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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
--------------
or
[ ] 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 0-19824
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Nutrition Management Services Company
-------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2095332
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Box 725, Kimberton Road, Kimberton, PA 19442
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 935-2050
-----------------------------
N/A
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Former name, former address and former fiscal year, if change 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 report), and (2) has been subject to such filing
requirements for the past 90 days Yes X No .
-- --
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes No X .
-- --
2,747,000 Shares of Registrant's Class A Common Stock, with no par value, and
100,000 shares of Registrant's Class B Common Stock, with no par value, are
outstanding as of May 17, 2004.
TABLE OF CONTENTS
Part I. Financial Information Page No.
--------------------- -------
Consolidated Balance Sheets as of
March 31, 2004 (unaudited) and June 30, 2003 2-3
Consolidated Statements of Operations for the
Three and Nine Months Ended March 31, 2004 and 2003
(unaudited) 4
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 2004
and 2003 (unaudited) 5
Notes to Consolidated Financial Statements 6-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
Item 4 - Controls and Procedures 16
Part II. Other Information 17
Signatures 18
1
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
2004 2003
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $ 1,240,680 $ 1,360,512
Accounts receivable, net of allowance for doubtful
accounts of $2,472,326 and $2,292,326, respectively 2,676,731 2,843,764
Accrued income 124,311 51,147
Deferred income taxes 1,209,454 1,209,454
Inventory 151,995 155,945
Prepaid and other 390,544 365,558
Income tax refund 63,348 63,348
----------- -----------
Total current assets 5,857,063 6,049,728
----------- -----------
Property and equipment, net 7,690,325 8,103,456
----------- -----------
Other assets:
Notes Receivable 124,833 136,110
Advances to employees 435,283 435,283
Deferred income taxes 212,687 212,687
Bond issue costs 187,849 195,430
Deferred costs and other assets 11,322 10,020
----------- -----------
Total other assets 971,974 989,530
----------- -----------
$14,519,362 $15,142,714
=========== ===========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30,
2004 2003
------------ ------------
(unaudited)
Current liabilities:
Current portion of long-term debt $ 147,174 $ 196,813
Current portion of note payable 238,700 575,687
Accounts payable 2,969,983 2,883,496
Accrued expenses 172,929 303,756
Accrued payroll and related expenses 221,170 246,622
Other 180,344 116,880
------------ ------------
Total current liabilities 3,930,300 4,323,254
------------ ------------
Long-Term liabilities:
Long-term debt, net of current portion 5,471,922 5,184,891
Long Term Note Payable - 0 - 154,452
------------ ------------
Total long-term liabilities 5,471,922 5,339,343
Stockholders' equity:
Undesignated preferred stock - no par, 2,000,000 shares authorized, none
issued or outstanding -- --
Common stock:
Class A - no par, 10,000,000 shares authorized; 3,000,000 issued and
2,747,000 outstanding, respectively 3,801,926 3,801,926
Class B - no par, 100,000 shares authorized, issued and outstanding 48 48
Retained earnings 1,814,729 2,177,706
------------ ------------
5,616,703 5,979,680
Less: treasury stock (Class A common: 253,000 shares) - at cost (499,563) (499,563)
------------ ------------
Total stockholders' equity 5,117,140 5,480,117
------------ ------------
$ 14,519,362 $ 15,142,714
============ ============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
March 31, March 31,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Food Service Revenue $ 7,141,972 $ 6,358,301 $ 21,024,382 $ 20,781,354
Cost of operations
Payroll and related expenses 2,926,771 2,645,415 8,288,901 8,266,690
Other costs of operations 2,873,948 2,615,696 8,741,337 8,887,074
------------ ------------ ------------ ------------
Cost of operations 5,800,719 5,261,111 17,030,238 17,153,764
Gross profit 1,341,253 1,097,190 3,994,144 3,627,590
------------ ------------ ------------ ------------
Expenses
General and administrative expenses 1,202,066 1,071,604 3,569,531 3,332,037
Depreciation and amortization 152,398 201,808 462,343 615,614
Provision for doubtful accounts 60,000 85,999 180,000 278,261
------------ ------------ ------------ ------------
Expenses 1,414,464 1,359,411 4,211,874 4,225,912
------------ ------------ ------------ ------------
(Loss) from operations (73,211) (262,221) (217,730) (598,322)
------------ ------------ ------------ ------------
Other (expense) income
Other (4,624) (4,508) (13,642) (25,137)
Interest income 3,067 3,832 6,623 7,859
Interest expense (45,610) (43,862) (138,234) (148,321)
------------ ------------ ------------ ------------
Other (expense) income - net (47,167) (44,538) (145,253) (165,599)
------------ ------------ ------------ ------------
(Loss) before income taxes (120,378) (306,759) (362,983) (763,921)
Provision for income taxes 0 0 0 0
------------ ------------ ------------ ------------
Net Loss $ (120,378) (306,759) $ (362,983) $ (763,921)
============ ============ ============ ============
Basic and diluted loss
- basic and diluted $ (.04) $ (.11) $ (.13) $ (.27)
============ ============ ============ ============
Weighted average number of shares 2,847,000 2,847,000 2,847,000 2,847,000
============ ============ ============ ============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
2004 2003
----------- -----------
Operating activities:
Net (loss) ($ 362,983) ($ 763,921)
Adjustments to reconcile net (loss) to net cash provided by/(used in)
operating activities:
Depreciation and amortization 462,343 615,614
Provision for bad debts 180,000 278,261
Amortization of bond costs 10,923 10,923
Changes in assets and liabilities:
Accounts receivable (1,690) 1,107,890
Accrued income (73,164) (140,666)
Inventory and other (22,338) 72,083
Accounts payable (250,500) (276,169)
Accrued expenses (110,383) (146,451)
Accrued payroll and related expenses (25,452) 37,622
Accrued professional (20,444) (26,083)
Accrued incomes taxes (0) (9,691)
Other 60,129 (128,213)
----------- -----------
Net cash (used in) / provided by operating activities (153,558) 631,198
----------- -----------
Investing activities:
Repayment (Advances) to employees 0 86,363
Purchase of property and equipment (49,212) (70,587)
----------- -----------
Net cash (used in) /provided by investing activities (49,212) 15,776
----------- -----------
Financing activities
Repayments of long-term borrowing (2,664,000) (1,386,900)
Repayments of long-term payable (154,452) (84,247)
Repayments of term loan (53,609) (49,768)
Proceeds from long term borrowing 2,955,000 1,099,900
----------- -----------
Net cash (used in) / provided by financing activities 82,939 (421,015)
----------- -----------
Net (decrease)/increase in cash and cash equivalents (119,832) 225,959
----------- -----------
Cash and cash equivalents - beginning of period 1,360,512 593,310
----------- -----------
Cash and cash equivalents - end of period $ 1,240,680 $ 819,269
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 138,144 $ 152,393
Income taxes $ 2,040 $ (15,644)
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared
in accordance with generally accepted accounting principles for interim
financial information for quarterly reports on Form 10-Q and, therefore, do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However,
all adjustments that, in the opinion of management are necessary for fair
presentation of the financial statements, have been included. The results of
operations for the interim periods presented are not necessarily indicative
of the results that may be expected for the entire fiscal year ending June
30, 2004. The financial information presented should be read in conjunction
with the Company's 2003 financial statements that were filed under Form
10-K.
2. NEW ACCOUNTING PRONOUNCEMENTS
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
("SFAS 150"). SFAS 150 clarifies the accounting for certain financial
instruments that, under previous guidance, issuers could account for as
equity. SFAS 150 requires that those instruments be classified as
liabilities in statements of financial position. SFAS 150 is effective for
all financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. To date, the adoption of this interpretation
did not have an effect on the Company's financial position or results of
operations.
In April 2003, the FASB issued Statement No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149
amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" to clarify the financial accounting and reporting for derivative
instruments and hedging activities. SFAS 149 is intended to improve
financial reporting by requiring comparable accounting methods for similar
contracts. SFAS 149 is effective for contracts entered into or modified
subsequent to June 30, 2003. The requirements of SFAS 149 do not affect the
Company's current accounting for derivative instruments or hedging
activities; therefore, it has no effect on the Company's financial condition
or results of operations.
In January 2003 the FASB issued FIN 46, "Consolidation of Variable Interest
Entities" ("FIN 46"). This interpretation of Accounting Research Bulletin
No. 51, "Consolidated Financial Statements," addresses consolidation by
business enterprises of certain variable interest entities where there is a
controlling financial interest in a variable interest entity or where the
variable interest does not have sufficient equity at risk to finance its
activities without additional subordinated financial support from other
parities. The interpretation applies in the first year or
6
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2004
2. NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED
interim period beginning after January 31, 2003 and applies in the first
year or interim period beginning after June 15, 2003 to variable interest
entities in which an enterprise holds a variable interest that it acquired
before February 1, 2003. The Company will apply the consolidation
requirement of FIN 46 in future periods if the Company should own any
interest in any variable interest entity.
3. Earnings Per Common Share
Earnings per common share amounts are based on the weighted-average number
of shares of common stock outstanding during the three and nine month
periods ended March 31, 2004 and 2003. Stock options and warrants did not
impact earnings per share each period as they were anti-dilutive.
4. LITIGATION
On February 7, 2001, NMSC filed a suit against a major client in the Court
of Common Pleas in Chester County, PA. This suit has subsequently been
removed to the United States District Court for the Eastern District of
Pennsylvania. In the lawsuit, NMSC has made various claims, including among
others a claim that the client failed to pay approximately $2.1 million in
invoiced amounts, a claim that the client failed to pay approximately $1
million in other amounts owing, a claim for reimbursement for start up costs
in an amount in excess of $400,000, a claim for over $2 million in lost
profits (or, alternatively, a claim for reimbursement for over $300,000 in
credits issued in exchange for the promise to extend the arrangement), a
claim in the nature of treble damages and counsel fees, and other claims.
The client has filed a counterclaim which the Company is contesting as part
of the overall proceedings. Although it is not possible to predict with
certainty the outcome of these unresolved legal actions or the range of
possible loss or recovery, the Company believes these unresolved legal
actions will not have a material adverse effect on its financial position or
results of operations.
In addition to the litigation described above, the Company is exposed to
asserted and unasserted claims. In the opinion of management, the resolution
of these matters will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
7
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2004
5. BUSINESS SEGMENTS
The Company follows the disclosure provisions of SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. This management
approach focuses on internal financial information that is used by
management to assess performance and to make operating decisions. SFAS No.
131 also requires disclosures about products, services, geographic areas,
and major customers.
The Company's reportable segments are (1) food service management and (2)
training and conference center. The Company reports segment performance on
an after tax basis. Deferred taxes are not allocated to segments. The
management accounting policies and processes utilized in compiling segment
financial information are highly subjective and, unlike financial
accounting, are not based on authoritative guidance similar to accounting
principals generally accepted in the United States of America. As a result,
reported segment results are not necessarily comparable with similar
information reported by other similar companies.
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the quarter ended Mar. 31, 2004:
Food service revenue $ 6,925,999 $ 215,973 $ 7,141,972
Depreciation and amortization 28,291 124,107 152,398
Income (loss) from operations 218,387 (291,598) (73,211)
Interest income 3,067 0 3,067
Interest expense (28,667) (16,943) (45,610)
Income (loss) before taxes (benefit) 192,675 (313,053) (120,378)
Net income (loss) 192,675 (313,053) (120,378)
Total assets 6,515,902 8,003,460 14,519,362
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the quarter ended Mar. 31, 2003:
Food service revenue $ 6,212,344 $ 145,957 $ 6,358,301
Depreciation and amortization 73,927 127,881 201,808
Income (loss) from operations 157,066 (419,287) (262,221)
Interest income 3,832 0 3,832
Interest expense (25,146) (18,716) (43,862)
Income (loss) before taxes (benefit) 135,752 (442,511) (306,759)
Net income (loss) 135,752 (442,511) (306,759)
Total assets 7,280,692 8,476,017 15,756,709
8
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2004
5. BUSINESS SEGMENTS - CONTINUED
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the nine months ended Mar. 31, 2004:
Food service revenue $ 20,329,434 $ 694,948 $ 21,024,382
Depreciation and amortization 89,735 372,608 462,343
Income (loss) from operations 783,432 (1,001,162) (217,730)
Interest income 6,615 8 6,623
Interest expense (86,424) (51,810) (138,234)
Income (loss) before taxes (benefit) 703,511 (1,066,493) (362,983)
Net income (loss) 703,511 (1,066,493) (362,983)
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the nine months ended Mar. 31, 2003:
Food service revenue $ 20,168,296 $ 613,058 $ 20,781,354
Depreciation and amortization 223,163 392,451 615,614
Income (loss) from operations 577,349 (1,175,671) (598,322)
Interest income 7,859 0 7,859
Interest expense (85,768) (62,553) (148,321)
Income (loss) before taxes (benefit) 487,828 (1,251,749) (763,921)
Net income (loss) 487,828 (1,251,749) (763,921)
9
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2004
6. REVOLVING CREDIT FACILITY
In February 2001, the Company executed a loan agreement with a bank for a
revolving credit and two irrevocable letters of credit issued in conjunction
with the issuance of the Industrial Revenue Bonds, totaling $4,000,000 and
$3,065,000, respectively. In March 2003, the revolving credit was extended
from March 31, 2004 to December 31, 2004 and the letters of credit are
available for four years with annual renewals. At March 31, 2004, the
Company had available approximately $568,078 under the revolving credit.
Advances under the revolving credit are used for working capital purposes.
These credit agreements contain covenants that include the submission of
specified financial information and the maintenance of insurance coverage
for the pledged assets during the term of the loans. The covenants also
include the maintenance of a certain fixed coverage ratio, total liabilities
to consolidated tangible net worth, and minimum working capital.
Compensating balances required for these credit agreements totaled $655,102
as of June 30, 2003.
At June 30, 2003 the Company was not in compliance with these covenants. On
October 20, 2003, the Company entered into an amended credit agreement
whereby the non-compliance at June 30, 2003 was waived and new financial
covenants were negotiated through June 30, 2004, which reflect the Company's
current operating projections. As a condition of obtaining said waivers and
amendments, the Loan Facility availability was reduced from $4,000,000 to
$3,500,000 and $500,000 was placed in a cash collateral account and pledged
as additional collateral against the revolver note. At March 31, 2004 the
Company was current with all its obligations to its bank and on its bonds
and has met all financial covenants in its loan documents.
The maturity date of the revolving credit facility has been extended to June
30, 2005.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended, that are intended to be covered by
the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the adequacy of the Company's cash from operations, existing
balances and available credit line. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this Form 10-Q
will prove to be accurate. Factors that could cause actual results to differ
from the results discussed in the forward-looking statements include, but are
not limited to, the outcome of the Company's litigation discussed under Item 4 -
Litigation. In light of significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations are 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 financial statements
requires the Company to make estimates and judgments that affect the reported
amount of assets and liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities at the date of the Company's financial
statements. Actual results may differ from these estimates under different
assumptions or conditions.
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. The Company
believes that its critical accounting policies include those described below.
REVENUE RECOGNITION
Revenue is generated primarily from fees for food service management at
continuing care and health care facilities and the Collegeville Inn restaurant.
Revenue is recognized when services are performed. Ongoing assessments of the
credit worthiness of customers provide the Company reasonable assurance of
collectibility upon performance of services.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
ACCOUNTS RECEIVABLE
The Company performs ongoing credit evaluations of its customers and
adjusts credit limits based on payment history and the customer's current credit
worthiness, as determined by a review of their current credit information. The
Company continuously monitors collections and payments from its customers and
maintains a provision for estimated credit losses based on historical experience
and any specific customer collection issues that have been identified. While
such credit losses have historically been within the Company's expectations and
the provisions established, the Company cannot guarantee that it will continue
to experience the same credit loss rates that it has in the past.
IMPAIRMENT OF LONG-LIVED ASSETS EXCLUDING GOODWILL
The Company evaluates the carrying value of long-lived assets, including
intangible assets subject to amortization, when events and circumstances warrant
such a review. The carrying value of long-lived assets is considered impaired
when the anticipated undiscounted cash flows from such assets are less than
their carrying value. In that event, a loss is recognized equal to the amount by
which the carrying value exceeds the fair value of the long-lived assets. The
Company periodically reviews the appropriateness of the estimated useful lives
of its long-lived assets.
INCOME TAX ACCOUNTING
The Company determines its provision for income taxes using the asset and
liability method. Under this method, deferred tax assets and liabilities are
recognized for the future tax effects of temporary differences of existing
assets and liabilities and their respective tax bases. Future tax benefits of
tax loss and credit carryforwards also are recognized as deferred tax assets.
Deferred tax assets are reduced by a valuation allowance to the extent the
Company concludes there is uncertainty as to their ultimate realization.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that the change is enacted.
RESULTS OF OPERATIONS
Revenues for the quarter ended March 31, 2004 were $7,141,972, an increase
of $783,671 or 11.0% compared to revenues of $6,358,301 for the corresponding
quarter last year. Revenues for the nine month period ended March 31, 2004 were
$21,024,382, an increase of $243,028 or 1.2% compared to the corresponding
period in 2003. These increases are primarily due to the net impact of revenues
from new contracts versus revenues from lost contracts.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
Costs of operations for the current quarter were $5,800,719, compared to
$5,261,111 for similar expenses in the same period last year, an increase of
$539,608 or 9.3%. For the nine month period ended March 31, 2004, cost of
operations were $17,030,238, compared to $17,153,764 for the same period last
year, a decrease of $123,526 or .8% compared to the corresponding period in
2003. This increase in cost of services is due to higher revenues during the
periods and inflationary price, wage and expense increases along with payroll
and related costs for new contracts.
Gross Profit for the quarter was $1,341,253, compared to $1,097,190, an
increase of $244,063 or 18.2%. For the nine month period ended March 31, 2004,
gross profit was $3,994,144 versus $3,627,590 an increase of $366,554 or 9.2%.
These increases are primarily due to higher revenues during the period. Gross
profit as a percentage of revenue for the quarter was 19% compared to 17.5% for
the same period last year. For the nine month period ended March 31, 2004, gross
profit as a percentage of revenue was 18.8% compared to 17.3%. These increases
are due to the cancellation of non performing contracts.
General and administrative expenses for the quarter were $1,202,066 or
16.8% of revenue, compared to $1,071,604 or 16.8% of revenue for the same
quarter last year, an increase of $130,462. For the nine month period ended
March 31, 2004, general and administrative expenses were $3,569,532 compared to
$3,332,037 for the corresponding period last year, an increase of $237,495.
These increases are due to higher fixed costs within the general and
administrative expenses.
Provision for doubtful accounts for the quarter was $60,000 compared to
$85,999 for the corresponding quarter last year. For the nine month period ended
March 31, 2004, provision for doubtful accounts was $180,000 compared to
$278,261 for the same period last year. The aforementioned decreases are due to
increased collection activities, which led to overall declines in accounts
receivable and associated risk.
Interest expense for the quarter totaled $45,610 compared to $43,862 for
the same period last year. For the nine month period ended March 31, 2004,
interest expense was $138,234 versus $148,321 for the corresponding period in
2003. The decrease in interest expense for the nine month period is a result of
the repayment of long term borrowings and lower interest rates. The average rate
for the nine month period ended March 31, 2004 was 4.1% as compared to 4.3% for
same period last year.
For the reasons stated above net loss after taxes for the quarter ended
March 31, 2004 was ($120,378) compared to ($306,759) for the corresponding
quarter last year. Net loss per share for the current quarter was ($0.04)
compared to net loss per share of ($0.11) for the corresponding quarter last
year.
Net loss for the nine month period was ($362,983) versus ($763,921) for the
corresponding period last year. Net loss per share for the nine month period was
($0.13) compared to net loss per share of ($0.27) for the same period last year.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2004, the Company had working capital of $1,926,763 compared
to $1,726,474 at June 30, 2003, an increase of $200,289.
OPERATING ACTIVITIES. Cash consumed in operations for the nine month period
ended March 31, 2004 was $153,559 compared to cash provided by operations of
$631,198 for the nine months ended March 31, 2003. The current period's activity
is primarily due to a reduction of accounts payable.
INVESTING ACTIVITIES. Investing activities consumed $49,212 in cash in the
current period compared to $15,766 in cash provided in the same period last
year.
FINANCING ACTIVITIES. Current period financing activities provided $82,939
in cash compared to $421,015 consumed in the same period last year. The change
is attributable to $2,872,061 of debt repayments offset by $2,955,000 of debt
proceeds.
CAPITAL RESOURCES. The Company has certain credit facilities with its bank
including a revolving credit line of $3,500,000. At March 31, 2004, the Company
had $568,078 available under its revolving credit facility. The Company issued
two series of Industrial Bonds with a face amount totaling $3,500,000 in
December 1996. The outstanding balance on the bonds was $2,675,000 as of March
31, 2004. On October 20, 2003 the Company entered into an amended agreement. The
Loan Facility contains certain covenants that include maintenance of certain
financial ratios, maintenance of minimum levels of working capital as well as
affirmative and negative covenants. The maturity date of the revolving credit
line has been extended to June 30, 2005. The Company is current with all its
obligations to its bank and on its bonds and has met all financial covenants in
its loan documents.
As of March 31, 2004
Payment Due By Period
------------------------------------------------------------------------------------
Less
Contractual Total than 1 1-3 years 4-5 After 5
Obligations year years years
- ------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt* $5,619,096 $ 147,174 $3,226,922 $ 335,000 $1,910,000
Operating Leases 107,098 41,702 65,396 0 0
Total Contractual Cash Obligations $5,726,194 $ 188,876 $3,292,318 $ 335,000 $1,910,000
o Long-Term Debt includes a $2,931,922 outstanding balance on the revolving
line of credit, leaving $568,078 available for borrowings under the
$3,500,000 revolving line of credit.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
Amount of Commitment Expiration
Per Period
-----------------------------------------------------------------
Other Commercial Total Amounts Less than 1 - 3 years 4-5 Over 5
Commitments Committed 1 year years years
- -----------------------------------------------------------------------------------------------------------------------
Lines of Credit $3,500,000 $ 0 $3,500,000 $ 0 $ 0
Standby Letter of Credit 3,065,000 3,065,000 0 0
Total Commercial Commitments $6,565,000 $ 0 $6,565,000 $ 0 $ 0
A substantial portion of the Company's revenues are dependent upon the
payment of its fees by customer healthcare facilities, that, in turn, are
dependent upon third-party payers such as state governments, Medicare and
Medicaid. Delays in payment by third-party payers, particularly state and local
governments, may lead to delays in collection of accounts receivable.
Based upon its present plans, management believes that operating cash flow,
available cash and available credit resources will be adequate to make
repayments of indebtedness described herein, to meet the working capital cash
needs of the Company and to meet anticipated capital expenditure needs during
the 12 months ending March 2005. In addition, the Company anticipates the sale
of certain land adjacent to its Collegeville Inn facility that it believes will
net cash proceeds of not less than $2,000,000. However, there can be no
assurance that the Company will in fact sell such land or as to the amount of
such proceeds.
In an effort to extend our current bank debt, we may seek to access the
public equity market whenever conditions are favorable, even if we do not have
an immediate need for additional capital at that time. Any additional funding
may result in significant dilution and could involve the issuance of securities
with rights, which are senior to those of existing stockholders. We may also
need additional funding earlier than anticipated, and our cash requirements, in
general, may vary materially from those now planned, for reasons including, but
not limited to, competitive advances and higher than anticipated revenues from
operations.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
ITEM 4.
CONTROLS AND PROCEDURES
Based on their evaluation, as of the end of the period covered by this
report, the Company's Chief Executive Officer and Chief Financial Officer have
concluded the Company's disclosure controls and procedures (as defined in Rules
13a-14 and 15d-14 under the Securities Exchange Act of 1934) are effective.
There have been no significant changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant
to Rule 13a-14(a) under the Securities and Exchange
Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer
pursuant to Rule 13a-14(a) under the Securities and
Exchange Act of 1934, as adopted pursuant to
Section 302 of the 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 Principal Financial Officer
pursuant to 18 U.S. C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes- Oxley Act
of 2002.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Nutrition Management Services Company
/s/ Joseph V. Roberts
----------------------------------------
Joseph V. Roberts
Chairman and Chief Executive Officer
/s/ Linda J. Haines
----------------------------------------
Linda J. Haines
(Principal Financial Officer)
Date: May 24, 2004
18