National American University Holdings Inc (NAUH) SEC Quarterly Report (10-Q) for Q4 2015

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

Form 10-Q

Commission File No. 001-34751

National American University Holdings, Inc.

(Exact name of registrant as specified in its charter)

(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  R No  £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  R  No  £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

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

NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES

INDEX

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements.

NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE SIX MONTHS ENDED NOVEMBER 30, 2015 AND NOVEMBER 30, 2014

(In thousands, except share and per share amounts)

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 ("NAU" or the "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 and in accordance with the requirements of the Securities and Exchange Commission ("SEC") for interim financial reporting. As permitted under these rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States ("U.S. GAAP") can be condensed or omitted. The information in the condensed consolidated balance sheet as of May 31, 2015, was derived from the audited consolidated financial statements for the Company for the year then ended. Accordingly, these financial statements should be read in conjunction with the Company's annual financial statements which were included in the Company's Annual Report Form 10-K for the year ended May 31, 2015, filed on August 7, 2015.  Furthermore, the results of operations and cash flows for the six month periods ended November 30, 2015 and 2014 are not necessarily indicative of the results that may be expected for the full year. These financial statements include consideration of subsequent events through issuance.

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

Unless the context otherwise requires, the terms "we", "us", "our" and the "Company" used throughout this document refer to National American University Holdings, Inc. and its wholly owned subsidiary, Dlorah, Inc., which owns and operates National American University, sometimes referred to as "NAU" or the "University".

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

The Company, through Dlorah, owns and operates National American University. NAU is a regionally accredited, proprietary, multi-campus institution of higher learning, offering associate, bachelors, masters and doctoral degree programs in allied health, legal studies, education, business, accounting and information technology. The Company, through Dlorah's 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.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, provides more useful information to users of the consolidated financial statements through improved disclosure requirements, and simplifies the preparation of the consolidated financial statements by reducing the number of requirements to which an entity must refer.   The ASU outlines five steps to achieve proper revenue recognition: identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the entity satisfies the performance obligation.  This standard is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.  This standard will be effective for the Company's fiscal year 2019 in the first quarter ending August 31, 2018.  The Company is currently evaluating and has not yet determined the impact implementation will have on the Company's consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern , that will explicitly require management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances.  This standard will be effective for the Company's fiscal year ending May 31, 2017.  The adoption of this standard is not expected to have a significant impact on the Company's consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis , which requires reevaluation of all legal entities under a revised consolidation model.  The standard will specifically affect limited partnerships and similar legal entities, the evaluation of fees paid to a decision maker or a service provider as a variable interest, the effect of fee arrangements and related parties on the primary beneficiary determination, and certain investment funds.  This standard will be effective for the Company's fiscal year 2017 in the first quarter ending August 31, 2016.  The Company is currently evaluating and has not yet determined the impact implementation will have on the Company's consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes , which no longer requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position.  Instead, deferred tax liabilities and assets will be classified as noncurrent.  For public business entities, this update will be effective for financial statements issued for annual periods beginning after December 15, 2016, and for interim periods within those annual periods. The Company has elected early adoption and will implement the accounting update effective for the Company's fiscal year 2017 in the first quarter ending August 31, 2016.  This accounting update will require reclassification of all current deferred tax liabilities and assets to noncurrent in the consolidated balance sheets, which will have an immaterial impact on the Company's consolidated financial statements.

The Company signed a contract for deed on its former Rapid City campus on March 28, 2013 for $4,000 (see Note 5 for capital lease on new campus).  The sale did not meet the accounting requirements to be consummated and was not recorded at this time.  On July 11, 2014, the contract for deed was settled.  The Company collected the outstanding proceeds, which included $3,230 principal and $85 of interest that was offset by $59 of lease-back payments and maintenance expenses related to the long-term operating lease.  All remaining liens on the property were released and deemed sold, resulting in a gain of $1,743.

As part of ongoing operations, the Company entered into a capital lease arrangement for additional space that houses the corporate headquarters, distance learning operations, and the new Rapid City campus operations (see Note 4).  During the year ended May 31, 2014, the Company increased its capital lease obligation by $2,000 to account for tenant improvements.  The Company initially paid for the improvements and reached an agreement with the lessor to be reimbursed for the amount under the terms of a $2,000 note receivable.  The note receivable required monthly payments of $14 at 6% that directly offset the monthly payments to the lessor under the capital lease obligation.  In June 2014, the landlord of the property paid the $1,390 remaining balance of the note receivable.

The authorized capital stock for the Company is 51,100,000, consisting of (i) 50,000,000 shares of common stock, par value $0.0001 and (ii) 1,000,000 shares of preferred stock, par value $0.0001, and (iii) 100,000 shares of class A common stock, par value $0.0001.  Of the authorized shares, 24,324,391 and 25,191,414 shares of common stock were outstanding as of November 30, 2015 and May 31, 2015, respectively.  No shares of preferred stock or Class A common stock were outstanding at November 30, 2015.

Stock Repurchase Plan

During the three and six months ended November 30, 2015, the Company repurchased 121,062 shares for $332 and 151,069 shares for $416, respectively, under this authorization.  In addition, during the three months ended November 30, 2015, the Company repurchased 853,073 shares of its outstanding common stock for $2,039 from a single unrelated shareholder.  This repurchase was approved by the Company's Board of Directors and was separate from the August 6, 2015 repurchase authorization.

During the six months ended November 30, 2015 and 2014, $55 and $19, respectively, of additions to treasury stock resulted from the settlement of stock-based compensation.  During the three months ended November 30, 2015 and 2014, $52 and $12, respectively, of additions to treasury stock resulted from the settlement of stock-based compensation.

Stock-Based Compensation

In December 2009, the Company adopted the 2009 Stock Option and Compensation Plan (the "Plan") pursuant to which the Company may grant restricted stock awards, restricted stock units and stock options to aid in recruiting and retaining employees, officers, directors and other consultants.  A total of 1,300,000 shares were authorized by the Plan.  At November 30, 2015, 465,027 shares of common stock remain available for issuance under the Plan.

In October 2013, the Company's Board of Directors adopted the 2013 Restricted Stock Unit Plan (the "2013 Plan") authorizing the issuance of up to 750,000 shares of the Company's stock to participants in the 2013 Plan.  At November 30, 2015, 596,500 shares of common stock remain available for issuance under the 2013 Plan.

Restricted stock

During the three months ended November 30, 2015, the Company awarded 40,485 restricted stock awards with time based vesting at a grant date fair value of $2.47 per share to members of the board of directors.  Shares vest one year from the grant date and require board service for the entire year.

Compensation expense in the consolidated statements of operations associated with restricted stock awards totaled $33 and $66, respectively, for the three and six month periods ended November 30, 2015.  At November 30, 2015, the unamortized compensation cost of these restricted stock awards totaled $86.  The unamortized cost is expected to be recognized over a weighted-average period of 0.9 years as of November 30, 2015.

A summary of restricted share awards activity as of November 30, 2015 and the changes during the six months then ended is presented below:

In addition to the restricted stock awards with time vesting above, during the three months ended November 30, 2015, the Company, under the 2013 Plan, issued 187,500 restricted stock units ("RSUs") with performance based vesting.  The number of shares to be earned is determined by the Company's profitability during the fiscal year ending May 31, 2016.  The grant date fair value of the restricted stock units is $3.06 per share with a total fair value of $574.  Management at this time believes the performance objectives will not be attained and, as a result, no compensation cost has been recorded in the consolidated statements of operations.

Unrestricted stock

Unrestricted stock is issued to certain employees in settlement of a portion of their salaries and bonuses.  Compensation expense in the consolidated statements of operations associated with these unrestricted stock issuances totaled $190 and $217, respectively, for the three and six month periods ended November 30, 2015.

Stock options

During the three months ended November 30, 2015, the Company granted stock options to purchase 148,475 shares of stock; 50% of the stock options vested on the issuance date and the remaining 50% vests at the end of the current fiscal year.  The following assumptions were used to determine fair value of the stock options awarded:

A summary of option activity under the Plan as of November 30, 2015 and changes during the six months then ended is presented below:

The Company recorded compensation expense for stock options of $73 for the three and six month periods ended November 30, 2015, in the consolidated statements of operations.  As of November 30, 2015, there was $52 of unrecognized compensation cost related to unvested stock option based compensation arrangements granted under the Plan to be amortized over 0.5 years.

The Company plans to issue new shares as settlement of options exercised.

Dividends

The following table presents details of the Company's fiscal 2016 and 2015 dividend payments:

Basic earnings per share ("EPS") is computed by dividing net income attributable to the Company by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per share reflect the potential dilution that could occur assuming vesting, conversion or exercise of all dilutive unexercised options and restricted stock.

The following is a reconciliation of the numerator and denominator for the basic and diluted EPS computations:

A total of 213,350 shares of common stock for the three and six months ended November 30, 2015 and 85,250 shares of common stock for the three and six months ended November 30, 2014 subject to issuance upon exercise of stock options have been excluded from the calculation of diluted EPS as the effect would have been anti-dilutive.

A total of 82,640 shares of common stock subject to vesting of restricted stock for the three and six months ended November 30, 2015 (19,522 and 23,686 of these shares had potential dilutive impact for the three and six months ended November 30, 2015, respectively) have been excluded from the calculation of diluted EPS as the effect would have been anti-dilutive.  A total of 42,155 shares of common stock subject to vesting of restricted stock for the three and six months ended November 30, 2014 have been excluded from the calculation of diluted EPS as the effect would have been anti-dilutive.

The Company's effective tax rate was 31.0% for the six months ended November 30, 2015, as compared to 37.4% for the corresponding period in 2014.  The effective tax rate varies from the statutory rate primarily due to the fluctuation in state income taxes as a result of the Company's net loss position, nondeductible meals, and stock compensation.

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

The following table summarizes certain information for assets and liabilities measured at fair value on a recurring basis:

Following is a summary of the valuation techniques for assets and liabilities recorded in the consolidated condensed balance sheets at fair value on a recurring basis:

Certificates of Deposit ("CD's") and money market accounts:   Investments which have closing prices readily available from an active market are used as being representative of fair value.  The Company classifies these investments as level 1.  Market prices for certain CD's are obtained from quoted prices for similar assets.  The Company classifies these investments as level 2.

Fair value of financial instruments:   The Company's financial instruments include cash and cash equivalents, CD's and money market accounts, receivables, payables, and capital lease payables.  The carrying values approximated fair values for cash and cash equivalents, receivables, and payables because of the short term nature of these instruments.  CD's and money market accounts are recorded at fair values as indicated in the preceding disclosures.  The estimated fair value of capital lease obligations is $11,982 and $12,097 at November 30, 2015 and May 31, 2015, respectively, which approximates book value.

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 primarily real estate.  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. The following table presents the reportable segment financial information, in thousands:

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 7, 2015 and its other filings with the SEC. The Company undertakes no obligation to update or revise any forward looking statement, except as may be required by law.

Background

National American University, or NAU, is a regionally accredited, proprietary, multi-campus institution of higher learning, offering associate, bachelor's, master's and doctoral degree programs in allied health, nursing, legal studies, education, business, accounting  and information technology. Operations at November 30, 2015 included 37 locations, including educational sites located in Colorado, Indiana, Kansas, Minnesota, Missouri, Nebraska, New Mexico, Oklahoma, Oregon, South Dakota and Texas, a distance learning service center in Texas, and distance learning operations and central administration offices in Rapid City, South Dakota.

As of November 30, 2015, NAU had 1,433 students enrolled at its physical locations, 5,572 students for its online programs, and 1,244 students that attended physical campus hybrid learning locations and also took classes online.  NAU supports the instruction of approximately 1,600 additional students at affiliated institutions for which NAU provides online course hosting and technical assistance. NAU provides courseware development, technical support and online class hosting services to various colleges, technical schools and training institutions in the United States and Canada who do not have the capacity to develop and operate their own in-house online curriculum for their students. NAU does not share revenues with these institutions, but rather charges a fee for its services, enabling it to generate additional revenue by leveraging its current online program infrastructure.

The real estate operations consist of apartment facilities, condominiums and other real estate holdings in Rapid City, South Dakota. The real estate operations generated approximately 1% of our revenues for the quarter ended November 30, 2015.

Key Financial Results Metrics

Revenue. Revenue is derived mostly from NAU's operations. For the six months ended November 30, 2015, approximately 91.8% of our revenue was generated from NAU's academic revenue, which consists of tuition and fees assessed at the start of each term. The remainder of our revenue comes from NAU's auxiliary revenue from sources such as NAU's book sales, and the real estate operations' rental income 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 as items are sold and is recorded net of any applicable sales tax.

  Factors affecting net revenue include:

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 anticipate 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 six months ended November 30, 2015 and 2014 were 6.3% and 3.4%, 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.

The following chart is a summary of our student enrollment on November 30, 2015 and 2014, by degree type and by instructional delivery method.

We experienced a 22.1% decrease in enrollment in the fall term 2015 over the fall term 2014 due to lower market demand among our targeted student demographic. This decline was across all degree programs and course delivery methods with the exception of the doctoral program. We believe our investment to expand academic programming and our strategic plan will be critical in returning to the growth and results of operations that we have seen over the recent years.

We plan to continue expanding and developing our academic programming focusing on growth at our approximately three dozen existing locations and potentially making acquisitions. This growth will be subject to applicable regulatory requirements and market conditions. With these efforts, we anticipate positive enrollment trends. Our ability to maintain or increase enrollment will 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 we are able to increase enrollment 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 enrollment rate will likely decline.

Expenses. Expenses consist of cost of educational services, selling, general and administrative, auxiliary expense, the cost of condominium sales, and the gain/loss on disposition of property and equipment. Cost of educational services expenses contains expenditures attributable to the educational activity of NAU. This expense category includes salaries and benefits of faculty and academic administrators, costs of educational supplies, faculty reference and support material and related academic costs, and facility costs. Selling, general and administrative 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 and amortization, 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. The cost of condominium sales is the expense related to condominiums that are sold during the reporting period. The gain or loss on disposition of property and equipment expense records the cost incurred or income received in the disposal of assets that are no longer used by us.

Factors affecting comparability

Set forth below are selected factors we believe have had, or which we expect to have, a significant effect on the comparability of our recent or future results of operations:

Introduction of new programs and specializations. We plan to develop additional degree and diploma programs and specializations over the next several years. When introducing new programs and specializations, we invest in curriculum development, support infrastructure and marketing research. Revenues associated with these new programs are dependent upon enrollments, which are lower during the periods of introduction. During this period of introduction and development, the rate of growth in revenues and operating income has been, and may be, adversely affected, in part, due to these factors. Historically, as the new programs and specializations mature, increases in enrollment are realized, cost-effective delivery of instructional and support services are achieved, economies of scale are recognized and more efficient marketing and promotional processes are gained.

Stock-based compensation. We expect to incur increased non-cash, stock based compensation expense in connection with existing and future issuances under our 2009 Stock Option and Compensation Plan, the 2013 Restricted Stock Unit 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.

Department of Education Rulemaking and Regulatory Activities

In September 2015, President Obama announced the Department of Education's launch of a revised "College Scorecard" website that provides access to national data on college costs, graduation rates, debt and post-college earnings, including data regarding NAU. In addition, in November 2015, the Department of Education issued comparative data regarding federally recognized accreditation agencies and the institutions they accredit, which include median debt, repayment rates, completion rates and median earnings.  We cannot predict the extent to which the College Scorecard may create negative perceptions of NAU, or of proprietary educational institutions generally, or otherwise impact NAU's enrollments, reputation, or results of operations.

On October 30, 2015, the U.S. Department of Education (the "Department of Education") published final regulations to establish a new Pay As You Earn Repayment Plan for those not covered by the existing Pay As You Earn Repayment Plan in the Federal Direct Loan Program, and also to establish procedures for Federal Family Education Loan Program loan holders to use to identify U.S. military servicemembers who may be eligible for a lower interest rate on their federal student loans under the Servicemembers Civil Relief Act.  The new Pay As You Earn repayment plan became available in December 2015 to all Federal Direct Loan Program borrowers regardless of when the borrower took out the loans. In addition, these regulations, which are generally effective July 1, 2016, implement changes to the Federal Family Education Loan Program, or FFEL Program, and Direct Loan Program regulations to streamline and enhance existing processes and provide additional support to struggling borrowers, including, among other things, establishing new procedures for FFEL Program loan holders to identify servicemembers who may be eligible for benefits under the Servicemembers Civil Relief Act. Also, the regulations expand the circumstances under which an institution could challenge or appeal a draft or final cohort default rate, beginning in February 2017. We cannot predict the extent to which these final regulations will impact NAU, nor can we predict possible regulatory burdens and costs.

Also on October 30, 2015, the Department of Education published final regulations regarding several Title IV program integrity topics, including cash management of Title IV program funds and debit card practices, retaking coursework and clock-to-credit hour conversion.  The cash management regulations go into effect on July 1, 2016. Among other topics, the cash management regulations address arrangements between postsecondary institutions and financial account providers to disburse Title IV program credit balances to students, including through the use of debit or prepaid cards.

The cash management regulations require institutions to establish a process to facilitate student choice in how students receive Title IV program federal student financial aid credit balances; limit the personally identifiable information about students that may be shared with financial account providers; and require institutions to obtain student consent before opening an account in the student's name. Under these regulations, an institution that has entered into an arrangement with a financial account provider must mitigate certain fees incurred by Title IV program fund recipients, and certain types of fees are prohibited. The cash management regulations require that contracts governing arrangements with financial account providers be publicly disclosed and evaluated in light of the best financial interests of students.  Additionally, the cash management regulations mandate that institutions subject to heightened cash monitoring procedures for disbursements of Title IV program funds must, effective July 1, 2016, pay to students any applicable Title IV credit balances before requesting such funds from the Department of Education.  The cash management regulations further specify the circumstances under which an institution may include the cost of books and supplies as part of institutional tuition and fees charged to a student, such as if the institution has made arrangements with publishers to obtain books at below-market rates or if books or electronic course materials are not available elsewhere. The cash management regulations also expand the group of students to whom an institution must provide a way to obtain or purchase, by the seventh day of a payment period, the books and supplies applicable to the payment period. Previously, an institution was required to provide such assistance only to students who receive Pell Grants, but under these new regulations, an institution will be required to provide such assistance to any student who is eligible for Title IV program funds.  In addition to the cash management regulations, the final Title IV program integrity regulations published on October 30, 2015 make other changes to requirements for the institutional administration of Title IV programs, including by clarifying how previously passed coursework is treated for Title IV eligibility purposes, and altering the requirements for converting clock hours to credit hours.  We are currently unable to predict the impact that compliance with these new Title IV program integrity regulations might have on our business.

On October 20, 2015, the Department of Education announced that it would establish a new negotiated rulemaking committee to develop proposed regulations for determining which acts or omissions of an institution of higher education a student borrower may assert as a defense to repayment of a loan made under the Federal Direct Loan Program ("borrower defenses") and the consequences of such borrower defenses for borrowers, institutions, and the Department of Education. The Department of Education further announced that the rulemaking committee is intended to address (i) the procedures to be used for a borrower to establish a defense to repayment; (ii) the criteria that the Department of Education will use to identify acts or omissions of an institution that constitute defenses to repayment of Federal Direct Loans; (iii) the standards and procedures that the Department of Education will use to determine the liability of the institution participating in the Federal Direct Loan Program for amounts based on borrower defenses; (iv) the effect of borrower defenses on institutional capability assessments; and (v) other loan discharges. The rulemaking committee is scheduled to meet beginning in January 2016. We are unable to predict when the Department of Education may ultimately issue regulations on these topics, the result of any other current or future rulemakings or the impact of such rulemakings on our business.

Results of Operations - Six Months Ended November 30, 2015 Compared to Six Months Ended November 30, 2014

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:

For the six months ended November 30, 2015, our total revenue was $50.4 million, a decrease of $9.5 million or 15.9%, as compared to total revenue of $59.9 million for the same period in 2014.  The change was primarily due to a decrease in average enrollments of 22.1% for the six months ended November 30, 2015 over the prior year due to lower market demand among our targeted student demographic.  Our revenue for the six months ended November 30, 2015 consisted of $49.8 million from our NAU operations and $0.6 million from our other operations.

Total operating expenses were $53.7 million or 106.5% of total revenue for the six months ended November 30, 2015, which is an increase of $2.0 million compared to the same period in 2014.  Operating (loss) was $(3.3) million or (6.5)% of total revenue for the six months ended November 30, 2015, which is a decrease of $11.5 million compared to the same period in 2014.  Net (loss) attributable to the Company was $(2.5) million or (4.9)% of total revenue for the six months ended November 30, 2015 as compared to a net income attributable to the Company of $5.0 million or 8.3% of total revenue for the six months ended November 30, 2014.

Net income for the six months ended November 30, 2015 decreased by $7.5 million as compared to the same period in 2014 due to $9.5 million lower revenue and a $1.9 million increase in selling, general and administrative expenses.  This increase was partially due to a $1.1 million increase in the provision for uncollectable tuition, partially offset by continuing cost cutting initiatives to better align with the decreasing enrollments and needs of the Company. Additionally, the Company recognized gains in the prior year six month period as a result of non-recurring transactions. During the three months ended August 31, 2014, the Company sold property resulting in a gain of $1.7 million and recognized an expense reduction from a change in estimated retirement plan contributions of $0.7 million. In addition, during the quarter ended November 30, 2014, the Company reversed previously recorded non-cash compensation expense of $1.5 million related to performance based restricted stock awards due to year-end performance criteria that management believed was unachievable.

NAU

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

Total revenue .   The total revenue for NAU for the six months ended November 30, 2015 was $49.8 million, a decrease of $9.1 million or 15.4% as compared to total revenue of $58.9 million for the same period in 2014.  The decrease was primarily due to the average enrollment decrease of 22.1% for the six months ended November 30, 2015 over the same period in 2014, partially offset by a 2.5% tuition increase. The enrollment decrease is due to lower market demand among our targeted student demographic resulting, in part, to the current improving economic climate, in which many working adults have chosen not to attend school.

The academic revenue for the six months ended November 30, 2015 was $46.2 million, a decrease of $8.6 million or 15.6%, as compared to academic revenue of $54.8 million for the same period in 2014.  The decrease was primarily due to lower enrollments over the prior year.  The auxiliary revenue for the six months ended November 30, 2015 was $3.6 million, a decrease of $0.5 million or 12.5%, as compared to auxiliary revenue of $4.1 million for the same period in 2014.  This decrease in auxiliary revenue was primarily driven by decreased enrollments and lower book sales.

Cost of educational services .   The educational services expense for the six months ended November 30, 2015 decreased $1.1 million, to $13.1 million in the current year as compared to $14.2 million for the same period in 2014. The educational services expense as a percentage of total revenue increased by 2.3 percentage points for the six months ended November 30, 2015, to 26.4%, as compared to 24.1% for the same period in 2014. This percentage increase was largely a result of fixed costs, such as facility expenses, being compared to a decreasing revenue base.

Selling, general and administrative expenses .  The selling, general and administrative expenses as a percentage of net revenue increased by 14.8 percentage points for the six months ended November 30, 2015, to 74.3%, as compared to 59.5% for the same period in 2014.  The selling, general and administrative expenses for the six months ended November 30, 2015 were $37.0 million, an increase of $2.0 million, or 5.6%, as compared to selling, general and administrative expenses of $35.0 million for the same period in 2014.  The increase was partially due to a $1.1 million increase in the provision for uncollectable tuition.  In addition, during the quarter ended November 30, 2014, the Company reversed previously recorded non-cash compensation expense of $1.5 million related to performance based restricted stock awards due to year-end performance criteria that management believed was unachievable.  We continue to work to identify cost cutting initiatives to better align with the decreasing enrollments and needs of the Company.

Results of Operations - Three Months Ended November 30, 2015 Compared to Three Months Ended November 30, 2014

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:

For the three months ended November 30, 2015, our total revenue was $25.7 million, a decrease of $4.9 million or 16.0%, as compared to total revenue of $30.6 million for the same period in 2014.  The decrease was primarily due to the enrollment decrease of 22.1% during the fall quarter 2015 over the fall quarter 2014. The enrollment decreases were the result of economic conditions and lower market demand among our targeted student demographic.  Our revenue for the three months ended November 30, 2015 consisted of $25.4 million from our NAU operations and $0.3 million from our other operations.

Total operating expenses were $27.1 million or 105.3% of total revenue for the three months ended November 30, 2015, which is an increase of $1.2 million compared to the same period in 2014.  Loss from operations was $(1.4) million or (5.3)% of total revenue for the three months ended November 30, 2015, which is a decrease in operating income of $6.1 million compared to the same period in 2014.

Net (loss) income attributable to the Company was $(1.2) million or (4.6)% of total revenue for the three months ended November 30, 2015, as compared to a net income attributable to the Company of $2.8 million or 9.2% of total revenue for the three months ended November 30, 2014.  The lower net income was largely due to $4.9 million lower revenue and a $1.5 million increase in selling, general and administrative expenses.  There was a $0.3 million increase in the provision for uncollectable tuition.  In addition, during the quarter ended November 30, 2014, the Company reversed previously recorded non-cash compensation expense of $0.9 million, net of tax related to performance based restricted stock awards due to year-end performance criteria that management believed was unachievable.

NAU

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