOSS) 
2,143
  
76
  
(4,814
)
 
(9,710
)
OTHER:                            
Interest income  7   69   47   141  
1
  
6
  
7
  
25
 
Interest expense  (716)  (1,497)  (6,597)  (4,629)  
(754
)
  
(632
)
  
(2,141
)
  
(1,743
)
Other income  -   1,678   -   5,109 
LOSS BEFORE INCOME TAXES  (1,440)  (421)  (19,040)  (9,527)
INCOME (LOSS) BEFORE INCOME TAXES 
1,390
  
(550
)
 
(6,948
)
 
(11,428
)
PROVISION FOR INCOME TAXES  50   50   150   150   
50
   
50
   
244
   
150
 
NET LOSS $(1,490) $(471) $(19,190) $(9,677)
NET INCOME (LOSS) 
$
1,340
  
$
(600
)
 
$
(7,192
)
 
$
(11,578
)
Basic                            
Net loss per share $(0.06) $(0.02) $(0.80) $(0.41)
Net income (loss) per share 
$
0.05
  
$
(0.02
)
 
$
(0.29
)
 
$
(0.47
)
Diluted                            
Net loss per share $(0.06) $(0.02) $(0.80) $(0.41)
Net income (loss) per share 
$
0.05
  
$
(0.02
)
 
$
(0.29
)
 
$
(0.47
)
Weighted average number of common shares outstanding:                            
Basic  24,024   23,499   23,866   23,433  
24,563
  
24,533
  
24,551
  
24,387
 
Diluted  24,024   23,499   23,866   23,433  
24,608
  
24,533
  
24,551
  
24,387
 

See notes to unaudited condensed consolidated financial statements.

3
LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) INCOME
(In thousands)
(Unaudited)

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
 2017  2016  2017  2016  2019  2018  2019  2018 
Net loss $(1,490) $(471) $(19,190) $(9,677)
Net income (loss) 
$
1,340
  
$
(600
)
 
$
(7,192
)
 
$
(11,578
)
Other comprehensive income                            
Employee pension plan adjustments  440   222   881   666   
154
   
162
   
462
   
485
 
Comprehensive loss $(1,050) $(249) $(18,309) $(9,011)
Comprehensive income (loss) 
$
1,494
  
$
(438
)
 
$
(6,730
)
 
$
(11,093
)

See notes to unaudited condensed consolidated financial statements.

4
LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(Unaudited)

   Common Stock       
Additional
Paid-in
        Treasury      
Retained
Earnings
(Accumulated
      
Accumulated
Other
Comprehensive
             


Common Stock
  
Additional
Paid-in
Capital
  
Treasury
Stock
  
Accumulated
Deficit
  
Accumulated
Other
Comprehensive
Loss
  Total 
 Shares  Amount  Capital  Stock  Deficit)  Loss  Total Shares  Amount
BALANCE - January 1, 2017  30,685,017  $141,377  $28,554  $(82,860) $(26,044) $(6,101) $54,926 
BALANCE - January 1, 2019 
30,552,333
  
$
141,377
  
$
29,484
  
$
(82,860
)
 
$
(44,073
)
 
$
(4,062
)
 
$
39,866
 
Net loss  -   -   -   -   (19,190)  -   (19,190) 
-
  
-
  
-
  
-
  
(5,467
)
 
-
  
(5,467
)
Employee pension plan adjustments  -   -   -   -   -   881   881  
-
  
-
  
-
  
-
  
-
  
154
  
154
 
Stock-based compensation expense                                                 
Restricted stock  128,810   -   948   -   -   -   948  
478,853
  
-
  
52
  
-
  
-
  
-
  
52
 
Net share settlement for equity-based compensation  (184,231)  -   (429)  -   -   -   (429)  
(5,518
)
  
-
   
(18
)
  
-
   
-
   
-
   
(18
)
BALANCE - September 30, 2017  30,629,596  $141,377  $29,073  $(82,860) $(45,234) $(5,220) $37,136 
BALANCE - March 31, 2019 
31,025,668
  
141,377
  
29,518
  
(82,860
)
 
(49,540
)
 
(3,908
)
 
34,587
 
Net loss 
-
  
-
  
-
  
-
  
(3,064
)
 
-
  
(3,064
)
Employee pension plan adjustments 
-
  
-
  
-
  
-
  
-
  
154
  
154
 
Stock-based compensation expense                     
Restricted stock 
116,583
  
-
  
191
  
-
  
-
  
-
  
191
 
Net share settlement for equity-based compensation  
-
   
-
   
-
   
-
   
-
   
-
   
-
 
BALANCE - June 30, 2019 
31,142,251
  
141,377
  
29,709
  
(82,860
)
 
(52,604
)
 
(3,754
)
 
31,868
 
Net income 
-
  
-
  
-
  
-
  
1,340
  
-
  
1,340
 
Employee pension plan adjustments 
-
  
-
  
-
  
-
  
-
  
154
  
154
 
Stock-based compensation expense                     
Restricted stock 
-
  
-
  
218
  
-
  
-
  
-
  
218
 
Net share settlement for equity-based compensation  
-
   
-
   
-
   
-
   
-
   
-
   
-
 
BALANCE - September 30, 2019  
31,142,251
  
$
141,377
  
$
29,927
  
$
(82,860
)
 
$
(51,264
)
 
$
(3,600
)
 
$
33,580
 

           Common Stock       
Additional
Paid-in
        Treasury      
Retained
Earnings
(Accumulated
      
Accumulated
Other
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  -   -   -   -   (9,677)  -   (9,677)
Employee pension plan adjustments  -   -   -   -   -   666   666 
Stock-based compensation expense                            
Restricted stock  1,079,267   -   1,086   -   -   -   1,086 
Net share settlement for equity-based compensation  (38,389)  -   (107)  -   -   -   (107)
BALANCE - September 30, 2016  30,768,433  $141,377  $28,271  $(82,860) $(7,417) $(6,406) $72,965 
  


Common Stock
  
Additional
Paid-in
Capital
  
Treasury
Stock
  
Accumulated
Deficit
  
Accumulated
Other
Comprehensive
Loss
  Total 
Shares  Amount
BALANCE - January 1, 2018  
30,624,407
  
$
141,377
  
$
29,334
  
$
(82,860
)
 
$
(37,528
)
 
$
(4,510
)
 
$
45,813
 
Net loss  
-
   
-
   
-
   
-
   
(6,874
)
  
-
   
(6,874
)
Employee pension plan adjustments  
-
   
-
   
-
   
-
   
-
   
162
   
162
 
Stock-based compensation expense                            
Restricted stock  
113,946
   
-
   
429
   
-
   
-
   
-
   
429
 
Net share settlement for equity-based compensation  
(168,254
)
  
-
   
(311
)
  
-
   
-
   
-
   
(311
)
BALANCE - March 31, 2018  
30,570,099
   
141,377
   
29,452
   
(82,860
)
  
(44,402
)
  
(4,348
)
  
39,219
 
Net loss  
-
   
-
   
-
   
-
   
(4,104
)
  
-
   
(4,104
)
Employee pension plan adjustments  
-
   
-
   
-
   
-
   
-
   
161
   
161
 
Stock-based compensation expense                            
Restricted stock  
21,622
   
-
   
53
   
-
   
-
   
-
   
53
 
Net share settlement for equity-based compensation  
(39,388
)
  
-
   
(61
)
  
-
   
-
   
-
   
(61
)
BALANCE - June 30, 2018  
30,552,333
   
141,377
   
29,444
   
(82,860
)
  
(48,506
)
  
(4,187
)
  
35,268
 
Net loss  
-
   
-
   
-
   
-
   
(600
)
  
-
   
(600
)
Employee pension plan adjustments  
-
   
-
   
-
   
-
   
-
   
162
   
162
 
Stock-based compensation expense                            
Restricted stock  
-
   
-
   
20
   
-
   
-
   
-
   
20
 
Net share settlement for equity-based compensation  
-
   
-
   
-
   
-
   
-
   
-
   
-
 
BALANCE - September 30, 2018  
30,552,333
  
$
141,377
  
$
29,464
  
$
(82,860
)
 
$
(49,106
)
 
$
(4,025
)
 
$
34,850
 

See notes to unaudited condensed consolidated financial statements.

5
LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Nine Months Ended
September 30,
  
Nine Months Ended
September 30,
 
 2017  2016  2019  2018 
            
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net loss $(19,190) $(9,677) 
$
(7,192
)
 
$
(11,578
)
Adjustments to reconcile net loss to net cash used in operating activities:              
Depreciation and amortization  6,438   8,590  
5,972
  
6,289
 
Amortization of deferred finance charges  503   704  
354
  
275
 
Write-off of deferred finance charges  2,161   - 
Gain on disposition of assets  (1,619)  (402)
Gain on capital lease termination  -   (5,032)
Fixed asset donation  (18)  (123)
Deferred income taxes 
424
  
-
 
(Gain) loss on disposition of assets 
(211
)
 
537
 
Fixed asset donations 
(893
)
 
-
 
Provision for doubtful accounts  10,393   10,116  
15,157
  
12,988
 
Stock-based compensation expense  948   1,086  
460
  
502
 
Deferred rent  (981)  (358) 
-
  
(697
)
(Increase) decrease in assets:              
Accounts receivable  (14,017)  (17,430) 
(21,034
)
 
(21,300
)
Inventories  (100)  24  
(448
)
 
(654
)
Prepaid income taxes and income taxes receivable  67   75  
(180
)
 
-
 
Prepaid expenses and current assets  699   763 
Prepaid expenses and other current assets 
554
  
139
 
Other assets, net  (1,173)  (1,401) 
(1,003
)
 
(83
)
Increase (decrease) in liabilities:              
Accounts payable  (3,283)  3,843  
4,197
  
9,007
 
Accrued expenses  (762)  1,611  
(33
)
 
1,983
 
Unearned tuition  1,422   (1,966) 
356
  
(3,122
)
Deferred income taxes 
93
  
-
 
Other liabilities  1,905   64   
(1,466
)
  
(102
)
Total adjustments  2,583   164   
2,299
   
5,762
 
Net cash used in operating activities  (16,607)  (9,513)  
(4,893
)
  
(5,816
)
CASH FLOWS FROM INVESTING ACTIVITIES:              
Capital expenditures  (3,765)  (2,155) 
(3,272
)
 
(4,217
)
Restricted cash  (790)  1,080 
Proceeds from insurance 
211
  
-
 
Proceeds from sale of property and equipment  15,452   432   
-
   
2,348
 
Net cash provided by (used in) investing activities  10,897   (643)
Net cash used in investing activities  
(3,061
)
  
(1,869
)
CASH FLOWS FROM FINANCING ACTIVITIES:              
Payments on borrowings  (64,766)  (386) 
(27,167
)
 
(32,800
)
Proceeds from borrowings  38,000   -  
5,045
  
4,400
 
Reclassifications of payments of borrowings from restricted cash  20,252   - 
Proceeds of borrowings from restricted cash  (5,000)  (5,022)
Payments of borrowings from restricted cash  5,000   - 
Payment of deferred finance fees  (1,134)  (645) 
(98
)
 
(94
)
Net share settlement for equity-based compensation  (429)  (107)  
(18
)
  
(372
)
Principal payments under capital lease obligations  -   (2,864)
Net cash used in financing activities  (8,077)  (9,024)  
(22,238
)
  
(28,866
)
NET DECREASE IN CASH AND CASH EQUIVALENTS  (13,787)  (19,180)
CASH AND CASH EQUIVALENTS—Beginning of period  21,064   38,420 
CASH AND CASH EQUIVALENTS—End of period $7,277  $19,240 
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 
(30,192
)
 
(36,551
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period  
45,946
   
54,554
 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period 
$
15,754
  
$
18,003
 

See notes to unaudited condensed consolidated financial statements.

6
LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
(Continued)

 
Nine Months Ended
September 30,
  
Nine Months Ended
September 30,
 
 2017  2016  2019  2018 
            
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:            
Cash paid for:            
Interest $2,449  $4,020  
$
1,638
  
$
1,523
 
Income taxes $121  $122  
$
113
  
$
167
 
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:              
Liabilities accrued for or noncash purchases of fixed assets $1,447  $2,033  
$
1,679
  
$
392
 

See notes to unaudited condensed consolidated financial statements.

7
LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20172019 AND 20162018
(In thousands, except share and per share amounts and unless otherwise stated)
(Unaudited)

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Activities— Lincoln Educational Services Corporation and 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 2522 schools in 1514 states, offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control and electrical and electronic systems technology, among other programs), healthcare services (which include nursing, dental assistant and medical administrative assistant, and pharmacy technician, among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and business and information technology (which includes information technology and criminal justice programs).programs.  The schools operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln College of New England, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brand names.  Most of the campuses serve major metropolitan markets and each typically offers courses in 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 or regionally accredited and are eligible to participate in federal financial aid programs offeredmanaged by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accrediting commissions, which allow students to apply for and access federal student loans as well as other forms of financial aid.

We operate inThe Company’s business is organized into three reportable business segments:  (a) Transportation and Skilled Trades, segment, (b) Healthcare and Other Professions (“HOPS”) segment,, and (c) Transitional, segment which refers to businesses that have been or are currently being taught out.  In November 2015, the Board of Directors approved a plan for the Company to divest the schools included in the HOPS segment due to a strategic shift in the Company’s business strategy.  The Company underwent an exhaustive process to divest the HOPS schools which proved successful in attracting various purchasers but, ultimately, did not result in a transaction that our Board believed would enhance shareholder value. When the decision was first made by the Board of Directors to divest HOPS, 18 campuses were operating in this segment.  By the end of 2017, we will have strategically closed seven underperforming campuses leaving a total of eleven campuses remaining under the HOPS segment.   The Company believes that the closures and planned closures of the aforementioned campuses has positioned this segment and the Company to be profitable going forward as well as maximizing returns for the Company’s shareholders.

The combination of several factors, including the inability of a prospective buyer of the HOPS segment to close on the purchase, the improvements the Company has implemented in the operations of the HOPS segment, the closure of seven underperforming campuses and the change in federal government administration, resulted in the Board reevaluating its divestiture plan and the determination that shareholder value would more likely be enhanced by continuing to operate our HOPS segment as revitalized.  Consequently, in the first quarter of 2017, the Board of Directors abandoned the plan to divest the HOPS segment and the Company intends to retain the HOPS segment.  The results of operations of the campuses included in the HOPS segment are reflected as continuing operations in the condensed consolidated financial statements.

In the fourth quarter of 2016, the Company completed the teach-out of its Hartford, Connecticut and Henderson (Green Valley), Nevada campuses which originally operated in the HOPS segment.  Also in 2017, the Company completed the teach-out of its Northeast Philadelphia, Pennsylvania; Center City Philadelphia, Pennsylvania; and West Palm Beach, Florida facilities which also originally operated in the HOPS segment.  In addition, in March 2017, the Board of Directors approved a plan to not renew the leases at our schools in Brockton, Massachusetts and Lowell, Massachusetts which also were originally in our HOPS segment and which are being taught out and expected to be closed in December 2017, and are now are included in the Transitional segment as of September 30, 2017.  In October 2017, the Company agreed to a $1.5 million lease termination with University City Science Center to terminate the lease for our recently closed school located in Center City Philadelphia, Pennsylvania which is included in our Transitional segment.

On August 14, 2017,2018, New England Institute of Technology at Palm Beach, Inc. (“NEIT”), a wholly-owned subsidiary of the Company, consummated the anticipated sale ofsold to Elite Property Enterprise, LLC the real property owned by  NEIT located at 2400 and 2410 Metrocentre Boulevard East, West1126 53rd Court North, Mangonia Park, Palm Beach County, Florida includingand the improvements and othercertain personal property located thereon (the “West Palm Beach“Mangonia Park Property”), for a cash purchase price of $2,550,000.  At the closing, NEIT paid a real estate brokerage fee equal to Tambone Companies, LLC (“Tambone”), pursuant to a previously disclosed purchase5% of the gross sales price and sale agreement (the “West Palm Sale Agreement”) entered into on March 14, 2017.other customary closing costs and expenses.  Pursuant to the termsprovisions of the West Palm Sale Agreement, as subsequently amended, the purchase price for the West Palm Beach Property was $15.8 million. As a result, the Company recorded a gain on the sale in the amount of $1.5 million. As previously disclosed, the West Palm Beach Property served as collateral for a short term loan in the principal amount of $8.0 million obtained by the Company fromCompany’s credit agreement with its lender, Sterling National Bank, on April 28, 2017, which loan matured upon the earliernet cash proceeds of the sale of the West Palm BeachMangonia Park Property or October 1, 2017.  Accordingly, on August 14, 2017, concurrentlywere deposited into an account with the consummationlender to serve as additional security for loans and other financial accommodations provided to the Company and its subsidiaries under the credit facility.  In December 2018, the funds were used to repay the outstanding principal balance of the saleloans outstanding under the credit facility and such repayment permanently reduced the loan outstanding under the credit facility designated as Facility 1 under the Company’s credit agreement to a $22.7 million term loan.

Effective December 31, 2018, the Company completed the teach-out and ceased operation of its Lincoln College of New England (“LCNE”) campus at Southington, Connecticut.  The decision to close the LCNE campus followed the previously reported placement of LCNE on probation by the college’s institutional accreditor, the New England Association of Schools and Colleges (“NEASC”).  After evaluating alternative options, the Company concluded that teaching out and closing the campus was in the best interest of the West Palm Beach Property,Company and its students.  Subsequent to formalizing the LCNE closure decision in August 2018, the Company repaidpartnered with Goodwin College, another NEASC- accredited institution in the term loanregion, to assist LCNE students to complete their programs of study.  The majority of the LCNE students will continue their education at Goodwin College thereby limiting some of the Company’s closing costs.  The Company recorded closing costs associated with the closure of the LCNE campus in an aggregate amount2018 of $8.0approximately $1.6 million consistingin connection with the termination of principalthe LCNE campus lease, which is the net present value of the remaining obligation, to be paid in equal monthly installments through January 2020 and accrued interest.approximately $0.7 million of severance payments.  LCNE results, previously reported in the HOPS segment, were included in the Transitional segment as of December 31, 2018.
8

Liquidity—For the last several years, the Company and the proprietary school sector have faced deteriorating earnings. Government regulations have negatively impacted earnings by making it more difficult for potential students to obtain loans, which, when coupled with the overall economic environment, have discouraged potential students from enrolling in post-secondary schools. In light of these factors, for the last several years, the Company has incurred significant operating losses as a result of lower student population.  Despite these challenges, the Company believes that its likely sources of cash should be sufficient to fund operations for the next twelve months and thereafter for the foreseeable future.  At September 30, 2017,2019, the Company’s sources of cash primarily included cash and cash equivalents of $14.5$15.8 million (of which $7.2$4.0 million is restricted) and $7.5 million of availability under the Company’s revolving loan facility discussed below..  The Company is also continuing to take actions to improve cash flow by aligning its cost structure to its student population.

In addition to the current sources of capital discussed above that provide short term liquidity, the Company has been making efforts to sell its remaining West Palm Beach, Florida property and associated assets originally operated in the HOPS segment, which has been classified as held for sale and is expected to be sold within one year from the date of classification which was December 31, 2016.
8
Basis of Presentation – The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements.  Certain information and footnote disclosures normally included in annual financial statements have been omitted or condensed pursuant to such regulations.  These statements, which should be read in conjunction with the December 31, 20162018 consolidated financial statements and related disclosures of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2018, reflect all adjustments, consisting of normal recurring adjustments and impairments necessary to present fairly the consolidated financial position, results of operations and cash flows for such periods.  The results of operations for the three and nine months ended September 30, 20172019 are not necessarily indicative of the results that may be expected for the full fiscal year ending December 31, 2017.2019.

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries.  All significant intercompany accounts and transactions have been eliminated.

Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period.  On an ongoing basis, the Company evaluates the estimates and assumptions including those related to revenue recognition, bad debts, impairments, fixed assets, discount rate for lease liabilities, income taxes, benefit plans and certain accruals.  Actual results could materially differ from those estimates.

New Accounting Pronouncements – TheIn July 2019, the Financial Accounting Standards Board (the “FASB”) has issued Accounting Standards Update (“ASU”) 2017-09, No. 2019-07, ““Compensation—Stock Compensation (Topic 718) — Scope of Modification Accounting.” ASU 2017-09 appliesCodification Updates to entities that changeSEC Sections,” to reflect the terms or conditions of a share-based payment award. The FASBrecently adopted ASU 2017-09 to provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation,amendments to the modification of the termsSEC final rules that were done to modernize and conditions of a share-based payment award. The amendments provide guidance on determining which changes to the termssimplify certain reporting requirements for public companies, investment advisers and conditions of share-based payment award require an entity to apply modification accounting under Topic 718.investment companies. This ASU 2017-09 is effective for all entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for whichupon issuance and did not have a significant impact on our consolidated financial statements have not yet been issued. The Company does not expect the adoption of ASU 2017-09 will have a material impact on its condensed consolidated financial statements.and related disclosures.
 
In March 2017, the FASB issued ASU 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." ASU 2017-07 requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the statement of comprehensive income separately from the service cost component and outside a subtotal of operating income. The ASU is effective for annual periods beginning after December 15, 2017. Early adoption is permitted. The Company does not expect the adoption of ASU 2017-07 will have a material impact on its condensed consolidated financial statements.
9
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.”  ASU 2017-04 provides amendments to Accounting Standards Code (“ASC”) 350, “Intangibles - Goodwill and Other,” which eliminate Step 2 from the goodwill impairment test. Entities should perform their goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The amendments in this update are effective prospectively during interim and annual periods beginning after December 15, 2019, with early adoption permitted.  The Company adopted the provisions of ASU 2017-04 as of April 1, 2017.  As fair values for our operating units exceed their carrying values, there has been no impact on our condensed consolidated financial statements.
The FASB has recently issued several amendments to the new standard on revenue recognition, ASU 2014-09, “Revenue from Contracts with Customers.” The amendments 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 with Customers (Topic 606)—Identifying Performance Obligations and Licensing,” issued in April 2016, which amends the guidance in ASU No. 2014-09 related to identifying performance obligations. The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures.
The new standard is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted for annual reporting periods beginning after December 15, 2016. We have not adopted the new standard as yet but we will adopt the new standard effective January 1, 2018 using the modified retrospective approach. The Company’s assessment of the potential impact is substantially complete based on our review of current enrollment agreements and other revenue generating contracts. We believe the timing of recognizing revenue for tuition and student fees will not significantly change. The Company is closely reviewing its book revenue stream to determine whether the performance obligation of the Company is satisfied over time and revenue is recognized over the length of the student contract, which is the Company’s current practice with respect to revenue recognition, or whether the performance obligation of the Company is satisfied at the point in time and revenue is recognized when students’ books are delivered.  Additionally, we are currently assessing the impacts related to the accounting for contract assets separately from accounts receivable and are evaluating the point at which a student’s contract asset becomes a receivable.
We are in the process of updating our revenue accounting policy and implementing changes to our business processes and controls in response to the new standard, as necessary.  During the remainder of 2017, we are finalizing our revenue related documentation.  The Company expects to adopt the new standard on a modified retrospective basis with the cumulative effect of the change reflected in retained earnings as of January 1, 2018 but not restated for prior periods.
In NovemberJune 2016, the FASB issued ASU 2016-18: 2016-13, “StatementFinancial Instruments—Credit Losses (Topic 326): Measurement of Cash Flows (Topic 230): Restricted CashCredit Losses on Financial Instruments”.” This and subsequently issued additional guidance was issuedthat modified ASU 2016-13. ASU 2016-13 and the subsequent modifications are identified as Accounting Standards Codification (“ASC”) 326. The standard requires an entity to address the disparity that existschange its accounting approach in the classification and presentationdetermining impairment of changes in restricted cash on the statement of cash flows.certain financial instruments, including trade receivables, from an “incurred loss” to a “current expected credit loss” model. The amendmentsstandard will require that the statement of cash flows explain the change during the period in total cash, cash equivalents and restricted cash. The amendments arebe effective for financial statements issued for fiscal years beginning after December 15, 2017,2019, including interim periods within such fiscal years. Early adoption is permitted. We are currently assessing the effect that ASC 326 will have on our financial position, results of operations, and disclosures.
In August 2018, the FASB  issued ASU  2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU adds, modifies and clarifies several disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The adoption of ASU 2018-14 will not have a material impact 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”, which eliminates, adds and modifies certain fair value measurement disclosure requirements of Accounting Standards Codification 820, Fair Value Measurement. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years.years, beginning after December 15, 2019. Early adoption is permitted. The amendments will be applied usingadoption of ASU No. 2018-13 is not expected to have a retrospective transition methodmaterial impact on the Company’s consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, “Improvements to each period presented.Nonemployee Share-Based Payment Accounting,” intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees. This ASU expands the scope of Topic 718, “Compensation - Stock Compensation”, to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The Company anticipates thatadopted ASU No. 2018-07 on January 1, 2019.  The adoption of the adoption willstandard did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2016,February 2018, the FASB issued ASU 2016-15,2018-02, “StatementIncome Statement-Reporting Comprehensive Income (Topic 220)”. The updated guidance allows entities to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings in their consolidated financial statements. Under the Tax Act, deferred taxes were adjusted to reflect the reduction of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”the historical corporate income tax rate to address eight specific cash flow issues with the objective of reducingnewly enacted corporate income tax rate, which left the existing diversity in practice.tax effects on items within accumulated other comprehensive income stranded at an inappropriate tax rate. The amendments areupdated guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and2018, including interim periods within those fiscal years. The Company anticipates that the adoption willadopted ASU No. 2018-02 on January 1, 2019 and it did not have a material impact on the Company’s condensed consolidated financial statements.

The Company prospectively applied ASU 2016-09, “Improvements to Employee Share Based Payment Accounting,” to the condensed consolidated statement of operations for the recognition of tax benefits within the provision for taxes, which previously would have been recorded to additional paid-in capital. The impact for the nine months ended September 30, 2017 was $0. In addition, the Company retrospectively recognized no tax benefits within operating activities within the condensed consolidated statements of cash flow for the nine months ended September 30, 2017 and 2016. The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact to any of the periods presented in the condensed consolidated statements of cash flows, since such cash flows have historically been presented in financing activities. The treatment of forfeitures has not changed as the Company is electing to continue the current process of estimating the number of forfeitures. There was no cumulative effect adjustment required to retained earnings under the prospective method as of the beginning of the year because all tax benefits had been previously recognized when the tax deductions related to stock compensation were utilized to reduce tax payable. The Company is not recording deferred tax assets or tax losses as a result of the adoption of ASU 2016-09.
In February 2016, the FASB issued ASU No. 2016-02, “Leases.”  This guidance amends the existing accounting considerations and treatments for leases through the creation of Topic 842, Leases, to increase transparency and comparability among organizations by requiring lessees to recognize athe recognition of right-of-use asset(“ROU”) assets and a lease liabilityliabilities on the balance sheetsheet. Lessees and lessors are required to disclose qualitative and quantitative information about 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, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” to further clarify, correct and consolidate various areas previously discussed in ASU 2016-02. FASB also issued ASU No. 2018-11, “Leases: Targeted Improvements” to provide entities another option for substantially all leases,transition and lessors with the exception of short-term leases. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognitiona practical expedient. The transition option allows entities to not apply ASU No. 2016-02 in comparative periods in the financial statements in the year of income.adoption. The guidance ispractical expedient offers lessors an option to not separate non-lease components from 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 annual periods,fiscal years beginning after December 15, 2018, including interim periods within those periods, beginning after December 15, 2018,fiscal years, and allow for modified retrospective adoption with early adoption permitted. We are currently evaluatingThe Company adopted ASU No. 2016-02 and the impactrelated amendments on January 1, 2019 using the modified retrospective approach and elected the transition relief package of practical expedients by applying previous accounting conclusions under ASC 840 to all leases that existed prior to the update willtransition date. As a result, the Company did not reassess (1) whether existing or expired contracts contain leases, (2) lease classification for any existing or expired leases or (3) whether lease origination costs qualified as initial direct costs. The Company did not elect the practical expedient to use hindsight in determining a lease term and impairment of the right-of-use (“ROU”) assets at the adoption date. The Company did not separate lease components from non-lease components for the specified asset classes.  The election applies to all operating leases where fixed rent payments incorporate common area maintenance.  For leases where the election does not apply, the common area maintenance is billed by the landlord separately.  Additionally, the Company did not apply the recognition requirements under ASC 842 to short-term leases, generally defined as leases with terms of less than one year.  The Company has operating leases for its corporate office and schools.  The Company does not have on our results of operations, financial condition and financial statement disclosures.any finance leases.

Stock-Based Compensation – The Company measures the value of stock options on the grant date at fair value, using the Black-Scholes option valuation model.  The Company amortizes the fair value of stock options, net of estimated forfeitures, utilizing straight-line amortization of compensation expense 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. The Company amortizes the fair value of service-based restricted stock utilizing straight-line amortization of compensation expense over the requisite service period of the grant.

The Company amortizes the fair value of the performance-based restricted stock based on the determination of the probable outcome of the performance condition.  If the performance condition is expected to be met, then the Company amortizes the fair value of the number of shares expected to vest utilizing straight-line basis over the requisite performance period of the grant.  However, if the associated performance condition is not expected to be met, then the Company does not recognize the stock-based compensation expense.

Income Taxes – The Company accounts for income taxes in accordance with FASB ASC Topic 740, “Income Taxes” (“ASC 740”). This statement requires an asset and a liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax basisbases of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered.
 
In accordance with ASC 740, the Company assesses itsour deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable.  A valuation allowance is required to be established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized. In accordance with ASC 740, the Company’sour assessment considers whether there has been sufficient income in recent years and whether sufficient income is expected in future years in order to utilize the deferred tax asset. In evaluating the realizability of deferred income tax assets, the Company considered, among other things, historical levels of income, expected future income, the expected timing of the reversals of existing temporary reporting differences, 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 the Company’sour consolidated financial statements and/or tax returns.  Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on the Company’s consolidated financial position or results of operations.  Changes in, among other things, income tax legislation, statutory income tax rates, or future income levels could materially impact the Company’s valuation of income tax assets and liabilities and could cause the Company’sour income tax provision to vary significantly among financial reporting periods.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. 
10
During the three and nine months ended September 30, 20172019 and 2016,2018, the Company did not recognize any interest and penalties expense associated with uncertain tax positions.
 
2.WEIGHTED AVERAGE COMMON SHARES

The weighted average number of common shares used to compute basic and diluted loss per share for the three and nine months ended September 30, 20172019 and 20162018 was as follows:

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
 2017  2016  2017  2016  2019  2018  2019  2018 
Basic shares outstanding  24,023,540   23,498,904   23,866,485   23,433,015  24,563,038  24,532,648  24,550,999  24,386,689 
Dilutive effect of stock options  -   -   -   -   44,466   -   -   - 
Diluted shares outstanding  24,023,540   23,498,904   23,866,485   23,433,015   24,607,504   24,532,648   24,550,999   24,386,689 
For the three months ended September 30, 2017 and 2016,2018, options to acquire 552,18926,083 shares were excluded from the above table because the Company reported a net loss for the period and, 1,181,073therefore, the impact on reported loss per share would have been antidilutive.  For the nine months ended September 30, 2019 and 2018, options to acquire 93,654 and 57,680 shares, respectively, were excluded from the above table because the Company reported a net loss for each period and, therefore, their impact on reported loss per share would have been antidilutive.  For the nine months ended September 30, 2017 and 2016, options to acquire 572,428 and 668,307 shares were excluded from the above table because the Company reported a net loss for each quarter and, therefore, their impact on reported loss per share would have been antidilutive.  For the three and nine months ended September 30, 2017,2019 and 2018, options to acquire 170,667133,000 and 139,000 shares were excluded from the above table because 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 income (loss)loss per share would have been antidilutive.

3.REVENUE RECOGNITION

Substantially all of our revenues are considered to be revenues from contracts with students.  The related accounts receivable balances are recorded in our balance sheets as student accounts receivable.  We do not have significant revenue recognized from performance obligations that were satisfied in prior periods, and we do not have any transaction price allocated to unsatisfied performance obligations other than in our unearned tuition.  We record revenue for students who withdraw from our schools only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.  Unearned tuition represents contract liabilities primarily related to our tuition revenue. We have elected not to provide disclosure about transaction prices allocated to unsatisfied performance obligations if contract durations are less than one-year, or if we have the right to consideration from a student in an amount that corresponds directly with the value provided to the student for performance obligations completed to date. We have assessed the costs incurred to obtain a contract with a student and determined them to be immaterial.

Unearned tuition in the amount of $22.9 million and $22.5 million is recorded in the current liabilities section of the accompanying condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively. The change in this contract liability balance during the nine month period ended September 30, 2019 is the result of payments received in advance of satisfying performance obligations, offset by revenue recognized during that period. Revenue recognized for the nine month period ended September 30, 2019 that was included in the contract liability balance at the beginning of the year was $21.5 million.

The following table depicts the timing of revenue recognition:

  Three months ended September 30, 2019  Nine months ended September 30, 2019 
  
Transportation
and Skilled
Trades Segment
  
Healthcare
and Other
Professions
Segment
  
Transitional
Segment
  Consolidated  
Transportation
and Skilled
Trades
Segment
  
Healthcare
and Other
Professions
Segment
  
Transitional
Segment
  Consolidated 
Timing of Revenue Recognition                        
Services transferred at a point in time 
$
4,792
  
$
1,308
  
$
-
  
$
6,100
  
$
9,360
  
$
3,541
  
$
-
  
$
12,901
 
Services transferred over time  
47,860
   
18,634
   
-
   
66,494
   
131,646
   
54,880
   
-
   
186,526
 
Total revenues 
$
52,652
  
$
19,942
  
$
-
  
$
72,594
  
$
141,006
  
$
58,421
  
$
-
  
$
199,427
 

  Three months ended September 30, 2018  Nine months ended September 30, 2018 
  
Transportation
and Skilled
Trades Segment
  
Healthcare
and Other
Professions
Segment
  
Transitional
Segment
  Consolidated  
Transportation
and Skilled
Trades
Segment
  
Healthcare
and Other
Professions
Segment
  
Transitional
Segment
  Consolidated 
Timing of Revenue Recognition                        
Services transferred at a point in time 
$
4,514
  
$
1,162
  
$
56
  
$
5,732
  
$
8,219
  
$
2,847
  
$
62
  
$
11,128
 
Services transferred over time  
46,492
   
17,089
   
765
   
64,346
   
127,619
   
49,707
   
4,633
   
181,959
 
Total revenues 
$
51,006
  
$
18,251
  
$
821
  
$
70,078
  
$
135,838
  
$
52,554
  
$
4,695
  
$
193,087
 

4.LEASES

The Company determines if an arrangement is a lease at inception. The Company considers any contract where there is an identified asset and that it has the right to control the use of such asset in determining whether the contract contains a lease.  An operating lease ROU asset represents the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are to be recognized at commencement 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 implicit rate, the Company uses an incremental borrowing rate based on the information available on the adoption date in determining the present value of lease payments. We estimate the incremental borrowing rate based on a yield curve analysis, utilizing the interest rate derived from the fair value analysis of our credit facility and adjusting it for factors that appropriately reflect the profile of secured borrowing over the expected term of the lease. The operating lease ROU assets include any lease payments made prior to the rent commencement date and exclude lease incentives. Our leases have remaining lease terms of one year to 11 years. Lease terms may include options to extend the lease term used in determining the lease obligation when it is reasonably certain that the Company will exercise that option.  Lease expense for lease payments are recognized on a straight-line basis over the lease term for operating leases.

The following table present the cumulative effect of the changes made to the condensed consolidated balance sheets as of January 1, 2019, as a result of the adoption of ASC 842:

  December 31, 2018  
Adjustments due to
ASC 842
  January 1, 2019 
          
Operating lease right-of-use asset 
$
-
  
$
37,993
  
$
37,993
 
Current portion of operating lease liability 
$
-
  
$
8,999
  
$
8,999
 
Other short-term liabilities 
$
968
  
$
(968
)
 
$
-
 
Long-term portion of operating lease liability 
$
-
  
$
33,372
  
$
33,372
 
Accrued rent 
$
3,410
  
$
(3,410
)
 
$
-
 

Our operating lease cost for the three and nine months ended September 30, 2019 was $3.6 and $10.9 million, respectively.  The ROU asset amortization is included in other assets in the condensed consolidated cash flows for the nine months ended September 30, 2019.

Supplemental cash flow information and non-cash activity related to our operating leases are as follows:

  
For the Three Months Ended
September 30, 2019
  
For the Nine Months Ended
September 30, 2019
 
Operating cash flow information:      
Cash paid for amounts included in the measurement of operating lease liabilities 
$
3,674
  
$
11,277
 
Non-cash activity:        
Lease liabilities arising from obtaining right-of-use assets* 
$
2,811
  
$
51,445
 

* Includes effect of adoption of ASU 2016-02 and related amendments and a new lease entered into on January 1, 2019 of $5.6 million.

On August 1, 2019 there was a lease re-measurement of $3.0 million.

Weighted-average remaining lease term and discount rate for our operating leases is as follows:

Three Months Ended
September 30, 2019
Weighted-average remaining lease term5.75 years
Weighted-average discount rate14.34%

Maturities of lease liabilities by fiscal year for our operating leases as of September 30, 2019 are as follows:

Year ending December 31,
   
2019 (excluding the nine months ended September 30, 2019)
 
$
3,828
 
2020
  
14,452
 
2021
  
11,804
 
2022
  
9,344
 
2023
  
6,997
 
2024
  
3,980
 
Thereafter
  
15,924
 
Total lease payments
  
66,329
 
Less: imputed interest
  
(21,298
)
Present value of lease liabilities
 
$
45,031
 

As of December 31, 2018, minimum lease payments under non-cancelable operating leases by period were expected to be as follows:

2019 
$
16,939
 
2020  
14,183
 
2021  
10,708
 
2022  
8,180
 
2023  
5,811
 
Thereafter  
17,610
 
  
$
73,431
 

5.GOODWILL AND LONG-LIVED ASSETS

The Company reviews long-lived assets for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  There were no long-lived asset impairments during the nine months ended September 30, 20172019 and 2016.2018.

The Company reviews goodwill and intangible assets for impairment when indicators of impairment exist.  Annually, or more frequently if necessary, the Company evaluates goodwill and intangible assets with indefinite lives for impairment, with any resulting impairment reflected as an operating expense.  The Company concluded that, as of September 30, 20172019 and 2016,2018, there waswere no indicatorindicators of potential impairment and, accordingly, the Company did not test goodwill for impairment.

The carrying amount of goodwill at September 30, 20172019 and 20162018 is as follows:

  
Gross
Goodwill
Balance
  
Accumulated
Impairment
Losses
  
Net
Goodwill
Balance
 
Balance as of January 1, 2017 $117,176  $(102,640) $14,536 
Adjustments  -   -   - 
Balance as of September 30, 2017 $117,176  $(102,640) $14,536 
  
Gross
Goodwill
Balance
  
Accumulated
Impairment
Losses
  
Net
Goodwill
Balance
 
Balance as of January 1, 2019 
$
117,176
  
$
(102,640
)
 
$
14,536
 
Adjustments  
-
   
-
   
-
 
Balance as of September 30, 2019 
$
117,176
  
$
(102,640
)
 
$
14,536
 

  
Gross
Goodwill
Balance
  
Accumulated
 Impairment
Losses
  
Net
Goodwill
Balance
 
Balance as of January 1, 2016 $117,176  $(93,881) $23,295 
Adjustments  -   -   - 
Balance as of September 30, 2016 $117,176  $(93,881) $23,295 
  
Gross
Goodwill
Balance
  
Accumulated
Impairment
Losses
  
Net
Goodwill
Balance
 
Balance as of January 1, 2018 
$
117,176
  
$
(102,640
)
 
$
14,536
 
Adjustments  
-
   
-
   
-
 
Balance as of September 30, 2018 
$
117,176
  
$
(102,640
)
 
$
14,536
 

As of September 30, 2017,2019 and 2018, the goodwill balance is related to the Transportation and Skilled Trades segment.  As of September 30, 2016, the goodwill balance consists of $14.5 million related to the Transportation and Skilled Trades segment and $8.8 million related to our HOPS segment.

12
Intangible assets, which are included in other assets in the accompanying condensed consolidated balance sheets, consist
6.LONG-TERM DEBT

Long-term debt consists of the following:

  Curriculum 
Gross carrying amount at December 31, 2016 $160 
Adjustments  - 
Gross carrying amount at September 30, 2017  160 
     
Accumulated amortization at December 31, 2016  128 
Amortization  11 
Accumulated amortization at September 30, 2017  139 
     
Net carrying amount at September 30, 2017 $21 
     
Weighted average amortization period (years)  10 
Amortization of intangible assets was less than $0.1 million for each of the three and nine months ended September 30, 2017 and 2016.
  
September 30,
2019
  
December 31,
2018
 
Credit agreement and term loan 
$
27,133
  
$
49,301
 
Auto loan  
46
   
-
 
Deferred financing fees  
(277
)
  
(532
)
   
26,902
   
48,769
 
Less current maturities  
(7,117
)
  
(15,000
)
  
$
19,785
  
$
33,769
 

The following table summarizes the estimated future amortization expense:

Year Ending December 31,
   
Remainder of 2017 $4 
2018  17 
  $21 

4.          LONG-TERM DEBT

Long-term debt consist of the following:

    
September 30,
2017
    
December 31,
2016
  
Credit agreement (a) $17,500  $- 
Term loan (a)  -   44,267 
Deferred Financing Fees  (779)   (2,310) 
   16,721   41,957 
Less current maturities  -   (11,713)
  $16,721  $30,244 

(a) On March 31, 2017, the Company entered intoobtained a secured revolving credit agreementfacility (the “Credit Agreement”Facility”) withfrom Sterling National Bank (the “Bank”) pursuant to whicha Credit Agreement dated March 31, 2017 among the Company, obtained a credit facility in the aggregate principal amount of up to $55 million (theCompany’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 Facility”Agreement”).  ThePrior to the most recent amendment of the Credit Facility consistsAgreement (the “Fourth Amendment”), the financial accommodations available to the Company under the Credit Agreement consisted of (a) a $30 million loan facility (“Facility 1”), which is comprised of a $25 million revolving loan facility designated as “Tranche A” and a $5 million non-revolving loan designated as “Tranche B,” which Tranche B was repaid during the quarter ended June 30, 2017, and“Facility 1”, (b) a $25 million revolving loan facility (“Facility 2”), which includes(including a sublimit amount for letters of credit of $10 million.  The Creditmillion) 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 replaces1 was converted into a term loan facility (the “Prior“Term Loan”) in the original principal amount of $22.7 million (such amount being the entire unpaid principal and accrued interest outstanding under Facility 1 as of the effective date of the Fourth Amendment), which matures on March 31, 2024 (the “Term Loan Maturity Date”).  The Term Loan is being repaid 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 $0.2 million  plus accrued interest; (c) on January 1, 2020 and on the same day of each month thereafter through and including June 30, 2020, accrued interest 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 $0.6 million plus accrued interest; (e) on January 1, 2021 and on the same day of each month thereafter through and including June 30, 2021, accrued interest 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 $0.4 million plus accrued 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 July 1, 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 on the same day of each month thereafter through and including December 31, 2023, the principal amount of $0.4 million plus accrued interest; (k)  on January 1, 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 Loan Maturity Date, the remaining outstanding principal 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 permitted under the Credit Facility”) whichAgreement, 25% of the net proceeds of any such sale must be used to pay down the outstanding principal amount of the Term Loan in inverse order of maturity.

The maturity date of Facility 2 is April 30, 2020.  Facility 3 matured on May 31, 2019, unused, and is no longer available for borrowing.

Under the terms of the Credit Agreement, all draws under Facility 2 for letters of credit or revolving loans must be secured by cash collateral in an amount equal to 100% of the aggregate stated amount of the letters of credit issued and revolving loans outstanding through the proceeds 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 and an additional $1.25 million on both April 17, 2019 and July 26, 2019, respectively, without any requirement for cash collateral.  The $5 million in revolving loans advanced under Facility 2 was repaid on November 1, 2019, as required by the Credit Agreement, and, terminated concurrentlyprior to their repayment, the Company made monthly payments of accrued interest only on such revolving 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 advanced under Facility 2 that are cash collateralized will bear interest at a rate per annum equal to the greater of (x) the Bank’s prime rate and (y) 3.50%.  Pursuant to the Fourth Amendment, 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%.

The Bank is entitled to receive an unused facility fee on the average daily unused balance of Facility 2 at a rate per annum equal to 0.50%, which fee is payable quarterly in arrears.

In the event the Bank’s prime rate is greater than or equal to 6.50% while any loans are outstanding, the Company may be required to enter into a hedging contract in form and content satisfactory to the Bank.

The Company is required to give the Bank the first opportunity to provide any and all traditional banking services required by the Company, including, but not limited to, treasury management, loans and other financing services, on terms mutually acceptable to the Company and the Bank, in accordance with the terms set forth in the Fourth Amendment.  In the event that loans provided under the Credit Agreement are repaid through replacement financing, the Company must pay to the Bank an exit fee in an amount equal to 1.25% of the total amount repaid and 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 the event 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 Company paid to the Bank a one-time modification fee in the amount of $50,000.

Pursuant to the Credit Facility.  The termAgreement, in December 2018, the net proceeds of the sale of the Mangonia Park Property, which were held in a non-interest bearing cash collateral account at and by the Bank as additional collateral for the loans outstanding under the Credit Agreement, were applied to the outstanding principal balance of revolving loans outstanding under Facility is 38 months, maturing on May 31, 2020.1 and, as a result of such repayment, the loan availability under Facility 1 was permanently reduced to a $22.7 million term loan.
The Credit Facility is secured by a first priority lien in favor of the Bank on substantially all of the personal property owned by the Company as well asand mortgages on four parcels of real property owned by the Company in Connecticut, Colorado, Tennessee and Texas, at which fourthree of the Company’s schools are located.
At the closing of the Credit Facility,located, as well as a former school property owned by the Company drew $25 million under Tranche A of Facility 1, which, pursuant to the terms of the Credit Agreement, was used to repay the Prior Credit Facility and to pay transaction costs associated with closing the Credit Facility.  After the disbursement of such amounts, the Company retained approximately $1.8 million of the borrowed amount for working capital purposes.located in Connecticut.
Also, at closing, $5 million was drawn under Tranche B, which, pursuant to the terms of the Credit Agreement, was deposited into an interest-bearing pledged account (the “Pledged Account”) in the name of the Company maintained at the Bank in order to secure payment obligations of the Company with respect to the costs of remediation of any environmental contamination discovered at certain of the mortgaged properties based upon environmental studies undertaken at such properties.  During the quarter ended June 30, 2017, the environmental studies were completed and revealed no environmental issues existing at the properties and accordingly, pursuant to the terms of the Credit Agreement, the $5 million in the Pledged Account was released and used to repay the non-revolving loan outstanding under Tranche B.  Upon the repayment of Tranche B, the maximum principal amount of Facility 1 was permanently reduced to $25 million.
Pursuant to the terms of the Credit Agreement, all draws under Facility 2 for letters of credit or revolving loans are secured by cash collateral in an amount equal to 100% of the aggregate stated amount of the letters of credit issued and revolving loans outstanding through draws from Facility 1 or other available cash of the Company.
Accrued interest on each revolving loan is payable monthly in arrears.  Revolving loans under Tranche A of Facility 1 bear interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.50% and (y) 6.00%.  The amount borrowed under Tranche B of Facility 1 and revolving loans under Facility 2 will bear interest at a rate per annum equal to the greater of (x) the Bank’s prime rate and (y) 3.50%.

Each issuance of a letter of credit under Facility 2 requireswill require the payment of a letter of credit fee to the Bank equal to a rate per annum of 1.75% on the daily amount available to be drawn under the letter of credit, which fee isshall be payable in quarterly installments in arrears.  Letters of credit totaling $7.2 million that 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 to mature on April 1, 2017, are treated as letters of credit under Facility 2.

The terms of the Credit Agreement provide thatrequire the Bank be paid an unused facility fee on the average daily unused balance of Facility 1 at a rate per annum equal to 0.50%, which fee is payable quarterly in arrears.  In addition, the Company is required to maintain, on deposit in one or more non-interest bearing accounts, a minimum of $5 million in quarterly average aggregate balances.  If in any quarter the required average aggregate account balance isbalances, which, if not maintained, the Company is required to pay the Bankresults in a fee of $12,500 payable to the Bank for that quarter and, in the event that the Company terminates the Credit Facility or refinances with another lender within 18 months of closing, the Company is required to pay the Bank a breakage fee of $500,000.quarter.

In addition to the foregoing, the Credit Agreement contains customary representations and warranties, and affirmative and negative covenants including financial covenants that restrict capital expenditures, prohibit the incurrence of a net loss commencing on December 31, 2018 and require a minimum adjusted EBITDA and a minimum tangible net worth which is an annual covenant, as well as events of default customary for facilities of this type.  As of September 30, 2017,2019, the Company is in compliance with all covenants.covenants, including financial covenants that (i) restrict capital expenditures tested on a fiscal year end basis; (ii) 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 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 adjusted EBITDA ratio tested quarterly on a rolling twelve month basis.

In connection with the Credit Agreement, the Company paid an origination fee in the amount of $250,000 and other fees and reimbursements that are customary for facilities of this type.
15
The Company incurred an early termination premium of approximately $1.8 million in connection with the termination of the Prior Credit Facility.
Index
On April 28, 2017, the Company entered into an additional secured credit agreement with the Bank, pursuant to which the Company obtained a short term loan in the principal amount of $8 million, the proceeds of which were used for working capital and general corporate purposes.  The loan, which had an interest rate per annum equal to the greater of the Bank’s prime rate plus 2.50% or 6.00%, was secured by real property assets located in West Palm Beach, Florida at which schools operated by the Company were located and matured upon the earlier of October 1, 2017 and the date of the sale of the West Palm Beach, Florida property.  The Company sold two of three properties located in West Palm Beach, Florida in the third quarter of 2017 and concurrently repaid the $8 million.
As of September 30, 2017,2019, the Company had $17.5$27.1 million outstanding under the Credit Facility which wasFacility; offset by $0.8$0.3 million of deferred finance fees.  As of December 31, 2016,2018, the Company had $44.3$49.3 million outstanding under the Prior Credit Facility, which was offset by $2.3$0.5 million of deferred finance fees, which were written-off.  As of September 30, 20172019 and December 31, 2016, there were2018, letters of credit in the aggregate outstanding principal amount of $7.2$4.0 million and $6.2$1.8 million, respectively, were outstanding respectively.  Asunder the Credit Facility.

Subsequent to the end of the fiscal quarter ended September 30, 2017, there are no revolving loans outstanding under2019, on November 14, 2019, the Credit Facility 2.was replaced by a new $60 million credit facility between the Company and the Bank.  See Part II, Item 5 Other Information for details regarding the replacement credit facility.
Scheduled maturities of long-term debt including the short-term portion at September 30, 20172019 are as follows:

Year ending December 31,
   
2017 $- 
2018  - 
2019  - 
2020  17,500 
  $17,500 
Year ending December 31,
   
2019 (excluding the nine months ended September 30, 2019) 
$
5,567
 
2020  
3,451
 
2021  
2,270
 
2022  
2,270
 
2023  
2,270
 
Thereafter  
11,351
 
  
$
27,179
 

5.7.STOCKHOLDERS’ EQUITY

Restricted Stock

The Company has two stock incentive plans:  a Long-Term Incentive Plan (the “LTIP”) and a Non-Employee Directors Restricted Stock Plan (the(the “Non-Employee Directors Plan”).

Under the LTIP, certain employees receive awards of restricted shares of common stock based on service and performance.  The number of shares granted to each employee is based on the amount of the award and the fair market value of a share of common stock on the date of grant.

On May 13, 2016 and January 16, 2017, performance-basedFebruary 28, 2019, restricted shares were granted to certain employees of the Company, which shares ratably vest on March 15, 2017 and March 15, 2018 based upon the attainment of a financial responsibility ratio during each fiscal year ending December 31, 2016 and 2017.over three years.  There is no restriction on the right to vote or the right to receive dividends with respect to any of these restricted shares.

On June 2, 2014 and December 18, 2014, performance-based restricted shares were granted to certain employees of the Company, which vest over three years based 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 and ending December 31, 2017 and (ii) the attainment of earnings before interest, taxes, depreciation and amortization targets during each of the fiscal years ended 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 thesesuch restricted shares.

Pursuant to the Non-Employee Directors Plan, each non-employee director of the Company receives an annual award of restricted shares of common stock on the 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 a share of common stock on that date.  The restricted shares vest on the first anniversary of the grant date.  There is no restriction on the right to vote or the right to receive dividends with respect to any of thesesuch restricted shares.

For the nine months ended September 30, 20172019 and 2016,2018, the Company completed a net share settlement for 184,2315,518 and 38,389207,642 restricted shares, 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.  The net share settlement was in connection with income taxes incurred on restricted shares that vested and were transferred to the employees during 20172019 and/or 2016,2018, creating taxable income for the employees.   At the employees’ request, the Company will pay these taxes on behalf of the employees in exchange for the employees returning an equivalent value of restricted shares to the Company.  These transactions resulted in a decrease of $0.4less than $0.1 million and $0.1$0.4 million for each of the nine months ended September 30, 20172019 and 2016,2018, respectively, to equity on the condensed consolidated balance sheets as the cash payment of the taxes effectively was a repurchase of the restricted shares granted in previous years.

1516
The following is a summary of transactions pertaining to restricted stock:

 Shares  
Weighted
Average Grant
Date Fair Value
Per Share
  Shares  
Weighted
Average Grant
Date Fair Value
Per Share
 
Nonvested restricted stock outstanding at December 31, 2016  1,143,599  $1.89 
Nonvested restricted stock outstanding at December 31, 2018 
35,908
  
$
2.23
 
Granted  181,208   2.58  
598,982
  
3.15
 
Canceled  (52,398)  5.63  
(3,546
)
 
3.17
 
Vested  (650,130)  1.74   
(35,908
)
 
2.23
 
              
Nonvested restricted stock outstanding at September 30, 2017  622,279   1.92 
Nonvested restricted stock outstanding at September 30, 2019  
595,436
  
3.15
 

The restricted stock expense for each of the three months ended September 30, 20172019 and 20162018 was $0.3$0.2 million and $0.4$0.1 million, respectively.  The restricted stock expense for each of the nine months ended September 30, 20172019 and 20162018 was $0.9$0.5 million and $1.1$0.5 million, respectively.  The unrecognized restricted stock expense as of September 30, 20172019 and December 31, 20162018 was $0.6$1.4 million and $1.5$0.1 million, respectively.  As of September 30, 2017,2019, outstanding restricted shares under the LTIP had aggregate intrinsic value of $1.6$1.2 million.

Stock Options

The fair value of the stock options used to compute stock-based compensation is the estimated present value at the date of grant using the Black-Scholes option pricing model.  The following is a summary of transactions pertaining to stock options:

  Shares  
Weighted
Average
Exercise Price
Per Share
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic Value
 (in thousands)
 
Outstanding at December 31, 2016  218,167  $12.11  3.33 years $- 
Canceled  (47,500)  12.37    - 
              
Outstanding at September 30, 2017  170,667   12.04  3.24 years  - 
              
Vested or expected to vest  170,667   12.04  3.24 years  - 
              
Exercisable as of September 30, 2017  170,667   12.04  3.24 years  - 
  Shares  
Weighted
Average
Exercise Price
Per Share
  
Weighted
Average
Remaining
Contractual
Term
  
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding at December 31, 2018  
139,000
  
$
12.14
  2.53 years  
$
-
 
Canceled  
(6,000
)
  
20.62
   
-
     
Granted/Vested  
-
   
-
       
-
 
                 
Outstanding at September 30, 2019  
133,000
   
11.76
  1.83 years   
-
 
                 
Vested as of September 30, 2019  
133,000
   
11.76
  1.83 years   
-
 
                 
Exercisable as of September 30, 2019  
133,000
   
11.76
  1.83 years   
-
 

As of September 30, 2017,2019, there was no unrecognized pre-tax compensation expense.

The following table presents a summary of stock options outstanding:

   At September 30, 2017 
   Stock Options Outstanding  Stock Options Exercisable 
Range of Exercise Prices  Shares  
Contractual
Weighted
Average Life
 (years)
  
Weighted
Average Price
  Shares  
Weighted
Average Exercise
Price
 
$4.00-$13.99   122,667   3.50  $8.77   122,667  $8.77 
$14.00-$19.99   17,000   2.09   19.98   17,000   19.98 
$20.00-$25.00   31,000   2.85   20.62   31,000   20.62 
                       
     170,667   3.24   12.04   170,667   12.04 
   At September 30, 2019 
   Stock Options Outstanding  Stock Options Exercisable 
Range of Exercise Prices  Shares  
Contractual
Weighted
Average Life
(years)
  
Weighted
Average Price
  Shares  
Weighted
Average Exercise
Price
 
$ 4.00-$13.99
   
91,000
   
2.42
  
$
7.79
   
91,000
  
$
7.79
 
$ 14.00-$19.99
   
17,000
   
0.09
   
19.98
   
17,000
   
19.98
 
$ 20.00-$25.00
   
25,000
   
0.85
   
20.62
   
25,000
   
20.62
 
                       
     
133,000
   
1.83
   
11.76
   
133,000
   
11.76
 

1617
6.8.INCOME TAXES

The provision for income taxes for the three months ended September 30, 20172019 and 20162018 was less than $0.1 million, or 3.5%3.6% of pretax loss,income, and less than $0.1 million, or 11.9%9.1% of pretax loss, respectively.  The provision for income taxes for the nine months ended September 30, 20172019 and 20162018 was $0.2 million, or 0.8%3.5% of pretax loss, and $0.2 million, or 1.6%1.3% of pretax loss, respectively.

The Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to recover the existing deferred tax assets.  In this regard, a significant objective negative evidence was the cumulative losses incurred by the Company in recent years.  On the basis of this evaluation, the realization of the Company’s deferred tax assets was not deemed to be more likely than not and, thus, the Company maintained a full valuation allowance on its net deferred tax assets as of September 30, 2017.2019 except deferred tax liability related to indefinite lived intangibles for which, the valuation allowance was reduced by $0.1 million and a corresponding deferred tax expense was recognized as of September 30, 2019.

7.9.CONTINGENCIES

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

Information regarding certain specific legal proceedings in which the Company is involved is contained in Part II, Item 1, and in Note 9 to the notes to the condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.  Unless otherwise indicated in this report, all proceedings discussed in the earlier report which are not indicated therein as having been concluded, remain outstanding as of September 30, 2019.

As previously reported, on July 6, 2018, the Company received an administrative subpoena from the Office of the Attorney General of the State of New Jersey (“NJ OAG”).  Pursuant to the subpoena, the NJ OAG requested certain documents and detailed information relating to the November 21, 2012 Civil Investigative Demand letter addressed to the Company by the Massachusetts Office of the Attorney General (“MOAG”) that resulted in a previously reported Final Judgment by Consent between the Company and the MOAG dated July 13, 2015.  The Company responded to this request and, by letter dated April 11, 2019, the NJ OAG issued a supplemental subpoena requesting additional information for the time period from April 11, 2014 to the present.  The Company submitted its response to the supplemental subpoena.  Subsequently, by email dated August 20, 2019, the NJ OAG requested additional records of the Company from the years 2012 and 2013.  The Company has responded to the NJ OAG’s most recent record request and is continuing to cooperate with the NJ OAG.

8.10.SEGMENTS

The for-profit education industry has been impacted by numerous regulatory changes, a changing economy and an onslaught of negative media attention. As a result of these challenges, student populations have declined and operating costs have increased.  Over the past few years, the Company has closed over ten locations and exited its online business.

In August 2018, the Company decided to cease operations, effective December 31, 2018, of its Lincoln College of New England (“LCNE”) campus at Southington, Connecticut.  The Company completed the teach-out and exited the LCNE campus on December 31, 2018.  LCNE results, which was previously reported in the HOPS segment, is now included in the Transitional segment for all periods presented.

In the past, we offered any combination of programs at any campus.  We currentlyhave shifted our focus to program offerings that create greater differentiation among campuses and promote attainment of excellence to attract more students and gain market share.  Also, strategically, we began offering continuing education training 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) the Transportation and Skilled Trades segmentsegment; (b) the Healthcare and Other Professions segmentsegment; and (c) the Transitional segment.  Our reportable segments representhave 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 to enhance operational alignment within each segment to more effectively execute our strategic plan.  Each of the Company’s schools is a reporting unit and an operating segment which have been determined based on a method by which we evaluate performance and allocate resources.segment.  Our operating segments have been aggregated into three reportable segments because, in our judgment, the operating segments have similar services, types of customers, regulatory environment and economic characteristics.  Our reportable segments are described below.

Transportation and Skilled Trades – The Transportation and Skilled Trades segment offers academic programs mainly in the career-oriented disciplines of transportation and skilled trades (e.g. automotive, diesel, HVAC, welding and manufacturing).

Healthcare and Other Professions – HOPSThe Healthcare and Other Professions segment offers academic programs in the career-oriented disciplines of health sciences, 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 or closed and our campuses that are currently being taught out.  TheseThe schools are employingin the Transitional segment employ a gradual teach-out process that enables the schools to continue to operate whileto allow their current students to complete their course of study.  These schools are no longer enrolling new students.  During the year ended December 31, 2016, the Company announced the closings of our Northeast Philadelphia, Pennsylvania; Center City Philadelphia, Pennsylvania; and West Palm Beach, Florida facilities which were fully taught out in 2017.  In the first quarter of 2016 we completed the teach-out of our Fern Park, Florida campus.  Also, in the fourth quarter of 2016, we completed the teach-out of our Hartford, Connecticut and Henderson (Green Valley), Nevada campuses.  In addition, in March 2017, the Board of Directors approved a plan to cease operations at our schools in Brockton, Massachusetts and Lowell, Massachusetts.  These schools are being taught out and expected to be closed in December 2017.

The Company continually evaluates all campuseseach campus for profitability, earning potential, and customer satisfaction.  This evaluation takes several factors into consideration, including the campus’s geographic location the programs offered at the campus,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 the goals of attracting more students to our programs and, ultimately, to provide theour shareholders with the maximum return on their investment.  Campuses in the Transitional 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 the caption “Corporate,” which primarily includes unallocated corporate activity.
Summary financial information by reporting segment is as follows:

 For the Three Months Ended September 30,  For the Three Months Ended September 30, 
 Revenue  Operating Income (Loss)  Revenue  Operating Income (Loss) 
 2017  
% of
Total
  2016  
% of
Total
  2017  2016  2019  
% of
Total
  2018  
% of
Total
  2019  2018 
Transportation and Skilled Trades $47,694   70.9% $47,939   64.5% $6,061  $6,120  
$
52,652
  
72.5
%
 
$
51,008
  
72.8
%
 
$
6,752
  
$
6,330
 
Healthcare and Other Professions  18,428   27.4%  18,559   25.0%  (574)  (41) 
19,942
  
27.5
%
 
18,249
  
26.0
%
 
1,403
  
830
 
Transitional  1,186   1.8%  7,769   10.5%  (2,495)  (2,029) 
-
  
0.0
%
 
821
  
1.2
%
 
-
  
(1,863
)
Corporate  -   0.0%  -   0.0%  (3,723)  (4,721)  
-
  
0.0
%
  
-
  
0.0
%
  
(6,012
)
  
(5,221
)
Total $67,308   100.0% $74,267   100.0% $(731) $(671) 
$
72,594
  
100.0
%
 
$
70,078
  
100.0
%
 
$
2,143
  
$
76
 

 For the Nine Months Ended September 30,  For the Nine Months Ended September 30, 
 Revenue  Operating Income (Loss)  Revenue  Operating Income (Loss) 
 2017  
% of
Total
  2016  
% of
Total
  2017  2016  2019  
% of
Total
  2018  
% of
Total
  2019  2018 
Transportation and Skilled Trades $131,169   67.5% $131,243   61.6% $8,960  $11,916  
$
141,005
  
70.7
%
 
$
135,838
  
70.4
%
 
$
11,051
  
$
8,747
 
Healthcare and Other Professions  55,199   28.4%  57,030   26.8%  (1,047)  2,634  
58,422
  
29.3
%
 
52,554
  
27.2
%
 
4,214
  
2,747
 
Transitional  8,084   4.2%  24,718   11.6%  (3,900)  (7,132) 
-
  
0.0
%
 
4,695
  
2.4
%
 
-
  
(2,899
)
Corporate  -   0.0%  -   0.0%  (16,503)  (17,566)  
-
  
0.0
%
  
-
  
0.0
%
  
(20,079
)
  
(18,305
)
Total $194,452   100.0% $212,991   100.0% $(12,490) $(10,148) 
$
199,427
  
100.0
%
 
$
193,087
  
100.0
%
 
$
(4,814
)
 
$
(9,710
)

 Total Assets  Total Assets 
 September 30, 2017  December 31, 2016  September 30, 2019  December 31, 2018 
Transportation and Skilled Trades $83,272  $83,320  
$
111,132
  
$
92,070
 
Healthcare and Other Professions  10,005   7,506  
27,926
  
14,078
 
Transitional  4,219   18,874  
-
  
527
 
Corporate  20,063   53,507   
22,679
   
39,363
 
Total $117,559  $163,207  
$
161,737
  
$
146,038
 

9.11.FAIR VALUE

The carrying amount and estimated fair value of the Company’s financial instrument assets and liabilities, which are not measured at fair value on the Condensed Consolidated Balance Sheet, are listed in the table below:

 At September 30, 2017 
 Carrying  
Quoted Prices in
Active Markets
for Identical
Assets
  
Significant Other
Observable Inputs
  
Significant
Unobservable
Inputs
     September 30, 2019 
 Amount  (Level 1)  (Level 2)  (Level 3)  Total  
Carrying
Amount
  
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
  
Significant Other
Observable Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  Total 
Financial Assets:                              
Cash and cash equivalents $7,277  $7,277  $-  $-  $7,277  
$
11,757
  
$
11,757
  
$
-
  
$
-
  
$
11,757
 
Restricted cash  7,189   7,189   -   -   7,189  
3,997
  
3,997
  -  -  
3,997
 
Prepaid expenses and other current assets  2,187   -   2,187   -   2,187  
4,257
  -  
4,257
  -  
4,257
 
                                   
Financial Liabilities:                                   
Accrued expenses $14,619  $-  $14,619  $-  $14,619  
$
9,523
  
$
-
  
$
9,523
  
$
-
  
$
9,523
 
Other short term liabilities  2,122   -   2,122   -   2,122  
595
  -  
595
  -  
595
 
Credit facility  16,721   -   16,721   -   16,721 
Credit facility and term loan 
26,902
  -  
20,182
  -  
20,182
 

18
TheWe estimate the fair value of the revolving credit facility approximates the carrying amount at September 30, 2017 as the instrument had variable interest rates that reflected currentCredit Facility based on a present value analysis utilizing aggregate market rates available to the Company.yields obtained from independent pricing sources for similar financial instruments.

The carrying amounts reported on the Consolidated Balance Sheets for Cash and cash equivalents, Restricted cash and Noncurrent restricted cash approximate 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 term liabilities approximate fair value due to the short-term nature of these items.

10.12.RELATED PARTYSUBSEQUENT EVENTS

(a)  Sale of Series A Convertible Preferred Stock.
TheOn November 14, 2019, the Company has anraised gross proceeds of $12,700,000 from the sale of 12,700 shares of its newly-designated Series A Convertible Preferred Stock, no par value per share. See Part II, Item 5 Other Information “Sale of Series A Convertible Preferred Stock” for a description of the transaction and the rights of the Series A Preferred Stock and the holders thereof.

(b)  Replacement Credit Facility with Sterling National Bank
On November 14, 2019, the Company entered into a new senior secured credit agreement with MATCO Tools whereby MATCO provides the Company, on an advance commission basis, credits in MATCO branded tools, tool storage, equipment, and diagnostics products. The chief executive officerits lender, Sterling National Bank.
See Part II, Item 5 Other Information “$60 Million Credit Facility with Sterling National Bank” for a description of the parent Company of MATCO is considered an immediate family member of one of the Company’s board members.  The Company’s payable balances from this third party was immaterial at September 30, 2017 and 2016. Management believes that its agreement with MATCO is an arm’s length transaction and on similar terms as would have been obtained from unaffiliated third parties.new credit facility.
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All references in this Quarterly Report to “we,” “our,” “us” and the “Company,” refer to Lincoln Educational Services Corporation and its subsidiaries unless the context indicates otherwise.

The following discussion may contain forward-looking statements regarding the Company, our business, prospects and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2016,2018, as filed with the Securities and Exchange Commission (the “SEC”) and in our other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.  We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise.  Readers are urged to carefully review and consider the various disclosures made by us in this reportQuarterly Report and in our other reports filed with the SEC that advise interested parties of the risks and factors that may affect our business.

The interim financial statements and related notes thereto filedappearing elsewhere in this Quarterly Report on Form 10-Q and the discussions contained herein should be read in conjunction with the annual financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, as filed with the SEC, which includes audited consolidated financial statements for our three fiscal years ended December 31, 2016.2018.

General

Lincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our” and “us”, as applicable) provideThe Company provides diversified career-oriented post-secondary education to recent high school graduates and working adults.  The Company which currently operates 25 schools in 15 states, offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control and electrical and electronic systems technology, among other programs), healthcare services (which include nursing, dental assistant and medical administrative assistant, and pharmacy technician, among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and business and information technology (which includes information technology and criminal justice programs).programs.  The schools, currently consisting of 22 schools in 14 states, operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln College of New England, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brand names.  Most of the campuses serve major metropolitan markets and each typically offers courses in 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 or regionally accredited and are eligible to participate in federal financial aid programs by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accrediting commissions, which allow students to apply for and access federal student loans as well as other forms of financial aid.

In the first quarter of 2015, we reorganized our operationsOur business is organized into three reportable business segments:  (a) Transportation and Skilled Trades, segment, (b) Healthcare and Other Professions (“HOPS”) segment,or “HOPS”, and (c) Transitional, segment, which refers to businesses that have been or are currently being taught out.

In November 2015, the Board of Directors approved a plan for the Company to divest the schools included in the HOPS segment due to a strategic shift inAugust 2018, the Company’s business strategy.  The Company underwent an exhaustive process to divest the HOPS schools which proved successful in attracting various purchasers but, ultimately, did not result in a transaction that our Board believed would enhance shareholder value. When the decision was first made by the Board of Directors to divest HOPS, 18 campuses were operating in this segment.  By the end of 2017, we will have strategically closed seven underperforming campuses leaving a total of 11 campuses remaining under the HOPS segment.   The Company believes that the closures and planned closures of the aforementioned campuses has positioned this segment and the Company to be more profitable going forward as well as maximizing returns for the Company’s shareholders.

The combination of several factors, including the inability of a prospective buyer of the HOPS segment to close on the purchase, the improvements the Company has implemented in the HOPS segment operations, the closure of seven underperforming campuses and the change in Federal government administration, resulted in the Board reevaluating its divestiture plan and the determination that shareholder value would more likely be enhanced by continuing to operate our HOPS segment as revitalized.  Consequently, the Board of Directors has abandoned the plan to divest the HOPS segment and the Company now intends to retain the remaining campuses in the HOPS segment.  The results of operations of the campuses included in the HOPS segment are reflected as continuing operations in the condensed consolidated financial statements.

In the fourth quarter of 2016, the Company completed the teach-out of its Hartford, Connecticut and Henderson (Green Valley), Nevada campuses which originally operated in the HOPS segment.  Also in 2016, the Company announced the closing of its Northeast Philadelphia, Pennsylvania, Center City Philadelphia Pennsylvania and West Palm Beach, Florida facilities, which also were originally in our HOPS segment and which were fully taught out in 2017.  In addition, in March 2017, the Board of Directors approved a plan to not renew the leases at our schools located in Brockton, Massachusetts and Lowell, Massachusetts, which also were originally in our HOPS segment.  These schools are being taught out with expected closure in December 2017 and are included in the Transitional segment as of September 30, 2017.
On August 14, 2017,wholly-owned subsidiary, New England Institute of Technology at Palm Beach, Inc. (“NEIT”), a wholly-owned subsidiary of the Company, consummated the anticipated sale of thesold to Elite Property Enterprise, LLC real property owned by  NEIT located at 2400 and 2410 Metrocentre Boulevard East, West1126 53rd Court North, Mangonia Park, Palm Beach County, Florida includingand the improvements and othercertain personal property located thereon (the “West Palm Beach“Mangonia Park Property”), for a cash purchase price of $2,550,000.  At closing, NEIT paid a real estate brokerage fee equal to Tambone Companies, LLC (“Tambone”), pursuant to a previously disclosed purchase5% of the gross sales price and sale agreement (the “West Palm Sale Agreement”) entered into on March 14, 2017.other customary closing costs and expenses.  Pursuant to the termsprovisions of the West Palm Sale Agreement, as subsequently amended, the purchase price for the West Palm Beach Property was $15.8 million. As a result, the Company recorded a gain on the sale in the amount of $1.5 million. As previously disclosed, the West Palm Beach Property served as collateral for a short term loan in the principal amount of $8.0 million obtained by the Company fromCompany’s credit facility with its lender, Sterling National Bank, on April 28, 2017, which loan matured upon the earliernet cash proceeds of the sale of the West Palm BeachMangonia Park Property or October 1, 2017. Accordingly, on August 14, 2017, concurrentlywere deposited into an account with the consummation of the sale of the West Palm Beach Property, the Company repaid the term loan in an aggregate amount of $8.0 million, consisting of principallender to serve as additional security for loans and accrued interest.

On March 31, 2017, the Company entered into a new revolving credit facility with Sterling National Bank in the aggregate principal amount of upother financial accommodations provided to $55 million, which consists of up to $50 million of revolving loans, including a $10 million sublimit for letters of credit, and an additional $5 million non-revolving loan.  The new credit facility requires that revolving loans in excess of $25 million and all letters of credit issued thereunder be cash collateralized dollar for dollar.  The proceeds of the $5 million non-revolving loan were held in a pledged account at Sterling National Bank as required by the terms of the new credit facility pending the completion of environmental studies undertaken at certain properties owned by the Company and mortgaged to Sterling National Bank.  Uponits subsidiaries under the completion of environmental studies that revealed that no environmental issues existed atcredit facility.  In December 2018, the properties, during the quarter ended June 30, 2017, the $5 million held in the pledged account at Sterling National Bank was released andfunds were used to repay the $5 million non-revolving loan.  The new revolvingoutstanding principal balance of the loans outstanding under the credit facility replaces a termand such repayment permanently reduced the revolving loan availability under the credit facility whichdesignated as Facility 1 under the Company’s Credit 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 at Southington, Connecticut.  The decision to close the LCNE campus followed the previously reported placement of LCNE on probation by the college’s institutional accreditor, the New England Association of Schools and Colleges (“NEASC”).  After evaluating alternative options, the Company concluded that teaching out and closing the campus was repaidin the best interest of the Company and terminated concurrentlyits students.  Subsequent to formalizing the LCNE closure decision in August 2018, the Company partnered with Goodwin College, another NEASC- accredited institution in the region, to assist LCNE students to complete their programs of study.  The majority of the LCNE students will continue their education at Goodwin College thereby limiting some of the Company’s closing costs.  The Company recorded net costs associated with the effectivenessclosure of the new revolving credit facility.  The termLCNE campus in 2018 of approximately $4.3 million, including (i) $1.6 million in connection with the termination of the new revolving credit facilityLCNE campus lease, which is 38 months, maturing on May 31, 2020.  The new revolving credit facility is discussedthe net present value of the remaining obligation, to be paid in further detail underequal monthly installments through January 2020, (ii) approximately $700,000 of severance payments and (iii) $2.0 million of additional operating losses related to no longer enrolling additional students during 2018.  LCNE results, previously reported in the heading “Liquidity and Capital Resources” below and in Note 4 to the condensed consolidated financial statementsHOPS segment, were included in this report. the Transitional segment as of December 31, 2018.

As of September 30, 2017,2019, we had 11,51512,015 students enrolled at 2522 campuses in our programs.

Recent Developments

Subsequent to the end of the fiscal quarter ended September 30, 2019, on November 14, 2019, the Company raised $12,700,000 from the sale of 12,700 shares of its Series A Convertible Preferred Stock, no par value per share (the “Series A Preferred Stock”), authorized by its Board of Directors.  The Series A Preferred Stock was sold by the Company pursuant to a Securities Purchase Agreement dated as of November 14, 2019 among the Company, Juniper Targeted Opportunity Fund, L.P. and Junior Targeted Opportunities, L.P. (together, “Juniper”) another investor party thereto (such investor, together with Juniper, the “Investors”). The proceeds of the sale net of transaction expenses will be used for working capital or other general corporate purposes.  See the discussion of the Securities Purchase Agreement, the Series A Preferred Stock and the Registration Rights Agreement under the heading Part II. Item 5. Other Information “Sales of Series A Convertible Preferred Stock”.

Subsequent to the end of the fiscal quarter ended September 30, 2019, on November 14, 2019, the Company entered into a new $60 million credit facility with Sterling National Bank, which replaced the existing credit facility between the Company and Sterling National Bank.  Additional information regarding the terms of this replacement credit facility is included under the heading in Part II, Item 5. Other Information “$60 Million Credit Facility with Sterling National Bank”.

Critical Accounting Policies and Estimates

Our discussionsFor a description of our financial conditioncritical accounting policies and resultsestimates, refer to “Management’s Discussion and Analysis of operations are based upon our condensedFinancial Condition and Results of Operations – Critical Accounting Policies and Estimates” and Note 1 to the consolidated financial statements which have been preparedincluded in accordance with accounting principles generally accepted inour Annual Report on Form 10-K for the United States of America (“GAAP”).  The preparation of financial statements in conformity with GAAP requires managementfiscal year ended December 31, 2018 and Note 1 to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the period.  On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, bad debts, impairments, income taxes, benefit plans and certain accruals.  Actual results could differ from those estimates.  The critical accounting policies discussed herein are not intended to be a comprehensive list of all of our accounting policies.  In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not resultincluded in significant management judgment in the application of such principles.  We believe that the following accounting policies are most critical to us in that they represent the primary areas where financial information is subject to the application of management’s estimates, assumptions and judgment in the preparation of our condensed consolidated financial statements.

Revenue Recognition.  Revenues are derived primarily from programs taught at our schools.  Tuition revenues, textbook sales and one-time fees, such as nonrefundable application fees and course material fees, are recognized on a straight-line basis over the length of the applicable program 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 that take place prior to graduation, and we complete the performance of teaching the student which entitles us to the revenue.  Other revenues, such as tool sales and contract training revenues are recognized as services are performed or goods are delivered. On an individual student basis, tuition earned in excess of cash received is recorded as accounts receivable, and cash received in excess of tuition earned is recorded as unearned tuition.

We evaluate whether collectability of revenue is reasonably assured prior to the student attending class and reassess collectability of 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 determine eligible charges and, if there is a balance due from the student after this calculation, we expect payment from the student and we have a process to pursue uncollected accounts whereby, based upon the student’s financial means and ability to pay, a payment plan is established with the student to ensure that collectability is reasonable.  We continuously monitor our historical collections to identify potential trends that may impact our determination that collectability of receivables for withdrawn students is realizable.  If a student withdraws from a program prior to a specified date, any paid but unearned tuition is refunded. Refunds are calculated and paid in accordance with federal, state and accrediting agency standards. Generally, the amount to be refunded to 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 her withdrawal date. These refunds typically reduce deferred tuition revenue and cash on our consolidated balance sheets as we generally do not recognize tuition revenue in our consolidated statements of income (loss) until the related refund provisions have lapsed. Based on the application of our refund policies, we may be entitled to incremental revenue on the day the student withdraws from one of our schools. We record revenue for students who withdraw from one of our schools when payment is received because collectability on an individual student basis is not reasonably assured.
Allowance for uncollectible accounts.  Based upon our experience and judgment, we establish an allowance for uncollectible accounts with respect to tuition receivables.  We use an internal group of collectors, augmented by third-party collectors as deemed appropriate, in our collection efforts.  In addition, we periodically sell written-off receivables to third parties.  In establishing our allowance for uncollectible accounts, we consider, among other things, current and expected economic conditions, a student’s status (in-school or out-of-school), whether or not a student is currently making payments and overall collection history.  Changes in trends in any of these areas may impact the allowance for uncollectible accounts.  The receivables balances of withdrawn students with delinquent obligations are reserved based on our collection history.  Although we believe that our reserves are adequate, if the financial condition of our students deteriorates, resulting in an impairment of their ability to make payments, additional allowances may be necessary, which will result in increased selling, general and administrative expenses in the period such determination is made.

Our bad debt expense as a percentage of revenueForm 10-Q for the three monthsquarter ended September 30, 2017 and 2016 was 4.7% and 4.8%, respectively.  Our bad debt expense as a percentage of revenue for the nine months ended September 30, 2017 and 2016 was 5.3% and 4.7%, respectively.  Our exposure to changes in our bad debt expense could impact our operations.  A 1% increase in our bad debt expense as a percentage of revenues for each of the three months ended September 30, 2017 and 2016 would have resulted in an increase in bad debt expense of $0.7 million and $0.7 million, respectively.  A 1% increase in our bad debt expense as a percentage of revenues for each of the nine months ended September 30, 2017 and 2016 would have resulted in an increase in bad debt expense of $1.9 million and $2.1 million, respectively.2019.

We do not believe that there is any direct correlation between tuition increases, the credit we extend to students, and our loan commitments.  Our loan commitments to our students are made on a student-by-student basis and are predominantly a function of the specific student’s financial condition.   We only extend credit to the extent there is a financing gap between the tuition charged for the program and the amount of grants, student loans and parental loans that each student receives and the availability of family contributions.  Each student’s funding requirements are unique.  Factors that determine the amount of aid available to a student are student status (whether they are dependent or independent students), Pell Grants awarded, Plus Loans awarded or denied to parents, and family contributions. As a result, it is extremely difficult to predict the number of students that will need us to extend credit to them. Our tuition increases have ranged historically from 2% to 5% annually and have not meaningfully impacted overall funding requirements.

Because a substantial portion of our revenue is derived from Title IV programs, any legislative or regulatory action that significantly reduces the funding available under Title IV programs or the ability of our students or schools to participate in Title IV programs could have a material effect on the realizability of our receivables.

Goodwill.  We test our goodwill for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred, by comparing its fair value to its carrying value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of the acquired business, and a variety of other circumstances. If we determine that impairment has occurred, we are required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill and other indefinite-lived intangible assets, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact these judgments in the future and require an adjustment to the recorded balances.

There was no goodwill impairment for the three and nine months ended September 30, 2017 and 2016.

Long-lived assets.  We review the carrying value of our long-lived assets and identifiable intangibles for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We evaluate long-lived assets for impairment by examining estimated future cash flows. These cash flows are evaluated by using weighted probability techniques as well as comparisons of past performance against projections. Assets may also be evaluated by identifying independent market values. If we determine that an asset’s carrying value is impaired, we will record a write-down of the carrying value of the asset and charge the impairment as an operating expense in the period in which the determination is made.
There was no long-lived asset impairment during the three and nine months ended September 30 2017 and 2016.

Bonus costs.  We accrue the estimated cost of our bonus programs using current financial information as compared to target financial achievements and key performance objectives.  Although our recorded liability for bonuses is based on our best estimate of the obligation, actual results could differ and require adjustment of the recorded balance.

Income taxes. We account for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Code (“ASC”) Topic 740, “Income Taxes”. This statement requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax basis of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered.
In accordance with ASC 740, we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable.  A valuation allowance is required to be established or maintained when, based on currently available information, it is more likely than not that 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 sufficient income in recent years and whether sufficient income is expected in future years in order to utilize the deferred tax asset. In evaluating the realizability of deferred income tax assets, we considered, among other things, historical levels of income, expected future income, the expected timing of the reversals of existing temporary reporting differences, 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 statements and/or tax returns.  Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated financial position or results of operations.  Changes in, among other things, income tax legislation, statutory income tax rates, or future income levels could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods.  On the basis of this evaluation the realization of our deferred tax assets was not deemed to be more likely than not and thus we have provided a valuation allowance on our net deferred tax assets.
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.  During the three and nine months ended September 30, 2017 and 2016, there were no interest and penalties expense associated with uncertain tax positions.

Effect of Inflation

Inflation has not had a material effect on our operations.

Results of Continuing Operations for the Three and Nine Months Ended September 30, 2019

Certain reported amounts in our analysis have been rounded for presentation purposes.  The following table sets forth selected consolidated statements of continuing operations data as a percentage of revenues for each of the periods indicated:

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
 2017  2016  2017  2016  2019  2018  2019  2018 
Revenue  100.0%  100.0%  100.0%  100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:                            
Educational services and facilities  50.6%  50.6%  51.0%  51.8% 45.7% 49.4% 46.6% 49.3%
Selling, general and administrative  52.7%  50.3%  56.2%  53.1% 51.6% 56.4% 55.9% 58.5%
Gain on sale of assets  -2.3%  0.0%  -0.8%  -0.2%
(Gain) loss on sale of assets  -0.3%  0.0%  -0.1%  0.1%
Total costs and expenses  101.0%  100.9%  106.4%  104.7%  97.0%  105.8%  102.4%  107.9%
Operating loss  -1.0%  -0.9%  -6.4%  -4.7%
Operating gain (loss) 3.0% -5.8% -2.4% -7.9%
Interest expense, net  -1.1%  -1.9%  -3.4%  -2.1%  -1.1%  -0.8%  -1.1%  -0.9%
Other income  0.0%  2.3%  0.0%  2.4%
Loss from operations before income taxes  -2.1%  -0.5%  -9.8%  -4.4% 1.9% -6.6% -3.5% -8.8%
Provision for income taxes  0.1%  0.1%  0.1%  0.1%  0.0%  0.1%  0.1%  0.1%
Net Loss  -2.2%  -0.6%  -9.9%  -4.5%  1.9%  -6.7%  -3.6%  -8.9%
Three Months Ended September 30, 20172019 Compared to Three Months Ended September 30, 20162018

Consolidated Results of Operations

Revenue.   Revenue decreasedincreased by $7.0$2.5 million, or 9.4%3.6%, to $67.3$72.6 million for the three months ended September 30, 20172019 from $74.3$70.1 million in the prior year comparable period.  The decrease in revenue is mainly attributable toExcluding the suspension of new student starts at campuses in our Transitional segment, which have closed or will be closed at year-end.  This segment accounted for approximately 95%had revenue of the total revenue decline.

Total student starts decreased by 10.9% to approximately 4,400 from 5,000zero and $0.8 million for the three months ended September 30, 20172019 and 2018 respectively, revenue increased by $3.3 million, or 4.8%.  The increase in revenue is due to a 3.3% increase in average student population, which is attributed to the Company’s consistent student start growth over the last two years.

Total student starts increased by 2.7% for the three months ended September 30, 2019 as compared to the prior year comparable period.  Approximately 82%Excluding the Transitional segment student starts increased 3.4% quarter over quarter.

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 $0.3 million, or 0.8%, to $33.2 million for the overall decreasethree months ended September 30, 2019 from $33.5 million in the prior year comparable period.  Excluding the Transitional segment, which had expense of $1.2 million in the prior year quarter, educational services and facilities expenses increased $0.9 million.  The increase was primarily the result of increases in instructional salaries and benefits expense and books and tools expense resulting from a larger student population quarter over quarter. Educational services and facilities expense, as a percentage of revenue, decreased to 45.7% for the three months ended September 30, 2019 from 49.4% in the prior year comparable period.

Selling, general and administrative expense.   Our selling, general and administrative expense increased $1.4 million, or 3.8%, to $37.5 million for the three months ended September 30, 2019 from $36.1 million in the prior year comparable period.   Excluding the Transitional segment, which had expenses of $1.5 million, selling, general and administrative expenses increased $2.9 million. This increase was primary driven by additional bad debt expense driven in part by a larger student population, in combination with a slight deterioration of historical repayment rates.  Further contributing to increased costs were increases in salaries and benefits expense in addition to costs incurred in connection with the evaluation of strategic initiatives intended to increase shareholder value.  No additional costs pertaining to these strategic initiatives will be incurred going forward.

Net interest expense.   Net interest expense remained essentially flat at $0.7 million and $0.6 million for the three months ended September 30, 2019 and 2018, respectively.

Income taxes.    Our provision for income taxes has remained essentially flat at less than $0.1 million for the three months ended September 30, 2019 and 2018 respectively.

No federal or state income tax benefit was recognized for the current period loss due to the recognition of a full valuation allowance.  Minimal state income tax expenses were recognized during the quarter.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Consolidated Results of Operations

Revenue.   Revenue increased by $6.3 million, or 3.3%, to $199.4 million for the nine months ended September 30, 2019 from $193.1 million in the prior year comparable period.  Excluding the Transitional segment, noted above.  which had revenue of zero and $4.7 million for the nine months ended September 30, 2019 and 2018 respectively, revenue increased by $11.0 million, or 5.9%. The remaining decrease resulted fromincrease in revenue is due to a 3.3% increase in average student population, which is attributed to the Company’s consistent student start underperformance at one campusgrowth over the last two years.

Total student starts increased by 2.6% for the nine months ended September 30, 2019 as compared to the prior year comparable period.  Excluding the Transitional segment student starts increased 4% year over year.  We attribute this growth to our improved processes in the Transportationmarketing and Skilled Trades segment and two campuses in the Healthcare and Other Professions segment.admissions.

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 $3.5$1.2 million, or 9.3%1.3%, to $34.1 million for the three months ended September 30, 2017 from $37.5 million in the prior year comparable quarter.  This decrease is mainly attributable to the Transitional segment which accounted for $3.2 million in cost reductions as three campuses in the segment have closed during the three months ended September 30, 2017 and the remaining two campuses are preparing to close by the end of the current calendar year.

Educational services and facilities expenses, as a percentage of revenue remained essentially flat at 50.6% for the three months ended September 30, 2017 and 2016.

Selling, general and administrative expense.    Our selling, general and administrative expense decreased by $1.9 million, or 5.1%, to $35.5 million for the three months ended September 30, 2017 from $37.4 million in the comparable quarter of 2016.  This decrease also was primarily due to the Transitional segment, which accounted for approximately $2.9 million in cost reductions.  Partially offsetting the cost reductions was $0.6 million of corporate and other costs related to the closure of the of the Hartford, Connecticut campus on December 31, 2016.

As a percentage of revenues, selling, general and administrative expense increased to 52.7% for the three months ended September 30, 2017 from 50.3% in the comparable prior year period.  Our selling, general and administrative expenses contain a high fixed cost component and are not as scalable as some of our other expenses.  As our student population decreases, we typically experience a reduction in average class size and, therefore, are not always able to align these expenses with the corresponding decrease in population.

Gain on Sale of Assets.  For the three months ended September 30, 2017, gain on sale of assets increased to $1.5 million from less than $0.1 million in the prior year comparable period.  The increase was due to the sale of two properties located in West Palm Beach, Florida.  
Net interest expense. For the three months ended September 30, 2017, net interest expense decreased by $0.7 million, or 50% to $0.7 million from $1.4 million in the prior year comparable period.  The expense reductions were attributable to lower debt outstanding in combination with more favorable terms under our new credit facility with Sterling National Bank effective March 31, 2017.
Other Income.  For the three months ended September 30, 2017, other income decreased by $1.7 million from the prior year comparable period.  The $1.7 million of other income in 2016 reflected the amortization of a one-time gain from the modification of a lease at three of the Company’s campuses which were previously accounted for as finance obligations in the prior year.

Income taxes.    Our provision for income taxes was $0.1 million, or 3.5% of pretax loss, for the three months ended September 30, 2017, compared to $0.1 million, or 11.9% 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 expense resulted from various minimal state tax expenses.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Consolidated Results of Operations

Revenue.   Revenue decreased by $18.5 million, or 8.7%, to $194.5$92.9 million for the nine months ended September 30, 20172019 from $213.0 million for the prior year comparable period.  The decrease in revenue is primarily attributable to the suspension of new student enrollments at campuses in our Transitional segment which have closed or will be closed by year end.  This segment accounted for approximately 90% of the total revenue decline.  The remaining decline was due to our HOPS segment which decreased by $1.8 million for the nine months ended September 30, 2017 due to average population down approximately 30 students.

Total student starts decreased by 12.5% to approximately 9,900 from 11,300 for the nine months ended September 30, 2017 as compared to the prior year comparable period.  The decrease was largely due to the suspension of new student starts for the Transitional segment which accounted for approximately 79% of the decline.   The Transportation and Skilled Trades segment starts were down 2.8% and the HOPS segment starts were down 3.4% for the nine months ended September 30, 2017 as compared 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 $11.1 million, or 10%, to $99.2 million for the nine months ended September 30, 2017 from $110.2$94.2 million in the prior year comparable period.  This decrease is mainly attributable toExcluding the Transitional segment, which accounted for $10.4had expense of $3.9 million in cost reductions as three campusesthe prior year, educational services and facilities expenses increased $2.7 million.  The increase was primarily the result of increases in the segment have closed during the nine months ended September 30, 2017instructional salaries and the remaining two campuses that are preparing to close by the end of the current calendar year.  The remainder of the decrease was due to a $1.4 million decrease in depreciationbenefits expense and books and tools expense resulting from fully depreciated assets.

a larger student population year over year. Educational services and facilities expenses,expense, as a percentage of revenue, decreased to 51.0%46.6% for the ninethree months ended September 30, 20172019 from 51.8%49.3% in the prior year comparable period.

Selling, general and administrative expense.Our selling, general and administrative expense decreased by $3.9increased $3.4 million, or 3.5%3.2%, to $109.4$111.5 million for the nine months ended September 30, 20172019 from $113.3$108.1 million in the prior year comparable period of 2016.  The decrease also was primarily due toperiod.   Excluding the Transitional segment, which accounted for approximately $9.5had expense of $3.7 million in cost reductions.  Partially offsetting thesethe prior year, selling, general and administrative expenses increased $7.1 million.  This increase was primary driven by additional bad debt expense driven in part by a larger student population, in combination with a slight deterioration of historical repayment rates.  Further contributing to increased costs reductions are $3.3 millionwere investments made in increased administrative expense; and $2.5 million in additional sales and marketing expense expected to yield continued start growth over the next several quarters in addition to increases in salaries and benefits expense. Additional costs were incurred in connection with the evaluation of strategic initiatives intended to increase shareholder value.  No additional costs pertaining to these strategic initiatives will be incurred going forward.

AdministrativeNet interest expense.   Net interest expense increased primarily due to a $1.8 million increase in bad debt expense as a result of higher past due student accounts, higher account write-offs, and timing of Title IV funds receipts and $1.1 million in additional closed school expenses which relates directly to the closure of the Hartford, Connecticut campus in December 31, 2016.  The additional expenses relating to the Hartford Connecticut campus will terminate with the apartment lease which ends in September 2019.

Sales and marketing expense increased by $2.5$0.4 million, or 6.6%24.2%, primarily as a result ofto $2.1 million in increased marketing expense.  Increased marketing spend was part of a strategic marketing initiatives intended to reach more students. These initiatives resulted in a slight improvement in starts in the adult demographic for the nine months ended September 30, 2017 as compared to the prior comparable period.

As a percentage of revenues, selling, general and administrative expense increased to 56.2% for the nine months ended September 30, 20172019 from 53.1% in the comparable prior year period.

As of September 30, 2017, we had total outstanding loan commitments to our students of $46.9 million, as compared to $40.0 million at December 31, 2016.  Loan commitments, net of interest that would be due on the loans through maturity, were $34.9 million at September 30, 2017, as compared to $30.0 million at December 31, 2016.  The increase in loan commitments was due in part to the seasonality of the Company’s operations.

Gain on sale of assets.  For the nine months ended September 30, 2017, gain on sale of assets increased to $1.6 million from $0.4$1.7 million in the prior year comparable period.  TheThis increase was duein expense is a direct result of slight increases in both principal balance and interest rates in addition to the salewrite-off of two properties located in West Palm Beach, Florida.  some non-cash deferred finance fees.

Net interest expense. For the nine months ended September 30, 2017 net interest expense increased by 2.1 million, or 46% to $6.6 million from $4.5 million in the prior year comparable period.  The increase was mainly attributable to a $2.2 million non-cash write-off of previously capitalized deferred financing fees.  These costs were incurred at March 31, 2017 when the Company entered into a new revolving credit facility with Sterling National Bank.  Partially offsetting these increases were reductions in interest expense resulting from lower debt outstanding in combination with more favorable terms under the current Credit Facility compared to our prior Term Loan.
2523
Other Income.  For the nine months ended September 30, 2017 other income decreased by $5.1 million from the prior year comparable period.  The $5.1 million in 2016 reflected the amortization of a one-time gain from the modification of a lease at three of the Company’s campuses which were previously accounted for as finance obligations in the prior year.

Income taxes.    Our provision for income taxes washas remained essentially flat at $0.2 million or 0.8% of pretax loss, for the nine months ended September 30, 2017, compared2019 and 2018 respectively

As of September 30, 2019, the full valuation allowance was reduced for deferred tax liability related to $0.2indefinite lived intangibles by $0.1 million or 1.6%and $0.1 million of pretax loss, in the prior year comparable period. No federal ordeferred tax expense was recognized.  In addition, minimal state income tax benefit wasexpenses were recognized for the current period loss duenine months ended September 30, 2019.

As of September 30, 2019, $0.4 million of deferred tax asset for refundable AMT credits was reclassified to income tax receivable as we expect to receive the recognitionrefund of a full valuation allowance.  Incomethese credits upon future corporate income tax expense resulted from various minimal state tax expenses.return filings.
 
Segment Results of Operations
 
The for-profit education industry has been impacted by numerous regulatory changes, thea changing economy and an onslaught of negative media attention. As a result of these challenges, student populations have declined and operating costs have increased.  Over the past few years, the Company has closed over ten locations and exited its online business.  In 2016, the Company ceased operations in Hartford, Connecticut; Fern Park, Florida; and Henderson (Green Valley), Nevada. In the fourth quarter of 2016, the Board of Directors approved plans to cease operations at our schools in Center City Philadelphia, Pennsylvania; Northeast Philadelphia, Pennsylvania; and West Palm Beach, Florida which were fully taught out in 2017.  In addition, in March 2017, the Board of Directors approved plans to cease operations at our schools in Brockton, Massachusetts and Lowell, Massachusetts, which are expected to close in the fourth quarter of 2017.  These schools, which were previously included in our HOPS segment, are now included in the Transitional segment.

In the past, we offered any combination of programs at any campus.  We have shifted our focus to program offerings that create greater differentiation among campuses and attainpromote attainment of excellence to attract more students and gain market share.  Also, strategically, we began offering continuing education training to select employers who hire our studentsgraduates and this is best achieved at campuses focused on theirthe 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) the Transportation and Skilled Trades segment; (b) the Healthcare and Other Professions segment; and (c) the Transitional segment.

Our reportable segments have been determined based on a method by which we now evaluate performance and allocate resources.  Each reportable 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 to enhance operational alignment within each segment to more effectively execute our strategic plan.  Each of the Company’s schools is a reporting unit and an operating segment.  Our operating segments are segments described below.

Transportation and Skilled Trades – The Transportation and Skilled Trades segment offers academic programs mainly in the career-oriented disciplines of transportation 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 health sciences, 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 or closed and consists of our campuses that are currently being taught out.  TheseThe schools are employingin the Transitional segment employ a gradual teach-out process that enables the schools to continue to operate whileto allow their current students to complete their course of study.  These schools are no longer enrolling new students.In addition, in March 2017, the Board of Directors of the Company approved a plan to cease operations at our schools in Brockton, Massachusetts and Lowell, Massachusetts.  These schools are being taught out and are expected to be closed in December 2017.  During the year ended December 31, 2016, the Company announced the closing of our Northeast Philadelphia, Pennsylvania, Center City Philadelphia, Pennsylvania and West Palm Beach, Florida facilities which were fully taught out in 2017.  In the first quarter of 2016, we completed the teach-out of our Fern Park, Florida campus.   In addition, in the fourth quarter of 2016, we completed the teach-out of our Hartford, Connecticut and Henderson (Green Valley), Nevada campuses.

The Company continually evaluates each campus for profitability, earning potential, and customer satisfaction.  This evaluation takes several factors into consideration, including the campus’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 the goals of attracting more students to our programs and, ultimately, to provide our shareholders with the maximum return on their investment.  Campuses classified in the Transitional segment have been subject to this process and have been strategically identified for closure.As of September 30, 2019, no campuses have been categorized in the Transitional segment.
 
We evaluate segment performance based on operating results.  Adjustments to reconcile segment results to consolidated results are included under the caption “Corporate,” which primarily includes unallocated corporate activity.

The following table present results for our three reportable segments for the three months ended September 30, 20172019 and 2016:2018:

 Three Months Ended September 30,  Three Months Months Ended Sept 30, 
 2017  2016  % Change  2019  2018  % Change 
Revenue:
                  
Transportation and Skilled Trades $47,694  $47,939   -0.5% 
$
52,652
  
$
51,008
  3.2%
HOPS  18,428   18,559   -0.7%
Healthcare and Other Professions 
19,942
  
18,249
  9.3%
Transitional  1,186   7,769   -84.7%  
-
   
821
   -100.0%
Total $67,308  $74,267   -9.4% $72,594  $70,078   3.6%
                     
Operating Income (Loss):
                     
Transportation and Skilled Trades $6,061  $6,120   -1.0% 
$
6,752
  
$
6,330
  6.7%
Healthcare and Other Professions  (574)  (41)  1300.0% 
1,403
  
830
  69.0%
Transitional  (2,495)  (2,029)  -23.0% 
-
  
(1,863
)
 100.0%
Corporate  (3,723)  (4,721)  21.1%  
(6,012
)
  
(5,221
)
  -15.2%
Total $(731) $(671)  -8.9% $2,143  $76   2719.7%
                     
Starts:
                     
Transportation and Skilled Trades  3,016   3,090   -2.4% 3,398  3,391  
0.2
%
Healthcare and Other Professions  1,429   1,453   -1.7% 1,381  1,232  
12.1
%
Transitional  -   448   -100.0%  -   30   
-100.0
%
Total  4,445   4,991   -10.9%  4,779   4,653   
2.7
%
                     
Average Population:
                     
Transportation and Skilled Trades  6,977   7,128   -2.1% 7,635  7,453  
2.4
%
Healthcare and Other Professions  3,327   3,286   1.2% 3,619  3,317  
9.1
%
Transitional  259   1,429   -81.9%  -   127   
-100.0
%
Total  10,563   11,843   -10.8%  11,254   10,897   
3.3
%
                     
End of Period Population:
                     
Transportation and Skilled Trades  7,403   7,667   -3.4% 8,055  7,922  
1.7
%
Healthcare and Other Professions  3,957   3,826   3.4% 3,960  3,637  
8.9
%
Transitional  155   1,362   -88.6%  -   173   
-100.0
%
Total  11,515   12,855   -10.4%  12,015   11,732   
2.4
%

Three Months Ended September 30, 20172019 Compared to Three Months Ended September 30, 20162018

Transportation and Skilled Trades

Student starts for the quarter decreased by 74 students, or 2.4%,increased slightly for the three months ended September 30, 2019 when compared to the prior year comparable period.  The decline in student starts is mainly the result of the underperformance of one campus, which decreased by 98 students.  Excluding this campus, student starts for the quarter would have grown over the prior year comparable period.  In addition, as previously reported in the second quarter, there was a decline in starts as a result of a lower than expected high school start rate.  High school students make up approximately 30% of the segment’s population.  In an effort to increase high school enrollments, the Company made various changes to its processes and organizational structure. 

Operating income remained essentially flat at $6.1increased $0.4 million, to $6.8 million for the three months ended September 30, 20172019 from $6.3 million in the prior year comparable period mainly due to the following factors:

Revenue increased $1.6 million, or 3.2%, to $52.7 million for the three months ended September 30, 2019, as compared to $51.0 million in the prior year comparable period.  ChangesThe increase in revenue and expense allocations were impacted as follows:is due to a 2.4% increase in average student population quarter over quarter.
·Revenue decreased by $0.2 million, or 0.5% to $47.7 million for the three months ended September 30, 2017 from $47.9 million in the prior year comparable period.  The decrease in revenue was primarily driven by a 2.1% decrease in average student population due to a decline in the number of student starts slightly offset by a 1.6% increase in average revenue per student compared to the prior year comparable period.
Educational services and facilities expense increased $0.3 million, or 1.2% to $23.7 million for the three months ended September 30, 2019, as compared to $23.4 million in the prior year comparable period.  The increase quarter over quarter is primarily due to a larger student population driving a $0.6 million increase in instructional expenses and books and tools expense.  Partially offsetting the increases were cost savings of $0.3 million in facilities expense resulting from the successful negotiation of more favorable lease terms at one of our campuses.
·Educational services and facilities expense decreased by $0.4 million, or 1.9%, to $22.4 million for the three months ended September 30, 2017 from $22.8 million in the prior year comparable quarter.  This decrease was primarily due to reductions in facilities expense resulting from more favorable lease terms at one of our campuses and reductions in depreciation expense due to fully depreciated assets.

·Selling, general and administrative expenses were essentially flat.  Our selling, general and administrative expenses contain a high fixed cost component and are not as scalable as some of our other expenses.  As our student population decreases, we typically experience a reduction in average class size and, therefore, are not always able to align these expenses with the corresponding decrease in population.
25
Selling, general and administrative expense increased $1.1 million, or 5.4%, to $22.4 million for the three months ended September 30, 2019, from $21.3 million in the prior year comparable period.  Increased expenses were primarily the result of additional bad debt expense driven in part by a larger student population, in combination with a slight deterioration of historical repayment rates.  Further contributing to the additional expense were increases in salaries and benefits.

Healthcare and Other Professions
 
Student starts in the Healthcare and Other Professions segment decreasedincreased by 24 students, or 1.7%,12.1% for the three months ended September 30, 2017 as compared to the prior year comparable period.  This segment consists of 11 campuses and, despite the overall decrease in student starts, for the three months ended September 30, 2017, seven of the 11 campuses in this segment showed an increase in student starts.  Of the remaining four campuses, one remained flat, two demonstrated less starts as a result of underperformance, and the last campus had a shift in start dates lowering starts2019 when compared to the prior year comparable period.

Operating loss for the three months ended September 30, 2017 wasincome increased by $0.6 million, compared to $0.1 million in the prior year comparable period.  The $0.5 million change was mainly driven by the following factors:

·Revenue decreased to $18.4 million for the three months ended September 30, 2017, as compared to $18.6 million in the prior year comparable quarter.  The decrease in revenue is mainly attributable to a 2.0% decline in average revenue per student due to tuition decreases at certain campuses and shifts in program mix.
·Educational services and facilities expense increased by $0.2 million, or 1.9%, to $10.2 million for the three months ended September 30, 2017 from $10.0 million in the prior year comparable quarter.
·Selling, general and administrative expense increased by $0.2, or 2.4%, to $8.8 million for the three months ended September 30, 2017 from $8.6 million in the prior year comparable quarter due to increases in sales and marketing expense.

Transitional

The following table lists the schools that are categorized in the Transitional segment and their status as of September 30, 2017:

CampusDate ClosedDate Scheduled to Close
Northeast Philadelphia, PennsylvaniaAugust 31, 2017N/A
Center City Philadelphia, PennsylvaniaAugust 31, 2017N/A
West Palm Beach, FloridaSeptember 30, 2017N/A
Brockton, MassachusettsN/ADecember 31, 2017
Lowell, MassachusettsN/ADecember 31, 2017
Fern Park, FloridaMarch 31, 2016N/A
Hartford, ConnecticutDecember 31, 2016N/A
Henderson (Green Valley), NevadaDecember 31, 2016N/A

**Revenue for the campuses in the above table have been classified in the Transitional segment for comparability for the three months ended September 30, 2017 and 2016.

Revenue was $1.2$1.4 million for the three months ended September 30, 2017 as compared to $7.82019 from $0.8 million in the prior year comparable period mainly due to the campus closures.following factors:

Operating loss
Revenue increased by $0.5$1.7 million, or 9.3%, to $2.5$19.9 million for the three months ended September 30, 2017 from $2.02019, as compared to $18.3 million in the prior year comparable period.  The decreaseincrease in revenue was mainly due to campus closures.a 9.1% increase in average student population, which is attributed to consistent start growth over the last two years.
28
Educational services and facilities expense increased $0.6 million, or 7.1%, to $9.5 million for the three months ended September 30, 2019, from $8.9 million in the prior year comparable period.  The increase in expense quarter over quarter was primarily due to additional instructional expense driven by a consistently growing student population.
Index
Selling, general and administrative expense increased by $0.5 million, or 5.7%, to $9 million for the three months ended September 30, 2019 from $8.6 million in the prior year comparable period.  Increased expense was primarily the result of additional bad debt expense driven by a larger student population in combination with a slight deterioration of historical repayment rates.

Transitional
During the year ended December 31, 2018, one campus, the LCNE campus at Southington, Connecticut was categorized in the Transitional segment.  This campus has been fully taught out of as of December 31, 2018 and financial information for this campus has been included in the Transitional segment for the period ending September 30, 2018.  As of September 30, 2019, no campuses have been categorized in the Transitional segment.

Revenue was zero and $0.8 million for the three months ended September 30, 2019 and 2018 respectively.  Operating loss was zero and $1.9 million for the three months ended September 30, 2019 and 2018, respectively.

Corporate and Other

This category includes unallocated expenses incurred on behalf of the entire Company.  Corporate and Otherother expenses decreased by $1.0were $6.0 million or 21.1%,for the three months ended September 30, 2019 as compared to $3.7 million from $4.7$5.2 million in the prior year comparable period.  The decreaseAdditional expense was primarily driven by a $1.5 million gain resulting from the saleresult of two properties located in West Palm Beach, Florida on August 14, 2017 and a decreaseincreases in salaries expense of approximately $0.9 million.  Partially offsetting these reductions was a $0.9 million increase inand benefits expense and $0.6 million of additional closed school costs.  The decreasecosts incurred in benefits was attributable to historically lower medical claims in 2016 and the additional closed school costs related to the closure of the Hartford, Connecticut campus on December 31, 2016.  The additional expenses relating to the Hartford Connecticut campus will terminateconnection with the apartment lease which ends in September 2019.evaluation of strategic initiatives intended to increase shareholder value.  No additional costs pertaining to these strategic initiatives will be incurred going forward.

The following table presentspresent results for our three reportable segments for the nine months ended September 30, 20172019 and 2016:2018:

 Nine Months Ended September 30,  Nine Months Ended September 30, 
 2017  2016  % Change  2019  2018  % Change 
Revenue:
                  
Transportation and Skilled Trades $131,169  $131,243   -0.1% 
$
141,005
  
$
135,838
  3.8%
HOPS  55,199   57,030   -3.2%
Healthcare and Other Professions 
58,422
  
52,554
  11.2%
Transitional  8,084   24,718   -67.3%  
-
   
4,695
   -100.0%
Total $194,452  $212,991   -8.7% $199,427  $193,087   3.3%
                     
Operating Income (Loss):
                     
Transportation and Skilled Trades $8,960  $11,916   -24.8% 
$
11,051
  
$
8,747
  26.3%
Healthcare and Other Professions  (1,047)  2,634   -139.7% 
4,214
  
2,747
  53.4%
Transitional  (3,900)  (7,132)  45.3% 
-
  
(2,899
)
 100.0%
Corporate  (16,503)  (17,566)  6.1%  
(20,079
)
  
(18,305
)
  -9.7%
Total $(12,490) $(10,148)  -23.1% $(4,814) $(9,710)  50.4%
                     
Starts:
                     
Transportation and Skilled Trades  6,502   6,686   -2.8% 7,247  7,156  
1.3
%
Healthcare and Other Professions  3,272   3,386   -3.4% 3,368  3,048  
10.5
%
Transitional  132   1,254   -89.5%  -   140   
-100.0
%
Total  9,906   11,326   -12.5%  10,615   10,344   
2.6
%
                     
Average Population:
                     
Transportation and Skilled Trades  6,694   6,723   -0.4% 7,169  6,891  
4.0
%
Healthcare and Other Professions  3,477   3,508   -0.9% 3,581  3,245  
10.4
%
Transitional  574   1,519   -62.2%  -   269   
-100.0
%
Total  10,745   11,750   -8.6%  10,750   10,405   
3.3
%
                     
End of Period Population:
                     
Transportation and Skilled Trades  7,403   7,667   -3.4% 8,055  7,922  
1.7
%
Healthcare and Other Professions  3,957   3,826   3.4% 3,960  3,637  
8.9
%
Transitional  155   1,362   -88.6%  -   173   
-100.0
%
Total  11,515   12,855   -10.4%  12,015   11,732   
2.4
%
Nine Months Ended September 30, 20172019 Compared to Nine Months Ended September 30, 20162018

Transportation and Skilled Trades

Student start results decreased by 2.8% to 6,502 from 6,686starts increased approximately 1.3% for the nine months ended September 30, 2017 as2019 when compared to the prior year comparable period.

Operating income decreasedincreased by $3.0$2.3 million, or 24.8%26.3%, to $9.0$11.1 million for the nine months ended September 30, 20172019 from $11.9$8.8 million in the prior year comparable period mainly driven bydue to the following factors:

·Revenue remained essentially flat at $131.2 million for the nine months ended September 30, 2017 as compared to the prior year comparable period mainly due to a higher carry in population compared to the prior year quarter in addition to a slight increase in revenue per student.  Partially offsetting the increases was a decline in average population of approximately 30 students.
Revenue increased by $5.2 million, or 3.8%, to $141 million for the nine months ended September 30, 2019, as compared to $135.8 million in the prior year comparable period.  The increase in revenue is primarily due to a 4% increase in average student population year over year.
·Educational services and facilities expense decreased by $0.6 million, or 0.9% primarily due to a $1.2 million decrease in facilities expense, partially offset by a $0.6 million increase in instructional and books and tools expense.  Reductions in facilities expense were primarily driven by reduced depreciation expense resulting from fully depreciated assets.  Increases in instructional expenses were due to the launch of a new program at one of our campuses in combination with increased materials costs; and increased expenses for books and tools were due to the timing of the distribution of materials for students starting classes in combination with implementing the use of laptop computers for more of our program curriculums during the quarter.
Educational services and facilities expense increased $0.4 million, or 0.6% to $64.8 million for the nine months ended September 30, 2019, as compared to $64.4 million in the prior year comparable period.  Increased costs are primarily due to $1.4 million of additional instructional expenses and books and tools expense resulting from a higher student population.  Partially offsetting the increases were cost savings of $1.0 million in facilities expense resulting from the successful negotiation of more favorable lease terms at one of our campuses.
·
Selling, general and administrative expense increased by $3.6 million due to (a) $1.3 million of additional bad debt expense resulting from higher past due student accounts, higher account write-offs, and timing of Title IV fund receipts; and (b) $1.4 million increase in sales and marketing expenses.  The increased spending in sales and marketing was part of a strategic effort to attract student enrollments and increase brand awareness.
Selling, general and administrative expense increased $2.7 million, or 4.3%, to $65.4 million for the nine months ended September 30, 2019, from $62.7 million in the prior year comparable period.  Increased expenses were primarily the result of additional bad debt expense driven in part by a larger student population, in combination with a slight deterioration of historical repayment rates.  Further contributing to the additional expense were increases in salaries and benefits expense and increased sales expense and marketing expense.  Additional investment in sales expense and marketing expense are expected to yield continued start growth over the next several quarters.

Healthcare and Other Professions

Student start results decreased by 3.4% to 3,272 from 3,386starts increased 10.5% for the nine months ended September 30, 2017 as2019 when compared to the prior year comparable period.

Operating lossincome increased by $1.5 million, or 53.4%, to $4.2 million for the nine months ended September 30, 2017 was $1.12019 from $2.7 million in the prior year comparable period mainly due to the following factors:

Revenue increased by $5.9 million, or 11.2%, to $58.4 million for the nine months ended September 30, 2019, as compared to operating income of $2.6$52.6 million in the prior year comparable period.  The $3.7 million changeincrease in revenue was mainly driven bydue to a 10.4% increase in average student population, which is attributed to consistent start growth over the following factors:last two years.

·Revenue decreased to $55.2 million for the nine months ended September 30, 2017, as compared to $57.0 million in the prior year comparable quarter.  The decrease in revenue is mainly attributable to two main factors, a decline in average population of approximately 30 students in combination with a 2.4% decline in average revenue per student due tuition decreases at certain campuses and shifts in our program mix.
·Educational services and facilities expense remained essentially flat at $29.9 million for the nine months ended September 30, 2017 as compared to the prior year comparable period.
·
Selling, general and administrative expense increased by $1.9 million primarily resulting from a $1.1 million increase in sales and marketing expense.  The increased marketing initiatives has resulted in a slight improvement in student starts in the adult demographic for the nine months ended September 30, 2017 as compared to the prior comparable period; and a $0.6 million increase in administrative expenses mainly the result of bad debt expense which increased due to higher past due student accounts, higher account write-offs, and timing of Title IV fund receipts.

Transitional

Revenue was $8.1Educational services and facilities expense increased $2.3 million, or 9%, to $28.2 million for the nine months ended September 30, 2017 as compared to $24.72019, from $25.9 million in the prior year comparable period mainly attributableperiod.  The increase in expense was primarily driven by additional instructional expense and books and tools expense due to a 10.4% increase in average student population year over year. Further contributing to the closing of campuses within this segment.increased costs were increases in facilities expense.

Operating loss decreased
Selling, general and administrative expense increased by $3.2$2.1 million, or 8.7%, to $3.9$26.0 million for the nine months ended September 30, 20172019 from $7.1$23.9 million in the prior year comparable period.  The decrease isIncreases in expense were primarily attributable to the closingresult of additional bad debt expense driven in part by a larger student population, in combination with a slight deterioration of historical repayment rates.

Transitional
During the year ended December 31, 2018, one campus, the LCNE campus at Southington, Connecticut was categorized in the Transitional segment.  This campus has been fully taught out as of December 31, 2018 and financial information for this campus has been included in the Transitional segment for the period ending September 30, 2018.  As of September 30, 2019, no campuses within this segmenthave been categorized in the Transitional segment.

Revenue was zero and $4.7 million for the nine months ended September 30, 2019 and 2018, respectively.  Operating loss was zero and $2.9 million for the nine months ended September 30, 2019 and 2018, respectively.

Corporate and Other

This category includes unallocated expenses incurred on behalf of the entire Company.  Corporate and Other expense decreased by $1.1other expenses were $20.1 million or 6.0%,for the nine months ended September 30, 2019 as compared to $16.5 million from $17.6$18.3 million in the prior year comparable period.  The decrease in corporate expensesAdditional expense was primarily driven by a $1.5 million gain resulting from the saleresult of two properties located in West Palm Beach, Florida on August 14, 2017 and a decreaseincreases in salaries expense of approximately $2.7 million.  Partially offsetting these reductions was a $2.1 million increase inand benefits expense and $1.2 million of additional closed school costs.  The increasecosts incurred in benefits was attributable to historically lower medical claims in 2016 and the additional closed school costs related to the closure of the Hartford, Connecticut campus on December 31, 2016.  The additional expenses relating to the Hartford Connecticut campus will terminateconnection with the apartment lease which ends in September 2019.evaluation of strategic initiatives intended to increase shareholder value.  No additional costs pertaining to these strategic initiatives will be incurred going forward.

LIQUIDITY AND CAPITAL RESOURCES
Our primary capital requirementsexpenditures are for facilities expansion and maintenance, and the development of new programs. Our principal sources of liquidity have been cash provided by operating activities and borrowings under our credit facility.  The following chart summarizes the principal elements of our cash flow:flow for each of the nine months ended September 30, 2019 and 2018:

 
Nine Months Ended
September 30,
  
Nine Months Ended
September 30,
 
 2017  2016  2019  2018 
Net cash used in operating activities $(16,607) $(9,513) 
$
(4,893
)
 
$
(5,816
)
Net cash provided by (used in) investing activities  10,897   (643)
Net cash used in investing activities
 
(3,061
)
 
(1,869
)
Net cash used in financing activities  (8,077)  (9,024) 
(22,238
)
 
(28,866
)

AtAs of September 30, 2017,2019, the Company had $14.5a net debt balance of $11.4 million of cash, cash equivalents and restricted cash (which includes $7.2 million of restricted cash) as compared to $47.7a net debt balance of $3.4 million of cash, cash equivalents and restricted cash (which included $26.7 million of restricted cash) as of December 31, 2016.  This2018.  The decrease is primarilyin cash position can mainly be attributed to the resultrepayment of $27.2 million in borrowings under our line of credit facility; a net loss during the nine months ended September 30, 2017; repayment of $44.3 million under our previous term loan facility2019; and seasonality of the business.  Management believes that the Company has adequate resources in place to execute its 2019 operating plan.

For the last several years, the Company and the proprietary school sector generally have faced deteriorating earnings growth. Government regulations have negatively impacted earnings by making it more difficult for prospective students to obtain loans, which when coupled with the overall economic environment have hindered prospective students from enrolling in our schools. In light of these factors, we have incurred significant operating losses as a result of lower student population.  Despite these events,However, our financial and population results continue to improve as evidenced by our start growth for the last two years.  As a result, we believe that our likely sources of cash should be sufficient to fund operations for the next twelve months and thereafter for the foreseeable future.

To fund our business plans, including any anticipated future losses, purchase commitments, capital expenditures and principal and interest payments on borrowings, we leveraged our owned real estate. We are also continuing to take actions to improve cash flow by aligning our cost structure to our student population.population, 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 various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses. The most significant source of student financing is Title IV programsPrograms, which represented approximately 79%78% of our cash receipts relating to revenues in 2016.2018. Pursuant to applicable regulations, students must apply for a new loan for each academic period. Federal regulations dictate the timing of disbursements of funds under Title IV programsPrograms and loan funds are generally provided by lenders in two disbursements for each academic year. The first disbursement is usually received approximately 31 days after the start of a student’s academic year and the second disbursement is typically received at the beginning of the sixteenth week from the start of the student'sstudent’s academic year. Certain types of grants and other funding are not subject to a 31-day delay.  In certain instances, if a student withdraws 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. Any reduction 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 funds would have a significant impact on our operations and our financial condition.  See “Risk Factors” in Item 1A of ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2018.

Operating Activities

Net cash used in operating activities was $16.6$4.9 million for the nine months ended September 30, 20172019 compared to $9.5$5.8 million forin the prior year comparable period of 2016.period.  The increasedecrease in cash used in operating activities infor the nine months ended September 30, 20172019 as compared to the nine months ended September 30, 20162018 is primarily due to an increased net loss as well asa decrease in operating losses and changes in other working capital such as accounts receivable, accounts payable, accrued expenses and unearned tuition.tuition year over year.
Investing Activities

Net cash provided byused in investing activities was $10.9$3.1 million for the nine months ended September 30, 20172019 compared to cash used of $0.6$1.9 million in the prior year comparable period.  OurThe increase was primarily caused by proceeds received from the sale of the Mangonia Park Property in the prior year partially offset by reduced spending for capital expenditures.

One of our primary useuses of cash in investing activities was capital expenditures associated with investments in training technology, classroom furniture, and new program buildouts.
 
We currently lease a majority of our campuses. We own our schools in Grand Prairie, Texas; Nashville, Tennessee; and Denver, Colorado and our buildings in West Palm Beach, Florida; and Suffield, Connecticut.

On August 14, 2017, the Company completed the saleproperty owned as part of two of three propertiesa former school located in West Palm Beach Florida resulting in cash inflows of $15.5 million.Suffield, Connecticut.

Capital expenditures are expected to approximate 2% of revenues in 2017.2019.  We expect to fund future capital expenditures with cash generated from operating activities, borrowings under our revolving credit facility, and cash from our real estate monetization.

Financing Activities

Net cash used in financing activities was $8.1 million as compared to net cash used of $9.0$22.2 million for the nine months ended September 30, 2017 and 2016, respectively.2019 as compared to $28.9 million in the prior year comparable period.    The decrease of $0.9$6.7 million was primarily due to three main factors: (a)decreased net payments on borrowingborrowings of $6.5 million; (b) $2.9$22.1 million in lease termination fees paidfor the nine months ended September 30, 2019 as compared to $28.4 million in the prior year; and (c) the reclassification of $5 million in restricted cash in the prior year.year comparable period.

Net payments on borrowings consisted of: (a) total borrowing to date under our secured revolving credit facility of $38.0 million; (b) reclassification of payments of borrowing from restricted cash of $20.3$5 million; and (c) $64.8(b) $27.1 million in total repayments made by the Company.

March 31, 2017 Credit Agreement

On March 31, 2017, the Company entered intoobtained a secured revolving credit agreementfacility (the “Credit Agreement”Facility”) withfrom Sterling National Bank (the “Bank”) pursuant to whicha Credit Agreement dated March 31, 2017 among the Company, obtained a credit facility in the aggregate principal amount of up to $55 million (theCompany’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 Facility”Agreement”).  ThePrior to the most recent amendment of the Credit Facility consistsAgreement (the “Fourth Amendment”), the financial accommodations available to the Company under the Credit Agreement consisted of (a) a $30 million loan facility (“Facility 1”), which is comprised of a $25 million revolving loan facility designated as “Tranche A” and a $5 million non-revolving loan designated as “Tranche B,” which Tranche B was repaid during the quarter ended June 30, 2017 and“Facility 1”, (b) a $25 million revolving loan facility (“Facility 2”), which includes(including a sublimit amount for letters of credit of $10 million.  The Credit Facility replacesmillion) designated as “Facility 2” and (c) a term$15 million revolving credit loan facility (the “Prior Credit Facility”) which was repaid and terminated concurrently with the effectiveness of the Credit Facility.  The term of the Credit Facility is 38 months, maturing on May 31, 2020.designated as “Facility 3”.

The Credit Facility is secured by a first priority lien in favor of the Bank on substantially all of the personal property owned by the Company as well as mortgages on four parcels of real property owned by the Company in Connecticut, Colorado, Tennessee and Texas at which four of the Company’s schools are located.
At the closing of the Credit Facility, the Company drew $25 million under Tranche A of Facility 1, which, pursuantPursuant to the terms of the Credit Agreement,Fourth Amendment and upon its effectiveness, Facility 1 was used to repayconverted into a term loan (the “Term Loan”) in the Prior Creditoriginal principal amount of $22.7 million (such amount being the entire unpaid principal and accrued interest outstanding under Facility and to pay transaction costs associated with closing the Credit Facility.  After the disbursements of such amounts, the Company retained approximately $1.8 million1 as of the borrowedeffective date of the Fourth Amendment), which matures on March 31, 2024 (the “Term Loan Maturity Date”).  The Term Loan is being repaid 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 for working capital purposes.
Also, at closing, $5of $0.2 million  was drawnplus accrued interest; (c) on January 1, 2020 and on the same day of each month thereafter through and including June 30, 2020, accrued interest 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 $0.6 million plus accrued interest; (e) on January 1, 2021 and on the same day of each month thereafter through and including June 30, 2021, accrued interest 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 $0.4 million plus accrued 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 July 1, 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 on the same day of each month thereafter through and including December 31, 2023, the principal amount of $0.4 million plus accrued interest; (k)  on January 1, 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 Loan Maturity Date, the remaining outstanding principal 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 permitted under Tranche B and, pursuant to the terms of the Credit Agreement, was deposited into an interest-bearing pledged account (the “Pledged Account”) in the name25% of the Company maintained at the Bank in order to secure payment obligations of the Company with respect to the costs of remediationnet proceeds of any environmental contamination discovered at certain of the mortgaged properties based upon environmental studies undertaken at such properties. During the quarter ended June 30, 2017, the environmental studies were completed and revealed no environmental issues existing at the properties.  Accordingly, pursuant to the terms of the Credit Agreement, the $5 million in the Pledged Account was released andsale must be used to repaypay down the non-revolving loan outstanding under Tranche B.  Upon the repayment of Tranche B, the maximum principal amount of the Term Loan in inverse order of maturity.

The maturity date of Facility 1 was permanently reduced to $25 million.2 is April 30, 2020.  Facility 3 matured on May 31, 2019, unused, and is no longer available for borrowing.

Pursuant toUnder the terms of the Credit Agreement, all draws under Facility 2 for letters of credit or revolving loans must be secured by cash collateral in an amount equal to 100% of the aggregate stated amount of the letters of credit issued and revolving loans outstanding through draws from Facility 1the proceeds of the Term Loan or other available cash of the Company.
Accrued interest on each  Notwithstanding such requirement, pursuant to the terms of the Fourth Amendment, a $2.5 million revolving loan will be payablewas advanced under Facility 2 at the closing of the Fourth Amendment on March 6, 2019 and an additional $1.25 million on both April 17, 2019 and July 26, 2019, respectively, without any requirement for cash collateral.  The $5 million in revolving loans advanced under Facility 2 was repaid on November 1, 2019, as required by the Credit Agreement, and, prior to their repayment, the Company made monthly in arrears.  Revolving loans under Tranche Apayments of Facility 1 will bearaccrued interest only on such revolving loans.

The Term Loan bears interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.50%2.85% and (y) 6.00%.  The amount borrowed under Tranche B of Facility 1 and revolvingRevolving 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’s prime rate and (y) 3.50%.  Pursuant to the Fourth Amendment, 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%. 

The Bank is entitled to receive an unused facility fee on the average daily unused balance of Facility 2 at a rate per annum equal to 0.50%, which fee is payable quarterly in arrears.

In the event the Bank’s prime rate is greater than or equal to 6.50% while any loans are outstanding, the Company may be required to enter into a hedging contract in form and content satisfactory to the Bank.

The Company is required to give the Bank the first opportunity to provide any and all traditional banking services required by the Company, including, but not limited to, treasury management, loans and other financing services, on terms mutually acceptable to the Company and the Bank, in accordance with the terms set forth in the Fourth Amendment.  In the event that loans provided under the Credit Agreement are repaid through replacement financing, the Company must pay to the Bank an exit fee in an amount equal to 1.25% of the total amount repaid and 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 the event 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 Company 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 bearing cash collateral account at and by the Bank as additional collateral for the loans outstanding under the Credit Agreement, were applied to the outstanding principal balance of revolving loans outstanding under Facility 1 and, as a result of such repayment, the loan availability under Facility 1 was permanently reduced to a $22.7 million term loan.

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 mortgages on four parcels of real property owned by the Company in Colorado, Tennessee and Texas, at which three of the Company’s schools are located, as well as a former school property owned by the Company located in Connecticut.

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 daily amount available to be drawn under the letter of credit, which fee shall be payable in quarterly installments in arrears.  Letters of credit totaling $7.2$6.2 million that 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 to mature on April 1, 2017, are treated as letters of credit under Facility 2.

The terms of the Credit Agreement provide thatrequire the Bank be paid an unused facility fee on the average daily unused balance of Facility 1 at a rate per annum equal to 0.50%, which fee is payable quarterly in arrears.  In addition, the Company is required to maintain, on deposit in one or more non-interest bearing accounts, a minimum of $5 million in quarterly average aggregate balances.  If in any quarter the required average aggregate account balance isbalances, which, if not maintained, the Company is required to pay the Bankresults in a fee of $12,500 payable to the Bank for that quarter and, in the event that the Company terminates the Credit Facility or refinances with another lender within 18 months of closing, the Company is required to pay the Bank a breakage fee of $500,000.quarter.

In addition to the foregoing, the Credit Agreement contains customary representations, warranties and affirmative and negative covenants, including financial covenants that restrict capital expenditures, prohibit the incurrence of a net loss commencing on December 31, 2018 and require a minimum adjusted EBITDA and a minimum tangible net worth, which is an annual covenant, as well ascovenants.  The Credit Agreement also contains events of default customary for facilities of this type.  As of September 30, 2017,2019, the Company is in compliance with all covenants.covenants, including financial covenants that (i) restrict capital expenditures tested on a fiscal year end basis; (ii) 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 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 adjusted EBITDA ratio tested quarterly on a rolling twelve month basis.

 
In connection with the Credit Agreement, the Company paid the Bank an origination fee in the amount of $250,000 and other fees and reimbursements that are customary for facilities of this type.
The Company incurred an early termination premium of approximately $1.8 million in connection with the termination of the Prior Credit Facility.
On April 28, 2017, the Company entered into an additional secured credit agreement with the Bank, pursuant to which the Company obtained a short term loan in the principal amount of $8 million, the proceeds of which were used for working capital and general corporate purposes.  The loan, which had an interest rate equal to the greater of the Bank’s prime rate plus 2.50% or 6.00%, was secured by real property assets located in West Palm Beach, Florida at which schools operated by the Company were located and matured upon the earlier of October 1, 2017 and the date of the sale of the West Palm Beach, Florida property.  The Company sold two of three properties located in West Palm Beach, Florida to Tambone in the third quarter of 2017 and subsequently repaid the $8 million.
As of September 30, 2017,2019, the Company had $17.5$27.1 million outstanding under the Credit Facility; offset by $0.8$0.3 million of deferred finance fees.  As of December 31, 2016,2018, the Company had $44.3$49.3 million outstanding under the Prior Credit Facility;Facility, offset by $2.3$0.5 million of deferred finance fees, which were written-off.  As of September 30, 20172019 and December 31, 2016, there were2018, letters of credit in the aggregate outstanding principal amount of $7.2$4.0 million and $6.2$1.8 million, respectively.  As of September 30, 2017, there are no revolving loansrespectively, were outstanding under Facility 2.the Credit Facility.

The following table sets forth our long-term debt (in thousands):

  
September 30,
2017
  
December 31,
2016
 
Credit agreement $16,721  $- 
Term loan  -   44,267 
   16,721   44,267 
Less current maturities  -   (11,713)
  $16,721  $32,554 
  
September 30,
2019
  
December 31,
2018
 
Credit agreement and term loan
 
$
27,133
  
$
49,301
 
Auto loan
  
46
   
-
 
Deferred financing fees
  
(277
)
  
(532
)
   
26,902
   
48,769
 
Less current maturities
  
(7,117
)
  
(15,000
)
  
$
19,785
  
$
33,769
 

As of September 30, 2017,2019, we had outstanding loan commitments to our students of $46.9$71.5 million, as compared to $40.0$63.1 million at December 31, 2016.  Loan commitments, net of interest that would be due on the loans through maturity, were $34.9 million at September 30, 2017, as compared to $30.0 million at December 31, 2016.2018. 
 
Contractual Obligations

Long-term Debt.  As of September 30, 2017,2019, our current portion of long-term debt and our long-term debt consisted of borrowings under our Credit Facility.Facility and an auto loan.

Lease Commitments.  We lease offices, educational facilities and equipment for varying periods through the year 2030 at base annual rentals (excluding taxes, insurance, and other expenses under certain leases).
The following table contains supplemental information regarding our total contractual obligations as of September 30, 20172019 (in thousands):

 Payments Due by Period  Payments Due by Period 
 Total  
Less than
1 year
  1-3 years  3-5 years  
More than
5 years
  Total  
Less than
1 year
  1-3 years  3-5 years  
More than
5 years
 
Credit facility $17,500  $-  $-  $17,500  $- 
Credit facility and term loan
 
$
27,133
  
$
7,270
  
$
5,108
  
$
14,755
  
$
-
 
Operating leases  83,394   19,506   31,246   15,723   16,919   
66,349
   
14,982
   
22,467
   
13,290
   
15,610
 
Total contractual cash obligations $100,894  $19,506  $31,246  $33,223  $16,919  
$
93,482
  
$
22,252
  
$
27,575
  
$
28,045
  
$
15,610
 

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of September 30, 2017,2019, except for surety bonds.  As of September 30, 2017,2019, we posted surety bonds in the total amount of approximately $14.3$12.7 million.  Cash collateralized letters of credit of $7.2$4.0 million are primarily comprised of letters of credit for the DOE and security deposits in connection with certain of our real estate leases. These off-balance sheet arrangements do not adversely impact our liquidity or capital resources.

Seasonality and Outlook

Seasonality

Our 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 student populations 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 the year. Our second half growth is largely dependent on a successful high school recruiting season. We recruit our high school students several months ahead of their scheduled start dates and, thus, while we have visibility on the number of students who have expressed interest in attending our schools, we cannot predict with certainty the actual number of new student enrollments and the related impact on revenue. Our expenses, however, typically do not vary significantly over the course of the year with changes in our student population and revenue. During the first half of the year, we make significant investments in marketing, staff, programs and facilities to meet our second half of the year targets and, as a result, such expenses do not fluctuate significantly on 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 results could be negatively impacted. We expect quarterly fluctuations in operating results to continue as a result of seasonal enrollment patterns. Such patterns may change as a result of new school openings, new program introductions, and increased enrollments of adult students and/or acquisitions.

Outlook

SimilarOur nation is a facing a skills gap caused by technological, demographic and policy changes. Technology is permeating every industry and job and necessitating retraining of the existing workforce in order to many companies inkeep them productive and engaged.  At the proprietary education sector, we have experienced significant deterioration in student enrollments oversame time, the last several years. This can be attributed to many factors including the economic environment and numerous regulatory changes such as changes to admissions advisor compensation policies, elimination of “ability-to-benefit,” changes to the 90/10 Rule and cohort default rates, gainful employment and modifications to Title IV 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 our potential student base entering the workforce earlier without obtaining any post-secondary training. Offsetting this short term decline in available students is the fact that an increasing number of individuals in the “baby boom” generation are retiring from the workforce.  The retirement of baby boomers coupled within large numbers is forcing companies to look for replacement employees.  Unfortunately, there are not enough new skilled employees to replace the retiring ones.  A major reason for this shortfall is caused by the reduction of career education in many high schools starting in the 1980’s as policy makers decided more students needed to attend college and resources and programs were steered in that direction.  Consequently, today there are more job openings than qualified people to fill the jobs.  This problem presents a great opportunity for our Company and one we proudly seek to remedy.

Traditionally, our enrollments decline in a low unemployment environment.  However, for the last seven quarters, we have achieved growth despite declining unemployment levels. We attribute this growth to both better marketing of our high return on investment programs and a growing economy has resulted in additional employers lookingawareness that four year post-secondary degrees along with their high costs may not be the best option for everyone. By partnering with industry and increasing our advertising spend, we expect to continue to grow awareness of our schools  and increase our enrollments as we seek to eliminate the skills gap.  Employers are reaching out to us seeking to help solveemploy our graduates.  Like the economy in general, we have more job requests from employers than graduates to fill them.

Furthermore, when the economy slows down, we expect that our enrollments will also increase as more people are displaced from the workforce and need to acquire skills to find employment.

Pending DOE Determination Letters

On October 11, 2019, the DOE issued a preliminary audit determination letter to our Columbia and Indianapolis institutions in connection with the annual Title IV compliance audit for each institution for the 2018 fiscal year. The DOE requested that each of the two institutions conduct a file review of all students from the 2018 fiscal year to identify if any additional unearned federal student aid funds must be returned by the institution. We are in the process of preparing the required file reviews for submission to the DOE. After the file reviews are submitted, the DOE is expected to issue a final audit determination for both institutions in which it would assess any liabilities and identify any other required actions or sanctions, if necessary. We have the right to appeal any asserted liabilities under an administrative appeal process within the DOE.

On October 9, 2019, the DOE issued a final audit determination letter in connection with Lincoln College of New England (“LCNE”), which closed on December 31, 2018. The DOE asserts $62,848 in liabilities related to the DOE’s discharge of the Federal Direct loans of certain LCNE students. The DOE contends that students who are enrolled in an institution at the time of its closure or who withdrew from the institution within 120 days preceding its closure may qualify for a discharge of their workforce needs.  With schoolsFederal student loans if they are unable to complete their program because of the institution’s closure. The DOE also contends that it has the authority to recover the cost of the closed school loan discharges from an institution and to impose additional liabilities if the DOE discharges loans for other LCNE students in the future.  We have the right to appeal the liabilities under an administrative appeal process within the DOE.

The DOE may grant closed school loans discharges of Federal student loans based upon applications by qualified students.   The DOE also may initiate discharges on its own for students who have not reenrolled in another Title IV eligible school within three years after the closure and who attended campuses that closed on or after November 1, 2013 as did some of our former campuses.  If the DOE discharges some or all of these loans, the DOE may seek to recover the cost of the loan discharges from us. We have the right to appeal any asserted liabilities under an administrative appeal process within the DOE. We cannot predict the timing or amount of any loan discharges that the DOE may approve or the liabilities that the DOE may seek from us. We also cannot predict the timing or potential outcome of any administrative appeals of any such liabilities.

Borrower Defense to Repayment Regulations Update

The DOE published borrower defense to repayment regulations on November 1, 2016 (“2016 Final Regulations”) with an effective date of July 1, 2017, but subsequently delayed the effective date of a majority of the regulations until July 1, 2019, to ensure there would be adequate time to conduct negotiated rulemaking and, as necessary, develop revised regulations.  However, a federal court ruled that the delay in the effective date of the regulations was unlawful and, on October 16, 2018, denied a request to extend a stay preventing the regulations from taking effect.  The regulations are described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 under the caption “Regulatory Environment – Borrower Defense to Repayment Regulations.”

On March 15, states, we2019, the DOE published an electronic announcement with guidance regarding how the DOE is implementing the 2016 Final Regulations, including, among other things, the provisions regarding the processes for enabling borrowers to obtain from the DOE a discharge of some or all of their federal student loans based on circumstances involving the institution and for the DOE to impose and collect liabilities against the institution following the loan discharges, the prohibition on certain contractual provisions regarding arbitration, dispute resolution, and participation in class actions, and the requirement to submit certain arbitral and judicial records to the DOE in connection with certain proceedings concerning borrower defense claims.  The DOE also stated that it would provide guidance at a later date about providing repayment warnings to students in the future and disclosures to students regarding the occurrence of certain financial events, actions, or conditions.

The DOE also provided guidance regarding the requirement to notify the DOE within specified timeframes of the occurrence of any of a list of events, actions or conditions that occur on or after July 1, 2017.  The DOE stated in the electronic announcement that it recognized that some institutions may have been uncertain about how to comply with these requirements in light of the delays and court orders regarding the effective date of the 2016 Final Regulations.  The DOE guidance generally gives institutions a 60-day period commencing from the date of the electronic announcement to send notifications of events, actions, or conditions that, with certain exceptions, occurred between the July 1, 2017 effective date of the 2016 Final Regulations and the date of the electronic announcement.  Institutions have an ongoing obligation under the 2016 Final Regulations to notify the DOE of subsequent events, actions or conditions that are triggering circumstances in the regulations.  See our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 under the caption “Regulatory Environment – Financial Responsibility Standards.”

The DOE published proposed regulations on July 31, 2018 that would modify the defense to repayment regulations.  On September 23, 2019, the DOE published the final regulations which have a very attractive employment solutiongeneral effective date of July 1, 2020.  The current regulations generally will remain in effect until the new regulations generally take effect on July 1, 2020.

Among other things, the new regulations amend the processes for large regionalborrowers to receive from ED a discharge of the obligation to repay certain Title IV loans first disbursed on or after July 1, 2020 based on certain acts or omissions by the institution or a covered party.  The regulations establish detailed procedures and national employers.standards for the loan discharge processes, including the information required for borrowers to receive a loan discharge, and the authority of the DOE to seek recovery from the institution of the amount of discharged loans.

The regulations also modify the list of triggering events that could result in the DOE determining that the institution lacks financial responsibility and must submit to the DOE a letter of credit or other form of acceptable financial protection and accept other conditions on the institution’s Title IV eligibility.  The regulations create lists of mandatory triggering events and discretionary triggering events.  An institution is not able to meet its financial or administrative obligations if a mandatory triggering event occurs.  The mandatory triggering events include:

the institution’s recalculated composite score is less than 1.0 as determined by the DOE as a result of an institutional liability from a settlement, final judgment, or final determination in an administrative or judicial action or proceeding brought by a Federal or State entity;
the institution’s recalculated composite score goes from less than 1.5 to less than 1.0 as determined by the DOE as a result of a withdrawal of owner’s equity from the institution;
the SEC takes certain actions against the institution or the institution fails to comply with certain filing requirements; or
the occurrence of two or more discretionary triggering events (as described below) within a certain time period.

The DOE also may determine that an institution lacks financial responsibility if one of the following discretionary triggering events occurs and the event is likely to have a material adverse effect on the financial condition of the institution:

a show cause or similar order from the institution’s accrediting agency that could result in the withdrawal, revocation or suspension of institutional accreditation;
a notice from the institution’s state licensing agency of an intent to withdraw or terminate the institution’s state licensure if the institution does not take steps to comply with state requirements;
a default, delinquency, or other event occurs as a result of an institutional violation of a security or loan agreement that enables the creditor to require an increase in collateral, a change in contractual obligations, an increase in interest rates or payment, or other sanctions, penalties or fees;
a failure to comply with the 90/10 rule during the institution’s most recently completed fiscal year;
high annual drop-out rates from the institution as determined by the DOE; or
official cohort default rates of at least 30 percent for the two most recent years unless a pending appeal could sufficiently reduce one of the rates.

The regulations require the institution to notify the DOE of the occurrence of a mandatory or discretionary triggering event and to provide certain information to the DOE to demonstrate why the event does not establish the institution’s lack of financial responsibility or require the submission of a letter of credit or imposition of other requirements.

The final regulations also will eliminate the current regulations regarding loan repayment rate warning requirements and generally will permit the use of arbitration clauses and class action waivers while requiring institutions to make certain disclosures to students.

Negotiated Rulemaking Update

On October 15, 2018, the DOE published a notice in the Federal Register announcing its intent to establish a negotiated rulemaking committee and three subcommittees to develop proposed regulations related to several matters that are described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 under the caption “Regulatory Environment – Negotiated Rulemaking.”  The DOE released draft proposed regulations for consideration and negotiation by the negotiated rulemaking committee and subcommittee that covered additional topics and made additional revisions and updates to the draft proposed regulations prior to subsequent meetings of the committee and subcommittees in early 2019.  The committee and subcommittees completed their meetings in April 2019 and reached consensus on draft proposed regulations.  On June 12, 2019, the DOE published proposed regulations on some of the topics in a notice of proposed rulemaking in the Federal Register for public comment and to consider revisions to the regulations in response to the comments before publishing the final versions of the regulations.  The DOE stated that it intends to publish proposed regulations on the remaining issues in a separate notice of proposed rulemaking, but did not indicate when it would publish those proposed changes.  On November 1, 2019, the DOE published the final regulations.  The regulations have a general effective date of July 1, 2020.  We are in the process of analyzing the new regulations and their potential impact on us and our institutions.

To fund our business plans, including any anticipated future losses, purchase commitments, capital expenditures, principal and interest payments on borrowings and to satisfy the DOE financial responsibility standards, we have entered into a new credit facility as described above and continue to have the ability 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 our student population.

Regulatory Update
On April 26, 2013, the DOE notified our Union, New Jersey campus that an on-site Program Review was scheduled to begin on May 20, 2013.  The Program Review assessed the institution’s administration of Title IV Programs in which the campus participated for the 2011-2012 and 2012-2013 awards years.  On September 29, 2017, the DOE issued its Final Program Review Determination (“FPRD”) that closed the review and indicated that the DOE had determined the Company’s financial liability to the DOE resulting from the FPRD to be $175, which amount has been paid by the Company to the DOE.
Cohort Default Rates

In September 2017, the DOE released the final cohort default rates for the 2014 federal fiscal year.  These are the most recent final rates published by the DOE.  The rates for our existing institutions for the 2014 federal fiscal year range from 5.2% to 13.6%.  None of our institutions had a cohort default rate equal to or greater than 30% for the 2014 federal fiscal year.

Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks as part of our on-going business operations.  On March 31, 2017, the Company repaid in full and terminated a previously existing term loan with the proceeds of a new revolving credit facility provided by Sterling National Bank in an aggregate principal amount of up to $50 million, which revolving credit facility is referred to in this report as the “Credit Facility.”  Our obligations under theour Credit Facility are secured by a lien on substantially all of our assets and any assets that we or our subsidiaries may acquire in the future. Outstanding borrowings under theour Credit Facility bear interest at the rate of 6.75%7.85% as of September 30, 2017.2019.  As of September 30, 2017,2019, we had $17.5$27.1 million outstanding under theour Credit Facility.Facility.

Based on our outstanding debt balance as of September 30, 2017,2019, a change of one percent in the interest rate would have caused a change in our interest expense of approximately $0.2 million, or $0.01 per basic share, on an annual basis.  Changes in interest rates could have an impact on our operations, which are greatly dependent on our students’ ability to obtain financing and, as such, any increase in interest rates could greatly impact our ability to attract students and have an adverse impact on the results of our operations. The remainder of our interest rate risk is associated with miscellaneous capital equipment leases, which is not significant.

Item 4.
CONTROLS AND PROCEDURES

(a)   Evaluation of disclosure controls and procedures.  Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of the end of the quarterly period covered by this report, have concluded that our disclosure controls and procedures are adequate and effective to reasonably ensure that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s Rulesrules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
 
(b) Changes in Internal Control Over Financial Reporting.  There were no changes made during our most recently completed fiscal quarter in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.
LEGAL PROCEEDINGS

Information regarding certain specific legal proceedings in which the Company is involved is contained in Part I, Item 3 and in Note 14 to the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.  Unless otherwise indicated in this report, all proceedings discussed in the earlier report which are not indicated therein as having been concluded, remain outstanding as of September 30, 2017.

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

Information regarding certain specific legal proceedings in which the Company is involved is contained in Part II, Item 1, and in Note 9 to the notes to the condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.  Unless otherwise indicated in this report, all proceedings discussed in the earlier report which are not indicated therein as having been concluded, remain outstanding as of September 30, 2019.

As previously reported, on July 6, 2018, the Company received an administrative subpoena from the Office of the Attorney General of the State of New Jersey (“NJ OAG”).  Pursuant to the subpoena, the NJ OAG requested certain documents and detailed information relating to the November 21, 2012 Civil Investigative Demand letter addressed to the Company by the Massachusetts Office of the Attorney General (“MOAG”) that resulted in a previously reported Final Judgment by Consent between the Company and the MOAG dated July 13, 2015.  The Company responded to this request and, by letter dated April 11, 2019, the NJ OAG issued a supplemental subpoena requesting additional information for the time period from April 11, 2014 to the present.  The Company submitted its response to the supplemental subpoena.  Subsequently, by email dated August 20, 2019, the NJ OAG requested additional records of the Company from the years 2012 and 2013.  The Company has responded to the NJ OAG’s most recent record request and is continuing to cooperate with the NJ OAG.

Item 5.
OTHER INFORMATION

(a)
(1) On November 8, 2017, the Company entered into a new employment agreement with Scott M. Shaw, the Company’s President and Chief Executive Officer, pursuant to which Mr. Shaw will continue to serve in such positions (the “Shaw Employment Agreement”). Mr. Shaw also serves as and will remain a member  Sale of the Board of Directors of the Company. The Shaw Employment Agreement, the full text of which is filed as Exhibit 10.2 to this Quarterly Report on 10-Q and is incorporated herein by reference, replaces Mr. Shaw’s prior employment agreement with the Company, which would have expired by its terms on December 31, 2017.Series A Convertible Preferred Stock

On November 14, 2019, the Company raised gross proceeds of $12,700,000 from the sale of 12,700 shares of its newly designated Series A Convertible Preferred Stock, no par value per share (the “Series A Preferred Stock”).  The termSeries A Preferred Stock was designated by the Company’s board of directors (“the Board”) pursuant to a certificate of amendment (“Charter Amendment”) to the Company’s amended and restated certificate of incorporation.  The summaries of the Shaw Employment Agreement commenced onagreements and documents below are qualified in their entirety by the actual agreements and documents which are Exhibits to this Report.

Securities Purchase Agreement.
The Series A Preferred Stock was sold by the Company pursuant to a Securities Purchase Agreements dated as of November 8, 201714, 2019 (the “SPA”), among the Company, Juniper Targeted Opportunity Fund, L.P. and will expire on December 31, 2018, unless sooner terminated in accordanceJunior Targeted Opportunities, L.P. (together, “Juniper”) and another investor party thereto (such investors, together with its terms. DuringJuniper, the term“Investors”). The proceeds of the Shaw Employment Agreement, Mr. Shawsale net of transaction expenses will continue to receive an annual base salary of $500,000, an annual performance bonus based upon achievement of performance targetsbe used for working capital or other criteria as determinedgeneral corporate purposes.

The SPA contains customary representations, warranties and covenants including covenants relating to, among other things, the increase of the size of the Company’s Board  and the appointment of a director to be selected solely by the holders of the Series A Preferred Stock, who shall initially be John A. Bartholdson, an affiliate of Juniper.  In connection with Mr. Bartholdson’s appointment to the Company’s Board of Directors, or its Compensation Committeehe and a Company-owned vehicle, as well as insurance, maintenance, fuelthe Company entered into an indemnification agreement with the Company.  The Company and each of the other costs associated with such vehicle.members of the Board and each of the Company’s executive officers also entered into indemnification agreements, the form of which is an Exhibit to this Report.

UnderRights and Preferences of the Series A Preferred Stock.  The description below provides a summary of certain material terms of the Shaw Employment Agreement,Series A Preferred Stock issued pursuant to the SPA and set forth in the Charter Amendment.
Dividends. Dividends on the Series A Preferred Stock (“Series A Dividends”), at the initial annual rate of 9.6% is to be paid, in advance, from the date of issuance quarterly on each December 31, March 31, June 30 and September 30 with September 30, 2020 as the first dividend payment date.  The Company, at its option, may pay dividends in cash or by increasing the number of Conversion Shares issuable upon conversion of the Series A Preferred Stock.  The dividend rate is subject to increase (a) 2.4% per annum on the fifth anniversary of the issuance of the Series A Preferred Stock  (b) by 20% per annum but in no event above 14% per annum should the Company may terminate Mr. Shaw’s employmentfail to perform certain obligations under the Charter Amendment.

Series A Preferred Stock Holders Right to Convert into Common Stock.  Each share of Series A Preferred Stock, at any time, with or without Cause and Mr. Shaw may resign from his employment at any time, with or without Good Reason (in each case as such terms are defined in the Shaw Employment Agreement). In the event that Mr. Shaw’s employment should be terminated by the Company without Cause or by Mr. Shaw’s resignation for Good Reason, in addition to his right to receive paymentis convertible into a number of all accrued and unpaid compensation and benefits due to him through the dateshares of termination of employment, subject to Mr. Shaw’s execution of a release in favor of the Company and its subsidiaries and affiliates, Mr. Shaw would be entitled to receive a lump sum payment on the 60th day following termination of employmentCommon Stock equal to (a) two times(“Convertible Formula”) the quotient of (i) the sum of (i) his annual base salary and(A) $1,000 (subject to adjustment as provided in the Charter Amendment)  plus (B) the dollar amount of any declared Series A Dividends not paid in cash divided by (ii) the target amountSeries A Conversion Price (as defined and adjusted in the Charter Amendment) as of the annual performance bonus for him in the year in which the termination of employment occurs, (b) all outstanding reasonable travel and other business expenses incurred through the date of termination and (c) the estimated employer portion of premiums that would be necessary to continue Mr. Shaw’s coverage under the Company’s healthcare plan until the first anniversary of the date of termination (subject to proration should Mr. Shaw become insured under a subsequent healthcare plan). In addition, Mr. Shaw would be entitled to receive a prorated portion of his annual bonus for the year of termination, which prorated annual bonus would be paid in a lump sum on the date that bonuses for the year in which the termination occurs are paid generally to the Company’s senior executives.

The Shaw Employment Agreement further provides that, upon a Change in Control of the Companyapplicable Conversion Date (as defined in the Shaw Employment Agreement), (a)Charter Amendment). The initial Conversion Price is $2.36.  At all times, however, the termnumber of Conversion Shares that can be issued to any Series A Preferred Stock Holder may not result in such holder and its affiliates owning more than 19.99% of the Shaw Employment Agreement willtotal number of shares of Common Stock outstanding after giving effect to the conversion (the “Hard Cap”), unless prior stockholder approval is obtained or no longer required by the rules of the principal stock exchange on which the Company’s Common Stock trade.
Mandatory Conversion. If, at any time following November 14, 2022, the volume weighted average price of the Company’s Common Stock equals or exceeds 2.25 times the Conversion  Price  for a period of 20 consecutive trading days and on each such trading day at least 20,000 shares of Common Stock was traded, the Company may, at its option and subject to the Hard Cap, require that any or all of the then outstanding shares of Series A Preferred Stock be automatically extended for an additional two-year term commencing onconverted into shares of  Common Stock at the date of the Change in Control and ending on the second anniversary of the date of the Change in Control and (b) all outstanding restricted stock and stock options held by Mr. Shaw will vest in full and all stock options will become immediately exercisable on the date of the Change in Control. The Shaw Employment Agreement also provides that if any amounts due to Mr. Shaw pursuant to the Shaw Employment Agreement or any other plan or arrangement constitute a “parachute payment” for purposes of Section 280G of the Internal Revenue Code and the amount of the parachute payment (after taking into account all taxes, including excise taxes) is less than the amount Mr. Shaw would receive if he was paid three times his “base amount” (as defined under Section 280G of the Internal Code), less one dollar (after taking into account all taxes, including excise taxes), then the aggregate of the amounts constituting the parachute payment will be reduced (or returned by Mr. Shaw if already paid to him) to an amount that will equal three times Mr. Shaw’s base amount less one dollar.

The Shaw Employment Agreement contains a two-year post-employment noncompetition agreement and standard no solicitation and confidentiality provisions.

The foregoing description of the Shaw Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Shaw Employment Agreement filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

(2) Also on November 8, 2017, the Company entered into a new employment agreement with Brian K. Meyers, the Company’s Executive Vice President, Chief Financial Officer and Treasurer, pursuant to which Mr. Meyers will continue to serve in such positions (the “Meyers Employment Agreement”). The Meyers Employment Agreement, the full text of which is filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q and is incorporated herein by reference, replaces Mr. Meyers’ prior employment agreement which would have expired by its terms on December 31, 2017.applicable convertible Formula.
 
The termRedemption. Beginning November 14, 2024, the Company may redeem all or any of the Meyers EmploymentSeries A Preferred Stock for a cash price equal to the greater of (“Liquidation Preference”) (i) the sum of $1,000  (subject to adjustment as provided in the Charter Amendment)  plus the dollar amount of any declared Series A Dividends not paid in cash and (ii) the value of the Conversion Shares were such Series A Preferred Stock converted (as determined in the Charter Amendment) without regard to the Hard Cap.

Change of Control.  In the event of certain changes of control, some of which are not in the Company’s control, as defined in the Charter Amendment as a “Fundamental Change” or a “Liquidation” (as defined in the Charter Amendment), the Series A Preferred Stockholders shall be entitled to receive the Liquidation Preference, unless such Fundamental Change is a stock merger in which certain value and volume requirements are met, in which case the Series A Preferred Stock will be converted into Common Stock in connection with such stock merger.

Voting. Holders of shares of Series A Preferred Stock will be entitled to vote with the holders of shares of Common Stock and not as a separate class, at any annual or special meeting of stockholders of the Company, on an as-converted basis, in all cases subject to the Hard Cap.  In addition, a majority of the voting power of the Series A Preferred Stock must approve certain significant actions of the Company, including (i) declaring a dividend or otherwise redeeming or repurchasing any shares of Common Stock and other junior securities, if any, subject to certain exceptions, (ii) incurring indebtedness, except for certain permitted indebtedness or (iii) creating a subsidiary other than a wholly-owned subsidiary.
Board Representation. The holders of Series A Preferred Stock, voting as a separate class, have the right to appoint one director to the Board (the “Series A Director”) who may serve on any committees of the Board, until such time as the later of (i) the shares of Series A Preferred Stock have been converted into Common Stock or (ii) a holder still owns Conversion Shares and the sum of such Conversion Shares plus any other shares of Common Stock represent at least 10% of the total outstanding shares of Common Stock.  In connection therewith John A. Bartholdson was appointed to the Company’s Board of Directors.
Additional Provisions. The Series A Preferred Stock is perpetual and therefore does not have a maturity date.  The conversion price of the Series A Preferred Stock is subject to anti-dilution protections if the Company effects a stock split, stock dividend, subdivision, reclassification or combination of its Common Stock and certain other economically dilutive events.
Registration Rights Agreement commenced.
The SPA required, as a condition to closing, that the Company enter into a Registration Rights Agreement (“RRA”).  The RRA provides for unlimited demand registration rights, of which there can be two underwritten offerings each for at least $5 million in gross proceeds, and piggyback registration rights, with respect to the Conversion Shares.

(b)  $60 Million Credit Facility with Sterling National Bank

On November 14, 2019, the Company entered into a new senior secured credit agreement (the “2019 Credit Agreement”) with its lender, Sterling National Bank (the “Bank”), pursuant to which the Company obtained a new credit facility in the aggregate principal amount of up to $60 million (the “2019 Credit Facility”).  The 2019 Credit Facility replaces the Company’s existing facility with the Bank and, among other things, increases aggregate borrowing from $47 million to $60 million.  The following description of the 2019 Credit Facility is qualified in its entirety by the actual agreement which is an Exhibit to this Report.

The 2019 Credit Facility is comprised of four facilities: a $20 million senior secured term loan maturing on December 1, 2024 (the “Term Loan”), with monthly interest and principal payments based on 120-month amortization with the outstanding balance due on the maturity date; a $10 million senior secured delayed draw term loan maturing on December 1, 2024 (the “Delayed Draw Term Loan”), with monthly interest payments for the first 18 months and thereafter monthly payments of interest and principal based on 120-month amortization and all balances due on the maturity date; a $15 million senior secured committed revolving line of credit providing a sublimit of up to $10 million for standby letters of credit maturing on November 8, 201713, 2022 (the “Revolving Loan”), with monthly payments of interest only; and will expirea $15 million senior secured non-restoring line of credit maturing on DecemberJanuary 31, 2018, unless sooner terminated2021 (the “Line of Credit Loan”).

The 2019 Credit Facility is secured by a first priority lien in accordance with its terms. During the termfavor of the Meyers EmploymentBank on substantially all of the personal property owned by the Company, as well as a pledge of the stock and other equity in the Company’s subsidiaries and mortgages on 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 a former school property owned by the Company located in Connecticut.

At the closing of the 2019 Credit Facility, the Bank advanced the Term Loan to the Company, the net proceeds of which was $19.65 million after deduction of the Bank’s origination fee in the amount of $337,500 and other Bank fees and reimbursements to the Bank that are customary for facilities of this type.  The Company used the net proceeds of the Term Loan, together with cash on hand, to repay the existing credit facility and transaction expenses.

Pursuant to the terms of the 2019 Credit Agreement, Mr. Meyersletters of credit issued under the Revolving Loan reduce dollar for dollar the availability of borrowings under the Revolving Loan.  Borrowings under the Line of Credit Loan are to be secured by cash collateral.

Borrowing under the Delayed Draw Term Loan is available during the period commencing on the closing date of the 2019 Credit Facility and ending on May 31, 2021.  Any amounts not borrowed during this period will continuenot be available to receivethe Company.

Accrued interest on each loan under the 2019 Credit Facility will be payable monthly in arrears.  The Term Loan and the Delayed Draw Term Loan will bear interest at a floating interest rate based on the then one month LIBOR (“LIBOR”) plus 3.50%.  At the closing of the 2019 Credit Facility, the Company entered into a swap transaction with the Bank for 100% of the  principal balance of the Term Loan, which matures on the same date as the Term Loan. pursuant to a swap agreement between the Company and the Bank.  At the end of the borrowing availability period for the Delayed Draw Term Loan, the Company is required to enter into a swap transaction with the Bank for 100% of the principal balance of the Delayed Draw Term Loan, which will mature on the same date as the Delayed Draw Term Loan, pursuant to a swap agreement between the Company and the Bank or the Bank’s affiliate.   The Term Loan and Delayed Draw Term Loan are subject to a LIBOR interest rate floor of .25%.

Revolving Loans will bear interest at a floating interest rated based on the then LIBOR plus an annual base salary of $340,000 and an annual performance bonus based upon achievement of performance targets or other criteria asindicative spread determined by the Company’s Boardleverage as defined in the 2019 Credit Agreement or, if the borrowing of Directors or its Compensation Committee.a Revolving Loan is to be repaid within 30 days of such borrowing, the Revolving Loan will accrue interest at the Bank’s prime rate plus .50% with a floor of 4.0%.  Line of Credit Loans will bear interest at a floating interest rated based on the Bank’s prime rate of interest.  Revolving Loans are subject to a LIBOR interest rate floor of .00%.

Letters of credit will be charged an annual fee equal to (i) an applicable margin determined by the leverage ratio of the Company less (ii) .25%, paid quarterly in arrears, in addition to the Bank’s customary fees for issuance, amendment and other standard fees.  Letters of credit totaling $4 million that were outstanding under the existing credit facility are treated as letters of credit under the Revolving Loan.

Under the terms of the Meyers Employment2019 Credit Agreement, the Company may terminate Mr. Meyers’ employment atprepay the Term Loan and/or the Delayed Draw Term Loan in full or in part without penalty except for any timeamount required to compensate the Bank for any swap breakage or other costs incurred in connection with or without Causesuch prepayment.  The Bank receives an unused facility fee of 0.50% per annum payable quarterly in arrears on the unused portions of the Revolving Loan and Mr. Meyers may resign from his employment at any time,the Line of Credit Loan.

In addition to the foregoing, the Credit Agreement contains customary representations, warranties and affirmative and negative covenants (including financial covenants that (i) restrict capital expenditures, (ii) restrict leverage, (iii) require maintaining minimum tangible net worth, (iv) require maintaining a minimum fixed charge coverage ratio and (v) require the maintenance of a minimum of $5 million in quarterly average aggregate balances on deposit with or without Good Reason (in each case as such terms are definedthe Bank, which, if not maintained, will result in the Meyers Employment Agreement). In the event that Mr. Meyers’ employment should be terminated by the Company without Cause or by Mr. Meyers resignation for Good Reason, in addition to his right to receive payment of all accrued and unpaid compensation and benefits due to him through the date of termination of employment, subject to Mr. Meyers’ executionassessment of a release in favorquarterly fee of the Company and its subsidiaries and affiliates, Mr. Meyers would be entitled to receive a lump sum payment on the 60th day following termination$12,500), as well as events of employment equal to (a) one and three-quarters times the sumdefault customary for facilities of (i) his annual base salary and (ii) the target amount of the annual performance bonus for him in the year in which the termination of employment occurs, (b) all outstanding reasonable travel and other business expenses incurred through the date of termination and (c) the estimated employer portion of premiums that would be necessary to continue Mr. Meyers’ coverage under the Company’s healthcare plan until the first anniversary of the date of termination (subject to proration should Mr. Meyers become insured under a subsequent healthcare plan). In addition, Mr. Meyers would be entitled to receive a prorated portion of his annual bonus for the year of termination, which prorated annual bonus would be paid in a lump sum on the date that bonuses for the year in which the termination occurs are paid generally to the Company’s senior executives.this type.

The Meyers Employment Agreement further provides that, upon a Change in Control of the Company (as defined in the Meyers Employment Agreement), (a) the term of the Meyers Employment Agreement will be automatically extended for an additional two-year term commencing on the date of the Change in Control and ending on the second anniversary of the date of the Change in Control and (b) all outstanding restricted stock and stock options held by Mr. Meyers will vest in full and all stock options will become immediately exercisable on the date of the Change in Control. The Meyers Employment Agreement also provides that if any amounts due to Mr. Meyers pursuant to the Meyers Employment Agreement or any other plan or arrangement constitute a “parachute payment” for purposes of Section 280G of the Internal Revenue Code and the amount of the parachute payment (after taking into account all taxes, including excise taxes) is less than the amount Mr. Meyers would receive if he was paid three times his “base amount” (as defined under Section 280G of the Internal Code), less one dollar (after taking into account all taxes, including excise taxes), then the aggregate of the amounts constituting the parachute payment will be reduced (or returned by Mr. Meyers if already paid to him) to an amount that will equal three times Mr. Meyers’ base amount less one dollar.

The Meyers Employment Agreement contains a two-year post-employment noncompetition agreement and standard no solicitation and confidentiality provisions.

The foregoing description of the Meyers Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Meyers Employment Agreement filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

(3) Also on November 8, 2017, the Company entered into a change in control agreement with Deborah Ramentol (the “Ramentol Agreement”). The Ramentol Agreement, the full text of which is filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q and is incorporated herein by reference, replaces Ms. Ramentol’s prior change in control agreement, which would have expired by its terms on December 31, 2017.

The Ramentol Agreement, which remains in effect until December 31, 2018, provides that in the event Ms. Ramentol’s employment should be terminated by the Company without Cause or by Ms. Ramentol’s resignation for Good Reason (in each case as such terms are defined in the Ramentol Agreement) during the one-year period following a Change in Control of the Company (as defined in the Ramentol Agreement), Ms. Ramentol would be entitled to receive a payment equal to the sum of (i) her annual base salary in effect on the date of the termination of her employment, (ii) the target amount of the annual performance bonus for her in the year in which the termination of employment occurs and (iii) the estimated employer portion of premiums that would be necessary to continue Ms. Ramentol’s coverage under the Company’s healthcare plan until the first anniversary of the date of termination (subject to proration should Ms. Ramentol become insured under a subsequent healthcare plan). In addition, all outstanding restricted stock and stock options held by Ms. Ramentol will vest in full and all stock options will become immediately exercisable on the date of the Change in Control.

The Ramentol Agreement also provides that if any amounts due to Ms. Ramentol pursuant to the Ramentol Agreement or any other plan or arrangement constitute a “parachute payment” for purposes of Section 280G of the Internal Revenue Code and the amount of the parachute payment (after taking into account all taxes, including excise taxes) is less than the amount Ms. Ramentol would receive if she was paid three times her “base amount” (as defined under Section 280G of the Internal Code), less one dollar (after taking into account all taxes, including excise taxes), then the aggregate of the amounts constituting the parachute payment will be reduced (or returned by Ms. Ramentol if already paid to her) to an amount that will equal three times Ms. Ramentol’s base amount less one dollar.

The foregoing description of the Ramentol Change in Control Agreement is not complete and is qualified in its entirety by reference to the full text of the Ramentol Agreement filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
3738
Item 6.
EXHIBITS
 
Exhibit
Number
 
Description
  
3.1
Certificate of Amendment, dated November 14, 2019, to the Amended and Restated Certificate of Incorporation of the Company
10.1(1)
10.1
Securities Purchase and Sale Agreement, dated March 14, 2017, between New England Institute of Technology at Palm Beach, Inc. and Tambone Companies, LLC, as amended by First Amendment to Purchase and Sale Agreement dated as of April 18, 2017, and as further amended by Second Amendment to Purchase and Sale Agreement dated as of May 12, 2017
10.2*Employment Agreement, dated as of November 8, 2017,14, 2019, between the Company and Scott M. Shaw.the investors parties thereto
10.2
10.3*Employment
Registration Rights Agreement, dated as of November 8, 2017,14, 2019, between the Company and Brian K. Meyers.the investors parties thereto
10.3
10.4*Change in Control
Credit Agreement, dated as of November 8, 2017,14, 2019, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and Sterling National Bank
10.4
Form of Indemnification Agreement between the Company and Deborah Ramentol.each director of the Company
10.5
Form of Indemnification Agreement between the Company and John A. Bartholdson
  
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 the Sarbanes-Oxley Act of 2002.
99
Press Release of the Company dated November 14, 2019
101**
The following financial statements from Lincoln Educational Services Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,2019, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and in detail.


(1)Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2017.

*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 of 1933 and Section 18 of the Securities Exchange Act of 1934.

3839
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
LINCOLN EDUCATIONAL SERVICES CORPORATION
   
Date: November 13, 201714, 2019By:/s/ Brian Meyers 
  Brian Meyers
  Executive Vice President, Chief Financial Officer and Treasurer

3940
Exhibit Index

10.1(1)Purchase
Certificate of Amendment, dated November 14, 2019, to the Amended and Sale Agreement, dated March 14, 2017, between New England InstituteRestated Certificate of Technology at Palm Beach, Inc. and Tambone Companies, LLC, as amended by First Amendment to Purchase and Sale Agreement dated asIncorporation of April 18, 2017, and as further amended by Second Amendment to Purchase and Sale Agreement dated as of May 12, 2017
the Company
Employment
Securities Purchase Agreement, dated as of  November 8, 2017,14, 2019, between the Company and Scott M. Shaw.
the investors parties thereto
Employment
Registration Rights Agreement, dated as of  November 8, 2017,14, 2019, between the Company and Brian K. Meyers.
the investors parties thereto
Change in Control
Credit Agreement, dated as of November 8, 2017,14, 2019, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and Sterling National Bank
Form of Indemnification Agreement between the Company and Deborah Ramentol.each director of the Company
10.5
Form of Indemnification Agreement between the Company and John A. Bartholdson
  
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Press Release of the Company dated November 14, 2019
101**
The following financial statements from Lincoln Educational Services Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,2019, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and in detail.
(1)Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2017.


*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 of 1933 and Section 18 of the Securities Exchange Act of 1934.


4041