National American University Holdings, Inc. - Quarter Report: 2011 February (Form 10-Q)

10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2011


o		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		(I.R.S. Employer
of incorporation or organization)		Identification No.)

5301 S. Highway 16, Suite 200		57701
Rapid City, SD		(Zip Code)
(Address of principal executive offices)

(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 þ No o

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 o No o

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 o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of April 1, 2011, 26,438,040 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

ITEM 1. FINANCIAL STATEMENTS		3

Unaudited Condensed Consolidated Balance Sheet as of February 28, 2011 and Audited Condensed Consolidated Balance Sheet as of May 31, 2010

Unaudited Condensed Consolidated Statements of Operations for the nine months ended and three months ended February 28, 2011 and February 28, 2010

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended February 28, 2011 and February 28, 2010

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended February 28, 2011 and February 28, 2010

Notes to Unaudited Condensed Consolidated Financial Statements		9

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		21

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		39

ITEM 4. CONTROLS AND PROCEDURES		39

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS		39

ITEM 1A. RISK FACTORS		40

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		40

ITEM 3. DEFAULTS UPON SENIOR SECURITIES		41

ITEM 4. RESERVED		41

ITEM 5. OTHER INFORMATION		41

ITEM 6. EXHIBITS		41

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

-2-

PART I — FINANCIAL INFORMATION


Item 1.		Financial Statements.

NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC.
AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF
FEBRUARY 28, 2011 AND AUDITED CONDENSED CONSOLIDATED BALANCE
SHEET AS OF MAY 31, 2010
(In thousands except share and per share data)


	February 28,			May 31,
	2011			2010
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	30,640		$	8,695
Short term investments		11,095			11,109
Student receivables — net of allowance of $268 and $203 at February 28, 2011 and May 31, 2010, respectively		2,408			1,823
Other receivables		1,494			952
Bookstore inventory		1,032			920
Deferred income taxes		1,641			1,574
Prepaid and other current assets		1,090			1,759


Total current assets		49,400			26,832


Total Property and Equipment — Net		19,550			15,881


OTHER ASSETS:
Condominium inventory		2,852			3,046
Land held for future development		312			312
Course development — net of accumulated amortization of $1,350 and $1,149 at February 28, 2011 and May 31, 2010, respectively		899			768
Other		789			447


		4,852			4,573


TOTAL	$	73,802		$	47,286


LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	3,648		$	4,315
Dividends payable		828			11,116
Student accounts payable		650			322
Deferred income		470			305
Income tax payable		1,043			231
Accrued and other liabilities		5,345			6,109


Total current liabilities		11,984			22,398


DEFERRED INCOME TAXES		1,370			1,151


OTHER LONG-TERM LIABILITIES		3,778			2,380


COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
Common stock (50,000,000 authorized; 27,438,040 issued and 26,438,040 outstanding as of February 28, 2011; 21,819,653 issued and outstanding as of May 31, 2010)		3			2
Additional paid-in capital		56,337			19,165
Retained earnings		8,032			2,389
Treasury stock, at cost (1,000,000 shares at February 28, 2011)		(7,505	)		0
Accumulated other comprehensive income		67			96

Total National American University Holdings, Inc. stockholders’ equity		56,934			21,652
Non-controlling interest		(264	)		(295	)

Total equity		56,670			21,357


TOTAL	$	73,802		$	47,286

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
FOR THE NINE MONTHS AND THREE MONTHS ENDED FEBRUARY 28, 2011
AND FEBRUARY 28, 2010
(In thousands except share and per share data)


	Nine Months Ended						Three Months Ended
	February 28,						February 28,
	2011			2010			2011			2010

REVENUE:
Academic revenue	$	73,199		$	59,021		$	26,119		$	21,685
Auxiliary revenue		4,583			3,893			1,370			1,249
Rental income — apartments		739			703			244			220
Condominium sales		224			694			0			456


Total revenue		78,745			64,311			27,733			23,610


OPERATING EXPENSES:
Cost of educational services		16,391			15,180			5,609			5,428
Selling, general and administrative		47,062			33,819			15,272			12,623
Auxiliary expense		2,119			1,454			579			418
Cost of condominium sales		193			564			0			398
Loss on disposition of property		70			0			19			0


Total operating expenses		65,835			51,017			21,479			18,867


OPERATING INCOME		12,910			13,294			6,254			4,743


OTHER INCOME (EXPENSE):
Interest income		112			160			38			41
Interest expense		0			(440	)		0			(125	)
Other income — net		96			176			25			128


Total other income (expense)		208			(104	)		63			44


INCOME BEFORE INCOME TAXES		13,118			13,190			6,317			4,787

INCOME TAX EXPENSE		(5,134	)		(5,241	)		(2,438	)		(1,785	)


NET INCOME		7,984			7,949			3,879			3,002

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST		(31	)		(14	)		(12	)		(30	)


NET INCOME ATTRIBUTABLE TO NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES		7,953			7,935			3,867			2,972

OTHER COMPREHENSIVE INCOME —
Unrealized losses on investments		(29	)		(14	)		(28	)		(23	)


COMPREHENSIVE INCOME ATTRIBUTABLE TO NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC.	$	7,924		$	7,921		$	3,839		$	2,949

(continued)

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 OPERATIONS
FOR THE NINE MONTHS AND THREE MONTHS ENDED FEBRUARY 28, 2011 AND
FEBRUARY 28, 2010
(In thousands except share and per share data)


	Nine Months Ended				Three Months Ended
	February 28,				February 28,
	2011		2010		2011		2010

Basic EPS
Class A
Distributed earnings	$	—	$	34.61	$	—	$	17.30
Undistributed earnings	$	—	$	37.17	$	—	$	8.16

Total	$	—	$	71.78	$	—	$	25.46

Common
Distributed earnings	$	0.09	$	0.06	$	0.03	$	0.03
Undistributed earnings	$	0.21	$	0.24	$	0.12	$	0.05

Total	$	0.30	$	0.30	$	0.15	$	0.08

Diluted EPS
Class A
Distributed earnings	$	—	$	34.61	$	—	$	17.30
Undistributed earnings	$	—	$	36.19	$	—	$	7.66

Total	$	—	$	70.80	$	—	$	24.96

Common
Distributed earnings	$	0.09	$	0.06	$	0.03	$	0.03
Undistributed earnings	$	0.21	$	0.23	$	0.11	$	0.05

Total	$	0.30	$	0.29	$	0.14	$	0.08

Weighted Average Shares outstanding
Basic EPS
Class A		—		100,000		—		100,000
Common		26,202,893		1,801,551		26,122,047		5,018,605

Diluted EPS
Class A		—		100,000		—		100,000
Common		26,956,077		2,276,277		26,846,982		6,370,298

(concluded)

The accompanying notes are an integral part of these condensed consolidated financial statements.

-5-

NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC.
AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2011 AND FEBRUARY 28, 2010
(In thousands except share and per share data)


	Equity attributable to National American University Holdings, Inc. and Subsidiaries
											Accumulated						Equity
					Additional						other						attributable to			Total
	Class A		Common		paid-in			Retained			comprehensive			Treasury			non-controlling			stockholders’
	common		stock		capital			earnings			income			stock			interest			equity

Balance — May 31, 2009	$	0	$	0	$	385		$	7,251		$	109		$	(1,869	)	$	(984	)	$	4,892
Recapitalization of Dlorah, Inc.		0		1		22,508			0			0			0			0			22,509
Retirement of treasury stock		0		0		(1,869	)		0			0			1,869			0			0
Merger costs associated with reverse merger		0		0		(3,359	)		0			0			0			0			(3,359	)
Contributed capital from non-controlling interest holders		0		0		0			0			0			0			685			685
Share based compensation expense		0		0		637			0			0			0			0			637
Dividends declared		0		0		0			(3,794	)		0			0			0			(3,794	)
Comprehensive income:
Net income		0		0		0			7,935			0			0			14			7,949
Unrealized loss on investments		0		0		0			0			(14	)		0			0			(14	)

Balance — February 28, 2010	$	0	$	1	$	18,302		$	11,392		$	95		$	0		$	(285	)	$	29,505


Balance — May 31, 2010	$	0	$	2	$	19,165		$	2,389		$	96		$	0		$	(295	)	$	21,357
Issuance of 4,550,000 shares common stock net of issuance cost of $1,578		0		1		30,498			0			0			0			0			30,499
Conversion of warrants to 1,068,687 shares common stock		0		0		5,876			0			0			0			0			5,876
Purchase of 1,000,000 shares common stock for the treasury		0		0		0			0			0			(7,505	)		0			(7,505	)
Share based compensation expense		0		0		798			0			0			0			0			798
Dividends declared		0		0		0			(2,310	)		0			0			0			(2,310	)
Comprehensive income:
Net income		0		0		0			7,953			0			0			31			7,984
Unrealized loss on investments		0		0		0			0			(29	)		0			0			(29	)

Balance — February 28, 2011	$	0	$	3	$	56,337		$	8,032		$	67		$	(7,505	)	$	(264	)	$	56,670

The accompanying notes are an integral part of these condensed consolidated financial statements.

-6-

NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC.
AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2011 AND FEBRUARY 28, 2010
(In thousands except share and per share data)


	Nine Months Ended
	February 28,			February 28,
	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	7,984		$	7,949
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization		2,067			1,685
(Gain)loss on disposition of property and equipment		70			(104	)
Provision for uncollectable tuition		2,447			1,429
Noncash compensation expense		798			637
Deferred income taxes		152			(94	)
Changes in assets and liabilities:
Accounts and other receivables		(3,574	)		(4,257	)
Student notes		(300	)		(9	)
Bookstore inventory		(112	)		(198	)
Prepaid and other current assets		(269	)		(320	)
Condominium inventories		194			564
Accounts payable		(478	)		(12	)
Deferred income		165			840
Other long-term liabilities		535			102
Income tax receivable/payable		812			(545	)
Accrued and other liabilities		(764	)		887


Net cash flows provided by operating activities		9,727			8,554


CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments		(15,998	)		(16,396	)
Proceeds from sale of investments		15,983			1,615
Purchases of property and equipment		(4,604	)		(2,409	)
Proceeds from sale property and equipment		1			143
Course development		(332	)		(244	)
Other		(42	)		(2	)


Net cash flows used in investing activities		(4,992	)		(17,293	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of lines of credit		0			(510	)
Repayments of long-term debt		0			(3,445	)
Contributed capital by non-controlling interest members		0			685
Cash paid for treasury stock		(7,505	)		0
Cash received for warrants		5,876			0
Issuance of common stock		32,077			0
Cash paid for stock issuance		(640	)		0
Cash received in reverse merger		0			22,092
Cash paid for merger costs		0			(3,359	)
Dividends paid		(12,598	)		(1,868	)


Net cash flows provided by financing activities		17,210			13,595

(Continued)

The accompanying notes are an integral part of these condensed consolidated financial statements.

-7-

NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC.
AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2011 AND FEBRUARY 28, 2010
(In thousands except share and per share data)


	Nine months ended
	February 28,		February 28,
	2011		2010

NET INCREASE IN CASH AND CASH EQUIVALENTS	$	21,945	$	4,856

CASH AND CASH EQUIVALENTS — Beginning of year		8,695		3,508


CASH AND CASH EQUIVALENTS — End of period	$	30,640	$	8,364


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest during the nine months ended February 28, 2011 and February 28, 2010, respectively	$	0	$	430


Tenant improvements paid by Lessor	$	1,121	$	0


Cash paid for income taxes	$	4,169	$	3,333


Dividends declared at February 28, 2011 and February 28, 2010	$	828	$	1,926

(Concluded)

The accompanying notes are an integral part of these condensed consolidated financial statements.

-8-

NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts, except share and per share data, in thousands)

BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements are presented on a consolidated basis. The accompanying financial statements include the accounts of National American University Holdings, Inc. (the “Company”), its subsidiary, Dlorah, Inc. (“Dlorah”), and its divisions, National American University, and Fairway Hills. The accompanying unaudited condensed consolidated financial statements have been prepared on a basis substantially consistent with the Company’s audited financial statements. These financial statements are condensed and do not contain all disclosures required in annual financial statements. Accordingly, these financial statements should be read in conjunction with the Company’s annual financial statements which were included in the Company’s Form 10-K filed on August 18, 2010. Furthermore, the results of operations and cash flows for the nine month periods ended February 28, 2011 and February 28, 2010, 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. All intercompany transactions and balances have been eliminated.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (“GAAP”).

Estimates — The preparation of financial statements in conformity with 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.

NATURE OF OPERATIONS

The Company, formerly known as Camden Learning Corporation, was incorporated in the State of Delaware on April 10, 2007. The Company was a special purpose acquisition company formed to serve as a vehicle for the acquisition of an operating business. On November 23, 2009, Dlorah became a wholly-owned subsidiary of the Company (the “Transaction”), pursuant to an Agreement and Plan of Reorganization between the Company and Dlorah. In connection with the Transaction, the stockholders of Dlorah received approximately 77% of the equity of the Company, and Dlorah was deemed to be the acquirer for accounting purposes. The Transaction has been accounted for as a reverse merger accompanied by a recapitalization. As a result of the Transaction, the historical results of Dlorah became the historical results of the Company. The accompanying consolidated statements of operations for the nine months and three months ended February 28, 2010, and stockholders’ equity and cash flows for the nine months ended February 28, 2010 have been updated to reflect the effects of the recapitalization on common stock, stockholders’ equity accounts and earnings per share.

-9-

The Company’s common stock is listed on The Nasdaq Global Market. The Company owns and operates National American University (“NAU” or the “University”). NAU is a regionally accredited, proprietary, multi-campus institution of higher learning, offering Associate, Bachelor’s and Master’s degree programs in business-related disciplines, such as accounting, applied management, business administration and information technology, and in healthcare-related disciplines, such as nursing and healthcare management. Courses are offered through educational sites, as well as online via the Internet. Operations include educational sites located in Colorado, Kansas, Minnesota, Missouri, Nebraska, New Mexico, Oklahoma, South Dakota and Texas, and distance learning operations and central administration offices located in Rapid City, South Dakota. A substantial portion of NAU’s academic income is dependent upon federal student financial aid programs, employer tuition assistance, online learning programs and contracts to provide instruction and course materials to other educational institutions. To maintain eligibility for financial aid programs, NAU must comply with Department of Education requirements, which include, among other items, the maintenance of certain financial ratios.

The Company, through its Fairway Hills real estate division, also manages apartment units and develops and sells multi-family residential real estate in the Rapid City, South Dakota area.

Approximately 93% and 92% of the Company’s total revenues for the nine months ended February 28, 2011 and February 28, 2010, respectively, were derived from NAU’s academic revenue. Approximately 94% and 92% of the Company’s total revenues for each of the three months ended February 28, 2011 and 2010 were derived from NAU’s academic revenue.

RECLASSIFICATION

Certain items have been reclassified within operating expenses in the three and nine months ended February 28, 2010 statements of operations in order to conform with the current presentation. Specifically, rent expense (which included rent, common area maintenance fees, and property taxes) was reclassified from selling, general and administrative to cost of education. The reclassification totaled $1,185 in the first quarter of fiscal year 2010, $1,182 in the second quarter of 2010, and $1,305 in the third quarter of 2010, for a total of $3,672 for the nine months ended February 28, 2010. There was no impact to operating income or net income as previously reported.

EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income available to common stockholders 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 warrants and restricted stock. As described in Note 6, the Company had one class of common stock outstanding as of February 28, 2011. All issued and outstanding shares of the class A common stock were converted to common stock on May 27, 2010.

-10-


	For the nine months ended				For the three months ended
	February 28,				February 28,
	2011		2010		2011		2010
Numerator:
Net Income Attributable to National American University Holdings, Inc.	$	7,953	$	7,935	$	3,867	$	2,972
Distributed Earnings (DE)	$	2,309	$	3,792	$	793	$	1,896
Undistributed Earnings (UE)	$	5,644	$	4,143	$	3,074	$	1,076

UE attributable to Class A — basic	$	—	$	3,717	$	—	$	816
UE attributable to Common — basic	$	5,644	$	426	$	3,074	$	260
DE attributable to Class A — basic	$	—	$	3,461	$	—	$	1,730
DE attributable to Common — basic	$	2,309	$	332	$	793	$	166

Denominator:
Class A Shares		—		100,000		—		100,000
Weighted average shares outstanding used to compute basic net income per common share		26,202,893		1,801,551		26,122,047		5,018,605
Incremental shares issuable upon the assumed exercise of restricted shares		83,467		68,636		83,166		68,636
Incremental shares issuable upon the assumed exercise of warrants		669,717		406,090		641,769		1,283,057
Common shares used to compute diluted net income per share		26,956,077		2,276,277		26,846,982		6,370,298

Basic net income per Class A share	$	—	$	71.78	$	—	$	25.46
Basic net income per common share	$	0.30	$	0.30	$	0.15	$	0.08

Diluted net income per Class A share	$	—	$	70.80	$	—	$	24.96
Diluted net income per common share	$	0.30	$	0.29	$	0.14	$	0.08

Outstanding options of 110,000 were not included in the computation of diluted net income per common share for the three and nine months ended February 28, 2011 because their effect would be antidilutive.

Subsequent to the filing of the Form 10-Q for the quarter ended February 28, 2010, the Company identified errors in the calculation of undistributed earnings per share — Class A, basic and dilutive; distributed earnings per share — Common, basic and dilutive; and weighted average shares outstanding — Common, basic and dilutive for the three and nine months periods ended February 28, 2010.

-11-

The earnings per share calculations included within this Form 10-Q have been corrected. The effect of the correction on previously reported earnings per share and related weighted average shares outstanding are summarized in the following table.


	For the nine months ended				For the three months ended
	February 28, 2010				February 28, 2010
Basic EPS	As reported		As corrected		As reported		As corrected
Class A
Distributed earnings	$	17.30		17.30		34.61	$	34.61
Undistributed earnings	$	8.08		8.16		37.03	$	37.17

Total	$	25.38	$	25.46	$	71.64	$	71.78


Common
Distributed earnings	$	0.03		0.03		0.15	$	0.06
Undistributed earnings	$	0.05		0.05		0.24	$	0.24

Total	$	0.08	$	0.08	$	0.39	$	0.30


Diluted EPS
Class A
Distributed earnings	$	17.30	$	17.30	$	34.61	$	34.61
Undistributed earnings	$	7.59	$	7.66	$	36.03	$	36.19

Total	$	24.89	$	24.96	$	70.64	$	70.80


Common
Distributed earnings	$	0.02	$	0.03	$	0.12	$	0.06
Undistributed earnings	$	0.05	$	0.05	$	0.23	$	0.23

Total	$	0.07	$	0.08	$	0.35	$	0.29


Weighted Average Shartes outstanding
Basic EPS
Class A		100,000		100,000		100,000		100,000
Common		5,206,105		5,018,605		1,868,858		1,801,551

Diluted EPS
Class A		100,000		100,000		100,000		100,000
Common		6,557,798		6,370,298		2,354,081		2,276,277

RECENTLY ADOPTED AND NEW ACCOUNTING PRONOUNCEMENTS

In June 2009, the Financial Accounting Standards Board (“FASB”) issued a new standard to update FASB ASC Topic 810, Consolidation. This standard is intended to improve financial reporting by enterprises involved with variable interest entities. This standard is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter. This standard was adopted by the Company on June 1, 2010 and had no impact on its consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update 2010-06 Fair Value Measurement and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This guidance provides for the following new required disclosures related to fair value measurements: 1) the amounts of and reasons for significant transfers in and out of level one and level two inputs and 2) separate presentation of purchases, sales, issuances, and settlements on a gross basis rather than as one net number for level three reconciliations. The guidance also clarifies existing disclosures as follows: 1) provide fair value measurement disclosures for each class of assets and liabilities and 2) provide disclosures about the valuation techniques and inputs used for both recurring and nonrecurring level two or level three inputs. The new disclosures and clarifications of existing disclosures were effective for the Company’s fourth quarter ended May 31, 2010. Disclosures about purchases, sales, issuances, and settlements in the roll forward of activity for level three fair value measurements will be effective for the Company’s fourth quarter ended May 31, 2011. The Company has adopted this standard, but it did not have a material effect on the Company’s financial statements.

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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. All shares of class A common stock were converted to common stock during the year ended May 31, 2010 at a rate of 157.3 shares of common stock for each share of class A common stock.

Of the authorized shares, 27,438,040 shares of common stock were issued and 26,438,040 shares were outstanding as of February 28, 2011. No shares of preferred stock were outstanding. On January 31, 2011, the Company’s Board of Directors authorized the repurchase of up to an additional 1,000,000 shares, not to exceed $10,000, of the Company’s outstanding common stock in open market or privately negotiated transactions. The Board determined, among other things, that the repurchase program would offset dilution from the exercise of existing warrants to purchase shares of common stock. During the third quarter fiscal 2011, NAUH repurchased 1,000,000 shares for $7,505. As of March 31, 2011, there were zero remaining shares authorized to be repurchased.

During the year ended May 31, 2010, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission for the offer and sale of up to 7,000,000 shares of its common stock (half coming from selling stockholders), plus 1,050,000 shares to cover over-allotment. The sale of 7,000,000 shares closed on June 1, 2010, and the sale of the 1,050,000 over-allotment shares closed on June 5, 2010. Also, in connection with the Transaction, the former Dlorah stockholders were issued, in the aggregate, warrants to purchase up to 2,800,000 shares of common stock at $5.50 per share that will expire if not converted by November 23, 2011. These warrants contain a cashless exercise feature. During February 2011, portions of these warrants were converted to 1,068,387 shares of common stock for total consideration of $5,876. The remaining warrants have not been exercised as of February 28, 2011.

Stock-Based Compensation

The following tables summarize activity under our 2009 Stock Option and Compensation Plan, which allows for the granting of stock options, restricted stock and restricted stock units (RSUs).


			Weighted Average Grant
Restricted Stock and RSUs Outstanding	Shares		Date Fair Value
Balance, May 31, 2010		110,333	$	8.64
Granted RSU’s		53,000		5.52
Vested		—		—
Forfeited		—		—


Restricted Stock and RSU Outstanding, February 28, 2011		163,333	$	7.63

The Company granted restricted stock awards in November 2009, December 2009, March 2010, and April 2010 to promote the long-term interests of the Company and its stockholders by using such awards as a means for attracting and retaining directors and key employees. The fair value of restricted stock awards was calculated using the Company’s stock price as of the associated grant date and accrued ratably as compensation expense over the vesting period of the award. The amounts recognized in compensation expense were $457 and $152, respectively for the nine months and three months ended February 28, 2011. As of February 28, 2011 there was $369 of total unrecognized compensation cost related to the restricted stock awards discussed above that will be recognized over a period extending to May 31, 2012.

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During the quarter ended August 31, 2010, the company granted restricted stock units (“RSUs”) that vest May 31, 2011 based on the performance metric of an earnings before interest and taxes margin of 18% for the Company. The amounts recognized in compensation expense were $195 and $95, respectively for the nine months and three months ended February 28, 2011. As of February 28, 2011 there was $97 of total unrecognized compensation cost related to the restricted stock units discussed above that will be recognized over a period extending to May 31, 2011.

Stock Options

During the quarter ended August 31, 2010, the Company granted stock options that vest in incremental installments of one-half per year commencing on the first anniversary of the date of grant with a 10 year life. The amounts recognized in compensation expense were $145 and $48, respectively for the nine months and three months ended February 28, 2011. The fair value of the stock options used to compute stock-based compensation is the estimated present value at the date of grant using the Black-Scholes option pricing model. The weighted average fair values of options granted during the first quarter of 2011 were $3.52 per share using the following weighted average assumptions for grants:


	February 28, 2011
Expected volatility		45.59	%
Expected dividend yield		1.20	%
Expected life (term)	5.75 years
Risk-free interest rate		0.50	%
Exercise price	$	9.35

A summary of stock option activity is as follows:

Weighted-

Average

Weighted-Average

Exercise

Remaining

Aggregate Intrinsic

Price

Contractual Term

Value

(in years)

Balance at June 1, 2010

—

n/a

Granted

110,000

9.35

Forfeited / cancelled

—

n/a

Expired

—

n/a

Exercised

—

n/a

Balance at February 28, 2011

110,000

9.35

9.25

As of February 28, 2011, none of the options were vested and therefore none were exercised.

Dividends

The holders of class A common stock were entitled to a quarterly dividend equal to $0.11 per quarter (for a total of $0.44 per year) per share of the common stock into which such class A common stock was convertible, paid when and if declared by the board of directors in accordance with the merger agreement for the Transaction. If a dividend was paid on the class A common stock, a dividend equal to one-fourth of the per share amount of any class A common stock dividend paid also had to be paid to holders of common stock. A dividend totaling $1,896 was declared on November 30, 2009, and $1,868 was paid in January and February 2010 with the difference related to restricted shares which will be payable once the restrictions lapse. A dividend totaling $1,896 was declared on January 27, 2010 and $1,868 was paid in March 2010 with the difference related to restricted

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shares which will be payable once the restrictions lapse. On May 10, 2010, the Company announced that on April 26, 2010, its board of directors declared, subject to the satisfaction of the condition set forth below, a one-time special cash dividend in the amount of $0.1609694 per share on each share of the Company’s common stock and in the amount of $0.6438774 per share on each share of the Company’s common stock issuable upon conversion of the class A common stock. This special dividend totaled $11,116 of which $11,089 was paid on June 4, 2010 with the difference related to restricted shares which will be payable once the restrictions lapse. Therefore, all the dividends in accordance with the merger agreement for the Transaction have been declared. In August 2010, the Company declared a dividend totaling $0.0275 per share which was paid on October 8, 2010. In October 2010, the Company declared a dividend totaling $0.03 per share which was paid on January 7, 2011. On January 31, 2011, the Company declared a dividend totaling $0.03 per share on all shares of common stock outstanding and of record as of the close of business on March 31, 2011, to be paid on April 8, 2011.

INCOME TAXES

The effective tax rates for the nine months ended February 28, 2011 and February 28, 2010, were 39.1% and 39.7%, respectively. The effective tax rates for the three months ended February 28, 2011 and February 28, 2010, were 38.6% and 37.3%, respectively.

COMMITMENTS AND CONTINGENCIES

From time to time, the Company is a party to various claims, proceedings, or lawsuits relating to the conduct of its business. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims, or proceedings may be disposed of unfavorably to the Company, management believes, based on facts presently known, that the outcome of such legal proceedings and claims will not have a material adverse effect on the Company’s consolidated financial position, cash flows or future results of operations.

The Company is subject to extensive regulation by federal and state governmental agencies and accrediting bodies. On an ongoing basis, the Company evaluates the results of internal compliance monitoring activities and those of applicable regulatory agencies and, when appropriate, records liabilities to provide for the estimated costs of any necessary remediation. There are no current outstanding regulatory actions, but the Company cannot predict the outcome of future program reviews and any unfavorable outcomes could have a material adverse effect on the results of the Company’s results of operations, cash flows, and financial position.

During the quarter ended August 31, 2010, the Company received a request for information from the U.S. Senate Committee on Health, Education, Labor and Pensions relating to the Committee’s ongoing hearings relating to for-profit colleges receiving Title IV student financial aid. The Company has incurred a total of $2.2 million in additional legal fees for this request which includes $0.6 million in the first quarter, $1.5 million in the second quarter, and an additional $0.1 million in expenses in the third quarter.

CONDOMINIUM PROJECT

During 2008, the Company broke ground on a new building designed to contain 24 condominium units to be sold to the general public. The project was funded by a construction line of credit and was completed in 2009. These condominium units are accounted for within condominium inventories within the condensed consolidated balance sheets, and the sales of the condominium units are recorded within condominium sales within the condensed consolidated statements of operations. Eight units have been sold as of February 28, 2011. One additional unit is under contract and is scheduled to close in April 2011.

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In addition, five units of an existing 48-unit apartment building have been sold as condominiums, with the remaining units available for sale or lease. These condominium units are accounted for within net property and equipment within the consolidated balance sheets, and the sales of the condominium units are recorded within other income — net within the condensed consolidated statements of operations.

10.

FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Following is a description of each category in the fair value hierarchy and the financial assets and liabilities of the Company that are included in each category at February 28, 2011 and May 31, 2010:

Level 1 — Quoted prices in active markets for identical assets or liabilities. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted market prices.

Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The type of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using observable inputs.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The type of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation. The Company does not have any Level 3 assets or liabilities.

In accordance with the fair value hierarchy, the following table shows the fair value as of February 28, 2011 and May 31, 2010, of those financial assets that are measured at fair value on a recurring basis, according to the valuation techniques the Company used to determine their fair market value. No other financial assets or liabilities are measured at fair value on a recurring or nonrecurring basis at February 28, 2010 or May 31, 2010.


	Quoted
	Prices in		Other
	Active		Observable		Unobservable
	Markets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Fair Value
February 28, 2011
Investments
CD’s and money market accounts	$	1,627	$	415	$	—	$	2,042
US treasury bills and notes		10,437		—		—		10,437


Total assets at fair value	$	12,064	$	415	$	—	$	12,479


May 31, 2010
Investments
CD’s and money market accounts	$	1,547	$	411	$	—	$	1,958
US treasury bills and notes		10,456		—		—		10,456


Total assets at fair value	$	12,003	$	411	$	—	$	12,414

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11.

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 makers, or decision-making groups, in deciding how to allocate capital and other resources to such lines of business.

The Company operates two operating and reportable segments: NAU and other. The NAU segment contains the revenues and expenses associated with the University operations and the allocated portion of corporate overhead. The other segment contains everything else. These operating segments are divisions of the Company for which separate financial information is available and evaluated regularly by executive management in deciding how to allocate resources and in assessing performance.

General administrative costs of the Company are allocated to specific divisions of the Company.

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The majority of the Company’s revenue is derived from the NAU division, which provides undergraduate and graduate education programs. NAU derives its revenue primarily from student tuition. The other division operates multiple apartment and condominium complexes and derives its revenues primarily from condominium sales and rental income.


	Nine Months Ended							Nine Months Ended
	February 28, 2011							February 28, 2010
						Consolidated								Consolidated
	NAU		Other			Total		NAU			Other			Total

Revenue:
Academic revenue	$	73,199	$	0		$	73,199	$	59,021		$	0		$	59,021
Auxiliary revenue		4,583		0			4,583		3,893			0			3,893
Rental income — apartments		0		739			739		0			703			703
Condominium sales		0		224			224		0			694			694


Total revenue		77,782		963			78,745		62,914			1,397			64,311


Operating expenses:
Cost of educational services ⁽¹⁾		16,391		0			16,391		15,180			0			15,180
Selling, general and administrative ⁽¹⁾		45,774		1,288			47,062		32,548			1,271			33,819
Auxiliary expense		2,119		0			2,119		1,454			0			1,454
Cost of condominium sales		0		193			193		0			564			564
Loss on disposition of property		70		0			70		0			0			0


Total operating expenses		64,354		1,481			65,835		49,182			1,835			51,017


Income (loss) from operations		13,428		(518	)		12,910		13,732			(438	)		13,294


Other income (expense):
Interest income		112		0			112		160			0			160
Interest expense		0		0			0		(101	)		(339	)		(440	)
Other income — net		0		96			96		(14	)		190			176


Total other income (expense)		112		96			208		45			(149	)		(104	)


Income (loss) before taxes	$	13,540	$	(422	)	$	13,118	$	13,777		$	(587	)	$	13,190


(1)		As discussed in Note 3, $3,672 of rent expense has been reclassified in FY 2010 from selling, general, and administrative to cost of educational services to conform to the current presentation. As such, the amount for FY 2010 has been restated to properly reflect the balance within the NAU segment.


	Nine Months Ended						Year Ended
	February 28, 2011						May 31, 2010
					Consolidated						Consolidated
	NAU		Other		Total		NAU		Other		Total

Total assets	$	57,932	$	15,870	$	73,802	$	33,085	$	14,201	$	47,286

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	Three Months Ended							Three Months Ended
	February 28, 2011							February 28, 2010
						Consolidated								Consolidated
	NAU		Other			Total		NAU			Other			Total

Revenue:
Academic revenue	$	26,119	$	0		$	26,119	$	21,685		$	0		$	21,685
Auxiliary revenue		1,370		0			1,370		1,249			0			1,249
Rental income — apartments		0		244			244		0			220			220
Condominium sales		0		0			0		0			456			456


Total revenue		27,489		244			27,733		22,934			676			23,610


Operating expenses:
Cost of educational services ⁽¹⁾		5,609		0			5,609		5,428			0			5,428
Selling, general and administrative ⁽¹⁾		14,900		372			15,272		12,174			449			12,623
Auxiliary expense		579		0			579		418			0			418
Cost of condominium sales		0		0			0		0			398			398
Loss on disposition of property		19		0			19		0			0			0


Total operating expenses		21,107		372			21,479		18,020			847			18,867


Income (loss) from operations		6,382		(128	)		6,254		4,914			(171	)		4,743


Other income (expense):
Interest income		38		0			38		41			0			41
Interest expense		0		0			0		(20	)		(105	)		(125	)
Other income — net		0		25			25		(14	)		142			128


Total other income (expense)		38		25			63		7			37			44


Income (loss) before taxes	$	6,420	$	(103	)	$	6,317	$	4,921		$	(134	)	$	4,787


(1)		As discussed in Note 3, $1,305 of rent expense has been reclassified in FY2010 from selling, general, and administrative to cost of educational services to conform to the current presentation. As such the amount for FY2010 has been restated to properly reflect the entire balance within the NAU segment.

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12.

SUBSEQUENT EVENTS

We evaluated subsequent events after the balance sheet date of February 28, 2011 through the date the consolidated financial statements were issued. We did not identify any additional material events or transactions occurring during this subsequent event reporting period that required further recognition or disclosure in these consolidated financial statements.

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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 opening of new campuses and hybrid learning centers, risks associated with the offering of new educational programs and adapting to other changes, risks associated with the acquisition of existing 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 August 18, 2010 and its other filings with the Securities and Exchange Commission (the “SEC”). The Company undertakes no obligation to update or revise any forward looking statement, except as may be required by law.

Background

National American University, or NAU, is a regionally accredited, proprietary, multi-campus institution of higher learning offering Associate, Bachelor’s and Master’s degree programs in business-related disciplines, such as accounting, applied management, business administration and information technology, and in healthcare-related disciplines, such as nursing and healthcare management. Courses are offered through educational sites as well as online via the Internet. Operations include 29 educational sites (six of which are pending regulatory approvals) located in Colorado, Kansas, Minnesota, Missouri, Nebraska, New Mexico, Oklahoma, South Dakota and Texas, and distance learning operations and central administration offices located in Rapid City, South Dakota.

As of February 28, 2011, NAU enrolled 3,619 students at its physical locations, 4,624 students for its online programs, and 1,687 students at its hybrid learning centers who attended physical campus locations and also took classes online. NAU also provided courseware development, technical support and online class hosting services to various colleges, technical schools and training institutions in the United States and Canada who do not have the capacity to develop and operate their own in-house online curriculum for their students. We do not share revenues with these institutions, but rather charge a fee for our services, enabling us to generate additional revenue by leveraging our current online program infrastructure. As of February 28, 2011, agreements were in effect with eight institutions that, in the aggregate, enrolled approximately 7,000 students in online courses supported by NAU’s courseware development, technical support and online class hosting services.

The real estate operations consist of apartment facilities, condominiums and other real estate holdings in Rapid City, South Dakota. The real estate operations generated approximately 0.9% of our revenues for the quarter ended February 28, 2011 and 1.2% of our revenues for the nine months ended February 28, 2011.

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Key Financial Results Metrics

Revenue. Revenue is derived mostly from NAU’s operations. For the nine months ended February 28, 2011, approximately 93% 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 food services, bookstore, dormitory and motel operations and the real estate operations’ rental income and condominium sales. Tuition revenue is reported net of adjustments for refunds and scholarships and is recognized on a daily basis over the length of the term. Upon withdrawal, students generally are refunded tuition based on the uncompleted portion of the term. Auxiliary revenue is recognized when earned.

Factors affecting net revenue include:

•

the number of students who are enrolled and who remain enrolled in courses throughout the term;

•

student’s choices of degree or program;

•

changes in tuition rates;

•

the number of other institutions for which NAU provides courseware development, technical support and online class hosting services, as well as the number of students enrolled by those institutions in programs supported by such services; and

•

the amount of scholarships for which students qualify.

We record unearned tuition for 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 anticipated will not be paid. Any uncollected account more than six months past due on students who have left NAU is charged against the allowance. Bad debt expenses as a percentage of revenues for the nine months ended February 28, 2011 and 2010 were 3.1% and 2.2%, respectively.

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.

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The following chart is a summary of our student enrollment for February 28, 2011, and February 28, 2010, by degree type and by instructional delivery method.


	February 28, 2011		February 28, 2010		% Growth for
	(Winter ’11 Qtr)		(Winter ’10 Qtr)		same quarter
	Number of Students		Number of Students		over prior year
Graduate		393		323		21.7	%
Undergraduate and Diploma		9,537		7,666		24.4	%


Total		9,930		7,989		24.3	%


On-Campus		3,619		3,667		-1.3	%
Online		4,624		3,198		44.6	%
Hybrid		1,687		1,124		50.1	%


Total		9,930		7,989		24.3	%

We experienced a 24.3% growth in enrollment in winter term 2011 over winter term 2010. This growth was a significant increase over our historic enrollment growth, which has averaged approximately 11.5% annually since 1998. We believe this recent growth is attributable to four main factors: investment in the expansion and development of physical locations; investment in the expansion of current academic programs and development of new academic programs; the development of a disciplined student recruitment process; and the current economic downturn, in which many working adults have decided to utilize education to obtain a job, advance in a job or retain their current job. We also believe we have realized a significant increase in enrollments since 2005 due to our investment of approximately $22.6 million (net of the revenues associated with the new campuses being opened) to expand and develop physical locations and academic programming. In addition, we believe that our strategic initiatives were critical in obtaining the growth and results of operations that we have seen over the last year.

We plan to continue expanding and developing our academic programming, opening additional physical locations and, potentially, making acquisitions. This growth will be subject to applicable regulatory requirements and market conditions. With these efforts, we anticipate our positive enrollment trends should continue. To the extent the economic downturn has caused enrollment growth, our ability to maintain or increase that portion of our growth may depend on how economic factors are perceived by our target student market in relation to the advantages of pursuing higher education. If current market conditions continue, we believe that the extent to which these enrollment trends continue will be correlated with the opening of additional physical locations, the number of programs that are developed, the number of programs that are expanded to other locations, and, potentially, the number of locations and programs added through acquisitions. If market conditions decline or if we are unable to open new physical locations, develop or expand academic programming or make acquisitions, whether as a result of regulatory limitations or other factors, our growth rate may likely return to more historic levels.

Expenses. Expenses consist of cost of educational services, selling, general and administrative, auxiliary expenses, the cost of condominium sales, and the loss on disposition of property and equipment. Cost of educational services expenses contain 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 expenses include the salaries of the learner services positions (and other expenses related to support of students), 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, expenses related to expansion and development of academic programs and physical locations, as well as depreciation, bad debt expenses and other related costs associated with student support functions. Auxiliary expenses include expenses for the cost of goods sold, including costs associated with books, clothing, food and textbook shrinkage. The cost of condominium sales is the expense related to condominiums that are sold during the reporting period. The loss on disposition of property and equipment expense records the remaining book value of assets that are no longer used by us.

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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 largely 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 developed, increases in enrollment were realized, cost-effective delivery of instructional and support services are achieved, economies of scale were recognized and more efficient marketing and promotional processes were gained.

Introduction of new physical locations. We plan to develop additional physical locations over the next several years. When opening new locations, we invest significant funds in expenses related to opening new locations without the immediate impact of revenue to offset these expenses. Usually included in these expenses are capital funds for equipment and buildouts as well as operating funds for staff salaries and marketing dollars. These expenses likely will negatively impact the operating margin in the short-term with long-term gains realized later due to the increased revenues.

Public company expenses. As a public company, we have begun and will continue to incur significant additional costs and expenses such as increased legal and audit fees, professional fees, director and officer insurance costs, board of director fees and expenses related to compliance with the Sarbanes-Oxley Act regulations and The Dodd-Frank Wall Street Reform and Consumer Protection Act and preparing and distributing periodic reports in compliance with obligations under the federal securities laws. In addition, we will likely have to hire additional personnel and expand our administrative functions to become compliant, and maintain compliance, with the regulatory obligations of being a public company. We estimate that the additional costs of being a public company will be between $1.0 million and $2.0 million annually, which we expect to fund through cash provided by operating activities.

Stock-based compensation. We expect to incur non-cash, stock based compensation expense in connection with existing and future issuances under our 2009 Stock Option and Compensation Plan or other equity incentive plans.

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.

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Department of Education Rulemaking

On October 29, 2010, the U.S. Department of Education (the “Department”) published in the Federal Register final regulations addressing all 14 topics addressed in its June 18, 2010 Notice of Proposed Rulemaking (the “June NPRM”) and its July 26, 2010 Notice of Proposed Rulemaking (the “July NPRM”), other than sections of the proposed definition of “gainful employment” for purposes of determining whether certain educational programs comply with the Title IV requirement of preparing students for gainful employment in a recognized occupation. The final regulations published in the Federal Register are effective July 1, 2011, except for rules pertaining to verification and updating of student aid application information, which are effective July 1, 2012. Although we are still in the process of reviewing the final regulations to determine what, if any, impact they may have on our business and institutions, we believe the following new regulations are likely to have the most impact:

Incentive compensation. An institution participating in Title IV programs may not provide any commission, bonus or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any person or entity engaged in any student recruiting or admission activities or in making decisions regarding the awarding of Title IV program funds. While the law and regulations governing this requirement do not establish clear criteria for compliance in all circumstances, current Department regulations include twelve “safe harbor” provisions which specify certain activities and arrangements that an institution may carry out without violating the prohibition against incentive compensation reflected in the Higher Education Act. In the final regulations issued on October 29, 2010, which become effective July 1, 2011, the Department eliminated the twelve safe harbors. The Department contends that institutions do not need to rely on safe harbors to determine the type of compensation that complies with the Higher Education Act, and that institutions can readily determine if a payment or compensation is permissible under the Higher Education Act by analyzing (1) whether it is a commission, bonus or other incentive payment, defined as an award of a sum of money or something of value (other than a fixed salary or wages), paid to or given to a person or entity for services rendered, and (2) whether the commission, bonus or other incentive payment is provided to any person based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid, which are defined as activities engaged in for the purpose of the admission or matriculation of students for any period of time or the award of financial aid.

The Department maintains that an institution can still make merit-based adjustments to employee compensation, provided that such adjustments are not based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid. The final regulations further clarify that the prohibition on incentive compensation may extend to individuals holding a managerial position at any level of the company, to the extent that a particular individual has responsibility for recruitment or admission of students, or makes decisions about awarding Title IV program funds. The Department states that an institution still would be able to make merit-based adjustments to employee compensation, but would not be permitted to consider nor base compensation directly or indirectly, in any part, on factors such as an employee’s success in securing student enrollments, the award of financial aid or institutional goals based on that success.

We believe these changes may increase the uncertainty about what constitutes incentive compensation and which employees are covered by the regulation, and may require us and other institutions to change some of our compensation practices for admissions representatives and other employees, including certain managerial employees, as well as certain third parties whom we pay for Internet-based services related to lead generation and marketing and whose activities are also subject to the incentive compensation rules. This could adversely affect our ability to compensate our enrollment counselors, other employees, and third parties in a manner that appropriately reflects their relative merit, which in turn could (1) reduce the effectiveness of our employees, and make it more difficult for us to attract and retain staff with the desired talent and motivation to succeed and (2) impair our ability to sustain and grow our business. This could also increase marketing costs and reduce revenues if we are unable to maintain or increase student enrollments. In addition, a lack of certainty could increase the risk of future Federal False Claims Act qui tam lawsuits in which private plaintiffs assert that our compensation practices violate the incentive compensation rules and, therefore, that our receipt of Title IV program funds constitutes a submission to the government of a false claim for payment.

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State Authorization. To be eligible to participate in Title IV programs, an institution must be licensed or authorized to offer its educational programs by the states in which it is physically located, in accordance with the Department’s regulations. In South Dakota, where our operations are headquartered and we maintain several physical facilities, the state currently does not specifically regulate or authorize the degrees or other educational programs of private, regionally accredited institutions of higher education. In addition to South Dakota, we operate physical facilities offering educational programs in Colorado, Kansas, Minnesota, Missouri, New Mexico and Texas. In each of these states, we either maintain authorization or have received written confirmation that no express authorization is required from pertinent state educational agencies to offer our educational programs. Notwithstanding the nature of our past or current authorizations by the states in which we are located, the Department’s final regulations clarify what is required for an institution to be considered “legally authorized” in a state for purpose of participation in Title IV programs. Specifically, the final regulations provide that, effective July 1, 2011, the Department would consider an institution to be legally authorized by a state if the state has a process, applicable to all institutions except tribal and federal institutions, to review and appropriately act on complaints concerning the institution and to enforce applicable state laws, and the institution further satisfies one of the following requirements:

•

the state establishes the institution by name as an educational institution through a charter, statute, constitutional provision or other action issued by an appropriate state agency or entity to operate educational programs beyond secondary education, including programs leading to a degree or certificate; or

•

the institution complies with any applicable state approval or licensure requirements, except that the state may exempt the institution from any such requirement based on (1) the institution’s accreditation by one or more accrediting agencies recognized by the Secretary of Education or (2) the institution being in operation for at least 20 years.

Under the final regulations, institutions unable to obtain state authorization in a state under the above requirements may request a one-year extension of the effective date of the regulation to July 1, 2012, and if necessary, an additional one-year extension of the effective date to July 1, 2013. To receive an extension of the effective date, an institution must obtain from the state an explanation of how a one-year extension will permit the state to modify its procedures to comply with the regulations. As a result of these final regulations, we may need to obtain additional authorization in South Dakota, and additional or revised authorizations in other states in which we operate. This will require, among other things, that South Dakota adopt an authorization process for educational institutions operating in the state. These authorization processes could result in unexpected delays or other setbacks that could jeopardize our Title IV eligibility.

The final regulations also provide that if an institution is offering postsecondary education through distance education to students in a state in which it is not physically located or in which it is otherwise subject to state jurisdiction as determined by the state, the institution must meet any state requirements for it to be legally offering postsecondary distance education to students in that state. Additionally, an institution must be able to document upon request by the Department that it has the applicable state approval. Although we have experienced no significant restrictions on our distance education activities to date as a result of such state requirements regarding distance education, state regulatory requirements for online education vary significantly, are not well developed in many states, are imprecise or unclear in some states and are subject to change. Moreover, it is also unclear whether and to what extent state agencies may augment or change their regulations in this area as a result of new Department regulations and increased scrutiny. Any failure to comply with state requirements, or any new or modified regulations, could result in our inability to enroll students or receive Title IV program funds for students in those states and could adversely affect our students enrollments.

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Misrepresentation. The Department’s final regulations make significant changes to the definition of misrepresentation for purposes of Title IV program compliance. That term now includes any false, erroneous or misleading statement that has the likelihood or tendency to deceive or confuse without regard to materiality or intent. The areas of particular sensitivity to the Department include potential misrepresentation of the nature of an educational program, the nature of any financial charges, the employability of graduates, and the manner in which the institution’s relationship with the Department is depicted. The revised regulations also establish institutional liability for any statements made by any third party agent of NAU and for statements made to any member of the public, an accrediting agency or any state agency, as well as to students and prospective students. The revised regulations also broaden the administrative remedies available to the Department in the event of a substantial misrepresentation by an eligible institution to include revocation of the institution’s program participation agreement, imposition of limitations on the institution’s participation in the Title IV programs, denial of participation applications filed on behalf of the institution and initiation of a termination, fine or other proceeding against the institution. Further, although the Department claims not to have created any private right of action, the regulation creates potential new exposure in qui tam actions under the False Claims Act.

Gainful Employment. On September 24, 2010, the Department announced that it would delay issuing final rules regarding the specific metrics defining “gainful employment” for purposes of determining whether certain educational programs comply with the Title IV requirement of preparing students for gainful employment in a recognized occupation. The final regulations issued on October 29, 2010, however, include new requirements for the Department’s approval of new educational programs subject to “gainful employment” rules, which include any educational programs sought to be offered by NAU. These requirements, which were originally proposed as part of the July NPRM, will go into effect on July 1, 2011 and impose various new requirements on, and could adversely affect, our ability to add new educational programs. In addition, the Department has published no definite standards by which institutions can determine the likelihood that a new educational program will be approved. As such, these requirements add uncertainty regarding new program approvals, which could adversely affect our ability to respond to emerging employment trends and add programs that are responsive to those trends, which in turn could decrease our attractiveness to certain students.

The final regulations issued on October 29, 2010 also require that, for each program leading to “gainful employment” in a recognized occupation, institutions must provide prospective students with information concerning the occupation that the program prepares students to enter; the program’s on-time graduation rate; the tuition and fees it charges a student for completing the program within normal time, along with the costs of books, supplies, room, and board; the placement rate for students completing the program; and the median loan debt incurred by students who completed the program. Institutions must also provide the Department with information that will allow determination of student debt levels and incomes after program completion. It is unclear at this time the level of administrative burden, increased costs, or effect on growth and enrollments that may result from these new reporting and disclosure requirements. There remain many open questions and interpretive issues with respect to these aspects of the final regulations. We are currently evaluating the impact of these rules on our business and will continue to monitor developments in this area.

Additional Final Regulations. In addition to the issues specifically addressed above, the final regulations issued by the Department on October 29, 2010 include provisions regarding the definition of a credit hour; written agreements between institutions, particularly institutions under common ownership or control; the administration of ability-to-benefit examinations; requirements regarding an institution’s return of Title IV program funds; and certain other issues pertaining to a student’s eligibility to receive Title IV program funds. We are in the process of reviewing all of the final regulations issued on October 29, 2010. We cannot predict how the recently released or any other resulting regulations will be interpreted, and therefore whether we will be able to comply with these requirements by the effective date. Compliance with the final rules, which in most cases become effective on July 1, 2011, and insufficient time or lack of sufficient guidance for compliance by the Department, could have a material adverse effect on our business. Uncertainty surrounding application of the final rules, interpretive regulations or guidance by the Department may continue for some period of time and could reduce our enrollment, increase our cost of doing business, and have a material adverse effect on our business, financial condition and results of operations.

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Pending Department of Education Program Review

From time to time, institutions that participate in the Title IV programs of federal student financial assistance are subject to program reviews by the Department. In March 2011, the Department announced a program review site visit for NAU, which is presently scheduled to occur in April 2011. Site visits are the first step in the program review process. After the site visit, the Department will prepare a program review report, NAU will have an opportunity to respond, and the Department will issue a final program review determination, which may be appealed. If the Department were to make significant findings of non-compliance by NAU in this or any future program review, it could have a material adverse effect on our business, financial condition and results of operations.

Results of Operations — Nine Months Ended February 28, 2011 Compared to Nine Months Ended February 28, 2010

National American University Holdings, Inc.

The following table sets forth statements of operations data as a percentage of total revenue for each of the periods indicated:


	Nine Months			Nine Months
	Ended February 28,			Ended February 28,
	2011			2010
	*In percentages*			*In percentages*
Total revenues		100.0	%		100.0	%
Operating expenses:
Cost of educational services		20.8			23.6
Selling, general and administrative		59.8			52.6
Auxiliary expense		2.7			2.3
Cost of condominium sales		0.2			0.9
Loss on disposition of property		0.1			0.0

Total operating expenses		83.6			79.3
Operating income		16.4			20.7
Interest expense		0.0			(0.7	)
Interest income		0.1			0.2
Other income		0.1			0.3

Income before income taxes		16.6			20.5
Income tax expense		(6.5	)		(8.1	)
Net income attributable to non controlling interest		0.0			0.0

Net income attributable to the Company		10.1	%		12.3	%

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For the nine months ended February 28, 2011, our total revenue was $78.7 million, an increase of $14.4 million or 22.4%, as compared to total revenue of $64.3 million for the same period in 2010. The increase was primarily due to the execution of our strategic growth initiatives which resulted in an enrollment increase of 24.3% during the winter quarter 2011 over the winter quarter 2010 despite with the loss of one of our affiliate relationships in the amount of $2.6 million. Our revenue from the nine months ended February 28, 2011 consisted of $77.8 million from our NAU operations and $1.0 million from our other operations. Total operating expenses were $65.8 million or 83.6% of total revenue for the nine months ended February 28, 2011, which is an increase of $14.8 million compared to the same period in 2010. Income from operations was $12.9 million or 16.4% of total revenue for the nine months ended February 28, 2011, which is a decrease of $0.4 million compared to the same period in 2010. Net income attributable to the Company was $8.0 million or 10.1% of total revenue for the nine months ended February 28, 2011, an increase of 0.2%, compared to the same period in 2010. The enrollment increases were driven by management’s execution of our strategic initiatives which detailed our investment in new educational sites and programs, expansion of existing programs to new markets, a weaker economy and an improved enrollment management system of monitoring and improving our recruitment processes. Selling, general, and administrative expenses increased slightly more than $13.2 million. Of the total increase, spending in development of new campuses and academic programming increased $5.3 million over the previous year, increases in spending due to staffing and marketing in admission was $2.5 million, additional expense for a new employment contract with the Company’s CEO was $0.4 million, increased legal fees was $3.2 million (which includes the U.S. Senate Committee on Health, Education, Labor, and Pension (“HELP”) expenses), and additional expenses of $0.8 million was for stock compensation expense. The increase in the spending in development of new campuses and academic programming area largely consisted of expenses to develop the Austin, Texas campus and open hybrid learning centers in Colorado, Kansas, Minnesota, Missouri, Nebraska, Oklahoma, and Texas as well as expand the nursing program into Kansas, Minnesota, South Dakota, and Texas. The increase in staffing and marketing expenses has not resulted in material loss in efficiencies and has held steady as a percentage basis with the same quarter from the prior year. Legal fees increased primarily as a result of preparing responses to the request for information from the U.S. Senate Committee on HELP relating to the Committee’s ongoing hearings relating to for-profit colleges receiving Title IV student financial aid, for which the Company incurred $2.2 million in additional legal fees as well as an additional $1.0 million for trademark infringement and employment matters. The Company currently does not anticipate to incur any future material expenses related to these trademark infringement or employment matters. The additional details regarding these variances for the nine months over nine months are described in greater detail below.

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NAU

The following table sets forth statements of operations data as a percentage of total revenue for each of the periods indicated:


	Nine Months			Nine Months
	Ended February 28,			Ended February 28,
	2011			2010
	*In percentages*			*In percentages*
Total revenues		100.0	%		100.0	%
Operating expenses:
Cost of educational services		21.1			24.1
Selling, general and administrative		58.8			51.7
Auxiliary expense		2.7			2.3
Loss on disposition of property		0.1			0.0

Total operating expenses		82.7			78.2
Operating income		17.3			21.8
Interest expense		0.0			(0.2	)
Interest income		0.1			0.3
Other income		0.0			0.0

Income before non-controlling interest and taxes		17.4	%		21.9	%

Total revenue. The total revenue for NAU for the nine months ended February 28, 2011 was $77.8 million, an increase of $14.9 million or 23.6%, as compared to total revenue of $62.9 million for the same period in 2010. The increase was primarily due to the enrollment increase of 24.3% over the prior year, which we believe largely resulted from our investment in new program development, program expansion, development of new educational sites and retention initiatives with current student enrollments. In addition, the increase in total revenue also reflect board approved tuition increase of 4.3% that became effective September 2010. We believe that the execution of NAU’s well-defined strategic initiatives contributed to the increase in the revenues.

The academic revenue for the nine months ended February 28, 2011 was $73.2 million, an increase of $14.2 million or 24.0%, compared to the academic revenue of $59.0 million for the same period in 2010. The increase was primarily due to the enrollment increase over the prior year. The increase in academic revenue was offset by the loss of Harrison College account to which NAU previously provided courseware development, technical support and online class hosting services which totaled $2.6 million compared to the same period in 2010. The auxiliary revenue was $4.6 million, an increase of $0.7 million or 17.7%, as compared to auxiliary revenue of $3.9 million for the same period in 2010. The increase in auxiliary revenue was primarily due to additional book sales for the additional students being served.

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Cost of educational services. The educational services expense as a percentage of total revenue decreased by 3.0 percentage points for the nine months ended February 28, 2011, to 21.1%, as compared to 24.1% for the same period in 2010. This decrease was largely a result of our strategic initiative to increase student enrollment in online courses. Our academic advisors inform our students of the availability to take classes at physical education sites or through our online delivery platform. The students decide based on their workload, family schedules, and overall comfort with technology, which platform they want to use to take their classes. Due to the rapid technological advancement in society, we are finding that more students are selecting the online option once they understand (from our academic counseling sessions) how the online delivery works and what the expectations would be from the students in taking the online courses. In addition, for those students electing the online platform, we have developed online student orientation sessions in which students are required to participate to learn how to navigate the learning platform and better understand the expectations from the student. Through these sessions, we believe the student gains greater flexibility in completing courses in a format that enables them to be taught when convenient and NAU gains greater student to instructor efficiencies which leads to decreased expenses. The educational services expenses for the nine months ended February 28, 2011 were $16.4 million, an increase of $1.2 million, or 8.0% as compared to educational expenses of $15.2 million for the same period in 2010. This increase was primarily due to increases in instructional compensation and related expenses resulting from our increasing number of faculty and staff to provide and sustain quality educational services to our growing student population.

Included in this category is the reclassification of facilities expenses to align our expenses reporting practices with those carried out by others in our industry. These expenses were moved from the selling, general, and administrative expense category to the cost of educational services expense. The following chart details the breakout of these expenses quarterly for the previous year:


	Q1 - Ended		Q2 - Ended		Q3 - Ended
	August 31,		November 30,		February 28,		9 months
(in thousands)	2009		2009		2010		Total
Reclassification of facilities expenses	$	1,185	$	1,182	$	1,304	$	3,671

Selling, general and administrative expenses. The selling, general and administrative expenses as a percentage of net revenue increased by 7.1 percentage points for the nine months ended February 28, 2011 to 58.8%, as compared to 51.7% for the same period in 2010. The selling, general and administrative expenses for the nine months ended February 28, 2011 were $45.8 million, an increase of $13.2 million, or 40.6%, as compared to selling, general and administrative expenses of $32.5 million for the same period in 2010. The increase was primarily attributable to the additional support staff necessary to support the continued growth of the university resulting in additional expense of approximately $0.6 million, additional expense for a new employment contract with the Company’s CEO of $0.4 million, increased admission staff to support our growth plan resulting in additional expense of approximately $2.5 million, increased expenses related to business expansion and development for new programming and new campuses (consistent with our strategic initiatives) of approximately $5.3 million, increased fees for the Senate HELP request of $2.2 million, stock compensation expense of $0.8 million and increased corporate overhead due to us operating as a public company of approximately $0.1 million which is mainly legal and accounting fees.

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The gross expenditures associated with the development and expansion of new educational sites and new programs referred to above as business expansion and development expense increased by $5.3 million. Consistent with our strategic plan, for the nine months ended February 28, 2011, the total business expansion and development expenditures were $9.4 million compared to $4.1 million for the same period in 2010. The details of these figures are included in the chart below:


	Nine		Nine
	months		months
	ended		ended
	February 28,		February 28,
	2011		2010		Difference
	(in millions)		(in millions)		(in millions)
Austin TX Campus	$	2.2	$	1.6	$	0.6
Lee’s Summit MO Education Center		1.5		0.4		1.1
Minnetonka MN Education Center		1.4		0.6		0.8
Wichita KS Education Center		0.7		—		0.7
Colorado Springs CO Education Center		0.7		—		0.7
Centennial CO Education Center		0.5		0.1		0.4
Allen TX Recruitment Center		0.9		—		0.9
Tulsa OK Education Center		0.2		—		0.2
Distance Learning converions to D2L		0.1		—		0.1
Nursing Programs		1.2		1.4		(0.2	)


Total	$	9.4	$	4.1	$	5.3

Auxiliary. Auxiliary expenses for the nine months ended February 28, 2011 were $2.1 million, reflecting an increase of $0.7 million, or 45.7%, as compared to auxiliary expenses of $1.5 million for the same period in 2010. This increase is primarily due to increased book sales due to the increased number of students.

Income before non-controlling interest and taxes. The income before non-controlling interest and taxes for the nine months ended February 28, 2011 was $13.5 million, a decrease of $0.2 million or 1.7%, as compared to $13.8 million for the same period in 2010. Again this decrease is largely due to the additional expenses discussed above.

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Other

The following table sets forth statements of operations data as a percentage of total revenue for each of the periods indicated:


	Nine Months			Nine Months
	Ended February 28,			Ended February 28,
	2011			2010
	*In percentages*			*In percentages*
Total revenues		100.0	%		100.0	%
Operating expenses:
Selling, general and administrative		133.8			91.0
Cost of condominium sales		20.0			40.4

Total operating expenses		153.8			131.4
Operating loss		(53.8	)		(31.4	)
Interest expense		0.0			(24.3	)
Other income		10.0			13.6

Loss before non-controlling interest and taxes		(43.8	)%		(42.0	)%

Total revenue for the nine months ended February 28, 2011 was $1.0 million as compared to $1.4 million for the same period in 2010. Revenue from condominium sales for the nine months ended February 28, 2011 was $0.2 million as compared to $0.7 million for the same period in 2010. The selling, general and administrative expense as a percentage of total revenue increased by 42.8 percentage points for the nine months ended February 28, 2011 to 133.8%, as compared to 91.0% for the same period in 2010. The selling, general and administrative expenses for the nine months ended February 28, 2011 were $1.3 million, remaining flat, as compared to $1.3 million for the same period in 2010. The cost of the condominium sales for the nine months ended February 28, 2011 was $0.2 million compared to $0.6 million for the same period in 2010.

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Results of Operations — Three Months Ended February 28, 2011 Compared to Three Months Ended February 28, 2010

National American University Holdings, Inc.

The following table sets forth statements of operations data as a percentage of total revenue for each of the periods indicated:


	Three Months			Three Months
	Ended February 28,			Ended February 28,
	2011			2010
	*In percentages*			*In percentages*
Total revenues		100.0	%		100.0	%
Operating expenses:
Cost of educational services		20.2			23.0
Selling, general and administrative		55.1			53.5
Auxiliary expense		2.0			1.8
Cost of condominium sales		0.0			1.7
Loss on disposition of property		0.1			0.0

Total operating expenses		77.4			79.9
Operating income		22.6			20.1
Interest expense		0.0			(0.5	)
Interest income		0.1			0.2
Other income		0.1			0.5

Income before income taxes		22.8			20.3
Income tax expense		(8.9	)		(7.6	)
Net income attributable to non controlling interest		0.0			(0.1	)

Net income attributable to the Company		13.9	%		12.6	%

For the three months ended February 28, 2011, our total revenue was $27.7 million, an increase of $4.1 million or 17.5%, as compared to total revenue of $23.6 million for the same period in 2010. The increase, we believe, was primarily due to the execution of our strategic growth plan driving an increase in enrollment of 24.3% during the winter quarter 2011 over the winter quarter 2010 coupled with the loss of an affiliate relationship with a $1.1 million impact. Our revenue from the three months ended February 28, 2011 consisted of $27.5 million from our NAU operations and $0.2 million from our other operations. Total operating expenses were $21.5 million or 77.4% of total revenue for the three months ended February 28, 2011, reflecting an increase of $2.6 million compared to the same period in 2010. Income from operations was $6.3 million or 22.6% of total revenue for the three months ended February 28, 2011, reflecting an increase of $1.5 million compared to the same period in 2010. Net income attributable to the Company was $3.9 million or 13.9% of total revenue for the three months ended February 28, 2011, an increase of 30.1%, compared to the same period in 2010. The enrollment increases, we believe, were driven by management’s execution of our strategic initiatives which detailed our investment in strategic new educational sites and programs, expansion of existing programs to new markets, a weaker economy and an improved enrollment management system of monitoring and improving our recruitment processes. Selling, general, and administrative expenses increased almost $2.6 million primarily as a result of increased spending in continuing the expansion of the Austin, Texas campus and opening hybrid learning centers in Colorado, Kansas, Minnesota, Missouri, Nebraska, Oklahoma, and Texas as well as expanding the nursing program into Kansas, Minnesota, South Dakota, and Texas. The additional details regarding these variances quarter over quarter are described in greater detail below.

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NAU

The following table sets forth statements of operations data as a percentage of total revenue for each of the periods indicated:


	Three Months Ended			Three Months Ended
	February 28, 2011			February 28, 2010
	*In percentages*			*In percentages*
Total revenues		100.0	%		100.0	%
Operating expenses:
Cost of educational services		20.4			23.7
Selling, general and administrative		54.2			53.1
Auxiliary expense		2.1			1.8
Loss on disposition of property		0.1			0.0

Total operating expenses		76.8			78.6
Operating income		23.3			21.4
Interest expense		0.0			(0.1	)
Interest income		0.1			0.2
Other income		0.0			(0.1	)

Income before non-controlling interest and taxes		23.4	%		21.5	%

Total revenue. The total revenue for the three months ended February 28, 2011 was $27.5 million, an increase of $4.6 million or 19.9%, as compared to total revenue of $22.9 million for the same period in 2010. The increase was driven by our 24.3% enrollment increase during the winter quarter 2011 over the winter quarter 2010, which we believe resulted from our investment in program development and expansion, new and expanded affiliate relationships (courseware development, technical support, and online hosting services), and new hybrid learning centers. These numbers are also reflective of the decrease in revenue of $1.1 million due to the loss of the Harrison College account to which NAU previously provided courseware development, technical support, and online class hosting services.

The academic revenue for the three months ended February 28, 2011 was $26.1 million, an increase of $4.4 million or 20.5%, as compared to academic revenue of $21.7 million for the same period in 2010. The increase was primarily due to the enrollment increase over the prior year, which we believe was driven by management’s execution of our key strategic initiatives. The auxiliary revenue was $1.4 million, an increase of $0.1 million or 9.7%, as compared to auxiliary revenue of $1.2 million for the same period in 2010. This increase was primarily due to increased book sales and instructional material fees resulting from increased enrollment.

Cost of educational services. The educational services expense as a percentage of total revenue decreased by 3.3 percentage points for the three months ended February 28, 2011, to 20.4%, as compared to 23.7% for the same period in 2010. This decrease we believe was a result of our strategic initiative to increase student enrollment in online courses. Our academic advisors inform our students of the availability to take classes at physical education sites or through our online delivery platform. The students decide based on their workload, family schedules, and overall comfort with technology, which platform they want to use to take their classes. Due to the rapid technological advancement in society, we are finding that more students are selecting the online option once they understand (from our academic counseling sessions) how the online delivery works and what the expectations would be from the students in taking the online courses. In addition, for those students electing the online platform, we have developed online student orientation sessions in which students are required to participate to learn how to navigate the learning platform and better understand the expectations from the student. Through these sessions, we believe the student gains greater flexibility in completing courses in a format that enables them to be taught when convenient and NAU gains greater student to instructor ratios leading to increased efficiencies. The educational services expenses for the three months ended February 28, 2011 were $5.6 million, an increase of $0.2 million, or 3.3% compared to educational expenses of $5.4 million for the same period in 2010. This increase was primarily due to increases in instructional compensation and related expenses resulting from our increasing number of faculty and staff to provide and sustain quality educational services to our growing student population.

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Selling, general and administrative expenses. The selling, general and administrative expenses as a percentage of net revenue increased by 1.1 percentage points for the three months ended February 28, 2011 to 54.2%, compared to 53.1% for the same period in 2010. The selling, general and administrative expenses for the three months ended February 28, 2011 were $14.9 million, an increase of $2.7 million, or 22.4%, compared to selling, general and administrative expenses of $12.2 million for the same period in 2010. The increase was primarily attributed to increased spending of $2.0 million in business expansion and development (consistent with our strategic initiatives).

The gross expenditures associated with the development and expansion of new educational sites and new programs referred to above as business expansion and development expense increased $2.0 million. Consistent with our strategic initiatives, for the three months ended February 28, 2011, the total business expansion and development expenditures were $3.8 million compared to $1.8 million for the same period in 2010 as detailed below:


	Three		Three
	months		months
	ended		ended
	February 28,		February 28,
	2011		2010		Difference
	(in millions)		(in millions)		(in millions)
Austin TX Campus	$	0.8	$	0.6	$	0.2
Lee’s Summit MO Education Center		0.6		0.3		0.3
Minnetonka MN Education Center		0.5		0.4		0.1
Wichita KS Education Center		0.4		—		0.4
Colorado Springs CO Education Center		0.3		—		0.3
Centennial CO Education Center		0.2		—		0.2
Allen TX Recruitment Center		0.3		—		0.3
Tulsa OK Education Center		0.2		—		0.2
Nursing Programs		0.5		0.5		—


Total	$	3.8	$	1.8	$	2.0

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Auxiliary. Auxiliary expenses for the three months ended February 28, 2011 were $0.6 million and remained flat as compared to auxiliary expenses of $0.4 million for the same period in 2010.

Income before non-controlling interest and taxes. The income before non-controlling interest and taxes for the three months ended February 28, 2011 was $6.4 million, an increase of $1.5 million or 30.5%, compared to $4.9 million for the same period in 2010.

Other

The following table sets forth statements of operations data as a percentage of total revenue for each of the periods indicated:


	Three Months Ended			Three Months Ended
	February 28, 2011			February 28, 2010
	*In percentages*			*In percentages*
Total revenues		100.0	%		100.0	%
Operating expenses:
Selling, general and administrative		152.5			66.4
Cost of condominium sales		0.0			58.9

Total operating expenses		152.5			125.3
Operating income (loss)		(52.4	)		(25.3	)
Interest expense		0.0			(15.5	)
Interest income		0.0			0.0
Other income (expense)		10.2			21.0

Loss before non-controlling interest and taxes		(42.2	)%		(19.8	)%

Total revenue for the three months ended February 28, 2011 was $0.2 million, a decrease of $0.4 million or 63.9%, compared to $0.7 million for the same period in 2010. The decrease was primarily due to lack of sales of condominiums in the three months ended February 28, 2011. For the three months ended February 28, 2011, revenue from condominium sales was $0 million, a decrease of $0.5 million or 100%, as compared to $0.5 million for the same period in 2010. The selling, general and administrative expense as a percentage of total revenue increased by 86.1 percentage points for the three months ended February 28, 2011 to 152.5%, compared to 66.4% for the same period in 2010. This increase was primarily the result of decreased revenue base to support a larger margin impact for these expenses. The selling, general and administrative expenses for the three months ended February 28, 2011 were $0.4 million, remaining flat, as compared to $0.4 million for the same period in 2010. The cost of the condominium sales for the three months ended February 28, 2011 was $0, a decrease of $0.4 million or 100.0%, as compared to $0.4 for the same period in 2010. The costs decreased due to no condominium sales occurring in the three months ended February 28, 2011.

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Liquidity and Capital Resources

Liquidity. At February 28, 2011, and May 31, 2010, cash, cash equivalents and marketable securities were $41.7 million and $19.8 million, respectively. Consistent with our cash management plan and investment philosophy, a portion of the excess cash was invested in United States securities directly or through money market funds, as well as in bank deposits and certificates of deposit. Of the amounts listed above, the marketable securities for February 28, 2011 and May 31, 2010 were $11.1 million respectively.

We maintain one line of credit to support ongoing operations. This line of credit is available to support timing differences between inflows and outflows of cash. During the third quarter of 2011, as well as the nine months ended February 28, 2011, the line of credit was not utilized. We retain this $3 million revolving line of credit with Wells Fargo Bank. Advances under the line bear interest at a variable rate based on prime and are secured by the Company’s checking, savings and investment accounts held by the bank. There were no advances outstanding against this line at February 28, 2011 and May 31, 2010.

Based on our current operations and anticipated growth, the cash flows from operations and other sources of liquidity are anticipated to provide adequate funds for ongoing operations and planned capital expenditures for the near future. These expenditures include our plans for continued expansion and development of new programming, development of new hybrid learning centers, and growth of our affiliate relationships. The current plan anticipates spending over $13.0 million in expenditures for our fiscal year ending May 31, 2011, as compared to $6.5 million for the fiscal year ended May 31, 2010. Also, we believe that we are positioned to further supplement our liquidity with debt, if needed.

Operating Activities. Net cash provided by operating activities for the nine months ended February 28, 2011 and 2010 were $9.7 million and $8.6 million, respectively. The increase is related primarily to the increase in results of operations after adjustments for certain non-cash items including $2.1 million in depreciation expense and $2.4 million for the provision for bad debt.

Investing Activities. Net cash used by investing activities were $5.0 million for the nine months ended February 28, 2011, as compared to the net cash used by investing activities of $17.3 million for the nine months ended February 28, 2010. The decrease in the cash used by investing activities was primarily related to the timing of investments maturing and the lack of proceeds from the sale of those investments in the period ended February 28, 2010 compared to the sales of investments in the period ended February 28,2 011.

Financing Activities. Net cash provided by financing activities were $17.2 million and $13.6 million for the nine months ended February 28, 2011 and 2010, respectively. This increase is primarily a result of issuing additional stock in our secondary offering (net of the dividends paid) for the nine months ended February 28, 2011, as compared to the cash received in connection with our merger with Dlorah, Inc. during the nine months ended February 28, 2010.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Impact of Inflation

The Company believes inflation has had a minimal impact on results of operations for the nine month period ended February 28, 2011. We also increase tuition (usually once a year) to assist offsetting inflationary impacts. Consistent with the Company’s operating plan, a yearly salary increase in December (supported by evaluations and recommendations from supervisors) is considered to help alleviate the inflationary effects on staff. There can be no assurance that future inflation will not have an adverse impact on operating results and financial condition.


Item 3.		Quantitative and Qualitative Disclosures About Market Risk.

Because we are a smaller reporting company, we are not required to provide this information.


Item 4.		Controls and Procedures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a- 15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report on Form 10-Q. Based on our evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective such that the material information required to be included in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes to the Company’s internal control over financial reporting during the third fiscal quarter of 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION


Item 1.		Legal Proceedings.

From time to time, the Company and its subsidiary may be a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. We are not at this time, a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, would be expected to have a material adverse effect on our business, financial condition or results of operation.

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Item 1A.		Risk Factors.

Because we are a smaller reporting company, we are not required to provide this information.


Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.

In December 2007, we completed our initial public offering, or IPO, pursuant to a registration statement on Form S-1 under the Securities Act of 1933, as amended (File No. 333-143098) that was declared effective by the SEC on November 26, 2007. Under the registration statement, we registered the offering and sale of 7,812,500 units, each unit consisting of one share of common stock, $0.0001 par value per share, and one warrant to purchase one share of common stock. A total of 6,626,300 units were sold in the offering at a price to the public of $8.00 per unit. After deducting underwriting discounts, commissions and offering expenses of approximately $4.2 million, we raised a total of $48.8 million.

In connection with the transaction with Dlorah on November 23, 2009, we used $3.3 million of our IPO proceeds to redeem all of the outstanding warrants that were publicly traded immediately before the consummation of the Dlorah transaction, and $3.7 million of our proceeds from the IPO to buyout an employment agreement and for legal, accounting, filing, and insurance fees associated with being a public entity.

We have used and intend to use the remaining net proceeds from the IPO for general corporate purposes and growth initiatives, including expansion of educational sites.

Issuer Purchases of Equity Securities. The following table summarizes common stock repurchased by us during the quarter ended February 28, 2011:


					Total Number of		Maximum Number
					Shares Purchased		of Shares that May
	Total Number				as Part of Publicly		Yet be Purchased
	of Shares		Average Price Paid		Announced Plans		Under the Plans or
Period	Purchased		per Share		or Programs ⁽¹⁾		Programs ⁽¹⁾
December 1, 2010 – December 31, 2010		0		—		—		—
January 1, 2011 – January 31, 2011		0		—		—		—
February 1, 2011 – February 28, 2011		1,000,000	$	7.51		1,000,000		0


⁽¹⁾		On January 31, 2011, the Board of Directors approved a stock repurchase of up to 1,000,000 shares of the Company’s common stock in both open market and privately negotiated transactions for aggregate consideration not to exceed $10,000.

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Item 3.		Defaults Upon Senior Securities.

None.


Item 4.		Reserved.


Item 5.		Other Information.

None.


Item 6.		Exhibits.


	31.1			Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2			Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	National American University Holdings, Inc.
	(Registrant)
Dated: April 8, 2011	By:	/s/ Ronald Shape
		Ronald L. Shape, Ed. D.
		Chief Executive Officer and Chief Financial Officer

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Exhibit Index


Exhibit		Description

	31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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