929887--5/22/2007--APOLLO_GROUP

related topics

{regulation, government, change}

{control, financial, internal}

{financial, litigation, operation}

{acquisition, growth, future}

{competitive, industry, competition}

{stock, price, operating}

{regulation, change, law}

{operation, international, foreign}

{system, service, information}

{operation, natural, condition}

{investment, property, distribution}

{cost, contract, operation}

We are subject to the oversight of the SEC and other regulatory agencies, and investigations by those agencies could divert management s focus and have a material adverse impact on our reputation and financial condition. Material weaknesses in internal control over activities relating to stock option grants, valuation of accounts receivable, valuation of goodwill, and the deduction of certain compensation expenses under IRC Section 162(m) resulted in a restatement of or adjustments to our financial statements, and the transitional changes to our control environment may be insufficient to effectively remediate these deficiencies. We had four material weaknesses in internal control over financial reporting that we identified and cannot assure you that additional material weaknesses will not be identified in the future. If our internal control over financial reporting or disclosure controls and procedures are not effective, there may be errors in our financial statements that could require a restatement or our filings may not be timely and investors may lose confidence in our reported financial information, which could lead to a decline in our stock price. Because we did not file our annual report with the SEC for the year ended August 31, 2006, and our quarterly reports for the periods ended May 31, 2006, November 30, 2006 and February 28, 2007 on a timely basis, we may suffer adverse business consequences, including the delisting of our common stock by the Nasdaq Stock Market. Risks Related to the Control Over Our Voting Stock Our Acting Executive Chairman of the Board and his son control 99.9% of our voting stock and control substantially all actions requiring the vote or consent of shareholders. Risks Related to the Highly Regulated Industry in Which We Operate If we fail to comply with the extensive regulatory requirements for our business, we could face significant monetary liabilities, fines and penalties, including loss of access to federal student loans and grants for our students. If we are not recertified to participate in Title IV programs by the U.S. Department of Education, we would lose eligibility to participate in Title IV programs. Action by the U.S. Congress to revise the laws governing the federal student financial aid programs or reduce funding for those programs could reduce our student population and increase our costs of operation. Student loan defaults could result in the loss of eligibility to participate in Title IV programs. If any regulatory audit, investigation or other proceeding finds us not in compliance with the numerous laws and regulations applicable to the postsecondary education industry, we may not be able to successfully challenge such finding and our business could suffer. If we fail to maintain our institutional accreditation, we would lose our ability to participate in Title IV programs. If we fail to maintain any of our state authorizations, we would lose our ability to operate in that state and to participate in Title IV programs there. A failure to demonstrate administrative capability or financial responsibility may result in the loss of eligibility to participate in Title IV programs. Our schools and programs would lose their eligibility to participate in federal student financial aid programs if the percentage of our revenues derived from those programs were too high. We will be subject to sanctions if we fail to calculate and make timely payment of refunds of Title IV program funds for students who withdraw before completing their educational program. We are subject to sanctions if we pay impermissible commissions, bonuses, or other incentive payments to individuals involved in certain recruiting, admission, or financial aid activities. If we were involved in conflicts of interest with student loan lenders, we could be subject to penalties and otherwise suffer adverse impacts on our business. If IPD s Client Institutions were sanctioned due to non-compliance with Title IV requirements, we could suffer adverse impacts on our business. The complexity of regulatory environments in which we operate has increased and may continue to increase our costs. Risks Related to Our Business If we are unable to successfully conclude the litigation, governmental investigations and inquiries pending against us, our business, financial condition, results of operations and growth prospects could be adversely affected. We may not be able to sustain our recent growth rate or profitability, and we may not be able to manage future growth effectively. If we cannot maintain student enrollments, our results of operations may be adversely affected. Our computer systems may be vulnerable to security risks that could disrupt operations and require us to expend significant resources. We face intense competition in the post-secondary education market. Our expansion into new markets outside the United States, if successful, will subject us to risks inherent in international operations. We may not be able to successfully complete or integrate future acquisitions.

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929887--5/22/2007--APOLLO_GROUP_INC