UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended December 31, 2013

 

[   ]	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.

(Exact name of registrant as specified in its charter)

 

  

Minnesota		41- 0641789
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

 

8147 Globe Drive, Woodbury, Minnesota 55125

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s 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 [X] No [  ]

 

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 [X] 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 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 [  ]	Accelerated filer [  ]	Non-accelerated filer [  ]	Smaller reporting company [X]
		(Do not check if a smaller
		reporting company)

  

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

 

The number of shares outstanding of the Registrant’s Common Stock, $0.01 par value, as of February 1, 2014 was 13,508,252.

 

 

BROADVIEW INSTITUTE, INC.

AND SUBSIDIARY

 

INDEX

FORM 10-Q

 

DECEMBER 31, 2013

 

PART I – FINANCIAL INFORMATION		Page No.
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	23
SIGNATURES		24

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

BROADVIEW INSTITUTE, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

 

		December 31, 2013				March 31, 2013
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash		$	202,136			$	6,340,609
Student receivables			350,939				189,447
Inventory			81,524				-
Prepaid expenses			25,890				72,654
TOTAL CURRENT ASSETS			660,489				6,602,710
PROPERTY AND EQUIPMENT, NET			2,051,919				2,380,552
OTHER ASSETS
Deposits			189,676				189,676
Other			28,854				37,809
		$	2,930,938			$	9,210,747
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit		$	-			$	2,000,000
Accounts payable			604,644				630,783
Accrued expenses			74,897				204,147
Student credit balances			43,188				79,920
Due to affiliates			220,693				674,465
TOTAL CURRENT LIABILITIES			943,422				3,589,315
DEFERRED RENT			707,641				723,318
STOCKHOLDERS' EQUITY
Preferred stock Series B, par value $.01 per share, authorized 5,000,000 shares, 5,000,000 shares issued and outstanding			50,000				50,000
Common stock, par value $.01 per share, authorized 100,000,000 shares, 13,508,252 issued and outstanding			135,082				135,082
Additional paid-in capital			10,945,104				10,945,104
Accumulated deficit			(9,850,311	)			(6,232,072	)
TOTAL STOCKHOLDERS' EQUITY			1,279,875				4,898,114
		$	2,930,938			$	9,210,747

 

See notes to consolidated financial statements.

 

 

 

BROADVIEW INSTITUTE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended December 31,								Nine Months Ended December 31,
		2013				2012				2013				2012
REVENUES		$	4,011,073			$	3,810,978			$	10,058,843			$	11,072,795
OPERATING EXPENSES
Educational services and facilities			3,995,739				3,576,579				10,556,271				11,095,559
Selling, general and administrative			1,067,158				1,169,572				3,120,851				3,676,951
TOTAL OPERATING EXPENSES			5,062,897				4,746,151				13,677,122				14,772,510
OPERATING LOSS			(1,051,824	)			(935,173	)			(3,618,279	)			(3,699,715	)
OTHER INCOME (EXPENSE)
Gain on sale of assets			-				16,744				-				16,744
Interest income			330				253				1,792				2,067
Interest expense			-				-				(1,752	)			-
TOTAL OTHER INCOME (EXPENSE)			330				16,997				40				18,811
NET LOSS		$	(1,051,494	)		$	(918,176	)		$	(3,618,239	)		$	(3,680,904	)
LOSS PER SHARE:
Basic		$	(0.08	)		$	(0.10	)		$	(0.29	)		$	(0.41	)
Diluted		$	(0.08	)		$	(0.10	)		$	(0.29	)		$	(0.41	)

 

See notes to consolidated financial statements.

 

 

BROADVIEW INSTITUTE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(Unaudited)

 

		Nine Months Ended December 31,
		2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(3,618,239	)		$	(3,680,904	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			492,000				529,272
Deferred rent			(15,677	)			762
Stock-based compensation			-				38,400
Gain on sale of assets			-				(16,744	)
Changes in operating assets and liabilities:
Student receivables			(161,492	)			45,226
Inventory			(81,524	)			-
Prepaid expenses			46,764				(21,611	)
Other assets			8,955				19,736
Accounts payable and accrued expenses			(155,389	)			(140,176	)
Student credit balances			(36,732	)			(37,149	)
Net cash used in operating activities			(3,521,334	)			(3,263,188	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(163,367	)			(148,851	)
Proceeds from sale of assets			-				70,000
Net cash used in investing activities			(163,367	)			(78,851	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit			-				2,000,000
Payments on line of credit			(2,000,000	)			-
Net change in due to affiliates			(453,772	)			(3,765	)
Net cash provided by (used in) financing activities			(2,453,772	)			1,996,235
DECREASE IN CASH			(6,138,473	)			(1,345,804	)
CASH AT BEGINNING OF PERIOD			6,340,609				2,542,293
CASH AT END OF PERIOD		$	202,136			$	1,196,489

 

See notes to consolidated financial statements. 

 

 

Broadview Institute, Inc. and Subsidiary

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., a Utah corporation (d/b/a Broadview University and Broadview Entertainment Arts University and hereafter referred to as “Broadview University” or the “University”). Broadview University is accredited by the Accrediting Council for Independent Colleges and Schools (“ACICS”) to award diplomas, undergraduate degrees, and master’s degrees in various fields of study. 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 Layton, Orem, Salt Lake City and West Jordan, as well as Boise, Idaho.

 

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 Company’s 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 unaudited consolidated financial statements include the accounts of the Company and its subsidiary, Broadview University. All inter-company accounts and transactions have been eliminated in the unaudited 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 December 31, 2013, the consolidated results of operations for the three and nine months ended December 31, 2013 and 2012 and the consolidated cash flows for the nine months ended December 31, 2013 and 2012. 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 unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto in its Form 10-K for the year ended March 31, 2013 and Annual Report to Security Holders filed with the SEC.

 

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.

 

Recent Accounting Pronouncements

 

The Company’s management has reviewed and considered all recent accounting pronouncements and believe there are none that could potentially have a material impact on the Company’s consolidated financial condition, results of operations, or disclosures.

 

 

Broadview Institute, Inc. and Subsidiary

Notes to Consolidated Financial Statements 

(Unaudited)

 

3.            Inventory

 

Broadview University has introduced a technologically-focused learning model. During the quarter ending December 31, 2013, all Broadview students and instructors began utilizing portable electronic devices in the classroom. Inventory at December 31, 2013 consists of these electronic learning devices and related materials, and is stated at the lower of cost or market based on the first-in, first-out method. There was no reserve for obsolete inventory at December 31, 2013.

 

4.            Earnings (Loss) Per Share

 

Earnings (loss) per common share (“EPS”) is calculated for basic EPS by dividing net income (loss) available to common stockholders by the weighted average number of vested common shares outstanding during the period. Diluted 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, restricted stock awards and preferred stock.

 

The basic loss attributable to common stockholders was computed as follows:

 

		Three Months Ended December 31,								Nine Months Ended December 31,
		2013				2012				2013				2012
Net loss		$	(1,051,494	)		$	(918,176	)		$	(3,618,239	)		$	(3,680,904	)
Cumulative dividends			(75,000	)			(7,500	)			(225,000	)			(22,500	)
Net loss attributable to common shareholders		$	(1,126,494	)		$	(925,676	)		$	(3,843,239	)		$	(3,703,404	)

 

There were no dilutive instruments as of December 31, 2013 or 2012 due to the recognition of a net loss for the three and nine month periods then ended. The weighted average shares outstanding were 13,508,252 for both the three and nine months ended December 31, 2013. The weighted average shares outstanding were 8,998,252 and 8,988,288 for the three and nine months ended December 31, 2012.

 

5.            Line of Credit

 

On March 30, 2012, the Company entered into a Line of Credit Authorization agreement (the “Line of Credit”) with Mr. Terry Myhre (“Mr. Myhre”), the Company’s Chairman and majority shareholder. The Line of Credit is unsecured, and allows the Company to borrow from Mr. Myhre up to $3,000,000 of aggregate principal upon the request of the Company. The Line of Credit has a fixed annual interest rate of 4.0%. The due date on the Line of Credit is April 1, 2015. There was no balance outstanding on the Line of Credit at December 31, 2013, and $2,000,000 was outstanding at December 31, 2012. Interest expense related to borrowings under the Line of Credit was $0 and $1,752 for the three and nine months ended December 31, 2013. There was no interest expense for the three and nine months ended December 31, 2012.

 

 

Broadview Institute, Inc. and Subsidiary

Notes to Consolidated Financial Statements 

(Unaudited)

 

6.            Stockholders’ Equity

 

Series A Preferred Stock

 

The Company had previously 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 had voting rights equal to 100 shares of common stock. No shares of Series A preferred stock were issued, and effective March 29, 2013, the Company’s Board of Directors (the “Board”) decreased the number of authorized Series A preferred stock to zero and terminated the Series A preferred stock designation.

 

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. 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. Each share of Series B preferred stock is convertible into one share of common stock at any time. The Company previously issued 500,000 shares to Mr. Myhre for $625,000. On March 29, 2013, the Company issued the remaining 4,500,000 shares of Series B preferred stock to Mr. Myhre, including detachable warrants described more fully below, for $4,500,000. Additionally on that date, the Company issued 4,500,000 shares of common stock to Mr. Myhre for $1,125,000. At December 31, 2013 and 2012, cumulative preferred stock dividends in arrears were $285,000 and $52,500.

 

Warrants

 

Detachable warrants for 1,000,000 shares of common stock were included with the original issuance of Series B preferred stock noted above. The warrants were issued with an exercise price of $1.25 per share and appraised value of approximately $.20 per warrant. On March 30, 2012, Mr. Myhre exercised his right to purchase 650,000 shares of common stock at an exercise price of $1.25 per share, for a total cash payment of $812,500. At December 31, 2012, there were no warrants left outstanding, nor were any shares of common stock reserved for such conversion.

 

Detachable warrants for 9,000,000 shares of common stock were included with the March 2013 issuance of Series B preferred stock noted above. The warrants were issued with an exercise price of $.50 per share and appraised value of approximately $.06 per warrant. These warrants expire March 29, 2023. The 9,000,000 warrants represented the balance of warrants outstanding at December 31, 2013, and there were 9,000,000 shares of common stock reserved for exercise.

 

Stock Options

 

There were no stock options granted, exercised or expired during the three and nine months ended December 31, 2013 and 2012, and no options were outstanding as of December 31, 2013 and 2012.

 

 

Broadview Institute, Inc. and Subsidiary

Notes to Consolidated Financial Statements 

(Unaudited)

 

6.            Stockholders’ Equity – (continued)

 

Equity Incentive Plan

 

The Company has an Equity Incentive 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 Company’s common stock that were initially available for issuance pursuant to the Equity Incentive Plan, 740,000 shares were available for issuance at December 31, 2013 and 2012.

 

Restricted Stock Awards

 

On June 15, 2011, the Company’s Board of Directors (the “Board”) approved a compensation arrangement for the Board’s directors for the 2012 and 2013 fiscal years. Under the arrangement applicable for those two fiscal years, the Board granted each of the Company’s five directors a two-year restricted stock award for 16,000 shares of common stock under the Equity Incentive Plan. These shares were valued at $1.28 per share, which was the closing price of the Company’s common stock on the grant date. Each award vested at a rate of 2,000 shares per quarter beginning with the Company’s quarter ending June 30, 2011. All such awards fully vested during the term of the arrangement, ending with the three months ended March 31, 2013, and the Board did not implement a stock-based compensation arrangement for future periods upon the completion of the vesting period. As such, there was no stock compensation expense for the three or nine months ended December 31, 2013. Stock compensation expense for directors was $12,800 and $38,400 for the three and nine months ended December 31, 2012.

 

7.            Income Taxes

 

At December 31, 2013, the Company had approximately $11,776,000 in federal net operating loss carryforwards to reduce future taxable income. These carryforwards begin to expire in the Company’s fiscal year ending March 31, 2025. The Company also has a federal alternative minimum tax credit carryforward of $235,000 which does not expire. 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. No liability was recorded for interest or penalties related to uncertain tax positions at December 31, 2013 or March 31, 2013.

 

Management evaluates the Company’s deferred tax assets on a regular basis to determine if a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard. In making such judgments, management must weigh both positive and negative evidence that can be objectively verified. A cumulative loss in recent periods is significant negative evidence in considering whether deferred tax assets are realizable, and also limits projections of future taxable income to that which can be estimated over a reasonable amount of time. Management’s ability to accurately forecast should be evaluated against recent results, and the reliability of such forecasting inherently decreases as the duration of such forecasting increases.

 

After considering evidence including historical results, industry and general economic trends, and forecasts on future operating results, management has continued to fully reserve for the Company’s net deferred tax assets at December 31, 2013. The Company’s valuation allowance at December 31, 2013 includes $422,000 for net operating loss carryforwards in certain states where management is not currently anticipating any income being generated.

 

 

Broadview Institute, Inc. and Subsidiary

Notes to Consolidated Financial Statements 

(Unaudited)

 

7.            Income Taxes (continued)

 

For federal purposes, tax years 2011-2013 remain open to examination. Prior to 2011, the statute of limitations remains open for three years subsequent to the utilization of the net operating losses that were generated in those years. For state purposes, the statute of limitations remains open in a similar manner. Management does not anticipate any significant increases or decreases in unrecognized tax benefits within the next twelve months.

 

8.            Related Party Transactions

 

Certain Broadview University students received funding toward the cost of their education from Myhre Investments, LLC, an entity owned by Mr. Myhre. Myhre Investments, LLC had $1,301,553 and $1,233,571 in loans outstanding to University students at December 31, 2013 and March 31, 2013.

 

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, including Company Chief Executive Officer (“CEO”) Jeffrey Myhre. Under the agreement, the University leases a 31,200 square foot building located in Layton, Utah. The lease is for an initial period of ten years with two five-year renewal options. The agreement is a “triple net” lease with an initial security deposit of $32,500. Broadview Institute, Inc. guaranteed the lease. Rent expense for the Layton facility was $109,200 and $327,600 for the three and nine months ended December 31, 2013, as well as the three and nine months ended December 31, 2012.

 

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 University leases a 31,200 square foot building located in Orem, Utah. The lease is for an initial ten year period with two five-year renewal options. The agreement is a “triple net” lease with an initial security deposit of $48,100. Broadview Institute, Inc. guaranteed the lease. Rent expense for the Orem facility was $154,200 and $449,400 for the three and nine months ended December 31, 2013, and $144,300 and $432,900 for the three and nine months ended December 31, 2012.

 

Broadview University is a party to a lease agreement with Myhre Holdings-Meridian, LLC, an entity wholly-owned by Myhre Holdings, Inc. Under the agreement, the University leases a 31,200 square foot building located in Boise, Idaho. The lease is for an initial ten year period with two five-year renewal options. The agreement is a “triple net” lease. Rent expense for the Boise facility was $117,000 and $351,000 for the three and nine months ended December 31, 2013, as well as the three and nine months ended December 31, 2012.

 

Mr. Myhre has personal guarantees on Broadview University’s facility leases for its West Jordan campus. The total amount of remaining rental payments due under the leases as of December 31, 2013 was approximately $3,115,000.

 

During the nine months ended December 31, 2012, the Company paid $96,000 to The Institute of Production & Recording, Inc., an entity partially owned by Mr. Myhre and CEO Jeffrey Myhre, for the purchase of equipment.

 

 

Broadview Institute, Inc. and Subsidiary

Notes to Consolidated Financial Statements 

(Unaudited)

 

8.            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”) (collectively “GU/MSB”), companies owned by Mr. Myhre and CEO Jeffrey 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 SLA automatically renews for one-year periods every July, but may be terminated by either party upon 30 days’ notice.

 

The Company incurs a monthly management fee payable to GU/MSB under the terms of the SLA. This fee is negotiated based on analysis of the cost and scope of services provided. Such analysis is performed as deemed necessary by either party, or annually at a minimum. The Company’s Board of Directors approves any changes to the monthly fee. Effective October 1, 2012, the monthly management fee was reduced from $75,000 to $50,000. 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 Company participates in employee benefit plans, including a self-insured health plan, that are administered by the same service providers as GU and MSB. Claim and benefit payments for the Company’s employees under these plans are made by MSB to the service providers and the Company reimburses MSB for payments made on the Company’s behalf.

 

The Company utilizes the same third-party provider as GU and MSB for the outsourcing of textbook sales to University students. Under the arrangement, this third party bills MSB for all textbooks purchased by MSB, GU and Broadview students who use school-issued financial aid vouchers. Commission payments are remitted by the third-party provider to MSB or GU for all textbook sales to students from these three entities.

 

During the nine months ended December 31, 2013, the Company began purchasing electronic learning device inventory through the same distributor as GU and MSB. Payments to the vendor are made by MSB, and the Company reimburses MSB for such purchases made on the Company’s behalf.

 

The Company, GU and MSB also may reimburse each other for miscellaneous expenditures made by one entity on another entity’s behalf that are outside the scope of the SLA disclosed above.

 

 

Broadview Institute, Inc. and Subsidiary

Notes to Consolidated Financial Statements 

(Unaudited)

 

8.            Related Party Transactions (continued)

 

The following table summarizes the related party transactions with MSB for the three and nine month periods ended December 31, 2013 and 2012:

 

		Three Months Ended								Nine Months Ended
		December 31, 2013				December 31, 2012				December 31, 2013				December 31, 2012
Balance due to MSB - beginning of period		$	510,363			$	819,215			$	674,465			$	118,173
Management fees charged by MSB			150,000				150,000				450,000				600,000
Benefit claims paid by MSB			148,890				208,084				484,149				698,009
Textbook purchases by MSB			9,911				246,258				171,889				585,025
Inventory purchases by MSB			87,493				-				609,140				-
Textbook commissions received by MSB			(696	)			-				(55,769	)			-
Other miscellaneous transactions, net			119,154				(101,030	)			(3,544	)			(138,680	)
Broadview payments to MSB			(804,452	)			(1,112,119	)			(2,109,637	)			(1,652,119	)
Balance due to MSB - end of period		$	220,693			$	210,408			$	220,693			$	210,408

 

The following table summarizes the related party transactions with GU for the three and nine month periods ended December 31, 2013 and 2012:

 

		Three Months Ended								Nine Months Ended
		December 31, 2013				December 31, 2012				December 31, 2013				December 31, 2012
Balance due from GU - beginning of period		$	-			$	21,967			$	-			$	-
Textbook commissions received by GU			-				50,654				-				138,544
Other miscellaneous transactions, net			-				(2,175	)			2,488				(22,482	)
Broadview payments from GU			-				(70,446	)			(2,488	)			(116,062	)
Balance due from GU - end of period		$	-			$	-			$	-			$	-

 

9.            Regulatory Matters

 

The Company is subject to extensive regulatory oversight by federal and state governmental agencies, as well as accrediting body oversight. To continue participation in Title IV programs, an institution must demonstrate compliance with extensive academic, administrative and financial regulations regarding institutional eligibility. For our fiscal year ended March 31, 2013, the Company derived from Title IV funds 82% of its revenues, as calculated for the purposes of the U.S. Department of Education’s (“USDE”) “90/10 Rule”.

 

 

Broadview Institute, Inc. and Subsidiary

Notes to Consolidated Financial Statements 

(Unaudited)

 

9.            Regulatory Matters (continued)

 

Management performs periodic reviews of the Company’s compliance with the various applicable regulatory requirements. As of the date of this Report, management identified the following regulatory matters for disclosure in the notes to these consolidated financial statements:

 

Composite Score

 

To participate in Title IV programs, an institution must satisfy specific measures of financial responsibility as prescribed by the USDE. One such measure is the USDE’s composite score, which may range from -1.0 to 3.0, based on a combination of financial measures designed to establish the adequacy of an institution’s capital resources, its financial viability and its ability to support current operations. The Company’s composite score as of and for the year ended March 31, 2013 was 1.7. However, the composite score for the year ended March 31, 2012 was 1.3. When an institution’s composite score is less than 1.5, but greater than 1.0, the USDE may still consider the institution to be financially responsible if the institution qualifies for an alternative standard. The Company agreed to increased monitoring of operations on December 13, 2012, including the administration of the Title IV programs, for up to three consecutive fiscal years while maintaining a composite score equal to 1.0 to 1.4 for each of those years (the “Zone Alternative”). This election gave the Company an opportunity to improve its financial condition over time without requiring a letter of credit posting or participation in Title IV programs under provisional certification.

 

Under the Zone Alternative, a participating institution:

 

●

must request and receive funds under the cash monitoring or reimbursement payment methods, as specified by the USDE (see “Heightened Cash Management” section below);

 

●

must provide timely information regarding certain oversight and financial events;

 

●

may be required to submit its financial statement and compliance audit earlier than normally required; and

 

●

may be required to provide information about its current operations and future plans.

 

Heightened Cash Management

 

The USDE places an institution on one of three cash management programs if the USDE determines there is a need to strictly monitor the institution’s participation in Title IV programs. In the Company’s December 2012 response to the USDE, management elected the Heightened Cash Monitoring 1 program (“HCM1). Under this program, the USDE releases funds to the institution after the institution has made the disbursement to the student or parent borrower.

 

 

Broadview Institute, Inc. and Subsidiary

Notes to Consolidated Financial Statements 

(Unaudited)

 

9.            Regulatory Matters (continued)

 

The HCM1 program contains more relaxed documentation requirements than the other programs for each recipient of a Title IV disbursement. Under HCM1, after an institution makes disbursements to eligible borrowers, it draws down Title IV funds to cover those disbursements in the same way as an institution on the advance payment method. The USDE may tailor the documentation requirements for institutions on a case-by-case basis. Under HCM1, an institution’s administration of the payment method must be audited every year. The institution’s independent external auditor is required to express an opinion, as part of the institution’s USDE compliance audit, on the institution’s compliance with the requirements of the Zone Alternative, including its administration of the payment method under which the institution received and disbursed Title IV program funds.

 

The Company’s management implemented changes to our procedures for processing federal aid to comply with this requirement. Such changes did not have a material impact on the Company’s operations, liquidity, results of operations or cash flows. The USDE notified the Company on January 7, 2014 that Broadview was no longer required to comply with the Zone Alternative restrictions, due to the USDE’s completion of its review of the Company’s financial statements for the fiscal year ended March 31, 2013.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Cautionary Notice Regarding Forward Looking Statements

 

Certain statements included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as elsewhere in this report on Form 10-Q, any documents incorporated by reference herein, and other written or oral statements made from time to time by the Company 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 expressions. These forward-looking statements are based on the Company’s current plans or expectations and are subject to a number of uncertainties and risks that could significantly affect current plans and anticipated actions and the Company’s future consolidated financial conditions and results. 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, rulemaking by the U.S. Department of Education (“USDE”)and increased focus by the U.S. Congress on for-profit educational institutions, 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:

 

We are a career-focused post-secondary education services company. Our mission is to demonstrate a “we care” philosophy by preparing career-focused, community-minded graduates for the global workforce. We care about our students, our employees, and about the employers who hire our students. We strive to help our students build knowledge and skills for a specific career field, make professional connections through service learning experiences, and provide them with placement assistance.

 

We work to fulfill this mission by offering a variety of academic programs through Broadview University. Broadview University is accredited to award diplomas, undergraduate degrees, and master’s degrees in various fields of study. The University delivers these programs through traditional classroom settings as well as through online instruction. Our campuses are located in the Utah cities of Layton, Orem, Salt Lake City and West Jordan, as well as Boise, Idaho. Our mission places the achievement of our students first, demonstrating the Company’s focus on delivering a high quality product.

 

 

 

Key Trends, Developments and Challenges

 

Revenues

 

Approximately 90% of our revenues are tuition collected from Broadview University’s students. Effective July 1, 2012, we implemented a tiered tuition rate for the majority of our programs whereby undergraduate students taking between 11 and 16 credits per quarter were charged a tuition rate of $400 per credit. Students taking less than 11 credits per quarter were charged a tuition rate of $435 per credit. Effective July 1, 2013, the tiered tuition program was modified, where students taking 12 or more credits are charged a tuition rate of $375 per credit, and students taking fewer than 12 credits are charged a rate of $435 per credit. The resulting average tuition rate per credit for the three months ended December 31, 2013 was $393, compared to $426 for the three months ended December 31, 2012. The decrease is a reflection of a higher per-student credit load on average. From July 2010 through June 2012, we charged $410 per credit for these programs.

 

We believe our enrollments are influenced by a number of factors, including, but not limited to:

 

●

the attractiveness of our program offerings;

●

our ability to offer flexible class scheduling;

●

the relative cost of our educational services compared to competitors;

●

our mix of residential and online course offerings;

●

the effectiveness of our marketing and recruiting efforts;

●

the quality of our faculty;

●

the availability of federal and other financial aid;

●

general economic conditions in the regions where we operate; and

●

the regulatory environment of our industry.

 

Broadview University’s 12-month average enrollment has declined over the past two fiscal years, from 1,178 students in 2012 to 979 students in 2013 (a decrease of 16.9%). Average enrollment over the nine months ended December 31, 2013 was 795 students. We continue to experience declining new enrollments and average student population, a trend that has been evident throughout the for-profit post-secondary industry for several quarters. Prospective student interest has been dampened by the prolonged economic downturn, and competition for high-quality leads has increased. Declining enrollments have adversely impacted our revenues, financial condition, results of operations and cash flows. We expect this trend to continue in the near term.

 

In reaction to these negative trends, we have taken a variety of actions, including:

 

●

During our quarter ended September 30, 2013, we introduced an innovative and technologically focused learning model that we believe will transform how our students learn. The Education User Experience model, or edUX, will connect our students with the latest technology to make the classroom experience more interactive and engaging. During our quarter ending December 31, 2013, Broadview students and instructors began utilizing portable electronic devices in the classroom. These devices have everything needed for classroom learning and mark a transformation from textbook learning.

 

We believe the market demands business professionals who have in-depth knowledge of the latest technology. Our edUX model will help students be prepared for competitive job markets.

 

●

In November 2011, we rebranded our Salt Lake City campus to focus solely on academic programs in the fields of studio arts, production arts, and the entertainment business. The Salt Lake City campus was rebranded as Broadview Entertainment Arts University, or BEAU. Since our first quarter of fiscal 2013, enrollments at BEAU have increased from 74 students to 151 students for our quarter ended December 31, 2013.

 

 

We believe this strategic move will better position us to capitalize on the demand for such skills in the workforce, and provide a clear focus for the BEAU campus while our other campuses will continue to offer our variety of traditional academic programs.

 

●

We have shared certain services across campuses and centralized certain administrative tasks with the goal of providing high-quality student services more efficiently.

 

●

We continue to review our program and degree offerings to match the demand in the marketplace. Additionally, we are exploring how to incorporate more technology into our academic delivery, with the idea that such changes may positively impact enrollments and provide an exciting medium for academic activities.

 

Educational Services and Facilities 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. Payroll and related expenses represent our single largest expense category, accounting for 38.5% and 48.6% of our revenues for the three months ended December 31, 2013 and 2012. While the largest individual expense category, such expenses also should be driven by revenue levels. Maintaining an appropriate payroll as a percentage of revenue ratio is a critical focus for management as we adjust to declining enrollments in the near term. Management is continuing to explore additional measures to bring payroll costs in line with revenue levels, while maintaining a focus on exceptional student service.

 

Selling, General and Administrative Expenses 

 

Our selling, general and administrative costs primarily include marketing and promotional expenses incurred through various forms of advertising and distribution of promotional materials. We also utilize executive, administrative, accounting and consulting services provided by related parties pursuant to a Service Level Agreement. Some of the services provided by the related parties 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. Marketing expenses accounted for 19.8% and 23.1% of revenues for the three months ended December 31, 2013 and 2012. Management recognizes that spending wisely on advertising will be critical to our efforts to increase our student population. We intend to aggressively seek out the most effective means of promoting the value of both long-standing as well as new programs, including the media and entertainment offerings at our Salt Lake City campus.

  

Critical Accounting Policies

 

The discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s 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 Company’s 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 Company’s critical accounting policies are outlined in the Company’s Form 10-K for the year ended March 31, 2013 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 December 31,								Nine Months Ended December 31,
		2013				2012				2013				2012
Revenues			100.0	%			100.0	%			100.0	%			100.0	%
Operating Expenses:
Educational services & facilities			99.6				93.8				104.9				100.2
Selling, general & administrative			26.6				30.7				31.0				33.2
Total Operating Expenses			126.2				124.5				135.9				133.4
Operating Loss			(26.2	)			(24.5	)			(35.9	)			(33.4	)
Other Income			-				0.4				-				0.2
Net Loss			(26.2	)%			(24.1	)%			(35.9	)%			(33.2	)%

 

Three Months Ended December 31, 2013 compared with Three Months Ended December 31, 2012

 

Revenues

 

The following table presents period-over-period changes in our primary revenue components:

 

		Three Months Ended December 31,								Change
		2013				2012				Amount				Percent
Tuition		$	3,452,584			$	3,774,520			$	(321,936	)			(8.5	)%
Commissions, fees and other charges			678,802				156,808				521,994				333.0	%
Refunds			(120,313	)			(120,350	)			37				-	%
Total revenue		$	4,011,073			$	3,810,978			$	200,095				5.3	%

 

---

Tuition 

 

Our tuition revenue decrease was primarily attributable to decreased enrollments. Our enrollments decreased by 186 students, or 18.5%, to 817 for the three months ended December 31, 2013 compared to 1,003 for the corresponding quarter of the previous year. Effective July 1, 2012, we implemented a tiered tuition rate for the majority of our programs whereby undergraduate students taking between 11 and 16 credits per quarter were charged a tuition rate of $400 per credit. Students taking less than 11 credits per quarter were charged a tuition rate of $435 per credit. Effective July 1, 2013, the tiered tuition program was modified, where students taking 12 or more credits are charged a tuition rate of $375 per credit, and students taking fewer than 12 credits are charged a rate of $435 per credit. The resulting average tuition rate per credit for the three months ended December 31, 2013 was $393, compared to $426 for the corresponding quarter of the previous year. From July 2010 through June 2012, we charged $410 per credit for these programs.

 

 

Commissions, Fees and Other Charges

 

During our quarter ended September 30, 2013, we introduced an innovative and technologically focused learning model that we believe will transform how our students learn. The Education User Experience model, or edUX, will connect our students with the latest technology to make the classroom experience more interactive and engaging. During our quarter ending December 31, 2013, Broadview students and instructors began utilizing portable electronic devices in the classroom. These devices have everything needed for classroom learning and mark a transformation from textbook learning. The increase in this revenue category is primarily related to fees charged in relation to electronic content and learning devices, which totaled $635,250 for the three months ended December 31, 2013.

 

Previously, our students purchased textbooks directly from a third-party service provider and we received commission revenue from the service provider based on the overall net sales. Commission revenue decreased to $568 for the three months ended December 31, 2013 compared to $51,712 for the corresponding period of the prior year. Other fees and charges include registration fees and miscellaneous student charges.

 

Educational services and facilities operating expenses

 

Expenses related to educational services and facilities increased 11.7% to $3,995,739 for the three months ended December 31, 2013, from $3,576,579 for the corresponding quarter of the previous year. The $419,160 increase was primarily due to the transition from textbooks to electronic learning devices. Expenses related to these devices, and related e-content, totaled $632,700 for the three months ended December 31, 2013. Additionally, institutional scholarships increased $50,281 comparing the three months ended December 31, 2013 to the corresponding period of the previous year. These increases were partially offset by a decrease in payroll expenses of $307,385, or 16.6%.

 

The following table summarizes certain educational services and facilities expenses as a percentage of revenue:

 

		Percentage of Revenue
		Three Months Ended December 31,
Expense		2013				2012
Payroll and related			38.5	%			48.6	%
Rent and other facility			24.6	%			24.2	%
Student materials			18.6	%			2.7	%
Scholarships			7.7	%			6.7	%
Depreciation			4.0	%			4.6	%

 

Selling, general and administrative expenses

 

Expenses related to selling, general and administrative activities decreased 8.8% to $1,067,158 for the three months ended December 31, 2013 from $1,169,572 for the corresponding quarter of the prior year. The $102,414 decrease was primarily due a decrease in marketing expenses. Marketing expenses decreased $84,846, or 9.7%, to $793,905 for the three months ended December 31, 2013 from $878,751 for the corresponding period of the prior year. Our management fee paid to a related party totaled $150,000 for both the three months ended December 31, 2013 and 2012.

 

Marketing expense as a percentage of revenues was 19.8% and 23.1% for the three months ended December 31, 2013 and 2012. Management fee expense as a percentage of revenues was 3.7% and 3.9% for the three months ended December 31, 2013 and 2012.

 

 

Operating income (loss)

 

Operating income (loss) is the primary measure used by management in assessing our performance. Our operating loss increased 12.5% to $1,051,824 for the three months ended December 31, 2013 compared to $935,173 for the corresponding period of the prior year. The increase of $116,651 was primarily the result of the aforementioned factors.

 

Income taxes

 

We fully reserved for our net deferred tax assets effective March 31, 2012 and have continued to fully reserve for such assets subsequent to that date. As such, we did not recognize an income tax benefit for the three months ended December 31, 2013 or 2012.

 

 

Nine Months Ended December 31, 2013 compared with Nine Months Ended December 31, 2012

 

Revenues

 

The following table presents period-over-period changes in our primary revenue components:

 

		Nine Months Ended December 31,								Change
		2013				2012				Amount				Percent
Tuition		$	9,467,867			$	11,046,272			$	(1,578,405	)			(14.3	)%
Commissions, fees and other charges			955,182				439,122				516,060				117.5	%
Refunds			(364,206	)			(412,599	)			48,393				11.7	%
Total revenue		$	10,058,843			$	11,072,795			$	(1,013,952	)			(9.2	)%

---

 

Tuition 

 

Our tuition revenue decrease was primarily attributable to decreased enrollments. Our average enrollments for the nine months ended December 31, 2013 was 795 students, compared to 994 for the corresponding period of the prior year, representing a decrease of 20.0%. Effective July 1, 2012, we implemented a tiered tuition rate for the majority of our programs whereby undergraduate students taking between 11 and 16 credits per quarter were charged a tuition rate of $400 per credit. Students taking less than 11 credits per quarter are charged a tuition rate of $435 per credit. Effective July 1, 2013, the tiered tuition program was modified, where students taking 12 or more credits are charged a tuition rate of $375 per credit, and students taking fewer than 12 credits are charged a rate of $435 per credit. The resulting average tuition rate per credit for the nine months ended December 31, 2013 was $406, compared to $431 for the corresponding period of the previous year. From July 2010 through June 2012, we charged $410 per credit for these programs.

 

 

Commissions, Fees and Other Charges

 

During our quarter ended September 30, 2013, we introduced an innovative and technologically focused learning model that we believe will transform how our students learn. The Education User Experience model, or edUX, will connect our students with the latest technology to make the classroom experience more interactive and engaging. During our quarter ending December 31, 2013, Broadview students and instructors began utilizing portable electronic devices in the classroom. These devices have everything needed for classroom learning and mark a transformation from textbook learning. The increase in this revenue category is primarily related to fees charged in relation to electronic content and learning devices, which totaled $691,550 for the nine months ended December 31, 2013.

 

Previously, our students purchased textbooks directly from a third-party service provider and we received commission revenue from the service provider based on the overall net sales. Commission revenue decreased to $57,388 for the nine months ended December 31, 2013 compared to $140,730 for the corresponding period of the prior year. Other fees and charges include registration fees and miscellaneous student charges.

 

Educational services and facilities operating expenses

 

Expenses related to educational services and facilities decreased 4.9% to $10,556,271 for the nine months ended December 31, 2013, from $11,095,559 for the corresponding period of the previous year. The $539,288 decrease was primarily due to a decrease of $946,975, or 16.9%, in payroll and related costs, as well as a decrease of $254,631, or 51.9% in health insurance expense. The decrease in payroll costs is primarily related to staffing reductions to coincide with reduced enrollments, while the decrease in health insurance expense is due to lower claim payments.

 

These decreases were offset by the new costs related to electronic content and learning devices, which totaled $689,908 for the nine months ended December 31, 2013.

 

The following table summarizes certain educational services and facilities expenses as a percentage of revenue:

 

		Percentage of Revenue Nine Months Ended December 31,
Expense		2013				2012
Payroll and related			46.4	%			50.7	%
Rent and other facility			28.6	%			25.5	%
Student materials			9.8	%			2.7	%
Scholarships			6.5	%			6.5	%
Depreciation			4.9	%			4.8	%
Health insurance			2.3	%			4.4	%

 

 

Selling, general and administrative expenses

 

Expenses related to selling, general and administrative activities decreased 15.1% to $3,120,851 for the nine months ended December 31, 2013 from $3,676,951 for the corresponding period of the prior year. The $556,100 decrease was primarily due to lower marketing costs. Such expenses decreased $287,876, or 11.4%, to $2,238,196 for the nine months ended December 31, 2013, from $2,526,072 for the corresponding period of the prior year. Additionally, our management fee paid to a related party decreased $150,000, or 25.0%, to $450,000 for the nine months ended December 31, 2013, compared to $600,000 for the corresponding period of the prior year. Effective October 1, 2012, our monthly management fee decreased to $50,000 from $75,000.

 

 

 Marketing expense as a percentage of revenues was 22.3% and 22.8% for the nine months ended December 31, 2013 and 2012. Management fee expense as a percentage of revenues was 4.5% and 5.4% for the nine months ended December 31, 2013 and 2012.

 

Operating income (loss)

 

Operating income (loss) is the primary measure used by management in assessing our performance. Our operating loss decreased 2.2% to $3,618,279 for the nine months ended December 31, 2013 compared to $3,699,715 for the corresponding period of the prior year. The decrease of $81,436 was primarily the result of the aforementioned factors.

 

Income taxes

 

We fully reserved for our net deferred tax assets effective March 31, 2012 and have continued to fully reserve for such assets subsequent to that date. As such, we did not recognize an income tax benefit for the nine months ended December 31, 2013 or 2012.

 

Liquidity and Capital Resources

 

A significant portion of our revenues are derived from Title IV programs administered by the USDE. 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.

 

Cash was $202,136 at December 31, 2013 compared to $6,340,609 at March 31, 2013. Most of our excess cash is typically held in an interest-bearing bank savings account. Our capital position has been significantly influenced by transactions with Mr. Terry Myhre, the Company’s Chairman and majority shareholder (“Mr. Myhre”). Since March 2012, Mr. Myhre has executed transactions with the Company that have resulted in cash inflows from financing activities totaling $8,437,500. The transactions with Mr. Myhre are as follows:

 

On March 29, 2013, the Company entered into an Investment Representation Letter and Subscription Agreement with Mr. Myhre, whereby Mr. Myhre purchased 4,500,000 shares of Series B Preferred Stock at a price of $1.00 per share. Each share of Series B Preferred Stock included a detachable warrant to purchase two shares of the Company’s Common Stock for $0.50 per share. Additionally, on the same date, Mr. Myhre purchased 4,500,000 shares of Common Stock at a price of $0.25 per share. Total cash proceeds from the two transactions were $5,625,000.

 

On March 30, 2012, Mr. Myhre exercised his right to purchase 650,000 shares of Common Stock from the Company at an exercise price of $1.25 per share, for a total cash payment of $812,500. Also on that date, we entered into a Line of Credit Authorization agreement (the “Line of Credit”) with Mr. Myhre. The Line of Credit is unsecured, and allows for the Company to borrow from Mr. Myhre up to $3,000,000 of aggregate principal borrowings upon the request of the Company. The Line of Credit has a fixed annual interest rate of 4.0% and, effective June 13, 2013, the expiration date was extended from March 31, 2014 to April 1, 2015. As of March 31, 2013, the Company’s outstanding balance on the Line of Credit was $2,000,000. This balance was repaid in full subsequent to March 31, 2013.

 

 

Without the financial support from Mr. Myhre, the Company would likely have been unable to meet its current obligations during the past several months, absent material changes to the Company’s operations. Additionally, these transactions have greatly aided the Company’s ability to comply with various regulatory requirements that concern an institution’s financial health. The Company drew $600,000 on its Line of Credit with Mr. Myhre on January 9, 2014, and that balance remained outstanding as of the date of this Report. Due to projected losses continuing in the near future, we anticipate that the Company may continue to rely on Mr. Myhre for financial support.

 

The net cash provided by (used in) each of the operating, investing and financing activities are summarized in the following table and discussed in further detail below:

 

		Nine Months Ended December 31,
		2013				2012				Change
Net cash used in operating activities		$	(3,521,334	)		$	(3,263,188	)		$	(258,146	)
Net cash used in investing activities			(163,367	)			(78,851	)			(84,516	)
Net cash provided by (used in) financing activities			(2,453,772	)			1,996,235				(4,450,007	)
Net decrease in cash		$	(6,138,473	)		$	(1,345,804	)		$	(4,792,669	)

 

Our cash flows used in operating activities has been primarily driven by net losses of $3,618,239 and $3,680,904 for the nine months ended December 31, 2013 and 2012. For the nine months ended December 31, 2013, student receivables increased $161,492, while accounts payable and accrued liabilities decreased $155,389. These uses of cash were partially offset primarily by depreciation of $492,000. For the nine months ended December 31, 2012, accounts payable and accrued expenses decreased $140,176, offset by depreciation of $529,272 and a $45,226 decrease in student receivables.

 

The variance in cash flows related to investing activities is primarily due to $70,000 of asset sale proceeds in the nine months ended December 31, 2012.

 

The variance in cash flows related to financing activities reflects the Company’s $2,000,000 borrowing under its Line of Credit in December 2012 and the subsequent repayment of that amount in April 2013. Our balance due to MSB decreased $453,772 during the nine months ended December 31, 2013, compared to a decrease of $3,765 for the nine months ended December 31, 2013.

 

Excluding the $2,000,000 repayment made on the Line of Credit, the Company used $4,138,473 of cash during the nine months ended December 31, 2013. Management anticipates that the Company will continue to use significant amounts of cash to fund operating losses in its remaining three months of the fiscal year ending March 31, 2014, and this trend will likely continue in the Company’s fiscal year ending March 31, 2015. However, the combination of cash provided by the March 29, 2013 transactions with Mr. Myhre, the available borrowings under the Line of Credit, and Mr. Myhre’s commitment and willingness to extend the Company financial support, leads management to believe the Company will be able to fund operations for the next 12 months.

 

A portion of our revenues is received from students who receive financial loans from Myhre Investments, LLC, an entity owned by Mr. Myhre. As of December 31, 2013, Myhre Investments, LLC had $1,301,553 in loans outstanding to Broadview University students.

 

Management believes that inflation will not have a significant impact on our business. 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We have no derivative financial instruments or derivative commodity instruments. The Company is subject to the impact of interest rate changes on excess cash maintained in a bank savings account. Earnings on excess cash balances may be adversely affected in the future should interest rates change, or the Company may be required to use these cash holdings for unexpected situations should any arise. As of December 31, 2013, management believes that any increase or decrease in interest rates earned on excess cash holdings will not have a material impact on the Company’s future earnings, fair values or cash flows related to cash.

 

 

Item 4. 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 SEC’s 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 December 31, 2013 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 Company’s 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 Company’s internal control over financial reporting.

 

 

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 Company’s 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 Company’s Annual Report on Form 10-K filed with the SEC, which describe various risks and uncertainties to which the Company is or may become subject. These risks and uncertainties have the potential to affect the Company’s 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.

 

 

 

There have been no material changes to the risk factors previously described in Part I, Item 1A included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2013.

 

 

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

 

None.

 

 

Item 3. Defaults Upon Senior Securities

 

None.

 

 

Item 4. Mine Safety Disclosures

 

None.

 

 

Item 5. Other Information

 

None.

 

 

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

 

101.INS*

XBRL Instance

101.SCH*

XBRL Taxonomy Extension Schema

101.CAL*

XBRL Taxonomy Extension Calculation

101.DEF*

XBRL Taxonomy Extension Definition

101.LAB*

XBRL Taxonomy Extension Labels

101.PRE*

XBRL Taxonomy Extension Presentation

 

* XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended; is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended; and otherwise is not subject to liability under these sections.

 

  

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:
February 14, 2014	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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