Item 1A. Risk Factors 46
Item 1B. Unresolved Staff Comments 79
Item 1C. Cybersecurity 79
Item 2. Properties 79
Item 3. Legal Proceedings 79
Item 4. Mine Safety Disclosures 79
Part II
Item 6. [Reserved] 80
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 89
Item 8. Financial Statements and Supplementary Data 90
Item 9A. Controls and Procedures 91
Item 9B. Other Information 91
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 91
Part III
Item 10. Directors, Executive Officers and Corporate Governance 92
Item 11. Executive Compensation 92
Item 14. Principal Accountant Fees and Services 92
Part IV
Item 15. Exhibits and Financial Statement Schedules 92
Signatures 94
CAUTIONARY
NOTE ON FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,”
“should,” “expects,” “intends,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other
comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections
about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually
achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially
from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements
involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
● successful implementation of our strategic plan;
● changes in the state regulatory environment or budgetary constraints;
● a loss of members of our senior management or other key employees;
● uncertainties associated with integration of acquired schools;
● industry competition;
● the effect of any cybersecurity incident;
● general economic conditions; and
All
of our forward-looking statements are as of the date of this Annual Report on Form 10-K only. In each case, actual results may differ
materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will
prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties
referred to in this Annual Report on Form 10-K or included in our other public disclosures or our other periodic reports or other documents
or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely
affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan
to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections
or other circumstances affecting such forward-looking statements occurring after the date of this Annual Report on Form 10-K, even if
such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements
or disclosures by us following this Annual Report on Form 10-K that modify or impact any of the forward-looking statements contained
in this Annual Report on Form 10-K will be deemed to modify or supersede such statements in this Annual Report on Form 10-K.
RISK
FACTOR SUMMARY
Our
business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what
we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider
the full discussion of our risk factors in the section titled “Risk Factors,” together with the other information in this
Annual Report on Form 10-K. If any of the following risks actually occur (or if any of those listed elsewhere in this Annual Report
on Form 10-K occur), our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously
harmed. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important
factors that adversely affect our business.
Risks Related to the Highly Regulated Field in
Which We Operate
Risks Related to Our Business
Risks Related to Our Common Stock
● We do not intend to pay cash dividends.
PART
I
Throughout
this Annual Report on Form 10-K, references to “we,” “our,” “us,” the “Company,” or “Legacy,”
refer to Legacy Education Inc., individually, or as the context requires, collectively with its subsidiaries.
ITEM
1. BUSINESS
Overview
We
provide career-focused, post-secondary education services to students at all stages of adult life, from recent high school graduates
to working parents, through our accredited academic institutions: High Desert Medical College, which we acquired in July 2010, Central
Coast College, which we acquired in January 2019, Integrity College of Health which we acquired in September 2020, and Contra Costa Medical
Career College, which we acquired in December 2024.
High
Desert Medical College (“HDMC”)
HDMC
was established in the State of California in 2002 and began offering classes in 2003. It started with campuses in Lancaster, California,
and added its first branch in 2008 in Bakersfield, California. Due to enrollment growth and high demand for its services, HDMC expanded
to add a branch campus in Temecula, California in order to accommodate 250 to 400 additional students. HDMC offers ultrasound tech (“UT”),
vocational nursing (“VN”), VN Associate of Applied Science degree program, Associate Degree of Nursing, nursing assistant,
MRI Associate of Applied Science, cardiac sonography, pharmacy technician, dental assisting, clinical medical assisting, medical administrative
assisting programs, medical billing and coding, veterinary assistant, phlebotomy technician avocational, nursing assistant avocational,
UT Associate of Applied Science degree programs, and an EMT program. HDMC also has obtained approval from the Accrediting Council for
Continuing Education and Training (“ACCET”) to offer a surgical technology Associate of Applied Science program and sterile
processing technician program and plans to begin doing so in October 2025, pending receipt of approval from the Bureau for Private Postsecondary
Education (“BPPE”) and ED. As of June 30, 2025, HDMC had 1,956 students
enrolled in its programs.
Central
Coast College (“CCC”)
CCC
was established in the State of California in 1983. In 1991, CCC moved to its current location in Salinas, California to accommodate
growing enrollment numbers and the addition of new training programs.
CCC
offers the following certificate or degree programs: business administrative specialist, computer specialist: accounting, medical
administrative assistant, medical assisting, nursing assistant, UT, UT Associate of Applied Science, veterinary assistant,
veterinary assistant, veterinary technology, Associate of Applied Science, VN, surgical technology (Associate of Applied Science),
dental assisting, sterile processing technician, and pharmacy technician. CCC also offers an
avocational phlebotomy technician program. CCC also has obtained approval from ACCET to offer an MRI Associate of Applied Science
Program and cardiac sonography Associate of Applied Science programs and plans to begin doing so in October 2025, pending receipt of
additional approvals. As of June 30, 2025, CCC had 495 students enrolled in its programs.
Integrity
College of Health (“Integrity”)
Integrity
was established in the State of California in 2007. Integrity’s campus is located in Pasadena, California. Integrity offers VN,
VN Associate of Applied Science, Registered Nurse to Bachelor of Science in Nursing (“RN to BSN”), medical assisting, medical
billing and coding, veterinary assistant, and Diagnostic Medical Sonography programs. Integrity earned initial accreditation from
the National League for Nursing Commission for Nursing Education Accreditation (NLN CNEA) for its Bachelor of Science in Nursing RN-
BSN Track in June 2025. Integrity also plans to offer an emergency medical technician (“EMT”) program beginning in early
2026 and is in the process of obtaining approvals for the program (for which Integrity is not planning to seek ED approval because it
does not intend to make Title IV funds available for students who enroll in the program). For purposes of our financial statements, Legacy
Education, L.L.C. is deemed to have acquired Integrity in December 2019. As of June 30, 2025, Integrity had 202 students enrolled in
its programs.
Contra
Costa Medical Career College (“CCMCC”)
CCMCC
offers the following certificate and degree programs: surgical technology (Associate of Applied Science), sterile processing technician,
pharmacy technician, diagnostic medical sonography, medical assisting with phlebotomy, dental assisting, vocational nursing, clinical
medical assisting, EKG/ECG technician, medical administrative assistant/billing and coding specialist and medical assisting and phlebotomy
avocational. As of June 30, 2025, CCMCC had 448 students enrolled in its programs.
Our
History
● In 2003, HDMC began offering classes in Lancaster, CA (main campus).
● In 2008, HDMC began offering classes in Bakersfield, CA (branch campus).
● In July 2010, we acquired the assets of HDMC.
● In April 2013, HDMC received ACCET accreditation.
● In July 2018, HDMC received branch approval for the Temecula, CA campus.
● In January 2019, we acquired CCC.
● In February 2019, the UT AAS degree program was approved by ED.
● In February 2019, HDMC opened its campus in Temecula, CA.
● In December 2019, we acquired a 24.5% ownership interest in Integrity.
● In September 2020, we acquired the remaining 75.5% interest in Integrity.
● In December 2024 we acquired the assets of Contra Costa Medical Career College
Industry
Background
In
the United States, the post-secondary education market is large, fragmented, and competitive. According to National Center for Educational
Statistics, as of the 2022-23 school year, degree granting career colleges served approximately 1.7 million undergraduate students, which was approximately 8.0% of the estimated 21.5 million total undergraduates in degree
programs. Further, the COVID-19 pandemic significantly reduced the
number of students enrolled in post-secondary education institutions in recent years. According to estimates released by the National
Student Clearinghouse Research Center, total enrollments in all higher education sectors increased 2.4% and 3.2% in the spring of 2024 and 2025, respectively. Enrollment at proprietary colleges increased 5.1% and 3.7% in the spring of 2024 and 2025, respectively. The industry is heavily dependent
on continued availability of federal student financial assistance under Title IV of the Higher Education Act (“Title IV Programs”),
and concerns about potential reductions in such funding also could negatively affect demand for higher education.
Notwithstanding
weaker demand dynamics in past years, including the more recent adverse impact from the COVID-19 pandemic, we believe that over
time, demand for post-secondary education in the United States will continue to increase as a result of demographic, economic, and
social trends. The 2022 U.S. Census Bureau reported that approximately 64.0 million adults over the age of 25 in the United States
did not have more than a high school education, and approximately 32.2 million adults over the age of 25 had some college experience
but had not completed a college degree. Other trends that could positively impact demand for our programs include:
Our
Market Opportunity
We
believe that the community college system in California, where we currently operate, is not meeting current educational and workforce
needs. Plagued by poor completion rates, uncertain career pathways and corresponding poor job placement rates, California community colleges
are not the stepping stones to success they once were. Aspiring students who want in-demand skills are often stuck between choosing an
expensive four-year school with course requirements unrelated to their interests, on one hand, and a community college that lacks a clear
mission and the ability to place them in their desired careers, on the other hand.
Our
colleges directly address this employment need through our focused, high-quality programs. Our campuses are strategically located near
hospitals and clinics to allow easy access for our students to externships and full-time employment opportunities.
The
geographic footprint of our colleges extends from Southern to Central California, home to approximately 24 million people, including
an aging population who will depend on the skills our students are able to provide as healthcare workers.
Our
target demographic is early to mid-20-year-old with a desire to better their economic situation by choosing a program with strong job
opportunities, primarily within a 100-mile radius of each campus for most programs for ease of drive and availability. Students choose
a for-profit career college because they can get trained and on the job within months. Prospective students need caring career direction
and advice, more so than your traditional college students.
According to the Bureau of Labor Statistics, employment in the healthcare and social assistance industry is projected to grow 8.4% from
2024 to 2034 resulting in over 1.9 million new jobs. This growth rate is much stronger than other industries, largely due to the aging
population and the growing prevalence of chronic conditions.
Our
Growth Strategies
Our
growth strategy goals consist of the following:
● Plan for moderate growth in existing programs.
● Add Associate of Applied Sciences degrees to our shorter programs.
● Add registered dental assisting to our dental assistant program.
● New programs in dental hygiene and surgical technician.
● Continued launch of new program offerings, including online offerings.
● Launch new branch campuses, including in California and beyond.
● Meet benchmark standards for completion and placement.
Our
business strategy is based on helping our graduates succeed, which we believe will drive our financial results. To that end, we are pursuing
the following operating strategies:
We
are focused on the following operational priorities to deliver these strategies:
Curriculum
and Assessment. Across our portfolio, we continue to refine and implement best practices for teaching and learning models and
focus on learner success to improve completion rates and align the curriculum to employers’ needs to drive career success. Our
goal is to further strengthen our position as a recognized leader in high quality learning.
We
are committed to delivering a superior academic, professionally aligned, real-world education to our students. We seek to develop a deep
understanding of the professions we serve and the competencies required of skilled professionals in these fields. This commitment guides
the development of our curricula, the recruitment of our faculty and staff, and the design of our support services.
Graduate
Success. We look for opportunities to improve our student’s educational experience and increase the likelihood of students
successfully completing their programs. Our programs surround students with a supportive, flexible, and engaging environment to help
them achieve academic success. To foster that environment, we maintain a comprehensive focus on improving early cohort persistence, a
personalized on-boarding experience for new learners, simplified administrative interactions, and continuous improvements in the quality
and frequency of interaction between our learners and our faculty.
Relationship-Based
Marketing. We continue to focus on building our brands and establishing our strong differentiation as a provider of high quality
and professionally aligned educational offerings as well as an innovative and leading provider of job-ready skills for the 21st
century workforce. We continue to expand on this differentiation through a variety of initiatives, including creating brand recognition,
optimizing marketing efforts, interacting with prospective students earlier in the decision process and expanding strategic employer
relationships. Our marketing strategy is designed to attain greater strategic control over our new enrollment growth and strengthen engagement
with prospective as well as current students and graduates, who can act as advocates for our institutions.
Innovation
and Diversification. We seek to expand the addressable market by investing in innovation, student success, academic infrastructure,
and new business models. We also seek to drive growth through a multifaceted strategy of enhancing existing program offerings, developing
new and innovative programs, and branching and acquisitions.
Competition
The
for-profit, post-secondary education industry is highly competitive and highly fragmented with no single participant controlling a significant
market share. We compete for students with traditional public and private two-year and four-year degree-granting accredited colleges
and universities, other proprietary degree-granting accredited schools, and alternatives to higher education. In addition, we face competition
from various non-traditional, credit-bearing and noncredit-bearing education programs, provided by both proprietary and not-for-profit
providers, including massive open online courses offered worldwide without charge by traditional educational institutions and other direct-to-consumer
education services. As the proportion of traditional colleges providing alternative learning modalities increases, we will face increasing
competition for students from traditional colleges, including colleges with well-established reputations for excellence. As online learning
matures as a modality for education delivery across higher education, we believe that the intensity of the competition we face will continue
to increase.
We
believe the key factors affecting our competitive position include the quality of the programs offered, the quality of other services
provided to students, our reputation among students and in the general marketplace, the cost and perceived value of our offerings, the
employment rate and terms of employment for our graduates, the ease of access to our offerings, the quality and reputation of our faculty
and other employees, the quality of our campus facilities and online platform, the time commitment required to complete our program and
obtain a degree, the quality and size of our alumni base, and our relationship with other learning institutions.
Some
of our local competitors include San Joaquin Valley College, Career Care Institute, UEI College, Bakersfield
College and the Pima Medical Institute. Such competitors may have greater financial resources and greater brand recognition than us.
For example, public institutions receive government subsidies and other financial sources not available to for-profit schools.
Marketing
and Recruiting
We
use a variety of marketing and recruiting methods to attract students and increase enrollment. Our marketing and recruiting efforts are
targeted at prospective students who are high school graduates entering the workforce, or who are currently underemployed or unemployed
and require additional training to enter or re-enter the workforce.
Marketing
and Advertising. We advertise through a variety of marketing channels to inform prospective students interested in entering or
advancing their healthcare careers about the college and the programs we offer. We utilize a fully integrated marketing approach in our
lead generation and admissions process that includes the use of traditional media such as radio, billboards, direct mail, a variety of
print media and event marketing campaigns. Our digital marketing efforts, which include paid search, search engine optimization, online
video and display advertising and social media, have grown significantly in recent years and currently drive the majority of our new
student leads and enrollments. Our websites’ integrated marketing campaigns direct prospective students to call us or visit the
HDMC, CCC, Integrity and CCMCC websites where they will find details regarding our programs and campuses and can request additional information
regarding the programs that interest them.
Referrals.
Referrals from current students, high school counselors and satisfied graduates and their employers have historically represented
approximately 25% of our new enrollments. Our school administrators actively work with our current students to encourage them to recommend
our programs to prospective students. We continue to build strong relationships with high school guidance counselors and instructors
by offering annual seminars at our training facilities to further familiarize these individuals on the strengths of our programs.
Recruiting. Our
recruiting efforts are conducted by a group of approximately 20 campus-based and field representatives who meet directly with
prospective students during presentations conducted at high schools, or during a visit to one of our campuses.
Student
Support
Admissions. Students
enrolling in our programs must have a high school diploma or a General Educational Development Certificate and demonstrate
competence in writing and logical reasoning. For programs leading to a degree students must also complete an application and pass
one or more entrance assessments, including the Wonderlic Scholastic Level Exam (“SLE”) or HESI for the Vocational Nursing programs. While each of our programs has different admissions criteria, we screen all applications and counsel the students
on the most appropriate program to increase the likelihood that our students complete the requisite coursework and obtain and
sustain employment following graduation. As of June 30, 2025, our diverse population was comprised of 61% Hispanic, 13% Black/African American, 12% White, 5% Asian, 1% Native Hawaiian or Other Pacific
Islander, and 1% American Indian or Alaksa Native. The age distribution shows 49% of our students are 25 and older, while 51% are 24 or
younger, with a significant majority of 88% being Women and 12% being Men.
Enrollment.
We enroll students continuously throughout the year, with our largest classes enrolling in late summer or early fall following
high school graduation. We had 3,101 students enrolled as of June 30, 2025, an increase of 42% compared to 2,187 students as of June
30, 2024. Our expanding student body reflects the trust and confidence in our educational offerings and our ability to prepare students
for successful careers.
The
chart below outlines our quarterly consolidated new student starts and end of quarter student enrollment across our colleges.
Consolidated
Year over Year (%)
Retention.
To maximize student retention, the staff at each school is trained to recognize the early warning signs of a potential drop and
to assist and advise students on academic, financial, employment and personal matters. We monitor weekly our retention rates by instructor,
course, program and school. When we become aware that a particular instructor or program is experiencing a higher than normal dropout
rate, we quickly seek to determine the cause of the problem and attempt to correct it. When we identify that a student is experiencing
difficulty academically, we offer tutoring, remediation and assistance and guidance from the program director. With an average program
retention rate of 86%, our focus on student success and support throughout their educational journey is evident.
Outcome. Our
core mission is to prepare students for competitive careers in their chosen fields. As of June 30, 2025, we boast an average
placement rate of 74.5%, with individual rates of 74.9% for High Desert Medical College, 74.1% for Central Coast College, and 74.6%
for Integrity College of Health. CCMCC has achieved an average placement rate of 73.8%. Additionally, our students
have achieved an 81.8% NCLEX Pass Rate and a 50.0% Veterinary Technician National Exam Pass Rate, demonstrating the effectiveness of
our programs.
Faculty
and Employees
Across
the organization, we seek to hire faculty who have teaching and/or practitioner experience in their particular discipline and who possess
significant and appropriate academic credentials. We hire our faculty in accordance with established criteria set by the California Code
of Regulations and accreditation standards, including relevant work experience and educational background. We require meaningful industry
experience of our teaching staff in order to maintain the quality of instruction in all of our programs and to address current and industry-specific
issues in our course content. In addition, we provide intensive instructional training and continuing education, including quarterly
instructional development seminars, annual reviews, technical upgrade training, faculty development plans and weekly staff meetings.
We
also employ non-faculty staff in student services, academic advising and academic support, enrollment services, administration,
financial aid, information technology, human resources, finance and other administrative functions. The staff of each campus
typically includes a campus director, a director of education, a registrar, a career services coordinator, a financial-aid officer, a business officer
and a career advisor and instructors, all of whom are industry professionals with experience in our areas of study.
As
of June 30, 2025, we had approximately 103 full-time faculty, including program directors, as well as approximately 147 part-time faculty.
As
of June 30, 2025, we and our institution also employed approximately 177 combined non-faculty staff in the areas of university services,
academic advising and academic support, enrollment services, university administration, financial aid, information technology, human
resources, corporate accounting, finance and other administrative functions. None of our employees is a party to any collective bargaining
or similar agreement with us.
Education
Regulations
As
a provider of postsecondary education, we are subject to extensive regulation by federal, state and accrediting agencies. The applicable
educational regulatory requirements cover virtually all phases of the operations of our institutions, including, but not limited to,
educational program offerings, facilities, instructional and administrative staff, administrative procedures, marketing and recruiting,
financial operations, data security and privacy, adequacy and substantiation of graduation and job placement rates and other student
outcomes, distribution of information to current and prospective students, professional licensure requirements, payment of refunds to
students who withdraw, the receipt of federal and state financial aid by our students (including institutional, programmatic, and student
eligibility requirements), private and institutional loan programs, distance education, third party servicers, written arrangements with
other institutions or organizations to provide some or all of an educational program, student complaints, student services, student admissions,
transfer of academic credits, acquisitions or openings of new institutions, additions of new campuses and educational programs, closure
or relocation of existing locations and changes in corporate structure and ownership.
Each
of our institutions (HDMC, CCC, Integrity and CCMCC) participate in the Title IV Programs, as well as other federal and state financial
aid programs and are subject to extensive regulation by ED, other federal and state educational agencies and accreditors. CCC, HDMC,
and CCMCC are approved to offer, and must comply with applicable requirements related to, veterans education assistance administered
by the Department of Veterans Affairs (“VA”). CCC and HDMC are also approved to offer and must comply with applicable requirements
related to Cal Grants administered by the California Student Aid Commission, and funds administered under the Workforce Innovation and
Opportunity Act. We derive a substantial portion of our revenue and cash flows from the Title IV Programs and a significant portion of
our students rely on financial aid received under the Title IV Programs in order to attend our institutions. To participate in the Title
IV Programs, an institution must receive and maintain authorization by the appropriate state education agencies, be accredited by an
accrediting body recognized by ED, hold programmatic accreditation if required by a state or federal agency (including as a condition
of employment in the occupation for which the institutional program prepares the students), and be certified by ED as an eligible institution.
The
laws, regulations, standards and policies of our regulators change periodically and are subject to new and changing interpretation by
our regulators. Changes in, or new interpretations of, applicable laws, regulations, standards, or policies, or our failure to comply
with those laws, regulations, standards, or policies could have a material adverse effect on our receipt of funds under the Title IV
Programs and other federal and state financial aid programs, the accreditation of our institutions and programs, the authorization of
our institutions to operate in various states, our permissible activities, or our costs of doing business. We cannot predict with certainty
how all of the requirements applied by our regulators will be interpreted or whether our institutions will be able to comply with these
requirements in the future. Given the complex nature of these requirements and the fact that they are subject to interpretation, it is
possible that we may inadvertently violate these laws, regulations, standards, or policies. If we are found to have violated any applicable
regulations, laws, standards or policies, we may be subject to liabilities, sanctions, and other consequences. See “Risk Factor
- If our institutions fail to comply with the extensive educational regulatory requirements applicable to our business, we could incur
financial penalties, restrictions on our operations, loss of federal and state financial aid funding for our students, loss of accreditation,
or loss of our authorization to operate our institutions or our educational programs.”
Under
the provisions of the Higher Education Act (“HEA”), an institution must apply to ED for continued certification to participate
in the Title IV Programs at least every six years or when it undergoes a change in ownership resulting in a change of control. ED defines
an institution to consist of both a main campus and its additional locations, if any. Under this definition, for ED purposes, we operate
the following four institutions, collectively consisting of four main campuses and two additional locations: HDMC with locations in Lancaster,
Bakersfield, and Temecula, CCC with a location in Salinas, Integrity with a location in Pasadena, and CCMCC with a location in Antioch.
Generally, the recertification process includes a review by ED of an institution’s educational programs and locations, administrative
capability, financial responsibility and other oversight categories. The current expiration date of the program participation agreements
for HDMC and CCC is September 30, 2026. Integrity and CCMCC are currently participating in the Title IV Programs under a temporary provisional
program participation agreement in connection with their change in ownership and control resulting from our acquisition of the institutions.
The CCMCC temporary provisional program participation agreement had an expiration date of January 31, 2025 and the Integrity temporary
provisional program participation agreement had an expiration date of November 30, 2020, but each temporary provisional program participation
agreement continues on a month-to-month basis thereafter based on the institution’s submission to ED of certain required documentation
and remains in effect until the conclusion of ED’s review of Integrity’s and CCMCC’s pending applications for approval
of their change in ownership and control.
ED
typically provides provisional certification to an institution following a change in ownership resulting in a change of control and also
may provisionally certify an institution for other reasons, including, but not limited to, noncompliance with certain standards of administrative
capability and financial responsibility. Our Integrity and CCMCC institutions are currently approved under a temporary provisional program
participation agreement which (as described in a subsequent section) permits an institution to continue participating in the Title IV
Programs on a month-to-month basis while ED reviews the change in ownership and as long as the institution timely submits certain documentation
to ED during the process. An institution that is provisionally certified receives fewer due process rights than those received by other
institutions in the event ED takes certain adverse actions against the institution, is required to obtain prior ED approvals of new campuses
and educational programs and may be subject to heightened scrutiny by ED. However, provisional certification does not otherwise limit
an institution’s access to Title IV Program funds.
On
October 31, 2023, ED published a final rule revising its Title IV Program certification regulations with an effective date of July 1,
2024. The rule codifies additional grounds for placing an institution on provisional certification, including a determination by ED that
an institution is at risk of closure and ED’s consideration of supplementary performance measures that include an institution’s
withdrawal rate, recruiting expenses, and licensure pass rate. The revised certification regulations also increase the number of requirements
contained in an institution’s Program Participation Agreement (including, for example, a requirement to comply with all state laws
related to closure), require certain ownership entities to sign the Program Participation Agreement, establish new standards for maximum
program length (including a prohibition on the length of certain educational programs from exceeding the required minimum number of hours
established by applicable state(s) for entry-level training requirements for the occupation for which the programs train students), requires
certification that an institution’s programs meet applicable educational requirements for graduates to obtain required occupational
licensure or certification in a state, and restricts the ability of institutions to withhold transcripts. The revised regulations also
impose new potential conditions on provisionally certified institutions, including, but not limited to, the submission of teach-out and/or
document retention plans, growth restrictions, acquisition restrictions, additional reporting requirements, limitations on written arrangements,
and additional conditions applicable to institutions found to have engaged in substantial misrepresentations or institutions seeking
to convert to nonprofit status following a change in ownership. The revised certification regulations are expansive, complex and could
be difficult for our institutions to comply with their applicable requirements as interpreted by ED. If ED finds that any of our institutions
do not fully satisfy all required eligibility and certification standards, ED could limit, condition, suspend, terminate, revoke, or
decline to renew our institutions’ participation in the Title IV Programs or impose liabilities or other sanctions. Continued Title
IV Program eligibility is critical to the operation of our business. If our institutions become ineligible to participate in the Title
IV Programs, or have that participation significantly conditioned, we may be unable to conduct our business as it is currently conducted
which would have a material adverse effect on our business, financial condition, results of operations and cash flows.
State
Authorization. Our institutions are subject to the educational laws and regulations of the State of California where our physical
campuses are located. We also may be subject to the educational laws of other states if we acquire a new institution in the state or
if one of our institutions adds a new campus in the state or otherwise conducts other operations in the state covered by applicable state
educational law including, but not limited to, student recruitment, advertising, or certain types of distance education. State educational
laws establish standards and requirements for, among other things, student instruction, faculty qualifications, campuses and facilities,
educational programs, financial stability, administrative staff, marketing and recruiting, distribution of information to current and
prospective students, payment of refunds to students who withdraw, private and institutional loans, distance education, student services,
student complaints, student admissions, transfer of academic credits, substantive changes, acquisitions, and policies and minimum graduation
and job placement outcomes for institutions and/or their individual educational programs. Our institutions are authorized to operate
by the California Bureau for Private Postsecondary Education (“BPPE”). We also may be required to obtain approvals and comply
with requirements of state agencies that regulate certain occupational educational programs such as, for example, VN and phlebotomy.
The California Board of Registered Nurses approves the Associate degree of Nursing program at HDMC. The VN programs at HDMC, Integrity
and CCMCC are approved by BVNPT. The phlebotomy programs at HDMC and CCC are approved by California Department of Public Health. In addition,
we are subject to state consumer protection laws.
Attorneys
general in many states have become more active in enforcing consumer protection laws, including, for example, laws related to marketing,
advertising and recruiting practices and the financing of education at for-profit educational institutions. Further, some state attorneys
general have partnered with federal and state agencies to review industry practices and collaborate on enforcement actions against educational
institutions. These actions increase the likelihood of scrutiny of marketing, advertising, recruiting, financing, and other practices
of educational institutions and may result in unforeseen consequences, increasing risk and making our operating environment more challenging.
Adverse
media coverage regarding the allegations of state consumer protection law violations by us or other for-profit education companies could
damage our reputation, result in decreased enrollments, revenues and profitability and have a negative impact on our stock price. Such
coverage could also result in continued scrutiny and regulation by ED, Congress, accreditors, state legislatures, state attorneys general
or other governmental authorities of us and other for-profit educational institutions.
State
education laws and regulations may limit our campuses’ ability to operate or to award degrees, diplomas, or certificates or offer
new programs. Moreover, under the HEA, authorization by state education agencies is necessary to maintain eligibility to participate
in the Title IV Programs. ED regulations also require institutions offering postsecondary education through distance education to students
located in a state in which the institution is not physically located (as determined by the institution at the time of a student’s
initial enrollment and, if applicable, upon formal receipt of information from the student that their location has changed to another
state) to meet state educational requirements in that state or participate in a state authorization reciprocity agreement in order to
disburse Title IV funds to such students. We have obtained approval to offer portions of our programs via distance education from ACCET
for CCC, CCMCC and HDMC, ABHES for Integrity, and from BPPE for HDMC, CCC, CCMCC and Integrity. The State of California does not,
however, presently participate in any state authorization reciprocity agreement whereby our institutions may offer programs via distance
education to students located in other states without our applicable state authorizations from those other states. Our institutions presently
do not have any state postsecondary authorizations outside of California. In addition, an institution must make disclosures readily available
to enrolled and prospective students regarding whether programs leading to professional licensure or certification meet state educational
requirements, and provide a direct disclosure to students in writing if the program leading to professional licensure or certification
does not meet state educational requirements in the state in which the student is located (which is only California for our current students).
Under ED’s rules effective July 1, 2024, an institution must certify that its programs satisfy the applicable educational requirements
for professional licensure or certification needed to practice or find employment in an occupation for which the program prepares a student
in the state in which the school or where a student is located or intends to seek employment (which, although our current students are
located in California, could be a state other than California and could require us to refrain from enrolling students in a state if our
program does not satisfy the applicable educational requirements in the state). We believe the Title IV-eligible educational programs
offered by our institutions satisfy all currently applicable state educational requirements for professional licensure or certification.
State
legislatures often consider legislation affecting regulation of postsecondary educational institutions. Our institutions are located
in California which has expansive laws and regulations impacting for-profit schools like our institutions. Enactment of this legislation
and ensuing regulations, or changes in interpretation of existing regulations, may impose substantial costs on our institutions and require
them to modify their operations in order to comply with the new regulations. If we are unable to comply with applicable past, current
or future state education, consumer protection, licensing, authorization or other requirements, or determine that we are unable to cost
effectively comply with new or revised requirements, we could be subject to liabilities, sanctions and other consequences. See “Risk
Factor – Any failure to comply with state laws and regulatory requirements, including educational requirements, or new state
legislative or regulatory initiatives affecting our institutions, could have a material adverse effect on our total student enrollment,
results of operations, financial condition and cash flows.”
Institutional
Accreditation. In the U.S., accrediting agencies are non-governmental entities that periodically review the academic quality
of an institution’s instructional programs and its administrative and financial operations to ensure the institution has the resources
to perform its educational mission. Accrediting agencies impose standards that extend to most aspects of an institution’s operations
and educational programs including, but not limited to, requirements to maintain threshold graduation and job placement rates for its
educational programs. HDMC, CCC, and CCMCC are currently accredited by ACCET through April 2029, April 2030, and April 2026, respectively.
Integrity is accredited by ABHES through February 2026. ED requires an institution to be accredited by an ED-recognized accrediting agency
in order for the institution to participate in the Title IV Programs. ACCET and ABHES are ED-recognized accrediting agencies. The failure
to comply with accreditation standards could subject an institution to additional requirements, sanctions, and consequences including
the potential loss of accreditation. See “Risk Factor - If one or more of our institutions fails to maintain institutional accreditation,
or if certain of our programs cannot obtain or maintain programmatic accreditation, our student enrollments would diminish, and our business
would suffer.”
Programmatic Accreditation. Many
states and professional associations require professional programs to be accredited. While programmatic accreditation is not a sufficient
basis to qualify for institutional Title IV Program certification, programmatic accreditation may improve employment opportunities for
program graduates in their chosen field. Moreover, ED requires an institution to hold programmatic accreditation for an educational program
if required by a state or federal agency (including as a condition of employment in the occupation for which the institutional program
prepares the students). The veterinary technology program at CCC is accredited by American Veterinary Medical Association. Integrity’s
Registered Nurse to Bachelor of Science in Nursing has received initial accreditation from the Commission for Nursing Education Accreditation.
Additionally, CCC is pursuing initial programmatic accreditation with ABHES for the Surgical Technology Associate of Applied Science program
for consideration during the Spring 2026 visit cycle. The Associate of Applied Science in Surgical Technology at CCMCC is accredited by
ABHES and will engage in reaccreditation in the Spring 2026 visit cycle. All of the Title IV-eligible educational programs offered by
our institutions are within the scope of institutional accreditation from either ACCET or ABHES, and we do not believe any of our Title
IV-eligible educational programs that do not hold programmatic accreditation are required to hold programmatic accreditation by any currently
applicable state or federal agency. Those of our programs that do not have programmatic accreditation where available, or fail to maintain
such accreditation, may experience adverse publicity, loss of access to Title IV funds, declining enrollments, litigation or other claims
from students or suffer other adverse impacts, which could result in it being impractical for us to continue offering such programs.
ED
Recognition of Accrediting Agencies. Our participation in the Title IV Programs is dependent on ED continuing to recognize the
accrediting agencies that accredit our colleges and universities. Each of our institutions currently are accredited by an ED-recognized
accrediting agency. The standards and practices of these agencies have become a focus of attention by state attorneys general, members
of Congress, ED’s Office of Inspector General and ED over recent years. ED held negotiated rulemaking sessions between January
and March 2024, and the negotiators did not reach consensus on proposed language. ED proposed expanding requirements related to accrediting
agencies’ conflict of interest policies and student achievement standards, for example. ED terminated the negotiated rulemaking
process for accreditation as of December 20, 2024. However, ED published a proposed regulatory agenda in early September 2025 that, among
other things, includes a proposal to engage in negotiated rulemaking to provide institutions flexibility to change accreditors and “remove
other burdensome requirements that erect barriers to entry for new accreditation agencies.” This proposal is in its early stages
and, therefore, we cannot predict whether and how such a rulemaking would impact the accreditors that accredit our institutions or the
accreditation requirements applicable to our institutions.
If
ED withdraws recognition from ACCET and/or ABHES, ED may continue our schools’ eligibility for a period of up to 18 months from
the date of the withdrawal of recognition, and our schools could apply for accreditation from the other ED-recognized accrediting agencies.
ED could impose provisional certification and other conditions and restrictions on our schools during this period. If ACCET and/or ABHES
lose recognition from ED and our schools are unable to obtain accreditation from a different ED-recognized accrediting agency in the
required time period, our schools could lose eligibility to participate in Title IV Programs.
Congressional
Action. The U.S. Congress must periodically reauthorize the HEA and other laws governing the Title IV Programs and annually determine
the funding level for each Title IV Program, and may pass new laws or revise existing laws at any time. Political and budgetary concerns
significantly affect the Title IV Programs. We cannot predict when or whether Congress will consider or vote on legislation to reauthorize
the HEA or to create new laws or revise existing laws. Furthermore, we cannot predict with any certainty the outcome of the HEA reauthorization
process nor the extent to which any legislation that Congress could adopt at any time could materially affect our business, financial
condition and results of operations. Current requirements for student or school participation in Title IV Programs may change or one
or more of the present Title IV Programs could be replaced by other programs with materially different student or school eligibility
requirements. For example, the American Rescue Plan Act of 2021 (“ARPA”) was signed into law in March 2021 and included,
among other things, a provision that amended the 90/10 Rule in the HEA. See “Risk Factors - Our institutions could lose their
eligibility to participate in the Title IV programs if the percentage of their revenues derived from applicable federal educational student
aid programs is too high.” If we cannot comply with the provisions of the HEA, as they may be enforced or amended, or if the
cost of such compliance is excessive, or if funding is materially reduced, our revenues or profit margin could be materially adversely
affected.
More
recently, on July 4, 2025, the President signed into law the One Big Beautiful Bill Act (“OBBBA”), which has a general effective
date of July 1, 2026 and makes changes to the HEA, including the Title IV programs. ED intends to conduct a negotiated rulemaking process
in 2025 for the purpose of establishing new regulations impacting the new OBBBA requirements. See “Education Regulations –
Negotiated Rulemaking.” Consequently, we expect the new requirements will impact our institutions and operations, but we cannot
predict the ultimate scope, content, and impact of the new OBBBA requirements under future ED regulations and guidance. We are currently
assessing, and will continue to assess, the potential impact of the requirements on us and our institutions. Among other things, the
OBBBA establishes limits on the amount of Title IV loans students and parents can borrow. These limits will not apply to students that
will be enrolled as of the effective date, up until their expected time of completion as defined by the OBBBA. The OBBBA establishes
a limit of $20,000 annually and $65,000 in total for PLUS loans taken out by parent borrowers for undergraduate programs. The OBBBA also
creates a lifetime loan limit of $257,500 for all borrowers. It also requires institutions to prorate loans for students attending less
than full-time. We are in the process of evaluating the impact these loan limitations may have on our institutions and enrollments and
the extent to which alternative sources of funding such as third-party loans may be needed for some of our students.
The
OBBBA also establishes a new accountability measure that applies to our degree programs and that is based on a comparison of
graduate earnings to the earnings of working adults without degrees under a complex formula that ED is expected to address in future
regulations. Under the new accountability measure, an associate degree program would lose its Title IV loan eligibility if the
median earnings of a cohort of graduates are less than the median earnings of working adults with a high school diploma and no
further degrees for two out of three years. ED will create a process for appealing the programmatic median earnings data.
Institutions that do not meet the accountability measure for one year will also be required to notify students of the risk of losing
eligibility. Our institutions offer a limited number of associate degree programs that will be subject to the new accountability
measure. We cannot yet predict with certainty whether our degree programs will meet the accountability measure or whether they will
be at risk of losing eligibility to participate in the Title IV loan programs.
The
OBBBA also restricts student eligibility for the Pell Grant by disqualifying students with a student aid index that equals or exceeds
twice the amount of the total maximum Pell Grant, and disqualifying students who receive grant aid from non-federal sources that equals
or exceeds the student’s cost of attendance for that period. We are evaluating whether and to what extent this change might impact
the Pell eligibility of some of our students and whether alternative sources of financial aid, such as third-party loans, might be necessary
for these students. The OBBBA also establishes Workforce Pell Grants for eligible students enrolled in certain short-term educational
programs that meet eligibility requirements. The eligibility requirements include criteria related to the program’s length and
a determination of eligibility by the state. Many of our programs are longer than the eligibility requirements, but we are evaluating
whether opportunities exist for other current or future programs at our institutions.
Additionally,
the OBBBA delays the effective date of the 2022 version of the revised borrower defense to repayment regulations and closed school loan
discharge regulations for ten years, until July 1, 2035. See “Education Regulations - Borrower Defense to Repayment Regulations.”
Congressional
committees and members actively continue to propose and consider legislation on a wide range of topics related to the Title IV programs
that could impact further the amount of Title IV funding available to schools and students and impose additional accountability requirements
on institutions and also that could eliminate or modify certain rules that are less favorable to schools like ours. However, the process
of Congressional passage of new legislation is ongoing, is subject to further negotiation and amendment, and is further subject to Congressional
approval. Therefore, the timing and outcome of this process and the scope of any additional legislation that might be enacted cannot
be predicted with any certainty at this time. We are continuing to monitor the process.
Executive
Action. As previously reported, there are indications based on recent elections that the new administration, and potentially
the U.S. Congress, will attempt to dissolve ED, diminish its operational role, and/or transfer some or all of its functions to one or
more agencies. See the Company’s Quarterly Report on Form 10-Q, filed with the SEC on February 13, 2025, for the section titled
“Regulatory Updates” for additional information. In March 2025, ED implemented a reduction in force (“RIF”) that,
coupled with resignations by ED staff, reportedly reduced ED’s workforce by approximately half. The RIF also eliminated several
school participation divisions, including the school participation division that previously oversaw the operations of our institutions,
and eliminated or significantly reduced several other offices or divisions within ED. We currently are working with other offices and
personnel at ED on some of our pending matters, but it is possible that we could encounter delays and difficulties obtaining timely ED
approval of recent and future acquisitions of other schools. See “Education Regulations – School Acquisitions” and
“Education Regulations – Change of Control.” We also could encounter delays and difficulties obtaining timely ED approval
of new campuses or other educational programs for which we wish to offer Title IV funds to students and which require ED approval. See
“Education Regulations – Opening Additional Campuses and Adding Educational Programs.”
In
March 2025, the President issued an Executive Order calling for all necessary steps to close ED although the executive order did not
indicate the process or timing for accomplishing this task nor identify where some of the functions of ED might be transferred. We continue
to monitor developments in this area, but cannot yet predict whether the administration or Congress will be successful in closing or
further reducing ED and/or transferring some or all of its functions to one or more agencies, or whether such a proposal would disrupt
or change the availability of Title IV funds to us and our students or change the rules applicable to us and our schools to continue
receiving Title IV funds. We also cannot predict the success of any litigation challenging any efforts to close or restructure ED. Any
executive or legislative action impacting ED, the availability of Title IV funds, or the rules applicable to us could have a material
adverse effect on us and our institutions.
Financial
Value Transparency and Gainful Employment Regulations. In May 2021, ED announced its intention to initiate a rulemaking process
on several topics, including gainful employment. On May 19, 2023, ED published a notice of proposed rulemaking on financial value transparency
and gainful employment, and on October 10, 2023, ED published final regulations which became effective on July 1, 2024. Multiple lawsuits
were filed challenging these regulations, and these were consolidated into one case. We cannot predict the outcome of this case. The
financial value transparency and gainful employment regulations include standards for annually evaluating postsecondary educational programs
based on the calculation of debt-to-earnings rates and an “earnings premium” measure. The rule establishes formulae for calculating
these rates using data such as student debt, student earnings data, and median earnings data for working adults with only a high school
diploma or GED, which the rule uses to compare to median earnings data of the institution’s graduates. Under the regulations, ED
will annually calculate and publish the debt-to-earnings rates and median earnings data for our educational programs. If these calculations
show that any of our educational programs do not comply with debt-to-earnings or median earnings regulatory thresholds for two of three
consecutive years, those educational programs would lose Title IV Program eligibility. ED also requires institutions to provide warnings
to current and prospective students about programs in danger of losing of Title IV Program eligibility which could negatively impact
our retention of current students and enrollment of new students in these programs. The regulations also require certifications and data
reporting to ED and providing required student disclosures related to gainful employment. Some of the data ED will use to calculate the
debt-to-earnings rates and earnings premium measures is not yet readily accessible to institutions. Therefore, it is difficult for us
to predict how our institutions will perform under the new standards and the extent to which our programs could lose Title IV Program
eligibility under the new standards. We also do not have control over some of the factors that could impact the rates and measures for
our programs which could make it difficult to mitigate the impact of the regulations on our programs. However, the new regulations could
require us to modify or eliminate programs to comply with the new regulations and could result in the loss of Title IV Program eligibility
for our programs that fail to comply with the regulations which could have a material adverse effect on our student population and our
revenues. As noted elsewhere, our degree programs also will be subject to a new separate earnings measure under the OBBBA. See “Risk