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 3, 2012 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 37 educational sites (four of which are pending regulatory approvals - Indianapolis, Indiana, Tigard, Oregon, Houston, Texas and the Rouche Graduate Center in Austin, Texas) located in Colorado, Indiana, Kansas, Minnesota, Missouri, Nebraska, New Mexico, Oklahoma, Oregon, South Dakota and Texas; distance learning service centers in Indiana and Texas; and distance learning operations and central administration offices in Rapid City, South Dakota.

As of August 31, 2012, NAU had 2,536 students enrolled in courses at its physical locations only, 6,068 students enrolled in online courses only, and 1,746 students enrolled in a hybrid format taking both online courses and courses at a physical location. NAU supports the instruction of 2,500 additional students at affiliated institutions for whom 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 0.9% of our revenues for the quarter ended August 31, 2012.

Key Financial Results Metrics

Revenue. Revenue is derived mostly from NAU's operations. For the three months ended August 31, 2012, approximately 90% of our revenue was generated from NAU's academic revenue, which consists of tuition and fees assessed at the start of each term. The remainder of our revenue comes from NAU's auxiliary revenue from sources such as NAU's food services, 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 when earned.

Factors affecting net revenue include:

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

• the number of credit hours per student;

• the student's degree and program mix;

• changes in tuition rates;

• the affiliates with which NAU is working as well as the number of students at the affiliates; and

• the amount of scholarships for which students qualify.

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 three months ended August 31, 2012 and 2011 were 4.6% and 3.9%, 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 August 31, 2012, and August 31, 2011, by degree type and by instructional delivery method.

                                    August 31, 2012               August 31, 2011               % Growth for
                                    (Summer '13 Qtr)              (Summer '12 Qtr)              same quarter
                                   Number of Students            Number of Students            over prior year
Graduate                                           338                           345                       (2.0 )%
Undergraduate and Diploma                       10,012                         9,045                       10.7 %

Total                                           10,350                         9,390                       10.2 %

On-Campus                                        2,536                         3,364                      (24.6 )%
Online                                           6,068                         4,610                       31.6 %
Hybrid                                           1,746                         1,416                       23.3 %

Total                                           10,350                         9,390                       10.2 %

We experienced a 10.2% growth in enrollment in summer term 2013 over summer term 2012. This rate of growth was a decrease from our historic enrollment growth rate, which has averaged approximately 11.77% annually since 1998. We also believe we have realized a significant, yet steady increase in enrollments since 2005 due to our investment of approximately $53.6 million to expand and develop physical locations and academic programming. In addition, we believe that our strategic plan was 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 1-2 additional physical locations, focus on growth at our 37 existing locations, and, potentially, making strategic acquisitions. This growth will be subject to applicable regulatory requirements and market conditions. With these efforts, we anticipate our positive enrollment trends will continue. To the extent the economic downturn has caused enrollment growth, our ability to maintain or increase that portion of our growth 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 these enrollment trends will 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 strategic acquisitions. If market conditions decline or if we are unable to open new physical locations, develop or expand academic programming or make strategic acquisitions, whether as a result of regulatory limitations or other factors, our growth rate will likely decline.

Expenses. Expenses consist of cost of educational services, selling, general and administrative, auxiliary expenses, 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, 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 gain/loss on disposition of property and equipment expense records the remaining book value 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, subject to applicable regulatory approvals. 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 develop, 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.

Introduction of new physical locations. We plan to develop additional physical locations over the next several years, subject to applicable regulatory approvals. 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. Included in the expenses are depreciation related to capital funds for equipment and build-outs as well as operating funds for staff salaries and marketing dollars. These expenses will negatively impact the operating margin in the short-term with anticipated long-term gains due to the increased revenues.

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 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.

Results of Operations - Three Months Ended August 31, 2012 Compared to Three
Months Ended August 31, 2011

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 August 31,                Ended August 31,
                                                     2012                            2011
                                               In  percentages                 In  percentages
Total revenues                                             100.0 %                         100.0 %
Operating expenses:
Cost of educational services                                24.2                            25.0
Selling, general and administrative                         69.4                            66.1
Auxiliary expense                                            6.3                             2.5
Cost of condominium sales                                    0.0                             0.0
Loss (gain) on disposition of
property                                                     0.2                            (0.5 )

Total operating expenses                                   100.1                            93.1
Operating (loss) income                                     (0.1 )                           6.9
Interest expense                                            (0.8 )                           0.0
Interest income                                              0.1                             0.2
Other income                                                 0.1                             0.1

(Loss) income before income taxes                           (0.7 )                           7.2
Income tax benefit/(expense)                                 0.1                            (2.9 )
Net income attributable to
non-controlling interest                                     0.0                            (0.3 )

Net income attributable to the
Company                                                     (0.6 )%                          4.0 %

For the three months ended August 31, 2012, our total revenue was $29.5 million, an increase of $4.1 million or 16%, as compared to total revenue of $25.4 million for the same period in 2011. The increase was primarily due to the execution of our strategic growth plan which resulted in an enrollment increase of 10.2% during the summer quarter 2013 over the summer quarter 2012. The enrollment increases were driven by management's execution of our strategic plan 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. Our revenue for the three months ended August 31, 2012 consisted of $29.2 million from our NAU operations and $0.3 million from our other operations.

Total operating expenses were $29.5 million or 100.1% of total revenue for the three months ended August 31, 2012, which is an increase of $5.8 million compared to the same period in 2011. These expenses increased due primarily to the NAU segment and are discussed in more detail in the NAU section. Loss from operations was ($22,000) or (0.1)% of total revenue for the three months ended August 31, 2012, which is a decrease of $1.8 million compared to the same period in 2011. Net loss attributable to the Company was $(0.2) million or (0.6)% of total revenue for the three months ended August 31, 2012, a decrease of 116%, compared to the same period in 2011.

NAU

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 August 31,                Ended August 31,
                                                     2012                            2011
                                               In  percentages                 In  percentages
Total revenues                                             100.0 %                         100.0 %
Operating expenses:
Cost of educational services                                24.5                            25.3
Selling, general and administrative                         68.5                            65.1
Auxiliary expense                                            6.3                             2.6
Cost of condominium sales                                    0.0                             0.0
Loss on disposition of property                              0.0                             0.0

Total operating expenses                                    99.3                            93.0
Operating income                                             0.7                             7.0
Interest expense                                            (0.9 )                           0.0
Interest income                                              0.1                             0.2
Other income                                                 0.0                             0.0

(Loss) income before non-controlling
interest and taxes                                          (0.1 )%                          7.2 %

Total revenue. The total revenue for NAU for the three months ended August 31, 2012 was $29.2 million, an increase of $4.0 million or 16.1%, as compared to total revenue of $25.1 million for the same period in 2011. The increase was primarily due to the enrollment increase of 10.2%, which was consistent with our investment in new program development, program expansion, development of new educational sites and retention initiatives with current student enrollments, over the prior year. In addition, the increase is due to a board approved tuition increase of 4.7% that became effective September 2011. We believe that NAU's well-defined strategic plan continues to contribute to the increase in the revenues.

The academic revenue for the three months ended August 31, 2012 was $26.5 million, an increase of $2.8 million or 11.7%, as compared to academic revenue of $23.7 million for the same period in 2011. The increase was primarily due to the enrollment increase over the prior year. The auxiliary revenue was $2.7 million, an increase of $1.3 million or 89.1%, as compared to auxiliary revenue of $1.4 million for the same period in 2011. This increase in auxiliary revenue was primarily driven by increased enrollment growth and the implementation of a new online bookstore vendor.

Cost of educational services. The educational services expense as a percentage of total revenue decreased by 0.8 percentage points for the three months ended August 31, 2012, to 24.5%, as compared to 25.3% for the same period in 2011. This decrease was a result of fixed costs such as facility expenses on an increasing revenue base.

Selling, general and administrative expenses. The selling, general and administrative expenses as a percentage of net revenue increased by 3.4 percentage points for the three months ended August 31, 2012, to 68.5%, as compared to 65.1% for the same period in 2011. The selling, general and administrative expenses for the three months ended August 31, 2012 were $20.0 million, an increase of $3.6 million, or 22.2%, as compared to selling, general and administrative expenses of $16.4 million for the same period in 2011. Included in these numbers, is an increase in fixed costs related to our geographic expansion. There are approximately 10 more locations this year with an additional $2.7 million in expenses, which includes 140 additional staff at a cost of $2.2 million (as well as facility costs like rent, depreciation, etc at a

cost of $0.5 million) associated with these new locations. The additional staffing is required to ensure the operation of these new locations and to support the quality of our academic programs. As these locations mature and the revenue base grows, the costs associated with these locations will continue to see improvement as a percentage of revenue. In addition, the university experienced health insurance claims of $0.4 million higher than the same quarter of the previous year. The university is self-insured and these claims are due to a select few individuals and are not anticipated to repeat themselves in future quarters. The university also has experienced increased bad debt of $0.4 million which is a 0.5% increase over the previous year. The bad debt increase is also an element of the growth in our new locations including the training and learning curve of the newly hired staff members in these locations.

Auxiliary. Auxiliary expenses for the nine months ended August 31, 2012 were $1.8 million, an increase of $1.2 million as compared to auxiliary expenses of $0.6 million for the same period in 2011. As discussed above auxiliary revenues increased due to book sales and the auxiliary expenses (which includes cost of books) also increased due to the increased book sales.

Income before non-controlling interest and taxes. The loss before non-controlling interest and taxes for the three months ended August 31, 2012 was ($22,000), a decrease of $1.8 million or 101.2%, as compared to $1.8 million for the same period in 2011. This decrease is due to the additional expenses discussed above.

Other

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



                                                 Three Months                    Three Months
                                               Ended August 31,                Ended August 31,
                                                     2012                            2011
                                               In  percentages                 In  percentages
Total revenues                                             100.0 %                         100.0 %
Operating expenses:
Cost of educational services                                 0.0                             0.0
Selling, general and administrative                        157.6                           155.2
Auxiliary expense                                            0.0                             0.0
Cost of condominium sales                                    0.0                             0.0
Loss (gain) on disposition of
property                                                    24.5                           (52.2 )

Total operating expenses                                   182.1                           103.0
Operating loss                                             (82.1 )                          (3.0 )
Interest expense                                             0.0                             0.0
Interest income                                              1.1                             1.1
Other income                                                12.8                            11.5

(Loss) income before non-controlling
interest and taxes                                         (68.2 )%                          9.6 %

Total revenue for the three months ended August 31, 2012 was $0.3 million as compared to $0.3 million for the same period in 2011. There was no revenue from condominium sales for the three months ended August 31, 2012 and 2011 and rental income remained flat. The selling, general and administrative expenses for the three months ended August 31, 2012 were $0.4 million, flat, as compared to $0.4 million for the same period in 2011. The loss on disposition of property for the three months ended August 31, 2012 was $0.1 million as compared to a gain of $0.1 million for the same period in 2011.

Liquidity and Capital Resources

Liquidity. At August 31, 2012, and May 31, 2012, cash, cash equivalents and marketable securities were $27.8 million and $30.6 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 August 31, 2012 and May 31, 2012 were $11.4 million and $14.9 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 first quarter of fiscal year 2013 ended August 31, 2012, the line of credit was not utilized. We retain this $3.0 million revolving line of credit with Great Western Bank. Advances under the line bear interest at a variable rate based on prime and are unsecured. There were no advances outstanding against this line at August 31, 2012 and May 31, 2012.

Based on our current operations and anticipated growth, the cash flows from operations and other sources of liquidity are anticipated to provide adequate . . .