What changed in this filing

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Item 1A. Risk Factors

2024-01-31 compared with 2023-11-01 · 58 added, 27 removed, 25 unchanged (77% of the section changed)

11 unchanged sentences

If the transaction does not close, our financial results may be adversely affected.

We may be responsible for Empire Education Group, Inc.'s liabilities.

We may be responsible for Empire Education Group, Inc.'s (EEG's) liabilities.

The Company owns a majority stake in Empire Education Group, Inc.

To be eligible to participate in Title IV programs,

the schools operated by EEG must comply with specific standards and procedures set forth in the Higher Education Act and the

regulations issued thereunder by the Department of Education.

On October 10, 2023, the Department of Education issued a

final rule applicable to “gainful employment” programs, which under the Higher Education Act, include all programs offered

by the Empire Education Group schools and other proprietary institutions.

Under this final rule, which becomes effective July

1, 2024, the continued Title IV eligibility of such programs will be based on meeting both a debt-to-earnings metric and an

earnings premium metric.

A program that fails either metric in a single year will be required to provide warnings to current and

prospective students that it could be at risk of losing Title IV program eligibility.

A program that fails to meet the same metric

twice in a three-year period will lose Title IV program eligibility.

To be eligible to participate in Title IV programs, the schools operated by EEG must comply with specific standards and procedures set forth in the Higher Education Act and the regulations issued thereunder by the Department of Education.

On October 10, 2023, the Department of Education issued a final rule applicable to “gainful employment” programs, which under the Higher Education Act, include all programs offered by the Empire Education Group schools and other proprietary institutions.

Under this final rule, which becomes effective July 1, 2024, the continued Title IV eligibility of such programs will be based on meeting both a debt-to-earnings metric and an earnings premium metric.

A program that fails either metric in a single year will be required to provide warnings to current and prospective students that it could be at risk of losing Title IV program eligibility.

A program that fails to meet the same metric twice in a three-year period will lose Title IV program eligibility.

The first measurement will be assessed in fiscal year 2025.

10 unchanged sentences

We may also incur substantial costs in connection with the pursuit of strategic alternatives which are not ultimately consummated.

We currently are not in compliance with New York Stock Exchange listing requirements.

In June 2022, we received written notice from the New York Stock Exchange (NYSE) that we did not meet certain NYSE continued listing standards.

Under the NYSE continued listing standards, the Company is required to maintain (a) a minimum average closing price of $1.00 per share over a period of 30 consecutive trading days, and (b) an average market capitalization of at least $50.0 million over a period of 30 consecutive trading days, and at the same time, total stockholders' equity equal to or greater than $50.0 million.

On September 1, 2022, we were notified we cured the minimum average closing price of $1.00 per share, but our average market capitalization was still non-compliant.

On October 4, 2023, we received a second written notice from the NYSE that the Company no longer satisfies the continued listing compliance standards, because the average closing price of the Company's common stock was less than $1.00 per share over a period of 30 consecutive days.

The Company also remains noncompliant with the market capitalization requirement of Section 802.01B of the NYSE Listed Company Manual as previously disclosed.

If our average market capitalization is not greater than $50.0 million on December 13, 2023, we will be subject to the NYSE’s suspension and delisting procedures.

We are closely monitoring the closing share price of our common stock and are considering all available options.

A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock;

reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing;

limiting our ability to issue additional securities or obtain additional financing in the future;

decreasing the amount of news and analyst coverage of us;

and causing us reputational harm with investors, our employees, and parties conducting business with us.

We were previously subject to delisting proceedings and we may not be able to maintain compliance with the continued listing standards of any national securities exchange.

Since January 9, 2024, the Company’s common stock has traded on the Global Market tier of The Nasdaq Stock Market LLC (Nasdaq).

The Company moved its trading to the Nasdaq after failing to regain compliance with the New York Stock Exchange's minimum market capitalization requirement.

Under Nasdaq's continued listing standards, the Company is required to maintain, among other things, an average market capitalization of at least $15.0 million.

We are currently in compliance with these continued listing standards.

However, if we fail to timely comply with applicable continued listing standards, our common stock may be delisted from Nasdaq.

If, for any reason, Nasdaq were to suspend or remove our securities from trading on the Nasdaq Global Market and we were unable to qualify for listing on another tier or national securities exchange, a reduction in some or all of the following may occur, each of which could materially adversely affect our shareholders:

• the liquidity and marketability of our common stock;

• the market price of our common stock;

• our ability to obtain financing for the continuation of our operations;

• the number of institutional and general investors that will consider investing in our common stock;

• the number of market makers in our common stock;

• the availability of information concerning the trading prices and volume of our common stock;

• the number of broker-dealers willing to execute trades in shares of our common stock.

In addition, if we ceased eligibility for trading on the Nasdaq Global Market, we may have to pursue trading on a less recognized or accepted market, such as the over-the-counter markets, our stock may be traded as a “penny stock” which would make transactions in our stock more difficult and cumbersome, and we may be unable to access capital on favorable terms or at all, as companies trading on alternative markets may be viewed as less attractive investments with higher associated risks, such that existing or prospective institutional investors may be less interested in, or prohibited from, investing in our common stock.

This may also cause the market price of our common stock to further decline.

We face the risk of possible future goodwill impairment.

Due to the decrease in the Company's stock price, the Company determined a triggering event occurred in the second quarter of fiscal year 2024.

Therefore, the Company engaged a third-party valuation specialist to perform an impairment analysis on the Franchise reporting unit as of November 30, 2023.

For the goodwill impairment analysis, the analysis utilized a combination of both a discounted cash flows approach and a market approach to evaluate the Franchise reporting unit.

The model used reflects management's assumptions regarding revenue growth rates, economic and market trends, cost structure, expectations of operating results, and a discount rate.

Based on this analysis, it was determined that the Franchise reporting unit had a fair value in excess of its carrying value at 6%, and thus, no impairment existed at that time.

In accordance with U.S.

GAAP, the Company's goodwill is evaluated for impairment on an annual basis, during the fourth fiscal quarter, or more frequently if an event occurs or circumstances change that indicate that a potential impairment exists.

Fair value determinations requires considerable judgment and is sensitive to changes in underlying assumptions, estimates and market factors.

If any estimates, market factors or assumptions change in the future, these amounts are susceptible to impairments.

As such, any future evaluations of goodwill may result in impairment charge on the Company's current goodwill balance, which could have a material adverse impact on our business, results of operations and financial condition.

Our Board has adopted a Tax Benefits Preservation Plan, which may not protect the future availability of the Company’s tax assets in all circumstances and which could delay or discourage takeover attempts that some shareholders may consider favorable.

As of June 30, 2023, we had approximately $646 million of U.S.

federal net operating losses (“NOLs”) as well as other tax attributes that could be available in certain circumstances to reduce future U.S.

corporate income tax liabilities.

Pursuant to Section 382 (“Section 382”) of the U.S.

Internal Revenue Code of 1986, as amended (the “Code”), and the Treasury Regulations issued thereunder, a corporation that undergoes an “ownership change” is subject to limitations on its use of its existing NOL and interest expense carryforwards and certain other tax attributes (collectively, “Tax Assets”), which can be utilized in certain circumstances to offset future U.S.

tax liabilities.

Generally, an “ownership change” occurs if the percentage of the Company’s stock owned by one or more “five percent stockholders” increases by more than fifty percentage points over the lowest percentage of stock owned by such stockholders at any time during the prior three-year period or, if sooner, since the last “ownership change” experienced by the Company.

In the event of such an “ownership change,” Section 382 imposes an annual limitation on the amount of post-change taxable income a corporation may offset with pre-change Tax Assets.

Similar rules apply in various U.S.

state and local jurisdictions.

However, with respect to the substantial majority of our Tax Assets, while we have in recent years experienced significant changes in the ownership of our stock, we do not believe we have undergone an “ownership change” that would limit our ability to use these Tax Assets.

However, there can be no assurance that the Internal Revenue Service will not challenge this position.

On January 28, 2024, our Board of Directors authorized and declared a dividend of one preferred stock purchase right for each outstanding share of Common Stock.

See “Note 13.

Subsequent Events” for additional information on the terms and operation of the Tax Benefits Preservation Plan, dated as of January 28, 2024, as the same may be amended from time to time (the “Plan”), between the Company and Equiniti Trust Company, LLC, as Rights Agent.

By adopting the Plan, the Board of Directors is seeking to protect the Company’s ability to use its NOLs and other tax attributes to offset potential future income tax liabilities.

The Company’s ability to use such NOLs and other tax attributes would be substantially limited if the Company experiences an “ownership change,” as defined in Section 382.

The Plan is intended to make it more difficult for the Company to undergo an ownership change by deterring any person from acquiring 4.95% or more of the outstanding shares of stock without the approval of the Board of Directors.

However, there can be no assurance that the Plan will prevent an “ownership change” from occurring for purposes of Section 382, and events outside of our control and which may not be subject to the Plan, such as sales of our stock by certain existing shareholders, may result in such an “ownership change” in the future.

While we currently have a valuation allowance against our NOLs and other historic Tax Assets for financial accounting purposes, if we have undergone or in the future undergo an ownership change that applies to our Tax Assets, our ability to use these Tax Assets could be substantially limited after the ownership change, and this limit could have a substantial adverse effect on our cash flows and financial position.

Although the Plan is not principally intended to prevent a takeover, it may have an anti-takeover effect because an “acquiring person” thereunder may be diluted upon the occurrence of a triggering event.

Accordingly, the Plan may complicate or discourage a merger, tender offer, accumulations of substantial blocks of our stock, or assumption of control by a substantial holder of our securities.

The Plan, however, should not interfere with any merger or other business combination approved by the Board of Directors as we continue to explore our previously announced strategic review.

Because the Board of Directors may consent to certain transactions, the Plan gives our Board of Directors significant discretion to act in the best interests of shareholders.

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 1A. Risk Factors