1. STATEMENT PRESENTATION AND BASIS OF CONSOLIDATION

9 Months Ended

Feb. 28, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

STATEMENT PRESENTATION AND BASIS OF CONSOLIDATION

The accompanying unaudited condensed financial statements are presented on a consolidated basis and include the accounts of National American University Holdings, Inc., its subsidiary, Dlorah, Inc. (“Dlorah”), and its divisions, National American University (“NAU” or the “University”), Fairway Hills, the Fairway Hills Park and Recreational Association, the Park West Owners’ Association, the Vista Park Owners’ Association (“Fairway Hills”), and the Company’s interest in Fairway Hills Section III Partnership (the “Partnership”), collectively the “Company.”

The accompanying unaudited consolidated financial statements have been prepared on a basis substantially consistent with the Company’s audited financial statements and in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim financial reporting. As permitted under these rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) can be condensed or omitted. The information in the condensed consolidated balance sheet as of May 31, 2018 was derived from the audited consolidated financial statements of the Company for the year then ended. Accordingly, these financial statements should be read in conjunction with the Company’s annual financial statements, which were included in the Company’s Annual Report on Form 10-K for the year ended May 31, 2018, filed on September 14, 2018. Furthermore, the results of operations and cash flows for the nine month periods ended February 28, 2019 and 2018 are not necessarily indicative of the results that may be expected for the full year. These financial statements include consideration of subsequent events through issuance.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by U.S. GAAP.

Throughout the notes to the condensed consolidated financial statements, amounts in tables are in thousands of dollars, except for per share data or otherwise designated. The Company’s fiscal year end is May 31. All intercompany transactions and balances have been eliminated in consolidation.

Unless the context otherwise requires, the terms “we”, “us”, “our” and the “Company” used throughout this document refer to National American University Holdings, Inc. and its wholly owned subsidiary, Dlorah, Inc., which owns and operates National American University and Fairway Hills.

Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. On an ongoing basis, the Company evaluates the estimates and assumptions, including those related to bad debts, income taxes and certain accruals. Actual results could differ from those estimates.

Financial Condition and Liquidity — For the nine months ended February 28, 2019, cash used in operating activities was $5.6 million and unrestricted cash and cash equivalents decreased by $4.9 million from May 31, 2018. As of February 28, 2019, the Company had $0.4 million of unrestricted cash and cash equivalent, working capital deficiency of $10 million, and a negative total stockholder’s equity of $4 million.

On March 8, 2019, the Company received a letter from the Department of Education, in which it determined that NAU did not meet its financial responsibility standards for institutions that participate in Title IV programs. As a result, the letter required, among other things, NAU to either (1) post a letter of credit to the Department of Education in the amount of $36,652,785, representing 50% of the Title IV program funds awarded during the Company’s fiscal year ended May 31, 2018, or (2) post a letter of credit to the Department of Education in the amount of $10,995,835, representing 15% of the Title IV program funds awarded during the Company’s fiscal year ended May 31, 2018, to be accompanied by the provisional form of certification to participate in Title IV programs. On March 22, 2019, NAU submitted a request to the Department of Education for reconsideration of the letter of credit requirement, as well as the amount and timing for any required letter of credit. The result of the Company’s request was unknown as of the issuance date of these financial statements.

Considering the Company’s financial position as of February 28, 2019 and the requirement to post a letter of credit to the Department of Education as described above if such requirement if not subsequently reconsidered or amended by the Department of Education, the Company believes that there is substantial doubt about its ability to continue as a going concern for at least twelve months following the issuance of these financial statements.

During the quarter ended February 28, 2019, the Company continued to implement actions to address its liquidity needs as follows:

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During the quarter ended February 28, 2019, the Company continued to implement an operational plan that focuses on online academic programs and expanding its programming and services related to strategic security, counter-terrorism, and intelligence for the public and private sectors. In alignment with this new operational change, NAU suspended new student enrollment in 34 of its 128 programs and is in the process of closing its ground-based locations. This operational change may put additional pressure on the Company’s revenue in the immediate future. However, the Company expects a significant decrease in expenses with a lesser impact on revenue in the long run. See note 7 for further details on the Company’s operational change.

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The Company sold one out of two aircrafts for proceeds of $0.6 million on January 25, 2019. The estimated proceeds from the other aircraft, as well as the savings from the related maintenance and operating costs, are approximately $0.9 million. The Company has been actively marketing and advertising to sell the second aircraft, which management expects will be completed within the next few quarters.

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Management is actively pursuing mortgage financing of approximately $5 million with a portion of the company’s real estate serving as collateral. Also, the company is considering the sale of its real estate condominium holdings for approximately $4 million.

National American University Holdings, Inc. 10-Q