What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-10 compared with 2020-11-12 · 293 added, 546 removed, 358 unchanged (70% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

September 30,

CURRENT ASSETS:

Cash and cash equivalents

Restricted cash

Accounts receivable, less allowance of $24,502 and $18,107 at September 30, 2020 and December 31, 2019, respectively

Prepaid income taxes and income taxes receivable

Accounts receivable, less allowance of $ 22,539 and $ 25,174 at March 31 , 2021 and December 31, 2020 , respectively

Prepaid expenses and other current assets

Total current assets

PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $174,966 and $172,408 at September 30, 2020 and December 31, 2019, respectively

PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $ 176,757 and $ 176,300 at March 31 , 2021 and December 31, 2020 , respectively

OTHER ASSETS:

Noncurrent restricted cash

Noncurrent receivables, less allowance of $3,420 and $2,260 at September 30, 2020 and December 31, 2019, respectively

Noncurrent receivables, less allowance of $ 3,701 and $ 3,465 at March 31 , 2021 and December 31, 2020 , respectively

Deferred income taxes, net

Operating lease right-of-use assets

5 unchanged sentences

(In thousands, except share amounts)

September 30,

LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

4 unchanged sentences

Accrued expenses

CARES Act student funds liability

CARES Act institutional funds liability

Income taxes payable

Current portion of operating lease liabilities

2 unchanged sentences

NONCURRENT LIABILITIES:

Long-term credit agreement and term loan

Long-term credit agreement

Pension plan liabilities

Deferred income taxes, net

Long-term portion of operating lease liabilities

3 unchanged sentences

SERIES A CONVERTIBLE PREFERRED STOCK

Preferred stock, no par value - 10,000,000 shares authorized, Series A convertible preferred shares, 12,700 shares issued and outstanding at September 30, 2020 and December 31, 2019

Preferred stock, no par value - 10,000,000 shares authorized, Series A convertible preferred shares, 12,700 shares issued and outstanding at March 31 , 2021 and December 31, 2020

STOCKHOLDERS’ EQUITY:

Common stock, no par value - authorized:

100,000,000 shares at September 30, 2020 and December 31, 2019;

100,000,000 shares at March 31 , 2021 and December 31, 2020 ;

issued and outstanding:

32,386,870 shares at September 30, 2020 and 31,142,251

shares at December 31, 2019

26,895,970 shares at March 31 , 2021 and 26,476,329 shares at December 31, 2020

Additional paid-in capital

Treasury stock at cost - 5,910,541 shares at September 30, 2020 and December 31, 2019

Accumulated deficit

Treasury stock at cost - 5,910,541 shares at March 31 , 2021 and December 31, 2020

Retained earnings

Accumulated other comprehensive loss

6 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

COSTS AND EXPENSES:

1 unchanged sentence

Selling, general and administrative

Loss (gain) on disposition of assets

Total costs & expenses

OPERATING INCOME (LOSS)

Interest income

Interest expense

12 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

Net income (loss)

11 unchanged sentences

BALANCE - January 1, 2021

Preferred stock dividend

Employee pension plan adjustments

4 unchanged sentences

BALANCE - March 31 , 2021

Employee pension plan adjustments

Derivative qualifying as cash flow hedge

Stock-based compensation expense

Restricted stock

Net share settlement for equity-based compensation

BALANCE - June 30, 2020

Preferred stock dividends

Employee pension plan adjustments

Derivative qualifying as cash flow hedge

Stock-based compensation expense

Restricted stock

Net share settlement for equity-based compensation

BALANCE - September 30, 2020

Stockholders’ Equity

3 unchanged sentences

Employee pension plan adjustments

Derivative qualifying as cash flow hedge

Stock-based compensation expense

2 unchanged sentences

BALANCE - March 31 , 2020

Employee pension plan adjustments

Stock-based compensation expense

Restricted stock

Net share settlement for equity-based compensation

BALANCE - June 30, 2019

Employee pension plan adjustments

Stock-based compensation expense

Restricted stock

Net share settlement for equity-based compensation

BALANCE - September 30, 2019

See notes to unaudited condensed consolidated financial statements.

LINCOLN EDUATIONAL SERVICES CORPORATION AND SUBSIDIARIES

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization

1 unchanged sentence

Deferred income taxes

Gain on disposition of assets

Fixed asset donations

9 unchanged sentences

Accrued expenses

CARES Act student funds liability

CARES Act institutional funds liability

Unearned tuition

Deferred income taxes

Income taxes payable

Other liabilities

Total adjustments

Net cash provided by (used in) operating activities

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

Proceeds from insurance

Net cash used in investing activities

2 unchanged sentences

Proceeds from borrowings

Dividends paid on shares of Series A preferred stock

Credit (payment) of deferred finance fees

Dividend payment for preferred stock

Credit of deferred finance fees

Net share settlement for equity-based compensation

7 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

5 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

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

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Business Activities — Lincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our” and “us”, as

applicable) provide diversified career-oriented post-secondary education to recent high school graduates and working adults.

The Company, which currently operates 22 schools in 14 states, offers programs in automotive technology, skilled

trades (which include HVAC, welding and computerized numerical control and electronic systems technology, among other programs), healthcare services (which include nursing, dental assistant and medical administrative assistant, among other

programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and information technology.

The schools operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute,

and Euphoria Institute of Beauty Arts and Sciences and associated brand names.

Business Activities — Lincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our” and “us”, as applicable) provide diversified career-oriented post-secondary education to recent high school graduates and working adults.

The Company, which currently operates 22 schools in 14 states, offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control and electronic systems technology, among other programs), healthcare services (which include nursing, dental assistant and medical administrative assistant, among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and information technology.

The schools operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brand names.

Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study.

Five of the campuses are destination schools, which

attract students from across the United States and, in some cases, from abroad.

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” or the “Department”) and applicable state education agencies and accrediting commissions which allow students to apply for and access

federal student loans as well as other forms of financial aid.

The Company’s business is organized into three reportable business segments:

(a) Transportation and Skilled Trades, (b) Healthcare and Other Professions (“HOPS”), and (c) Transitional, which refers to our campus operations which have been

COVID-19 Pandemic — During the first quarter of 2020, the coronavirus disease (“COVID-19”) began to spread worldwide and has caused

significant disruptions to the U.S.

and world economies.

In early March 2020, the Company began seeing the impact of the COVID-19 pandemic on our business.

The impact was primarily related to transitioning

classes from in-person, hands-on learning to online, remote learning.

As part of this transition, the Company has incurred additional expenses.

In addition, some students were placed on leave of absence as they could not complete their

externships and some students chose not to participate in online learning.

Additionally, certain programs were extended due to restricted access to externship sites and classroom labs.

Due to state and local

provisions, our schools reopened on a phased basis from May through August 2020.

Currently, all of our schools have re-opened and the majority of the students who were placed on leave or otherwise deferred their programs are actively working to

finish their programs over the next few months.

As COVID-19 continues to affect many states and its course is unpredictable, the full impact on the Company’s consolidated financial statements remains

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law which includes a $2 trillion federal economic relief package providing financial assistance and other relief

to individuals and businesses impacted by the spread of COVID-19.

The CARES Act includes provisions for financial assistance and other regulatory relief benefitting students and their postsecondary institutions.

The Company has and will continue

to evaluate the impact of the CARES Act on the Company’s results of operations and cash flows.

See Note 12 – COVID-19 Pandemic and CARES Act included elsewhere in this Quarterly Report on Form 10-Q for

additional discussion about the CARES Act.

Liquidity — As of September 30, 2020, the Company had cash, cash equivalents and restricted cash of $27.6 million, which includes cash received under the CARES Act of

$11.5 million.

As of September 30, 2020, the Company had a net cash balance of $9.9 million calculated as cash, cash equivalents and restricted cash, less both the short-term and long-term portion of the Company’s Credit Facility (defined below).

Excluding cash deposits from the CARES Act of $11.5 million, the Company had a net debt balance of $1.5 million.

As of September 30, 2020, the Company also can borrow an additional $21.0 million under its Credit Facility.

As of December 31, 2019,

the Company had a net cash balance of $4.6 million.

The Company believes that its likely sources of cash should be sufficient to fund operations for the next twelve months and thereafter for the foreseeable

However, the circumstances relating to COVID-19 and its evolution are unpredictable and, if circumstances surrounding COVID-19 should evolve in a significantly adverse manner it is possible our

liquidity could be materially and adversely affected.

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and

regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements.

Certain information and footnote disclosures

normally included in annual financial statements have been omitted or condensed pursuant to such regulations.

These financial statements, which should be read in conjunction with the December 31, 2019 consolidated financial statements and related

disclosures of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, reflect all adjustments, consisting of normal recurring adjustments necessary to present fairly the consolidated financial

position, results of operations and cash flows for such periods.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the full fiscal year ending

December 31, 2020.

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” or the “Department”) and applicable state education agencies and accrediting commissions which allow students to apply for and access federal student loans as well as other forms of financial aid.

The Company’s business is organized into two reportable business segments:

(a) Transportation and Skilled Trades, and (b) Healthcare and Other Professions (“HOPS”).

Liquidity —As of March 31, 2021, the Company had cash and cash equivalents of $ 26.7 million and a net cash balance of $ 10.0 million calculated as cash and cash equivalents, less both the short-term and long-term portions of the Company’s Credit Facility (defined below).

As of March 31, 2021, the Company also can borrow an additional $ 21.0 million under its Credit Facility.

As of December 31, 2020, the Company had a net cash balance of $ 20.8 million.

The Company believes that its likely sources of cash should be sufficient to fund operations for the next twelve months and thereafter for the foreseeable future.

However, the circumstances relating to COVID-19 and its evolution are unpredictable and, if circumstances surrounding COVID-19 should evolve in a significantly adverse manner, it is possible our liquidity could be materially and adversely affected.

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements.

Certain information and footnote disclosures normally included in annual financial statements have been omitted or condensed pursuant to such regulations.

These financial statements, which should be read in conjunction with the December 31, 2020 audited consolidated financial statements and notes thereto and related disclosures of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, reflect all adjustments, consisting of normal recurring adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows for such periods.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the full fiscal year ending December 31, 2021.

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries.

All significant intercompany accounts and transactions have been eliminated.

Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with GAAP

requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of

revenues and expenses during the period.

Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period.

On an ongoing basis, the Company evaluates the estimates and assumptions, including those used to determine the incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, lease term to calculate lease cost, revenue recognition, bad debts, impairments, useful lives of fixed assets, income taxes, benefit plans and certain accruals.

Actual results could differ from those

New Accounting Pronouncements – In August 2020, Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” .

This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including

convertible instruments and contracts on an entity’s own equity.

The ASU removes separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature and hence most of the

instruments will be accounted for as a single model (either debt or equity).

The ASU also states that entities must apply the if-converted method to all convertible instruments for calculation of diluted EPS and the treasury stock method is no

longer available.

Actual results could differ from those estimates.

New Accounting Pronouncements – In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-04, “ Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform.

The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

It is intended to help stakeholders during the global market-wide reference rate transition period.

In January 2021, the FASB issued ASU 2021-01, “ Reference Rate Reform (Topic 848):

Scope ” which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

The guidance is effective for all entities as of March 12, 2020 through December 31, 2022.

The Company is implementing a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR.

The Company is continuing to assess ASU 2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.

In October 2020, the FASB issued ASU 2020-10, “ Codification Improvements ”, which makes minor technical corrections and clarifications to the ASU.

The amendments in Sections B and C of the ASU are effective for annual periods beginning after December 15, 2020, for public business entities.

For all other entities, the amendments are effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022.

This update did not have an impact on the Company’s condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, “ Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ”.

This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

The ASU removes separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature and hence most of the instruments will be accounted for as a single model (either debt or equity).

The ASU also states that entities must apply the if-converted method to all convertible instruments for calculation of diluted EPS and the treasury stock method is no longer available.

An entity can use either a full or modified retrospective approach to adopt the ASU’s guidance.

2020-06 is effective for the Company as a smaller reporting company for fiscal years beginning after December 15, 2023, and

interim periods within those fiscal years.

2020-06 is effective for the Company as a smaller reporting company for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.

For convertible instruments that include a down-round feature, entities may early adopt the amendments that apply to the down-round features if they have not yet adopted the amendments in ASU 2017-11.

Company is currently assessing the impact that this ASU will have on its condensed consolidated financial statements and related disclosures.

The Company is currently assessing the impact that this ASU will have on its condensed consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-03, “ Codification Improvements to Financial Instruments ” (“ASU 2020-03”).

ASU 2020-03 improves and clarifies various financial instruments

ASU 2020-03 improves and clarifies various financial instruments topics.

ASU 2020-03 includes seven different issues that describe the areas of improvement and the related amendments to GAAP.

The Company adopted ASU 2020-03 upon issuance, which did not have a material effect on the Company’s condensed

consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, “ Simplifying the Accounting for Income Taxes” , which simplifies the accounting for income taxes by removing certain exceptions to the

general principles of ASC 740, “Income Taxes” .

The Company adopted ASU 2020-03 upon issuance, which did not have a material effect on the Company’s condensed consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, “ Simplifying the Accounting for Income Taxes ”, which simplifies the accounting for income taxes by removing certain exceptions to the general principles of ASC 740, “Income Taxes”.

ASU 2019-12 also clarifies and amends GAAP for other areas of Topic 740.

This ASU is effective for fiscal years beginning after December 15, 2020 and early

adoption is permitted.

This ASU is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted.

Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis.

The Company is currently assessing the impact that this ASU will have on its condensed consolidated

financial statements and related disclosures.

This ASU did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-14, “ Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20):

Disclosure Framework—Changes to the Disclosure Requirements for Defined

Benefit Plans ”.

Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans ”.

This ASU adds, modifies and clarifies several disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

1 unchanged sentence

Early adoption is permitted.

The Company is currently assessing the impact that this ASU will have on its condensed consolidated financial statements and related disclosures.

The Company adopted ASU 2018-14 on January 1, 2020, which did not have a material effect on the Company’s condensed consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, “ Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial

Instruments” and subsequently issued additional guidance that modified ASU 2016-13.

ASU 2016-13 and the subsequent modifications are identified as Accounting Standards Codification (“ASC”) 326.

Measurement of Credit Losses on Financial Instruments ” and subsequently issued additional guidance that modified ASU 2016-13.

ASU 2016-13 and the subsequent modifications are identified as Accounting Standards Codification (“ASC”) Topic 326.

The standard requires an entity to change its accounting approach in determining impairment of certain financial instruments, including trade receivables, from an “incurred loss” to a “current expected credit loss” model.

Further, the FASB issued

Further, the FASB issued ASU No.

2019-04, ASU No.

1 unchanged sentence

In November 2019, FASB issued ASU No.

2019-10, “Financial Instruments – Credit Losses (Topic 326),

Derivatives and Hedging (Topic 815), and Leases (Topic 842)” .

This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after

December 15, 2022, including interim periods within those fiscal years.

Additionally, in February and March 2020, the FASB issued ASU 2020-02, “ Financial

Instruments—Credit Losses (Topic 326) and Leases (Topic 842):

2019-10, “ Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) ”.

This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Additionally, in February and March 2020, the FASB issued ASU 2020-02, “F inancial Instruments—Credit Losses (Topic 326) and Leases (Topic 842):

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

2016-02, Leases

(Topic 842) ” ASU 2020-02 adds a SEC paragraph pursuant to the issuance of SEC Staff Accounting Bulletin No.

119 on loan losses to FASB Codification Topic 326 and also updates the SEC section of the

Codification for the change in the effective date of Topic 842.

2016-02, Leases (Topic 842) ” ASU 2020-02 adds a SEC paragraph pursuant to the issuance of SEC Staff Accounting Bulletin No.

119 on loan losses to FASB Codification Topic 326 and also updates the SEC section of the Codification for the change in the effective date of Topic 842.

Early adoption is permitted.

We are currently assessing the impact that these ASUs will have on our condensed consolidated financial statements and related disclosures.

Income Taxes – The Company accounts for income taxes in accordance with ASC Topic 740, “ Income

This statement requires an asset and a liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets and liabilities existing at each balance sheet date using

enacted tax rates for years in which taxes are expected to be paid or recovered.

Income Taxes – The Company accounts for income taxes in accordance with ASC Topic 740, “ Income Taxes ”.

In accordance with ASC 740, the Company assesses our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable.

A valuation allowance is required to be established or maintained when, based on

currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized.

In accordance with ASC 740, our assessment considers whether there has been sufficient income in recent years and

whether sufficient income is expected in future years in order to utilize the deferred tax asset.

In evaluating the realizability of deferred income tax assets, the Company considered, among other things, historical levels of income, expected

future income, the expected timing of the reversals of existing temporary reporting differences, and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits.

judgment is required in determining the future tax consequences of events that have been recognized in our consolidated financial statements and/or tax returns.

Differences between anticipated and actual outcomes of these future tax consequences

could have a material impact on the Company’s consolidated financial position or results of operations.

Changes in, among other things, income tax legislation, statutory income tax rates, or future income levels could materially impact the

Company’s valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods.

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

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

Derivative Instruments — The Company records the fair value of derivative instruments as either assets or liabilities on the balance

A valuation allowance is required to be established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized.

In accordance with ASC 740, our assessment considers whether there has been sufficient income in recent years and whether sufficient income is expected in future years in order to utilize the deferred tax asset.

In evaluating the realizability of deferred income tax assets, the Company considers, among other things, historical levels of income, expected future income, the expected timing of the reversals of existing temporary reporting differences, and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits.

Significant judgment is required in determining the future tax consequences of events that have been recognized in our consolidated financial statements and/or tax returns.

Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on the Company’s consolidated financial position or results of operations.

Changes in, among other things, income tax legislation, statutory income tax rates, or future income levels could materially impact the Company’s valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods.

During the three months ended March 31, 2021 and 2020, the Company did no t recognize any interest and penalties expense associated with uncertain tax positions.

Derivative Instruments —The Company records the fair value of derivative instruments as either assets or liabilities on the balance sheet.

The accounting for gains and losses resulting from changes in fair value is dependent on the use of the derivative and whether it is designated and qualifies for hedge accounting.

All qualifying hedging activities are documented at the inception of the hedge and must meet the definition of highly effective in offsetting changes to future cash.

The Company utilizes the change in variable cash flows method to evaluate hedge

effectiveness quarterly.

The Company utilizes the change in variable cash flows method to evaluate hedge effectiveness quarterly.

We record the fair value of the qualifying hedges in other long-term liabilities (for derivative liabilities) and other assets (for derivative assets).

All unrealized gains and losses on derivatives that are designated and

qualify for hedge accounting are reported in other comprehensive income (loss) and recognized when the underlying hedged transaction affects earnings.

Changes in the fair value of these derivatives are recognized in other comprehensive income

All unrealized gains and losses on derivatives that are designated and qualify for hedge accounting are reported in other comprehensive income (loss) and recognized when the underlying hedged transaction affects earnings.

Changes in the fair value of these derivatives are recognized in other comprehensive income (loss).

The Company classifies the cash flows from a cash flow hedge within the same category as the cash flows from the items being hedged.

The Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities, on January 1, 2019, which changes the recognition and presentation

requirements of hedge accounting, including eliminating the requirement to separately measure and report hedge ineffectiveness and presenting all items that affect earnings in the same income statement line item as the hedged item.

provides new alternatives for applying hedge accounting to additional hedging strategies, measuring the hedged item in fair value hedges of interest rate risk, reducing the cost and complexity of applying hedge accounting by easing the requirements

for effectiveness testing, hedge documentation and application of the critical terms match method and reducing the risk of a material error correction if a company applies the shortcut method inappropriately.

The adoption of ASU 2017-12 had no

impact on the Company’s consolidated financial statements.

NET INCOME (LOSS) PER COMMON SHARE

dividends and therefore participate in undistributed income with common shareholders to be included in computing income (loss) per common share.

Under the two-class method, net income is reduced by the amount of dividends declared in the period for

each class of common stock and participating security.

The Company presents basic and diluted income (loss) per common share using the two-class method which requires all outstanding Series A Preferred Stock and unvested restricted common stock that include rights to non-forfeitable dividends (and, therefore, participate in undistributed income with common shareholders) to be included in computing income (loss) per common share.

Under the two-class method, net income is reduced by the amount of dividends declared in the period for each class of common stock and participating security.

The remaining undistributed income is then allocated to common stock and participating securities, based on their respective rights to receive dividends.

Series A Preferred Stock and unvested

restricted stock contain non-forfeitable rights to dividends on an if-converted basis and on the same basis as common shares, respectively, and are considered participating securities.

The Series A Preferred Stock and unvested restricted stock are

not included in the computation of basic income (loss) per common share in periods in which we have a net loss, as the Series A Preferred Stock and unvested restricted stock are not contractually obligated to share in our net losses.

cumulative dividends on preferred stock for the period decreases the income or increases the net loss allocated to common shareholders unless the dividend is paid in the period.

Basic income (loss) per common share has been computed by dividing net

income (loss) allocated to common shareholders by the weighted-average number of common shares outstanding.

The basic and diluted net loss amounts are the same for the nine months ended September 30, 2019 as a result of the net loss and anti-dilutive impact of the potentially dilutive securities.

F or the three and

nine months ended September 30, 2019 income (loss) per common share was calculated using the treasury stock method.

Dilutive potential common shares include outstanding stock options, unvested restricted stock and Series A Preferred Stock.

Company uses the more dilutive method of calculating the diluted income per share by applying the more dilutive of either (a) the treasury stock method, if-converted method, or (b) the two-class method in its diluted income (loss) per common

share calculation.

Series A Preferred Stock and unvested restricted common stock contain non-forfeitable rights to dividends on an if-converted basis and on the same basis as common shares, respectively, and are considered participating securities.

The Series A Preferred Stock and unvested restricted common stock are not included in the computation of basic income (loss) per common share in periods in which we have a net loss, as the Series A Preferred Stock and unvested restricted common stock are not contractually obligated to share in our net losses.

However, the cumulative dividends on preferred stock for the period decreases the income or increases the net loss allocated to common shareholders unless the dividend is paid in the period.

Basic income (loss) per common share has been computed by dividing net income (loss) allocated to common shareholders by the weighted-average number of common shares outstanding.

The basic and diluted net income amounts are the same for the three months ended March 31, 2021 as a result of the anti-dilutive impact of the potentially dilutive securities.

The basic and diluted net loss amounts are the same for the three months ended March 31, 2020 as a result of the net loss and anti-dilutive impact of the potentially dilutive securities.

The Company uses the more dilutive method of calculating the diluted income per share by applying the more dilutive of either (a) the treasury stock method, if-converted method, or (b) the two-class method in its diluted income (loss) per common share calculation.

Potentially dilutive shares are determined by applying the treasury stock method to the assumed exercise of outstanding stock options and the assumed vesting of restricted stock.

Potentially dilutive shares issuable upon

conversion of the Series A Preferred Stock are calculated using the if-converted method.

Potentially dilutive shares issuable upon conversion of the Series A Preferred Stock are calculated using the if-converted method.

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except share data)

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Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except share data)

2 unchanged sentences

REVENUE RECOGNITION

Substantially all of our revenues are considered to be revenues from contracts with students.

Substantially all of our revenues are considered to be revenues from our contracts with students.

The related accounts receivable balances are recorded in our balance sheets as student accounts receivable.

We do not have

significant revenue recognized from performance obligations that were satisfied in prior periods, and we do not have any transaction price allocated to unsatisfied performance obligations other than in our unearned tuition.

We record revenue for

students who withdraw from our schools only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

Unearned tuition represents contract liabilities primarily related to our

tuition revenue.

an amount that corresponds directly with the value provided to the student for performance obligations completed to date in accordance with ASC 606.

We have assessed the costs incurred to obtain a contract with a student and determined them to be

Unearned tuition in the amount of $19.4 million and $23.4 million is recorded in the current liabilities section of the accompanying condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019,

respectively.

The change in this contract liability balance during the nine-month period ended September 30, 2020 is the result of payments received in advance of satisfying performance obligations, offset by revenue recognized during that period.

Revenue recognized for the nine-month period ended September 30, 2020 that was included in the contract liability balance at the beginning of the year was $23.4 million.

We do not have significant revenue recognized from performance obligations that were satisfied in prior periods, and we do not have any transaction price allocated to unsatisfied performance obligations other than in our unearned tuition.

We record revenue for students who withdraw from our schools only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

Unearned tuition represents contract liabilities primarily related to our tuition revenue.

We have elected not to provide disclosure about transaction prices allocated to unsatisfied performance obligations if original contract durations are less than one -year, or if we have the right to consideration from a student in an amount that corresponds directly with the value provided to the student for performance obligations completed to date in accordance with ASU No.

2014 - 09, “ Revenue from Contracts with Customers (Topic 606)” .

We have assessed the costs incurred to obtain a contract with a student and determined them to be immaterial.

Unearned tuition in the amount of $ 20.2 million and $ 23.5 million is recorded in the current liabilities section of the accompanying condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively.

The change in this contract liability balance during the three -month period ended March 31, 2021 is the result of payments received in advance of satisfying performance obligations, offset by revenue recognized during that period.

Revenue recognized for the three -month period ended March 31, 2021 that was included in the contract liability balance at the beginning of the year was $ 20.3 million.

The following table depicts the timing of revenue recognition:

Three months ended September 30, 2020

Nine months ended September 30, 2020

Transportation

Trades Segment

Three months ended March 31, 2021

Transportation

4 unchanged sentences

Total revenues

Three months ended September 30, 2019

Nine months ended September 30, 2019

Transportation

Trades Segment

Three months ended March 31, 2020

Transportation

5 unchanged sentences

The Company determines if an arrangement is a lease at inception.

The Company considers any contract where there is an identified asset and that it has the right to control the use of such asset in determining whether the

contract contains a lease.

The Company considers any contract where there is an identified asset and the Company has the right to control the use of such asset in as a lease.

An operating lease ROU asset represents the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

Operating lease ROU

assets and liabilities are to be recognized at the commencement date based on the present value of lease payments over the lease term.

As all of the Company’s operating leases do not provide an implicit rate, the Company uses an incremental

borrowing rate based on the information available on the adoption date in determining the present value of lease payments.

We estimate the incremental borrowing rate based on a yield curve analysis, utilizing the interest rate derived from the fair

value analysis of our credit facility and adjusting it for factors that appropriately reflect the profile of secured borrowing over the expected term of the lease.

The operating lease ROU assets include any lease payments made prior to the rent

commencement date and exclude lease incentives.

Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

As all of the Company’s operating leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available on the adoption date in determining the present value of lease payments.

We estimate the incremental borrowing rate based on a yield curve analysis, utilizing the interest rate derived from the fair value analysis of our credit facility and adjusting it for factors that appropriately reflect the profile of secured borrowing over the expected term of the lease.

The operating lease ROU assets include any lease payments made prior to the rent commencement date and exclude lease incentives.

Our leases have remaining lease terms of one year to 11 years .

Lease terms may include options to extend the lease term used in determining the lease obligation when it is reasonably certain that the

Company will exercise that option.

Lease terms may include options to extend the lease term used in determining the lease obligation when it is reasonably certain that the Company will exercise that option.

Lease expense for lease payments are recognized on a straight-line basis over the lease term for operating leases.

Our operating lease cost for the three months ended September 30, 2020 and 2019, was $3.9 and $3.6 million, respectively.

Our operating lease cost for the nine months ended September 30, 2020 and 2019, was $11.4 and $10.9 million,

respectively.

Our variable lease cost for the three and nine months ended September 30, 2020 was zero and $0.6 million, respectively.

The net change in the ROU asset and lease liability are included in

other assets in the condensed consolidated cash flows for the nine months ended September 30, 2020 and 2019.

During the three and nine months ended September 30, 2020, the Company has withheld portions of and/or delayed payments to certain of its landlords as the Company sought to renegotiate payment terms, in order to further

maintain liquidity given the temporary closures of its facilities.

In some instances, the negotiations with landlords have already led to agreements with landlords for rent abatements or rental deferrals, while, in other cases, negotiations are

Total payments withheld or deferred as of September 30, 2020 were approximately $0.6 million and are included in current liabilities.

In accordance with the FASB’s recent Staff Q&A regarding rent concessions related to the effects of the COVID-19 pandemic, the Company has elected to account for agreed concessions by landlords that do not result in a

substantial increase in the rights of the landlord or the obligations of the Company, as lessee, as though enforceable rights and obligations for those concessions existed in the original lease agreements and the Company has elected not to

re-measure the related lease liabilities and right-of-use assets.

For qualifying rent abatement concessions, the Company has recorded negative lease expense for the amount of the concession during the period of relief, and for qualifying deferrals

of rental payments, the Company has recognized a payable in lieu of recognizing a decrease in cash for the lease payment that would have been made based on the original terms of the lease agreement, which will be reduced when the deferred payment

is made in the future.

During the three and nine months ended September 30, 2020, the Company recognized $0.1 million and $0.6 million, respectively, of negative lease expense related to rent abatement concessions.

Our operating lease cost for each of the three months ended March 31, 2021 and 2020 was $ 3.7 million .

Our variable lease cost for the three months ended March 31, 2021 was less than $ 0.1 million .

The net change in the ROU asset and lease liability are included in other assets in the condensed consolidated cash flows for the three months ended March 31, 2021 and 2020.

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Operating cash flow information:

2 unchanged sentences

Lease liabilities arising from obtaining right-of-use assets

As of September 30, 2020, there were lease re-measurements of $15.0 million.

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

September 30,

Weighted-average remaining lease term

Weighted-average discount rate

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

Maturities of lease liabilities by fiscal year for our operating leases as of March 31, 2021 are as follows:

Year ending December 31,

2020 (excluding the nine months ended September 30, 2020)

2021 (excluding the three months ended March 31, 2021)

Total lease payments

3 unchanged sentences

The Company reviews long-lived assets for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.

There were no long-lived asset impairments during the nine

months ended September 30, 2020 and 2019, respectively.

There were no long-lived asset impairments during the three months ended March 31, 2021 and 2020, respectively.

The Company reviews goodwill for impairment when indicators of impairment exist.

Annually, or more frequently if necessary, the Company evaluates goodwill for impairment, with any resulting impairment reflected as an

operating expense.

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

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

Annually, or more frequently if necessary, the Company evaluates goodwill for impairment, with any resulting impairment reflected as an operating expense.

The Company has concluded that, as of March 31, 2021, there were no indicators of potential impairment and, accordingly, the Company did not test goodwill for impairment.

The carrying amount of goodwill at March 31, 2021 and 2020 is as follows:

Balance as of January 1, 2021

Balance as of September 30, 2020

Balance as of March 31 , 2021

Balance as of January 1, 2020

Balance as of September 30, 2019

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

Balance as of March 31 , 2020

As of March 31, 2021 and 2020, the goodwill balance is related to the Transportation and Skilled Trades segment.

LONG-TERM DEBT

Long-term debt consists of the following:

September 30,

Credit agreement

2 unchanged sentences

Credit Facility with Sterling National Bank

On November 14, 2019, the Company entered into a new senior secured credit agreement (the “Credit Agreement”) with its lender, Sterling National Bank (the “Lender”), providing for borrowing in the aggregate principal

amount of up to $60 million (the “Credit Facility”).

The Credit Facility is comprised of four facilities:

(1) a $20 million senior secured term loan maturing on December 1, 2024 (the “Term Loan”), with monthly interest and principal payments based on 120-month amortization

with the outstanding balance due on the maturity date;

(2) a $10 million senior secured delayed draw term loan maturing on December 1, 2024 (the “Delayed Draw Term Loan”), with monthly interest payments for the first 18 months and thereafter

monthly payments of interest and principal based on 120-month amortization and all balances due on the maturity date;

(3) a $15 million senior secured committed revolving line of credit providing a sublimit of up to $10 million for standby letters

of credit maturing on November 13, 2022 (the “Revolving Loan”), with monthly payments of interest only;

(1) a $ 20 million senior secured term loan maturing on December 1, 2024 (the “Term Loan”), with monthly interest and principal payments based on 120 -month amortization with the outstanding balance due on the maturity date;

(2) a $ 10 million senior secured delayed draw term loan maturing on December 1, 2024 (the “Delayed Draw Term Loan”), with monthly interest payments for the first 18 months and thereafter monthly payments of interest and principal based on 120 -month amortization and all balances due on the maturity date;

(3) a $ 15 million senior secured committed revolving line of credit providing a sublimit of up to $ 10 million for standby letters of credit maturing on November 13, 2022 (the “Revolving Loan”), with monthly payments of interest only;

and (4) a $ 15 million senior secured non-restoring line of credit maturing on January 31, 2021 (the “Line of Credit Loan”).

Agreement gives the Company the right to permanently terminate, in its entirety, the Revolving Loan or the Line of Credit Loan or permanently reduce the amount available for borrowing under the Revolving Loan or the Line of Credit Loan.

2020, the Company terminated the Line of Credit Loan.

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

At the closing of the Credit Facility, the Lender advanced the Term Loan to the Company, the net proceeds of which were $19.7 million after deduction of the Lender’s origination fee in the amount of $0.3 million and other

Lender fees and reimbursements to the Lender that are customary for facilities of this type.

The Credit Agreement gives the Company the right to permanently terminate, in its entirety, the Revolving Loan or the Line of Credit Loan or permanently reduce the amount available for borrowing under the Revolving Loan or the Line of Credit Loan.

In April 2020, the Company terminated the Line of Credit Loan.

On November 10, 2020, the Company entered into an amendment to its Credit Agreement to extend the Delayed Draw Availability Period by one year to May 31, 2022 and to increase the amount of permitted cash dividends that the Company can pay on its Series A Preferred Stock during the first twenty-four months of the Credit Agreement from $ 1.7 million to $ 2.3 million .

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

At the closing of the Credit Facility, the Lender advanced the Term Loan to the Company, the net proceeds of which were $ 19.7 million after deduction of the Lender’s origination fee in the amount of $ 0.3 million and other Lender fees and reimbursements to the Lender that are customary for facilities of this type.

The Company used the net proceeds of the Term Loan, together with cash on hand, to repay the existing credit facility and transaction expenses.

Pursuant to the terms of the Credit Agreement, letters of credit issued under the Revolving Loan reduce dollar for dollar the availability of borrowings under the Revolving Loan.

Borrowings under the Line of Credit Loan

are to be secured by cash collateral.

Under the Credit Agreement, borrowing under the Delayed Draw Term Loan was available through May 31, 2021 but an amendment to the Credit Agreement entered into on November 10, 2020 extended the period through May 31.

Accrued interest on each loan under the Credit Facility will be payable monthly in arrears.

The Term Loan and the Delayed Draw Term Loan bear interest at a floating interest rate based on the then one month London

Interbank Offered Rate (“LIBOR”) plus 3.50%.

Accrued interest on each loan under the Credit Facility is payable monthly in arrears.

The Term Loan and the Delayed Draw Term Loan bear interest at a floating interest rate based on the then one month London Interbank Offered Rate (“LIBOR”) plus 3.50 %.

At the closing of the Credit Facility, the Company entered into a swap transaction with the Lender for 100 % of the principal balance of the Term Loan, which matures on the same date as the Term Loan.

date as the Delayed Draw Term Loan, pursuant to a swap agreement between the Company and the Lender or the Lender’s affiliate.

The Term Loan and Delayed Draw Term Loan are subject to a LIBOR interest rate floor of .25% if there is no swap

is to be repaid within 30 days of such borrowing, the Revolving Loan will accrue interest at the Lender’s prime rate plus .50% with a floor of 4.0%.

Line of Credit Loans will bear interest at a floating interest rate based on the Lender’s prime

rate of interest.

At the end of the borrowing availability period for the Delayed Draw Term Loan, the Company is required to enter into a swap transaction with the Lender for 100 % of the principal balance of the Delayed Draw Term Loan, which will mature on the same date as the Delayed Draw Term Loan, pursuant to a swap agreement between the Company and the Lender or the Lender’s affiliate.

The Term Loan and Delayed Draw Term Loan are subject to a LIBOR interest rate floor of 0.25 % if there is no swap agreement.

Revolving Loans bear interest at a floating interest rate based on the then LIBOR plus an indicative spread determined by the Company’s leverage as defined in the Credit Agreement or, if the borrowing of a Revolving Loan is to be repaid within 30 days of such borrowing, the Revolving Loan will accrue interest at the Lender’s prime rate plus 0.50 % with a floor of 4.0 %.

Revolving Loans are subject to a LIBOR interest rate floor of 0.00 %.

Letters of credit are charged an annual fee equal to (i) an applicable margin determined by the leverage ratio of the Company less (ii) .25%, paid quarterly in arrears, in addition to the Lender’s customary fees for

issuance, amendment and other standard fees.

Letters of credit are charged an annual fee equal to (i) an applicable margin determined by the leverage ratio of the Company less (ii) 0.25 %, paid quarterly in arrears, in addition to the Lender’s customary fees for issuance, amendment and other standard fees.

Letters of credit totaling $ 4 million that were outstanding under the existing credit facility are treated as letters of credit under the Revolving Loan.

Under the terms of the Credit Agreement, the Company may prepay the Term Loan and/or the Delayed Draw Term Loan in full or in part without penalty except for any amount required to compensate the Lender for any swap

breakage or other costs incurred in connection with such prepayment.

The Lender receives an unused facility fee of 0.50% per annum payable quarterly in arrears on the unused portions of the Revolving Loan and the Line of Credit Loan.

leverage, (iii) require maintaining minimum tangible net worth, (iv) require maintaining a minimum fixed charge coverage ratio and (v) require the maintenance of a minimum of $5 million in quarterly average aggregate balances on deposit with the

Lender, which, if not maintained, will result in the assessment of a quarterly fee of $12,500), as well as events of default customary for facilities of this type.

As of September 30, 2020, the Company was in compliance with all debt covenants.

The Credit Agreement also limited the payment of cash dividends during the first twenty-four months of the agreement to $1.7 million but an amendment to the Credit Agreement entered into on November 10, 2020 raised the cash dividend limit to $2.3

million in such twenty-four month period.

As of September 30, 2020 and December 31, 2019, the Company had $18.3 million and $34.8 million, respectively, outstanding under the Credit Facility offset by $0.7 million and $0.8 million of deferred finance fees,

respectively.

In January 2020, the Company repaid the $15.0 million outstanding on the Line of Credit Loan.

As of September 30, 2020 and December 31, 2019, letters of credit in the aggregate outstanding principal amount of $4.0 million and $4.0

million, respectively, were outstanding under the Credit Facility.

Scheduled maturities of long-term debt at September 30, 2020 are as follows:

The Lender receives an unused facility fee of 0.50 % per annum payable quarterly in arrears on the unused portions of the Revolving Loan.

In addition to the foregoing, the Credit Agreement contains customary representations, warranties and affirmative and negative covenants (including financial covenants that (i) restrict capital expenditures, (ii) restrict leverage, (iii) require maintaining minimum tangible net worth, (iv) require maintaining a minimum fixed charge coverage ratio and (v) require the maintenance of a minimum of $ 5 million in quarterly average aggregate balances on deposit with the Lender, which, if not maintained, will result in the assessment of a quarterly fee of $ 12,500 ), as well as events of default customary for facilities of this type.

As of March 31, 2021, the Company was in compliance with all debt covenants.

The Credit Agreement also limited the payment of cash dividends during the first twenty-four months of the agreement to $ 1.7 million but an amendment to the Credit Agreement entered into on November 10, 2020 raised the cash dividend limit to $ 2.3 million in such twenty-four-month period.

As of March 31, 2021 and December 31, 2020, the Company had $ 17.3 million and $ 17.8 million , respectively, outstanding under the Credit Facility offset by $ 0.6 million and $ 0.6 million of deferred finance fees, respectively.

As of March 31, 2021 and December 31, 2020, letters of credit in the aggregate outstanding principal amount of $ 4.0 million were outstanding under the Credit Facility.

Scheduled maturities of long-term debt at March 31, 2021 are as follows:

Year ending December 31,

1 unchanged sentence

Holders of our common stock are entitled to receive dividends when and as declared by our Board of Directors and have the right to one vote per share on all matters requiring shareholder approval.

The Company has not declared or paid any cash

dividends on our common stock since the Company’s Board of Directors discontinued our quarterly cash dividend program in February 2015.

The Company has no current intentions to resume the payment of cash dividends to holders of common stock in the

foreseeable future.

The Company has no t declared or paid any cash dividends on our common stock since the Company’s Board of Directors discontinued our quarterly cash dividend program in February 2015.

The Company has no current intentions to resume the payment of cash dividends to holders of common stock in the foreseeable future.

Preferred Stock

On November 14, 2019, the Company raised gross proceeds of $ 12.7 million from the sale of 12,700 shares of its newly designated Series A Convertible Preferred Stock, no par value per share (the “Series A Preferred Stock”).

Preferred Stock was designated by the Company’s Board of Directors pursuant to a certificate of amendment to the Company’s amended and restated certificate of incorporation (the “Charter Amendment”).

The liquidation preference associated with the

Series A Preferred Stock was $1,000 per share at December 31, 2019.

Upon issuance each share of Series A Preferred Stock was convertible at $2.36 per share of common stock (as may be adjusted pursuant to the Charter Amendment, the “Conversion

Price”) into 423,729 shares of common stock (the number of shares into which the Series A Preferred Stock is convertible at any time, the “Conversion Shares”).

The Series A Preferred Stock was designated by the Company’s Board of Directors pursuant to a certificate of amendment to the Company’s amended and restated certificate of incorporation (the “Charter Amendment”).

The liquidation preference associated with the Series A Preferred Stock was $ 1,000 per share at December 31, 2020.

Upon issuance each share of Series A Preferred Stock was convertible at $ 2.36 per share of common stock (as may be adjusted pursuant to the Charter Amendment, the “Conversion Price”) into 423,729 shares of common stock (the number of shares into which the Series A Preferred Stock is convertible at any time, the “Conversion Shares”).

The Company incurred issuance costs of $ 0.7 million as part of this transaction.

5 unchanged sentences

(“Talanta,” together with Juniper Purchasers, the “Investors”).

Among other things, the SPA includes covenants relating to the appointment of a director to the Company’s Board of

Directors to be selected solely by the holders of the Series A Preferred Stock.

Dividends on the Series A Preferred Stock (“Series A Dividends”), at the initial annual rate of 9.6% is to be paid, in arrears, from the date of issuance quarterly on each

December 31, March 31, June 30 and September 30 with September 30, 2020 being the first dividend payment date.

The Company, at its option, may pay dividends either (a) in cash or (b) by increasing the number of Conversion Shares by the dollar

amount of the dividend divided by the Conversion Price.

The dividend rate is subject to increase (a) 2.4% per annum on the fifth anniversary of the issuance of the Series A Preferred Stock (b) by 2% per annum but in no event above 14% per annum

should the Company fail to perform certain obligations under the Charter Amendment.

Among other things, the SPA includes covenants relating to the appointment of a director to the Company’s Board of Directors to be selected solely by the holders of the Series A Preferred Stock.

Dividends on the Series A Preferred Stock (“Series A Dividends”), at the initial annual rate of 9.6 % is to be paid, in arrears, from the date of issuance quarterly on each December 31, March 31, June 30 and September 30 with September 30, 2020 being the first dividend payment date.

The Company, at its option, may pay dividends either (a) in cash or (b) by increasing the number of Conversion Shares by the dollar amount of the dividend divided by the Conversion Price.

The dividend rate is subject to increase (a) 2.4 % per annum on the fifth anniversary of the issuance of the Series A Preferred Stock and (b) by 2 % per annum but in no event above 14 % per annum should the Company fail to perform certain obligations under the Charter Amendment.

The Series A Preferred Stock is not currently redeemable and may not become redeemable in the future.

As a result, the Company is not required to re-measure the

Series A Preferred Stock and does not accrete changes in the redemption value.

As of September 30, 2020, we paid a $1.1 million cash dividend on the outstanding shares of Series A Preferred Stock rather than increasing the number of Conversion

Series A Preferred Stock Holders Right to Convert into Common Stock.

Each share of Series A Preferred Stock, at any time, is convertible into a number of shares of common stock equal

to (i) the sum of (A) $1,000 (subject to adjustment as provided in the Charter Amendment) plus (B) the dollar amount of any declared Series A Dividends not paid in cash divided by (ii) the Conversion Price ($2.36 per share subject to anti-dilution

adjustments) as of the applicable Conversion Date (as defined in the Charter Amendment).

At all times, however, the number of Conversion Shares that can be issued to any Series A Preferred Stock Holder may not result in such holder and its

affiliates owning more than 19.99% of the total number of shares of common stock outstanding after giving effect to the conversion (the “Hard Cap”), unless prior shareholder approval is obtained or no longer required by the rules of the principal

stock exchange on which the Company’s common stock trade.

As a result, the Company is not required to re-measure the Series A Preferred Stock and does not accrete changes in the redemption value.

As of March 31, 2021 and December 31, 2020, we paid a $ 0.3 million and $ 1.4 million, respectively, cash dividend on the outstanding shares of Series A Preferred Stock rather than increasing the number of Conversion Shares.

Dividends are included in the consolidated balance sheets within additional paid-in-capital when the Company maintains an accumulated deficit.

Holders of Series A Preferred Stock Right to Convert into Common Stock.

Each share of Series A Preferred Stock, at any time, is convertible into a number of shares of common stock equal to (i) the sum of (A) $ 1,000 (subject to adjustment as provided in the Charter Amendment) plus (B) the dollar amount of any declared Series A Dividends not paid in cash divided by (ii) the Conversion Price ($2.36 per share subject to anti-dilution adjustments) as of the applicable Conversion Date (as defined in the Charter Amendment).

At all times, however, the number of Conversion Shares that can be issued to any holder of Series A Preferred Stock may not result in such holder and its affiliates owning more than 19.99 % of the total number of shares of common stock outstanding after giving effect to the conversion (the “Hard Cap”), unless prior shareholder approval is obtained or no longer required by the rules of the principal stock exchange on which the Company’s common stock trades.

Mandatory Conversion.

If, at any time following November 14, 2022 the volume weighted average price of the Company’s common stock equals or exceeds 2.25 times the Conversion Price

(currently $5.31 per share) for a period of 20 consecutive trading days and on each such trading day at least 20,000 shares of common stock was traded, the Company may, at its option and subject to the Hard Cap, require that any or all of the then

outstanding shares of Series A Preferred Stock be automatically converted into Conversion Shares.

Beginning November 14, 2024, the Company may redeem all or any of the Series A Preferred Stock for a cash price equal to the greater of (“Liquidation Preference”) (i) the

sum of $1,000 (subject to adjustment as provided in the Charter Amendment) plus the dollar amount of any declared Series A Dividends not paid in cash and (ii) the value of the Conversion Shares were such Series A Preferred Stock converted (as

determined in the Charter Amendment) without regard to the Hard Cap.

If, at any time following November 14, 2022, the volume weighted average price of the Company’s common stock equals or exceeds 2.25 times the Conversion Price (currently $ 5.31 per share) for a period of 20 consecutive trading days and on each such trading day at least 20,000 shares of common stock was traded, the Company may, at its option and subject to the Hard Cap, require that any or all of the then outstanding shares of Series A Preferred Stock be automatically converted into Conversion Shares.

Beginning November 14, 2024, the Company may redeem all or any of the Series A Preferred Stock for a cash price equal to the greater of (“Liquidation Preference”) (i) the sum of $ 1,000 (subject to adjustment as provided in the Charter Amendment) plus the dollar amount of any declared Series A Dividends not paid in cash and (ii) the value of the Conversion Shares were such Series A Preferred Stock converted (as determined in the Charter Amendment) without regard to the Hard Cap.

Change of Control.

In the event of certain changes of control, some of which are not in the Company’s control, as defined in the Charter Amendment as a “Fundamental Change” or a

“Liquidation” (as defined in the Charter Amendment), the holders of Series A Preferred Stock shall be entitled to receive the Liquidation Preference, unless such Fundamental Change is a stock merger in which certain value and volume requirements

are met, in which case the Series A Preferred Stock will be converted into common stock in connection with such stock merger.

The Company has classified the Series A Preferred Stock as mezzanine equity on the Consolidated Balance Sheet based upon

the terms of a change of control which could be outside the Company’s control.

Holders of shares of Series A Preferred Stock will be entitled to vote with the holders of shares of common stock and not as a separate class, at any annual or special meeting

of shareholders of the Company, on an as-converted basis, in all cases subject to the Hard Cap.

In addition, a majority of the voting power of the Series A Preferred Stock must approve certain significant actions of the Company, including (i)

declaring a dividend or otherwise redeeming or repurchasing any shares of common stock and other junior securities, if any, subject to certain exceptions, (ii) incurring indebtedness, except for certain permitted indebtedness and (iii) creating a

subsidiary other than a wholly-owned subsidiary.

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

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

Holders of shares of Series A Preferred Stock will be entitled to vote with the holders of shares of common stock and not as a separate class, at any annual or special meeting of shareholders of the Company, on an as-converted basis, in all cases subject to the Hard Cap.

In addition, a majority of the voting power of the Series A Preferred Stock must approve certain significant actions of the Company, including (i) declaring a dividend or otherwise redeeming or repurchasing any shares of common stock and other junior securities, if any, subject to certain exceptions, (ii) incurring indebtedness, except for certain permitted indebtedness and (iii) creating a subsidiary other than a wholly-owned subsidiary.

Additional Provisions.

The Series A Preferred Stock is perpetual and, therefore, does not have a maturity date.

The conversion price of the Series A Preferred Stock is subject to

anti-dilution protections if the Company affects a stock split, stock dividend, subdivision, reclassification or combination of its common stock and certain other economically dilutive events.

The conversion price of the Series A Preferred Stock is subject to anti-dilution protections if the Company affects a stock split, stock dividend, subdivision, reclassification or combination of its common stock and certain other economically dilutive events.

Registration Rights Agreement.

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

provides for unlimited demand registration rights, of which there can be two underwritten offerings each for at least $5 million in gross proceeds, and piggyback registration rights, with respect to the Conversion Shares.

In addition, the RRA

obligates the Company to register “for the shelf” the resale of the Conversion Shares through the filing of registration statement to such effect (the “Resale Shelf Registration Statement”) and have such Resale Shelf Registration Statement declared

effective by the Securities and Exchange Commission (the “SEC”) no later than November 14, 2020.

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

The RRA provides for unlimited demand registration rights, of which there can be two underwritten offerings each for at least $ 5 million in gross proceeds, and piggyback registration rights, with respect to the Conversion Shares.

In addition, the RRA obligated the Company to register “for the shelf” the resale of the Conversion Shares through the filing of a registration statement to such effect (the “Resale Shelf Registration Statement”) and have such Resale Shelf Registration Statement declared effective by the Securities and Exchange Commission (the “SEC”).

The SEC declared the Resale Shelf Registration Statement effective on October 16, 2020.

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The Company currently has three stock incentive plans:

a Long-Term Incentive Plan (the “LTIP”), a Non-Employee Directors Restricted Stock Plan (the “Non-Employee Directors Plan”) and the Lincoln Educational Services

Corporation 2020 Incentive Compensation Plan (the “2020 Plan”).

On March 26, 2020, the Board adopted the 2020 Plan to provide an incentive to certain directors, officers, employees and consultants of the Company to align their interests in the Company’s success with those of its

shareholders through the grant of equity-based awards.

a Long-Term Incentive Plan (the “LTIP”), a Non-Employee Directors Restricted Stock Plan (the “Non-Employee Directors Plan”) and the Lincoln Educational Services Corporation 2020 Incentive Compensation Plan (the “2020 Plan”).

On June 16, 2020, the shareholders of the Company approved the 2020 Plan.

The 2020 Plan is administered by the Compensation Committee of the Board, or such other qualified committee appointed

by the Board, who will, among other duties, have full power and authority to take all actions and to make all determinations required or provided for under the 2020 Plan.

Pursuant to the 2020 Plan, the Company may grant options, share appreciation

rights, restricted shares, restricted share units, incentive stock options and nonqualified stock options.

The 2020 Plan is administered by the Compensation Committee of the Board, or such other qualified committee appointed by the Board, who will, among other duties, have full power and authority to take all actions and to make all determinations required or provided for under the 2020 Plan.

Pursuant to the 2020 Plan, the Company may grant options, share appreciation rights, restricted shares, restricted share units, incentive stock options and nonqualified stock options.

The Plan has a duration of 10 years.

Subject to adjustment as described in the 2020 Plan, the aggregate number of common shares available for issuance under the 2020 Plan is 2,000,000 shares.

As of September 30, 2020, 111,376 restricted shares have been

issued to non-employee directors which vest on the first anniversary of the grant date.

On August 7, 2020, two non-employee directors were appointed to the Company’s Board of Directors and 17,096 restricted shares were granted to each non-employee director.

The restricted shares vest on June 16, 2021.

Also on August 7, 2020, a non-employee director retired from his position on the Company’s Board of Directors.

Accordingly, 12,762 shares were accelerated to vest effective August 7, 2020.

Subject to adjustment as described in the 2020 Plan, the aggregate number of shares of common stock available for issuance under the 2020 Plan is 2,000,000 shares.

As of March 31, 2021 , a total of 98,614 restricted shares of common stock have been issued to non-employee directors which vest on the first anniversary of the grant date.

On August 7, 2020, two non-employee directors were appointed to the Company’s Board of Directors and 17,096 restricted shares of common stock were granted to each non-employee of these individuals.

These shares vest on June 16, 2021.

Also on August 7, 2020, a non-employee director retired from his position on the Company’s Board of Directors and 12,762 restricted shares of common stock held by him which were unvested were accelerated to vest effective August 7, 2020.

On February 25, 2021, performance-based restricted shares were granted to certain employees of the Company.

The shares vest ratably on the first , second and third anniversary dates based upon the attainment of a financial target during each fiscal years ending December 31, 2021, 2022 and 2023, respectively, except in extraordinary circumstances.

There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares.

For the three months ended March 31, 2021, the Company recorded expense of $ 0.1 million as the expectation of attainment of the target is probable.

On February 20, 2020, performance-based restricted shares were granted to certain employees of the Company.

The shares vest 20 % , 30 % and 50 % on the first , second and third anniversary dates, respectively, based upon the attainment of a financial target during each fiscal years ending December 31, 2020, 2021 and 2022, respectively, except in extraordinary circumstances.

There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares.

For each of the three months ended March 31, 2021 and 2020, the Company recorded expense of $ 0.1 million as the expectation of attainment of the target is probable.

Under the LTIP, certain employees have received awards of restricted shares of common stock based on service and performance.

The number of shares granted to each employee is based on the amount of the award and

the fair market value of a share of common stock on the date of grant.

The number of shares granted to each employee is based on the amount of the award and the fair market value of a share of common stock on the date of grant.

The 2020 Plan makes it clear that there will be no new grants under the LTIP effective as of the date of shareholder approval, June 16, 2020.

The 2020 Plan also states

that the shares available under the 2020 Plan will be two million shares plus the number of shares remaining available under the LTIP.

The 2020 Plan also states that the shares available under the 2020 Plan will be two million shares plus the number of shares remaining available under the LTIP.

As no shares remain available under the LTIP there can be no additional grants under the LTIP.

Grants under the

LTIP remain in effect according to their terms.

Outstanding grants under the LTIP remain in effect according to their terms.

Therefore, those grants are subject to the particular award agreement relating thereto and to the LTIP to the extent that the prior plan provides rules relating to those grants.

The LTIP remains in

effect only to that extent.

On February 20, 2020, performance-based restricted shares were granted to certain employees of the Company.

The shares vest 20%, 30% and 50% on the first, second and third anniversary dates, respectively, based upon the

attainment of a financial target during each fiscal years ending December 31, 2020, 2021 and 2022, respectively, except in extraordinary circumstances.

There is no restriction on the right to vote or the right to receive dividends with respect to

any of such restricted shares.

For the three and nine months ended September 30, 2020, the Company recorded expense of $0.2 million and $0.5 million, respectively, as the expectation of attainment of the target is probable.

The LTIP remains in effect only to that extent.

On February 28, 2019, restricted shares were granted to certain employees of the Company, which shares ratably vest over three years .

There is no restriction on the right to vote or the right to receive dividends with

respect to any of such restricted shares.

For the nine months ending September 30, 2020, and 2019, the Company recorded expense of $0.4 million and $0.3 millionin connection with this grant , respectively.

There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares.

For each of the three months ended March 31, 2021 and 2020 , the Company recorded expense of $ 0.1 million in connection with this grant.

Non-Employee Directors Plan

Pursuant to the Non-Employee Directors Plan, each non-employee director of the Company receives an annual award of restricted shares of common stock on the date of the Company’s annual meeting of shareholders.

of shares granted to each non-employee director is based on the fair market value of a share of common stock on that date.

The number of shares granted to each non-employee director is based on the fair market value of a share of common stock on that date.

The restricted shares vest on the first anniversary of the grant date.

There is no restriction on the right to vote or the

right to receive dividends with respect to any of such restricted shares.

For the nine months ended September 30, 2020 and 2019, the Company completed a net share settlement for 75,115 and 5,518 restricted shares, respectively, on behalf of certain employees that participate in the LTIP upon

the vesting of the restricted shares pursuant to the terms of the LTIP.

The net share settlement was in connection with income taxes incurred on restricted shares that vested and were transferred to the employees during 2019 and/or 2018, creating

taxable income for the employees.

There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares.

For the three months ended March 31, 2021 and 2020, the Company completed a net share settlement for 154,973 and 58,451 restricted shares, respectively, on behalf of certain employees that participate in the LTIP upon the vesting of the restricted shares pursuant to the terms of the LTIP.

The net share settlement was in connection with income taxes incurred on restricted shares that vested and were transferred to the employees during 2021 and/or 2020, creating taxable income for the employees.

At the employees’ request, the Company will pay these taxes on behalf of the employees in exchange for the employees returning an equivalent value of restricted shares to the Company.

These transactions resulted

in a decrease of $0.2 million and less than $0.1 million for each of the nine months ended September 30, 2020 and 2019, respectively, to equity on the condensed consolidated balance sheets as the cash payment of the taxes effectively was a

repurchase of the restricted shares granted in previous years.

These transactions resulted in a decrease of $ 1.0 million and $ 0.2 million for each of the three months ended March 31, 2021 and 2020, respectively, to equity on the condensed consolidated balance sheets as the cash payment of the taxes effectively was a repurchase of the restricted shares granted in previous years.

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

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Nonvested restricted stock outstanding at December 31, 2020

Nonvested restricted stock outstanding at September 30, 2020

The restricted stock expense for the three months ended September 30, 2020 and 2019 was $0.7 million and $0.2 million, respectively.

The restricted stock expense for the nine months ended September 30, 2020 and 2019 was

$1.3 million and $0.5 million, respectively.

The unrecognized restricted stock expense as of September 30, 2020 and December 31, 2019 was $3.6 million and $1.2 million, respectively.

As of September 30, 2020, outstanding restricted shares under

the LTIP had aggregate intrinsic value of $8.7 million.

Nonvested restricted stock outstanding at March 31 , 2021

The restricted stock expense for the three months ended March 31, 2021 and 2020 was $ 0.5 million and $ 0.3 million, respectively.

The unrecognized restricted stock expense as of March 31, 2021 and December 31, 2020 was $ 6.6 million and $ 3.2 million, respectively.

As of March 31, 2021 , outstanding restricted shares under the LTIP had aggregate intrinsic value of $ 11.3 million.

Stock Options

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

The following is a summary of transactions

pertaining to stock options:

The following is a summary of transactions pertaining to stock options:

Exercise Price

Intrinsic Value (in thousands)

Intrinsic Value

(in thousands)

Outstanding at December 31, 2020

Granted/Vested

Outstanding at September 30, 2020

Vested as of September 30, 2020

Exercisable as of September 30, 2020

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

The provision for income taxes for the three months ended September 30, 2020 and 2019 was less than $0.1 million, or 1.4% of pretax income, and $0.1 million, or 3.6% of pretax loss, respectively.

The provision for income

taxes for the nine months ended September 30, 2020 and 2019 was $0.2 million, or 5.6% of pretax income, and $0.2 million, or 3.5% of pretax loss, respectively.

The Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to recover the existing deferred tax assets.

In this regard, a significant objective negative evidence was the

cumulative losses incurred by the Company in recent years.

On the basis of this evaluation, the realization of the Company’s deferred tax assets was not deemed to be more likely than not and, thus, the Company maintained a full valuation allowance

on its net deferred tax assets as of September 30, 2020.

See Note 12 – COVID-19 Pandemic and CARES Act to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion

about the CARES Act for impact on taxes.

Outstanding at March 31 , 2021

Vested as of March 31 , 2021

Exercisable as of March 31 , 2021

As of March 31, 2021 , there was no unrecognized pre-tax compensation expense.

The provision for income taxes for the three months ended March 31, 2021 and 2020 was $ 1.2 million , or 21.7 % of pretax income, and approximately $ 0.1 million , or 2.9 % of pretax loss, respectively.

The increase quarter over quarter was due to the reversal of a full valuation allowance at December 31, 2020, resulting in an effective tax rate of 21.7 % in the current quarter.

COMMITMENTS AND CONTINGENCIES

In the ordinary conduct of its business, the Company is subject to certain lawsuits, investigations and claims, including, but not limited to, claims involving students or graduates and routine employment matters.

material adverse effect on the Company’s business, financial condition, and results of operations or cash flows.

Information regarding certain specific legal proceedings in which the Company is involved is contained in Part I, Item 3, and in Note 15 to the Notes to the Condensed Consolidated Financial Statements included in the Company’s Annual Report on

Form 10-K for the fiscal year ended December 31, 2019.

Unless otherwise indicated in this report, all proceedings discussed in the earlier report which are not indicated therein as having been concluded, remain outstanding as of September 30,

We operate our business in three reportable segments:

Although the Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against it, the Company does not believe that any currently pending legal proceedings to which it is a party will have a material adverse effect on the Company’s business, financial condition, and results of operations or cash flows.

Information regarding certain specific legal proceedings in which the Company is involved is contained in Part I, Item 3, and in Note 15 to the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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 March 31, 2021.

We operate our business in two 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.

and (b) the Healthcare and Other Professions 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.

These segments are organized by key market segments to enhance operational alignment within each segment to more effectively execute our strategic plan.

Each of the Company’s schools is a reporting unit and an operating segment.

Our operating segments are described below.

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.

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.

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 our campus operations which have been closed.

The schools in the Transitional

segment employed a gradual teach-out process that enabled the schools to continue to operate to allow their current students to complete their course of study.

The Company continually evaluates each campus for profitability, earning potential, and customer satisfaction.

This evaluation takes several factors into consideration, including the campus’s geographic location and program offerings, as well

as skillsets required of our students by their potential employers.

The purpose of this evaluation is to ensure that our programs provide our students with the best possible opportunity to succeed in the marketplace with the goals of attracting

more students to our programs and, ultimately, to provide our shareholders with the maximum return on their investment.

Campuses classified in the Transitional segment have been subject to this process and have been strategically identified for

As of September 30, 2020 and 2019 and December 31, 2019, no campuses have been categorized in the Transitional segment.

The Company also utilizes the Transitional segment when and if it closes a school.

We evaluate segment performance based on operating results.

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Summary financial information by reporting segment is as follows:

For the Three Months Ended September 30,

Operating Income (Loss)

Transportation and Skilled Trades

Healthcare and Other Professions

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Operating Income (Loss)

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Healthcare and Other Professions

September 30, 2020

March 31, 2021

December 31, 2020

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

September 30, 2020

March 31, 2021

Quoted Prices in

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Cash and cash equivalents

Restricted cash

Prepaid expenses and other current assets

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for Identical

Significant Other Observable Inputs

Significant Other

Observable Inputs

Financial Assets:

Cash and cash equivalents

Restricted cash

Prepaid expenses and other current assets

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Credit facility

As of September 30, 2020, we estimated the fair value of the Credit Facility based on a present value analysis utilizing aggregate market yields obtained from independent pricing sources for similar financial instruments.

As of December 31,

2019, we estimated that the carrying value of the Credit Facility approximates the fair value due to the fact that the Credit Facility was entered into in close proximity.

As of March 31, 2021 and December 31, 2020, we estimated the fair value of the Credit Facility based on a present value analysis utilizing aggregate market yields obtained from independent pricing sources for similar financial instruments.

The carrying amounts reported on the Consolidated Balance Sheets for Cash and cash equivalents, Restricted cash and Noncurrent restricted cash approximate fair value because they are highly liquid.

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Qualifying Hedge Derivative

As discussed above, on November 14, 2019, the Company entered into an interest rate swap for the Term Loan with a notional amount of $20M which expires on December 1, 2024.

On November 14, 2019, in connection with its Credit Facility, the Company entered into an interest rate swap for the Term Loan with a notional amount of $ 20 million which expires on December 1, 2024.

The loan has a 10 -year straight line amortization.

A principal amount

of $0.2 million is paid monthly.

A principal amount of $ 0.2 million is paid monthly.

This interest rate swap converts the floating interest rate Term Loan to a fixed rate, plus a borrowing spread.

The interest rate is variable based on LIBOR plus 3.50 % and the Company’s fixed rate is 5.36 %.

Company designated this interest rate swap as a cash flow hedge.

The Company designated this interest rate swap as a cash flow hedge.

The Company entered into this interest rate swap to hedge exposure resulting from the interest rate risk.

The purpose of this hedge is to reduce the variability of the interest rate based on LIBOR.

The Company manages these exposures within

specified guidelines through the use of derivatives.

The Company manages these exposures within specified guidelines through the use of derivatives.

All of our derivative instruments are utilized for risk management purposes, and the Company does not use derivatives for speculative trading purposes.

The following summarizes the fair value of the outstanding derivative:

September 30, 2020

March 31, 2021

December 31, 2020

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The Company’s derivative liability is measured at fair value using observable market inputs such as interest rates and our own credit risk as well as an evaluation of our counterparty’s credit risk.

these inputs the derivative liability is classified within Level 2 of the valuation hierarchy.

Based on these inputs the derivative liability is classified within Level 2 of the valuation hierarchy.

The liability is included in other long-term liabilities in the condensed consolidated balance sheets.

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Three Months Ended

Nine Months Ended

September 30, 2020

March 31, 2021

March 31, 2020

Interest expense

1 unchanged sentence

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

September 30, 2020

Three Months Ended

Nine Months Ended

Derivative qualifying as cash flow hedge

Interest rate swap (income) loss

March 31, 2021

March 31, 2020

Interest expense

Interest Rate Swap

COVID-19 PANDEMIC AND CARES ACT

The Company began seeing the impact of the global COVID-19 pandemic on its business in early March and such effects of the pandemic have continued.

The spread of COVID-19 has

had an unprecedented impact on higher educational institutions across the country, including our schools, and has led to the closure of campuses and the transition of academic programs from on-ground to online delivery.

The impact for the

Company was primarily related to transitioning classes from in-person, hands-on learning to online, remote learning.

As part of this transition, the Company has incurred additional expenses.

Related to this

transition, some students have been placed on leave of absence as they could not complete their externships and some students chose not to participate in online learning.

Additionally, certain programs were

extended due to restricted access to externship sites and classroom labs which did not have a material impact on our condensed consolidated financial statements.

In accordance with phased re-opening as applied on a state-by-state basis, all of our schools have now re-opened and we expect the majority of the students who have been on leave of absence or have deferred their programs to finish their programs.

The Company expects to continue to be impacted by

COVID-19 as the situation remains dynamic and evolving and subject to rapid and possibly material change.

The Company began seeing the impact of the global COVID-19 pandemic on its business in early March 2020 and some effects of the pandemic have continued.

The spread of COVID-19 has had an unprecedented impact on higher educational institutions across the country, including our schools, and has led to the closure of campuses and the transition of academic programs from in-person to online delivery.

The impact for the Company was primarily related to transitioning classes from in-person, hands-on learning to online, remote learning which resulted in, among other things, additional expenses.

Further, related to this transition, some students were placed on leave of absence as they could not complete their externships and some students chose not to participate in online learning.

As a result, certain programs were extended due to restricted access to externship sites and classroom labs which did not have a material impact on our consolidated financial statements.

In accordance with phased re-opening as applied on a state-by-state basis, all of our schools have now re-opened and the majority of the students who were on leave of absence or have deferred their programs returned to school to finish their programs.

The Company expects to continue to be impacted by COVID-19 as the situation remains dynamic and evolving and subject to rapid and possibly material change.

Additional impacts may arise of which the Company is not currently aware.

The nature and extent of such impacts will depend on future

developments, which are highly uncertain and cannot be predicted.

On March 27, 2020, the CARES Act was signed into law, which includes a $2 trillion federal economic relief package providing financial assistance and other relief to individuals and businesses impacted by the spread of

The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.

The CARES Act includes provisions for financial assistance and other regulatory relief benefitting students and their postsecondary institutions.

Among other things, the CARES Act includes a $14 billion higher education emergency relief fund (“HEERF”) for the DOE to distribute directly to institutions of higher education.

Institutions are required to use at

least half of the HEERF funds for emergency grants to students for expenses related to disruptions in campus operations (e.g., food, housing, etc.).

Institutions are permitted to use the remainder of the funds for additional emergency grants to

students or to cover institutional costs associated with significant changes to the delivery of instruction due to the COVID-19 emergency, provided that those costs do not include payment to contractors for the provision of pre-enrollment

recruitment activities, endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.

The law requires institutions receiving funds to continue to the greatest extent practicable to

pay its employees and contractors during the period of any disruptions or closures related to the COVID-19 emergency.

Institutions are required to use at least half of the HEERF funds for emergency grants to students for expenses related to disruptions in campus operations (e.g., food, housing, etc.).

Institutions are permitted to use the remainder of the funds for additional emergency grants to students or to cover institutional costs associated with significant changes to the delivery of instruction due to the COVID-19 emergency, provided that those costs do not include payment to contractors for the provision of pre-enrollment recruitment activities, endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.

The law requires institutions receiving funds to continue to the greatest extent practicable to pay its employees and contractors during the period of any disruptions or closures related to the COVID-19 emergency.

The DOE has allocated funds to each institution of higher education based on a formula contained in the CARES Act.

The formula is heavily weighted toward institutions with large numbers of Pell Grant recipients.

The DOE allocated $27.4 million to our schools to be distributed in two equal installments and must be utilized by April 30, 2021.

The Company received $13.7 million in the first installment which was intended for emergency grants to

The Company has distributed $12.6 million to the students and expects to distribute the remainder over the next few months.

The $1.1 million remaining to be distributed is included in restricted cash on the Company’s Condensed

Consolidated Balance Sheets.

As of September 30, 2020, the Company had received $13.7 million from the second installment which is intended for institutional costs and additional emergency grants to students .

As of September 30, 2020,

the Company has utilized $3.3 million of these funds for permitted expenses which was netted against the original expenses included in selling, general and administrative on the Condensed Consolidated Statement of Operations.

The DOE also has

published guidance regarding permitted and prohibited use of these funds and requirements for reporting the use of these funds.

If the funds are not spent or accounted for in accordance with applicable

requirements, we could be required to return funds or be subject to other sanctions.

The CARES Act also contains separate educational provisions that relieve both institutions and students from complying with the requirement to repay Title IV funds following a student’s withdrawal as

a result of the COVID-19 emergency.

Ordinarily, when a student withdraws, the institution (and, in some cases, the student) may be required to return unearned portions of the Title IV grant and loan funds awarded for the period.

Institutions will

be required to report to the DOE the total amount of grant and loan funds the institution has not returned due to the waiver.

For federal loan borrowers, the CARES Act also directs the DOE to cancel the borrower’s obligation to repay any Direct

Loan associated with the relevant period.

The law also expands the options to avoid student withdrawals due to a cessation of attendance by placing students on an approved leave of absence and waives certain requirements normally applicable to a

leave of absence.

The CARES Act also allows institutions to exclude from the calculation of a student’s satisfactory academic progress any attempted credits not completed due to the COVID-19 emergency.

The Company is also permitted to delay payment of FICA payroll taxes until January 1, 2021.

The Company will have to repay 50% of the deferred payments by December 31, 2021, and the remaining 50% by December 31, 2022.

of September 30, 2020, the Company had deferred payments of $3.0 million.

The DOE allocated $ 27.4 million to our schools distributed in two equal installments and required them to be utilized by April 30, 2021 and May 14, 2021, respectively.

As of March 31, 2021, the Company had distributed the full $ 13.7 million of its first installment as emergency grants to students and has utilized the full $ 13.7 million of its second installment, of which $ 5.7 million remains to be drawn down by the Company in the second quarter.

Proceeds from the second installment for permitted expenses were utilized to either offset original expenses incurred or to reduce student accounts receivable driving a decrease in bad debt expense, both uses resulted in a decrease in our selling general and administrative expenses .

On March 19, 2021, the Department of Education released guidance clarifying previous guidance on permitted institutional uses of funds received from the HEERF.

In accordance with this guidance, the Company was able to provide financial relief for students who dropped out of school due to COVID-19 related circumstances with unpaid accounts receivable balances covering the period from March 15, 2020 to March 31, 2021.

This relief was provided using the Company’s financial resources combined with HEERF funds resulting in a net benefit to bad debt expense of approximately $ 3.0 million.

The Company was also permitted to delay payment of FICA payroll taxes through January 1, 2021 and has done so.

The Company will have to repay 50% of the deferred payments by January 3, 2022, and the remaining 50% by January 3, 2023.

As of March 31, 2021, the Company had deferred payments of $ 4.5 million.

On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law.

This annual appropriations bill contained the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (“CRRSAA”).

CRRSAA provided an additional $ 81.9 billion to the Education Stabilization Fund including $ 22.7 billion for the HEERF, which were originally created by the CARES Act in March 2020.

The higher education provisions of the CRRSAA are intended in part to provide additional financial assistance benefitting students and their postsecondary institutions in the wake of the spread of COVID-19 across the country and its impact on higher educational institutions.

Like the CARES Act, the CRRSAA directs the majority of HEERF funds to a general program providing direct grants to institutions.

Institutions generally must designate “at least the same amount” of the funds for direct grants to students as was required under the CARES Act.

We may only use the new HEERF funds for grants to students.

The student grants must prioritize students with exceptional need and may be used for any component of the student’s cost of attendance or for emergency costs that arise due to coronavirus, such as tuition, food, housing, health care (including mental health care), or child care.

We may use the remaining HEERF funds to (1) defray expenses associated with coronavirus (including lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff trainings, and payroll);

(2) carry out student support activities authorized by the Higher Education Act that address needs related to coronavirus;

or (3) for additional financial aid grants to students.

Upon the passage of the CRRSAA, DOE began allocating the funds to each institution of higher education based on a formula contained in the law.

The DOE has allocated a total of $ 15.4 million to our schools and the funds became available in February 2021.

The DOE has begun releasing guidance relating to the use of these funds and is expected to provide additional information in the coming weeks.

Failure to comply with requirements for the usage and reporting of these funds could result in requirements to repay some or all of the allocated funds and in other sanctions.

As of March 31, 2021, the Company has not drawn down any of these allocated funds.

SUBSEQUENT EVENTS

the Company can pay on its Series A Preferred Stock during the first twenty-four months of the Credit Agreement from $1.7 million to $2.3 million.

As previously disclosed in Lincoln’s Annual Report on Form 10-K, Lincoln is subject to an extensive regulatory scheme which includes, without limitation, the Borrower Defense to Repayment regulations;

see the Company’s disclosures in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 under the captions “Regulatory Environment – Borrower Defense to Repayment Regulations” and “Risk Factors—We could be subject to liabilities, letter of credit requirements and other sanctions under the DOE’s Borrower Defense to Repayment Regulations.” On April 29, 2021, Lincoln received communication from the DOE indicating that the DOE was in receipt of a number of borrower defense applications containing allegations concerning Lincoln and requiring the DOE to undertake a fact-finding process pursuant to DOE regulations.

Among other things, the communication outlines a process by which the DOE will provide to Lincoln each application allowing Lincoln the opportunity to submit responses to the applications.

Further, the communication outlines certain information requests, relating to the period between 2007 and 2013, in connection with the DOE’s preliminary review of the borrower defense applications.

Based upon publicly available information, it appears that the DOE has undertaken similar reviews of other educational institutions which have also been the subject of various borrower defense applications.

The DOE’s communication does not specify a precise number of applications that are the subject of the review nor the aggregate dollar amount of the loans that could be at issue and which the DOE could seek to recover from Lincoln.

Given the very recent receipt of the communication, the limited information contained therein and the early stage of Lincoln’s internal review, management is not able to predict the outcome of the DOE’s review at this time.

Lincoln is assessing the requests made in the DOE communication and expects to timely respond to the inquiries.

Additionally, while the Company has not yet begun to receive any borrower defense applications from the DOE, it expects to thoroughly review and respond to each application.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements