Item 2.

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

The following discussion may contain forward-looking statements regarding the Company, our business, prospects and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, as filed with the Securities and Exchange Commission (the “SEC”) and in our other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise interested parties of the risks and factors that may affect our business.

The interim financial statements and related notes thereto filed in this Form 10-Q and the discussions contained herein should be read in conjunction with the annual financial statements and notes included in our Form 10-K for the year ended December 31, ~~2016,~~2017, as filed with the SEC, which includes audited consolidated financial statements for our three fiscal years ended December 31, ~~2016.~~2017.

General

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 2523 schools in 1514 states, offers programs in automotive technology, skilled trades (which among other programs include HVAC, welding and computerized numerical control and electronic systems ~~technology, among other programs)~~technology), healthcare services (which among other programs include nursing, dental assistant, medical administrative assistant and pharmacy ~~technician, among other programs)~~technician), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and business and information technology (which includes information technology and criminal justice programs). The schools operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln College of New England, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brand names. Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study. Five of the campuses are destination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attract students from their local communities and surrounding areas. All of the campuses are nationally or regionally accredited and are eligible to participate in federal financial aid programs by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accrediting commissions which allow students to apply for and access federal student loans as well as other forms of financial aid.

~~In the first quarter of 2015, we reorganized our operations~~Our business is organized into three reportable business segments: (a) Transportation and Skilled Trades segment, (b) Healthcare and Other Professions (“HOPS”) segment, and (c) Transitional segment, which refers to ~~businesses~~schools that have been or are currently being taught out. In November 2015, the Board of Directors of the Company approved a plan for the Company to divest the ~~schools included in~~18 campuses then comprising the HOPS segment due to a strategic shift in the Company’s business strategy. The Company underwent an exhaustive process to divest the HOPS schools which proved successful in attracting various purchasers but, ultimately, did not result in a transaction that our Board believed would enhance shareholder value. ~~When the decision was first made by the Board of Directors to divest HOPS, 18 campuses were operating in this segment.~~ By the end of 2017, we ~~will have strategically~~had closed seven underperforming campuses leaving a total of 11 campuses remaining under the HOPS segment. The Company believes that the closures ~~and planned closures~~ of the aforementioned campuses ~~has~~have positioned ~~this~~the HOPS segment and the Company to be more profitable going ~~forward as well as maximizing returns for the Company’s shareholders.~~forward.

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

In ~~the fourth quarter of~~ 2016, the Company completed the teach-out of its Hartford, Connecticut, Fern Park, Florida and Henderson (Green Valley), Nevada campuses, which originally operated in the HOPS segment. ~~Also in 2016,~~In 2017, the Company ~~announced~~completed the ~~closing~~teach-out of its Northeast Philadelphia, ~~Pennsylvania,~~Pennsylvania; Center City Philadelphia, ~~Pennsylvania and~~Pennsylvania; West Palm Beach, ~~Florida facilities,~~Florida; Brockton, Massachusetts; and Lowell, Massachusetts schools, which also were originally in our HOPS segment and all of which were ~~fully~~ taught out ~~in 2017. In addition, in March 2017, the Board of Directors approved~~ ~~a plan to not renew the leases at our schools located in Brockton, Massachusetts~~ and ~~Lowell, Massachusetts, which also were originally in our HOPS segment. These schools are being taught out with expected closure in~~closed by December 2017 and are included in the Transitional segment as of ~~September 30,~~December 31, 2017.

2021

Index

On August 14, 2017, New England Institute of Technology at Palm Beach, Inc., a wholly-owned subsidiary of the Company, consummated the ~~anticipated~~ sale of the real property located at 2400 and 2410 Metrocentre Boulevard East, West Palm Beach, Florida, including the improvements and other personal property located thereon (the “West Palm Beach Property”) to Tambone Companies, LLC, ~~(“Tambone”),~~ pursuant to a previously disclosed purchase and sale agreement ~~(the “West Palm Sale Agreement”)~~ entered into on March 14, 2017. Pursuant to the terms of the ~~West Palm Sale Agreement,~~sale agreement, as subsequently amended, the purchase price for the West Palm Beach Property was $15.8 million. As a result, the Company recorded a gain on the sale in the amount of $1.5 million. As previously disclosed, the West Palm Beach Property served as collateral for a short term loan in the principal amount of $8.0 million obtained by the Company from its lender, Sterling National Bank, on April 28, 2017, which loan matured upon the earlier of the sale of the West Palm Beach Property or October 1, 2017. Accordingly, on August 14, 2017, concurrently with the consummation of the sale of the West Palm Beach Property, the Company repaid the term loan in an aggregate amount of $8.0 million, consisting of principal and accrued interest.

On March 31, 2017, the Company entered into a new revolving credit facility described below with Sterling National Bank in the aggregate principal amount of up to $55 million. Subsequently, as a result of a November 29, 2017 amendment of the credit facility, aggregate availability under the credit facility has increased to $65 million, consisting of (a) a $25 million revolving loan (“Facility 1”), (b) a $25 million revolving loan facility (“Facility 2”), which ~~consists of up to $50 million of revolving loans, including~~includes a ~~$10 million~~ sublimit amount for letters of credit of $10 million, and ~~an additional $5~~(c) a $15 million ~~non-revolving loan.~~revolving credit loan (“Facility 3”). The credit facility was again amended on February 23, 2018, to, among other things, effect certain modifications to the financial covenants and other provisions of the credit facility and to allow the Company to pursue the sale of certain real property assets. The new credit facility requires that revolving loans in excess of $25 million and all letters of credit issued thereunder be cash collateralized dollar for dollar. The proceeds of the $5 million non-revolving loan were held in a pledged account at Sterling National Bank as required by the terms of the new credit facility pending the completion of environmental studies undertaken at certain properties owned by the Company and mortgaged to Sterling National Bank. Upon the completion of environmental studies that revealed that no environmental issues existed at the properties, during the quarter ended June 30, 2017, the $5 million held in the pledged account at Sterling National Bank was released and used to repay the $5 million non-revolving loan. The new revolving credit facility replaces a term loan facility which was repaid and terminated concurrently with the effectiveness of the new revolving credit facility. The ~~term of~~final maturity date for the new revolving credit facility is ~~38 months, maturing~~May 31, 2020 except for Facility 3 which matures on May 31, ~~2020.~~2019. The new revolving credit facility is discussed in further detail under the heading “Liquidity and Capital Resources” below and in Note 45 of the notes to the condensed consolidated financial statements included in this report.

As of ~~September~~June 30, ~~2017,~~2018, we had ~~11,515~~10,371 students enrolled at 2523 campuses in our programs.

Critical Accounting Policies and Estimates

~~Our discussions~~For a description of our ~~financial condition~~critical accounting policies and ~~results~~estimates, refer to “Management’s Discussion and Analysis of ~~operations are based upon our condensed~~Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” and Note 1 of the notes to the consolidated financial statements ~~which have been prepared~~included in ~~accordance with accounting principles generally accepted in~~our Annual Report on Form 10-K for the ~~United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management~~fiscal year ended December 31, 2017. For Revenue Recognition refer 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~~Note 3 to the condensed consolidated financial statements and the reported amounts of revenues and expenses during the period. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, bad debts, impairments, income taxes, benefit plans and certain accruals. Actual results could differ from those estimates. The critical accounting policies discussed herein are not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not result in significant management judgment in the application of such principles. We believe that the following accounting policies are most critical to us in that they represent the primary areas where financial information is subject to the application of management’s estimates, assumptions and judgment in the preparation of our condensed consolidated financial statements.contained herein.

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

We evaluate whether collectability of revenue is reasonably assured prior to the student attending class and reassess collectability of tuition and fees when a student withdraws from a course. We calculate the amount to be returned under Title IV and its stated refund policy to determine eligible charges and, if there is a balance due from the student after this calculation, we expect payment from the student and we have a process to pursue uncollected accounts whereby, based upon the student’s financial means and ability to pay, a payment plan is established with the student to ensure that collectability is reasonable. We continuously monitor our historical collections to identify potential trends that may impact our determination that collectability of receivables for withdrawn students is realizable. If a student withdraws from a program prior to a specified date, any paid but unearned tuition is refunded. Refunds are calculated and paid in accordance with federal, state and accrediting agency standards. Generally, the amount to be refunded to a student is calculated based upon the period of time the student has attended classes and the amount of tuition and fees paid by the student as of his or her withdrawal date. These refunds typically reduce deferred tuition revenue and cash on our consolidated balance sheets as we generally do not recognize tuition revenue in our consolidated statements of income (loss) until the related refund provisions have lapsed. Based on the application of our refund policies, we may be entitled to incremental revenue on the day the student withdraws from one of our schools. We record revenue for students who withdraw from one of our schools when payment is received because collectability on an individual student basis is not reasonably assured.

~~Index~~

~~Allowance for uncollectible accounts~~. Based upon our experience and judgment, we establish an allowance for uncollectible accounts with respect to tuition receivables. We use an internal group of collectors, augmented by third-party collectors as deemed appropriate, in our collection efforts. In addition, we periodically sell written-off receivables to third parties. In establishing our allowance for uncollectible accounts, we consider, among other things, current and expected economic conditions, a student’s status (in-school or out-of-school), whether or not a student is currently making payments and overall collection history. Changes in trends in any of these areas may impact the allowance for uncollectible accounts. The receivables balances of withdrawn students with delinquent obligations are reserved based on our collection history. Although we believe that our reserves are adequate, if the financial condition of our students deteriorates, resulting in an impairment of their ability to make payments, additional allowances may be necessary, which will result in increased selling, general and administrative expenses in the period such determination is made.

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

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

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

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

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

~~Long-lived assets~~. We review the carrying value of our long-lived assets and identifiable intangibles for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We evaluate long-lived assets for impairment by examining estimated future cash flows. These cash flows are evaluated by using weighted probability techniques as well as comparisons of past performance against projections. Assets may also be evaluated by identifying independent market values. If we determine that an asset’s carrying value is impaired, we will record a write-down of the carrying value of the asset and charge the impairment as an operating expense in the period in which the determination is made.

~~Index~~

~~There was no long-lived asset impairment during the three and nine months ended September 30 2017 and 2016.~~

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

~~Income taxes.~~ We ~~account for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Code (“ASC”) Topic 740, “Income Taxes~~”. This statement requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax basis of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered.

In accordance with ASC 740, we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable. A valuation allowance is required to be established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized. In accordance with ASC 740, our assessment considers whether there has been sufficient income in recent years and whether sufficient income is expected in future years in order to utilize the deferred tax asset. In evaluating the realizability of deferred income tax assets, we considered, among other things, historical levels of income, expected future income, the expected timing of the reversals of existing temporary reporting differences, and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits. Significant judgment is required in determining the future tax consequences of events that have been recognized in our consolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated financial position or results of operations. Changes in, among other things, income tax legislation, statutory income tax rates, or future income levels could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods. ~~On the basis of this evaluation the realization of our deferred tax assets was not deemed to be more likely than not and thus we have provided a valuation allowance on our net deferred tax assets.~~

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the three and nine months ended September 30, 2017 and 2016, there were no interest and penalties expense associated with uncertain tax positions.

Effect of Inflation

Inflation has not had a material effect on our operations.

Index

Results of Continuing Operations

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

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenue		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Costs and expenses:
Educational services and facilities		50.6	%		50.6	%		51.0	%		51.8	%		49.4	%		52.4	%		49.3	%		51.2	%
Selling, general and administrative		52.7	%		50.3	%		56.2	%		53.1	%		56.4	%		57.5	%		58.5	%		58.1	%
Gain on sale of assets		-2.3	%		0.0	%		-0.8	%		-0.2	%
Loss (gain) on sale of assets														0.0	%		-0.1	%		0.1	%		-0.1	%
Total costs and expenses		101.0	%		100.9	%		106.4	%		104.7	%		105.8	%		109.8	%		107.9	%		109.2	%
Operating loss		-1.0	%		-0.9	%		-6.4	%		-4.7	%		-5.8	%		-9.8	%		-7.9	%		-9.2	%
Interest expense, net		-1.1	%		-1.9	%		-3.4	%		-2.1	%		-0.9	%		-1.1	%		-0.9	%		-4.6	%
Other income		0.0	%		2.3	%		0.0	%		2.4	%
Loss from operations before income taxes		-2.1	%		-0.5	%		-9.8	%		-4.4	%		-6.7	%		-10.9	%		-8.8	%		-13.8	%
Provision for income taxes		0.1	%		0.1	%		0.1	%		0.1	%		0.1	%		0.1	%		0.1	%		0.1	%
Net Loss		-2.2	%		-0.6	%		-9.9	%		-4.5	%
Net loss														-6.8	%		-11.0	%		-8.9	%		-13.9	%

~~Index~~

Three Months Ended ~~September~~June 30, ~~2017~~2018 Compared to Three Months Ended ~~September~~June 30, ~~2016~~2017

Consolidated Results of Operations

Revenue. Revenue decreased by ~~$7.0~~$0.7 million, or ~~9.4%~~1.2%, to ~~$67.3~~$61.1 million for the three months ended ~~September~~June 30, ~~2017~~2018 from ~~$74.3~~$61.9 million in the prior year comparable period. The decrease ~~in revenue is mainly attributable~~was attributed to the ~~suspension of new student starts at campuses in our~~ Transitional segment, which did not have ~~closed~~any revenue for the quarter compared to $2.6 million in the prior year comparable quarter. Excluding the Transitional segment from the prior year, revenue would have increased by $1.9 million, or ~~will be closed at year-end. This segment accounted~~3.2% for ~~approximately 95%~~the second quarter of ~~the total revenue decline.~~2018 compared to 2017.

Total student starts ~~decreased~~increased by ~~10.9% to approximately 4,400 from 5,000~~11.6% for the three months ended ~~September~~June 30, ~~2017~~2018 as compared to the prior year comparable period. ~~Approximately 82%~~We attribute the improved start growth to our sales team combined with marketing investments and initiatives to improve the students’ enrollment experience. The increase in student starts has eliminated the carry in population deficit and positioned the Company ahead of the overall decrease was due to the Transitional segment noted above. The remaining decrease resulted from start underperformance at one campus in the Transportation and Skilled Trades segment and two campuses in the Healthcare and Other Professions segment.prior year by approximately 350 students.

For a general discussion of trends in our student enrollment, see “Seasonality and Outlook” below.

Educational services and facilities expense. Our educational services and facilities expense decreased by ~~$3.5~~$2.2 million, or ~~9.3%~~6.9%, to ~~$34.1~~$30.2 million for the three months ended ~~September~~June 30, ~~2017~~2018 from ~~$37.5~~$32.4 million in the prior year comparable ~~quarter. This decrease is mainly attributable~~period. The expense reductions were primarily due to the Transitional ~~segment~~Segment; which accounted for ~~$3.2~~$2.1 million in the prior year and cost ~~reductions as three campuses~~savings in ~~the segment have closed during the three months ended September 30, 2017~~facilities expense resulting from a reduction in square footage at one of our campuses. These cost savings were partially offset by an increase in books and ~~the remaining two campuses are preparing to close by the end of the current calendar year.~~

tools expense resulting from an increased student population quarter over quarter. Educational services and facilities ~~expenses,~~expense, as a percentage of revenue ~~remained essentially flat at 50.6%~~decreased to 49.4% for the three months ended ~~September~~June 30, ~~2017 and 2016.~~2018 from 52.4% in the prior year comparable period.

Selling, general and administrative expense. Our selling, general and administrative expense decreased by ~~$1.9~~$1.1 million, or ~~5.1%~~3.0%, to ~~$35.5~~$34.5 million for the three months ended ~~September~~June 30, ~~2017~~2018 from $37.4 million in the comparable quarter of 2016. This decrease also was primarily due to the Transitional segment, which accounted for approximately $2.9 million in cost reductions. Partially offsetting the cost reductions was $0.6 million of corporate and other costs related to the closure of the of the Hartford, Connecticut campus on December 31, 2016.

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

~~Gain on Sale of Assets.~~ For the three months ended September 30, 2017, gain on sale of assets increased to $1.5 million from less than $0.1 million in the prior year comparable period. The increase was due to the sale of two properties located in West Palm Beach, Florida.

~~Net interest expense.~~ ~~For the three months ended September 30, 2017, net interest expense decreased by $0.7 million, or 50% to $0.7 million from $1.4~~$35.6 million in the prior year comparable period. The expense reductions were ~~attributable~~due to ~~lower debt outstanding~~the Transitional Segment, which accounted for $1.3 million in ~~combination with more favorable terms under our new credit facility with Sterling National Bank effective March 31, 2017.~~

~~Other Income.~~ ~~For~~the prior year. Selling, general and administrative expense, as a percentage of revenue decreased to 56.4% for the three months ended ~~September~~June 30, ~~2017, other income~~2018 from 57.5% in the prior year comparable period.

Net interest expense. Net interest expense for the three months ended June 30, 2018 decreased by ~~$1.7~~$0.2 million, or 23.0% to $0.5 million from $0.7 million in the prior year comparable period. ~~The $1.7 million of other income~~This reduction in ~~2016 reflected the amortization of a one-time gain from the modification of a lease at three of the Company’s campuses which were previously accounted for as finance obligations~~expense was due to additional interest expense incurred in the prior ~~year.~~year in relation to an $8.0 million bridge term loan secured by our West Palm Beach, Florida property. The bridge term loan was repaid in August 2017 upon the sale of the property.

Income taxes. Our provision for income taxes was $0.1 million, or ~~3.5%~~1.2% of pretax loss, for the three months ended ~~September~~June 30, ~~2017,~~2018, compared to a provision for income taxes of $0.1 million, or ~~11.9%~~0.7% of pretax loss, in the prior year comparable period.

Index

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, eliminates the corporate alternative minimum tax (the “AMT”) and changes how existing AMT credits can be realized either to offset regular tax liability or to be refunded.

As of June 30, 2018 we have not completed our analysis of the tax effects of enactment of the Tax Act; however, we have made a reasonable estimate of the effects of the Tax Act’s change in the federal rate and revalued our deferred tax assets based on the rates at which they are expected to reverse in the future, which is generally the new 21% federal corporate tax rate plus applicable state tax rate. Based on our initial analysis of the impact, we recorded a decrease related to deferred tax assets of $17.7 million at December 31, 2017. The expense is offset with a corresponding release of valuation allowance.

No other federal or state income tax benefit was recognized for the current period loss due to the recognition of a full valuation allowance. ~~Income tax expense resulted from various minimal state tax expenses.~~

~~Index~~

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2017

Consolidated Results of Operations

Revenue. Revenue decreased by ~~$18.5~~$4.1 million, or ~~8.7%~~3.3%, to ~~$194.5~~$123.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$213.0~~$127.1 million ~~for~~in the prior year comparable period. The decrease ~~in revenue is primarily attributable~~was attributed to the ~~suspension of new student enrollments at campuses in our~~ Transitional segment, which did not have ~~closed or will be closed by year end. This segment accounted for approximately 90% of the total~~any revenue ~~decline. The remaining decline was due to our HOPS segment which decreased by $1.8 million~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017 due~~2018 compared to ~~average population down approximately~~$6.9 million in the prior year comparable period. Excluding the Transitional segment from the prior year, revenue would have increased by $2.8 million, or 2.3% for the six months ended June 30, ~~students.~~2018 as compared to the prior year comparable period.

Total student starts ~~decreased~~increased by ~~12.5% to approximately 9,900 from 11,300~~4.2% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 as compared to the prior year comparable period. ~~The decrease was largely due to the suspension of new student starts for~~Excluding the Transitional segment, ~~which accounted for approximately 79%~~starts would have increased by 6.8% year over year. We attribute the improved start growth to our sales team combined with marketing investments and initiatives to improve the students’ enrollment experience. The increase in student starts has eliminated the carry in population deficit and positioned the Company ahead of ~~the decline. The Transportation and Skilled Trades segment starts were down 2.8% and the HOPS segment starts were down 3.4% for the nine months ended September 30, 2017 as compared to~~ the prior year ~~comparable period.~~by approximately 350 students.

For a general discussion of trends in our student enrollment, see “Seasonality and Outlook” below.

Educational services and facilities expense. Our educational services and facilities expense decreased by ~~$11.1~~$4.4 million, or ~~10%~~6.8%, to ~~$99.2~~$60.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$110.2~~$65.1 million in the prior year comparable period. ~~This decrease is mainly attributable~~The expense reductions were due to the Transitional segment, which accounted for ~~$10.4~~$4.8 million in prior year. Partially offsetting the cost ~~reductions as three campuses~~savings were increases in ~~the segment have closed during the nine months ended September 30, 2017~~books and ~~the remaining two campuses that are preparing to close~~tools expense primarily driven by ~~the end of the current calendar year. The remainder of the decrease was due to a $1.4 million decrease in depreciation expense resulting from fully depreciated assets.~~

an increased student population. Educational services and facilities ~~expenses,~~expense, as a percentage of revenue, decreased to ~~51.0%~~49.3% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~51.8%~~51.2% in the prior year comparable period.

Selling, general and administrative expense. Our selling, general and administrative expense decreased by ~~$3.9~~$1.9 million, or ~~3.5%~~2.5%, to ~~$109.4~~$72.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$113.3~~$73.9 million in the prior year comparable ~~period of 2016.~~period. The ~~decrease also was primarily~~expense reductions were due to the Transitional segment, which accounted for ~~approximately $9.5~~$3.4 million in ~~cost reductions.~~the prior year. Partially offsetting ~~these~~the costs ~~reductions are $3.3~~savings were additional marketing investments of $1.2 million ~~in increased administrative expense;~~ and ~~$2.5 million in additional sales and marketing expense.~~

~~Administrative expense increased primarily due to~~ a ~~$1.8~~$0.4 million increase in ~~bad debt expense as a result of higher past due~~administrative expenses primarily driven by the growth in student accounts, higher account write-offs, and timing of Title IV funds receipts and $1.1 million in additional closed school expenses which relates directly to the closure of the Hartford, Connecticut campus in December 31, 2016. T~~he additional expenses relating to the Hartford Connecticut campus will terminate with the apartment lease which ends in September 2019.~~

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

~~As a percentage of revenues, selling,~~population. Selling, general and administrative expense, ~~increased to 56.2%~~as a percentage of revenue, remained essentially flat at 58.5% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~53.1%~~58.1% in the ~~comparable~~ prior year comparable period.

As of ~~September~~June 30, ~~2017,~~2018, we had total outstanding loan commitments to our students of ~~$46.9~~$54.3 million, as compared to ~~$40.0~~$51.9 million at December 31, ~~2016. Loan commitments, net~~2017. The increase was due to an increased number of ~~interest~~students electing to take our institutional loans to finance their education costs that ~~would be due on~~are not covered by a third party or financial aid. Our institutional loans are a lender of last resort, available to assist our most financially challenged students. Further contributing to the ~~loans through maturity, were $34.9 million at September 30, 2017, as compared to $30.0 million at December 31, 2016. The~~ increase in loan commitments ~~was due~~is a notable increase in ~~part to the~~student population and seasonality of the ~~Company’s operations.~~business.

~~Gain on sale of assets.~~ Net interest expense.~~For~~ Net interest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017, gain on sale of assets increased~~2018 decreased by $4.7 million, or 81.3% to ~~$1.6~~$1.1 million from ~~$0.4~~$5.8 million in the prior year comparable period. The ~~increase~~decrease was ~~due to~~ the ~~sale~~result of ~~two properties located in West Palm Beach, Florida.~~

~~Net interest expense.~~ ~~For~~ the ~~nine months ended September 30, 2017 net~~termination of our previous term loan which was at significantly higher rates and the related fees and expenses associated with its early termination, which occurred on March 31, 2017. Additional interest expense ~~increased by 2.1 million, or 46% to $6.6 million from $4.5 million~~was also incurred in the prior year ~~comparable period. The increase~~in relation to an $8.0 million bridge term loan secured by our West Palm Beach, Florida property, which was ~~mainly attributable to a $2.2 million non-cash write-off~~repaid in August of previously capitalized deferred financing fees. These costs were incurred at March 31, 2017 when the Company entered into a new revolving credit facility with Sterling National Bank. Partially offsetting these increases were reductions in interest expense resulting from lower debt outstanding in combination with more favorable terms under the current Credit Facility compared to our prior Term Loan.

252017.

~~Index~~

~~Other Income.~~ For the nine months ended September 30, 2017 other income decreased by $5.1 million from the prior year comparable period. The $5.1 million in 2016 reflected the amortization of a one-time gain from the modification of a lease at three of the Company’s campuses which were previously accounted for as finance obligations in the prior year.

Income taxes. Our provision for income taxes was ~~$0.2~~$0.1 million, or ~~0.8%~~0.9% of pretax loss, for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, compared to ~~$0.2~~a provision for income taxes of $0.1 million, or ~~1.6%~~0.6% of pretax loss, in the prior year comparable period.

Index

As noted above, on December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, eliminates the corporate alternative minimum tax (the “AMT”) and changes how existing AMT credits can be realized either to offset regular tax liability or to be refunded.

As of June 30, 2018, we have not completed our analysis of the tax effects of enactment of the Tax Act; however, we have made a reasonable estimate of the effects of the Tax Act’s change in the federal rate and revalued our deferred tax assets based on the rates at which they are expected to reverse in the future, which is generally the new 21% federal corporate tax rate plus applicable state tax rate. Based on our initial analysis of the impact, we recorded a decrease related to deferred tax assets of $17.7 million at December 31, 2017. The expense is offset with a corresponding release of valuation allowance.

Segment Results of Operations

The for-profit education industry has been impacted by numerous regulatory changes, the changing economy and an onslaught of negative media attention. As a result of these challenges, student populations have declined and operating costs have increased. Over the past few years, the Company has closed over ten locations and exited its online business. In 2016, the Company ceased operations in Hartford, Connecticut; Fern Park, Florida; and Henderson (Green Valley), Nevada. In 2017, the ~~fourth quarter~~Company completed the teach-out of ~~2016, the Board of Directors approved plans to cease operations at our schools in~~its Center City Philadelphia, Pennsylvania; Northeast Philadelphia, Pennsylvania; ~~and~~ West Palm Beach, Florida, ~~which were fully taught out in 2017. In addition, in March 2017, the Board of Directors approved plans to cease operations at our schools in~~ Brockton, Massachusetts and Lowell, Massachusetts ~~which are expected to close in the fourth quarter~~schools. All of ~~2017. These~~these schools ~~which~~ were previously included in our HOPS segment and as of December 31, 2017, they have all been closed. As of June 30, 2018, there are ~~now~~no campuses included in the Transitional segment.

In the past, we offered any combination of programs at any campus. We have shifted our focus to program offerings that create greater differentiation among campuses and ~~attain~~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 ~~students~~graduates and this is best achieved at campuses focused on ~~their~~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 ~~segments~~ described below.

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

Healthcare and Other Professions – The Healthcare and Other Professions segment offers academic programs in the career-oriented disciplines of health sciences, hospitality and business and information technology (e.g. dental assistant, medical assistant, practical nursing, culinary arts and cosmetology).

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

The Company continually evaluates each campus for profitability, earning potential, and customer satisfaction. This evaluation takes several factors into consideration, including the ~~campus’~~campus’s geographic location and program offerings, as well as skillsets required of our students by their potential employers. The purpose of this evaluation is to ensure that our programs provide our students with the best possible opportunity to succeed in the marketplace with the goals of attracting more students to our programs and, ultimately, to provide our shareholders with the maximum return on their investment. Campuses classified in the Transitional segment have been subject to this process and have been strategically identified for closure. As of June 30, 2018, there are no campuses classified in the Transitional segment.

~~Index~~

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

For all prior periods presented, the Company reclassified its Marietta, Georgia campus from the HOPS segment to the Transportation and Skilled Trades segment. This reclassification occurred to address how the Company evaluates performance and allocates resources and was approved by the Company’s Board of Directors.

The following table present results for our three reportable segments for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016:~~2017:

	Three Months Ended September 30,									Three Months Months Ended June 30,
	2017			2016			% Change			2018			2017			% Change
Revenue:
Transportation and Skilled Trades	$	47,694		$	47,939			-0.5	%	$	42,085		$	42,331			-0.6	%
HOPS		18,428			18,559			-0.7	%
Healthcare and Other Professions											19,035			16,911			12.6	%
Transitional		1,186			7,769			-84.7	%		-			2,623			-100.0	%
Total	$	67,308		$	74,267			-9.4	%	$	61,120		$	61,865			-1.2	%

Operating Income (Loss):
Transportation and Skilled Trades	$	6,061		$	6,120			-1.0	%	$	1,740		$	786			121.4	%
Healthcare and Other Professions		(574	)		(41	)		1300.0	%		644			(571	)		212.8	%
Transitional		(2,495	)		(2,029	)		-23.0	%		-			(833	)		100.0	%
Corporate		(3,723	)		(4,721	)		21.1	%		(5,907	)		(5,413	)		9.1	%
Total	$	(731	)	$	(671	)		-8.9	%	$	(3,523	)	$	(6,031	)		41.6	%

Starts:
Transportation and Skilled Trades		3,016			3,090			-2.4	%		1,959			1,823			7.5	%
Healthcare and Other Professions		1,429			1,453			-1.7	%		946			781			21.1	%
Transitional		-			448			-100.0	%		-			-			0.0	%
Total		4,445			4,991			-10.9	%		2,905			2,604			11.6	%

Average Population:
Transportation and Skilled Trades		6,977			7,128			-2.1	%		6,592			6,740			-2.2	%
Healthcare and Other Professions		3,327			3,286			1.2	%		3,511			3,263			7.6	%
Transitional		259			1,429			-81.9	%		-			579			-100.0	%
Total		10,563			11,843			-10.8	%		10,103			10,582			-4.5	%

End of Period Population:
Transportation and Skilled Trades		7,403			7,667			-3.4	%		6,975			7,028			-0.8	%
Healthcare and Other Professions		3,957			3,826			3.4	%		3,396			3,000			13.2	%
Transitional		155			1,362			-88.6	%		-			372			-100.0	%
Total		11,515			12,855			-10.4	%		10,371			10,400			-0.3	%

Index

Three Months Ended ~~September~~June 30, ~~2017~~2018 Compared to Three Months Ended ~~September~~June 30, ~~2016~~2017

Transportation and Skilled Trades

Student starts increased 7.5% for the ~~quarter decreased by 74 students, or 2.4%,~~three months ended June 30, 2018 when compared to the prior year comparable ~~period. The decline in student starts is mainly~~period, eliminating the ~~result~~majority of the underperformance of one campus, which decreased by 98 students. Excluding this campus, student starts for the quarter would have grown over the prior year comparable period. In addition, as previously reported in the second quarter, there was a decline in starts as a result of a lower than expected high school start rate. High school students make up approximately 30% of the segment’s population. In an effort to increase high school enrollments, the Company made various changes to its processes and organizational structure. carry-in population deficit.

~~Index~~

Operating income ~~remained essentially flat at $6.1~~increased by $1.0 million to $1.7 million for the three months ended ~~September~~June 30, ~~2017~~2018 as compared to $0.7 million in the prior year comparable ~~period. Changes in revenue and expense allocations were impacted as follows:~~period mainly due to the following factors:

Revenue decreased ~~by $0.2 million, or 0.5%~~slightly to ~~$47.7~~$42.1 million for the three months ended ~~September~~June 30, ~~2017 from $47.9~~2018, as compared to $42.3 million in the prior year comparable period. The decrease in revenue was ~~primarily driven by~~ a ~~2.1%~~result of a 2.2% decrease in average student population ~~due to~~primarily driven by a ~~decline~~lower carry in population. Partially offsetting the ~~number of student starts slightly offset by~~reduction is a 1.6% increase in average revenue per student ~~compared~~primarily due to ~~the prior year comparable period.~~tuition increases.

Educational services and facilities expense decreased by ~~$0.4~~$0.8 million, or ~~1.9%~~3.9%, to ~~$22.4~~$20.2 million for the three months ended ~~September~~June 30, ~~2017~~2018 from ~~$22.8~~$21.0 million in the prior year comparable ~~quarter. This~~period. The decrease was ~~primarily due~~mainly attributable to ~~reductions~~a $0.4 million reduction in ~~facilities expense resulting from more favorable lease terms~~square footage at one of our ~~campuses and reductions in depreciation expense due to fully depreciated assets.~~campuses.

Selling, general and administrative expenses were essentially flat. Our selling, general and administrative expenses contain a high fixed cost component and are not as scalable as some of our other expenses. As our student population decreases, we typically experience a reductionexpense decreased by $0.4 million, or 2.1%, to $20.1 million for the three months ended June 30, 2018 from $20.6 million in ~~average class size and, therefore, are not always able to align these expenses with~~ the ~~corresponding decrease in population.~~prior year comparable period.

Healthcare and Other Professions

Student starts ~~in the Healthcare and Other Professions segment decreased~~increased by ~~24 students, or 1.7%,~~21.1% for the three months ended ~~September~~June 30, ~~2017 as compared to~~2018 from the prior year comparable period. ~~This segment consists~~Ending population as of ~~11 campuses and, despite~~June 30, 2018 was approximately 400 students higher than the ~~overall decrease in student starts,~~prior year.

Operating income for the three months ended ~~September~~June 30, 2017, seven of the 11 campuses in this segment showed an increase in student starts. Of the remaining four campuses, one remained flat, two demonstrated less starts as a result of underperformance, and the last campus had a shift in start dates lowering starts compared2018 increased by $1.2 million to ~~the prior year comparable period.~~

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

Revenue ~~decreased~~increased by $2.1 million, or 12.6% to ~~$18.4~~$19.0 million for the three months ended ~~September~~June 30, ~~2017,~~2018, as compared to ~~$18.6~~$16.9 million in the prior year comparable ~~quarter.~~period. The ~~decrease~~increase in revenue iswas mainly ~~attributable~~driven by considerable start growth experienced during the quarter in addition to a ~~2.0% decline~~7.6% increase in average student population driven by an increased carry in population of approximately 150 students; and a 4.4% increase in average revenue per student primarily due to tuition ~~decreases at certain campuses and shifts in program mix.~~increases.

Educational services and facilities expense increased by ~~$0.2~~$0.7 million, or ~~1.9%,~~7.6% to ~~$10.2~~$10.0 million for the three months ended ~~September~~June 30, ~~2017~~2018, from ~~$10.0~~$9.3 million in the prior year comparable period. The increase in expense was primarily driven by increased instructional expense and books and tools expense due to a 7.6% increase in average student population quarter over quarter.

Selling, general and administrative expense increased by $0.2 million, or ~~2.4%~~2.5%, to ~~$8.8~~$8.4 million for the three months ended ~~September~~June 30, ~~2017~~2018 from ~~$8.6~~$8.2 million in the prior year comparable ~~quarter due to increases~~period. This increase was primarily driven by additional investments in ~~sales and marketing expense.~~marketing.

Transitional

The following table lists the schools ~~that are~~previously categorized in the Transitional segment ~~and their status~~ as of ~~September~~December 31, 2017. As of June 30, ~~2017:~~2018, there were no campuses classified in the Transitional segment.

Campus	Date Closed	~~Date Scheduled to Close~~
Northeast Philadelphia, Pennsylvania	~~August 31,~~September 30, 2017	~~N/A~~
Center City Philadelphia, Pennsylvania	August 31, 2017	~~N/A~~
West Palm Beach, Florida	September 30, 2017	~~N/A~~
Brockton, Massachusetts	~~N/A~~	December 31, 2017
Lowell, Massachusetts	~~N/A~~	December 31, 2017
Fern Park, Florida	March 31, 2016	~~N/A~~
Hartford, Connecticut	December 31, 2016	~~N/A~~
Henderson (Green Valley), Nevada	December 31, 2016	~~N/A~~

**Revenue for the campuses in the above table have been classified in the Transitional segment for comparability for the ~~three months~~year ended ~~September 30, 2017 and 2016.~~December 31, 2017.

~~Revenue~~There was ~~$1.2 million~~no revenue for the Transitional segment for the three months ended ~~September~~June 30, ~~2017~~2018 as ~~compared to $7.8 million~~all of the campuses classified in this segment were closed as of December 31, 2017. Revenue in the prior year comparable period ~~mainly due to the campus closures.~~

~~Operating loss increased by $0.5 million to $2.5 million for the three months ended September 30, 2017 from $2.0 million in the prior year comparable period. The decrease~~ was ~~due to campus closures.~~$2.6 million.

2827

Index

There was no operating income or loss for the Transitional segment for the three months ended June 30, 2018. Operating loss in the prior year comparable period was $0.8 million.

Corporate and Other

This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and ~~Other~~other expenses ~~decreased~~increased by ~~$1.0~~$0.5 million, or ~~21.1%~~9.1%, to ~~$3.7~~$5.9 million for the three months ended June 30, 2018 from ~~$4.7~~$5.4 million in the prior year comparable period. The ~~decrease was primarily~~increase in costs were driven by ~~a $1.5 million gain~~increased administrative expenses resulting from the ~~sale~~implementation of ~~two properties located~~new marketing initiatives in West Palm Beach, Florida on August 14, 2017 and a decrease in salaries expense of approximately $0.9 million. Partially offsetting these reductions was a $0.9 million increase in benefits expense and $0.6 million of additional closed school costs. The decrease in benefits was attributable to historically lower medical claims in 2016 and the additional closed school costs related to the closure of the Hartford, Connecticut campus on December 31, 2016. T2018.~~he additional expenses relating to the Hartford Connecticut campus will terminate with the apartment lease which ends in September 2019.~~

The following table ~~presents~~present results for our three reportable segments for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016:~~2017:

Nine Months Ended September 30,
2017 2016 % Change
Revenue:

Transportation and Skilled Trades $ 131,169 $ 131,243 -0.1 %
HOPS 55,199 57,030 -3.2 %
Transitional 8,084 24,718 -67.3 %
Total $ 194,452 $ 212,991 -8.7 %

Operating Income (Loss):

Transportation and Skilled Trades $ 8,960 $ 11,916 -24.8 %
Healthcare and Other Professions (1,047 ) 2,634 -139.7 %
Transitional (3,900 ) (7,132 ) 45.3 %
Corporate (16,503 ) (17,566 ) 6.1 %
Total $ (12,490 ) $ (10,148 ) -23.1 %

Starts:

Transportation and Skilled Trades 6,502 6,686 -2.8 %
Healthcare and Other Professions 3,272 3,386 -3.4 %
Transitional 132 1,254 -89.5 %
Total 9,906 11,326 -12.5 %

Average Population:

Transportation and Skilled Trades 6,694 6,723 -0.4 %
Healthcare and Other Professions 3,477 3,508 -0.9 %
Transitional 574 1,519 -62.2 %
Total 10,745 11,750 -8.6 %

End of Period Population:

Transportation and Skilled Trades 7,403 7,667 -3.4 %
Healthcare and Other Professions 3,957 3,826 3.4 %
Transitional 155 1,362 -88.6 %
Total 11,515 12,855 -10.4 %

	Six Months Ended June 30,
	2018			2017			% Change
Revenue:
Transportation and Skilled Trades	$	84,832		$	85,490			-0.8	%
Healthcare and Other Professions		38,177			34,756			9.8	%
Transitional		-			6,898			-100.0	%
Total	$	123,009		$	127,144			-3.3	%

Operating Income (Loss):
Transportation and Skilled Trades	$	2,416		$	2,685			-10.0	%
Healthcare and Other Professions		887			(258	)		443.8	%
Transitional		-			(1,401	)		100.0	%
Corporate		(13,088	)		(12,785	)		-2.4	%
Total	$	(9,785	)	$	(11,759	)		16.8	%

Starts:
Transportation and Skilled Trades		3,765			3,619			4.0	%
Healthcare and Other Professions		1,926			1,710			12.6	%
Transitional		-			132			-100.0	%
Total		5,691			5,461			4.2	%

Average Population:
Transportation and Skilled Trades		6,610			6,758			-2.2	%
Healthcare and Other Professions		3,548			3,346			6.0	%
Transitional		-			731			-100.0	%
Total		10,158			10,836			-6.3	%

End of Period Population:
Transportation and Skilled Trades		6,975			7,028			-0.8	%
Healthcare and Other Professions		3,396			3,000			13.2	%
Transitional		-			372			-100.0	%
Total		10,371			10,400			-0.3	%

~~Index~~

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2017

Transportation and Skilled Trades

Student ~~start results decreased by 2.8% to 6,502 from 6,686~~starts increased 4.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2017 as~~2018 when compared to the prior year comparable ~~period.~~period, eliminating the majority of the carry-in population.

Operating income ~~decreased by $3.0 million, or 24.8%, to $9.0~~was $2.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 from $11.9~~2018 as compared to $2.7 million in the prior year comparable period mainly ~~driven by~~due to the following factors:

Index

Revenue ~~remained essentially flat at $131.2~~decreased to $84.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, as compared to $85.5 million in the prior year comparable ~~period mainly due to~~period. The decrease in revenue was a ~~higher~~result of a 2.2% decrease in average student population primarily driven by a lower carry in ~~population compared to the prior year quarter in addition to a slight increase in revenue per student.~~population. Partially offsetting the ~~increases was~~reduction is a ~~decline~~1.4% increase in average ~~population of approximately 30 students.~~revenue per student primarily due to tuition increases.

Educational services and facilities expense decreased by $0.6 million, or ~~0.9% primarily due~~1.5%, to $40.9 million for the six months ended June 30, 2018 from $41.5 million in the prior year comparable period. The decrease was mainly attributable to a ~~$1.2~~$0.4 million decrease in facilities expense ~~partially offset by a $0.6 million increase in instructional and books and tools expense. Reductions in facilities expense were primarily driven by reduced depreciation expense~~ resulting from ~~fully depreciated assets. Increases~~the reduction in ~~instructional expenses were due to the launch of a new program~~square footage at one of our campuses in combination with increased materials costs; and increased expenses for books and tools were due to the timing of the distribution of materials for students starting classes in combination with implementing the use of laptop computers for more of our program curriculums during the quarter.campuses.

Selling, general and administrative ~~expense increased by $3.6~~expenses remained essentially flat at $41.4 million ~~due~~for the six months ended June 30, 2018 compared to ~~(a)~~ ~~$1.3~~$41.3 million ~~of additional bad debt expense resulting from higher past due student accounts, higher account write-offs, and timing of Title IV fund receipts;~~ ~~and (b)~~ ~~$1.4 million increase~~ in ~~sales and marketing expenses.~~ ~~The increased spending in sales and marketing was part of a strategic effort to attract student enrollments and increase brand awareness.~~

the prior year comparable period.

Healthcare and Other Professions

Student ~~start results decreased~~starts increased by ~~3.4% to 3,272 from 3,386~~12.6% for the ~~nine~~six months ended ~~September~~June 30, ~~2017 as compared to~~2018 from the prior year comparable period. Ending population as of June 30, 2018 was approximately 400 students higher than the prior year.

Operating ~~loss~~income for the ~~nine~~six months ended ~~September~~June 30, ~~2017 was $1.1~~2018 increased by $1.2 million to $0.9 million compared to an operating ~~income~~loss of ~~$2.6~~$0.3 million in the prior year comparable period. The ~~$3.7 million change~~increase was mainly ~~driven by~~due to the following factors:

Revenue ~~decreased~~increased by $3.4 million, or 9.8% to ~~$55.2~~$38.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, as compared to ~~$57.0~~$34.8 million in the prior year comparable ~~quarter.~~period. The ~~decrease~~increase in revenue iswas mainly ~~attributable to two main factors,~~from considerable start growth experienced during the second quarter of the year driving average student population up by 6.0%, as well as a ~~decline in average population of approximately 30 students in combination with a 2.4% decline~~3.5% increase in average revenue per student primarily due to tuition ~~decreases at certain campuses and shifts in our program mix.~~increases.

Educational services and facilities expense ~~remained essentially flat at $29.9~~increased by $1.0 million, or 5.5% to $19.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, from $18.7 million in the prior year comparable period. The increase in expense was driven by additional instructional expense and books and tools expense due to a 6.0% increase in average student population for the six months ended June 30, 2018 as compared to the prior year comparable period.

Selling, general and administrative ~~expense~~expenses increased by ~~$1.9~~$1.3 million, or 7.7%, to $17.6 million for the six months ended June 30, 2018 from $16.3 million in the prior year comparable period. The increase was primarily driven by our sales team and initiatives to improve student enrollment experience combined with additional investments in marketing and increased administrative salaries resulting from ~~a $1.1 million increase~~ ~~in sales and marketing expense. The~~ increased ~~marketing initiatives has resulted in a slight improvement in~~ student starts in the adult demographic for the nine months ended September 30, 2017 as compared to the prior comparable period; and a $0.6 million increase in administrative expenses mainly the result of bad debt expense which increased due to higher past due student accounts, higher account write-offs, and timing of Title IV fund receipts.

population year over year.

Transitional

The following table lists the schools previously categorized in the Transitional segment as of December 31, 2017. As of June 30, 2018, there were no campuses classified in the Transitional segment.

Campus	Date Closed
Northeast Philadelphia, Pennsylvania	September 30, 2017
Center City Philadelphia, Pennsylvania	August 31, 2017
West Palm Beach, Florida	September 30, 2017
Brockton, Massachusetts	December 31, 2017
Lowell, Massachusetts	December 31, 2017
Fern Park, Florida	March 31, 2016
Hartford, Connecticut	December 31, 2016
Henderson (Green Valley), Nevada	December 31, 2016

Revenue ~~was $8.1 million~~ for the ~~nine~~campuses in the above table have been classified in the Transitional segment for comparability for the year ended December 31, 2017.

There was no revenue for the Transitional segment for the six months ended ~~September~~June 30, ~~2017~~2018 as ~~compared to $24.7 million~~all of the campuses classified in this segment were closed as of December 31, 2017. Revenue in the prior year comparable period ~~mainly attributable to the closing of campuses within this segment.~~was $6.9 million.

~~Operating~~There was no operating income or loss ~~decreased by $3.2 million to $3.9 million~~ for the ~~nine~~Transitional segment for the six months ended ~~September~~June 30, ~~2017 from $7.1 million~~2018. Operating loss in the prior year comparable ~~period. The decrease is primarily attributable to the closing of campuses within this segment~~period was $1.4 million.

~~Index~~

Corporate and Other

This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and ~~Other expense decreased~~other expenses increased by ~~$1.1~~$0.3 million, or ~~6.0%~~2.4%, to ~~$16.5~~$13.1 million for the six months ended June 30, 2018 from ~~$17.6~~$12.8 million in the prior year comparable period. ~~The decrease in corporate expenses was primarily driven by~~Increased costs included a ~~$1.5~~$0.1 million ~~gain resulting from the~~loss on sale of ~~two properties located in West Palm Beach, Florida on August 14, 2017 and a decrease in salaries~~assets, related to catch-up depreciation expense of ~~approximately $2.7 million. Partially offsetting these reductions~~a real estate property previously classified as held for sale during 2017, which was re-classified out of held for sale as of January 1, 2018. In addition, administrative costs increased during the year as a $2.1 million increase in benefits expense and $1.2 million of additional closed school costs. The increase in benefits was attributable to historically lower medical claims in 2016 and the additional closed school costs related to the closureresult of the ~~Hartford, Connecticut campus on December 31, 2016. The additional expenses relating to the Hartford Connecticut campus will terminate with the apartment lease which ends~~implementation of new marketing initiatives in ~~September 2019.~~2018.

Index

LIQUIDITY AND CAPITAL RESOURCES

Our primary capital ~~requirements~~expenditures are for facilities expansion and maintenance, and the development of new programs. Our principal sources of liquidity have been cash provided by operating activities and borrowings under our credit facility. The following chart summarizes the principal elements of our cash ~~flow:~~flow for each of the six months ended June 30, 2018 and 2017:

Nine Months Ended
September 30,

2017 2016
Net cash used in operating activities $ (16,607 ) $ (9,513 )
Net cash provided by (used in) investing activities 10,897 (643 )
Net cash used in financing activities (8,077 ) (9,024 )

~~At September~~

	Six Months Ended June 30,
	2018			2017
	(In thousands)
Net cash used in operating activities	$	(12,334	)	$	(19,512	)
Net cash used in investing activities	$	(1,796	)	$	(1,976	)
Net cash used in financing activities	$	(28,853	)	$	(12,829	)

As of June 30, ~~2017,~~2018, the Company had ~~$14.5~~a net debt balance of $13.4 million ~~of cash, cash equivalents and restricted cash (which includes $7.2 million of restricted cash) as~~ compared to ~~$47.7~~a net cash balance of $1.2 million ~~of cash, cash equivalents and restricted cash (which included $26.7 million of restricted cash)~~ as of December 31, ~~2016.~~ ~~This~~2017. The decrease ~~is primarily~~in cash position can mainly be attributed to the ~~result~~repayment of $32.8 million in borrowings under our line of credit facility; a net loss during the ~~nine~~six months ended ~~September~~June 30, ~~2017; repayment of $44.3 million under our previous term loan facility~~2018; and seasonality of the business. Management believes that the Company has adequate resources in place to execute its 2018 operating plan.

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

To fund our business plans, including any anticipated future losses, purchase commitments, capital expenditures and principal and interest payments on borrowings, we leveraged our owned real estate. We are also continuing to take actions to improve cash flow by aligning our cost structure to our student ~~population.~~population, in addition to our current sources of capital that provide short term liquidity.

Our primary source of cash is tuition collected from our students. The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses. The most significant source of student financing is Title IV ~~programs~~Programs, which represented approximately ~~79%~~78% of our cash receipts relating to revenues in ~~2016.~~2017. 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~~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 ~~our~~the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Operating Activities

Net cash used in operating activities was ~~$16.6~~$12.3 million for the ~~nine~~six months ~~September~~ended June 30, ~~2017~~2018 compared to ~~$9.5~~$19.5 million ~~for~~in the prior year comparable period of ~~2016.~~2017. The ~~increase~~decrease in cash used in operating activities infor the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 is primarily due to ~~an increased~~a net loss from operations as well as changes in other working capital such as accounts receivable, accounts payable, accrued expenses and unearned tuition.

3130

Index

Investing Activities

Net cash ~~provided by~~used in investing activities was ~~$10.9~~$1.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~cash used of $0.6~~$2.0 million in the prior year comparable period. ~~Our~~The decrease of $0.2 million was primarily the result of reduced spending on capital expenditures.

One of our primary ~~use~~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 in Grand Prairie, Texas; Nashville, Tennessee; and Denver, Colorado and our ~~buildings~~former school properties in ~~West~~Mangonia Park, Palm Beach ~~Florida;~~County, Florida and Suffield, Connecticut.

~~On August 14, 2017, the Company completed the sale of two of three properties located in West Palm Beach Florida resulting in cash inflows of $15.5 million.~~

Capital expenditures are expected to approximate 2% of revenues in ~~2017.~~2018. We expect to fund future capital expenditures with cash generated from operating activities, borrowings under our revolving credit facility, and cash from our real estate monetization.

Financing Activities

Net cash used in financing activities was ~~$8.1~~$28.9 million for the six months ended June 30, 2018 as compared to ~~net cash used~~$12.8 million in the prior year comparable period. The increase of ~~$9.0 million for the nine months ended September 30, 2017 and 2016, respectively. The decrease of $0.9~~$16.1 million was primarily due to ~~three main factors: (a)~~increased net payments on borrowings of $28.4 million for the six months ended June 30, 2018 as compared to net payments on borrowing of ~~$6.5 million; (b) $2.9~~$11.3 million ~~in lease termination fees paid~~ in the prior ~~year; and (c)~~year comparable period. Also contributing to the ~~reclassification of $5 million in restricted cash~~increase year over year were outflows in the prior ~~year.~~year of $1.1 million relating to the write-off of previously capitalized expenditures upon execution of our new revolving credit facility.

Net payments on borrowings consisted of: (a) total borrowing to date under our secured revolving credit facility of ~~$38.0 million; (b) reclassification of payments of borrowing from restricted cash of $20.3~~$4.4 million; and ~~(c) $64.8~~(b) $32.8 million in total repayments made by the Company.

Credit Agreement

On March 31, 2017, the Company entered into a secured revolving credit agreement (the “Credit Agreement”) with Sterling National Bank (the “Bank”) pursuant to which the Company obtained a credit facility in the aggregate principal amount of up to $55 million (the “Credit Facility”). ~~The~~Subsequently, as a result of a November 29, 2017 amendment of the Credit Facility, ~~consists~~aggregate availability of ~~(a) a $30~~funds under the Credit Facility increased to $65 million, ~~loan facility (“Facility 1”), which is comprised~~consisting of (a) a $25 million revolving loan ~~designated as “Tranche A” and a $5 million non-revolving loan designated as “Tranche B,” which Tranche B was repaid during the quarter ended June 30, 2017 and~~(“Facility 1”), (b) a $25 million revolving loan facility (“Facility 2”), which includes a sublimit amount for letters of credit of $10 ~~million.~~million, and(c) a $15 million revolving credit loan (“Facility 3”). The Credit ~~Facility replaces a term loan facility (the “Prior Credit Facility”) which~~Agreement was ~~repaid~~again amended on February 23, 2018, to, among other things, effect certain modifications to the financial covenants and ~~terminated concurrently with the effectiveness~~other provisions of the Credit ~~Facility.~~ Agreement and to allow the Company to pursue the sale of certain real property assets. The February 23, 2018 amendment increased the interest rate for borrowings under Facility 1 to a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.85% and (y) 6.00%. Prior to the most recent amendment of the Credit Agreement, revolving loans outstanding under Facility 1 bore interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.50% and (y) 6.00%. Revolving loans under Facility 2 and Facility 3 bear interest at a rate per annum equal to the greater of (x) the Bank’s prime rate and (y) 3.50%.

The term of the Credit Facility is 38 months, maturing on May 31, ~~2020.~~2020, except that the Facility 3 will mature one year earlier, on May 31, 2019.

The Credit Facility is secured by a first priority lien in favor of the Bank on substantially all of the personal property owned by the Company as well as mortgages on four parcels of real property owned by the Company in ~~Connecticut,~~ Colorado, Tennessee and Texas at which ~~four~~three of the Company’s schools are ~~located.~~located, as well as a former school property owned by the Company located in Connecticut.

At the closing of the Credit Facility, the Company drew $25 million under ~~Tranche A of~~ Facility 1, which, ~~pursuant to the terms of the Credit Agreement,~~ was used to repay the ~~Prior Credit Facility~~Company’s previous prior credit facility and to pay transaction costs associated with closing the Credit Facility. ~~After the disbursements of such amounts, the Company retained approximately $1.8 million of the borrowed amount for working capital purposes.~~

Also, at closing, $5 million was drawn under Tranche B and, pursuant to the terms of the Credit Agreement, was deposited into an interest-bearing pledged account (the “Pledged Account”) in the name of the Company maintained at the Bank in order to secure payment obligations of the Company with respect to the costs of remediation of any environmental contamination discovered at certain of the mortgaged properties based upon environmental studies undertaken at such properties. During the quarter ended June 30, 2017, the environmental studies were completed and revealed no environmental issues existing at the properties. Accordingly, pursuant to the terms of the Credit Agreement, the $5 million in the Pledged Account was released and used to repay the non-revolving loan outstanding under Tranche B. Upon the repayment of Tranche B, the maximum principal amount of Facility 1 was permanently reduced to $25 million.

~~Pursuant to~~Under the terms of the Credit Agreement, all draws under Facility 2 for letters of credit or revolving loans and all draws under Facility 3 must be secured by cash collateral in an amount equal to 100% of the aggregate stated amount of the letters of credit issued and revolving loans outstanding through draws from Facility 1 or other available cash of the Company.

~~Index~~

Accrued interest on each revolving loan will be payable monthly in arrears. Revolving loans under Tranche A of Facility 1 will bear interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.50% and (y) 6.00%. The amount borrowed under Tranche B of Facility 1 and revolving loans under Facility 2 will bear interest at a rate per annum equal to the greater of (x) the Bank’s prime rate and (y) 3.50%.

Each issuance of a letter of credit under Facility 2 will require the payment of a letter of credit fee to the Bank equal to a rate per annum of 1.75% on the daily amount available to be drawn under the letter of credit, which fee shall be payable in quarterly installments in arrears. Letters of credit totaling ~~$7.2~~$6.2 million that were outstanding under a $9.5 million letter of credit facility previously provided to the Company by the Bank, which letter of credit facility was set to mature on April 1, 2017, are treated as letters of credit under Facility 2.

Index

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

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

~~In connection with the Credit Agreement, the Company paid the Bank an origination fee in the amount of $250,000 and other fees and reimbursements that are customary for facilities of this type.~~

~~The Company incurred an early termination premium of approximately $1.8 million in connection with the termination of the Prior Credit Facility.~~

On April 28, 2017, the Company entered into an additional secured credit agreement with the Bank, pursuant to which the Company obtained a short term loan in the principal amount of $8 million, the proceeds of which were used for working capital and general corporate purposes. The loan, which had an interest rate equal to the greater of the Bank’s prime rate plus 2.50% or 6.00%, was secured by real property assets located in West Palm Beach, Florida at which schools operated by the Company were located and matured upon the earlier of October 1, 2017 and the date of the sale of the West Palm Beach, Florida property. The Company sold two of three properties located in West Palm Beach, Florida to Tambone in the third quarter of 2017 and subsequently repaid the $8 million.

As of ~~September~~June 30, 2018, the Company had $25.0 million outstanding under the Credit Facility; offset by $0.7 million of deferred finance fees. As of December 31, 2017, the Company had ~~$17.5~~$53.4 million outstanding under the Credit Facility; offset by $0.8 million of deferred finance fees. As of ~~December 31, 2016, the Company had $44.3 million outstanding under the Prior Credit Facility; offset by $2.3 million of deferred finance fees, which were written-off. As of September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, there were letters of credit in the aggregate outstanding principal amount of $8.5 million and $7.2 million, respectively. During the six months ended June 30, 2018, the Company repaid all outstanding amounts as of December 31, 2017 on Facility 2 of $17.8 million and ~~$6.2 million, respectively. As~~Facility 3 of ~~September 30, 2017, there are no revolving loans outstanding under Facility 2.~~$15 million.

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

	September 30, 2017		December 31, 2016			June 30, 2018			December 31, 2017
Credit agreement	$	16,721	$	-		$	25,000		$	53,400
Term loan		-		44,267
Deferred Financing Fees							(708	)		(807	)
		16,721		44,267			24,292			52,593
Less current maturities		-		(11,713	)		-			-
	$	16,721	$	32,554		$	24,292		$	52,593

As of ~~September~~June 30, ~~2017,~~2018, we had outstanding loan commitments to our students of ~~$46.9~~$54.3 million, as compared to ~~$40.0~~$51.9 million at December 31, ~~2016.~~2017. Loan commitments, net of interest that would be due on the loans through maturity, were ~~$34.9~~$39.9 million at ~~September~~June 30, ~~2017,~~2018, as compared to ~~$30.0~~$38.5 million at December 31, ~~2016.~~2017.

~~Index~~

Contractual Obligations

Long-term Debt. As of ~~September 30, 2017,~~December 31, 2018, our current portion of long-term debt and our long-term debt consisted of borrowings under our Credit Facility.

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

The following table contains supplemental information regarding our total contractual obligations as of ~~September~~June 30, ~~2017~~2018 (in thousands):

	Payments Due by Period										Payments Due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Credit facility	$	17,500	$	-	$	-	$	17,500	$	-	$	25,000	$	-	$	25,000	$	-	$	-
Operating leases		83,394		19,506		31,246		15,723		16,919		73,108		19,286		27,445		12,569		13,808
Total contractual cash obligations	$	100,894	$	19,506	$	31,246	$	33,223	$	16,919	$	98,108	$	19,286	$	52,445	$	12,569	$	13,808

Index

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of ~~September~~June 30, ~~2017,~~2018, except for surety bonds. As of ~~September~~June 30, ~~2017,~~2018, we posted surety bonds in the total amount of approximately ~~$14.3~~$12.8 million. Cash collateralized letters of credit of ~~$7.2~~$8.5 million are primarily comprised of letters of credit for the DOE and security deposits in connection with certain of our real estate leases. These off-balance sheet arrangements do not adversely impact our liquidity or capital resources.

Seasonality and Outlook

Seasonality

Our revenue and operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in total student population. Student population varies as a result of new student enrollments, graduations and student attrition. Historically, our schools have had lower student populations in our first and second quarters and we have experienced larger class starts in the third quarter and higher student attrition in the first half of the year. Our second half growth is largely dependent on a successful high school recruiting season. We recruit our high school students several months ahead of their scheduled start dates and, thus, while we have visibility on the number of students who have expressed interest in attending our schools, we cannot predict with certainty the actual number of new student enrollments and the related impact on revenue. Our expenses, however, typically do not vary significantly over the course of the year with changes in our student population and revenue. During the first half of the year, we make significant investments in marketing, staff, programs and facilities to meet our second half of the year targets and, as a result, such expenses do not fluctuate significantly on a quarterly basis. To the extent new student enrollments, and related revenue, in the second half of the year fall short of our estimates, our operating results could be negatively impacted. We expect quarterly fluctuations in operating results to continue as a result of seasonal enrollment patterns. Such patterns may change as a result of new school openings, new program introductions, and increased enrollments of adult students and/or acquisitions.

Outlook

Similar to many companies in the proprietary education sector, we have experienced significant deterioration in student enrollments over the last several years. This can be attributed to many factors including the economic environment and numerous regulatory changes such as changes to admissions advisor compensation policies, elimination of “ability-to-benefit,” changes to the 90/10 Rule and cohort default rates, gainful employment and modifications to Title IV amounts and eligibility. While the industry has not returned to growth, the trends are far more stable as declines have slowed.

As the economy continues to improve and the unemployment rate continues to decline our student enrollment is negatively impacted due to a portion of our potential student base entering the workforce earlier without obtaining any post-secondary training. Offsetting this short term decline in available students is the fact that an increasing number of individuals in the “baby boom” generation are retiring from the workforce. The retirement of baby boomers coupled with a growing economy has resulted in additional employers looking to us to help solve their workforce needs. With schools in 1514 states, we are a very attractive employment solution for large regional and national employers.

~~Index~~

To fund our business plans, including any anticipated future losses, purchase commitments, capital expenditures, principal and interest payments on borrowings and to satisfy the DOE financial responsibility standards, we have entered into a new credit facility as described ~~above and continue to have the ability to sell our assets that are classified as held for sale.~~above. We are also continuing to take actions to improve cash flow by aligning our cost structure to our student population.

Regulatory Update

On May 15, 2018, seven of our schools were notified by Accrediting Commission of Career Schools and Colleges (“ACCSC”) that its commission voted at its May 2018 meeting to award those campuses with an initial grant of accreditation. The accreditation transition process began when our current accreditor of these schools, Accrediting Council for Independent Colleges and Schools (“ACICS”), lost its recognition with the U.S. Department of Education (“ED”), on December 12, 2016. In order to retain eligibility for Title IV, Higher Education Act of 1965, as amended, (“HEA”) programs, our seven schools were required to obtain accreditation by an ED-recognized accrediting agency within 18 months of December 12, 2016. While ACICS had its recognition restored with ED on April 3, 2018, relieving our seven schools of the necessity to obtain accreditation by an ED-recognized agency by June 12, 2018, we will nonetheless be transitioning the seven schools to accreditation by ACCSC. On May 15 2018, we received written confirmation that all seven of our ACICS schools have been fully recognized by ACCSC.

As previously disclosed, our Lincoln College of New England campus at Southington, Connecticut was notified in correspondence dated May 14, 2018, by the New England Association of Schools and Colleges (“NEASC”), the college’s institutional accreditor, that its Commission on Institutions of Higher Education directed the school to show cause why it should not be placed on probation for, among other reasons, the Commission’s belief that the school may not meet seven of NEASC’s Standards of Accreditation. We responded to the show-cause directive and attended an in-person hearing at the NEASC Commission meeting on June 28, 2018, advocating our belief that the areas noted in the May 14, 2018, correspondence from NEASC have previously been satisfied as documented to NEASC.

Index

On ~~April~~July 26, ~~2013,~~2018, LCNE received correspondence stating the ~~DOE notified~~school had been placed on probation by the NEASC Commission at its June 28, 2018, meeting based on its determination the school does not meet its Standards relating to Planning and Evaluation; Organization and Governance; the Academic Program; Students; Teaching, Learning and Scholarship; Institutional Resources; and Educational Effectiveness. Further, based on those areas of non-compliance with the Standards, the NEASC Commission has directed the school to show cause at its meeting on September 21, 2018, why its accreditation should not be withdrawn. Our school representatives will attend the in-person hearing on September 21, 2018, and will also provide NEASC with a response to the letter placing our ~~Union, New Jersey campus that an on-site Program Review~~school on probation by September 4, 2018. This schools revenue, net loss and ending population as of December 31, 2017 was ~~scheduled to begin on May 20, 2013. The Program Review assessed the institution’s administration of Title IV Programs in which the campus participated for the 2011-2012~~$8.4 million, $1.6 Million, and ~~2012-2013 awards years.~~ 397, respectively.

On ~~September 29, 2017,~~July 31, 2018, the DOE issued ~~its~~a Notice of Proposed Rulemaking (“NPRM”) in order to specify in regulation which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a Direct Student Loan. The NPRM published by the DOE not only includes regulatory language on borrower defense to repayment (“BDTR”) claims, but also topics such as permitting the use of arbitration clauses and class action waivers in enrollment agreements and triggering events that would result in recalculating a school’s financial responsibility score and require the school to post a letter of credit or other surety. Final ~~Program Review Determination (“FPRD”)~~regulations on the same topic were published on November 1, 2016, with an effective date of July 1, 2017. However, the DOE delayed effectiveness certain provisions of the regulation until July 1, 2019, in order for the DOE to ensure that ~~closed~~there was sufficient time to conduct negotiated rulemaking on BDTR. The comment period for the ~~review and indicated~~NPRM ends on August 30, 2018. It is expected that the DOE ~~had determined~~will publish its final version of the ~~Company’s financial liability~~BDTR regulations prior to November 1, 2018, with an effective date of July 1, 2019. We are still in the ~~DOE resulting from~~process of evaluating the ~~FPRD~~impact of these proposed regulations on our business which could pose a significant administrative burden and could result in additional risks to ~~be $175, which amount has been paid by the Company to the DOE.~~

~~Cohort Default Rates~~

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

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks as part of our on-going business operations. On March 31, 2017, the Company repaid in full and terminated a previously existing term loan with the proceeds of a new revolving credit facility provided by Sterling National Bank in an aggregate principal amount of up to ~~$50~~$65 million, which revolving credit facility is referred to in this report as the “Credit Facility.” Our obligations under the 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 the Credit Facility bear interest at the rate of ~~6.75%~~7.85% as of ~~September~~June 30, ~~2017.~~2018. As of ~~September~~June 30, ~~2017,~~2018, we had ~~$17.5~~$25.0 million outstanding under the Credit Facility.

Based on our outstanding debt balance as of ~~September~~June 30, ~~2017,~~2018, 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 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.

Index

PART II. OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

Information regarding certain specific legal proceedings in which the Company is involved is contained in Part I, Item 3 and in Note 14 to the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. 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, ~~2017.~~2018.

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.

~~Index~~

~~Item 5.~~

~~OTHER INFORMATION~~

~~(a)~~

~~(1)~~ On ~~November 8, 2017,~~July 6, 2018, the Company ~~entered into a new employment agreement with Scott M. Shaw,~~received an administrative subpoena from the Company’s President and Chief Executive Officer, pursuant to which Mr. Shaw will continue to serve in such positions (the “Shaw Employment Agreement”). Mr. Shaw also serves as and will remain a memberAttorney General of the ~~Board~~State of ~~Directors~~New Jersey. Pursuant to the subpoena, New Jersey’s Attorney General has requested from the Company documents and detailed information relating to the November 21, 2012, Civil Investigative Demand letter addressed to the Company from the Massachusetts Office of the ~~Company. The Shaw Employment Agreement, the full text of which is filed as Exhibit 10.2 to this Quarterly Report on 10-Q and is incorporated herein~~Attorney General (“MOAG”) that resulted in a Final Judgment by ~~reference, replaces Mr. Shaw’s prior employment agreement with the Company, which would have expired by its terms on December 31, 2017.~~

The term of the Shaw Employment Agreement commenced on November 8, 2017 and will expire on December 31, 2018, unless sooner terminated in accordance with its terms. During the term of the Shaw Employment Agreement, Mr. Shaw will continue to receive an annual base salary of $500,000, an annual performance bonus based upon achievement of performance targets or other criteria as determined by the Company’s Board of Directors or its Compensation Committee and a Company-owned vehicle, as well as insurance, maintenance, fuel and other costs associated with such vehicle.

Under the terms of the Shaw Employment Agreement, the Company may terminate Mr. Shaw’s employment at any time with or without Cause and Mr. Shaw may resign from his employment at any time, with or without Good Reason (in each case as such terms are defined in the Shaw Employment Agreement). In the event that Mr. Shaw’s employment should be terminated by the Company without Cause or by Mr. Shaw’s resignation for Good Reason, in addition to his right to receive payment of all accrued and unpaid compensation and benefits due to him through the date of termination of employment, subject to Mr. Shaw’s execution of a release in favor ofConsent between the Company and ~~its subsidiaries~~the MOAG dated July 13, 2015. The Company has responded to this request and affiliates, Mr. Shaw would be entitled to receive a lump sum payment on the 60th day following termination of employment equal to (a) two times the sum of (i) his annual base salary and (ii) the target amount of the annual performance bonus for him in the year in which the termination of employment occurs, (b) all outstanding reasonable travel and other business expenses incurred through the date of termination and (c) the estimated employer portion of premiums that would be necessaryintends to continue ~~Mr. Shaw’s coverage under~~cooperating with the Company’s healthcare plan until the first anniversary of the date of termination (subject to proration should Mr. Shaw become insured under a subsequent healthcare plan). In addition, Mr. Shaw would be entitled to receive a prorated portion of his annual bonus for the year of termination, which prorated annual bonus would be paid in a lump sum on the date that bonuses for the year in which the termination occurs are paid generally to the Company’s senior executives.New Jersey Attorney General’s Office.

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

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

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

(2) Also on November 8, 2017, the Company entered into a new employment agreement with Brian K. Meyers, the Company’s Executive Vice President, Chief Financial Officer and Treasurer, pursuant to which Mr. Meyers will continue to serve in such positions (the “Meyers Employment Agreement”). The Meyers Employment Agreement, the full text of which is filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q and is incorporated herein by reference, replaces Mr. Meyers’ prior employment agreement which would have expired by its terms on December 31, 2017.

~~Index~~

The term of the Meyers Employment Agreement commenced on November 8, 2017 and will expire on December 31, 2018, unless sooner terminated in accordance with its terms. During the term of the Meyers Employment Agreement, Mr. Meyers will continue to receive an annual base salary of $340,000 and an annual performance bonus based upon achievement of performance targets or other criteria as determined by the Company’s Board of Directors or its Compensation Committee.

Under the terms of the Meyers Employment Agreement, the Company may terminate Mr. Meyers’ employment at any time with or without Cause and Mr. Meyers may resign from his employment at any time, with or without Good Reason (in each case as such terms are defined in the Meyers Employment Agreement). In the event that Mr. Meyers’ employment should be terminated by the Company without Cause or by Mr. Meyers resignation for Good Reason, in addition to his right to receive payment of all accrued and unpaid compensation and benefits due to him through the date of termination of employment, subject to Mr. Meyers’ execution of a release in favor of the Company and its subsidiaries and affiliates, Mr. Meyers would be entitled to receive a lump sum payment on the 60th day following termination of employment equal to (a) one and three-quarters times the sum of (i) his annual base salary and (ii) the target amount of the annual performance bonus for him in the year in which the termination of employment occurs, (b) all outstanding reasonable travel and other business expenses incurred through the date of termination and (c) the estimated employer portion of premiums that would be necessary to continue Mr. Meyers’ coverage under the Company’s healthcare plan until the first anniversary of the date of termination (subject to proration should Mr. Meyers become insured under a subsequent healthcare plan). In addition, Mr. Meyers would be entitled to receive a prorated portion of his annual bonus for the year of termination, which prorated annual bonus would be paid in a lump sum on the date that bonuses for the year in which the termination occurs are paid generally to the Company’s senior executives.

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

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

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

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

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

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

The foregoing description of the Ramentol Change in Control Agreement is not complete and is qualified in its entirety by reference to the full text of the Ramentol Agreement filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

~~Index~~

Item 6.

EXHIBITS

Exhibit Number		Description

~~10.1(1)~~10.1		~~Purchase and Sale Agreement,~~Commercial Contract, dated ~~March 14, 2017,~~as of July 9, 2018, between New England Institute of Technology at Palm Beach, Inc. and ~~Tambone Companies,~~Elite Property Enterprise, LLC ~~as amended~~(incorporated by ~~First~~reference to the Company’s Form 8-K filed July 13, 2018).

10.2	Third Amendment to ~~Purchase and Sale~~Credit Agreement, dated as of ~~April 18, 2017, and as further amended by Second Amendment to Purchase and Sale Agreement dated as of May 12, 2017~~

10.2*		~~Employment Agreement, dated as of November 8, 2017, between~~July 11, 2018, among the Company, Lincoln Technical Institute, Inc. and ~~Scott M. Shaw.~~its subsidiaries, and Sterling National Bank (incorporated by reference to the Company’s Form 8-K filed July 13, 2018).

10.3*		~~Employment Agreement, dated as of November 8, 2017, between the Company and Brian K. Meyers.~~

10.4*		~~Change in Control Agreement, dated as of November 8, 2017, between the Company and Deborah Ramentol.~~

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.

101**		The following financial statements from Lincoln Educational Services Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017,~~2018, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and in detail.

~~(1)~~

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

*	Filed herewith.

**	As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

3835

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 13, 2017~~August 10, 2018	By:	/s/ Brian Meyers
		Brian Meyers
		Executive Vice President, Chief Financial Officer and Treasurer

3936

Index

Exhibit Index

~~10.1(1)~~10.1		~~Purchase and Sale Agreement,~~Commercial Contract, dated ~~March 14, 2017,~~as of July 9, 2018, between New England Institute of Technology at Palm Beach, Inc. and ~~Tambone Companies,~~Elite Property Enterprise, LLC ~~as amended~~(incorporated by ~~First~~reference to the Company’s Form 8-K filed July 13, 2018).

10.2	Third Amendment to ~~Purchase and Sale~~Credit Agreement, dated as of ~~April 18, 2017, and as further amended by Second Amendment to Purchase and Sale Agreement dated as of May 12, 2017~~

10.2*		~~Employment Agreement, dated as of November 8, 2017, between~~July 11, 2018, among the Company, Lincoln Technical Institute, Inc. and ~~Scott M. Shaw.~~its subsidiaries, and Sterling National Bank (incorporated by reference to the Company’s Form 8-K filed July 13, 2018).

10.3*		~~Employment Agreement, dated as of November 8, 2017, between the Company and Brian K. Meyers.~~

10.4*		~~Change in Control Agreement, dated as of November 8, 2017, between the Company and Deborah Ramentol.~~

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.

101**		The following financial statements from Lincoln Educational Services Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017,~~2018, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and in detail.

~~(1)~~

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

*	Filed herewith.

**	As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

4037

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

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

	Large accelerated filer☐		Accelerated filer ☐

	Non-accelerated filer ☐ ~~(Do~~(Do not check if a smaller reporting company)		Smaller reporting company ☒

	Emerging growth company ☐

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017	1
	Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	3
	Condensed Consolidated Statements of Comprehensive Loss for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	5
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	6
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2021
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 4. 6.	~~Controls and Procedures~~Exhibits	35
~~PART II.~~	~~OTHER INFORMATION~~	35
~~Item 1.~~	~~Legal Proceedings~~	35
~~Item 5.~~	~~Other Information~~SIGNATURES	36
~~Item 6.~~	~~Exhibits~~	38
	~~SIGNATURES~~	39

	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	7,277	$	21,064	$	3,081	$	14,563
Restricted cash		7,189		6,399		8,490		7,189
Accounts receivable, less allowance of $13,034 and $12,375 at September 30, 2017 and December 31, 2016, respectively		18,503		15,383
Accounts receivable, less allowance of $13,796 and $12,806 at June 30, 2018 and December 31, 2017, respectively						20,685		15,791
Inventories		1,787		1,687		1,802		1,657
Prepaid income taxes and income taxes receivable		195		262		239		207
Assets held for sale		3,021		16,847		-		2,959
Prepaid expenses and other current assets		2,187		2,894		2,358		2,352
Total current assets		40,159		64,536		36,655		44,718

PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $162,189 and $157,152 at September 30, 2017 and December 31, 2016, respectively		54,083		55,445
PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $171,018 and $163,946 at June 30, 2018 and December 31, 2017, respectively						53,468		52,866

OTHER ASSETS:
Noncurrent restricted cash		-		20,252		-		32,802
Noncurrent receivables, less allowance of $1,304 and $977 at September 30, 2017 and December 31, 2016, respectively		7,827		7,323
Noncurrent receivables, less allowance of $966 and $978 at June 30, 2018 and December 31, 2017, respectively						9,804		8,928
Deferred income taxes, net						424		424
Goodwill		14,536		14,536		14,536		14,536
Other assets, net		954		1,115		908		939
Total other assets		23,317		43,226		25,672		57,629
TOTAL	$	117,559	$	163,207	$	115,795	$	155,213

	Common Stock					Additional Paid-in			Treasury			Retained Earnings (Accumulated			Accumulated Other Comprehensive						Common Stock					Additional Paid-in			Treasury			Retained Earnings (Accumulated			Accumulated Other Comprehensive
	Shares			Amount		Capital			Stock			Deficit)			Loss			Total			Shares			Amount		Capital			Stock			Deficit)			Loss			Total
BALANCE - January 1, 2017		30,685,017		$	141,377	$	28,554		$	(82,860	)	$	(26,044	)	$	(6,101	)	$	54,926
BALANCE - January 1, 2018																						30,624,407		$	141,377	$	29,334		$	(82,860	)	$	(37,528	)	$	(4,510	)	$	45,813
Net loss		-			-		-			-			(19,190	)		-			(19,190	)		-			-		-			-			(10,978	)		-			(10,978	)
Employee pension plan adjustments		-			-		-			-			-			881			881			-			-		-			-			-			323			323
Stock-based compensation expense
Restricted stock		128,810			-		948			-			-			-			948			135,568			-		482			-			-			-			482
Net share settlement for equity-based compensation		(184,231	)		-		(429	)		-			-			-			(429	)		(207,642	)		-		(372	)		-			-			-			(372	)
BALANCE - September 30, 2017		30,629,596		$	141,377	$	29,073		$	(82,860	)	$	(45,234	)	$	(5,220	)	$	37,136
BALANCE - June 30, 2018																						30,552,333		$	141,377	$	29,444		$	(82,860	)	$	(48,506	)	$	(4,187	)	$	35,268

	Three months ended June 30, 2018								Six months ended June 30, 2018
	Transportation and Skilled Trades Segment		Healthcare and Other Professions Segment		Transitional Segment		Consolidated		Transportation and Skilled Trades Segment		Healthcare and Other Professions Segment		Transitional Segment		Consolidated
Timing of Revenue Recognition
Services transferred at a point in time	$	1,657	$	957	$	-	$	2,614	$	3,705	$	1,692	$	-	$	5,397
Services transferred over time		40,428		18,078		-		58,506		81,127		36,485		-		117,612
Total revenues	$	42,085	$	19,035	$	-	$	61,120	$	84,832	$	38,177	$	-	$	123,009

	Three months ended June 30, 2017									Six months ended June 30, 2017
	Transportation and Skilled Trades Segment		Healthcare and Other Professions Segment		Transitional Segment			Consolidated		Transportation and Skilled Trades Segment		Healthcare and Other Professions Segment		Transitional Segment			Consolidated
Timing of Revenue Recognition
Services transferred at a point in time	$	1,599	$	538	$	(65	)	$	2,072	$	3,374	$	1,302	$	(73	)	$	4,603
Services transferred over time		40,732		16,373		2,688			59,793		82,116		33,454		6,971			122,541
Total revenues	$	42,331	$	16,911	$	2,623		$	61,865	$	85,490	$	34,756	$	6,898		$	127,144

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

	Curriculum
Gross carrying amount at December 31, 2016	$	160
Adjustments		-
Gross carrying amount at September 30, 2017		160

Accumulated amortization at December 31, 2016		128
Amortization		11
Accumulated amortization at September 30, 2017		139

Net carrying amount at September 30, 2017	$	21

Weighted average amortization period (years)		10

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

Year ending December 31,
2017	$	-
2018		-	$	-
2019		-		-
2020		17,500		25,000
	$	17,500	$	25,000

	Shares			Weighted Average Grant Date Fair Value Per Share		Shares			Weighted Average Grant Date Fair Value Per Share
Nonvested restricted stock outstanding at December 31, 2016		1,143,599		$	1.89
Nonvested restricted stock outstanding at December 31, 2017							607,994		$	1.90
Granted		181,208			2.58		135,568			1.60
Canceled		(52,398	)		5.63		-			-
Vested		(650,130	)		1.74		(707,654	)		1.82

Nonvested restricted stock outstanding at September 30, 2017		622,279			1.92
Nonvested restricted stock outstanding at June 30, 2018							35,908			2.23

	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2016		218,167		$	12.11	3.33 years	$	-
Canceled		(47,500	)		12.37			-

Outstanding at September 30, 2017		170,667			12.04	3.24 years		-

Vested or expected to vest		170,667			12.04	3.24 years		-

Exercisable as of September 30, 2017		170,667			12.04	3.24 years		-

		At September 30, 2017
		Stock Options Outstanding						Stock Options Exercisable
Range of Exercise Prices												Range of Exercise Prices	At June 30, 2018
													Stock Options Outstanding and Exercisable
	Range of Exercise Prices	Shares		Contractual Weighted Average Life (years)		Weighted Average Price		Shares		Weighted Average Exercise Price			Shares		Contractual Weighted Average Life (years)		Weighted Average Price
$	4.00-$13.99		122,667		3.50	$	8.77		122,667	$	8.77	4.00-$13.99		91,000		3.92	$	7.79
$	14.00-$19.99		17,000		2.09		19.98		17,000		19.98	14.00-$19.99		17,000		1.59		19.98
$	20.00-$25.00		31,000		2.85		20.62		31,000		20.62	20.00-$25.00		31,000		2.35		20.62

			170,667		3.24		12.04		170,667		12.04			139,000		3.29		12.14

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017

REVENUE	$	67,308		$	74,267		$	194,452		$	212,991		$	61,120		$	61,865		$	123,009		$	127,144
COSTS AND EXPENSES:
Educational services and facilities		34,070			37,543			99,183			110,234			30,179			32,405			60,682			65,113
Selling, general and administrative		35,499			37,402			109,378			113,307			34,471			35,554			72,002			73,879
Gain on sale of assets		(1,530	)		(7	)		(1,619	)		(402	)
(Gain) loss on sale of assets														(7	)		(63	)		110			(89	)
Total costs & expenses		68,039			74,938			206,942			223,139			64,643			67,896			132,794			138,903
OPERATING LOSS		(731	)		(671	)		(12,490	)		(10,148	)		(3,523	)		(6,031	)		(9,785	)		(11,759	)
OTHER:
Interest income		7			69			47			141			8			9			19			40
Interest expense		(716	)		(1,497	)		(6,597	)		(4,629	)		(539	)		(699	)		(1,112	)		(5,881	)
Other income		-			1,678			-			5,109
LOSS BEFORE INCOME TAXES		(1,440	)		(421	)		(19,040	)		(9,527	)		(4,054	)		(6,721	)		(10,878	)		(17,600	)
PROVISION FOR INCOME TAXES		50			50			150			150			50			50			100			100
NET LOSS	$	(1,490	)	$	(471	)	$	(19,190	)	$	(9,677	)	$	(4,104	)	$	(6,771	)	$	(10,978	)	$	(17,700	)
Basic
Net loss per share	$	(0.06	)	$	(0.02	)	$	(0.80	)	$	(0.41	)	$	(0.17	)	$	(0.28	)	$	(0.45	)	$	(0.74	)
Diluted
Net loss per share	$	(0.06	)	$	(0.02	)	$	(0.80	)	$	(0.41	)	$	(0.17	)	$	(0.28	)	$	(0.45	)	$	(0.74	)
Weighted average number of common shares outstanding:
Basic		24,024			23,499			23,866			23,433			24,486			23,962			24,313			23,787
Diluted		24,024			23,499			23,866			23,433			24,486			23,962			24,313			23,787

	For the Three Months Ended September 30,																For the Three Months Ended June 30,
	Revenue										Operating Income (Loss)						Revenue												Operating Income (Loss)
	2017		% of Total			2016		% of Total			2017			2016			2018			% of Total			2017			% of Total			2018				2017
Transportation and Skilled Trades	$	47,694		70.9	%	$	47,939		64.5	%	$	6,061		$	6,120			$	42,085		68.9	%		$	42,331		68.4	%		$	1,740			$	786
Healthcare and Other Professions		18,428		27.4	%		18,559		25.0	%		(574	)		(41	)			19,035		31.1	%			16,911		27.3	%			644				(571	)
Transitional		1,186		1.8	%		7,769		10.5	%		(2,495	)		(2,029	)			-		0.0	%			2,623		4.2	%			-				(833	)
Corporate		-		0.0	%		-		0.0	%		(3,723	)		(4,721	)			-		0.0	%			-		0.0	%			(5,907	)			(5,413	)
Total	$	67,308		100.0	%	$	74,267		100.0	%	$	(731	)	$	(671	)		$	61,120		100.0	%		$	61,865		100.0	%		$	(3,523	)		$	(6,031	)

	For the Six Months Ended June 30,
	Revenue										Operating Income (Loss)
	2018		% of Total			2017		% of Total			2018			2017
Transportation and Skilled Trades	$	84,832		69.0	%	$	85,490		67.2	%	$	2,416		$	2,685
Healthcare and Other Professions		38,177		31.0	%		34,756		27.3	%		887			(258	)
Transitional		-		0.0	%		6,898		5.4	%		-			(1,401	)
Corporate		-		0.0	%		-		0.0	%		(13,088	)		(12,785	)
Total	$	123,009		100.0	%	$	127,144		100.0	%	$	(9,785	)	$	(11,759	)

	For the Nine Months Ended September 30,
	Revenue										Operating Income (Loss)						Total Assets
	2017		% of Total			2016		% of Total			2017			2016			June 30, 2018		December 31, 2017
Transportation and Skilled Trades	$	131,169		67.5	%	$	131,243		61.6	%	$	8,960		$	11,916		$	84,005	$	81,752
Healthcare and Other Professions		55,199		28.4	%		57,030		26.8	%		(1,047	)		2,634			10,545		9,143
Transitional		8,084		4.2	%		24,718		11.6	%		(3,900	)		(7,132	)		-		3,965
Corporate		-		0.0	%		-		0.0	%		(16,503	)		(17,566	)		21,245		60,353
Total	$	194,452		100.0	%	$	212,991		100.0	%	$	(12,490	)	$	(10,148	)	$	115,795	$	155,213

	At September 30, 2017
	Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs				June 30, 2018
	Amount		(Level 1)		(Level 2)		(Level 3)		Total		Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Financial Assets:
Cash and cash equivalents	$	7,277	$	7,277	$	-	$	-	$	7,277	$	3,081	$	3,081	$	-	$	-	$	3,081
Restricted cash		7,189		7,189		-		-		7,189		8,490		8,490		-		-		8,490
Prepaid expenses and other current assets		2,187		-		2,187		-		2,187		2,358		-		2,358		-		2,358

Financial Liabilities:
Accrued expenses	$	14,619	$	-	$	14,619	$	-	$	14,619	$	12,220	$	-	$	12,220	$	-	$	12,220
Other short term liabilities		2,122		-		2,122		-		2,122		505		-		505		-		505
Credit facility		16,721		-		16,721		-		16,721		24,292		-		19,917		-		19,917

	Nine Months Ended September 30,
	2017			2016			% Change
Revenue:
Transportation and Skilled Trades	$	131,169		$	131,243			-0.1	%
HOPS		55,199			57,030			-3.2	%
Transitional		8,084			24,718			-67.3	%
Total	$	194,452		$	212,991			-8.7	%

Operating Income (Loss):
Transportation and Skilled Trades	$	8,960		$	11,916			-24.8	%
Healthcare and Other Professions		(1,047	)		2,634			-139.7	%
Transitional		(3,900	)		(7,132	)		45.3	%
Corporate		(16,503	)		(17,566	)		6.1	%
Total	$	(12,490	)	$	(10,148	)		-23.1	%

Starts:
Transportation and Skilled Trades		6,502			6,686			-2.8	%
Healthcare and Other Professions		3,272			3,386			-3.4	%
Transitional		132			1,254			-89.5	%
Total		9,906			11,326			-12.5	%

Average Population:
Transportation and Skilled Trades		6,694			6,723			-0.4	%
Healthcare and Other Professions		3,477			3,508			-0.9	%
Transitional		574			1,519			-62.2	%
Total		10,745			11,750			-8.6	%

End of Period Population:
Transportation and Skilled Trades		7,403			7,667			-3.4	%
Healthcare and Other Professions		3,957			3,826			3.4	%
Transitional		155			1,362			-88.6	%
Total		11,515			12,855			-10.4	%