BROADVIEW INSTITUTE INC - FORM 10-Q

Attached files

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EX-32.2 - EXHIBIT 32.2 - BROADVIEW INSTITUTE INC	ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - BROADVIEW INSTITUTE INC	ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - BROADVIEW INSTITUTE INC	ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - BROADVIEW INSTITUTE INC	ex31-1.htm

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, 2010

[ ]	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)

8089 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 [ ] 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 January 15, 2011 was 8,248,252.

BROADVIEW INSTITUTE, INC.

AND SUBSIDIARY

INDEX

FORM 10-Q

DECEMBER 31, 2010

PART I – FINANCIAL INFORMATION		Page No.

Item 1.	Financial Statements - Unaudited

	Consolidated Balance Sheets as of December 31, 2010 and March 31, 2010	1

	Consolidated Statements of Income for the Three and Nine Months Ended December 31, 2010 and 2009	2

	Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2010 and 2009	3

	Notes to Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17

Item 4T.	Controls and Procedures	17

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	18

Item 1A.	Risk Factors	18

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18

Item 3.	Defaults Upon Senior Securities	18

Item 4.	Reserved	18

Item 5.	Other Information	18

Item 6.	Exhibits	19

SIGNATURES		20

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

BROADVIEW INSTITUTE, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	December 31,		March 31,
	2010		2010
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	5,590,090	$	5,591,079
Student receivables		191,737		156,360
Inventory		-		424,802
Deferred income taxes		41,000		276,000
Other		273,000		143,126

TOTAL CURRENT ASSETS		6,095,827		6,591,367

PROPERTY AND EQUIPMENT, NET		2,787,080		1,424,481

OTHER ASSETS
Deposits		189,676		189,676
Deferred income taxes		140,000		49,000
Goodwill		622,016		622,016

	$	9,834,599	$	8,876,540

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	746,815	$	609,696
Accrued expenses		279,862		261,753
Income taxes payable		122,198		155,669

TOTAL CURRENT LIABILITIES		1,148,875		1,027,118

DEFERRED RENT		563,586		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 December 31, 2010 and March 31, 2010		82,482		82,182
Additional paid-in capital		4,431,904		4,264,204
Retained earnings		3,602,752		3,215,471

TOTAL STOCKHOLDERS' EQUITY		8,122,138		7,566,857

	$	9,834,599	$	8,876,540

See notes to consolidated financial statements.

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BROADVIEW INSTITUTE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended December 31,				Nine Months Ended December 31,
	2010		2009		2010		2009

REVENUES	$	5,406,325	$	5,185,421	$	15,722,880	$	13,701,093

OPERATING EXPENSES
Educational services and facilities		3,789,510		3,068,383		10,852,866		8,628,609
Selling, general and administrative		1,482,754		1,068,913		4,201,877		2,985,522

TOTAL OPERATING EXPENSES		5,272,264		4,137,296		15,054,743		11,614,131

OPERATING INCOME		134,061		1,048,125		668,137		2,086,962

OTHER INCOME		6,338		6,392		22,174		17,491

INCOME BEFORE INCOME TAXES		140,399		1,054,517		690,311		2,104,453

INCOME TAX EXPENSE		61,036		381,956		273,030		788,572

NET INCOME	$	79,363	$	672,561	$	417,281	$	1,315,881

EARNINGS PER SHARE:

Basic	$	.01	$	.08	$	.05	$	.16

Diluted	$	.01	$	.07	$	.05	$	.15

See notes to consolidated financial statements.

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BROADVIEW INSTITUTE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended December 31,
	2010			2009

OPERATING ACTIVITIES:
Net income	$	417,281		$	1,315,881

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		316,250			236,000
Deferred income taxes		144,000			664,000
Deferred rent		281,021			38,212
Stock-based compensation		168,000			195,000
Changes in operating assets and liabilities:
Student receivables		(35,377	)		11,661
Inventory		383,719			(120,214	)
Other		(88,791	)		(105,304	)
Accounts payable and accrued expenses		155,228			(24,708	)
Income taxes payable		(33,471	)		44,228
Net cash provided by operating activities		1,707,860			2,254,756

INVESTING ACTIVITIES:
Purchases of property and equipment		(1,678,849	)		(336,885	)

FINANCING ACTIVITIES:
Preferred dividends paid		(30,000	)		(30,000	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(989	)		1,887,871

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		5,591,079			2,344,573

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	5,590,090		$	4,232,444

SUPPLEMENTAL DISCLOSURES:
Cash paid for income taxes	$	163,493		$	80,000
Non-cash activities:
Other current assets for inventory returns	$	41,083		$	-

See notes to consolidated financial statements.

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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) (“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, Orem and Salt Lake City (opened October 2010). We also opened 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 management’s 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 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 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 December 31, 2010, the consolidated results of operations for the three and nine months ended December 31, 2010 and 2009, and the consolidated cash flows for the nine months ended December 31, 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 Company’s 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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Broadview Institute, Inc. and Subsidiary

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 (“VIE’s”) 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 enterprise’s 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 vendor’s 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 Company’s 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 requires 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 was adopted on December 31, 2010 and did not have a material impact on the Company’s disclosures and consolidated financial position or results of operations.

4. Earnings Per Share

Basic earnings per share (“EPS”) is calculated for common shares by dividing net income 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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Broadview Institute, Inc. and Subsidiary

Notes to Consolidated Financial Statements – (continued)

(Unaudited)

4. Earnings Per Share – (continued)

The basic income available to common stockholders was computed as follows:

	Three Months Ended								Nine Months Ended
	December 31,								December 31,
	2010				2009				2010				2009
Net income		$	79,363			$	672,561			$	417,281			$	1,315,881
Cumulative dividends			(7,500	)			(7,500	)			(22,500	)			(22,500	)
Net income available to common stockholders		$	71,863			$	665,061			$	394,781			$	1,293,381

The outstanding shares used for the diluted EPS were computed as follows:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2010		2009		2010		2009
Weighted-average shares outstanding – Basic		8,248,252		8,159,774		8,229,888		8,125,488
Incremental shares from assumed exercise or conversion of dilutive instruments:
Warrants		54,523		390,825		258,600		300,110
Restricted stock not vested		10,000		42,935		10,000		14,364
Preferred stock		-		500,000		500,000		500,000
Weighted average shares – diluted		8,312,775		9,093,533		8,998,488		8,939,962

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 Company’s 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 December 31, 2010, cumulative preferred stock dividends in arrears were $22,500. Each Series B preferred share is convertible into one share of common stock at any time.

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Broadview Institute, Inc. and Subsidiary

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 December 31, 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 nine months ended December 31, 2010 and 2009, and no options were outstanding as of December 31, 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 Company’s common stock that were initially available for issuance pursuant to the Plan, 820,000 were available for issuance at December 31, 2010 and 2009.

Restricted Stock Awards

On October 13, 2009, the Company’s Board of Directors (the “Board”) revised its compensation arrangement for the Board’s 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 Company’s 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 Company’s 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 Company’s quarter ending March 31, 2011.

Stock compensation expense for directors recorded for the three and nine months ended December 31, 2010 and 2009 was $32,500 and $97,500. At December 31, 2010, future expense related to these awards is expected to be $32,500 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 award’s vesting period, such director’s 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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Broadview Institute, Inc. and Subsidiary

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 during the first quarter of the Company’s 2012.

Other Stock-Based Compensation

On June 16, 2010, the Board awarded stock bonuses to the Company’s Chief Executive Officer and Chief Financial Officer in the amount of 20,000 and 10,000 shares of the Company’s common stock. The shares were valued at $2.35 per share which was the closing price of the Company’s 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 Company’s Equity Incentive Plan. Stock compensation expense for officers recorded for the nine months ended December 31, 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 Company’s common stock on October 13, 2009. The shares were valued at $3.25 per share which was the closing price of the Company’s common stock on the grant date. The Company recognized stock compensation expense of $97,500 for the nine months ended December 31, 2009.

6. Income Taxes

The Company recognized income tax expense of $61,036 and $273,030 for the three and nine months ended December 31, 2010, compared to expense of $381,956 and $788,572 for the three and nine months ended December 31, 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 Company’s 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 December 31, 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 $1,595,582 and $1,532,757 in loans outstanding to Broadview University students at December 31, 2010 and March 31, 2010.

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Broadview Institute, Inc. and Subsidiary

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 Company’s Board of Directors approved increasing the payments to $75,000 per month, based on management’s 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 Company’s expenses for services under the SLA were $225,000 and $675,000 for the three and nine months ended December 31, 2010, and $150,000 and $450,000 for the three and nine months ended December 31, 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 University 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 $292,500 for the three and nine months ended December 31, 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 University 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 $432,900 for the three and nine months ended December 31, 2010 and 2009.

In January 2011, Broadview University took occupancy of a 31,200 square foot building owned by Myhre Holdings-Meridian, LLC, an entity wholly-owned by Myhre Holdings, Inc. The building is located in the city of Meridian, Idaho and referred to by management as the Boise campus. The University expects to enter into a formal lease with Myhre Holdings-Meridian, LLC during the quarter ending March 31, 2011. Terms are expected to be similar to the related party leases with Myhre Holdings entities disclosed above. As of February 14, 2011, the University had capitalized $131,348 in leasehold improvements related to the Boise campus.

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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 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 Company’s current expectations and are subject to a number of assumptions, risks and uncertainties.

In accordance with the Safe Harbor provisions of the Reform Act, the Company has identified important factors that could cause 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., a Utah corporation, (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 opened a branch campus in Boise, Idaho in January 2011.

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Key Financial Metrics

Revenues

Approximately 97% of our revenues recognized during the three and nine months ended December 31, 2010 were from tuition collected from Broadview University’s 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, and opened a branch campus in Boise, Idaho in January 2011.

Effective July 1, 2010, we increased Broadview University’s 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 Company’s paid GU/MSB $50,000 per month for these services from July 1, 2008 through December 31, 2009. Effective January 1, 2010, the Company’s Board of Directors approved increasing the payments to $75,000 per month, based on management’s 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 Company’s expenses for services under the SLA were $225,000 and $675,000 for the three and nine months ended December 31, 2010, and $150,000 and $450,000 for the three and nine months ended December 31, 2009.

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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 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 Company’s critical accounting policies are outlined in the Company’s 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						Nine Months Ended
	December 31,						December 31,
	2010			2009			2010			2009
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Operating Expenses:
Educational services and facilities		70.1			59.2			69.0			63.0
Selling, general and administrative		27.4			20.6			26.7			21.8
Total Operating Expenses		97.5			79.8			95.7			84.8

Operating Income		2.5			20.2			4.3			15.2

Other Income		0.1			0.1			0.1			0.1
Income Before Income Taxes		2.6			20.3			4.4			15.3

Income Tax Expense		1.1			7.3			1.7			5.7
Net Income		1.5	%		13.0	%		2.7	%		9.6	%

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Three Months Ended December 31, 2010 (2010) Compared with Three Months Ended December 31, 2009 (2009)

Revenues

Revenues increased $220,904, or 4.3%, to $5,406,325 in 2010 from $5,185,421 in 2009. Tuition revenue increased $495,979, or 10.1%, to $5,422,780 in 2010 from $4,926,801 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 4.7% from 2009 to 2010.

Effective July 2010, 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, recognizing both textbook sales revenue and textbook purchasing expense, net of returns. 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; we no longer recognize revenue for the sale or expense for the purchase of textbooks.

We recognized $58,344 of commission revenue in 2010, compared to $372,805 of textbook sales revenue in 2009, a decrease of $314,461, or 84.3%.

Educational services and facilities operating expenses

Expenses related to our educational services and facilities increased 23.5% to $3,789,510 in 2010 from $3,068,383 in 2009. The $721,127 increase is attributable to direct costs necessary to support the increase in student enrollments at our existing branch campuses, including faculty compensation and facility operating costs.

Overall payroll-related expenses increased 24.4%, or $391,980, in 2010 compared to 2009. This includes $246,342 of wages paid at our Salt Lake City, Utah campus that opened in October 2010, as well as $112,359 of wages paid to employees hired in advance of our Boise, Idaho campus that opened in January 2011. Absent the expansion payroll for the two new campuses, overall such expenses increased 2.1% in 2010 compared to 2009.

Facility costs, including rent expense, increased 39.3%, or $221,180 in 2010 compared to 2009. The current year quarter included $202,367 of rent expense for our Salt Lake City campus.

Payroll-related expenses and facility costs increased as a percentage of revenues to 36.9% and 14.5% in 2010 from 30.9% and 10.8% 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 $258,332, or 94.3%, 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 $1,482,754 in 2010 from $1,068,913 in 2009. The $413,841 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 $308,305, or 45.8%.

Our management fee paid to a related party increased 50.0%, or $75,000, to $225,000 in 2010 from $150,000 in 2009.

Marketing expenses and management fees as a percentage of revenues were 18.2% and 4.2% for 2010, compared to 13.0% and 2.9% for 2009.

Operating income

Operating income is the primary measure used by management in assessing the Company’s performance. We recognized operating income of $134,061 in 2010 compared to $1,048,125 in 2009. The decrease of $914,064, or 87.2%, was primarily the result of the aforementioned factors.

Other income

Other income consists of interest earned on cash maintained in a bank savings account.

Income taxes

We recognized income tax expense of $61,036 in 2010 compared to $381,956 in 2009. The decrease of $320,920, or 84.0%, was primarily due to the decrease in income before taxes attributable to the aforementioned factors.

Nine Months Ended December 31, 2010 (2010) Compared with Nine Months Ended December 31, 2009 (2009)

Revenues

Revenues increased $2,021,787, or 14.8%, to $15,722,880 in 2010 from $13,701,093 in 2009. Tuition revenue increased $2,540,182, or 19.7%, to $15,407,612 in 2010 from $12,867,430 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.

We recognized $130,760 of commission revenue and $372,835 of textbook sales revenue in 2010, compared to $976,757 of textbook sales revenue in 2009, a decrease of $473,162, or 48.4%.

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Educational services and facilities operating expenses

Expenses related to our educational services and facilities increased 25.8% to $10,852,866 in 2010 from $8,628,609 in 2009. The $2,224,257 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 the expansion campuses that opened in October 2010 and January 2011.

Overall payroll-related expenses increased 29.4%, or $1,324,739, in 2010 compared to 2009. This includes $686,301 of wages paid in 2010 for employees hired in advance of opening campuses in Salt Lake City, Utah and Boise, Idaho, as well as the first quarter of operations for Salt Lake City. Absent the new campus payrolls, overall such expenses increased 14.2% in 2010 compared to 2009.

Facility costs, including rent expense, increased 32.2%, or $543,086 in 2010 compared to 2009. The nine months ended December 31, 2010 included $470,025 of rent expense for our Salt Lake City campus.

Payroll-related expenses and facility costs increased as a percentage of revenues to 37.1% and 14.2% in 2010 from 32.9% and 12.3% 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 $392,560, or 54.4%, 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 40.7% to $4,201,877 in 2010 from $2,985,522 in 2009. The $1,216,355 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 $624,978, or 34.5%.

The Company classifies various operating costs for expansion campuses as administrative expenses until such campuses commence operations. We recognized $282,219 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 $225,000, to $675,000 in 2010 from $450,000 in 2009.

Marketing expenses and management fees as a percentage of revenues were 15.5% and 4.3% for 2010, compared to 13.2% and 3.3% for 2009.

Operating income

Operating income is the primary measure used by management in assessing the Company’s performance. We recognized operating income of $668,137 in 2010 compared to $2,086,962 in 2009. The decrease of $1,418,825, or 68.0%, was primarily the result of the aforementioned factors.

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Other income

Other income consists of interest earned on cash maintained in a bank savings account. Interest income increased 26.8%, or $4,683, in 2010 compared to 2009, primarily due to higher cash balances offset by lower interest rates.

Income taxes

We recognized income tax expense of $273,030 in 2010 compared to $788,572 in 2009. The decrease of $515,542, or 65.4%, was primarily due to the decrease in income before taxes attributable to the aforementioned factors. Our effective tax rate increased to 39.6% in 2010 from 37.5% 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 nine months ended December 31, 2010 primarily through cash provided by operating activities. Cash and cash equivalents were $5,590,090 at December 31, 2010 compared to $5,591,079 at March 31, 2010. Most of the Company’s excess cash is held in an interest-bearing bank savings account. We had no debt at December 31, 2010 or March 31, 2010.

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 Company’s Chairman. As of December 31, 2010, Myhre Investments, LLC had $1,595,582 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 Company’s 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 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, 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 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.

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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 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 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 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.

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:

February 14, 2011	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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BROADVIEW INSTITUTE INC - FORM 10-Q - February 14, 2011

Attached files

BROADVIEW INSTITUTE INC Reports