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EX-32.2 - EXHIBIT 32.2 - BROADVIEW INSTITUTE INC | c08282exv32w2.htm |
EX-31.2 - EXHIBIT 31.2 - BROADVIEW INSTITUTE INC | c08282exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - BROADVIEW INSTITUTE INC | c08282exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - BROADVIEW INSTITUTE INC | c08282exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
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 Number: 000-08505
BROADVIEW INSTITUTE, INC.
Minnesota | 41-0641789 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification Number) |
8089 Globe Drive, Woodbury, Minnesota 55125
(Address of Principal Executive Offices) (Zip Code)
Registrants telephone number, including area code: (651) 332-8000
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 Web site, 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 the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o
(Do not check if a smaller reporting company) |
Smaller reporting company þ |
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
The number of shares outstanding of the Registrants Common Stock, $0.01 par value, as of October
15, 2010 was 8,248,252.
BROADVIEW INSTITUTE, INC.
AND SUBSIDIARY
AND SUBSIDIARY
INDEX
FORM 10-Q
FORM 10-Q
SEPTEMBER 30, 2010
Page No. | ||||||||
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
i
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BROADVIEW INSTITUTE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
September 30, | March 31, | |||||||
2010 | 2010 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 5,753,060 | $ | 5,591,079 | ||||
Student receivables |
104,465 | 156,360 | ||||||
Inventory |
| 424,802 | ||||||
Deferred income taxes |
3,000 | 276,000 | ||||||
Other |
339,473 | 143,126 | ||||||
TOTAL CURRENT ASSETS |
6,199,998 | 6,591,367 | ||||||
PROPERTY AND EQUIPMENT, NET |
2,287,852 | 1,424,481 | ||||||
OTHER ASSETS |
||||||||
Deposits |
189,676 | 189,676 | ||||||
Deferred income taxes |
148,000 | 49,000 | ||||||
Goodwill |
622,016 | 622,016 | ||||||
$ | 9,447,542 | $ | 8,876,540 | |||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Accounts payable |
$ | 513,149 | $ | 609,696 | ||||
Accrued expenses |
274,870 | 261,753 | ||||||
Income taxes payable |
93,663 | 155,669 | ||||||
TOTAL CURRENT LIABILITIES |
881,682 | 1,027,118 | ||||||
DEFERRED RENT |
555,585 | 282,565 | ||||||
STOCKHOLDERS EQUITY |
||||||||
Preferred stock Series B, par value $.01 per share, authorized
5,000,000 shares, 500,000 shares issued and outstanding |
5,000 | 5,000 | ||||||
Common stock, par value $.01 per share, authorized
100,000,000 shares, 8,248,252 shares and 8,218,252 shares
issued and outstanding at September 30, 2010 and
March 31, 2010 |
82,482 | 82,182 | ||||||
Additional paid-in capital |
4,399,404 | 4,264,204 | ||||||
Retained earnings |
3,523,389 | 3,215,471 | ||||||
TOTAL STOCKHOLDERS EQUITY |
8,010,275 | 7,566,857 | ||||||
$ | 9,447,542 | $ | 8,876,540 | |||||
See notes to consolidated financial statements.
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Table of Contents
BROADVIEW INSTITUTE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
REVENUES |
$ | 4,876,295 | $ | 4,540,850 | $ | 10,316,555 | $ | 8,515,672 | ||||||||
OPERATING EXPENSES |
||||||||||||||||
Educational services and facilities |
3,524,230 | 2,953,565 | 7,063,356 | 5,560,226 | ||||||||||||
Selling, general and administrative |
1,528,170 | 1,101,436 | 2,719,123 | 1,916,609 | ||||||||||||
TOTAL OPERATING EXPENSES |
5,052,400 | 4,055,001 | 9,782,479 | 7,476,835 | ||||||||||||
OPERATING INCOME (LOSS) |
(176,105 | ) | 485,849 | 534,076 | 1,038,837 | |||||||||||
OTHER INCOME |
7,134 | 5,558 | 15,836 | 11,099 | ||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES |
(168,971 | ) | 491,407 | 549,912 | 1,049,936 | |||||||||||
INCOME TAX EXPENSE (BENEFIT) |
(60,158 | ) | 204,327 | 211,994 | 406,616 | |||||||||||
NET INCOME (LOSS) |
$ | (108,813 | ) | $ | 287,080 | $ | 337,918 | $ | 643,320 | |||||||
EARNINGS (LOSS) PER SHARE: |
||||||||||||||||
Basic |
$ | (0.01 | ) | $ | .03 | $ | .04 | $ | .08 | |||||||
Diluted |
$ | (0.01 | ) | $ | .03 | $ | .04 | $ | .07 |
See notes to consolidated financial statements.
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Table of Contents
BROADVIEW INSTITUTE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended September 30, | ||||||||
2010 | 2009 | |||||||
OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 337,918 | $ | 643,320 | ||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||
Depreciation |
190,749 | 155,000 | ||||||
Deferred income taxes |
174,000 | 336,000 | ||||||
Deferred rent |
273,020 | 25,475 | ||||||
Stock-based compensation |
135,500 | | ||||||
Changes in operating assets and liabilities: |
||||||||
Student receivables |
51,895 | 11,613 | ||||||
Inventory |
215,293 | (56,480 | ) | |||||
Other |
13,162 | 11,163 | ||||||
Accounts payable and accrued expenses |
(83,430 | ) | 309,779 | |||||
Income taxes payable |
(62,006 | ) | 40,616 | |||||
Net cash provided by operating activities |
1,246,101 | 1,476,486 | ||||||
INVESTING ACTIVITIES: |
||||||||
Purchases of property and equipment |
(1,054,120 | ) | (231,449 | ) | ||||
FINANCING ACTIVITIES: |
||||||||
Preferred dividends paid |
(30,000 | ) | | |||||
INCREASE IN CASH AND CASH EQUIVALENTS |
161,981 | 1,245,037 | ||||||
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD |
5,591,079 | 2,344,573 | ||||||
CASH AND CASH EQUIVALENTS AT END
OF PERIOD |
$ | 5,753,060 | $ | 3,589,610 | ||||
SUPPLEMENTAL DISCLOSURES: |
||||||||
Cash paid for income taxes |
$ | 100,000 | $ | 30,000 | ||||
Non-cash activities: |
||||||||
Other current assets for inventory returns |
$ | 209,509 | $ | | ||||
See notes to consolidated financial statements.
-3-
Table of Contents
Broadview Institute, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
Notes to Consolidated Financial Statements
(Unaudited)
1. Nature of Business
Broadview Institute, Inc. (the Company), a Minnesota corporation, offers career-focused
post-secondary education services through its wholly-owned subsidiary, C Square Educational
Enterprises, Inc. (d/b/a Broadview University) (Broadview University, or the University).
Broadview University is accredited by the Accrediting Council for Independent Colleges and Schools
(ACICS) to award undergraduate degrees in multiple fields of study, and a Master of Science
degree in management.
Broadview University delivers these services through traditional classroom settings as well as
through online instruction. The University has campuses located in the Utah cities of West Jordan,
Layton and Orem, and opened a new branch campus in Salt Lake City in October 2010. We also
anticipate opening a branch campus in Boise, Idaho in January 2011.
The Company has rebranded the University for the purpose of future expansion both in campus
locations as well as degree offerings. Effective May 2010, C Square Educational Enterprises, Inc.
changed its registered d/b/a with the State of Utah from Utah Career College to Broadview
University. The Company selected the Broadview University name in anticipation of expansion
outside of Utah and is in line with managements intent to market all current and future locations
and programs under a single brand name.
2. Presentation of Financial Information
The accompanying unaudited consolidated financial statements have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission (SEC) for interim
financial statements. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant to such rules and
regulations, although the Companys management believes that the disclosures made herein are
adequate to make the information presented not be misleading.
The Company manages its business on the basis of one reporting segment. The consolidated
financial statements include the accounts of the Company and its subsidiary, the University. All
inter-company accounts and transactions have been eliminated in the consolidated financial
statements. In the opinion of management, the unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the
consolidated financial position of the Company as of September 30, 2010, the consolidated results
of operations for the three and six months ended September 30, 2010 and 2009, and the consolidated
cash flows for the six months ended September 30, 2010 and 2009. Results of operations and cash
flows for the periods presented are not necessarily indicative of results to be expected for any
other interim period or for the full fiscal year.
These consolidated financial statements should be read in conjunction with the Companys
consolidated financial statements and notes thereto in its Form 10-K for the year ended March 31,
2010 and Annual Report to Security Holders filed with the SEC.
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Table of Contents
Broadview Institute, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Notes to Consolidated Financial Statements (continued)
(Unaudited)
2. Presentation of Financial Information (continued)
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
3. New Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued a new accounting
standard which amends guidance regarding consolidation of variable interest entities (VIEs) to
address the elimination of the concept of a qualifying special purpose entity. This standard also
replaces the quantitative-based risks and rewards calculation for determining which enterprise has
a controlling financial interest in a VIE with an approach focused on identifying which enterprise
has the power to direct the activities of the entity. Additionally, the standard requires any
enterprise that holds a variable interest in a VIE to provide enhanced disclosures that will
provide users of financial statements with more transparent information about an enterprises
involvement in a VIE. The Company adopted the guidance on April 1, 2010; adoption has not impacted
our consolidated financial condition or results of operations.
In October 2009, the FASB issued a new accounting standard which amends guidance on accounting
for revenue arrangements involving the delivery of more than one element of goods and/or services.
The standard amends the criteria for separating consideration in multiple-deliverable arrangements
and establishes a selling price hierarchy for determining the selling price of the deliverable.
The amendments eliminated the residual method of allocation and require that arrangement
consideration be allocated at the inception of the arrangement to all deliverables using the
relative selling price method. The standard also significantly expands the disclosures related to
a vendors multiple-deliverable arrangement. The standard is effective on a prospective basis for
revenue arrangements entered into or materially modified in fiscal years beginning on or after June
15, 2010. We do not expect adoption of this standard to have a material impact on the Companys
consolidated financial position or results of operations.
In July 2010, the FASB issued a new accounting standard which, among other features, amends
guidance on disclosures related to accounts receivable and related credit reserves. The standard
will require companies to increase disclosures about the credit quality of certain receivables,
including financing and trade receivables, loans, loan syndications, factoring arrangements, and
standby letters of credit, and the credit reserves held against them. The standard becomes
effective for interim or annual reporting periods ending after December 15, 2010. Management is
evaluating the potential impact of this standard on the disclosure of the Companys consolidated
financial position or results of operations.
4. Earnings (Loss) Per Share
Basic earnings (loss) per share (EPS) is calculated for common shares by dividing net income
(loss) available to common stockholders by the weighted average number of vested common shares
outstanding during the period. Diluted EPS, in addition to the weighted average number of common
shares outstanding determined for basic EPS, reflects the potential dilution that could occur
assuming conversion or exercise of all dilutive unconverted or unexercised financial instruments.
Potentially dilutive instruments include warrants, preferred stock and unvested restricted stock
awards.
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Table of Contents
Broadview Institute, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Notes to Consolidated Financial Statements (continued)
(Unaudited)
4. Earnings (Loss) Per Share (continued)
The basic income (loss) available to common stockholders was computed as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) |
$ | (108,813 | ) | $ | 287,080 | $ | 337,918 | $ | 643,320 | |||||||
Cumulative dividends |
(7,500 | ) | (7,500 | ) | (15,000 | ) | (15,000 | ) | ||||||||
Net income (loss) available to
common stockholders |
$ | (116,313 | ) | $ | 279,580 | $ | 322,918 | $ | 628,320 | |||||||
The outstanding shares used for the diluted EPS were computed as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Weighted-average shares outstanding
Basic |
8,228,252 | 8,108,252 | 8,230,655 | 8,108,252 | ||||||||||||
Incremental shares from assumed
exercise or conversion of dilutive
instruments: |
||||||||||||||||
Warrants |
| 280,390 | 335,700 | 196,582 | ||||||||||||
Restricted stock not vested |
| | 20,000 | | ||||||||||||
Preferred stock |
| 500,000 | 500,000 | 500,000 | ||||||||||||
Weighted average shares diluted |
8,228,252 | 8,888,642 | 9,086,355 | 8,804,834 | ||||||||||||
5. Stockholders Equity
Series A Preferred Stock
The Company designated 100,000 shares of its preferred stock as Series A, cumulative, voting
preferred stock with a per share par value of $.01 and a per share liquidation value equal to the
greater of $100 or 100 times the per share liquidation value of common stock. Each share of Series
A preferred stock has voting rights equal to 100 shares of common stock. Upon issuance, the Series
A preferred stock bears a cumulative quarterly dividend equal to the greater of $1.00 or 100 times
the amount of any quarterly declared dividend on common stock. No shares of Series A preferred
stock are issued.
Series B Preferred Stock
The Company has 5,000,000 authorized shares of Series B preferred stock, with a per share par
value of $.01. The Company previously issued 500,000 shares to Mr. Terry Myhre, our Chairman and
the Companys largest shareholder (Mr. Myhre) for $625,000. Each share of Series B preferred
stock is entitled to the same voting rights as common stock and bears a cumulative annual dividend
of $.06 per share and has liquidation rights over common stock at $1.25 per share plus any
cumulative dividends. At September 30, 2010, cumulative preferred stock dividends in arrears were
$15,000. Each Series B preferred share is convertible into one share of common stock at any time.
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Table of Contents
Broadview Institute, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Notes to Consolidated Financial Statements (continued)
(Unaudited)
5. Stockholders Equity (continued)
Warrants
Detachable warrants for 1,000,000 shares of common stock were included with the Series B
preferred stock issuance noted above. The warrants were issued with an exercise price of $1.25 per
share and appraised value of approximately $.20 per warrant. At September 30, 2010 and 2009,
650,000 warrants were outstanding and 650,000 shares of common stock were reserved for conversion
of the warrants. The warrants expire in March 2015.
Stock Options
There were no stock options granted, exercised or expired during the three or six months ended
September 30, 2010 and 2009, and no options were outstanding as of September 30, 2010 or 2009.
Equity Incentive Plan
The Company has an Equity Incentive Plan (the Plan) that permits the granting of stock
options, restricted stock awards, restricted stock units, performance share awards, performance
unit awards and stock appreciation rights to certain employees, consultants, affiliates and
advisors of the Company. Of the 1,000,000 shares of the Companys common stock that were initially
available for issuance pursuant to the Plan, 820,000 and 900,000 shares were available for issuance
at September 30, 2010 and 2009.
Restricted Stock Awards
On October 13, 2009, the Companys Board of Directors (the Board) revised its compensation
arrangement for the Boards directors for the 2010 and 2011 fiscal years. Under the revised
arrangement applicable for those two fiscal years, the Board (i) eliminated cash fees that, under
the prior compensation arrangement, would be paid to directors for serving as a director or would
be paid to directors for attending Board meetings and (ii) granted each of the Companys five
directors a two-year restricted stock award for 16,000 shares of Company common stock under the
Plan. These shares were valued at $3.25 per share, which was the closing price of the Companys
common stock on the grant date. Four thousand shares of each restricted stock award were vested at
the time of grant, reflecting payment for the directors services during the first two fiscal
quarters of the 2010 fiscal year, and each award continues to vest at a rate of 2,000 shares per
quarter through the Companys quarter ending March 31, 2011.
Stock compensation expense for directors recorded for the three and six months ended September
30, 2010 was $32,500 and $65,000. The Company recognized $65,000 of such expense for the three
months ended September 30, 2009. No such expense was recognized during the first quarter of the
prior year. At September 30, 2010, future expense related to these awards is expected to be
$65,000 for the year ended March 31, 2011.
If any director receiving a restricted stock award ceases to serve as a director for any
reason during the awards vesting period, such directors restricted stock award shall cease
vesting, and all unvested shares pursuant to such award shall be forfeited to the Company without
payment of any consideration therefore to the director.
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Table of Contents
Broadview Institute, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Notes to Consolidated Financial Statements (continued)
(Unaudited)
5. Stockholders Equity (continued)
The Board has not set director compensation for any period beyond its 2011 fiscal year but
anticipates that director compensation for future periods (whether in the form of cash, stock, a
combination of the two or otherwise) will be established by the Board on or about the end of the
Companys 2011 fiscal year as the restricted stock awards granted on October 13, 2009 fully vest.
Other Stock-Based Compensation
On June 16, 2010, the Board awarded stock bonuses to the Companys Chief Executive Officer and
Chief Financial Officer in the amount of 20,000 and 10,000 shares of the Companys common stock.
The shares were valued at $2.35 per share which was the closing price of the Companys common stock
on the grant date. The stock bonuses are not subject to forfeiture or any vesting requirements and
were not made pursuant to the Companys Equity Incentive Plan. Stock compensation expense for
officers recorded for the three and six months ended September 30, 2010 was $70,500.
These officers were previously awarded stock bonuses under similar terms in the amount of
20,000 and 10,000 shares of the Companys common stock on October 13, 2009. The shares were valued
at $3.25 per share which was the closing price of the Companys common stock on the grant date.
The Company recognized stock compensation expense of $97,500 for the three months ended September
30, 2009. No such expense was recognized during the first quarter of the prior year.
6. Income Taxes
The Company recognized income tax benefit of $60,158 and expense of $211,994 for the three and
six months ended September 30, 2010, compared to expense of $204,327 and $406,616 for the three and
six months ended September 30, 2009. The Company utilized its remaining federal net operating loss
carryforward during the first quarter of this current fiscal year.
The Company is subject to U.S. federal income tax as well as income tax of multiple state
jurisdictions. No jurisdictions are currently under examination. The Companys policy is to
recognize interest and penalties related to uncertain tax positions in income tax expense when
assessed. No liability was recorded for interest or penalties related to uncertain tax positions
at September 30, 2010 or March 31, 2010.
7. Related Party Transactions
Part of the revenue reported by the Company was paid by students of Broadview University from
funds received from Myhre Investments, LLC, an entity owned by Mr. Myhre. Myhre Investments, LLC
had $1,692,524 and $1,532,757 in loans outstanding to Broadview University students at September
30, 2010 and March 31, 2010.
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Table of Contents
Broadview Institute, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Notes to Consolidated Financial Statements (continued)
(Unaudited)
7. Related Party Transactions (continued)
The Company utilizes executive, administrative, accounting and consulting services provided by
Globe University (GU) and the Minnesota School of Business (MSB and collectively GU/MSB),
companies owned by Mr. Myhre, pursuant to a Service Level Agreement (the SLA) between the Company
and GU/MSB. Some of the services provided by GU/MSB under this arrangement include chief financial
and chief executive officer services, information technology support, finance and accounting
services, human resources support, student financial aid consulting and curriculum consulting. The
term of the SLA is for one year and it shall automatically renew each July 1st for
one-year periods. The SLA may be terminated by either party with 30 days notice.
Under the SLA, the Company paid GU/MSB $50,000 per month for these services from July 1, 2008
through December 31, 2009. Effective January 1, 2010, the Companys Board of Directors approved
increasing the payments to $75,000 per month, based on managements analysis of the cost and scope
of services provided. Management believes the monthly charges under the SLA are competitive with,
or less than, what the Company would have to pay to provide these services or to obtain them from
another third party. The Companys expenses for services under the SLA were $225,000 and $450,000
for the three and six months ended September 30, 2010, and $150,000 and $300,000 for the three and
six months ended September 30, 2009.
Broadview University is a party to a lease agreement with Myhre Holdings-Utah, LLC, an
entity wholly owned by Myhre Holdings, Inc., which is owned by the heirs of Mr. Myhre. Under the
agreement, the Company leases a 31,200 square foot building located in Layton, Utah. The lease is
for an initial period of ten years with two additional five-year renewal options. The agreement is
a triple net lease with a monthly base rent of $32,500 and an initial security deposit of the
same amount. Broadview Institute, Inc. guaranteed the lease. Rent expense for the Layton facility
was $97,500 and $195,000 for the three and six months ended September 30, 2010 and 2009.
Broadview University is a party to a lease agreement with Myhre Holdings-Orem, LLC, an entity
wholly-owned by Myhre Holdings, Inc. Under the agreement, the Company leases a 31,200 square foot
building located in Orem, Utah. The lease is for an initial period of ten years with two
additional five-year renewal options. The agreement is a triple net lease with monthly base rent
of $48,100 and an initial security deposit of the same amount. Broadview Institute, Inc.
guaranteed the lease. Rent expense for the Orem facility was $144,300 and $288,600 for the three
and six months ended September 30, 2010 and 2009.
-9-
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
Cautionary Notice Regarding Forward Looking Statements
Certain statements included in this Managements Discussion and Analysis of Financial
Condition and Results of Operations as well as elsewhere in this report on Form 10-Q that are not
statements of historical or current facts should be considered forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 (the Reform Act). .
Forward-looking statements provide current expectations or forecasts of future events. Such
statements can be identified by the use of terminology such as anticipate, believe,
estimate, expect, intend, may, could, possible, plan, project, should, will,
forecast, and similar words or expression. These statements are based on the Companys 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 the actual results to differ materially from those expressed in,
or implied by, such statements. The assumptions, risks and uncertainties include the growth pace
of student enrollments, our continued compliance with regulatory requirements, maintaining our
accreditation status, availability of funding programs for Broadview University students, our
ability to successfully open new campuses, our ability to update and expand academic program
offerings, our ability to hire and retain key personnel, and general economic and market
conditions. Further information about these and other relevant risks and uncertainties may be
found in our annual report on Form 10-K and other Company filings with the Securities and Exchange
Commission. The Company undertakes no obligation to update or revise forward looking statements,
except as may be required by law.
Description of Business
Overview:
Broadview Institute, Inc. (the Company), a Minnesota corporation, offers career-focused
post-secondary education services through its wholly-owned subsidiary, C Square Educational
Enterprises, Inc. (d/b/a Broadview University) (Broadview University, or the University).
Broadview University is accredited by the Accrediting Council for Independent Colleges and Schools
(ACICS) to award undergraduate degrees in multiple fields of study, and a Master of Science
degree in management.
Broadview University delivers these services through traditional classroom settings as well as
through online instruction. The University has campuses located in the Utah cities of West Jordan,
Layton and Orem, and opened a new branch campus in Salt Lake City in October 2010. We also
anticipate opening a branch campus in Boise, Idaho in January 2011.
The Company has rebranded the University for the purpose of future expansion both in campus
locations as well as degree offerings. Effective May 2010, C Square Educational Enterprises, Inc.
changed its registered d/b/a with the State of Utah from Utah Career College to Broadview
University. The Company selected the Broadview University name in anticipation of expansion
outside of Utah and is in line with managements intent to market all current and future locations
and programs under a single brand name.
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Key Financial Metrics
Revenues
Approximately 97% of our revenues recognized during the three and six months ended September
30, 2010 were from tuition collected from Broadview Universitys students. Factors affecting our
revenues include: (i) the number of enrolled students; (ii) the cost per academic credit charged to
our students; (iii) the average credits taken by our students each quarter; and (iv) the mix and
number of programs and degrees we offer.
We began operations of a new branch campus in Salt Lake City, Utah in October 2010. We also
anticipate opening a branch campus in Boise, Idaho in January 2011.
Effective July 1, 2010, we increased Broadview Universitys tuition rates to $410 per credit
hour for all of our programs with the exception of our nursing program, for which $565 was charged
per credit. These tuition rate increases were 6.5% and 4.6%, respectively. Prior to this, our
last tuition rate increase occurred in July 2009.
Broadview University has recently received accrediting body approval for expansion of our
program and degree offerings, delivered both via our residential campuses and our online
educational offerings. This includes offering our first masters-level degree in management.
Operating Expenses
Our educational services and facilities expenses generally consist of expense items directly
attributable to the educational activities of Broadview University. These items include campus
administrative and instructional salaries and related costs, student materials and academic program
supplies, and facility rent and maintenance.
Our selling, general and administrative expenses include marketing and advertising
expenditures, as well as general administrative expenses. The Company utilizes executive,
administrative, accounting and consulting services provided by Globe University (GU) and the
Minnesota School of Business (MSB and collectively GU/MSB), related parties, as described in
the notes to the consolidated financial statements included in this report on Form 10-Q. Pursuant
to a Service Level Agreement (the SLA) between the Company and GU/MSB, some of the services
provided by GU/MSB under this arrangement include chief financial and chief executive officer
services, information technology support, finance and accounting services, human resources support,
student financial aid consulting and curriculum consulting.
Under the SLA, the Companys paid GU/MSB $50,000 per month for these services from July 1,
2008 through December 31, 2009. Effective January 1, 2010, the Companys Board of Directors
approved increasing the payments to $75,000 per month, based on managements analysis of the cost
and scope of services provided. Management believes the monthly charges under the SLA are
competitive with, or less than, what the Company would have to pay to provide these services or to
obtain them from another third party. The Companys expenses for services under the SLA were
$225,000 and $450,000 for the three and six months ended September 30, 2010, and $150,000 and
$300,000 for the three and six months ended September 30, 2009.
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Critical Accounting Policies
The discussion and analysis of the Companys financial condition and results of operations is
based upon the Companys consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America. The preparation of
these consolidated financial statements requires management to make estimates and assumptions in
certain circumstances that affect the reported amounts of assets and liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities at the date of the Companys
consolidated financial statements. Management bases its estimates and judgments on historical
experience, observance of trends in the industry, information provided by outside sources and on
various other factors that are believed to be reasonable under the circumstances. Actual results
may differ from these estimates under different assumptions or conditions.
The Companys critical accounting policies are outlined in the Companys Form 10-K for the
year ended March 31, 2010 and Annual Report to Security Holders filed with the SEC.
Results of Continuing Operations
The following discussion of our historical results of operations and our liquidity and capital
resources should be read in conjunction with the consolidated financial statements and related
notes that appear elsewhere in this report.
The following table presents statements of operations data as percentages of revenues for each
of the periods indicated:
Three Months Ended | Six Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Operating Expenses: |
||||||||||||||||
Educational services and facilities |
72.3 | 65.0 | 68.5 | 65.3 | ||||||||||||
Selling, general and administrative |
31.3 | 24.3 | 26.4 | 22.5 | ||||||||||||
Total Operating Expenses |
103.6 | 89.3 | 94.9 | 87.8 | ||||||||||||
Operating Income (Loss) |
(3.6 | ) | 10.7 | 5.1 | 12.2 | |||||||||||
Other Income |
0.2 | 0.1 | 0.2 | 0.1 | ||||||||||||
Income (Loss) Before Income Taxes |
(3.4 | ) | 10.8 | 5.3 | 12.3 | |||||||||||
Income Tax Expense (Benefit) |
(1.2 | ) | 4.5 | 2.0 | 4.8 | |||||||||||
Net Income (Loss) |
(2.2 | )% | 6.3 | % | 3.3 | % | 7.6 | % | ||||||||
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Three Months Ended September 30, 2010 (2010) Compared with Three Months Ended September 30, 2009
(2009)
Revenues
Revenues increased $335,445, or 7.4%, to $4,876,295 in 2010 from $4,540,850 in 2009. Tuition
revenue increased $624,441, or 14.8%, to $4,839,062 in 2010 from $4,214,621 in 2009. The increase
was primarily attributable to increased enrollments as well as a 6.5% cost per credit increase for
certain academic credits effective July 2010. Enrollments increased 11.3% from 2009 to 2010.
Effective this current quarter, we outsourced sales of student textbooks to a third-party
service provider. In previous quarters, we purchased textbooks directly from book publishers and
resold the textbooks to our students. Under the current arrangement, our students purchase
textbooks directly from the service provider, and we receive commission revenue from the service
provider based on the overall sales. Based on the arrangement, the Company no longer recognized
revenue for textbook sales or expense for textbook purchases. Textbook-related revenue decreased
$234,268, or 74.4% in 2010 versus 2009, due to the recognition of commission revenue versus direct
textbook sales.
Educational services and facilities operating expenses
Expenses related to our educational services and facilities increased 19.3% to $3,524,230 in
2010 from $2,953,565 in 2009. The $570,665 increase is attributable to direct costs necessary to
support the increase in student enrollments at our existing branch campuses, including faculty
compensation, facility operating costs and student materials, as well as payroll-related costs and
rent expense for expansion campuses not yet opened at September 30, 2010.
Overall payroll-related expenses increased 31.2%, or $463,426, in 2010 compared to 2009. This
includes $225,892 of wages paid in 2010 for employees hired in advance of opening campuses in Salt
Lake City, Utah and Boise, Idaho. The Salt Lake City campus opened October 2010, and the Boise
campus is scheduled to open in January 2011. Absent the expansion payroll, overall such expenses
increased 16.0% in 2010 compared to 2009.
Facility costs, including rent expense, increased 21.6%, or $123,527 in 2010 compared to 2009.
The current year quarter included $133,829 of rent expense for our Salt Lake City campus. Other
facility costs decreased primarily due to lower repairs and maintenance at existing campuses.
Payroll-related expenses and facility costs increased as a percentage of revenues to 40.0% and
14.2% in 2010 from 32.8% and 12.6% in 2009. Management anticipates that these expenses will
decrease as a percentage of revenues as our branch campuses raise their enrollment levels.
However, we anticipate that operating costs for any new campus openings, including the two noted
above, will likely exceed new campus revenues for a period of four to six quarters, which
historically has been the length of time a new campus takes to achieve break-even or profitable
enrollment figures.
Textbook expense decreased $198,283, or 85.0%, in 2010 versus 2009 due to the outsourcing of
textbook services to a third-party service provider as noted above.
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Selling, general and administrative expenses
Expenses related to selling and general administrative activities increased 38.7% to
$1,528,170 in 2010 from $1,101,436 in 2009. The $426,734 increase was primarily due to
increased marketing costs related to rebranding under the Broadview University name and more
advertising activity in connection with the Salt Lake City and Boise expansions. Marketing
expenses increased $226,464, or 35.8%.
The Company classifies various operating costs for expansion campuses as administrative
expenses until such campuses commence operations. We recognized $183,435 of such expenses related
to the Salt Lake City and Boise campuses during 2010. No such expense was recognized in 2009.
Our management fee paid to a related party increased 50.0%, or $75,000, to $225,000 in 2010
from $150,000 in 2009.
These increases were offset by a decrease in stock compensation expense for our Board of
Directors and officers, which decreased $130,000, or 80.0%, from $162,500 in 2009 to $32,500 in
2010.
Marketing expenses, management fees and stock compensation expense as a percentage of revenues
were 17.6%, 4.6% and 0.7% for 2010, compared to 13.9%, 3.3% and 2.3% for 2009.
Operating income
Operating income is the primary measure used by management in assessing the Companys
performance. We recognized an operating loss of $176,105 in 2010 compared to operating income of
$485,849 in 2009. The decrease of $661,954, or 136.2%, was primarily the result of the
aforementioned factors.
Other income
Other income consists of interest earned on the Companys cash maintained in a bank savings
account. Interest income increased 28.4%, or $1,576, in 2010 compared to 2009, primarily due to
higher cash balances offset by lower interest rates.
Income taxes
We recognized income tax benefit of $60,158 in 2010 compared to expense of $204,327 in 2009.
The decrease of $264,485, or 129.4%, was primarily due to the decrease in income before taxes
attributable to the aforementioned factors.
Six Months Ended September 30, 2010 (2010) Compared with Six Months Ended September 30, 2009 (2009)
Revenues
Revenues increased $1,800,883, or 21.1%, to $10,316,555 in 2010 from $8,515,672 in 2009.
Tuition revenue increased $2,044,204, or 25.7%, to $9,984,834 in 2010 from $7,940,630 in 2009. The
increase was primarily attributable to increased enrollments as well as a 6.5% cost per credit
increase for certain academic credits effective July 2010.
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Effective this current quarter, we outsourced sales of student textbooks to a third-party
service provider. In previous quarters, we purchased textbooks directly from book publishers and
resold the
textbooks to our students. Under the current arrangement, our students purchase textbooks
directly from the service provider, and we receive commission revenue from the service provider
based on the overall sales. Based on the arrangement, the Company no longer recognized revenue for
textbook sales or expense for textbook purchases. Textbook-related revenue decreased $158,701, or
26.3%, primarily due to the recognition of commission revenue versus direct textbook sales for the
three months ended September 30, 2010.
Educational services and facilities operating expenses
Expenses related to our educational services and facilities increased 27.0% to $7,063,356 in
2010 from $5,560,226 in 2009. The $1,503,130 increase is attributable to direct costs necessary to
support the increase in student enrollments at our existing branch campuses, including faculty
compensation, facility operating costs and student materials, as well as payroll-related costs and
rent expense for expansion campuses not yet opened at September 30, 2010.
Overall payroll-related expenses increased 32.1%, or $932,759, in 2010 compared to 2009. This
includes $327,600 of wages paid in 2010 for employees hired in advance of opening campuses in Salt
Lake City, Utah and Boise, Idaho. The Salt Lake City campus opened October 2010, and the Boise
campus is scheduled to open in January 2011. Absent the expansion payroll, overall such expenses
increased 20.8% in 2010 compared to 2009.
Facility costs, including rent expense, increased 28.7%, or $321,906 in 2010 compared to 2009.
The six months ended September 30, 2010 included $267,658 of rent expense for our Salt Lake City
campus.
Payroll-related expenses and facility costs increased as a percentage of revenues to 37.2% and
14.0% in 2010 from 34.1% and 13.2% in 2009. Management anticipates that these expenses will
decrease as a percentage of revenues as our branch campuses raise their enrollment levels.
However, we anticipate that operating costs for any new campus openings, including the two noted
above, will likely exceed new campus revenues for a period of four to six quarters, which
historically has been the length of time a new campus takes to achieve break-even or profitable
enrollment figures.
Textbook expense decreased $134,228, or 30.0%, in 2010 versus 2009 due to the outsourcing of
textbook services to a third-party service provider as noted above.
Selling, general and administrative expenses
Expenses related to selling and general administrative activities increased 50.1% to
$2,483,571 in 2010 from $1,655,096 in 2009. The $828,475 increase was primarily due to increased
marketing costs related to rebranding under the Broadview University name and more advertising
activity in connection with the Salt Lake City and Boise expansion. Marketing expenses increased
$316,672, or 27.8%.
The Company classifies various operating costs for expansion campuses as administrative
expenses until such campuses commence operations. We recognized $264,936 of such expenses related
to the Salt Lake City and Boise campuses during 2010. No such expense was recognized during 2009.
Our management fee paid to a related party, increased 50.0%, or $150,000, to $450,000 in 2010
from $300,000 in 2009.
Marketing expenses and management fees as a percentage of revenues were 14.1% and 4.4% for
2010, compared to 13.4% and 3.5% for 2009.
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Operating income
Operating income is the primary measure used by management in assessing the Companys
performance. We recognized operating income of $534,076 in 2010 compared to $1,038,837 in 2009.
The decrease of $504,761, or 48.6%, was primarily the result of the aforementioned factors.
Other income
Other income consists of interest earned on the Companys cash maintained in a bank savings
account. Interest income increased 42.7%, or $4,737, in 2010 compared to 2009, primarily due to
higher cash balances offset by lower interest rates.
Income taxes
We recognized income tax expense of $211,994 in 2010 compared to $406,616 in 2009. The
decrease of $194,622, or 47.9%, was primarily due to the decrease in income before taxes
attributable to the aforementioned factors. Our effective tax rate decreased to 38.6% in 2010 from
38.7% in 2009, primarily due to temporary differences between book and tax recognition of certain
expenses.
Liquidity and Capital Resources
The Company financed its operating activities and capital expenditures during the six months
ended September 30, 2010 primarily through cash provided by operating activities. Cash and cash
equivalents were $5,753,060 at September 30, 2010 compared to $5,591,079 at March 31, 2010. Most
of the Companys excess cash is held in an interest-bearing bank savings account. We had no debt
at September 30, 2010 or March 31, 2010.
Management acknowledges that the current state of the U.S. economy has made credit more
difficult to acquire, even for well-qualified borrowers. As the Company has continued to finance
its operating activities and capital expenditures primarily through cash provided by operating
activities, management does not believe the current scarcity of available credit presents a
material threat to ongoing operations.
A significant portion of our revenues are derived from Title IV programs. Federal regulations
dictate the timing of disbursements under Title IV programs. Students must apply for new loans and
grants each award year, which starts July 1. Loan funds are generally provided by lenders in
multiple disbursements for each academic year. The disbursements are usually received beginning in
the second week of each academic quarter. These factors, together with the timing of our students
beginning their programs, affect our operating cash flow.
A portion of our revenues is from students who receive financial loans from Myhre Investments,
LLC, an entity owned by the Companys Chairman. As of September 30, 2010, Myhre Investments, LLC
had $1,692,524 in loans outstanding to Broadview University students.
Management believes that the Company has sufficient cash reserves to fulfill its obligations
and support operations in the normal course of business through the year ended March 31, 2011.
Management believes that inflation will not have a significant impact on the Companys business.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company invests its excess cash in a savings account maintained at a domestic bank. The
market risk on such investments is minimal. The Company has no history of investing in derivative
financial instruments, derivative commodity instruments or other such financial instruments, and
management does not anticipate making such investments in the future. The Company does not have
receivables from foreign customers, and is not exposed to foreign currency exchange rate risk
arising from transactions in the normal course of business with foreign individuals or entities.
Item 4T. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act). These controls and
procedures are designed to ensure that information required to be disclosed by the Company in
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, and our Board of Directors, as appropriate, to allow timely decisions regarding
required disclosure. Management, under supervision and with participation of the Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of September 30, 2010 and concluded that our disclosure
controls and procedures were effective as of this date.
Changes in Internal Controls Over Financial Reporting
There were no changes in the Companys internal control over financial reporting that occurred
during our most recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may be involved in litigation and other legal proceedings
arising out of the ordinary course of its business. We are not at this time a party 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 operations.
Item 1A. Risk Factors
The discussion of the Companys business and operations set forth in this report and our other
SEC filings should be read together with the risk factors contained in Item 1 of the Companys
Annual Report on Form 10-K for the year ended March 31, 2010 filed with the SEC, which describe
various risks and uncertainties to which the Company is or may become subject, and are updated
below. These risks and uncertainties have the potential to affect the Companys business,
financial condition, results of operation, cash flows, strategies or prospects in a material and
adverse manner. Additional risks and uncertainties not presently known to management or that we
currently believe to be immaterial may also adversely affect our business, financial condition or
results of operations.
Rulemaking by the U.S. Department of Education could result in regulatory changes that may
have a material adverse effect on our business.
The U.S. Department of Education (USDE) issued on October 28, 2010, final rules that address
program integrity issues for postsecondary education institutions participating in Title IV
programs, which will take effect on July 1, 2011. The USDE expects to issue final rules in early
2011 related to the definition of gainful employment, which will take effect on July 1, 2012. We
cannot predict the substance of the final rules related to the definition of gainful employment.
Under the proposed regulations, programs offered by postsecondary education institutions may not
meet the USDE qualifications for compliance with gainful employment, and such programs could be
subject to increased disclosure requirements, limits on enrollment growth, termination of Title IV
eligibility, or other consequences.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Reserved
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit | Description | |
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | |
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of 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.
Date: November 12, 2010 | Broadview Institute, Inc. (Registrant) |
|||
By: | /s/ Jeffrey D. Myhre | |||
Jeffrey D. Myhre, Chief Executive Officer | ||||
And: | /s/ Kenneth J. McCarthy | |||
Kenneth J. McCarthy, Chief Financial Officer | ||||
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