10-Q 1 nauh_10q.htm QUARTERLY REPORT Blueprint
 

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2019
 
Or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to
 
Commission File No. 001-34751
 
National American University Holdings, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
83-0479936
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
5301 Mt. Rushmore Road
 
 
Rapid City, SD
 
57701
(Address of principal executive offices)
 
(Zip Code) 
 
(605) 721-5200
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
 
 
Emerging growth company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesNo
 
As of April 5, 2019, 24,650,083 shares of common stock, $0.0001 par value were outstanding.
 
 
 
 
NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES INDEX
 
 
Page of
Form 10-Q
 
 
PART I. FINANCIAL INFORMATION
 
 
3
 
 
3
 

4
 

6
 

5
 

7
       

22
       

32
       

32
 
 
PART II. OTHER INFORMATION
       

34
       

34
       

40
       

40
       

40
       

40
       

41
 
 
2
 
 
NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES
 
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF FEBRUARY 28, 2019
AND CONDENSED CONSOLIDATED BALANCE SHEET AS OF MAY 31, 2018
(In thousands, except share and per share amounts)

 
 
February 28,
 
 
May 31,
 
 
 
2019
 
 
2018
 
ASSETS
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
  Cash and cash equivalents
 $425 
 $5,324 
  Student receivables — net of allowance of $384 and $587 at February 28, 2019 and May 31, 2018, respectively
  1,477 
  2,893 
  Other receivables
  401 
  563 
  Income taxes receivable
  10 
  105 
  Prepaid and other current assets
  1,509 
  1,552 
           Total current assets
  3,822 
  10,437 
Total property and equipment - net
  16,464 
  25,228 
OTHER ASSETS:
    
    
  Restricted certificates of deposit
  8,150
  9,250 
  Condominium inventory
  - 
  512 
  Land held for future development
  414 
  414 
  Course development — net of accumulated amortization of $3,878 and $3,577 at February 28, 2019 and May 31, 2018, respectively
  1,557 
  1,841 
  Goodwill
  363 
  363 
  Other intangibles — net of accumulated amortization of $51 and $22 at February 28, 2019 and May 31, 2018, respectively
  178 
  207 
  Other
 1,241
  555 
           Total other assets
  11,903 
  13,142 
TOTAL
 $32,189 
 $48,807 
 
    
    
LIABILITIES AND STOCKHOLDERS' EQUITY
    
    
CURRENT LIABILITIES:
    
    
  Current portion of capital lease payable
 $419 
 $380 
  Current portion of long-term debt
  800 
  800 
  Current portion of lease acceleration payable
  1,914
  - 
  Accounts payable
 4,052
  1,991 
  Income taxes payable
  79 
  70 
  Deferred income
  3,169 
  3,758 
  Accrued and other liabilities
  3,364 
  4,090 
           Total current liabilities
  13,797
  11,089 
OTHER LONG-TERM LIABILITIES
 1,296
  2,688 
CAPITAL LEASE PAYABLE, NET OF CURRENT PORTION
  10,538 
  10,857 
LONG-TERM DEBT, NET OF CURRENT PORTION
  7,200 
  7,200 
LONG-TERM LEASE ACCELERATION PAYABLE, NET OF CURRENT PORTION
  3,285
  - 
COMMITMENTS AND CONTINGENCIES (Note 11)
    
    
STOCKHOLDERS' EQUITY:
    
    
  Common stock, $0.0001 par value (50,000,000 authorized; 29,053,894 issued and 24,650,083 outstanding as of February 28, 2019; 28,685,195 issued and 24,344,122 outstanding as of May 31, 2018)
  3 
  3 
  Additional paid-in capital
  59,445 
  59,305 
  Accumulated deficit
  (40,942)
  (19,873)
  Treasury stock, at cost (4,403,811 shares at February 28, 2019, and 4,341,073 shares at May 31, 2018)
  (22,509)
  (22,496)
Total National American University Holdings, Inc. stockholders' equity
  (4,003)
  16,939 
Non-controlling interest
  76 
  34 
Total stockholders' equity
  (3,927)
  16,973 
TOTAL
 $32,189 
 $48,807 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
3
 
 
NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2019 AND 2018
(In thousands, except share and per share amounts)
 
 
 
Nine Months Ended
 
 
Three Months Ended
 
 
 
February 28,
 
 
February 28,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
REVENUE:
 
 
 
 
 
 
 
 
 
 
 
 
  Academic revenue
 $39,060 
 $53,607 
 $10,501 
 $16,923 
  Auxiliary revenue
  1,926 
  2,930 
  521 
  955 
  Rental income — apartments
  1,042 
  1,049 
  345 
  349 
  Condominium sales
  646 
  455 
  207 
  - 
  Other real estate income
  152 
  - 
  49 
  - 
 
    
    
    
    
           Total revenue
  42,826 
  58,041 
  11,623 
  18,227 
 
    
    
    
    
OPERATING EXPENSES:
    
    
    
    
  Cost of educational services
  16,754 
  19,545 
  4,987 
  6,234 
  Selling, general and administrative
  33,257
  44,633 
  9,052
  13,817 
  Auxiliary expense
  1,324 
  2,079 
  352 
  686 
  Cost of condominium sales
  507 
  427 
  153 
  - 
  Loss on lease termination and acceleration
 4,215
  362 
 1,116
  - 
  Loss on impairment and disposition of property and equipment
  6,692 
  2,071 
  254 
  1,076 
 
    
    
    
    
           Total operating expenses
  62,749
  69,117 
  15,914
  21,813 
 
    
    
    
    
OPERATING LOSS
  (19,923)
  (11,076)
  (4,291)
  (3,586)
 
    
    
    
    
OTHER INCOME (EXPENSE):
    
    
    
    
  Interest income
  100 
  63 
  37 
  14 
  Interest expense
  (998)
  (628)
  (433)
  (211)
  Other (expense) income — net
  48 
  95 
  130 
  8 
 
    
    
    
    
           Total other expense
  (850)
  (470)
  (266)
  (189)
 
    
    
    
    
LOSS BEFORE INCOME TAXES
  (20,773)
  (11,546)
  (4,557)
  (3,775)
 
    
    
    
    
INCOME TAX (EXPENSE) BENEFIT
  (11)
  268 
  7 
  83 
 
    
    
    
    
NET LOSS
  (20,784)
  (11,278)
  (4,550)
  (3,692)
 
    
    
    
    
NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST
  (42)
  (34)
  (15)
  (15)
 
    
    
    
    
NET LOSS ATTRIBUTABLE TO NATIONAL AMERICAN  UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES
  (20,826)
  (11,312)
  (4,565)
  (3,707)
 
    
    
    
    
OTHER COMPREHENSIVE LOSS, NET OF TAX
    
    
    
    
  Unrealized losses on investments, net of tax benefit
  - 
  4 
  - 
  11 
 
    
    
    
    
COMPREHENSIVE LOSS ATTRIBUTABLE TO NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC.
 $(20,826)
 $(11,308)
 $(4,565)
 $(3,696)
 
    
    
    
    
Basic net loss attributable to National American University Holdings, Inc.
 $(0.85)
 $(0.47)
 $(0.19)
 $(0.15)
Diluted net loss attributable to National American University Holdings, Inc.
 $(0.85)
 $(0.47)
 $(0.19)
 $(0.15)
Basic weighted average shares outstanding
  24,369,869
  24,222,864 
  24,465,124
  24,269,158 
Diluted weighted average shares outstanding
  24,369,869
  24,222,864 
  24,465,124
  24,269,158 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
4
 
 
NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2019 AND 2018
(In thousands)
 
 
 
Nine Months Ended
 
 
 
February 28,
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
Net loss
 $(20,784)
 $(11,278)
Adjustments to reconcile net loss to net cash flows used in operating activities:
    
    
Depreciation and amortization
  2,707 
  3,577 
Loss on lease termination
 4,215
  362 
Loss on impairment and disposition of property
  6,692 
  2,071 
Realized loss on sales of available for sale investments
  - 
  16 
Provision for uncollectable tuition
  1,441 
  1,775 
Noncash compensation expense
  140 
  198 
Deferred income taxes
  - 
  (194)
Changes in assets and liabilities:
    
    
Student and other receivables
  137 
  (2,732)
Prepaid and other current assets
  43 
  11 
Condominium inventory
  512 
  431 
Other assets
 (686)
  96 
Income taxes receivable/payable
  104 
  (104)
Accounts payable
 1,872
  17 
Deferred income
  (832)
  1,621 
Accrued and other liabilities
  (726)
  (737)
Other long-term liabilities
  (409)
  (1,431)
 
    
    
Net cash flows used in operating activities
  (5,574)
  (6,301)
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES:
    
    
Purchases of available for sale investments
  - 
  (1,747)
Proceeds from sale of available for sale investments
  - 
  4,668 
Proceeds from the release of restricted certificates of deposit
  1,100 
  - 
Purchases of property and equipment
  (607)
  (1,695)
Proceeds from sale of property and equipment
  545 
  210 
Course development
  (70)
  (186)
Payments received on contract for deed
  - 
  133 
Other
  - 
  23 
 
    
    
Net cash flows provided by investing activities
  968 
  1,406 
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES:
    
    
Repayments of capital lease payable
  (280)
  (244)
Purchase of treasury stock
  (13)
  (13)
Dividends paid
  - 
  (2,184)
 
    
    
Net cash flows used in financing activities
  (293)
  (2,441)
 
    
    
NET DECREASE IN CASH AND CASH EQUIVALENTS
  (4,899)
  (7,336)
 
    
    
CASH AND CASH EQUIVALENTS — Beginning of year
  5,324 
  11,974 
 
    
    
CASH AND CASH EQUIVALENTS — End of period
 $425 
 $4,638 
 
    
    
BALANCE SHEET RECONCILIATION
    
    
  CASH AND CASH EQUIVALENTS
 $425 
 $4,638 
  RESTRICTED CASH
 $8,150
 $- 
  TOTAL CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
 $8,575
 $4,638 
 
    
    
SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND
    
    
   NON-CASH INFORMATION:
    
    
   Cash received (paid) for income taxes
 $(93)
 $30
   Cash paid for interest
 $1,000 
 $630
   Property and equipment purchases included in accounts payable
 $189 
 $- 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
5
 
 
NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES
 
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2019 AND 2018
(In thousands, except share and per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
other
 
 
 
 
 
Total
 
 
 
Common
 
 
paid-in
 
 
Accumulated
 
 
Treasury
 
 
comprehensive
 
 
Non-controlling
 
 
stockholders'
 
 
 
stock
 
 
capital
 
 
Deficit
 
 
stock
 
 
loss
 
 
interest
 
 
equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance - May 31, 2017
 $3 
 $59,060 
 $(6,622)
 $(22,481)
 $(4)
 $(16)
 $29,940 
 
    
    
    
    
    
    
    
Purchase of 6,137 shares common
    
    
    
    
    
    
    
   stock for the treasury
  - 
  - 
  - 
  (13)
  - 
  - 
  (13)
Share based compensation expense
  - 
  198 
  - 
  - 
  - 
  - 
  198 
Dividends declared ($0.045 per share)
  - 
  - 
  (1,090)
  - 
  - 
  - 
  (1,090)
Net (loss) income
  - 
  - 
  (11,312)
  - 
  - 
  34 
  (11,278)
Other comprehensive loss, net of tax
  - 
  - 
  - 
  - 
  4 
  - 
  4 
Balance - February 28, 2018
 $3 
 $59,258 
 $(19,024)
 $(22,494)
 $- 
 $18 
 $17,761 
 
    
    
    
    
    
    
    
Balance - May 31, 2018
 $3 
 $59,305 
 $(19,873)
 $(22,496)
 $- 
 $34 
 $16,973 
Impact of adoption of new accounting standard
  - 
  - 
  (243)
  - 
  - 
  - 
  (243)
Purchase of 13,713 shares common stock for the treasury
    
  - 
    
  (13)
    
    
  (13)
Share based compensation expense
  - 
  140 
  - 
  - 
  - 
  - 
  140 
Net (loss) income
  - 
  - 
  (20,826)
  - 
  - 
  42 
  (20,784)
Balance - February 28, 2019
 $3 
 $59,445 
 $(40,942)
 $(22,509)
 $- 
 $76 
 $(3,927)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
6
 
 
NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share amounts)
 
1. 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.
 
 
7
 
 
During the quarter ended February 28, 2019, the Company continued to implement actions to address its liquidity needs as follows:
 
 
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.
 
 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.
 
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.
 
2. NATURE OF OPERATIONS

NAU is regionally accredited, proprietary institution of higher learning, offering associates, bachelors and master's degrees in many disciplines of study. Beginning June 2019, courses will be offered through online instruction only. NAU consists of a group of educators dedicated to serving its students to achieve success in attaining their educational goals to advance their career opportunities.
 
In addition to the university operations, the Company owns and operates a real estate business known as Fairway Hills Developments, or Fairway Hills. The real estate business rents apartment units and develops and sells condominium units in the Fairway Hills Planned Development area of Rapid City, South Dakota.
 
 
8
 
 
3. RECENTLY ADOPTED AND NEW ACCOUNTING PRONOUNCEMENTS
 
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, provides more useful information to users of the consolidated financial statements through improved disclosure requirements, and simplifies the preparation of the consolidated financial statements by reducing the number of requirements to which an entity must refer. The ASU outlines five steps to achieve proper revenue recognition: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies the performance obligation. This standard is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. This standard is effective for the Company’s fiscal year 2019, and was implemented in the first quarter ended August 31, 2018, using the modified retrospective method of adoption. The adoption of this guidance did not have a material impact on the Company’s financial statements during the nine months ended February 28, 2019. The primary impact of adopting the new standard has been modifications to the timing of revenue recognition for certain revenue streams. A net cumulative increase to accumulated deficit and a corresponding increase to deferred revenue in the amount of $0.2 million as of June 1, 2018 was recorded as a result of the adoption of this guidance. The Company has provided expanded disclosures pertaining to revenue recognition in Note 4 – Revenues.
 
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes FASB ASC Topic 840, Leases and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively financed or purchased by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. If the available accounting election is made, leases with a term of twelve months or less can be accounted for similar to existing guidance for operating leases. The standard will be effective for the Company’s fiscal year 2020 and will be implemented in the first quarter ending August 31, 2019. The Company is currently evaluating and has not yet determined the impact implementation will have on the Company’s consolidated financial statements.
 
In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting, which is intended to reduce diversity in practice and the complexity in applying existing guidance related to changing terms or conditions of share-based payment awards. The standard clarifies that modification accounting is required unless the fair value, vesting conditions, and classification as an equity or liability instrument of the modified award are the same as that of the original award immediately prior to the modification. The new standard is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company adopted this standard for the fiscal year beginning June 1, 2018, and it did not have an effect on the consolidated financial statements. ASU 2017-09 will be applied prospectively to any awards modified on or after the adoption date.
 
In August 2018, the FASB issued ASU 2018-13, Changes to Disclosure Requirements for Fair Value Measurements, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements, and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company has not evaluated the impact this standard will have on the Company’s consolidated financial statements.
 
 
9
 
 
4. REVENUES
 
Impact of Adoption of ASC 606 – Revenue from Contracts with Customers
 
On June 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition (“ASC Topic 605”). The Company elected to follow the modified retrospective adoption method. The new guidance was applied to all contracts that were not completed as of the adoption date. Revenues and operating results for the reporting period beginning June 1, 2018 have been presented under the accounting guidance included within ASC Topic 606, while prior period amounts have not been restated to conform to the new guidance as permitted by the modified retrospective method of adoption.
 
As a result of the adoption of ASC Topic 606, the Company recorded a net cumulative increase to accumulated deficit of $0.2 million and a corresponding increase to deferred income within the Consolidated Balance Sheet as of June 1, 2018. The impact of adoption was primarily related to the estimated adjustment for students who withdraw from classes for terms that were not complete at May 31, 2018. Prior to the adoption of ASC Topic 606, these revenue adjustments were recognized when the student actually withdrew from classes. Compared to the amounts under ASC Topic 605, for the nine months ended February 28, 2019, the net impact to revenues under ASC Topic 606 was a reduction of revenues of $0.2 million, with a corresponding increase to deferred income.
 
The Company does not have any unsatisfied performance obligations for contracts with customers that have an expected duration of more than one year.
 
Revenue Recognition
 
The following table presents the Company’s revenues from contracts with customers disaggregated by material revenue category:
 
 
 
Nine months ended
February 28,
 
 
Three months ended
February 28,
 
 
 
2019
 
 
2019
 
Academic revenue
 $39,060 
 $10,501 
Auxilary revenue
  1,926 
  521 
Real estate revenue
  1,840 
  601 
 
    
    
Consolidated revenue
 $42,826 
 $11,623 
 
Revenues are recognized when control of the promised goods or services are transferred to customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods and services. The Company applies the five-step revenue model under ASC Topic 606 to determine when revenue is earned and recognized. The Company had no capitalizable costs associated with obtaining and fulfilling a revenue contract.
 
Academic Revenue: Academic revenue consists of tuition revenue, other fee revenue and the revenue generated through NAU’s teaching relationships with other non-related party institutions. The Company’s academic programs are typically offered on a three-month term basis that, starting in November 2017, commence on a monthly basis. As a result, each of the Company’s financial reporting quarters include the revenue of three months of the first term, two months of the second term, and one month of the third term.
 
 
10
 
 
Tuition revenue represents amounts charged for course instruction. For tuition revenue, the Company performs an assessment at the beginning of each student contract and, subsequently thereafter, if new information indicates there has been a significant change in facts and circumstances. Each student contract contains a single performance obligation that is the Company’s promise to the student to provide knowledge and skills through course instruction, which may include any combination of classroom instruction, on-demand tutoring or on-line instruction.
 
Tuition revenue is reported net of adjustments for discounts, refunds and scholarships. Tuition rates per student vary by educational site, the number of credit hours the student is enrolled in for the term, the program, and the degree level of the program. The portion of tuition and registration fees received but not earned, less estimated student withdrawals, is recorded as deferred income and reflected as a current liability in the Company’s consolidated balance sheets, as such amount represents revenue the Company expects to earn from terms that are not complete as of the date of the financial statements.
 
Tuition revenue is deferred and recognized as revenue ratably over the term of instruction (typically three months). Tuition revenue is recognized over time as the students obtain control of the educational services provided by the Company subsequent to enrollment and on a ratable basis over the term of the course beginning on the course start date through the last day of classes.
 
If a student withdraws prior to the completion of the academic term, the respective portion of tuition and registration fees the Company already received and is not entitled to retain are refunded back to the students and the Department of Education. Students are no longer entitled to a refund once 60% of the term has been completed. For students that have withdrawn from all classes during an academic term, the Company estimates the expected receivable balance due from such students and records a provision to reduce academic revenue for that amount, less estimated collections calculated based on historical collection trends and adjusted for known current factors.
 
Auxiliary Revenue: Auxiliary revenue primarily consists of revenues from the Company’s bookstore operations for the sale of books and other class materials. Revenue is recognized when control of the books or class materials are transferred to the student. Auxiliary revenue is recorded net of any applicable sales tax. There are no identified changes to revenue recognition from ASC Topic 605 to ASC Topic 606.
 
Real Estate Revenue: Real estate revenue includes monthly rental income, fees paid by members of owners’ associations managed by the Company and condominium sales. Rental income and owners’ association fees are received from tenants or members. Significant amounts paid in advance are included in deferred income on the Company’s consolidated balance sheets. Revenue related to the sales of the condominiums is recognized at the closing of the transaction at the negotiated contract price. There are no identified changes to revenue recognition from ASC Topic 605 to ASC Topic 606.
 
 
11
 
 
The following presents the Company’s net revenue disaggregated based on the timing of revenue recognition:
 
 
 
Nine months ended
February 28,
2019
 
 
Three months ended
February 28,
2019
 
Services transferred over time:
 
 
 
 
 
 
Tuition revenue, net of adjustments
 $39,060 
 $10,501 
 
 (transferred over the term of instruction)
 
    
Rental income (transferred over the rental period)
  1,042 
  345 
Total
  40,102 
  10,846 
 
    
    
 
Goods or services transferred at a point in time:
 
    
Auxiliary revenue
  1,926 
  521 
Other real estate income
  152 
  49 
Condominium sales
  646 
  207 
Total
  2,724 
  777 
 
    
    
Total revenue
 $42,826 
 $11,623 
 
5. STUDENT RECEIVABLES, NET
 
Student accounts receivable is composed primarily of amounts due related to tuition and educational services. Student receivables, net consist of the following as of the respective period ends.
 
 
 
February 28,
2019
 
 
May 31,
2018
 
Student accounts receivable
 $1,861 
 $3,480 
Less allowance for doubtful accounts
  (384)
  (587)
Student receivables, net
 $1,477 
 $2,893 
 
The following summarizes the activity in the allowance for doubtful accounts for the respective periods:
 
 
 
Nine months ended
February 28,
 
 
Nine months ended
February 28,
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
Beginning allowance for doubtful accounts
 $587 
 $1,195 
Provision for uncollectible accounts receivable
  1,441 
  1,775 
Write offs, net of Recoveries
  (1,644)
  (2,284)
Ending allowance for doubtful accounts
 $384 
 $686 
 
 
12
 
 
6. IMPAIRMENT OF LONG-LIVED ASSETS
 
Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are held and used, impairment exists when the estimated undiscounted cash flows associated with the asset or group of assets is less than carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying and fair value. Fair values are determined based on quoted market values, discounted cash flows, or internal and external appraisals, as applicable. Assets to be held for sale are carried at the lower of carrying value or fair value, less cost to sell. All impairment charges are included in loss on impairment and disposition of property and equipment, within the NAU segment, in the consolidated financial statements.
 
During the quarter ended November 30, 2017, upon our review of our assets for impairment, we determined the estimated future undiscounted cash flows associated with the assets of the Houston, Minnetonka, Bloomington, Brooklyn Center and Burnsville campuses were not sufficient to recover their carrying value. Accordingly, the carrying values of the assets, primarily leasehold improvements, were reduced to their fair value, which the Company believes to be minimal. An impairment charge of $1,009 related to these five locations was recorded. The impairment charge is included in loss on impairment and disposition of property, within the NAU segment, in the condensed consolidated financial statements.
 
During the quarter ended August 31, 2018, the Company signed an early lease termination agreement without penalty for the Albuquerque East and Colorado Springs North locations. The Company consolidated the students from these two locations to other local campuses during the second quarter. The leases at the closed locations were terminated prior to the end of their terms. As a result of the early termination of the leases at these two locations, the carrying values of their assets, primarily classroom and office equipment and leasehold improvements, were reduced to their fair value, which the Company estimates to be minimal. An impairment charge of $555 related to the assets at these locations was recorded during the three months ended August 31, 2018.
 
During the quarter ended November 30, 2018, the Company incurred additional asset impairment as the result of the Board-Approved Operational Change to Online Operations. See Note 7 below.
 
There were no asset impairment charges recorded for the three months ended February 28, 2019.
 
7. BOARD-APPROVED OPERATIONAL CHANGE TO ONLINE OPERATIONS
 
On October 29, 2018, the Company’s Board of Directors approved a strategic plan that focuses NAU’s growth strategies on online academic programs and expanding its programming and services related to strategic security, counter-terrorism, and intelligence for the public and private sectors. The Company remains committed to offering many of its current programs and maintaining its longstanding mission to assist students in achieving their educational goals and preparing them for employment in a rapidly evolving and increasingly competitive employment market.
 
In alignment with its new strategic plan, NAU suspended new student enrollment in 34 of its 128 programs effective November 1, 2018. NAU continues to serve active students currently enrolled in these programs. To accelerate its operational change to online academic programs and to gain greater efficiencies through the centralization of its student-facing services, the Company is implementing appropriate staff reductions and other personnel actions. In addition, on March 22, 2019, the Company entered into both a Teach-Out and Transfer Agreement and an Asset Transfer Agreement with Brookline College with respect to the students, programs and certain assets of the Albuquerque West campus. The Company will continue to work with students to provide for completion of their programs with NAU or another institution.
 
As a result, the Company determined that the carrying value of all assets for the ground locations that were not previously impaired, should be impaired as of November 1, 2018. The Company incurred a charge of $5.9 million to account for these fixed asset impairments. In addition, future lease obligations at the ground locations that were closed as of November 30, 2018, were accelerated, and a non-cash charge of $3.1 million was incurred to recognize the acceleration of these lease obligations. This non-cash lease acceleration was calculated using the present value of future payments and offset with estimated sublease income.
 
During the three months ended February 28, 2019, the Company recorded an additional $1.1 million of accelerated lease acceleration related to the ground locations that were closed during quarter. This non-cash lease acceleration was calculated using the present value of future payments and offset with estimated sublease income.
 
8. STOCKHOLDERS’ EQUITY
 
The authorized capital stock for the Company is 51,100,000 shares, consisting of (i) 50,000,000 shares of common stock, par value $0.0001 and (ii) 1,000,000 shares of preferred stock, par value $0.0001, and (iii) 100,000 shares of class A common stock, par value $0.0001. Of the authorized shares, 24,650,083 and 24,344,122 shares of common stock were outstanding as of February 28, 2019 and May 31, 2018, respectively. No shares of preferred stock or Class A common stock were outstanding at February 28, 2019 and May 31, 2018.
 
Stock-Based Compensation
Under the 2009 Stock Option and Compensation Plan (the “2009 Plan”) and the 2018 Stock Option and Compensation Plan (the “2018 Plan”), the Company may grant restricted stock awards, restricted stock units and stock options to aid in recruiting and retaining employees, officers, directors and other consultants. The Company has settled an advisor services contract and management compensation in stock that totaled 176,455 shares valued at $19 for the quarter ended February 28, 2019 and 255,064 shares valued at $63 for the year to date period ended February 28, 2019. These issuances of stock reduce the shares available for future grants. At February 28, 2019 the Company had 11,050 shares and 1,623,545 available for future grants under its 2009 Plan and 2018 Plan, respectively.
 
 
13
 
 
In 2013, the Company adopted the 2013 Restricted Stock Unit Plan (the “2013 Plan”) authorizing the issuance of up to 750,000 shares of the Company’s stock to participants in the 2013 Plan. Termination of the 2013 Plan was approved by the stockholders of National American University Holdings, Inc. at the 2018 Annual Meeting of Stockholders held October 9, 2018.
 
At the 2018 Annual Meeting of National American University Holdings, Inc., the stockholders also approved the 2018 Stock Option and Compensation Plan (the “2018 Plan”). The Plan authorizes 1,800,000 shares to aid the Company in recruiting and retaining employees and to align the interests of employees, officers and directors with those of the Company’s stockholders. The Company may grant restricted stock awards, restricted stock units, stock options, stock appreciation rights, stock awards and other stock-based awards. The Plan expires ten years from its inception date.
 
Restricted stock
During the quarter ended November 30, 2018, 47,615 restricted stock shares with a weighted average grant date fair value of $2.10 per share vested. The Company has 113,635 non-vested restricted stock shares with a weighted average grant date fair value of $0.88 per share that were granted during the quarter ended November 30, 2018 and remain outstanding at February 28, 2019. These shares vest one year from the issuance date. Unrecognized compensation expense associated with these shares total $61 with a remaining amortization period of 0.6 year. Stock compensation expense totaling $25 and $73, respectively, was recorded in the condensed consolidated statements of operations and comprehensive loss during the quarter and year to date periods ended February 28, 2019.
 
Stock options
 
The Company accounts for stock option-based compensation by estimating the fair value of options granted using a Black-Scholes option valuation model. The Company recognizes the expense for grants of stock options on a straight-line basis in the consolidated statements of operations and comprehensive income as operating expense based on their fair value over the requisite service period.
 
During the quarter ended November 30, 2018, the Company granted stock options to purchase 50,000 shares of stock at a weighted average exercise price of $0.44 per share. The granted stock options vest over a one to two-year period from the date issued. No stock options were issued during the quarters ended August 31, 2018 and February 28, 2019. The following assumptions were used to determine the fair value of the stock options awarded:
 
Assumptions used:
 
For the three
months ended
February 28,
2019
Expected term (in years)
 
5.75
Weighted average expected volatility
 
66.6%
Range of expected volatility
 
57.1% to 69.0%
Weighted average risk-free interest rate
 
3.11%
Range of risk-free interest rates
 
2.93% to 3.84%
Weighted average expected dividend
 
0.00%
Weighted average fair value per share
 
$0.27
 
Stock options for 35,959 shares of common stock with a weighted average exercise price of $3.56 were forfeited during the year to date period ended February 28, 2019. At February 28, 2019, stock options for 207,391 shares are outstanding with a weighted exercise price of $2.79 and a weighted average remaining useful life of 5.9 years. Of the outstanding shares, 163,327 are exercisable with a weighted average exercise price of $3.43 and a weighted average remaining useful life of 4.8 years. No intrinsic value was associated with the stock options at February 28, 2019. The Company recorded compensation expense for stock options of $1 and $4, respectively, for the three and nine months ended February 28, 2019 in the consolidated statements of operations and comprehensive loss. Unamortized compensation associated with stock options at February 28, 2019 is $11 with a remaining amortization term of 1.4 years.
 
 
14
 
 
Dividends
To reduce cash requirements, no dividends have been declared or paid since October 6, 2017. The following table summarizes the Company’s fiscal 2018 dividend payments:
 
Date declared
 
Record date
 
Payment date
 
Per share
April 13, 2017
 
June 30, 2017
 
July 7, 2017
 
 $0.0450
August 4, 2017
 
September 30, 2017
 
October 6, 2017
 
 $0.0450
 
9. INCOME TAXES
 
As of February 28, 2019, the Company had net operating loss (“NOL”) carryforwards of approximately $29,000, adjusted for certain other non-deductible items available to reduce future taxable income, if any. The NOL carryforward has no expiration. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Because management is unable to determine that it is more likely than not that the Company will realize the tax benefit related to the NOL carryforward, by having taxable income, a full valuation allowance has been established to reduce the net tax benefit asset value to zero.
 
The loss before income taxes for the nine months ended February 28, 2019, created a net tax benefit of approximately $4,609. As realization of this net tax benefit is not assured, a full valuation allowance was recorded for this amount. As such, a full valuation allowance totaling $8,511 is recorded at February 28, 2019, and is included in net deferred income taxes liability in the accompanying condensed consolidated balance sheet.
 
The Company’s effective tax rate was expense of 0.05% for the nine months ended February 28, 2019, as compared to expense of 2.3% for the corresponding period in 2018. The effective tax rate varies from the statutory rate of 21% primarily due to the deferred tax asset valuation allowance, fluctuations in state income taxes as a result of the Company’s net loss position, and nondeductible meals expense.
 
The Tax Cuts and Jobs Act of 2017 was signed into law on December 22, 2017. The law includes significant changes to the U.S. corporate income tax system, including a Federal corporate rate reduction from 35% to 21%. The accounting for these changes was completed as of May 31, 2018.
 
10. LOSS PER SHARE
 
Basic earnings per share (“EPS”) is computed by dividing net income attributable to the Company by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per share reflect the potential dilution that could occur assuming vesting, conversion or exercise of all dilutive unexercised options and restricted stock.
 
 
15
 
 
The following is a reconciliation of the numerator and denominator for the basic and diluted EPS computations:
 
 
 
Nine months ended February 28,
 
 
Three months ended February 28,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
Net loss attributable to National American University Holdings, Inc.
 $(20,826)
 $(11,312)
 $(4,565)
 $(3,707)
Denominator:
    
    
    
    
Weighted average shares outstanding used to compute basic
    
    
    
    
  net income per common share
  24,369,869
  24,222,864 
  24,465,124
  24,269,158 
Incremental shares issuable upon the assumed exercise of stock options
  - 
  - 
  - 
  - 
Incremental shares issuable upon the assumed vesting of restricted shares
  - 
  - 
  - 
  - 
Common shares used to compute diluted net income per share
 24,369,869
 24,222,864 
 24,465,124
 24,269,158 
Basic net loss per common share
 $(0.85)
 $(0.47)
 $(0.19)
 $(0.15)
 
    
    
    
    
Diluted net loss per common share
 $(0.85)
 $(0.47)
 $(0.19)
 $(0.15)
 
 A total of 207,391 and 200,600 shares of common stock subject to issuance upon exercise of stock options for the nine and three months ended February 28, 2019 and 2018, respectively, have been excluded from the calculation of diluted EPS as the effect would have been anti-dilutive.
 
 A total of 113,635 and 47,615 shares of common stock subject to issuance upon vesting of restricted shares for the nine and three months ended February 28, 2019 and 2018, respectively, have been excluded from the calculation of diluted EPS as the effect would have been anti-dilutive.
 
11. COMMITMENTS AND CONTINGENCIES
 
From time to time, the Company is a party to various claims, lawsuits or other proceedings relating to the conduct of its business. Although the outcome of litigation cannot be predicted with certainty and some claims, lawsuits or other proceedings may be disposed of unfavorably, management believes, based on facts presently known, that the outcome of such legal proceedings and claims, lawsuits or other proceedings will not have a material effect on the Company’s consolidated financial position, cash flows or future results of operations.
 
In April 2017, a former NAU employee filed a qui tam suit against NAU, NAUH, and Dlorah, Inc., alleging certain violations of the Higher Education Act and Title IV program requirements, including (1) alleged misrepresentations to a programmatic accrediting agency, (2) alleged miscalculation of percentage of revenues derived from Title IV program funds under the 90/10 Rule, and (3) alleged noncompliance with the incentive compensation prohibition. The U.S. government decided to not intervene in the lawsuit at that time, and the complaint was then unsealed by the court in January 2018, with an amended complaint being filed on April 24, 2018. The U.S. government reserved the right to intervene at a later time. The case is styled U.S. ex rel. Brian Gravely v. National American University, et al., Case No. 5:17-cv-05032-JLV, and remains pending in the U.S. District Court for the District of South Dakota. NAU, NAUH, and Dlorah, Inc., have filed an answer to the amended complaint, denying any legal wrongdoing or liability. We cannot predict the outcome of this litigation, nor its ability to harm our reputation, impose litigation costs, or materially adversely affect our business, financial condition, and results of operations. The amount or range of reasonably possible losses cannot be determined and, accordingly, no liability has been accrued for this matter.
 
In December 2018, NAU was served with a lawsuit (Summons and Petition) commenced by two former students of NAU, Shayanne Bowman and Jackquelynn Mortenson (Plaintiffs), in Missouri state court, alleging claims of fraud and misrepresentations as to the quality and value of the educational degrees that were being pursued by the two Plaintiffs, and also a claim under the Missouri Merchandising Practices Act. The Petition (Complaint) does not specify the damages being sought by Plaintiffs in the lawsuit. The case is styled Shayanne Bowman and Jackquelynn Mortenson v. Dlorah, Inc., d/b/a National American University, et al., Case No. 1816-cv30104, and is pending in Jackson County Circuit Court (MO). Three individual defendants, also included in the lawsuit, were all former employees of NAU. The Company served and filed, on January 2, 2019, a formal response to the Petition in the form of a motion to dismiss the Petition. The Company simultaneously filed papers seeking to remove the lawsuit to federal court. The Company’s response to the lawsuit denied any legal wrongdoing or liability. The Company intends to vigorously defend the lawsuit. We cannot predict the outcome of this litigation, nor its ability to harm our reputation, impose litigation costs, or materially adversely affect our business, financial condition, and results of operations. The amount or range of reasonably possible losses cannot be determined at this time and, accordingly, no liability has been accrued for this matter.
 
On December 1, 2016, KLE Construction, LLC (“KLE”) filed a mechanic's lien against Dlorah, Inc., in connection with the construction of a retaining wall and associated work at the Arrowhead View Addition project of Fairway Hills in Rapid City, SD, in the amount of $9 million. KLE subsequently commenced an action to foreclose the mechanic's lien. In a separate proceeding involving this dispute, on July 17, 2017, the District Court for South Dakota, Western Division, issued an Order staying Dlorah, lnc.'s action against KLE and referring the matter to arbitration. On March 12, 2019, the arbitratorissued a Final Award in favor of KLE and against Dlorah, Inc., in the amount of $.8 million, which includes principal, prejudgment interest, attorneys' fees, and costs through March 1, 2019. The parties subsequently entered into a Post-Arbitration Agreement, in which they agreed, among other things, that KLE would take no collection efforts before June 1, 2019. If payment is not made by that date, then KLE may file a Confession of Judgment signed by Dlorah, Inc. and a Judgment of Foreclosure would be entered against the real estate subject to KLE's mechanic's lien.
 
 
16
 
  
12. FAIR VALUE MEASUREMENTS
 
The following table summarizes certain information for assets and liabilities measured at fair value on a recurring basis:
 
 
 
 Quoted prices in active markets
 
 
 Other observable inputs
 
 
 Unobservable inputs
 
 
 Fair
 
 
 
 (Level 1)
 
 
 (Level 2)
 
 
 (Level 3)
 
 
value
 
February 28, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 Restricted certificates of deposit
 $- 
 $8,150 
 $- 
 $8,150 
 
    
    
    
    
 Total assets at fair value
 $- 
 $8,150 
 $- 
 $8,150 
 
    
    
    
    
May 31, 2018
    
    
    
    
 Investments:
    
    
    
    
 Restricted certificates of deposit
 $- 
 $9,250 
 $- 
 $9,250 
 
    
    
    
    
 Total assets at fair value
 $- 
 $9,250 
 $- 
 $9,250 
 
Following is a summary of the valuation techniques for assets and liabilities recorded in the consolidated balance sheets at fair value on a recurring basis:
 
Certificates of deposit (“CD’s”): Market prices for certain CD’s are obtained from quoted prices for similar assets. The Company classifies these investments as level 2. The certificates at February 28, 2019 and May 31, 2018 are restricted by an $8,000 promissory note with Black Hills Community Bank, N.A. and the balance represents a $150 restricted certificate of deposit held as collateral for the Great Western Bank purchasing card. See Note 14 to these Notes to Consolidated Financial Statements for additional information regarding these certificates of deposit.
 
Fair value of financial instruments: The Company’s financial instruments include cash and cash equivalents, CD’s, receivables and payables. The carrying values approximated fair values for cash and cash equivalents, receivables, and payables because of the short term nature of these instruments. CD’s are recorded at fair values as indicated in the preceding disclosures.
 
13. SEGMENT REPORTING
 
Operating segments are defined as business areas or lines of an enterprise about which financial information is available and evaluated on a regular basis by the chief operating decision maker, or decision-making groups, in deciding how to allocate capital and other resources to such lines of business.
 
The Company has two reportable segments: NAU and Other. The NAU segment contains the revenues and expenses associated with the University operations. The Company considers each location to be an operating segment, and they are aggregated into the NAU segment for financial reporting purposes, as the locations have similar economic and other conditions. The Other segment contains primarily real estate. General administrative costs of the Company are allocated to specific divisions of the Company. The following table presents the reportable segment financial information, in thousands:
 
 
17
 
 
 
 
 Nine months ended February 28,
 
 
 Nine months ended February 28,
 
 
 
2019
 
 
2018
 
 
 
 NAU
 
 
 Other
 
 
 Consolidated
 
 
 NAU
 
 
 Other
 
 
 Consolidated
 
 Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Academic
 $39,060 
 $- 
 $39,060 
 $53,607 
 $- 
 $53,607 
   Auxiliary
  1,926 
  - 
  1,926 
  2,930 
  - 
  2,930 
   Rental income apartments
  - 
  1,042 
  1,042 
  - 
  1,049 
  1,049 
   Condominium sales
  - 
  646 
  646 
  - 
  455 
  455 
   Other real estate income
  - 
  152 
  152 
  - 
  - 
  - 
 
    
    
    
    
    
    
 Total revenue
  40,986 
  1,840 
  42,826 
  56,537 
  1,504 
  58,041 
 
    
    
    
    
    
    
 Operating expenses:
    
    
    
    
    
    
   Cost of educational services
  16,754 
  - 
  16,754 
  19,545 
  - 
  19,545 
   Selling, general & administrative
  31,668
  1,589 
  33,257
  43,166 
  1,467 
  44,633 
   Auxiliary
  1,324 
  - 
  1,324 
  2,079 
  - 
  2,079 
   Cost of condominium sales
  - 
  507 
  507 
  - 
  427 
  427 
   Loss on lease termination
 4,215
  - 
 4,215
  2,112 
  - 
  2,112 
   Loss (gain) on disp/impairment of property
  6,406 
  286 
  6,692 
  362 
  (41)
  321 
 Total operating expenses
 60,367
  2,382 
  62,749
  67,264 
  1,853 
  69,117 
 Loss from operations
  (19,381)
  (542)
  (19,923)
  (10,727)
  (349)
  (11,076)
 Other income (expense):
    
    
    
    
    
    
   Interest income
  25 
  75 
  100 
  58 
  5 
  63 
   Interest expense
  (604)
  (394)
  (998)
  (628)
  - 
  (628)
   Other income (loss) - net
  48 
  - 
  48 
  (49)
  144 
  95 
 Total other (expense)income
  (531)
  (319)
  (850)
  (619)
  149 
  (470)
 Loss before taxes
 $(19,912)
 $(861)
 $(20,773)
 $(11,346)
 $(200)
 $(11,546)
 
    
    
    
    
    
    
 
 
 
 As of February 28, 2019
 
 
 As of February 28, 2018
 
 
 
 NAU
 
 
 Other
 
 
 Consolidated
 
 
 NAU
 
 
 Other
 
 
 Consolidated
 
 Total assets
 $20,058 
 $12,131 
 $32,189 
 $31,851 
 $11,404 
 $43,255 
 
 
18
 
 
 
 
 Three months ended February 28,
 
 
 Three months ended February 28,
 
 
 
    2019    
 
 
    2018    
 
 
 
 NAU
 
 
 Other
 
 
 Consolidated
 
 
 NAU
 
 
 Other
 
 
 Consolidated
 
 Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Academic
 $10,501 
 $- 
 $10,501 
 $16,923 
 $- 
 $16,923 
   Auxiliary
  521 
  - 
  521 
  955 
  - 
  955 
   Rental income apartments
  - 
  345 
  345 
  - 
  349 
  349 
   Condominium sales
  - 
  207 
  207 
  - 
  - 
  - 
   Other real estate income
  - 
  49 
  49 
  - 
  - 
  - 
 
    
    
    
    
    
    
 Total revenue
  11,022 
  601 
  11,623 
  17,878 
  349 
  18,227 
 
    
    
    
    
    
    
 Operating expenses:
    
    
    
    
    
    
   Cost of educational services
  4,987 
  - 
  4,987 
  6,234 
  - 
  6,234 
   Selling, general & administrative
  8,510
  542 
  9,052
  13,386 
  431 
  13,817 
   Auxiliary
  352 
  - 
  352 
  686 
  - 
  686 
   Cost of condominium sales
  - 
  153 
  153 
  - 
  - 
  - 
   Loss on lease termination
 1,116
  - 
 1,116
  - 
  - 
  - 
   Loss (gain) on disp/impairment of property
  (32)
  286 
  254 
  1,076 
  - 
  1,076 
 Total operating expenses
  14,933
  981 
  15,914
  21,382 
  431 
  21,813 
 Loss from operations
  (3,911)
  (380)
  (4,291)
  (3,504)
  (82)
  (3,586)
 Other income (expense):
    
    
    
    
    
    
   Interest income
  13 
  24 
  37 
  14 
  - 
  14 
   Interest expense
  (200)
  (233)
  (433)
  (211)
  - 
  (211)
   Other income (loss) - net
  130 
  - 
  130 
  (40)
  48 
  8 
 Total other (expense)income
  (57)
  (209)
  (266)
  (237)
  48 
  (189)
 Loss before taxes
 $(3,968)
 $(589)
 $(4,557)
 $(3,741)
 $(34)
 $(3,775)
 
14. LETTER OF CREDIT AND LONG-TERM DEBT
 
During the year ended May 31, 2018, the Company entered into an irrevocable letter of credit with Great Western Bank for $1,000. The letter of credit was required by the state of New Mexico in an amount set by the New Mexico Department of Higher Education. The agreement expired December 19, 2018. This $1,000 letter of credit and the Company’s purchasing card account were secured by a restricted certificate of deposit totaling $1,250. The certificate of deposit matured on December 19, 2018. Great Western Bank had restricted the $1,250 certificate of deposit as collateral for the $1,000 letter of credit and the Company’s purchasing card account that carried a credit limit of $250.
 
The Company replaced the $1,000 letter of credit required by the State of New Mexico by submitting an acceptable bond in place of the letter of credit. The bond has no collateral requirements and, as a result, the restriction was released by the bank and the Company restored $1,100 of this restricted cash to unrestricted operating cash effective December 19, 2018. A $150 newly-created restricted certificate of deposit secures the Company’s purchasing card account that currently carries a reduced credit limit of $150.
 
On May 17, 2018, Dlorah and the Company jointly and severally issued to Black Hills Community Bank, N.A. (“Bank”) a promissory note in the principal amount of $8,000 (the “Note”), which is secured by a mortgage granted by Dlorah to the Bank on certain real property located in Pennington County, South Dakota, pursuant to a collateral real estate mortgage (the “Mortgage,” and together with the Note, the “Loan Agreements”) entered into between Dlorah and the Bank on the same date as the Note, and certain related rents, as well as a security interest in certain deposit accounts, to include restricted certificates of deposit totaling $8,000. These certificates of deposit are also restricted by the Bank and are not available for spending.
 
 
19
 
 
The Loan Agreements provide for an $8,000 five-year term loan (the “Loan”). The Loan carries a fixed interest rate of 4% (the “Interest Rate”) and is payable as follows: beginning June 17, 2018, 59 consecutive monthly interest-only payments based on the unpaid principal balance of the Loan at the Interest Rate; beginning May 17, 2019, four consecutive annual principal payments of $800 each, during which interest will continue to accrue on the unpaid principal balance of the Loan at the Interest Rate; and on May 17, 2023, one payment of the remaining principal balance and one month of accrued interest of the Loan in the amount of $4,816. The Company and Dlorah may prepay the Loan at any time without penalty unless the Note is refinanced with proceeds derived from another lender, in which case the Bank will be entitled to a prepayment penalty of 1%. The Loan Agreements also contain various affirmative and negative covenants, including financial covenants and events of default. As of February 28, 2019, the Company is in compliance with the covenants included in the Loan Agreements.
 
The restricted cash balance on the balance sheet includes the $8,000 cash held as restricted certificates of deposit for the promissory note, and $150 held as a certificate of deposit by Great Western Bank to collateralize the company’s purchasing card.
 
15. REGULATORY MATTERS
 
Financial Responsibility Composite Score
 
To participate in Title IV programs, the U.S. Department of Education (the “Department”) regulations specify that an eligible institution of higher education must satisfy specific measures of financial responsibility prescribed by the Department, or post a letter of credit in favor of the Department and accept other conditions on its participation in Title IV programs. Pursuant to the Title IV program regulations, each eligible institution must satisfy a measure of financial responsibility that is based on a weighted average of the following three annual ratios which assess the financial condition of the institution:
 
Primary Reserve Ratio – measure of an institution’s financial viability and liquidity;
 
Equity Ratio – measure of an institution’s capital resources and its ability to borrow; and
 
Net Income Ratio – measure of an institution’s profitability.
 
These ratios provide three individual scores which are converted into a single composite score. The maximum composite score is 3.0. If an institution’s composite score is at least 1.5, it is considered financially responsible. If an institution’s composite score is less than 1.5 but is 1.0 or higher, it is still considered financially responsible, and the institution may continue to participate as a financially responsible institution for up to three years under the Department’s “zone” alternative. Under the zone alternative, the Department may subject the institution to various operating or other requirements. These requirements may include (1) being transferred from the “advance” method of payment of Title IV program funds to the heightened cash monitoring payment method under which the institution is required to make Title IV disbursements to eligible students and parents before it requests or receives funds from the Department for the amount of those disbursements, or (2) being transferred to the more onerous reimbursement payment method under which an institution must submit to the Department documentation demonstrating the eligibility for each Title IV disbursement and wait for the Department’s approval before drawing down Title IV funds.
 
If an institution does not achieve a composite score of at least 1.0, it is subject to additional requirements in order to continue its participation in the Title IV programs. This includes (1) submitting to the Department a letter of credit in an amount equal to at least ten percent, and at the Department’s discretion up to 50%, of the Title IV funds received by the institution during its most recently completed fiscal year, and (2) being placed on provisional certification status, under which the institution must receive Department approval before implementing new locations or educational programs and comply with other restrictions, including reduced due process rights in subsequent proceedings before the Department.
 
 
20
 
 
In addition, under regulations that took effect on July 1, 2016, institutions placed on either the heightened cash monitoring payment method or the reimbursement payment method must pay Title IV credit balances to students or parents before requesting Title IV funds from the Department and may not hold Title IV credit balances on behalf of students or parents, even if such balances are expected to be applied to future tuition payments.
 
Our audited financial statements for the fiscal years ended May 31, 2017 and 2016 indicated our composite scores for such fiscal years were 1.8 and 1.8, respectively, which are sufficient to be deemed financially responsible under the Department of Education’s requirements. Our audited financial statements for the fiscal year ended May 31, 2018 indicate our composite score is 1.3; however, on March 8, 2019, NAU received a letter from the Department of Education indicating that it determined our composite score for the fiscal year ended May 31, 2018 to be 1.1. The Department of Education letter of March 8, 2019 also noted several financial matters described in the footnotes to the Company’s audited financial statements for the fiscal year ended May 31, 2018 and the Company’s Form 10-Q filed with the SEC on January 22, 2019, and the Company’s delisting from the Nasdaq and relisting on the OTCQB, and determined that NAU did not meet its financial responsibility standards for institutions that participate in Title IV programs. As a result, the Department of Education’s letter of March 8, 2019 imposed additional reporting requirements on NAU with respect to its financial condition including bi-weekly cash balance submissions and monthly submissions of actual and projected cash flow statements, and notification requirements regarding certain enumerated events should they occur in the future; required NAU to process Title IV program funds under the heightened cash monitoring method of payment;and informed NAU that it could continue to participate in Title IV programs by either (1) posting 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) posting 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, accompanied by the provisional form of certification to participate in Title IV programs. On March 22, 2019, the Company submitted a request to the Department of Education for reconsideration of its imposition of the letter of credit, as well as the amount and timing for any required letter of credit.
 
 
 
21
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Certain of the statements included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as elsewhere in this quarterly report on Form 10-Q are forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995 (“Reform Act”). These statements are based on the Company’s current expectations and are subject to a number of assumptions, risks and uncertainties. In accordance with the Safe Harbor provisions of the Reform Act, the Company has identified important factors that could cause its actual results to differ materially from those expressed in or implied by such statements. The assumptions, uncertainties and risks include the pace of growth of student enrollment, our continued compliance with Title IV of the Higher Education Act, and the regulations thereunder, as well as regional accreditation standards and state regulatory requirements, competitive factors, risks associated with the offering of new educational programs and adapting to other changes, risks associated with accepting students from closed educational institutions, risks relating to the timing of regulatory approvals, our ability to continue to implement our growth strategy, risks associated with the ability of our students to finance their education in a timely manner, and general economic and market conditions. Further information about these and other relevant risks and uncertainties may be found in the Company’s Annual Report on Form 10-K filed on September 14, 2018 and its other filings with the SEC. The Company undertakes no obligation to update or revise any forward looking statement, except as may be required by law.
 
Background
 
The Company owns and operates National American University. NAU is a regionally accredited, proprietary, multi-location institution of higher learning, offering associate, baccalaureate, master’s and doctoral degree programs in business-related disciplines, such as accounting, management, business administration, and information technology; in healthcare-related disciplines, such as occupational therapy, medical assisting, nursing, surgical technology, and healthcare information and management; in legal-related disciplines, such as paralegal, criminal justice, and professional legal studies; strategic security; and in higher education.
 
As of February 28, 2019, NAU had 258 students enrolled at its physical locations, 3,140 students for its online programs and 422 students that attended physical hybrid learning locations and also took classes online. NAU supports the instruction of approximately 2,750 additional students at affiliated institutions for which NAU provides online course hosting and technical assistance. NAU provides courseware development, technical support and online class hosting services to various colleges, technical schools and training institutions in the United States and Canada that do not have the capacity to develop and operate their own in-house online curriculum for their students. NAU does not share revenues with these institutions, but rather charges a fee for its services, enabling it to generate additional revenue by leveraging its current online program infrastructure.
 
The real estate operations, Fairway Hills, consist of apartment facilities and other real estate holdings in Rapid City, South Dakota. The real estate operations generated approximately 4% of our revenues for the quarter ended February 28, 2019. The final condominium that was held in inventory at the previous quarter close was sold during the third quarter of this fiscal year.
 
On October 29, 2018, the Company’s Board of Directors approved a strategic plan that focuses National American University’s growth strategies on online academic programs and expanding its programming and services related to strategic security, counter-terrorism, and intelligence for the public and private sectors. National American University remains committed to offering many of its current programs and maintaining its longstanding mission to assist students in achieving their educational goals and preparing them for employment in a rapidly evolving and increasingly competitive employment market.
 
In alignment with its new strategic plan, National American University suspended new student enrollment in 34 of its 128 programs effective November 1, 2018. National American University will continue to serve active students currently enrolled in these programs. To accelerate its strategic shift to online academic programs and to gain greater efficiencies through the centralization of its student-facing services, the Company is implementing appropriate staff reductions and other personnel actions.
 
 
22
 
  
The additional locations that are closed and are no longer servicing students include: Albuquerque East, NM; Austin, TX; Colorado Springs North, CO; Killeen TX; Lees Summit, MO; Lewisville, TX; Mesquite, TX; Minnetonka, MN; Rochester, MN; San Antonio, TX; Watertown, SD; Weldon Springs, MO; Wichita West KS; and Zona Rosa, MO.
 
The locations that will continue to serve students to teach out their program of study include: Albuquerque West, NM; Bellevue, NE; Centennial, CO; Colorado Springs South, CO; Georgetown, TX; Indianapolis, IN; Overland Park, KS; Rapid City, SD; Richardson, TX; Roseville, MN; Sioux Falls, SD; Tulsa, OK; and Wichita East, KS. In addition, on March 22, 2019, the Company entered into a Teach-Out and Transfer Agreement as well as an Asset Transfer Agreement with Brookline College with respect to the students, programs and certain assets of the Albuquerque West campus.
 
In alignment with the board-approved strategic plan, the following ground-based programs will no longer accept new students and will be taught out: Diploma in Medical Assisting, AAS in Invasive Cardiovascular Technology, Medical Assisting, Medical Laboratory Technician, Paralegal Studies, Occupational Therapy Assistant, and Surgical Technology; BS in Nursing and Paralegal Studies.
 
Online programs that will be suspended, taught out, or will serve students via other programs are: Diploma in Accounting and Bookkeeping, Computer Support Specialist, and Computer and Network Server Administrator; AAS in Computer Support Specialist, Construction Management, Electronic Health Record Support Specialist, Emergency Medical Services, Professional Legal Studies, and Retail Management; BS in Professional Legal Studies, Emergency Medical Services Management, Energy and Manufacturing Management, Energy Management, and Organizational Leadership; BS IT emphasis areas in Applications Development, Database Administration, Game Software Development, Internet Systems Development, Management Information Systems, Network Management, and Web Development; RN-BSN; Executive MBA; MS in Global Supply Chain Management, Human Resource Management, and Nursing; and the EdD in Community College Leadership.
 
Key Financial Results Metrics
 
Revenue. Revenue is derived mostly from NAU’s operations. For the three months ended February 28, 2019, approximately 90% of our revenue was generated from NAU’s academic revenue, which consists of tuition and fees assessed at the start of each term. The remainder of our revenue comes from NAU’s auxiliary revenue from sources such as NAU’s book sales and the real estate operations’ rental income. Tuition revenue is reported net of adjustments for refunds, scholarships and estimated dropped students and is recognized on a daily basis over the length of the term (typically three months). During the quarter ended November 30, 2017, we began allowing students to take classes on the 2nd or 3rd month within a term rather than waiting to enroll the following term. Upon withdrawal, students generally are refunded tuition based on the uncompleted portion of the term, unless they have already finished sixty percent or more of the term. Auxiliary revenue is recognized as items are sold and is recorded net of any applicable sales tax.
 
Factors affecting net revenue include:
 
the number of students who are enrolled and who remain enrolled in courses throughout the term;
 
the number of credit hours per student;
 
the student’s degree and program mix;
 
changes in tuition rates;
 
the affiliates with which NAU is working as well as the number of students at the affiliates; and
 
the amount of scholarships for which students qualify.
 
 
23
 
 
We record deferred income for prepaid academic services to be provided in future periods. Similarly, we record a tuition receivable for the portion of the tuition that has not been paid. Tuition receivable at the end of any calendar quarter largely represents student tuition due for the prior academic quarter. Based upon past experience and judgment, we establish an allowance for doubtful accounts to recognize those receivables we anticipate will not be paid.
 
We define enrollments for a particular reporting period as the number of students registered in a course on the last day of the reporting period. Enrollments are a function of the number of continuing students registered and the number of new enrollments registered during the specified period. Enrollment numbers are offset by inactive students, graduations and withdrawals occurring during the period. Inactive students for a particular period are students who are not registered in a class, and therefore, are not generating net revenue for that period.
 
We believe the principal factors affecting NAU’s enrollments and net revenue are the number and breadth of the programs being offered; the effectiveness of our marketing, recruiting and retention efforts; the quality of our academic programs and student services; the convenience and flexibility of our online delivery platform; the availability and amount of federal and other funding sources for student financial assistance; and general economic conditions.
 
The following chart is a summary of our student enrollment on February 28, 2019 and 2018, by degree type and by instructional delivery method.
 
 
 
 February 28, 2019 (Winter 2018 Term)
 
 
 February 28, 2018 (Winter 2017 Term)
 
 
 
 
 
 
 Number of Students
 
 
 % of Total
 
 
 Number of Students
 
 
 % of Total
 
 
 YOY Percent Change
 
Doctoral
  174 
  4.6%
  111 
  1.9%
  56.8%
Graduate
  376 
  9.8%
  393 
  6.6%
  -4.3%
Undergraduate & Diploma
  3,270 
  85.6%
  5,477 
  91.5%
  -40.3%
Total
  3,820 
  100.0%
  5,981 
  100.0%
  -36.1%
 
    
    
    
    
    
 
    
    
    
    
    
All Campus
  258 
  6.8%
  617 
  10.3%
  -58.2%
All Online
  3,140 
  82.2%
  4,617 
  77.2%
  -32.0%
Mixed
  422 
  11.0%
  747 
  12.5%
  -43.5%
Total
  3,820 
  100.0%
  5,981 
  100.0%
  -36.1%
 
The combined enrollment in the doctoral and graduate programs increased 9.1% in the winter term 2019 as compared to the winter term 2018. However, the continuing education programs for students who enroll in one-off courses were eliminated pursuant to our plans to phase out those programs. The undergraduate and diploma programs decreased 40.3% due to lower market demand among our targeted student demographic. The overall 36.1% decline in enrollment was across all course delivery methods. We believe our investment to expand academic programming and our growth strategies will be critical in growing all segments.
 
Expenses. Expenses consist of cost of educational services; selling, general and administrative; auxiliary expense; cost of condominium sales; loss on impairment and disposition of property and equipment; and loss on lease termination and acceleration. Cost of educational services contains expenditures attributable to the educational activity of NAU. This expense category includes salaries and benefits of faculty and academic administrators, costs of educational supplies, faculty reference and support material and related academic costs, and facility costs. Selling, general and administrative include the salaries of the student service positions, salaries and benefits of admissions staff, marketing expenditures, salaries of other support and leadership services (including finance, human resources, compliance and other corporate functions), legal expenses, as well as depreciation and amortization, bad debt expenses and other related costs associated with student support functions. Auxiliary expenses include primarily costs associated with book sales. Cost of condominium sales is the expense related to condominiums that are sold during the reporting period. The gain or loss on disposition of property and equipment represents the income received and the cost incurred in the disposal of assets that are no longer used by us. The loss on impairment represents the charges associated the determination that the carrying value of fixed assets at the ground locations should be removed from the balance sheet. The loss on lease termination and acceleration represents acceleration of future lease obligations at ground locations that have closed and present no future economic benefit.
 
 
24
 
 
Factors affecting comparability
 
Set forth below are selected factors we believe have had, or which we expect to have, a significant effect on the comparability of our recent or future results of operations:
 
Introduction of new programs and specializations. We plan to develop additional degree and diploma programs and specializations over the next several years. When introducing new programs and specializations, we invest in curriculum development, support infrastructure and marketing research. Revenues associated with these new programs are dependent upon enrollments, which are lower during the periods of introduction. During this period of introduction and development, the rate of growth in revenues and operating income has been, and may be, adversely affected, in part, due to these factors. Historically, as the new programs and specializations mature, increases in enrollment are realized, cost-effective delivery of instructional and support services are achieved, economies of scale are recognized and more efficient marketing and promotional processes are gained.
 
Seasonality. Our operations are generally subject to seasonal trends. While we enroll students throughout the year, summer and winter quarter new enrollments and revenue are generally lower than enrollments and revenue in other quarters due to the traditional custom of summer breaks and the holiday break in December and January. In addition, we generally experience an increase in enrollments in the fall of each year when most students seek to begin their post-secondary education.
 
Results of Operations — Nine Months Ended February 28, 2019 Compared to the Nine Months Ended February 28, 2018
 
National American University Holdings, Inc.
 
The following table sets forth the consolidated statements of operations data as a percentage of total revenue for each of the periods indicated:
 
 
 
Nine Months Ended
 
 
 
February 28,
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
TOTAL REVENUE
  100.0%
  100.0%
 
    
    
OPERATING EXPENSES:
    
    
Cost of educational services
  39.1%
  33.7%
Selling, general and administrative
 77.7%
  76.9%
Auxiliary expense
  3.1%
  3.6%
Cost of condominium sales
  1.2%
  0.7%
Loss on lease termination and acceleration
 9.8%
  0.6%