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~~June 30, ~~2019~~2020

☐	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		(Zip Code)
(Address of principal executive offices)

(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 12, 2019,~~August 11, 2020, there were ~~25,231,710~~26,400,782 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~~JUNE 30, ~~2019~~2020

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019	1
	Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	4
	Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	5
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	6
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~	3525
Item 4.	Controls and Procedures	3540
PART II.	OTHER INFORMATION	3540
Item 1.	Legal Proceedings	3540
Item 5.1A.	~~Other Information~~Risk Factors	3640
Item 6.	Exhibits	3941
	SIGNATURES	42

Index

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, 2019		December 31, 2018		June 30, 2020		December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	11,757	$	17,571	$	23,342	$	23,644
Restricted cash		3,997		16,775		2,626		-
Accounts receivable, less allowance of $17,277 and $15,590 at September 30, 2019 and December 31, 2018, respectively		22,094		18,675
Accounts receivable, less allowance of $20,661 and $18,107 at June 30, 2020 and December 31, 2019, respectively						27,906		20,652
Inventories		1,899		1,451		3,107		1,608
Prepaid income taxes and income taxes receivable		358		178		277		383
Prepaid expenses and other current assets		4,257		2,461		3,748		4,190
Total current assets		44,362		57,111		61,006		50,477

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
PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $175,183 and $172,408 at June 30, 2020 and December 31, 2019, respectively						49,172		49,345

OTHER ASSETS:
Noncurrent restricted cash		-		11,600		-		15,000
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
Noncurrent receivables, less allowance of $2,932 and $2,260 at June 30, 2020 and December 31, 2019, respectively						15,787		15,337
Operating lease right-of-use assets		38,750		-		53,397		49,065
Goodwill		14,536		14,536		14,536		14,536
Other assets, net		1,247		900		1,003		1,003
Total other assets		69,166		39,635		84,723		94,941
TOTAL	$	161,737	$	146,038
TOTAL ASSETS					$	194,901	$	194,763

See notes to unaudited condensed consolidated financial statements.

Index

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)

(Continued)

	September 30, 2019			December 31, 2018				June 30, 2020			December 31, 2019
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY							LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of credit agreement	$	7,117		$	15,000			$	2,000		$	2,000
Unearned tuition		22,901			22,545				17,573			23,411
Accounts payable		18,899			14,107				14,058			14,584
Accrued expenses		9,523			10,605				12,162			7,869
CARES Act student funds liability									2,626			-
CARES Act institutional funds liability									11,837			-
Current portion of operating lease liabilities		9,089			-				8,222			9,142
Other short-term liabilities		595			2,324				93			199
Total current liabilities		68,124			64,581				68,571			57,205

NONCURRENT LIABILITIES:
Long-term credit agreement and term loan		19,785			33,769				16,121			32,028
Pension plan liabilities		4,149			4,271				3,850			4,015
Deferred income taxes, net		93			-				153			153
Long-term portion of operating lease liabilities		35,942			-				51,148			46,018
Accrued rent		-			3,410
Other long-term liabilities		64			141				1,014			214
Total liabilities		128,157			106,172				140,857			139,633

COMMITMENTS AND CONTINGENCIES

SERIES A CONVERTIBLE PREFERRED STOCK
Preferred stock, no par value - 10,000,000 shares authorized, Series A convertible preferred shares, 12,700 shares issued and outstanding at June 30, 2020 and December 31, 2019									11,982			11,982

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
Common stock, no par value - authorized: 100,000,000 shares at June 30, 2020 and December 31, 2019; issued and outstanding: 32,386,438 shares at June 30, 2020 and 31,142,251 shares at December 31, 2019									141,377			141,377
Additional paid-in capital		29,927			29,484				30,589			30,145
Treasury stock at cost - 5,910,541 shares at September 30, 2019 and December 31, 2018		(82,860	)		(82,860	)
Treasury stock at cost - 5,910,541 shares at June 30, 2020 and December 31, 2019									(82,860	)		(82,860	)
Accumulated deficit		(51,264	)		(44,073	)			(43,025	)		(42,058	)
Accumulated other comprehensive loss		(3,600	)		(4,062	)			(4,019	)		(3,456	)
Total stockholders’ equity		33,580			39,866				42,062			43,148
TOTAL	$	161,737		$	146,038
TOTAL LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND EQUITY								$	194,901		$	194,763

See notes to unaudited condensed consolidated financial statements.

Index

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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019

REVENUE	$	72,594		$	70,078		$	199,427		$	193,087		$	62,470		$	63,569		$	132,511		$	126,833
COSTS AND EXPENSES:
Educational services and facilities		33,211			33,488			92,940			94,169			26,245			29,749			56,482			59,728
Selling, general and administrative		37,451			36,087			111,512			108,091			35,162			35,913			76,310			74,062
(Gain) loss on disposition of assets		(211	)		427			(211	)		537			(97	)		-			(96	)		1
Total costs & expenses		70,451			70,002			204,241			202,797			61,310			65,662			132,696			133,791
OPERATING INCOME (LOSS)		2,143			76			(4,814	)		(9,710	)		1,160			(2,093	)		(185	)		(6,958	)
OTHER:
Interest income		1			6			7			25			-			2			-			7
Interest expense		(754	)		(632	)		(2,141	)		(1,743	)		(327	)		(829	)		(682	)		(1,386	)
INCOME (LOSS) BEFORE INCOME TAXES		1,390			(550	)		(6,948	)		(11,428	)		833			(2,920	)		(867	)		(8,337	)
PROVISION FOR INCOME TAXES		50			50			244			150			50			144			100			194
NET INCOME (LOSS)	$	1,340		$	(600	)	$	(7,192	)	$	(11,578	)	$	783		$	(3,064	)	$	(967	)	$	(8,531	)
Basic
Net income (loss) per share	$	0.05		$	(0.02	)	$	(0.29	)	$	(0.47	)
Net income (loss) per common share													$	0.02		$	(0.12	)	$	(0.06	)	$	(0.35	)
Diluted
Net income (loss) per share	$	0.05		$	(0.02	)	$	(0.29	)	$	(0.47	)
Net income (loss) per common share													$	0.02		$	(0.12	)	$	(0.06	)	$	(0.35	)
Weighted average number of common shares outstanding:
Basic		24,563			24,533			24,551			24,387			24,741			24,555			24,670			24,545
Diluted		24,608			24,533			24,551			24,387			24,741			24,555			24,670			24,545

See notes to unaudited condensed consolidated financial statements.

Index

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018			2019			2018			2020			2019			2020			2019
Net income (loss)	$	1,340	$	(600	)	$	(7,192	)	$	(11,578	)	$	783		$	(3,064	)	$	(967	)	$	(8,531	)
Other comprehensive income
Employee pension plan adjustments		154		162			462			485
Derivative qualifying as a cash flow hedge, net of taxes (nil)													(95	)		-			(843	)		-
Employee pension plan adjustments, net of taxes (nil)													140			154			280			308
Comprehensive income (loss)	$	1,494	$	(438	)	$	(6,730	)	$	(11,093	)	$	828		$	(2,910	)	$	(1,530	)	$	(8,223	)

See notes to unaudited condensed consolidated financial statements.

Index

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

Common Stock

Additional
Paid-in
Capital

Treasury
Stock

Accumulated
Deficit

Accumulated
Other
Comprehensive
Loss
Total
Shares Amount
BALANCE - January 1, 2019
30,552,333

$
141,377

$
29,484

$
(82,860
)

$
(44,073
)

$
(4,062
)

$
39,866

Net loss
-

-

-

-

(5,467
)

-

(5,467
)
Employee pension plan adjustments
-

-

-

-

-

154

154

Stock-based compensation expense
Restricted stock
478,853

-

52

-

-

-

52

Net share settlement for equity-based compensation
(5,518
)

-

(18
)

-

-

-

(18
)
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

	Stockholders’ Equity
	Common Stock					Additional Paid-in			Treasury			Accumulated			Accumulated Other Comprehensive						Series A Convertible Preferred Stock
	Shares			Amount		Capital			Stock			Deficit			Loss			Total			Shares		Amount
BALANCE - January 1, 2020		31,142,251		$	141,377	$	30,145		$	(82,860	)	$	(42,058	)	$	(3,456	)	$	43,148			12,700	$	11,982
Net loss		-			-		-			-			(1,750	)		-			(1,750	)		-		-
Employee pension plan adjustments		-			-		-			-			-			140			140			-		-
Derivative qualifying as cash flow hedge		-			-		-			-			-			(748	)		(748	)		-		-
Stock-based compensation expense
Restricted stock		1,191,262			-		291			-			-			-			291			-		-
Net share settlement for equity-based compensation		(58,451	)		-		(172	)		-			-			-			(172	)		-		-
BALANCE - March 31, 2020		32,275,062			141,377		30,264			(82,860	)		(43,808	)		(4,064	)		40,909			12,700		11,982
Net income		-			-		-			-			783			-			783			-		-
Employee pension plan adjustments		-			-		-			-			-			140			140			-		-
Derivative qualifying as cash flow hedge		-			-		-			-			-			(95	)		(95	)		-		-
Stock-based compensation expense
Restricted stock		111,376			-		325			-			-			-			325			-		-
Net share settlement for equity-based compensation		-			-		-			-			-			-			-			-		-
BALANCE - June 30, 2020		32,386,438		$	141,377	$	30,589		$	(82,860	)	$	(43,025	)	$	(4,019	)	$	42,062			12,700	$	11,982

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

	Stockholders’ Equity
	Common Stock					Additional Paid-in			Treasury			Accumulated			Accumulated Other Comprehensive						Series A Convertible Preferred Stock
	Shares			Amount		Capital			Stock			Deficit			Loss			Total			Shares		Amount
BALANCE - January 1, 2019		30,552,333		$	141,377	$	29,484		$	(82,860	)	$	(44,073	)	$	(4,062	)	$	39,866			-	$	-
Net loss		-			-		-			-			(5,467	)		-			(5,467	)		-		-
Employee pension plan adjustments		-			-		-			-			-			154			154			-		-
Stock-based compensation expense
Restricted stock		478,853			-		52			-			-			-			52			-		-
Net share settlement for equity-based compensation		(5,518	)		-		(18	)		-			-			-			(18	)		-		-
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			-	$	-

See notes to unaudited condensed consolidated financial statements.

Index

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,						Six Months Ended June 30,
	2019			2018			2020			2019

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(7,192	)	$	(11,578	)	$	(967	)	$	(8,531	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		5,972			6,289			3,763			3,989
Amortization of deferred finance charges		354			275			90			194
Deferred income taxes		424			-			-			424
(Gain) loss on disposition of assets		(211	)		537			(96	)		1
Fixed asset donations		(893	)		-			(334	)		(893	)
Provision for doubtful accounts		15,157			12,988			12,618			8,923
Stock-based compensation expense		460			502			616			242
Deferred rent		-			(697	)
(Increase) decrease in assets:
Accounts receivable		(21,034	)		(21,300	)		(20,322	)		(13,818	)
Inventories		(448	)		(654	)		(1,499	)		(635	)
Prepaid income taxes and income taxes receivable		(180	)		-			106			(211	)
Prepaid expenses and other current assets		554			139
Prepaid expenses and current assets								346			177
Other assets, net		(1,003	)		(83	)		(122	)		(649	)
Increase (decrease) in liabilities:
Accounts payable		4,197			9,007			(615	)		4,271
Accrued expenses		(33	)		1,983			4,293			(470	)
CARES Act student funds liability								2,626			-
CARES Act institutional funds liability								11,837			-
Unearned tuition		356			(3,122	)		(5,838	)		(2,829	)
Deferred income taxes		93			-			-			93
Other liabilities		(1,466	)		(102	)		(34	)		(1,060	)
Total adjustments		2,299			5,762			7,435			(2,251	)
Net cash used in operating activities		(4,893	)		(5,816	)
Net cash provided by (used in) operating activities								6,468			(10,782	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(3,272	)		(4,217	)		(3,072	)		(1,212	)
Proceeds from insurance		211			-			97			-
Proceeds from sale of property and equipment		-			2,348
Net cash used in investing activities		(3,061	)		(1,869	)		(2,975	)		(1,212	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on borrowings		(27,167	)		(32,800	)		(27,000	)		(26,600	)
Proceeds from borrowings		5,045			4,400			11,000			3,750
Payment of deferred finance fees		(98	)		(94	)
Credit (payment) of deferred finance fees								3			(98	)
Net share settlement for equity-based compensation		(18	)		(372	)		(172	)		(18	)
Net cash used in financing activities		(22,238	)		(28,866	)		(16,169	)		(22,966	)
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(30,192	)		(36,551	)		(12,676	)		(34,960	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period		45,946			54,554			38,644			45,946
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period	$	15,754		$	18,003		$	25,968		$	10,986

See notes to unaudited condensed consolidated financial statements.

Index

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

(Continued)

	Nine Months Ended September 30,				Six Months Ended June 30,
	2019		2018		2020		2019

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	1,638	$	1,523	$	589	$	1,073
Income taxes	$	113	$	167	$	14	$	99
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Liabilities accrued for or noncash purchases of fixed assets	$	1,679	$	392	$	614	$	1,030

See notes to unaudited condensed consolidated financial statements.

Index

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2019~~2020 AND ~~2018~~2019

(In thousands, except share and per share amounts and unless otherwise stated)

(Unaudited)

1.	~~SUMMARY~~DESCRIPTION OF ~~SIGNIFICANT ACCOUNTING POLICIES~~BUSINESS AND BASIS OF PRESENTATION

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 22 schools in 14 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, among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and information ~~technology programs.~~technology. The schools operate under Lincoln Technical Institute, Lincoln College of Technology, 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 ~~managed~~ 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.

The Company’s business is organized into three reportable business segments: (a) Transportation and Skilled Trades, (b) Healthcare and Other Professions (“HOPS”), and (c) Transitional, which refers to ~~businesses that~~our campus operations which have been ~~taught out.~~closed.

COVID-19 Pandemic— During the first quarter of 2020, the coronavirus disease (“COVID-19”) began to spread worldwide and has caused significant disruptions to the U.S. and world economies. In ~~August 2018, New England Institute of Technology at Palm Beach, Inc. (“NEIT”), a wholly-owned subsidiary~~early March 2020, the Company began seeing the impact of the ~~Company, sold~~COVID-19 pandemic on our business. The impact was primarily related to Elite Property Enterprise, LLC the real property owned by NEIT located at 1126 53rd Court North, Mangonia Park, Palm Beach County, Florida and the improvements and certain personal property located thereon (the “Mangonia Park Property”), for a cash purchase pricetransitioning classes from in-person, hands-on learning to online, remote learning. As part of $2,550,000. At the closing, NEIT paid a real estate brokerage fee equal to 5% of the gross sales price and other customary closing costs and expenses. Pursuant to the provisions of the Company’s credit agreement with its lender, Sterling National Bank, the net cash proceeds of the sale of the Mangonia Park Property were deposited into an account with the lender to serve as additional security for loans and other financial accommodations provided tothis transition, the Company ~~and its subsidiaries under the credit facility.~~has incurred additional expenses. In ~~December 2018, the funds were used to repay the outstanding principal balance~~addition, some students have been placed on leave of ~~the loans outstanding under the credit facility and such repayment permanently reduced the loan outstanding under the credit facility designated~~absence 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 Company and its 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 tothey could not complete their externships and some students chose not to participate in online learning. Additionally, certain programs were extended due to restricted access to externship sites and classroom labs. Due to phased re-opening on a state-by-state basis, our schools have been reopening since May 2020 and, currently, all of ~~study. The~~ our schools have re-opened and we expect the majority of the ~~LCNE~~ students who were placed on leave or otherwise deferred their programs to finish their programs now. As COVID-19 continues to affect many states and its course is unpredictable, the full impact on the Company’s consolidated financial statements remains uncertain.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The Company has and will continue ~~their education at Goodwin College thereby limiting some~~to evaluate the impact of the ~~Company’s closing costs. The Company recorded closing costs associated with~~CARES Act on the ~~closure~~results of operations and cash flows. See Note 12 – COVID-19 Pandemic and Cares Act included elsewhere in this Quarterly Report on Form 10-Q for additional discussion about the LCNE campus in 2018 of approximately $1.6 million in connection with the termination of the LCNE campus lease, which is the net present value of the remaining obligation, to be paid in equal monthly installments through January 2020 and 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.CARES Act.

Liquidity— ~~For the last several years,~~As of June 30, 2020, the Company had a net cash balance of $7.8 million calculated as cash, cash equivalents and restricted cash less both 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 withshort-term and long-term portion of the ~~overall economic environment, have discouraged potential students~~Company’s Credit Facility (defined below). Excluding cash in the bank from ~~enrolling in post-secondary schools.~~the Cares Act of $14.5 million, as of June 30, 2020, the Company had a net debt balance of $6.6 million. At June 30, 2020, the Company’s sources of cash primarily included cash, cash equivalents and restricted cash of $26.0 million including cash received under the Cares Act of $14.5 million. In ~~light of these factors, for the last several years,~~addition, the Company has ~~incurred significant operating losses as~~availability to borrow additional funds under its Credit Facility for an additional $21.0 million. As of December 31, 2019, the Company had a ~~result~~net cash balance of ~~lower student population. Despite these challenges, the~~$4.6 million. 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, 2019,~~However, the ~~Company’s sources of cash primarily included cash~~circumstances relating to COVID-19 and ~~cash equivalents of $15.8 million (of which $4.0 million~~its evolution make any prediction impossible and, if circumstances surrounding COVID-19 should evolve in a significantly adverse manner it is ~~restricted). The Company is also continuing to take actions to improve cash flow by aligning its cost structure to its student population.~~possible our liquidity could be materially and adversely affected.

~~Index~~

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, ~~2018~~2019 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, ~~2018,~~2019, reflect all adjustments, consisting of normal recurring adjustments 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~~six months ended ~~September~~June 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the full fiscal year ending December 31, ~~2019.~~2020.

Index

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~~used to determine the incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, lease term to calculate lease cost, revenue recognition, bad debts, impairments, useful lives of 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 – In ~~July 2019,~~March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) ~~No. 2019-07,~~2020-03, “Codification ~~Updates~~Improvements to ~~SEC Sections~~Financial Instruments,” ~~to reflect~~(“ASU 2020-03”). ASU 2020-03 improves and clarifies various financial instruments topics. ASU 2020-03 includes seven different issues that describe the ~~recently adopted~~areas of improvement and the related amendments to GAAP. The Company adopted ASU 2020-03 upon issuance, which did not have a material effect on the ~~SEC final rules that were done~~Company’s condensed consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”, which simplifies the accounting for income taxes by removing certain exceptions to ~~modernize~~the general principles of ASC 740, “Income Taxes”. The amendments also improve consistent application of and simplify ~~certain reporting requirements~~GAAP for ~~public companies, investment advisers~~other areas of Topic 740 by clarifying and ~~investment companies.~~amending existing guidance. This ASU is effective ~~upon issuance~~for fiscal years beginning after December 15, 2020 and ~~did not~~early adoption is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is currently assessing the effect that this ASU will have ~~a significant impact~~ on ~~our~~its condensed consolidated financial statements and related 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 Company is currently assessing the effect that this ASU will have on its condensed consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequently issued additional guidance that 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 change its accounting approach in determining impairment of certain financial instruments, including trade receivables, from an “incurred loss” to a “current expected credit loss” model. ~~The standard will be~~Further, the FASB issued ASU No. 2019-04, ASU No. 2019-05 and ASU 2019-11 to provide additional guidance on the credit losses standard. In November 2019, FASB issued ASU No. 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)”. This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, ~~2019,~~2022, including interim periods within ~~such~~those fiscal years. Additionally, in February and March 2020, the FASB issued ASU 2020-02, “Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842)” ASU 2020-02 adds a SEC paragraph pursuant to the issuance of SEC Staff Accounting Bulletin No. 119 on loan losses to FASB Codification Topic 326 and also updates the SEC section of the Codification for the change in the effective date of Topic 842. Early adoption is permitted. We are currently assessing the effect that this 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 ourcondensed 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, beginning after December 15, 2019. Early adoption is permitted. The adoption of ASU No. 2018-13 is not expected to have a material impact on the Company’s consolidated financial statements.

~~In June 2018, the FASB issued ASU No. 2018-07, “Improvements to 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 adopted ASU No. 2018-07 on January 1, 2019. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.

~~In February 2018, the FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220)~~”. The updated guidance allows 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 the historical corporate income tax rate to the newly enacted corporate income tax rate, which left the tax effects on items within accumulated other comprehensive income stranded at an inappropriate tax rate. The updated guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. The Company adopted ASU No. 2018-02 on January 1, 2019 and it did not have a material impact on the Company’s consolidated financial statements.

~~Index~~

~~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 the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. 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 transition and lessors with a 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 adoption. The practical 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 fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and allow for modified retrospective adoption with early adoption permitted. The Company adopted ASU No. 2016-02 and the related 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 transition 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 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 ASC Topic 740, “Income Taxes”. This statement requires an asset and a liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases 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 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, 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 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 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 our income tax provision to vary significantly among financial reporting periods.

109

Index

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the Company did not recognize any interest and penalties expense associated with uncertain tax positions.

See Note 12 – COVID-19 Pandemic and Cares Act included in this Quarterly Report on Form 10-Q for additional discussion about the CARES Act impact on taxes.

Derivative Instruments—The Company records the fair value of derivative instruments as either assets or liabilities on the balance sheet. The accounting for gains and losses resulting from changes in fair value is dependent on the use of the derivative and whether it is designated and qualifies for hedge accounting.

All qualifying hedging activities are documented at the inception of the hedge and must meet the definition of highly effective in offsetting changes to future cash. The Company utilizes the change in variable cash flows method to evaluate hedge effectiveness quarterly. We record the fair value of the qualifying hedges in other long-term liabilities (for derivative liabilities) and other assets (for derivative assets). All unrealized gains and losses on derivatives that are designated and qualify for hedge accounting are reported in other comprehensive income (loss) and recognized when the underlying hedged transaction affects earnings. Changes in the fair value of these derivatives are recognized in other comprehensive income (loss). The Company classifies the cash flows from a cash flow hedge within the same category as the cash flows from the items being hedged.

The Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, on January 1, 2019, which changes the recognition and presentation requirements of hedge accounting, including eliminating the requirement to separately measure and report hedge ineffectiveness and presenting all items that affect earnings in the same income statement line item as the hedged item. The ASU also provides new alternatives for applying hedge accounting to additional hedging strategies, measuring the hedged item in fair value hedges of interest rate risk, reducing the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match method and reducing the risk of a material error correction if a company applies the shortcut method inappropriately. The adoption of ASU 2017-12 had no impact on the Company’s consolidated financial statements.

2.	~~WEIGHTED AVERAGE COMMON SHARES~~EARNINGS PER SHARE

The ~~weighted average~~Company presents basic and diluted earnings (loss) per common share using the two-class method which requires all outstanding Series A Preferred Stock and unvested restricted stock that contain rights to non-forfeitable dividends and therefore participate in undistributed earnings with common shareholders be included in computing earnings per share. Under the two-class method, net income is reduced by the amount of dividends declared in the period for each class of common stock and participating security. The remaining undistributed earnings are then allocated to common stock and participating securities, based on their respective rights to receive dividends. Series A Preferred Stock and unvested restricted stock contain non-forfeitable rights to dividends on an if-converted basis and on the same basis as common shares, respectively, and are considered participating securities. The Series A Preferred Stock and unvested restricted stock are not included in the computation of basic earnings (loss) per common share in periods in which we have a net loss, as the Series A Preferred Stock and unvested restricted stock are not contractually obligated to share in our net losses. However, the cumulative dividends on preferred stock for the period decreases the income or increases the net loss allocated to common shareholders. Basic earnings (loss) per common share has been computed by dividing net income (loss) allocated to common shareholders by the weighted-average number of common shares ~~used to compute~~outstanding.

The basic and diluted net loss ~~per share~~amounts are the same for the ~~three and nine~~six months ended ~~September~~June 30, 2020 and 2019 as a result of the net loss and ~~2018 was as follows:~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019 2018 2019 2018
Basic shares outstanding 24,563,038 24,532,648 24,550,999 24,386,689
Dilutive effect of stock options 44,466 - - -
Diluted shares outstanding 24,607,504 24,532,648 24,550,999 24,386,689

~~For~~anti-dilutive impact of the potentially dilutive securities. The basic and diluted net loss amounts are the same for the three months ended ~~September~~June 30, ~~2018,~~2019 as a result of the net loss and anti-dilutive impact of the potentially dilutive securities. For the three and six months ended June 30, 2019 earnings (loss) per share was calculated using the treasury stock method. Dilutive potential common shares include outstanding stock options, unvested restricted stock and Series A Preferred Stock. The Company uses the more dilutive method of calculating the diluted earnings per share by applying the more dilutive of either (a) the treasury stock method, if-converted method, or (b) the two-class method in its diluted EPS calculation. Potentially dilutive shares are determined by applying the treasury stock method to ~~acquire 26,083~~the assumed exercise of outstanding stock options and the assumed vesting of restricted stock. Potentially dilutive shares issuable upon conversion of the Series A Preferred Stock are calculated using the if-converted method.

Index

The following is a reconciliation of the numerator and denominator of the diluted net income (loss) per share computations for the periods presented below:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except share data)	2020			2019			2020			2019
Numerator:
Net income (loss)	$	783		$	(3,064	)	$	(967	)	$	(8,531	)
Less: preferred stock dividend		(305	)		-			(610	)		-
Less: allocation to preferred stockholders		(83	)		-			-			-
Less: allocation to restricted stockholders		(23	)		-			-			-
Net income (loss) allocated to common stockholders	$	372		$	(3,064	)	$	(1,577	)	$	(8,531	)

Basic loss per share:
Denominator:
Weighted average common shares outstanding		24,741,331			24,555,435			24,669,838			24,544,879
Basic income (loss) per share	$	0.02		$	(0.12	)	$	(0.06	)	$	(0.35	)

Diluted loss per share:
Denominator:
Weighted average number of:
Common shares outstanding		24,741,331			24,555,435			24,669,838			24,544,879
Dilutive potential common shares outstanding:
Series A Preferred Stock		-			-			-			-
Unvested restricted stock		-			-			-			-
Stock options		-			-			-			-
Dilutive shares outstanding		24,741,331			24,555,435			24,669,838			24,544,879
Diluted income (loss) per share	$	0.02		$	(0.12	)	$	(0.06	)	$	(0.35	)

The following table summarizes the potential weighted average shares of common stock that were excluded from the above table because the Company reported a net loss for the period and, therefore, 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 57,680determination of our diluted shares ~~respectively,~~outstanding as they 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 three and nine months ended September 30, 2019 and 2018, options to acquire 133,000 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 loss per share would have been antidilutive.anti-dilutive:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except share data)	2020		2019		2020		2019
Series A Preferred Stock		5,577,955		-		5,513,379		-
Unvested restricted stock		319,461		61,138		466,581		118,348
		5,897,416		61,138		5,979,960		118,348

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 original 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.~~date in accordance with ASC 606. 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~~$17.6 million and ~~$22.5~~$23.4 million is recorded in the current liabilities section of the accompanying condensed consolidated balance sheets as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The change in this contract liability balance during the ~~nine month~~six-month period ended ~~September~~June 30, ~~2019~~2020 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~~six-month period ended ~~September~~June 30, ~~2019~~2020 that was included in the contract liability balance at the beginning of the year was ~~$21.5~~$22.2 million.

Index

The following table depicts the timing of revenue recognition:

	Three months ended September 30, 2019								Nine months ended September 30, 2019								Three months ended June 30, 2020						Six months ended June 30, 2020
	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		Transportation and Skilled Trades Segment		Healthcare and Other Professions Segment		Consolidated		Transportation and Skilled Trades Segment		Healthcare and Other Professions 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	$	2,038	$	939	$	2,977	$	4,536	$	2,013	$	6,549
Services transferred over time		47,860		18,634		-		66,494		131,646		54,880		-		186,526		40,877		18,616		59,493		87,435		38,527		125,962
Total revenues	$	52,652	$	19,942	$	-	$	72,594	$	141,006	$	58,421	$	-	$	199,427	$	42,915	$	19,555	$	62,470	$	91,971	$	40,540	$	132,511

	Three months ended September 30, 2018								Nine months ended September 30, 2018								Three months ended June 30, 2019						Six months ended June 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		Transportation and Skilled Trades Segment		Healthcare and Other Professions Segment		Consolidated		Transportation and Skilled Trades Segment		Healthcare and Other Professions 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	$	2,487	$	1,159	$	3,646	$	4,568	$	2,233	$	6,801
Services transferred over time		46,492		17,089		765		64,346		127,619		49,707		4,633		181,959		41,541		18,382		59,923		83,786		36,246		120,032
Total revenues	$	51,006	$	18,251	$	821	$	70,078	$	135,838	$	52,554	$	4,695	$	193,087	$	44,028	$	19,541	$	63,569	$	88,354	$	38,479	$	126,833

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~~all 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~~June 30, 2020 and 2019, was ~~$3.6~~$3.7 and ~~$10.9~~$3.6 million, respectively. Our operating lease cost for the six months ended June 30, 2020 and 2019, was $7.4 and $7.3 million, respectively. Our variable lease cost for the three and six months ended June 30, 2020 was $0.5 million. The net change in the ROU asset ~~amortization is~~and lease liability are included in other assets in the condensed consolidated cash flows for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019.

During the three months ended June 30, 2020, the Company has withheld portions of and/or delayed payments to certain of its landlords as the Company sought to renegotiate payment terms, in order to further maintain liquidity given the temporary closures of its facilities. In some instances, the negotiations with landlords have already led to agreements with landlords for rent abatements or rental deferrals, while, in other cases, negotiations are ongoing. Total payments withheld or deferred as of June 30, 2020 were approximately $1.2 million and are included in current liabilities.

In accordance with the FASB’s recent Staff Q&A regarding rent concessions related to the effects of the COVID-19 pandemic, the Company has elected to account for agreed concessions by landlords that do not result in a substantial increase in the rights of the landlord or the obligations of the Company, as lessee, as though enforceable rights and obligations for those concessions existed in the original lease agreements and the Company has elected not to re-measure the related lease liabilities and right-of-use assets. For qualifying rent abatement concessions, the Company has recorded negative lease expense for the amount of the concession during the period of relief, and for qualifying deferrals of rental payments, the Company has recognized a payable in lieu of recognizing a decrease in cash for the lease payment that would have been made based on the original terms of the lease agreement, which will be reduced when the deferred payment is made in the future. During the three months ended June 30, 2020, the Company recognized $0.5 million of negative lease expense related to rent abatement concessions.

Index

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

					Three Months Ended June 30,				Six Months Ended June 30,
	For the Three Months Ended September 30, 2019		For the Nine Months Ended September 30, 2019		2020		2019		2020		2019
Operating cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	3,674	$	11,277	$	3,802	$	3,821	$	7,643	$	7,603
Non-cash activity:
Lease liabilities arising from obtaining right-of-use assets*	$	2,811	$	51,445
Lease liabilities arising from obtaining right-of-use assets					$	8,731	$	657	$	8,781	$	48,634

* Includes effectAs of ~~adoption~~June 30, 2020 there were lease re-measurements 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~~$8.7 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 term~~	~~5.75 years~~
~~Weighted-average discount rate~~		~~14.34~~	%

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Weighted-average remaining lease term	6.39 years			5.63 years			6.39 years			5.63 years
Weighted-average discount rate		11.94	%		14.43	%		11.94	%		14.43	%

Maturities of lease liabilities by fiscal year for our operating leases as of ~~September~~June 30, ~~2019~~2020 are as follows:

Year ending December 31,
2019 (excluding the nine months ended September 30, 2019)	$	3,828
2020		14,452
2020 (excluding the six months ended June 30, 2020)				$	7,691
2021		11,804			14,045
2022		9,344			13,553
2023		6,997			11,926
2024		3,980			10,689
2025					9,116
Thereafter		15,924			17,196
Total lease payments		66,329			84,216
Less: imputed interest		(21,298	)		(24,846	)
Present value of lease liabilities	$	45,031		$	59,370

~~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~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.

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 has concluded that, as of ~~September~~June 30, ~~2019 and 2018,~~2020, there were no indicators of potential impairment and, accordingly, the Company did not test goodwill for impairment.

Index

The carrying amount of goodwill at ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 is as follows:

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, 2020	$	117,176	$	(102,640	)	$	14,536
Adjustments		-		-			-
Balance as of June 30, 2020	$	117,176	$	(102,640	)	$	14,536

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

	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 June 30, 2019	$	117,176	$	(102,640	)	$	14,536

As of ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the goodwill balance is related to the Transportation and Skilled Trades segment.

6.	LONG-TERM DEBT

Long-term debt consists of the following:

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

	June 30, 2020			December 31, 2019
Credit agreement	$	18,833		$	34,833
Deferred Financing Fees		(712	)		(805	)
		18,121			34,028
Less current maturities		(2,000	)		(2,000	)
	$	16,121		$	32,028

Credit Facility with Sterling National Bank

On ~~March 31, 2017,~~November 14, 2019, the Company entered into a new senior secured credit agreement (the “Credit Agreement”) with its lender, Sterling National Bank (the “Lender”), pursuant to which the Company obtained a ~~secured~~new credit facility in the aggregate principal amount of up to $60 million (the “Credit Facility”) from Sterling National Bank (the “Bank”) pursuant to a Credit Agreement dated March 31, 2017 among the Company, the Company’s subsidiaries and the Bank, which was subsequently amended on November 29, 2017, February 23, 2018, July 11, 2018 and, most recently, on March 6, 2019 (as amended, the “Credit Agreement”). Prior to the most recent amendment of the Credit Agreement (the “Fourth Amendment”), the financial accommodations available to the Company under the Credit Agreement consisted of (a) a $25 million revolving loan facility designated as “Facility 1”, (b) a $25 million revolving loan facility (including a sublimit amount for letters of credit of $10 million) designated as “Facility 2” and (c) a $15 million revolving credit loan designated as “Facility 3”.

Pursuant to the terms of the Fourth Amendment and upon its effectiveness, Facility 1 was converted into a term loan (the “Term Loan”) in the 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 Agreement, 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.

~~Index~~

~~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, prior 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~~Credit Facility is ~~entitled to receive an unused facility fee~~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 ~~average daily unused balance of Facility 2 at~~maturity date; a ~~rate per annum equal to 0.50%~~$10 million senior secured delayed draw term loan maturing on December 1, 2024 (the “Delayed Draw Term Loan”), ~~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~~with monthly interest payments for the first ~~opportunity to provide any~~18 months and thereafter monthly payments of interest and principal based on 120-month amortization and all ~~traditional banking services required by~~balances due on the ~~Company, including, but not limited~~maturity date; a $15 million senior secured committed revolving line of credit providing a sublimit of up 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$10 million for standby letters of credit ~~replaced~~maturing on November 13, 2022 (the “Revolving Loan”), with monthly payments of interest only; and a $15 million senior secured non-restoring line of credit maturing on January 31, 2021 (the “Line of Credit Loan”). The Credit Agreement gives the Company the right to permanently terminate, in ~~connection with~~its entirety, the ~~replacement financing; provided, however, that no exit fee will be required in the event the Bank~~Revolving Loan or the ~~Bank’s affiliate arranges~~Line of Credit Loan or ~~provides~~permanently reduce the ~~replacement financing~~amount available for borrowing under the Revolving Loan or the ~~payoff~~Line of ~~the applicable loans occurs after March 5, 2021.~~

Credit Loan. In ~~connection with the effectiveness of the Fourth Amendment,~~April 2020, the Company ~~paid to~~terminated the ~~Bank a one-time modification fee in the amount~~Line 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.Loan.

The Credit Facility is secured by a first priority lien in favor of the ~~Bank~~Lender 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 ~~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~~At the closing of the Credit Facility, the Lender advanced the Term Loan to the Company, the net proceeds of which was $19.7 million after deduction of the Lender’s origination fee in the amount of $0.3 million and other Lender fees and reimbursements to the Lender 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.

Index

Pursuant to the terms of the Credit Agreement, letters 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 Credit Facility and ending on May 31, 2021.

Accrued interest on each loan under the 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 London Interbank Offered Rate (“LIBOR”) plus 3.50%. At the closing of the Credit Facility, the Company entered into a swap transaction with the Lender 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 Lender. 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 Lender 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 Lender or the Lender’s affiliate. The Term Loan and Delayed Draw Term Loan are subject to a LIBOR interest rate floor of .25% if there is no swap agreement.

Revolving Loans bear interest at a floating interest rated based on the then LIBOR plus an indicative spread determined by the Company’s leverage as defined in the Credit Agreement or, if the borrowing of a ~~letter~~Revolving Loan is to be repaid within 30 days of such borrowing, the Revolving Loan will accrue interest at the Lender’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 Lender’s prime rate of interest. Revolving Loans are subject to a LIBOR interest rate floor of .00%.

Letters of credit ~~under Facility 2~~ will ~~require~~be charged an annual fee equal to (i) an applicable margin determined by the ~~payment~~leverage ratio of ~~a letter~~the Company less (ii) .25%, paid quarterly in arrears, in addition to the Lender’s customary fees for issuance, amendment and other standard fees. Letters 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 credittotaling $4 million that were outstanding under ~~a $9.5 million letter of~~the existing 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 Revolving Loan.

~~The~~Under the terms of the Credit Agreement, ~~require~~ the Company may prepay the Term Loan and/or the Delayed Draw Term Loan in full or in part without penalty except for any amount required to ~~maintain, on deposit~~compensate the Lender for any swap breakage or other costs incurred in ~~one or more non-interest bearing accounts, a minimum of $5 million in quarterly average aggregate balances, which, if not maintained, results in a~~connection with such prepayment. The Lender receives an unused facility fee of ~~$12,500~~0.50% per annum payable toquarterly in arrears on the ~~Bank for that quarter.~~unused portions of the Revolving Loan and the Line of Credit Loan.

In addition to the foregoing, the Credit Agreement contains customary representations, warranties and ~~warranties,~~ 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 the Lender, which, if not maintained, will result in the assessment of a quarterly fee of $12,500), as well as events of default customary for facilities of this type. As of ~~September~~June 30, ~~2019,~~2020, the Company iswas in compliance with all 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.~~covenants.

~~Index~~

As of ~~September~~June 30, 2020 and December 31, 2019, the Company had ~~$27.1~~$18.8 million and $34.8 million, respectively, outstanding under the Credit Facility; offset by ~~$0.3~~$0.7 million ~~of deferred finance fees. As of December 31, 2018, the Company had $49.3 million outstanding under the Credit Facility, offset by $0.5~~and $0.8 million of deferred finance fees, ~~which were written-off.~~respectively. In January 2020, the Company repaid the $15.0 million outstanding on the Line of Credit Loan. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, letters of credit in the aggregate outstanding principal amount of $4.0 million and ~~$1.8~~$4.0 million, respectively, were outstanding under the Credit Facility.

Subsequent to the end of the fiscal quarter ended September 30, 2019, on November 14, 2019, the Credit Facility 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~~June 30, ~~2019~~2020 are as follows:

Year ending December 31,
2019 (excluding the nine months ended September 30, 2019)	$	5,567
2020		3,451	$	1,000
2021		2,270		2,000
2022		2,270		2,000
2023		2,270		2,000
Thereafter		11,351
2024				11,833
	$	27,179	$	18,833

Index

7.	STOCKHOLDERS’ EQUITY

Common Stock

Holders of our common stock are entitled to receive dividends when and as declared by our Board of Directors and have the right to one vote per share on all matters requiring shareholder approval. The Company has not declared or paid any cash dividends on our common stock since the Company’s Board of Directors discontinued our quarterly cash dividend program in February 2015. The Company has no current intentions to resume the payment of cash dividends to holders of common stock in the foreseeable future.

Preferred Stock

On November 14, 2019, the Company raised gross proceeds of $12.7 million from the sale of 12,700 shares of its newly designated Series A 9.6% Convertible Preferred Stock, no par value per share (the “Series A Preferred Stock”). The Series A Preferred Stock was designated by the Company’s Board of Directors pursuant to a certificate of amendment to the Company’s amended and restated certificate of incorporation. The liquidation preference associated with the Series A Preferred Stock was $1,000 per share at December 31, 2019. The Company incurred issuance cost of $0.7 million as part of this transaction.

The description below provides a summary of certain material terms of the Series A Preferred Stock pursuant to the Securities Purchase Agreement and set forth in the Certificate of Amendment (the “Charter Amendment”) affecting the Series A Preferred Stock:

Securities Purchase Agreement.

The Series A Preferred Stock was sold by the Company pursuant to a Securities Purchase Agreements dated as of November 14, 2019 (the “SPA”) among the Company, Juniper Targeted Opportunity Fund, L.P. and Juniper Targeted Opportunities, L.P. (together, “Juniper Purchasers”) and Talanta Investment, Inc. (“Talanta”, together with Juniper Purchasers, the “Investors”). Among other things, the SPA includes covenants relating to the appointment of a director to the Company’s Board of Directors to be selected solely by the holders of the Series A Preferred Stock.

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 dividends will accrue and thereby increase the number of 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 2% per annum but in no event above 14% per annum should the Company fail to perform certain obligations under the Charter Amendment. The Series A Preferred Stock is not currently redeemable and it is not probable it will become redeemable in the future. As a result, the Company is not required to re-measure the Series A Preferred Stock and does not accrete changes in the redemption value. As of June 30, 2020, undeclared cumulative dividends are approximately $0.8 million.

Series A Preferred Stock Holders Right to Convert into Common Stock. Each share of Series A Preferred Stock, at any time, is convertible into a number of shares of common stock equal to (“Convertible Formula”) the quotient of (i) the sum of (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 Series A Conversion Price (as defined and adjusted in the Charter Amendment) as of the applicable Conversion Date (as defined in the Charter Amendment). The initial Conversion Price is $2.36. At all times, however, the number 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 total number of shares of common stock outstanding after giving effect to the conversion (the “Hard Cap”), unless prior shareholder 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 converted into shares of common stock at the then applicable convertible Formula at the Company’s discretion.

Redemption. Beginning November 14, 2024, the Company may redeem all or any of the Series 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.

Index

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. The Company has classified the Series A Preferred Stock as mezzanine equity on the Consolidated Balance Sheet based upon the terms of a change of control which could be outside the Company’s control.

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 shareholders 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 and (iii) creating a subsidiary other than a wholly-owned subsidiary.

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 affects a stock split, stock dividend, subdivision, reclassification or combination of its common stock and certain other economically dilutive events.

Registration Rights Agreement. The Company also is a party to a Registration Rights Agreement (“RRA”) with the investors of the Series A Preferred Stock. 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.

Restricted Stock

The Company currently has ~~two~~three stock incentive plans: a Long-Term Incentive Plan (the “LTIP”) ~~and~~, a Non-Employee Directors Restricted Stock Plan (the “Non-Employee Directors Plan”) and the Lincoln Educational Services Corporation 2020 Incentive Compensation Plan (the “2020 Plan”).

2020 Plan

On March 26, 2020, the Board adopted, subject to shareholder approval, the 2020 Plan to provide an incentive to certain directors, officers, employees and consultants of the Company and its Subsidiaries to increase their interest in the Company’s success by offering them an opportunity to obtain a proprietary interest in the Company through the grant of equity-based awards. On June 16, 2020, the shareholders of the Company approved the 2020 Plan. The 2020 Plan is administered by the Compensation Committee of the Board, or such other qualified committee appointed by the Board, who will, among other duties, have full power and authority to take all actions and to make all determinations required or provided for under the 2020 Plan. Pursuant to the 2020 Plan, the Company may grant options, share appreciation rights, restricted shares, restricted share units, incentive stock options and nonqualified stock options. The Plan has a duration of 10 years.

Subject to adjustment as described in the 2020 Plan, the aggregate number of common shares (“Shares”) available for issuance under the 2020 Plan is Two Million (2,000,000) Shares. As of June 30, 2020, 111,376 restricted shares have been issued to the Non-Employee Directors which vest on the first anniversary of the grant date.

LTIP

Under the LTIP, certain employees ~~receive~~have received 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. The 2020 Plan makes it clear that there will be no new grants under the LTIP effective as of the date of shareholder approval, June 16, 2020. The 2020 Plan also states that the shares available under the 2020 Plan will be two million shares plus the number of shares remaining available under the LTIP. As no shares remain available under the LTIP there can be no additional grants under the LTIP. Grants under the LTIP remain in effect according to their terms. Therefore, those grants are subject to the particular award agreement relating thereto and to the LTIP to the extent that the prior plan provides rules relating to those grants. The LTIP remains in effect only to that extent.

On February 20, 2020, performance-based restricted shares were granted to certain employees of the Company. The shares vest 20%, 30% and 50% on the first, second and third anniversary dates, respectively, based upon the attainment of a financial target during each fiscal year ending December 31, 2020, 2021 and 2022, respectively. There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares. As of June 30, 2020, the Company recorded expense of $0.2 million as the expectation of attainment of the target is expected.

Index

On February 28, 2019, restricted shares were granted to certain employees of the Company, which shares ratably vest over three years. There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares.

Non-Employee Directors Plan

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 such restricted shares.

For the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the Company completed a net share settlement for ~~5,518~~58,451 and ~~207,642~~5,518 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 2019 and/or 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 $0.2 million and less than $0.1 ~~million and $0.4~~ million for each of the ~~nine~~three and six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, 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.

~~Index~~

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, 2018		35,908		$	2.23
Nonvested restricted stock outstanding at December 31, 2019							595,436		$	3.15
Granted		598,982			3.15		1,302,638			2.65
Canceled		(3,546	)		3.17		-			-
Vested		(35,908	)		2.23		(278,987	)		3.13

Nonvested restricted stock outstanding at September 30, 2019		595,436			3.15
Nonvested restricted stock outstanding at June 30, 2020							1,619,087			2.75

The restricted stock expense for ~~each of~~ the three months ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ was ~~$0.2~~$0.3 million and ~~$0.1~~$0.2 million, respectively. The restricted stock expense for ~~each of~~ the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ was ~~$0.5~~$0.6 million and ~~$0.5~~$0.2 million, respectively. The unrecognized restricted stock expense as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 was ~~$1.4~~$4.0 million and ~~$0.1~~$1.2 million, respectively. As of ~~September~~June 30, ~~2019,~~2020, outstanding restricted shares under the LTIP had aggregate intrinsic value of ~~$1.2~~$6.3 million.

Index

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, 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
-

	Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2019		116,000	$	10.56	1.83 years	$	-

Granted/Canceled/Vested		-		-			-

Outstanding at June 30, 2020		116,000		10.56	1.33 years		-

Vested as of June 30, 2020		116,000		10.56	1.33 years		-

Exercisable as of June 30, 2020		116,000		10.56	1.33 years		-

As of ~~September~~June 30, ~~2019,~~2020, there was no unrecognized pre-tax compensation expense.

The following table presents a summary of stock options outstanding:

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

		At June 30, 2020
		Stock Options Outstanding						Stock Options Exercisable
Exercise Prices		Shares		Contractual Weighted Average Life (years)		Weighted Average Price		Shares		Weighted Average Exercise Price
$	7.79		91,000		1.67	$	7.79		91,000	$	7.79
$	20.62		25,000		0.10		20.62		25,999		20.62

			116,000		1.33		10.56		116,999		10.56

~~Index~~

8.	INCOME TAXES

The provision for income taxes for the three months ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ was ~~$0.1 million, or 3.6% of pretax income, and~~ less than $0.1 million, or ~~9.1%~~6.0% of pretax income, and $0.1 million, or 4.9% of pretax loss, respectively. The provision for income taxes for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ was ~~$0.2~~$0.1 million, or ~~3.5%~~11.5% of pretax loss, and $0.2 million, or ~~1.3%~~2.3% 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~~June 30, ~~2019 except deferred tax liability related~~2020.

See Note 12 – COVID-19 Pandemic and Cares Act to ~~indefinite lived intangibles~~the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for ~~which, the valuation allowance was reduced by $0.1 million and a corresponding deferred tax expense was recognized as of September 30, 2019.~~additional discussion about the CARES Act for impact on taxes.

Index

9.	COMMITMENTS AND 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,~~I, Item 1,3, and in Note 915 to the ~~notes~~Notes to the ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements included in the Company’s ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~fiscal year ended ~~June 30,~~December 31, 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~~June 30, ~~2019.~~2020.

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.

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 have 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 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 described below.

~~Index~~

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~~our campus operations ~~that are being phased out.~~which have been closed. The schools in the Transitional segment ~~employ~~employed a gradual teach-out process that ~~enables~~enabled the schools to continue to operate to allow their current students to complete their course of study. ~~These schools are no longer enrolling new students.~~

The Company continually evaluates each campus for profitability, earning potential, and customer satisfaction. This evaluation takes several factors into consideration, including the campus’s geographic location and program offerings, as well as skillsets required of our students by their potential employers. The purpose of this evaluation is to ensure that our programs provide our students with the best possible opportunity to succeed in the marketplace with 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 June 30, 2020 and 2019 and December 31, 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.

Index

Summary financial information by reporting segment is as follows:

	For the Three Months Ended September 30,																For the Three Months Ended June 30,
	Revenue										Operating Income (Loss)						Revenue										Operating Income (Loss)
	2019		% of Total			2018		% of Total			2019			2018			2020		% of Total			2019		% of Total			2020			2019
Transportation and Skilled Trades	$	52,652		72.5	%	$	51,008		72.8	%	$	6,752		$	6,330		$	42,915		68.7	%	$	44,028		69.3	%	$	4,870		$	2,484
Healthcare and Other Professions		19,942		27.5	%		18,249		26.0	%		1,403			830			19,555		31.3	%		19,541		30.7	%		2,731			1,839
Transitional		-		0.0	%		821		1.2	%		-			(1,863	)
Corporate		-		0.0	%		-		0.0	%		(6,012	)		(5,221	)		-					-					(6,441	)		(6,416	)
Total	$	72,594		100.0	%	$	70,078		100.0	%	$	2,143		$	76		$	62,470		100.0	%	$	63,569		100.0	%	$	1,160		$	(2,093	)

	For the Nine Months Ended September 30,																For the Six Months Ended June 30,
	Revenue										Operating Income (Loss)						Revenue										Operating Income (Loss)
	2019		% of Total			2018		% of Total			2019			2018				2020	% of Total				2019	% of Total				2020			2019
Transportation and Skilled Trades	$	141,005		70.7	%	$	135,838		70.4	%	$	11,051		$	8,747		$	91,971		69.4	%	$	88,354		69.7	%	$	9,708		$	4,300
Healthcare and Other Professions		58,422		29.3	%		52,554		27.2	%		4,214			2,747			40,540		30.6	%		38,479		30.3	%		4,733			2,811
Transitional		-		0.0	%		4,695		2.4	%		-			(2,899	)
Corporate		-		0.0	%		-		0.0	%		(20,079	)		(18,305	)		-					-					(14,626	)		(14,069	)
Total	$	199,427		100.0	%	$	193,087		100.0	%	$	(4,814	)	$	(9,710	)	$	132,511		100.0	%	$	126,833		100.0	%	$	(185	)	$	(6,958	)

	Total Assets				Total Assets
	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Transportation and Skilled Trades	$	111,132	$	92,070	$	135,140	$	121,611
Healthcare and Other Professions		27,926		14,078		29,184		27,945
Transitional		-		527
Corporate		22,679		39,363		30,577		45,207
Total	$	161,737	$	146,038	$	194,901	$	194,763

1921

Index

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:

											June 30, 2020
	September 30, 2019										Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Amount		(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	11,757	$	11,757	$	-	$	-	$	11,757	$	23,342	$	23,342	$	-	$	-	$	23,342
Restricted cash		3,997		3,997		-		-		3,997		2,626		2,626		-		-		2,626
Prepaid expenses and other current assets		4,257		-		4,257		-		4,257		3,748		-		3,748		-		3,748

Financial Liabilities:
Accrued expenses	$	9,523	$	-	$	9,523	$	-	$	9,523	$	12,163	$	-	$	12,163	$	-	$	12,163
Other short term liabilities		595		-		595		-		595		93		-		93		-		93
Credit facility and term loan		26,902		-		20,182		-		20,182
Derivative qualifying cash flow hedge												1,017		-		1,017		-		1,017
Credit facility												18,121		-		14,943		-		14,943

	December 31, 2019
	Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	23,644	$	23,644	$	-	$	-	$	23,644
Restricted cash		15,000		15,000		-		-		15,000
Prepaid expenses and other current assets		4,190		-		4,190		-		4,190

Financial Liabilities:
Accrued expenses	$	7,869	$	-	$	7,869	$	-	$	7,869
Other short term liabilities		199		-		199		-		199
Derivative qualifying cash flow hedge		174		-		174		-		174
Credit facility		34,028		-		34,028		-		34,028

~~We estimate~~As of June 30, 2020, we estimated the fair value of the Credit Facility based on a present value analysis utilizing aggregate market yields obtained from independent pricing sources for similar financial instruments. As of December 31, 2019, we estimated that the carrying value of the Credit Facility approximates the fair value due to the fact that the Credit Facility was entered into in close proximity.

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.

~~12.~~

~~SUBSEQUENT EVENTS~~

Qualifying Hedge Derivative

~~(a) Sale of 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. 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 an interest rate swap for the Term Loan with a ~~new senior secured credit agreement with its lender, Sterling National Bank.~~notional amount of $20M which expires on December 1, 2024. The loan has a 10-year straight line amortization. A principal amount of $0.2 million is paid monthly. This interest rate swap converts the floating interest rate Term Loan to a fixed rate, plus a borrowing spread. The interest rate is variable based on LIBOR plus 3.50% and the Company’s fixed rate is 5.36%. The Company designated this interest rate swap as a cash flow hedge.

~~See Part II, Item 5 Other Information “$60 Million Credit Facility with Sterling National Bank” for a description~~

Index

The Company entered into this interest rate swap to hedge exposure resulting from the interest rate risk. The purpose of this hedge is to reduce the variability of the ~~new credit facility.~~interest rate based on LIBOR. The Company manages these exposures within specified guidelines through the use of derivatives. All of our derivative instruments are utilized for risk management purposes, and the Company does not use derivatives for speculative trading purposes.

The following summarizes the fair value of the outstanding derivative:

	June 30, 2020				December 31, 2019
	Liability⁽¹⁾				Liability⁽¹⁾
	Notional		Fair Value		Notional		Fair Value
Derivative derived as a heding instrument:
Interest Rate Swap	$	18.8	$	1.0	$	19.8	$	0.1

(1)

The Company’s derivative liability is measured at fair value using observable market inputs such as interest rates and our own credit risk as well as an evaluation of our counterparty’s credit risk. Based on these inputs the derivative liability is classified within Level 2 of the valuation hierarchy. The liability is included in other long-term liabilities in the condensed consolidated balance sheets.

The following summarizes the financial statement classification and amount of interest expense recognized on hedging instruments:

	Three Months Ended		Six Months Ended
	June 30, 2020
	Interest expense
Interest Rate Swap	$	0.1	$	0.1

The following summarizes the effect of derivative instruments designated as hedging instruments in Other Comprehensive Income/(Loss):

	June 30, 2020
	Three Months Ended		Six Months Ended
Derivative qualifying as cash flow hedge
Interest rate swap loss	$	0.1	$	0.8

12.	COVID-19 PANDEMIC AND CARES ACT

The Company began seeing the impact of the global COVID-19 pandemic on its business in early March and such effects of the pandemic have continued. The spread of COVID-19 has had an unprecedented impact on higher educational institutions across the country, including our schools, and has led to the closure of campuses and the transition of academic programs from on-ground to online delivery. The impact for the Company was primarily related to transitioning classes from in-person, hands-on learning to online, remote learning. As part of this transition, the Company has incurred additional expenses. In addition, some students have been placed on leave of absence as they could not complete their externships and some students chose not to participate in online learning. Additionally, certain programs were extended due to restricted access to externship sites and classroom labs. In accordance with phased re-opening as applied on a state-by-state basis, all of our schools have now re-opened and we expect the majority of the students who have been on leave of absence or have deferred their programs to finish their programs. The Company expects to continue to be impacted by COVID-19 as the situation remains dynamic and evolving and subject to rapid and possibly material change. Additional impacts may arise of which the Company is not currently aware. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.

Index

On March 27, 2020, the CARES Act was signed into law, which includes a $2 trillion federal economic relief package providing financial assistance and other relief to individuals and business impacted by the spread of COVID-19. The CARES Act includes provisions for financial assistance and other regulatory relief benefitting students and their postsecondary institutions.

Among other things, the CARES Act includes a $14 billion higher education emergency relief fund (“HEERF”) for the DOE to distribute directly to institutions of higher education. Institutions are required to use at least half of the HEERF funds for emergency grants to students for expenses related to disruptions in campus operations (e.g., food, housing, etc.). Institutions are permitted to use the remainder of the funds for additional emergency grants to students or to cover institutional costs associated with significant changes to the delivery of instruction due to the COVID-19 emergency, provided that those costs do not include payment to contractors for the provision of pre-enrollment recruitment activities, endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship. The law requires institutions receiving funds to continue to the greatest extent practicable to pay its employees and contractors during the period of any disruptions or closures related to the COVID-19 emergency.

The DOE has allocated funds to each institution of higher education based on a formula contained in the CARES Act. The formula is heavily weighted toward institutions with large numbers of Pell Grant recipients. The DOE allocated $27.4 million to our schools to be distributed in two equal installments. The Company received $13.7 million in the first installment which was intended for emergency grants to students. The Company has distributed $11.1 million to the students and expects to distribute the remainder over the next few months. The $2.6 million remaining to be distributed is included in restricted cash on the Company's Condensed Consolidated Balance Sheets. As of June 30, 2020, the Company had received $13.2 million of the $13.7 million from the second installment which is intended for institutional costs and additional emergency grants to students with the remaining $0.5 million received in August 2020. The Company has reimbursed itself for $1.3 million of permitted expenses as of June 30, 2020 which was netted against the original expenses included in selling, general and administrative on the Condensed Consolidated Statement of Operations. The DOE also has published guidance regarding permitted and prohibited use of these funds and requirements for reporting the use of these funds. If the funds are not spent or accounted for in accordance with applicable requirements, we could be required to return funds or be subject to other sanctions.

The CARES Act also contains separate educational provisions that relieve both institutions and students from complying with the requirement to repay Title IV funds following a student’s withdrawal as a result of the COVID-19 emergency. Ordinarily, when a student withdraws, the institution (and, in some cases, the student) may be required to return unearned portions of the Title IV grant and loan funds awarded for the period. Institutions will be required to report to the DOE the total amount of grant and loan funds the institution has not returned due to the waiver. For federal loan borrowers, the CARES Act also directs the DOE to cancel the borrower’s obligation to repay any Direct Loan associated with the relevant period. The law also expands the options to avoid student withdrawals due to a cessation of attendance by placing students on an approved leave of absence and waives certain requirements normally applicable to a leave of absence. The CARES Act also allows institutions to exclude from the calculation of a student’s satisfactory academic progress any attempted credits not completed due to the COVID-19 emergency.

The Company is also permitted to delay payment of FICA payroll taxes until January 1, 2021. The Company will have to repay 50 percent of the deferred payments by December 31, 2021, and the remaining 50 percent by December 31, 2022. As of June 30, 2020, the Company had deferred payments of $1.5 million.

Index

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All references in this Quarterly Report on Form 10-Q 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~~Such statements may be identified by the use of words such as “expect,” “estimate,” “assume,” “believe,” “anticipate,” “may,” “will,” “forecast,” “outlook,” “plan,” “project,” or similar words, and include, without limitation, statements relating to future enrollment, revenues, revenues per student, earnings growth, operating expenses, capital expenditures and the ultimate effect of the COVID-19 pandemic on the Company’s business and results. These statements are based on the Company’s current expectations and are subject to a number of assumptions, risks and uncertainties. Additional factors that could cause or contribute to ~~such~~ differences between our actual results and those anticipated 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, ~~2018,~~2019, as filed with the ~~Securities and Exchange Commission (the “SEC”)~~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 Quarterly Report and in our other reports filed with the SEC that advise interested parties of the risks and factors that may affect our business.

~~Index~~

The interim financial statements and related notes thereto appearing 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, ~~2018,~~2019, as filed with the SEC, which includes audited consolidated financial statements for our three fiscal years ended December 31, ~~2018.~~2019.

General

The Company provides diversified career-oriented post-secondary education to recent high school graduates and working adults. The Company 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, among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and information technology programs. The schools, currently consisting of 22 schools in 14 states, operate under Lincoln Technical Institute, Lincoln College of Technology, 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”)~~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.

Our business is organized into three reportable business segments: (a) Transportation and Skilled Trades, (b) Healthcare and Other Professions or “HOPS”, and (c) Transitional, which refers to businesses that have been taught out.

Impact of COVID-19 on the Company

During the first quarter of 2020, COVID-19 began to spread worldwide and has caused significant disruptions to the U.S. and world economies. In ~~August 2018,~~early March 2020, the Company began seeing the impact of the COVID-19 pandemic on our business. Beginning on March 15, 2020, many businesses closed or reduced hours throughout the U.S. to combat the spread of COVID-19. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a pandemic. On March 13, 2020, a national emergency was declared, which made federal funds available to respond to the crisis. All 50 states have reported cases of COVID-19 and the states have implemented various containment efforts, including lockdowns on non-essential businesses. Economists expect that the impact of COVID-19 on the U.S. economy will be significant during the remainder of 2020. The circumstances related to COVID-19 are unprecedented, dynamic and evolving and currently unpredictable. As the economic impact of the COVID-19 pandemic becomes clearer as the year progresses, we could see significant changes to our operations.

Index

The impact of COVID-19 was primarily related to transitioning classes from in-person, hands-on learning to online, remote learning. As part of this transition, the Company has incurred additional expenses. In addition, some students have been placed on leave of absence as they could not complete their externships and some students chose not to participate in online learning. Additionally, certain programs were extended due to restricted access to externship sites and classroom labs. In response to COVID-19, we have also implemented initiatives to safeguard our students and our employees in this time of crisis. Due to phased re-opening on a state-by-state basis, our schools have been reopening since May 2020 and, currently, all of our schools have re-opened and we expect the majority of the students who were placed on leave or otherwise deferred their programs to finish their programs now. As COVID-19 continues to affect many states and its course is unpredictable, the full impact on the Company’s wholly-owned subsidiary, New England Institute of Technology at Palm Beach, Inc. (“NEIT”), sold to Elite Property Enterprise, LLC real property owned by NEIT located at 1126 53rd Court North, Mangonia Park, Palm Beach County, Floridaconsolidated financial statements remains uncertain.

The following discussion highlights how we are responding and the ~~improvements~~expected impacts of COVID-19 on our business. Due to the evolving landscape relating to COVID-19 and ~~certain personal property located thereon (the “Mangonia Park Property”), for a cash purchase price of $2,550,000. At closing, NEIT paid a real estate brokerage fee equal to 5%~~the unpredictability of the ~~gross sales price~~circumstances, the information below should be read in conjunction with our COVID-19 Pandemic risk factor. See Part II, Item 1A. “Risk Factors — COVID-19 Pandemic” in this Quarterly Report on Form 10-Q for risks to our business arising as a consequence of COVID-19. See also Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 From 10-K”) for additional risk factors relating to our Company and the industry. In addition, see the forward-looking and cautionary statements discussion above. Forward-looking statements are subject to risks, uncertainties, assumptions, and other ~~customary closing costs~~factors that may cause actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the risks and ~~expenses. Pursuant~~uncertainties set forth in Item 1A. “Risk Factors” and elsewhere in the 2019 Form 10-K and this Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020.

Transition to Distance Learning

In the first and second quarters, the Company quickly transitioned all of its programs from in-person, hands-on learning to online, remote learning. The Company obtained approvals from the DOE, certain states and agencies to transition to distance learning. The Company worked with its book vendors to obtain e-books for the students. The Company has ensured that all students have either received laptops, tablets or already owned a device. The Company has enhanced its education platform for online learning through a software program. As schools have reopened, we are adhering to social distancing protocols which may differ from school-to-school depending on physical circumstances as well as other factors and we are limiting the number of students on campus at one time. The schools continue to teach a portion of each program through distance learning and labs are generally taught in-person.

Employees

Our employees have been affected by COVID-19 in many ways, including disruptions due to unexpected school and day-care closings, family underemployment or unemployment, and learning how to work remotely and, in some cases, with new tools and technology to learn and to support that work. Our goal has been to support our people during the present uncertainty while remaining focused on meeting the needs of our students and business continuity. Early in the crisis, we provided employees with information about best practices to prevent the spread of COVID-19 and other viruses and illnesses. We recommended that non-student interfacing employees work from home and we reduced the density and provided physical space for us to implement social distancing protocols for the employees who were required to work in our offices. Later, we enabled substantially all of our workforce to work remotely. In addition, we have limited in-person meetings, non-employee visits to our locations, and non-essential business travel.

To further protect the health and welfare of our employees we have also encouraged employees who potentially have been exposed to COVID-19 to self-quarantine for 14 days while we continue to pay them. To ease access to medical assistance, we are waiving co-payments for COVID-19 testing and telemedicine for those employees enrolled in our health insurance plans. The Company’s vacation policy was enhanced in the second quarter of 2020 to include up to two weeks of payments for unused vacation days for instructors.

Community

We understand that the communities in which our employees live, work, and serve are also suffering distress as a result of COVID-19. Due to the ~~provisions~~growing needs of our neighbors, healthcare providers and many of the ~~Company’s credit facility with its lender, Sterling National Bank,~~organizations in place to provide assistance are overburdened. In March 2020, several campuses in the ~~net cash proceeds~~Tri-State (NY, NJ & CT) area have donated medical supplies and personal protective equipment to major medical facilities throughout the region.

Operations

We have robust pandemic and business continuity plans that include our business units and technology environments. When COVID-19 advanced to a pandemic, we activated our business continuity plan (the “Continuity Plan”). As an element of the ~~sale~~Continuity Plan, we activated our Health Communications Response Team (“HCRT”), a group of the ~~Mangonia Park Property were deposited into an account~~corporate senior managers, who directed a series of activities to address the health and safety of our workforce, to assist students, to sustain business operations, to coordinate communication and to address our management of other ongoing pandemic activities.

Index

In response to a growing infected population across the United States, as noted above, we executed plans for social-distancing in our facilities and implemented work-from-home contingencies. As the virus spread, we created remote-working capabilities for our employees. We also completed a series of additional steps to appropriately ensure compliance with our telecommuting policy. The policy is designed to create a secure at-home work environment that protects our students’ information and transactions while also providing the ~~lender~~necessary technology capabilities to ~~serve~~enable effective remote-working for our staff.

There has been a modest decline in productivity for certain departments as ~~additional security~~our personnel have been adjusting to this significant change in work environment. We currently believe our technology infrastructure is sufficient to maintain a remote-working environment for ~~loans~~the vast majority of our workforce for the foreseeable future and ~~other financial accommodations provided~~that productivity should improve as our people adjust to this significant change in work environment. The level and ability of our employees to continue working from home could change, however, as conditions surrounding COVID-19 evolve and infections increase, or if there are interruptions in the internet infrastructure where our employees live or if our internet service providers are otherwise adversely affected.

Return to In-Person Operations

Due to the phase-in of reopening which has been addressed on a state-by-state basis, we have been reopening our schools. Currently, all of our schools have re-opened and we continue to follow the guidelines released by each state and city in which our schools are located. The HCRT is continuing to closely monitor the guidelines released by each state and city in which our school are located for any change. As part of reopening our schools, we purchased personal protective equipment, are limiting the number of students in classrooms, have separated students by at least 6 feet, have closed/limited all common areas, require everyone at the schools to wear a cloth face mask and maintain a daily log of anyone at the school and monitor body temperatures of those at the school through non-contact thermometers. In a similar way, we are also rotating employees schedules to limit/control the number of employees in spaces.

Student Population and Financial Results

As of June 30, 2020, the Company had 696 students on leave of absence due to COVID-19. The majority of these students were at the end of their programs and ~~its subsidiaries under~~were on externship which they were not able to complete. A smaller portion of these students on leave had chosen not to undertake their programs through distance learning. The Company expects a majority of these students will return to school or an externship by the ~~credit facility. In December 2018, the funds were used to repay the outstanding principal balance~~end of the loans outstanding under the credit facility and such repayment permanently reduced the revolving loan availability under the credit facility designated as Facility 1 under the Company’s Credit Agreement to $22.7 million.year.

~~Effective December 31, 2018,~~The Company has extended the length and graduation dates of four programs as there is only a small percentage of these four programs that can be taught through distance learning.

The Company has campuses where students live in dorms that are operated by either 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 Company and its 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.itself, Collegiate Housing or other housing options. The majority of the ~~LCNE~~students had returned home and their dorm charges have been reversed. In addition, at campuses where students have meal plans, the Company’s cafeterias have been closed and all charges for meal plans have been reversed. For students that remain in dorms, the Company has given the students gift cards to assist in replacing their meal plans. As the students are returning to campus the dorms have reopened and the schools have limited the number of students in dorms to adhere to social distancing.

Institutional Student Loans

COVID-19 is having far reaching, negative impact on individuals, businesses, and, consequently, the overall economy. Specifically, COVID-19 has materially disrupted business operations resulting in significantly higher levels of unemployment or underemployment. As a consequence, we expect many of our individual students will ~~continue~~experience financial hardship, making it difficult, if not impossible, to meet their ~~education at Goodwin College thereby limiting some~~payment obligations to us without temporary assistance.

As a result of the ~~Company’s closing costs.~~negative impact on employment from COVID-19, we are observing higher levels of financial hardship for our students, which we expect will lead to higher levels of forbearance, delinquency and defaults. We expect that, left unabated, this deterioration in forbearance, delinquency and default rates will persist until such time as the economy and employment return to relatively normal levels.

We expect that, as the economic impact of COVID-19 evolves, we will continue to evaluate the measures we have put in place to assist our students during this unprecedented challenge. We continue to adapt and evolve our collections practices to meet the needs of our students.

Index

Liquidity

As previously reported, over the course of 2019, we significantly increased our overall liquidity position. As a result of these efforts, we currently believe our liquidity position is stable and we expect to be able to fund our business operations for the remainder of 2020 and we believe that we have sufficient capital to withstand the potential downturn in our business. If circumstances surrounding COVID-19 continue to change in a significantly adverse way, however, it is possible our liquidity could be materially and adversely affected, which could materially and adversely impact our business operations and our overall financial condition.

Regulatory agencies have also provided regulatory capital relief to institutions as a result of the crisis as discussed below.

Regulatory

On March 27, 2020, the CARES Act was signed into law, which includes a $2 trillion federal economic relief package providing financial assistance and other relief to individuals and business impacted by the spread of COVID-19. The ~~Company recorded net~~spread of COVID-19 has had an unprecedented impact on higher educational institutions across the country, including our schools, and has led to the closure of campuses and the transition of academic programs from on-ground to online delivery. The CARES Act includes provisions for financial assistance and other regulatory relief benefitting students and their postsecondary institutions.

Among other things, the CARES Act includes a $14 billion higher education emergency relief fund (“HEERF”) for the DOE to distribute directly to institutions of higher education. Institutions are required to use at least half of the HEERF funds for emergency grants to students for expenses related to disruptions in campus operations (e.g., food, housing, etc.). Institutions are permitted to use the remainder of the funds for additional emergency grants to students or to cover institutional costs associated with significant changes to the ~~closure~~delivery of instruction due to the COVID-19 emergency, provided that those costs do not include payment to contractors for the provision of pre-enrollment recruitment activities, endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship. The law requires institutions receiving funds to continue to the greatest extent practicable to pay its employees and contractors during the period of any disruptions or closures related to the COVID-19 emergency.

The DOE has allocated funds to each institution of higher education based on a formula contained in the CARES Act. The formula is heavily weighted toward institutions with large numbers of Pell Grant recipients. The DOE allocated $27.4 million to our schools to be distributed in two equal installments. The Company received $13.7 million in the first installment which was intended for emergency grants to students. The Company has distributed $11.1 million to the students and expects to distribute the remainder over the next few months. The $2.6 million remaining to be distributed is included in restricted cash on the Company's Condensed Consolidated Balance Sheets. As of June 30, 2020, the Company had received $13.2 million of the ~~LCNE campus in 2018 of approximately $4.3~~$13.7 million ~~including (i) $1.6 million in connection~~from the second installment which is intended for institutional costs and additional emergency grants to students with the ~~termination~~remaining $0.5 million received in August 2020. The Company has reimbursed itself for $1.3 million of permitted expenses as of June 30, 2020. The DOE also has published guidance regarding permitted and prohibited use of these funds and requirements for reporting the use of these funds. If the funds are not spent or accounted for in accordance with applicable requirements, we could be required to return funds or be subject to other sanctions.

The CARES Act also contains separate educational provisions that relieve both institutions and students from complying with the requirement to repay Title IV funds following a student’s withdrawal as a result of the ~~LCNE campus lease, which is~~COVID-19 emergency. Ordinarily, when a student withdraws, the ~~net present value~~institution (and, in some cases, the student) may be required to return unearned portions of the ~~remaining~~Title IV grant and loan funds awarded for the period. Institutions will be required to report to the DOE the total amount of grant and loan funds the institution has not returned due to the waiver. For federal loan borrowers, the CARES Act also directs the DOE to cancel the borrower’s obligation to ~~be paid in equal monthly installments through~~repay any Direct Loan associated with the relevant period. The law also expands the options to avoid student withdrawals due to a cessation of attendance by placing students on an approved leave of absence and waives certain requirements normally applicable to a leave of absence. The CARES Act also allows institutions to exclude from the calculation of a student’s satisfactory academic progress any attempted credits not completed due to the COVID-19 emergency.

The Company is also permitted to delay payment of FICA payroll taxes until January ~~2020, (ii) approximately $700,000~~1, 2021. The Company will have to repay 50 percent of ~~severance~~the deferred 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 HOPS segment, were included in the Transitional segment as ofby December 31, ~~2018.~~2021, and the remaining 50 percent by December 31, 2022. As of June 30, 2020, the Company had deferred payments of $1.5 million.

~~As of September 30, 2019, we had 12,015 students enrolled at 22 campuses in our programs.~~

Other

~~Recent Developments~~Based on analysis of ASC 350 and ASC 360, during the three and six months ended June 30, 2020, we are currently not aware of any material impairments of our goodwill, indefinite-lived intangible assets or finite-lived assets. The Company will continue to assess the relevant criteria on a quarterly basis based on updated cash flow and market assumptions. Unfavorable changes in cash flow or market assumptions could result in impairment of these assets in future periods.

~~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”.

2128

Index

Critical Accounting Policies and Estimates

For a description of our critical accounting policies and estimates, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” and Note 1 to the ~~consolidated financial statements~~Condensed Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019 and Note 1 to the ~~consolidated financial statements~~Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019.~~2020.

In addition, due to outbreak of COVID-19, we have reassessed those of our accounting policies whose application places the most significant demands on management’s judgment, for instance, revenue recognition, allowance for doubtful account, goodwill, and long-lived assets, stock-based compensation, derivative instruments and hedging activity, borrowings, assumptions related to ROU assets, lease cost, income taxes and assets and obligations related to employee benefit plans. Such reassessments did not have a significant impact on our results of operations and cash flows for the periods presented.

Effect of Inflation

Inflation has not had a material effect on our operations.

Results of Continuing Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020

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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Revenue		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Costs and expenses:
Educational services and facilities		45.7	%		49.4	%		46.6	%		49.3	%		42.0	%		46.8	%		42.6	%		47.1	%
Selling, general and administrative		51.6	%		56.4	%		55.9	%		58.5	%		56.3	%		56.5	%		57.6	%		58.4	%
(Gain) loss on sale of assets		-0.3	%		0.0	%		-0.1	%		0.1	%		-0.2	%		0.0	%		-0.1	%		0.0	%
Total costs and expenses		97.0	%		105.8	%		102.4	%		107.9	%		98.1	%		103.3	%		100.1	%		105.5	%
Operating gain (loss)		3.0	%		-5.8	%		-2.4	%		-7.9	%
Operating income (loss)														1.9	%		-3.3	%		-0.1	%		-5.5	%
Interest expense, net		-1.1	%		-0.8	%		-1.1	%		-0.9	%		-0.5	%		-1.3	%		-0.5	%		-1.1	%
Loss from operations before income taxes		1.9	%		-6.6	%		-3.5	%		-8.8	%
Income (loss) from operations before income taxes														1.4	%		-4.6	%		-0.6	%		-6.6	%
Provision for income taxes		0.0	%		0.1	%		0.1	%		0.1	%		0.1	%		0.2	%		0.1	%		0.2	%
Net Loss		1.9	%		-6.7	%		-3.6	%		-8.9	%
Net income (loss)														1.3	%		-4.8	%		-0.7	%		-6.8	%

Three Months Ended ~~September~~June 30, ~~2019~~2020 Compared to Three Months Ended ~~September~~June 30, ~~2018~~2019

Consolidated Results of Operations

Revenue. Revenue was $62.5 million for the three months ended June 30, 2020, down 1.7% from $63.6 in the prior year comparable quarter despite the 11.0% increase in average student population. The impact of COVID-19 has extended graduation dates for certain programs due to restricted access to externships sites and classroom labs. These restrictions have deferred $0.9 million in revenue to the second half of the year. In addition, non-tuition revenue was reduced $0.8 million due to credits issued to students for dorm and meal fees resulting from campus closures caused by COVID-19. The dorms are owned and operated by the Company. We received funds under the Cares Act which may be used to reimburse the Company for the student credits issued, but at this time we are awaiting further guidance from the DOE on the appropriate application of such funds.

Partially offsetting the increase in revenue was the impact of COVID-19, which has extended graduation dates for certain programs due to restricted access to externship sites and classroom labs. These restrictions have deferred $0.9 million in revenue to the second half of the year. In addition, non-tuition revenue was reduced $0.8 million due to credits issued to students for dorm and meal fees resulting from campus closures caused by COVID-19. The dorms are owned and operated by the Company. We received funds under the Cares Act which may be used to reimburse the Company for the student credits issued, but at this time we are awaiting further guidance from the DOE on the appropriate application of such funds.

Index

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 $3.5 million, or 11.8%, to $26.2 million for the three months ended June 30, 2020 from $29.8 million in the prior year comparable period. Reduced costs were a result of several factors including facilities cost savings due to facility closure during the quarter as a result of actions taken to control transmission of COVID-19; renegotiation of lease terms at certain campuses reducing rent expense; and the reduction in instructional and books and tools expenses as a result of students completing their course remotely.

Educational services and facilities expense, as a percentage of revenue, decreased to 42.0% from 46.8% for the three months ended June 30, 2020 and 2019, respectively.

Selling, general and administrative expense. Our selling, general and administrative expense decreased $0.7 million, or 2.1% to $35.2 million for the three months ended June 30, 2020 from $35.9 million in the prior year comparable period. The decrease was primarily driven by cost reductions in sales, student services, and marketing investments, partially offset by an increase in bad debt expense and salaries and benefits expense.

Reductions in sales expense was the result of travel restrictions imposed by the COVID-19 pandemic, while lower student services expense was the result of suspended busing and transportation services for students. Reduced marketing investments were due to the timing of marketing spend.

Bad debt expense increased mainly due to a higher reserve amount for doubtful accounts due to lower historical repayment rates coupled with higher accounts receivable.

Selling, general and administrative expenses, as a percentage of revenue, decreased to 56.3% for the three months ended June 30, 2020 from 56.5% in the prior year comparable period.

Net interest expense. Net interest expense for the three months ended June 30, 2020 decreased by $0.5 million, or 60.5%, to $0.3 million from $0.8 million in the prior year comparable period. The reduction in expense quarter over quarter is due to favorable terms from the refinance of our credit facility as well as a lower loan balance outstanding in the current year.

Income taxes. Our provision for income taxes was essentially flat at approximately $0.1 million the three months ended June 30, 2020 and 2019. No federal or state income tax benefit was recognized for either period loss due to the recognition of a full valuation allowance. Income tax expense resulted from various minimum state taxes.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Consolidated Results of Operations

Revenue. Revenue increased ~~by $2.5~~$5.7 million, or ~~3.6%,~~4.5% to ~~$72.6~~$132.5 million for the ~~three~~six months ended ~~September~~June 30, ~~2019~~2020 from ~~$70.1~~$126.8 million in the prior year comparable period. ~~Excluding the Transitional segment, which had revenue of zero and $0.8 million for the three months ended September 30, 2019 and 2018 respectively, revenue increased by $3.3 million, or 4.8%.~~ The increase ~~in revenue is due to a 3.3%~~was the result of an 8.8% increase in average student population in part driven by starting the year with approximately 760 more students than in the prior year comparable period. As a result, our ending population as of June 30, 2020 grew 14.0% compared to prior year. Excluding students on leave of absence as a result of COVID-19, ending population grew 7.5% or approximately 800 students. The majority of these students were near the end of their programs and are expected to resume their program during the third quarter as all of our schools are now open and more externship sites reopen. We do not recognize revenue during a students’ leave of absence period, therefore, we anticipate earning revenue starting in the third quarter upon the students’ return.

Partially offsetting the increase in revenue was the impact of COVID-19, which ~~is attributed~~has extended graduation dates for certain programs due to restricted access to externship sites and classroom labs. These restrictions have deferred $0.9 million in revenue to the ~~Company’s consistent~~second half of the year. In addition, non-tuition revenue was reduced $0.8 million due to credits issued to students for dorm and meal fees resulting from campus closures caused by COVID-19. The dorms are owned and operated by the Company. We received funds under the Cares Act which may be used to reimburse the Company for the student ~~start growth over~~credits issued, but at this time we are awaiting further guidance from the ~~last two years.~~DOE on the appropriate application of such funds.

Total student starts increased ~~by 2.7%~~5.3% for the ~~three~~six months ended ~~September~~June 30, ~~2019~~2020 as compared to the prior year comparable period. ~~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.~~

2230

Index

~~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 three 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, 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 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 2.6% 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 marketing and 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 $1.2~~$3.2 million, or ~~1.3%,~~5.4% to ~~$92.9~~$56.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 from ~~$94.2~~$59.7 million in the prior year comparable period. ~~Excluding the Transitional segment, which had expense of $3.9 million in the prior year, educational services and facilities expenses increased $2.7 million. The increase was primarily the~~Reduced costs were a result of ~~increases~~several factors including facilities cost savings due to facility closures during the first and second quarter as a result of actions taken to control transmission of COVID-19; renegotiation of lease terms at certain campuses reducing rent expense; and the reduction in instructional ~~salaries and benefits expense~~ and books and tools ~~expense resulting from~~expenses as a ~~larger student population year over year.~~ result of students completing their course remotely.

Educational services and facilities expense, as a percentage of revenue, decreased to ~~46.6%~~42.6% from 47.1% for the ~~three~~six months ended ~~September~~June 30, 2020 and 2019, ~~from 49.3% in the prior year comparable period.~~respectively.

Selling, general and administrative expense.Our selling general and administrative expense increased ~~$3.4~~$2.2 million, or ~~3.2%,~~3.0% to ~~$111.5~~$76.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 from ~~$108.1~~$74.1 million in the prior year comparable period. ~~Excluding~~The additional costs were driven by several factors including additional bad debt expense and increased salaries and benefits expense, partially offset by cost savings in sales expense, student services expense and marketing investments.

Bad debt expense increased mainly due to a higher reserve amount for doubtful accounts due to lower historical repayment rates coupled with higher accounts receivable.

Reductions in sales expense was a result of travel restrictions imposed by the ~~Transitional segment, which had~~COVID-19 pandemic, while lower student services expense was a result of ~~$3.7 million~~suspended busing and transportation services for students. Reduced marketing investments were due to the timing of marketing spend.

Selling, general and administrative expenses, as a percentage of revenue, decreased slightly to 57.6% for the six months ended June 30, 2020 from 58.4% in the 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 were~~ investments made in 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.comparable period.

Net interest expense. Net interest expense ~~increased $0.4~~for the six months ended June 30, 2020 decreased by $0.7 million, or ~~24.2%~~50.5%, to ~~$2.1~~$0.7 million ~~for the nine months ended September 30, 2019~~ from ~~$1.7~~$1.4 million in the prior year comparable period. ~~This increase~~The reduction in expense year over year is due to favorable terms from the refinance of our credit facility as well as a ~~direct result of slight increases~~lower loan balance outstanding in ~~both principal balance and interest rates in addition to~~ the ~~write-off of some non-cash deferred finance fees.~~current year.

~~Index~~

Income taxes. Our provision for income taxes ~~has remained essentially flat at~~was $0.1 million and $0.2 million for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, ~~and 2018 respectively~~

Asrespectively. No federal or state income tax benefit was recognized for either period loss due to the recognition of ~~September 30, 2019, the~~a full valuation ~~allowance was reduced~~ ~~for deferred tax liability related to indefinite lived intangibles by $0.1 million and $0.1 million of deferred~~allowance. Income tax expense ~~was recognized.~~ ~~In addition,~~resulted from various minimal state tax ~~expenses were recognized for the nine 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 refund of these credits upon future corporate income tax return filings.expenses.

Segment Results of Operations

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.

~~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 (“HOPS”) 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 described below.

Transitional – The Transitional segment refers to ~~campuses that are being taught-out and closed and~~campus operations that are being phased out. The schools in the Transitional segment employ a gradual teach-out process that enables the schools to continue to operate to allow their current students to complete their course of study. These schools are no longer enrolling new students.which have been closed.

The Company continually evaluates each campus for profitability, earning potential, and customer satisfaction. This evaluation takes several factors into consideration, including the campus’s geographic location and program offerings, as well as skillsets required of our students by their potential employers. The purpose of this evaluation is to ensure that our programs provide our students with the best possible opportunity to succeed in the marketplace with 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~~June 30, ~~2019,~~2020, no campuses have been categorized in the Transitional segment.

Index

~~Index~~

The following table ~~present~~presents results for our ~~three~~two reportable segments (as no campuses have been categorized in the Transitional segment) for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

	Three Months Ended June 30,
	2020			2019			% Change
Revenue:
Transportation and Skilled Trades	$	42,915		$	44,028			-2.5	%
HOPS		19,555			19,541			0.1	%
Total	$	62,470		$	63,569			-1.7	%

Operating Income (Loss):
Transportation and Skilled Trades	$	4,870		$	2,484			96.1	%
Healthcare and Other Professions		2,731			1,839			48.5	%
Corporate		(6,441	)		(6,416	)		-0.4	%
Total	$	1,160		$	(2,093	)		155.4	%

Starts:
Transportation and Skilled Trades		2,302			2,028			13.5	%
Healthcare and Other Professions		1,127			949			18.8	%
Total		3,429			2,977			15.2	%

Average Population:
Transportation and Skilled Trades		7,298			6,827			6.9	%
Leave of Absense - COVID-19		(424	)		-			100.0	%
Transportation and Skilled Trades Excluding Leave of Absense - COVID-19		6,874			6,827			0.7	%

Healthcare and Other Professions		4,254			3,578			18.9	%
Leave of Absense - COVID-19		(393	)		-			100.0	%
Healthcare and Other Professions Excluding Leave of Absense - COVID-19		3,861			3,578			7.9	%

Total		11,552			10,405			11.0	%
Total Excluding Leave of Absense - COVID-19		10,735			10,405			3.2	%

End of Period Population:
Transportation and Skilled Trades		7,826			7,195			8.8	%
Leave of Absense - COVID-19		(463	)		-			100.0	%
Transportation and Skilled Trades Excluding Leave of Absense - COVID-19		7,363			7,195			2.3	%

Healthcare and Other Professions		4,456			3,582			24.4	%
Leave of Absense - COVID-19		(233	)		-			100.0	%
Healthcare and Other Professions Excluding Leave of Absense - COVID-19		4,223			3,582			17.9	%

Total		12,282			10,777			14.0	%
Total Excluding Leave of Absense - COVID-19		11,586			10,777			7.5	%

Three Months Months Ended Sept 30,
2019 2018 % Change
Revenue:

Transportation and Skilled Trades
$
52,652

$
51,008
3.2 %
Healthcare and Other Professions
19,942

18,249
9.3 %
Transitional
-

821
-100.0 %
Total $ 72,594 $ 70,078 3.6 %

Operating Income (Loss):

Transportation and Skilled Trades
$
6,752

$
6,330
6.7 %
Healthcare and Other Professions
1,403

830
69.0 %
Transitional
-

(1,863
)
100.0 %
Corporate
(6,012
)

(5,221
)
-15.2 %
Total $ 2,143 $ 76 2719.7 %

Starts:

Transportation and Skilled Trades 3,398 3,391
0.2
%
Healthcare and Other Professions 1,381 1,232
12.1
%
Transitional - 30
-100.0
%
Total 4,779 4,653
2.7
%

Average Population:

Transportation and Skilled Trades 7,635 7,453
2.4
%
Healthcare and Other Professions 3,619 3,317
9.1
%
Transitional - 127
-100.0
%
Total 11,254 10,897
3.3
%

End of Period Population:

Transportation and Skilled Trades 8,055 7,922
1.7
%
Healthcare and Other Professions 3,960 3,637
8.9
%
Transitional - 173
-100.0
%
Total 12,015 11,732
2.4
%

Index

Three Months Ended ~~September~~June 30, ~~2019~~2020 Compared to the Three Months Ended ~~September~~June 30, ~~2018~~2019

Transportation and Skilled Trades

~~Student starts for the quarter increased slightly for the three months ended September 30, 2019 when compared to the prior year comparable period.~~

Operating income increased ~~$0.4~~$2.4 million to ~~$6.8~~$4.9 million for the three months ended ~~September~~June 30, ~~2019~~2020 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. The increase in revenue is due to a 2.4% increase in average student population quarter over quarter.

~~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~~$2.5 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~~was mainly driven by 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.~~following factors:

~~Index~~

~~Selling, general and administrative expense increased $1.1 million, or 5.4%, to $22.4~~Revenue was $42.9 million for the three months ended ~~September~~June 30, ~~2019,~~2020, down 2.5% from ~~$21.3~~$44.0 in the prior year comparable period million despite the 6.9% increase in average student population. Student start growth increased 13.5% for the three months ended June 30, 2020 as compared to the prior year comparable period.  As a result, the Company’s ending population as of June 30, 2020 grew 8.8% compared to prior year.  After excluding students who are on leave of absence as a result of the impact of COVID-19, the ending population grew 2.3% or approximately 170 students. Non-tuition revenue was reduced $0.8 million due to credits issued to students for Company owned dorms and meal fees resulting from campus closures caused by COVID-19. In addition, as a result of the impact of COVID-19, graduation dates for certain programs have been extended due to restricted access to externships sites and classroom labs which resulted in $0.1 million in revenue being deferred to the second half of the year.

Educational services and facilities expense decreased $2.8 million, or 14.0% to $17.6 million for the three months ended June 30, 2020 from $20.4 million in the prior year comparable period. ~~Increased~~Reduced costs were a result of several factors including facilities cost savings due to facility closure during the quarter as a result of actions taken to control transmission of COVID-19; renegotiation of lease terms at certain campuses reducing rent expense; and the reduction in instructional and books and tools expenses as a result of students completing their course remotely.

Selling, general and administrative expense decreased $0.5 million, or 2.5% to $20.6 million for the three months ended June 30, 2020 from $21.1 million in the prior year comparable period. The cost savings were primarily ~~the result of additional~~attributed to reductions in sales expense, student services and marketing expense partially offset by an increase in bad debt expense, ~~driven~~which are all discussed above 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.~~

consolidated results from operations.

Healthcare and Other Professions

~~Student starts increased by 12.1% for the three months ended September 30, 2019 when compared to the prior year comparable period.~~

Operating income increased ~~by $0.6~~$0.9 million to ~~$1.4~~$2.7 million for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~$0.8 million in the prior year comparable period mainly due to the following factors:~~

~~Revenue increased by $1.7 million, or 9.3%, to $19.9 million for the three months ended September 30, 2019, as compared to $18.3~~$1.8 million in the prior year comparable period. The increase ~~in revenue~~quarter over quarter was mainly ~~due to a 9.1% increase in average student population, which is attributed to consistent start growth over~~driven by the ~~last two years.~~

following factors:

~~Educational services and facilities expense increased $0.6 million, or 7.1%, to $9.5~~Revenue remained essentially flat at $19.5 million for the three months ended ~~September~~June 30, 2020 and 2019, despite the 18.9% increases in average student population. Student start growth increased 18.8% for the three months ended June 30, 2020 as compared to the prior year comparable period.  As a result, the Company’s ending population as of June 30, 2020 grew 24.4% compared to prior year.  After excluding students who are on leave of absence as a result of the impact of COVID-19, ending population grew 17.9% or approximately 640 students. Partially offsetting student start growth was the extension of graduation dates for certain programs which have been extended due to restricted access to externships sites and classroom labs due to COVID-19. These restrictions have resulted in $0.8 million in revenue being deferred to the second half of the year.

Educational services and facilities expense decreased $0.6 million, or 6.8% to $8.7 million for the three months ended June 30, 2020 from ~~$8.9~~$9.3 million in the prior year comparable period. Reduced costs were a result of several factors including facilities cost savings due to facility closure during the quarter as a result of actions taken to control transmission of COVID-19; renegotiation of lease terms at certain campuses reducing rent expense; and the reduction in instructional and books and tools expenses as a result of students completing their course remotely.

Selling general and administrative expense decreased $0.3 million, or 2.9% to $8.1 million for the three months ended June 30, 2020 from $8.4 million in the prior year comparable period. The cost savings were primarily attributed to reductions in sales expense, student services and marketing expense partially offset by an increase in bad debt expense, which are all discussed above in the consolidated results from operations.

Transitional

No campuses have been classified in the Transitional segment for the three months ending June 30, 2020 and 2019, respectively.

Index

Corporate and Other

This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and other expenses remained essentially flat at $6.4 million for the three months ended June 30, 2020 and 2019, respectively.

The following table present results for our two reportable segments for the six months ended June 30, 2020 and 2019:

	Six Months Ended June 30,
	2020			2019			% Change
Revenue:
Transportation and Skilled Trades	$	91,971		$	88,354			4.1	%
HOPS		40,540			38,479			5.4	%
Total	$	132,511		$	126,833			4.5	%

Operating Income (Loss):
Transportation and Skilled Trades	$	9,708		$	4,300			125.8	%
Healthcare and Other Professions		4,733			2,811			68.4	%
Corporate		(14,626	)		(14,069	)		-4.0	%
Total	$	(185	)	$	(6,958	)		97.3	%

Starts:
Transportation and Skilled Trades		4,022			3,849			4.5	%
Healthcare and Other Professions		2,123			1,987			6.8	%
Total		6,145			5,836			5.3	%

Average Population:
Transportation and Skilled Trades		7,302			6,935			5.3	%
Leave of Absense - COVID-19		(223	)		-			100.0	%
Transportation and Skilled Trades Excluding Leave of Absense - COVID-19		7,079			6,935			2.1	%

Healthcare and Other Professions		4,120			3,561			15.7	%
Leave of Absense - COVID-19		(213	)		-			100.0	%
Healthcare and Other Professions Excluding Leave of Absense - COVID-19		3,907			3,561			9.7	%

Total		11,422			10,496			8.8	%
Total Excluding Leave of Absense - COVID-19		10,986			10,496			4.7	%

End of Period Population:
Transportation and Skilled Trades		7,826			7,195			8.8	%
Leave of Absense - COVID-19		(463	)		-			100.0	%
Transportation and Skilled Trades Excluding Leave of Absense - COVID-19		7,363			7,195			2.3	%

Healthcare and Other Professions		4,456			3,582			24.4	%
Leave of Absense - COVID-19		(233	)		-			100.0	%
Healthcare and Other Professions Excluding Leave of Absense - COVID-19		4,223			3,582			17.9	%

Total		12,282			10,777			14.0	%
Total Excluding Leave of Absense - COVID-19		11,586			10,777			7.5	%

Index

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

Transportation and Skilled Trades

Operating income increased $5.4 million to $9.7 million for the six months ended June 30, 2020 from $4.3 million in the prior year comparable period. The increase ~~in expense quarter~~year over ~~quarter~~year was ~~primarily due to additional instructional expense~~mainly driven by ~~a consistently growing student population.~~the following factors:

~~Selling, general and administrative expense~~Revenue increased ~~by $0.5~~$3.6 million, or ~~5.7%,~~4.1% to $9$92.0 million for the ~~three~~six months ended ~~September~~June 30, ~~2019~~2020 from ~~$8.6~~$88.4 million in the prior year comparable period. ~~Increased~~The increase was the result of a 2.1% increase in average population excluding the students on leave of absence due to COVID-19 driven by starting the year with approximately 360 more students than in the prior year comparable period. As a result, our ending population grew 8.8% compared to prior year. Excluding students on leave of absence as a result of COVID-19, ending population grew 2.3% or approximately 170 students. The majority of these students were near the end of their programs and are expected to resume their program during the third quarter as all of our schools are now open and more externship sites reopen. We do not recognize revenue during a students’ leave of absence period, therefore, we anticipate earning revenue starting in the third quarter upon the students’ return. Partially offsetting the increase in revenue was the impact of COVID-19, which has extended graduation dates for certain programs due to restricted access to externship sites and classroom labs. These restrictions have deferred $0.1 million in revenue to the second half of the year. In addition, non-tuition revenue was reduced $0.8 million due to credits issues to students for dorm and meal fees resulting from campus closures caused by COVID-19. The dorms are owned and operated by the Company. We received funds under the Cares Act which may be used to reimburse the Company for the student credits issued, but at this time we are awaiting further guidance from the DOE on the appropriate application of such funds.

Educational services and facilities expense decreased $2.9 million, or 7.1% to $38.1 million for the six months ended June 30, 2020 from $41.0 million in the prior year comparable period. Reduced costs were a result of several factors including facilities cost savings due to facility closures during the first and second quarter as a result of actions taken to control transmission of COVID-19; renegotiation of lease terms at certain campuses reducing rent expense; and the reduction in instructional and books and tools expenses as a result of students completing their course remotely.

Selling general and administrative expenses increased $1.2 million, or 2.8% to $44.2 million for the six months ended June 30, 2020 from $43.0 million in the prior year comparable period. The increase was primarily the result of ~~additional~~an increase in bad debt expense, partially offset by cost savings realized in sales expense and student services expense discussed above in the consolidated results of operations.

Healthcare and Other Professions

Operating income increased $1.9 million to $4.7 million for the six months ended June 30, 2020 from $2.8 million in the prior year comparable period. The increase was mainly driven by the following factors:

Revenue increased $2.0 million, or 5.4% to $40.5 million for the six months ended June 30, 2020 from $38.5 million in the prior year comparable period. The increase was the result of a ~~larger~~9.7% increase in average population excluding the students on leave of absence due to COVID-19 driven by starting the year with approximately 400 more students than in the prior year comparable period. As a result, our ending population as of June 30, 2020 grew 24.4% compared to prior year. Excluding students on leave of absence as a result of COVID-19, ending population grew 17.9% or approximately 640 students. The majority of these students were near the end of their programs and are expected to resume their program during the third quarter as all of our schools are now open and more externship sites reopen. We do not recognize revenue during a students’ leave of absence period, therefore, we anticipate earning revenue starting in the third quarter upon the students’ return. Partially offsetting the increase in revenue was the impact of COVID-19 that resulted in a decrease of $0.8 million of revenue which is being deferred to the second half of the year. The deferral resulted from certain programs that were extended due to restricted access to externship sites and classroom labs.

Educational services and facilities expense decreased $0.3 million, or 1.8% to $18.4 million for the six months ended June 30, 2020 from $18.7 million in the prior year comparable period. Reduced costs were a result of facilities cost savings due to facility closures during the first and second quarter as a result of actions taken to control transmission of COVID-19 and renegotiation of lease terms at certain campuses reducing rent expense. Partially offsetting the savings were increases in instructional expense as a result of starting the year with approximately 400 more students than prior year in correlation with an increased average student population that was up 12.5% in ~~combination with a slight deterioration~~the first quarter of ~~historical repayment rates.~~2020 compared to the prior year comparable period. The additional costs incurred in the first quarter of 2020 were partially offset by savings realized in the second quarter of 2020.

Index

Selling, general and administrative expense increased $0.5 million, or 2.8% to $17.5 million for the six months ended June 30, 2020 from $17.0 million in the prior year comparable period. The increase was primarily the result of an increase in bad debt expense, partially offset by cost savings realized in marketing expense, both of which are discussed above in the consolidated results of operations.

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~~No campuses have been ~~fully taught out of as of December 31, 2018 and financial information for this campus has been included~~classified in the Transitional segment for the ~~period~~six months ending ~~September~~June 30, ~~2018. As of September 30,~~2020 and 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 other expenses were ~~$6.0~~$14.6 million and $14.1 million for the ~~three~~six months ended ~~September~~June 30, 2020 and 2019, as compared to $5.2 million in the prior year comparable period. Additional expense was primarily the result of increases in salaries and benefits expense and 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.

~~Index~~

~~The following table present results for our three reportable segments for the nine months ended September 30, 2019 and 2018:~~

Nine Months Ended September 30,
2019 2018 % Change
Revenue:
Transportation and Skilled Trades
$
141,005

$
135,838
3.8 %
Healthcare and Other Professions
58,422

52,554
11.2 %
Transitional
-

4,695
-100.0 %
Total $ 199,427 $ 193,087 3.3 %

Operating Income (Loss):
Transportation and Skilled Trades
$
11,051

$
8,747
26.3 %
Healthcare and Other Professions
4,214

2,747
53.4 %
Transitional
-

(2,899
)
100.0 %
Corporate
(20,079
)

(18,305
)
-9.7 %
Total $ (4,814 ) $ (9,710 ) 50.4 %

Starts:
Transportation and Skilled Trades 7,247 7,156
1.3
%
Healthcare and Other Professions 3,368 3,048
10.5
%
Transitional - 140
-100.0
%
Total 10,615 10,344
2.6
%

Average Population:
Transportation and Skilled Trades 7,169 6,891
4.0
%
Healthcare and Other Professions 3,581 3,245
10.4
%
Transitional - 269
-100.0
%
Total 10,750 10,405
3.3
%

End of Period Population:
Transportation and Skilled Trades 8,055 7,922
1.7
%
Healthcare and Other Professions 3,960 3,637
8.9
%
Transitional - 173
-100.0
%
Total 12,015 11,732
2.4
%

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

~~Transportation and Skilled Trades~~

~~Student starts increased approximately 1.3% for the nine months ended September 30, 2019 when compared to the prior year comparable period.~~

Operating income increased by $2.3 million, or 26.3%, to $11.1 million for the nine months ended September 30, 2019 from $8.8 million in the prior year comparable period mainly due to the following factors:

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 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.

~~Index~~

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 starts increased 10.5% for the nine months ended September 30, 2019 when compared to the prior year comparable period.~~

Operating income increased by $1.5 million, or 53.4%, to $4.2 million for the nine months ended September 30, 2019 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 $52.6 million in the prior year comparable period. The increase in revenue was mainly due to a 10.4% increase in average student population, which is attributed to consistent start growth over the last two years.

Educational services and facilities expense increased $2.3 million, or 9%, to $28.2 million for the nine months ended September 30, 2019, from $25.9 million in the prior year comparable period. 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 increased costs were increases in facilities expense.

Selling, general and administrative expense increased by $2.1 million, or 8.7%, to $26.0 million for the nine months ended September 30, 2019 from $23.9 million in the prior year comparable period. Increases in expense 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.

~~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 have 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 expenses were $20.1 million for the nine months ended September 30, 2019 as compared to $18.3 million in the prior year comparable period. Additional expense was primarily the result of increases in salaries and benefits expense and 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.

LIQUIDITY AND CAPITAL RESOURCES

Our primary capital ~~expenditures~~requirements are for ~~facilities~~maintenance and expansion ~~and maintenance,~~of our facilities 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 for each of the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, ~~and 2018:~~respectively:

	Nine Months Ended September 30,						Six Months Ended June 30,
	2019			2018			2020			2019
Net cash used in operating activities	$	(4,893	)	$	(5,816	)
Net cash provided by (used in) operating activities							$	6,468		$	(10,782	)
Net cash used in investing activities		(3,061	)		(1,869	)		(2,975	)		(1,212	)
Net cash used in financing activities		(22,238	)		(28,866	)		(16,169	)		(22,966	)

As of ~~September~~June 30, ~~2019,~~2020, the Company had a net cash balance of $7.8 million compared to $4.6 million at December 31, 2019. The net debt/cash balance is calculated as our cash and cash equivalents and restricted cash less both short and long-term portion of the credit agreement. Included in cash and cash equivalents and restricted cash as of June 30, 2020 is $14.5 million received from the Cares Act. Excluding cash received under the Cares Act of $14.5 million, as of June 30, 2020, the Company had a net debt balance of ~~$11.4 million compared to a net debt balance of $3.4 million as of December 31, 2018.~~$6.6 million. The decrease in cash position can mainly be attributed to the ~~repayment~~repayments of ~~$27.2~~$16.0 million in borrowings under our ~~line of~~ credit ~~facility; a net loss during the nine months ended September 30, 2019;~~facility and seasonality of ~~the~~our business. ~~Management believes that the Company has adequate resources in place to execute its 2019 operating plan.~~

~~Index~~

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. 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, inin 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 Programs, which represented approximately 78% of our cash receipts relating to revenues in ~~2018.~~2019. 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 Programs 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’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 the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Index

Operating Activities

Net cash provided by operating activities was $6.5 million for the six months ended June 30, 2020 compared to net cash used in operating activities ~~was $4.9 million for the nine months ended September 30, 2019 compared to $5.8~~of $10.8 million in the prior year comparable period. ~~The~~Included in the June 30, 2020 net cash balance is $14.5 million in federal funds received under the Cares Act intended for reimbursement to students for expenses related to disruptions in campus operations (e.g., food, housing, etc.) and as permitted to use the funds to cover institutional costs associated with significant changes to the delivery of instruction due to the COVID-19 emergency, provided that those costs do not include payment to contractors for the provision of pre-enrollment recruitment activities, endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship. Excluding the federal funds received, we would have a net cash used in operating activities balance of $8.0 million. The decrease in net cash used in operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 is primarily due to ~~a decrease in~~ operating losses and changes in working capital such as accounts receivable, accounts payable, accrued expenses and unearned tuition year over year.

Investing Activities

Net cash used in investing activities ~~was $3.1~~increased $1.8 million to $3.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$1.9 million in~~ the ~~prior year comparable period. The 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.~~six months ended June 30, 2019.

One of our primary uses 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~~real property in Grand Prairie, Texas; Nashville, Tennessee; and Denver, Colorado and our ~~property owned as part of a~~ former school property located in Suffield, Connecticut.

Capital expenditures were 2% of revenues in 2019 and are expected to approximate 2% of revenues in ~~2019.~~2020. We expect to fund future capital expenditures with cash generated from operating activities and borrowings under our credit ~~facility, and cash from our real estate monetization.~~facility.

Financing Activities

Net cash used in financing activities was ~~$22.2~~$16.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019 as~~2020 compared to ~~$28.9~~$23.0 million in the prior year comparable period. The decrease of ~~$6.7~~$6.8 million was primarily due to decreased net payments on borrowings of ~~$22.1~~$16.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 as compared to ~~$28.4~~$22.9 million in the prior year comparable period.

Net payments on borrowings consisted of: (a) total borrowing to date under our secured credit facility of $5$11.0 million; and (b) ~~$27.1~~$27.0 million in total repayments made by the Company.See Part II, Item 1A. “Risk Factors — COVID-19 Pandemic” in this Quarterly Report on Form 10-Q for risks associated with COVID-19.

~~Index~~

~~March 31, 2017~~ Credit ~~Agreement~~Facility with Sterling National Bank

The Credit Facility is comprised of four facilities: a $20 million senior secured term loan maturing on December 1, 2024 (the ~~“Bank”~~“Term Loan”) ~~pursuant~~, 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 13, 2022 (the “Revolving Loan”), with monthly payments of interest only; and a $15 million senior secured non-restoring line of credit maturing on January 31, 2021 (the “Line of Credit Loan”). The Credit Agreement ~~dated March 31, 2017 among~~gives the Company the ~~Company’s subsidiaries and~~right to permanently terminate, in its entirety, 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,~~Revolving Loan or the ~~“Credit Agreement”). Prior to~~Line of Credit Loan or permanently reduce the ~~most recent amendment~~amount available for borrowing under the Revolving Loan or the Line of ~~the~~ Credit ~~Agreement (the “Fourth Amendment”), the financial accommodations available to~~Loan. In April 2020, the Company ~~under~~terminated the Line of Credit Agreement consisted of (a) a $25 million revolving loan facility designated as “Facility 1”, (b) a $25 million revolving loan facility (including a sublimit amount for letters of credit of $10 million) designated as “Facility 2” and (c) a $15 million revolving credit loan designated as “Facility 3”.

~~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.~~

~~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.~~

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.

~~Index~~

~~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.Loan.

Index

Borrowing under the Delayed Draw Term Loan is available during the period commencing on the closing date of the Credit Facility and ending on May 31, 2021.

Letters of credit ~~under Facility 2~~ will ~~require~~be charged an annual fee equal to (i) an applicable margin determined by the ~~payment~~leverage ratio of ~~a letter of credit fee~~the Company less (ii) .25%, paid quarterly in arrears, in addition 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.~~Lender’s customary fees for issuance, amendment and other standard fees. Letters of credit totaling ~~$6.2~~$4 million that were outstanding under ~~a $9.5 million letter of~~the existing 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 Revolving Loan.

In addition to the foregoing, the Credit Agreement contains customary representations, warranties and affirmative and negative ~~covenants. The Credit Agreement also contains~~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 the Lender, which, if not maintained, will result in the assessment of a quarterly fee of $12,500), as well as events of default customary for facilities of this type. As of ~~September~~June 30, ~~2019,~~2020 the Company iswas in compliance with all 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.~~

covenants. As of ~~September~~June 30, 2020 and December 31, 2019, the Company had ~~$27.1~~$18.8 million and $34.8 million, respectively, outstanding under the Credit Facility; offset by ~~$0.3~~$0.7 million ~~of deferred finance fees. As of December 31, 2018, the Company had $49.3 million outstanding under the Credit Facility, offset by $0.5~~and $0.8 million of deferred finance fees, ~~which were written-off.~~respectively. In January 2020, the Company repaid the $15.0 million outstanding on the Line of Credit Loan. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, letters of credit in the aggregate outstanding principal amount of $4.0 million and ~~$1.8~~$4.0 million, respectively, were outstanding under the Credit Facility.

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

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

	June 30, 2020			December 31, 2019
Credit agreement	$	18,833		$	34,833
Deferred Financing Fees		(712	)		(805	)
		18,121			34,028
Less current maturities		(2,000	)		(2,000	)
	$	16,121		$	32,028

As of ~~September~~June 30, ~~2019,~~2020, we had outstanding loan commitments to our students of ~~$71.5~~$71.6 million, as compared to ~~$63.1~~$75.5 million at December 31, ~~2018.~~ 2019.

Index

Contractual Obligations

~~Long-term~~Current portion of Long-Term Debt, Long-Term Debt and Lease Commitments.. As of ~~September 30, 2019,~~June 30., 2020, our current portion of long-term debt and ~~our~~ long-term debt consisted of borrowings under our Credit ~~Facility and an auto loan.~~

~~Lease Commitments~~.Facility. We lease offices, educational facilities and various items of equipment for varying periods through the year ~~2030~~2031 at ~~base~~basic annual rentals (excluding taxes, insurance, and other expenses under certain leases).

~~Index~~

The following table contains supplemental information regarding our total contractual obligations as of ~~September~~June 30, ~~2019~~2020 (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 and term loan	$	27,133	$	7,270	$	5,108	$	14,755	$	-
Credit facility*											$	18,833	$	2,000	$	4,000	$	12,833	$	-
Operating leases		66,349		14,982		22,467		13,290		15,610		85,965		14,978		27,277		21,599		22,111
Interest on term loan**												3,528		974		1,621		933		-
Total contractual cash obligations	$	93,482	$	22,252	$	27,575	$	28,045	$	15,610	$	108,326	$	17,952	$	32,898	$	35,365	$	22,111

* Excludes deferred finance fees of $0.7 million.

** Includes fixed rate interest payment resulting from the cash flow hedge.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of ~~September~~June 30, ~~2019,~~2020, except for surety bonds. As of ~~September~~June 30, ~~2019,~~2020, we posted surety bonds in the total amount of approximately ~~$12.7~~$11.8 million. ~~Cash collateralized letters of credit of $4.0 million~~We are ~~primarily comprised of letters of credit for the DOE and security deposits in connection with certain~~required to post surety bonds on behalf of our ~~real estate leases.~~campuses and education representatives with multiple states to maintain authorization to conduct our business. 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. This year, due to COVID-19, it has not been a typical year and expenses have varied more significantly. 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~~

Our 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 keep them productive and engaged. At the same time, the retirement of baby boomers in 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 awareness 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 employ 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.~~Regulations Update – Negotiated Rulemaking

~~Index~~

~~Pending DOE Determination Letters~~

On ~~October 11, 2019,~~April 2, 2020, the DOE ~~issued a preliminary audit determination letter~~published proposed regulations related primarily 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 Federal 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 institutiondistance education 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 conducttopics addressed during negotiated rulemaking ~~and, as necessary, develop revised regulations. However, a federal court ruled~~committee meetings that took place in early 2019. See the ~~delay~~Company’s disclosures 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~~its 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,~~ 2019 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 general 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.

~~Index~~

Among other things, the new regulations amend the processes for borrowers 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 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 address topics including, among other things, correspondence courses, direct assessment programs, foreign institutions, written arrangements with ineligible institutions or organizations to provide a portion of an educational program, requirements for ~~consideration and negotiation~~prompt action by the ~~negotiated rulemaking committee and subcommittee that covered additional topics and made additional revisions and updates~~DOE on certain Title IV eligibility applications, requirements related to the ~~draft~~length of educational programs and entry level requirements for the occupation, the clock to credit hour conversion formula, the requirements for returning unearned Title IV Program funds received for students who withdraw before completing their educational programs, and the requirements for measuring a student’s satisfactory academic progress. The proposed regulations ~~prior~~are subject to ~~subsequent meetings of~~change by 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 public comments that were received through May 4, 2020. If the ~~comments before publishing the final versions of the regulations. The~~ DOE ~~stated that it intends to publish proposed~~publishes regulations ~~on the remaining issues in a separate notice of proposed rulemaking, but did not indicate when it would publish those proposed changes. On~~by November 1, ~~2019,~~2020, the ~~DOE published~~regulations typically would take effect by July 1, 2021 although we cannot predict the ~~final regulations. The regulations have a general~~ultimate publication date or effective date of ~~July 1, 2020.~~any final regulations the DOE might publish. We are in the process of analyzing the ~~new~~proposed regulations and their potential impact on us and our institutions.

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Index

~~Item 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

We are exposed to certain market risks as part of our on-going business operations. Our obligations under our Credit Facility are secured by a lien on substantially all of our assets and any assets that we or our subsidiaries may acquire in the future. Outstanding borrowings under our Credit Facility bear interest at the rate of 7.85% as of September 30, 2019. As of September 30, 2019, we had $27.1 million outstanding under our Credit Facility.

Based on our outstanding debt balance as of September 30, 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~~SEC’s rules 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.

As a result of the COVID-19 pandemic, certain employees of the Company began working remotely in March 2020 but these changes to the working environment did not have a material effect on the Company’s internal control over financial reporting. There was no other change in the Company’s internal control over financial reporting that occurred during the six months ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

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,~~I, Item 1,3, and in Note 915 to the notes to the ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements included in the Company’s ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~fiscal year ended ~~June 30,~~December 31, 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~~June 30, ~~2019.~~2020.

Item 1 A.

RISK FACTORS

Our business activities involve a variety of risks. In addition to the risk factor below, readers should carefully consider the risk factors disclosed in Part I, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 which was filed with the SEC on May 15, 2020.

~~As previously reported,~~The pandemic caused by COVID-19 could have a materially adverse impact on ~~July 6, 2018,~~our business, results of operations, financial condition and/or cash flows. The extent of the ~~Company received an administrative subpoena~~impact of the COVID-19 pandemic will depend on future developments, which are highly uncertain and largely beyond our control, including, among others, the scope and duration of the pandemic; the number of our employees, students, and vendors adversely affected by the pandemic; the broader public health and economic dislocations resulting from the ~~Office~~pandemic; any legislative or regulatory changes or other actions taken by governmental authorities to limit the public health, financial and economic impacts of the ~~Attorney General of the State of New Jersey (“NJ OAG”). Pursuant~~COVID-19 pandemic; any reputational damage related 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~~perception 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 itsour or our industry’s response to the ~~supplemental subpoena. Subsequently, by email dated August 20, 2019,~~COVID-19 pandemic; and the ~~NJ OAG requested additional records~~impact of the ~~Company from the years 2012~~pandemic on local and ~~2013.~~ U.S. economies.

The ~~Company~~COVID-19 pandemic has ~~responded~~caused significant disruption to the ~~NJ OAG’s most recent record request~~U.S. and ~~is continuing to cooperate with~~world economies, including the ~~NJ OAG.~~closing of many schools and businesses for extended periods of time, significantly higher unemployment and underemployment, significantly lower interest rates and equity market valuations, and extreme volatility in the U.S. and world financial markets. We expect that the impact of the COVID-19 pandemic on the U.S. economy will be significant during the remainder of 2020 and that it could materially adversely affect our results of operations and financial condition, and/or our cash flows.

~~Index~~

~~Item 5.~~

~~OTHER INFORMATION~~

~~(a) Sale~~As described in Part I, Item 2. “Management’s Discussion and Analysis of ~~Series A Convertible Preferred Stock~~

~~On November 14, 2019,~~Financial Condition and Results of Operations — Impact of COVID-19 on the Company” in this Quarterly Report on Form 10-Q, as of June 30, 2020, the Company ~~raised gross proceeds~~had 696 students on leave of ~~$12,700,000 from~~absence due to COVID-19. The majority of these students were at the ~~sale~~end of ~~12,700 shares~~their programs and were on externship which they were not able to complete. A smaller portion of its newly designated Series A Convertible Preferred Stock, no par value per share (the “Series A Preferred Stock”). The Series A Preferred Stock was designated by the Company’s board of directors (“the Board”) pursuantthese students chose not to ~~a certificate of amendment (“Charter Amendment”) to the Company’s amended and restated certificate of incorporation. The summaries of the agreements and documents below are qualified in~~undertake 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 14, 2019 (the “SPA”), among the Company, Juniper Targeted Opportunity Fund, L.P. and Junior Targeted Opportunities, L.P. (together, “Juniper”) and another investor party thereto (such investors, 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.

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, he and the Company entered into an indemnification agreement with the Company.programs through distance learning. The Company ~~and each of the other 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.~~

~~Rights~~ ~~and Preferences of the Series A Preferred Stock~~. ~~The description below provides a summary of certain material terms of the 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 fail 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, is convertible into a number of shares of Common Stock equal to (“Convertible Formula”) the quotient of (i) the sum of (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 Series A Conversion Price (as defined and adjusted in the Charter Amendment) as of the applicable Conversion Date (as defined in the Charter Amendment). The initial Conversion Price is $2.36. At all times, however, the number 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 total 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 converted into shares of Common Stock at the then applicable convertible Formula.

~~Index~~

~~Redemption.~~ Beginning November 14, 2024, the Company may redeem all or any of the Series 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,expects 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~~.

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 q~~ualified 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 13, 2022 (the “Revolving Loan”), with monthly payments of interest only; and a $15 million senior secured non-restoring line of credit maturing on January 31, 2021 (the “Line of Credit Loan”).

The 2019 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 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.

~~Index~~

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, letters 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 not be available to the Company.

~~Accrued interest on each loan under the 2019 Credit Facility~~these students will be ~~payable monthly in arrears. The Term Loan and the Delayed Draw Term Loan will bear interest~~back 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. Atschool or an externship by the end of the ~~borrowing availability period for~~year.

Index

The Company has extended the ~~Delayed Draw Term Loan,~~length and graduation dates of four programs as there is only a small percentage of these four programs that can be taught through distance learning.

The Company has campuses where students live in dorms that are operated by either the Company ~~is required to enter into a swap transaction with the Bank for 100%~~itself, Collegiate Housing or other housing options. The majority of the ~~principal balance of~~students had returned home and their dorm charges have been reversed. In addition, at campuses where students have meal plans, the ~~Delayed Draw Term Loan, which will mature on the same date as the Delayed Draw Term Loan, pursuant to a swap agreement between~~Company’s cafeterias have been closed and all charges for meal plans have been reversed. For students that remain in dorms, the Company has given the students gift cards to assist in replacing their meal plans. As the students are returning to campus the dorms have reopened and the ~~Bank or~~school has limited the ~~Bank’s affiliate. The Term Loan and Delayed Draw Term Loan are subject~~number of students in dorms 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 indicative spread determined by the Company’s leverage as defined in the 2019 Credit Agreement or, if the borrowing of a Revolving Loan isadhere 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%.~~social distancing.

~~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 2019 Credit Agreement, the Company may prepay the Term Loan and/or the Delayed Draw Term Loan in full or in part without penalty except for any amount required to compensate the Bank for any swap breakage or other costs incurred in connection with such 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 the Line of Credit Loan.

In addition, our employees moved to ~~the foregoing, the Credit Agreement contains customary representations, warranties~~a work-from-home environment. We have never had to run our operations entirely remotely for an extended period of time, and ~~affirmative~~it is possible we will encounter significant challenges to running our business. Unanticipated issues arising from handling personal, confidential and ~~negative covenants (including financial covenants that (i) restrict capital expenditures, (ii) restrict leverage, (iii) require maintaining minimum tangible net worth, (iv) require maintaining~~other information from a ~~minimum fixed charge coverage ratio~~less efficient work-from-home environment could adversely impact our operations and (v) require the maintenance of a minimum of $5 million in quarterly average aggregate balances on deposit with the Bank, which, if not maintained, will result in the assessment of a quarterly fee of $12,500), as well as events of default customarylead to greater risk for ~~facilities of this type.~~us.

The extent to which the COVID-19 pandemic impacts our business, results of operations, financial condition and/or cash flows will depend on future developments, which are highly uncertain and largely beyond our control, including, among others: the scope and duration of the pandemic; the number of our employees, students, and vendors adversely affected by the pandemic; the broader public health and economic dislocations resulting from the pandemic; any legislative or regulatory changes or other actions taken by governmental authorities to limit the public health, financial and economic impacts of the COVID-19 pandemic; any reputational damage related to the public perception of our or our industry’s response to the COVID-19 pandemic; and the impact of the COVID-19 pandemic on local, and U.S. economies. However, as with many other businesses, the impact of COVID-19 on our business could be material and adverse.

~~Index~~

Item 6.

EXHIBITS

Exhibit Number	Description

3.1	~~Certificate of Amendment, dated November 14, 2019, to the~~ Amended and Restated ~~Certificate~~Bylaws of ~~Incorporation of~~ Lincoln Educational Services Corporation (as amended through April 24, 2020) (incorporated by reference to Exhibit 3.1 to the ~~Company~~Company’s Quarterly Report on Form 10-Q filed with the SEC on May 15, 2020).

10.1	~~Securities Purchase Agreement, dated as of November 14, 2019, between~~Lincoln Educational Services Corporation 2020 Long-Term Incentive Plan (as amended) (incorporated by reference to Exhibit 10.16 to the ~~Company and~~Company’s Current Report on Form 8-K filed with the ~~investors parties thereto~~SEC on June 5, 2020).
~~10.2~~	~~Registration Rights Agreement, dated as of November 14, 2019, between the Company and the investors parties thereto~~
~~10.3~~	~~Credit Agreement, dated as of November 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 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~~June 30, ~~2019,~~2020, 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.

*	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.

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Index

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 14, 2019~~August 13, 2020	By:	/s/ Brian Meyers
		Brian Meyers
		Executive Vice President, Chief Financial Officer and Treasurer

4042

Index

Exhibit Index

3.1	~~Certificate of Amendment, dated November 14, 2019, to the~~ Amended and Restated ~~Certificate~~Bylaws of ~~Incorporation of~~ Lincoln Educational Services Corporation (as amended through April 24, 2020) (incorporated by reference to Exhibit 3.1 to the ~~Company~~Company’s Quarterly Report on Form 10-Q filed with the SEC on May 15, 2020).

10.1	~~Securities Purchase Agreement, dated as of November 14, 2019, between~~Lincoln Educational Services Corporation 2020 Long-Term Incentive Plan (as amended) (incorporated by reference to Exhibit 10.16 to the ~~Company and~~Company’s Current Report on Form 8-K filed with the ~~investors parties thereto~~
~~10.2~~	~~Registration Rights Agreement, dated as of November 14, 2019, between the Company and the investors parties thereto~~
~~10.3~~	~~Credit Agreement, dated as of November 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 each director of the Company~~
~~10.5~~	~~Form of Indemnification Agreement between the Company and John A. Bartholdson~~SEC on June 5, 2020).

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~~June 30, ~~2019,~~2020, 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.

*	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.

	Common Stock					Additional Paid-in Capital			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
	Shares			Amount		Additional Paid-in Capital			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
BALANCE - January 1, 2019		30,552,333		$	141,377	$	29,484		$	(82,860	)	$	(44,073	)	$	(4,062	)	$	39,866
Net loss		-			-		-			-			(5,467	)		-			(5,467	)
Employee pension plan adjustments		-			-		-			-			-			154			154
Stock-based compensation expense
Restricted stock		478,853			-		52			-			-			-			52
Net share settlement for equity-based compensation		(5,518	)		-		(18	)		-			-			-			(18	)
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

	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	)	$	-

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

	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

	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

	Three Months Months Ended Sept 30,
	2019			2018			% Change
Revenue:
Transportation and Skilled Trades	$	52,652		$	51,008			3.2	%
Healthcare and Other Professions		19,942			18,249			9.3	%
Transitional		-			821			-100.0	%
Total	$	72,594		$	70,078			3.6	%

Operating Income (Loss):
Transportation and Skilled Trades	$	6,752		$	6,330			6.7	%
Healthcare and Other Professions		1,403			830			69.0	%
Transitional		-			(1,863	)		100.0	%
Corporate		(6,012	)		(5,221	)		-15.2	%
Total	$	2,143		$	76			2719.7	%

Starts:
Transportation and Skilled Trades		3,398			3,391			0.2	%
Healthcare and Other Professions		1,381			1,232			12.1	%
Transitional		-			30			-100.0	%
Total		4,779			4,653			2.7	%

Average Population:
Transportation and Skilled Trades		7,635			7,453			2.4	%
Healthcare and Other Professions		3,619			3,317			9.1	%
Transitional		-			127			-100.0	%
Total		11,254			10,897			3.3	%

End of Period Population:
Transportation and Skilled Trades		8,055			7,922			1.7	%
Healthcare and Other Professions		3,960			3,637			8.9	%
Transitional		-			173			-100.0	%
Total		12,015			11,732			2.4	%

	Nine Months Ended September 30,
	2019			2018			% Change
Revenue:
Transportation and Skilled Trades	$	141,005		$	135,838			3.8	%
Healthcare and Other Professions		58,422			52,554			11.2	%
Transitional		-			4,695			-100.0	%
Total	$	199,427		$	193,087			3.3	%

Operating Income (Loss):
Transportation and Skilled Trades	$	11,051		$	8,747			26.3	%
Healthcare and Other Professions		4,214			2,747			53.4	%
Transitional		-			(2,899	)		100.0	%
Corporate		(20,079	)		(18,305	)		-9.7	%
Total	$	(4,814	)	$	(9,710	)		50.4	%

Starts:
Transportation and Skilled Trades		7,247			7,156			1.3	%
Healthcare and Other Professions		3,368			3,048			10.5	%
Transitional		-			140			-100.0	%
Total		10,615			10,344			2.6	%

Average Population:
Transportation and Skilled Trades		7,169			6,891			4.0	%
Healthcare and Other Professions		3,581			3,245			10.4	%
Transitional		-			269			-100.0	%
Total		10,750			10,405			3.3	%

End of Period Population:
Transportation and Skilled Trades		8,055			7,922			1.7	%
Healthcare and Other Professions		3,960			3,637			8.9	%
Transitional		-			173			-100.0	%
Total		12,015			11,732			2.4	%