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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 SEPTEMBER 30, 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 (I.R.S. Employer Identification No.)
of incorporation or organization)
BOX 725, KIMBERTON ROAD, KIMBERTON, PA 19442
- -------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 935-2050
-----------------------
N/A
------------------
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 January 3, 2005.
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION PAGE NO.
--------------------- --------
Consolidated Balance Sheets as of
September 30, 2004 (unaudited) and June 30, 2004 2
Consolidated Statements of Operations for the Three
Months Ended September 30, 2004 (unaudited) and
2003 (unaudited) 3
Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 2004 (unaudited) and
2003 (unaudited) 4
Notes to Consolidated Financial Statements 5 - 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 13
Item 9A - Controls and Procedures 13
Part II. Other Information 14
Signatures 15
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2004 JUNE 30, 2004
(UNAUDITED)
------------ ------------
Current assets:
Cash and cash equivalents $ 338,803 $ 946,523
Marketable securities 201,453 202,969
Accounts receivable, net of allowance for doubtful
accounts of $2,952,336 and $2,877,336, respectively 3,012,459 2,259,582
Deferred income taxes 405,320 405,320
Inventory 156,704 159,181
Prepaid and other current assets 640,289 525,556
------------ ------------
Total current assets 4,755,028 4,499,131
Property and equipment, net 7,432,452 7,563,568
Other assets:
Restricted cash 250,000 250,000
Note receivable 116,127 120,608
Advances to employees 435,283 435,283
Deferred income taxes 1,218,521 1,218,521
Bond issue costs, net of accumulated amortization of $114,103
and $110,461, respectively 177,221 180,863
Other assets 11,321 11,321
------------ ------------
Total other assets 2,208,473 2,216,596
------------ ------------
Total assets $ 14,395,953 $ 14,279,295
============ ============
Current liabilities:
Current portion of long-term debt $ 145,000 $ 145,000
Current portion of note payable 70,206 154,453
Accounts payable 3,341,227 3,303,947
Accrued payroll and related expenses 191,623 222,176
Accrued expenses and other 471,958 447,114
------------ ------------
Total current liabilities 4,220,014 4,272,690
Long-Term liabilities:
Long-term debt, net of current portion 5,754,922 5,376,922
Commitments and contingencies
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,
2,747,000 outstanding 3,801,926 3,801,926
Class B - no par, 100,000 shares authorized, issued and outstanding 48 48
Retained earnings 1,118,606 1,327,272
Less: treasury stock (Class A common: 253,000 and 253,000
shares, respectively) - at cost (499,563) (499,563)
------------ ------------
Total stockholders' equity 4,421,017 4,629,683
------------ ------------
$ 14,395,953 $ 14,279,295
============ ============
See Notes to Unaudited Consolidated Financial Statements
2
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
2004 2003
----------- -----------
Food Service Revenue $ 6,769,547 $ 6,706,854
Cost of Operations
Payroll and related expenses 2,702,347 2,510,402
Other costs of operations 2,763,888 2,883,118
----------- -----------
Total cost of operations 5,466,235 5,393,520
----------- -----------
Gross Profit 1,303,312 1,313,334
Expenses
General and administrative expenses 1,225,294 1,176,840
Depreciation and amortization 151,676 154,397
Provision for doubtful accounts 75,000 60,000
----------- -----------
Total expenses 1,451,970 1,391,237
----------- -----------
Loss from operations ( 148,658) ( 77,903)
Other income/(expense)
Other ( 2,383) ( 4,509)
Interest income 1,035 1,640
Interest expense ( 58,660) ( 45,184)
----------- -----------
Total other income/(expense) ( 60,008) ( 48,053)
----------- -----------
Loss before income taxes ( 208,666) ( 125,956)
Provision for income taxes -- --
----------- -----------
Net loss ($ 208,666) ($ 125,956)
=========== ===========
Net loss per share - basic and diluted ($ 0.07) ($ 0.04)
=========== ===========
Weighted average number of shares 2,847,000 2,847,000
=========== ===========
See Notes to Unaudited Consolidated Financial Statements
3
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30,
2004 2003
----------- -----------
Operating activities:
Net loss ($ 208,666) ($ 125,956)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 151,676 154,397
Provision for bad debts 75,000 60,000
Amortization of bond costs 3,642 3,641
Changes in assets and liabilities:
Marketable securities 1,517 --
Accounts receivable (823,397) (314,366)
Inventory 2,477 15,317
Prepaid and other current assets (114,733) ( 79,210)
Accounts payable 37,280 (117,336)
Accrued payroll and related expenses (30,553) (85,417)
Accrued expenses and other 24,844 (7,838)
----------- -----------
Net cash used in operating activities (880,913) (494,163)
Investing activities:
Purchase of property and equipment (20,560) (12,199)
----------- -----------
Net cash used in investing activities (20,560) (12,199)
Financing activities:
Repayment of note payable (84,247) (84,247)
Repayments of long-term borrowing (58,000) (832,531)
Proceeds from long-term borrowing 436,000 1,315,000
----------- -----------
Net cash provided by financing activities 293,753 398,222
----------- -----------
Net decrease in cash (607,720) (108,140)
Cash and cash equivalents - beginning of period 946,523 1,360,512
----------- -----------
Cash and cash equivalents - end of period $ 338,803 $ 1,252,372
=========== ===========
See Notes to Unaudited Consolidated Financial Statements
4
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 and such
adjustments are of a normal recurring nature. The results of operations for
the interim period presented is not necessarily indicative of the results
that may be expected for the entire fiscal year ending June 30, 2005. The
financial information presented should be read in conjunction with the
Company's 2004 financial statements that were filed under Form 10-K.
2. NEW ACCOUNTING PRONOUNCEMENTS
In January 2003 the FASB issued Financial Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" and in December 2003 the FASB
issued Financial Interpretation No. 46 (revised) ("FIN
46(R)"),"Consolidation of Variable Interest Entities (revised)". These
interpretations of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," address 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 Company
will apply the consolidation requirement of FIN 46 and FIN 46(R) in future
periods if the Company should own any interests 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-month period ending
September 30, 2004 and 2003. The Company did not have any stock options and
warrants that impacted earnings per share in each period.
5
4. LITIGATION
On February 7, 2001, the Company filed a suit against a major client in the
Court of Common Pleas in Chester County, Pennsylvania. This suit has
subsequently been removed to the United States District Court for the
Eastern District of Pennsylvania. In the lawsuit, the Company 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. The
case is currently tentatively scheduled for February 7, 2005.
The Company is involved in litigation with two separate construction
contractors related to the renovations of Collegeville Inn Conference and
Training Center. The Company denies its liability for each claim and has
asserted offsets against the amounts claimed. One case is listed for trial
in early 2005, while the other case is in discovery.
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.
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.
6
For the quarter ended September 30, 2004:
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
Food service revenue $ 6,529,559 $ 239,988 $ 6,769,547
Depreciation and amortization 27,277 124,399 151,676
Income (loss) from operations 201,531 ( 350,189) ( 148,658)
Interest income 1,035 0 1,035
Interest expense ( 35,213) ( 23,446) ( 58,659)
Income (loss) before taxes (benefit) 165,837 ( 374,503) ( 208,666)
Net income (loss) 165,837 ( 374,503) ( 208,666)
Total assets $ 6,645,156 $ 7,750,798 $14,395,954
For the quarter ended September 30, 2003:
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
Food service revenue $ 6,527,881 $ 178,973 $ 6,706,854
Depreciation and amortization 30,280 124,118 154,398
Income (loss) from operations 288,519 (366,422) ( 77,903)
Interest income 1,640 0 1,640
Interest expense (28,244) (16,939) ( 45,183)
Income (loss) before taxes (benefit) 261,915 (387,870) (125,955)
Net income (loss) 261,915 (387,870) (125,955)
Total assets $ 7,054,000 $ 8,152,992 $15,206,992
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 Industrial Revenue Bonds, totaling
$4,000,000 and $3,065,000, respectively. In October 2003 the Company
entered into an amended credit agreement whereby the $4,000,000 Revolving
Credit Loan Facility was reduced to $3,500,000 and $500,000 was placed in a
cash collateral account and pledged as additional collateral against the
revolving credit line. At September 30, 2004, the Company had approximately
$275,078 available 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 consolidated fixed debt service
coverage ratio, ratio of total consolidated liabilities to consolidated
tangible net worth, and minimum working capital. At September 30, 2004 the
Company was in compliance with these covenants.
7
As of September 30, 2004 and June 30, 2004 the Company maintained
restricted cash balances of $250,000, which was not available for operating
purposes. On December 15, 2004 the Company entered into an amended
agreement whereby the non-compliance was waived and new financial covenants
were negotiated through June 30, 2005, which reflect the Company's current
operating projections. As part of the amended agreement, the Company's
Chief Executive Officer was required to execute a limited personal
guarantee in the amount of $3,000,000.
7. COLLEGEVILLE INN
On September 8, 2004 the Company entered into an agreement of sale for the
land adjacent to its Collegeville Inn Conference & Training Center. The
agreement provides for an initial deposit of $10,000 within ten days of the
effective date of the agreement, with additional deposits of $50,000 and
$25,000 payable to the Company upon the occurrence of certain events,
including, but not limited to, zoning approvals. The deposits are
non-refundable upon the end of a 120-day inspection period, which commenced
on the date the buyer received a fully executed original of the agreement
of sale. Pursuant to the terms of the agreement of sale, the Company may
realize gross proceeds of not less than $1,710,000. However, the Company
may realize gross proceeds in excess of $1,710,000, if the buyer is able to
maximize the yield of the property. The agreement of sale provides that
settlement occur within twenty-four months of the date of the agreement,
however, upon payment of additional deposits, settlement may be extended an
additional twelve months. Upon closing of the transaction, the Company
plans on using the proceeds to retire a proportional amount of outstanding
debt associated with the parcel of land. There can be no assurance that the
sale of this land will be completed in accordance with the terms of the
agreement of sale.
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,
results of operations of Collegeville Inn Conference & Training Center, the sale
of land adjacent to the Collegeville Inn discussed in Note 7 - Collegeville Inn,
and the outcome of the Company's litigation discussed in Note 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.
8
RESULTS OF OPERATIONS
Revenues for the quarter ended September 30, 2004 were $6,769,547, an increase
of $62,693 or 0.9% compared to revenues of $6,706,854 in the corresponding
quarter last year. This increase is primarily due to the net impact of revenues
from new contracts versus revenues from lost contracts as well as increases in
contract rates in the normal course of business.
Cost of operations provided for the current quarter was $5,466,235, compared to
$5,393,520 for similar expenses in the same period last year, an increase of
$72,715 or 1.3%. The increase is primarily due to higher revenues during the
period as well as inflationary price, wage and expense increases. In addition
there were payroll and related costs for new contracts.
Gross Profit for the current quarter was $1,303,312, or 19.3% of gross revenue,
compared to $1,313,334, or 19.6% of gross revenue, for the same period last
year, a decrease of $10,022 or 0.8%. The decrease is due to an increase in cost
of operations that exceeds the increase in revenues.
General and administrative expenses for the quarter were $1,225,294 or 18.1% of
revenue, compared to $1,176,840 or 17.5% of revenue for the same quarter last
year, an increase of $48,454 or 4.1%. This increase is due to higher fixed costs
within the general and administrative expenses including corporate overhead
personnel.
Provision for doubtful accounts for the quarter was $75,000 compared to $60,000
for the corresponding quarter last year.
Interest expense for the three-month period totaled $58,660 compared to $45,184
for the same period last year. The increase in interest expense is a result of
additional borrowings as well as an increase in interest rates.
For the reasons stated above, net loss after taxes for the quarter ended
September 30, 2004 was $208,666 compared to $125,956 for the corresponding
quarter last year.
Net loss per share for the current quarter was $0.07 compared to net loss per
share of $0.04 for the same quarter last year.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2004 the Company had working capital of $535,014.
OPERATING ACTIVITIES. Cash used in operations for the three months ended
September 30, 2004 was $880,913 compared to $494,163 used by operations for the
three months ended September 30, 2003. The current period's activity is
primarily attributable to operating losses sustained in the current period as
well as an increase in accounts receivable.
INVESTING ACTIVITIES. Investing activities used $20,560 in cash in the current
quarter compared to $12,199 in cash used in the same period last year. This was
due to an increase in purchases of property and equipment.
9
FINANCING ACTIVITIES. Current quarter financing activities provided $293,753 in
cash compared to $398,222 provided in the same period last year.
CAPITAL RESOURCES. The Company has certain credit facilities with its bank
including a revolving credit facility of $3,500,000. At September 30, 2004 and
June 30, 2004, the Company had $275,078 and $653,078, respectively, available
under its revolving credit. The Company has pledged a $250,000 certificate of
deposit as additional collateral against the revolving line of credit. In
November 2004, the Company entered into an agreement whereby its credit loan
facility was extended to December 31, 2005. 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.
On December 15, 2004 the Company entered into an amended agreement whereby new
financial covenants were negotiated through June 30, 2005, which reflect the
Company's current operating projections. As part of the amended agreement, the
Company's Chief Executive Officer was required to execute a limited personal
guarantee in the amount of $3,000,000. 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.
The Company issued two series of Industrial Revenue Bonds totaling $3,560,548 in
December 1996. The outstanding balance on the bonds was $2,675,000 as of
September 30, 2004 and June 30, 2004.
Payment Due by Period
Less
Contractual Total Than 1 2 - 3 Years 4 - 5 After 5
Obligations Year Years Years
- ------------------------------------ ---------- ---------- ---------- ---------- -----------
Note Payable $ 70,206 $ 70,206 $ -- $ -- $ --
Long-Term Debt * 5,899,922 145,000 3,539,922 350,000 1,865,000
Operating Leases 89,346 41,702 47,644 -- --
Total Contractual Cash Obligations
$6,059,474 $ 256,908 $3,587,566 $ 350,000 $1,865,000
* Long-Term Debt includes the $3,224,922 outstanding balance on the revolving credit facility.
Amount of Commitment Expiration
Per Period
Other Total Amounts
Commercial Committed Less Than 4 - 5 Over 5
Commitments 1 Year 1 - 3 Years Years Years
- ---------------------------- ------------- --------- ----------- -------- ---------
Lines of Credit $3,500,000 $ -- $3,500,000 $ -- $ --
Standby Letter of
Credit 3,065,000 -- 3,065,000 -- --
Total Commercial
Commitments $6,565,000 $ -- $6,565,000 $ -- $ --
10
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 June 2005. In addition, the Company anticipates the sale of
certain land adjacent to its Collegeville facility that it believes will net
cash proceeds of not less than $1,710,000.
In an effort to extend its current bank debt, the Company may seek to access the
public equity market whenever conditions are favorable, even if the Company does
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. The
Company 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.
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 and
facilities 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.
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. During Fiscal
2004, due to the passage of time, the Company made a decision to increase the
provision for doubtful accounts with respect to certain delinquent customers.
11
IMPAIRMENT OR DISPOSAL OF LONG LIVED ASSETS
The carrying value of property, plant, and equipment is evaluated based upon
current and anticipated undiscounted operating cash flows before debt service
charges. An impairment is recognized when it is probable that such estimated
future cash flows will be less than the carrying value of the assets.
Measurement of the amount of impairment, if any, is based upon the difference
between the net carrying value and the fair value, which is estimated based upon
anticipated undiscounted operating cash flows before debt service charges. Based
upon a review of its long-lived assets, the Company did not recognize an
impairment loss for the quarter ending September 30, 2004 or the fiscal year
ended June 30, 2004; however, there can be no assurance that the Company will
not recognize an impairment loss on its long-lived assets in future periods.
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 are also recognized as deferred tax assets.
When necessary, 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 as income in the period that the change is enacted.
As of September 30, 2004 and June 30, 2004 the Company maintained a deferred tax
asset of $1,623,841. The Company has not provided a valuation allowance against
its deferred tax assets after consideration of a future gain on the disposal of
certain land adjacent to its Collegeville facility and anticipated future
profitable operating results. However, the amount realizable may be reduced if
future taxable income is reduced or is insufficient to utilize the entire
deferred tax asset.
CAPITAL EXPENDITURES
The Company has no other material commitments for capital expenditures and
believes that its existing cash and cash equivalents, cash from operations and
available revolving credit will be sufficient to satisfy the needs of its
operations and its capital commitments for the next twelve months. However, if
the need arose, the Company would seek to obtain capital from such sources as
continuing debt financing or equity financing.
EFFECTS OF INFLATION
Substantially all of the Company's agreements with its customers allow the
Company to pass through to its customers its increases in the cost of labor,
food and supplies. The Company believes that it will be able to recover
increased costs attributable to inflation by continuing to pass through cost
increases to its customers.
12
MEDICARE AND MEDICAID REIMBURSEMENTS
A substantial portion of the Company's revenue is dependent upon the payment of
its fees by customer health care facilities, which, 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.
ITEM 9A.
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 Principal Financial Manager 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.
13
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
As of January 6, 2005, the Company's Class A Common Stock was
no longer eligible for continued quotation on the OTC
Bulletin Board ("OTCBB") due to the Company's failure to file
this Form 10-Q for the quarter ended September 30, 2004. The
Company's Class A Common Stock is currently traded on the
pink sheets but the Company believes that after the filing of
this Form 10-Q and assuming a broker/dealer files a Form 211,
the Company's Class A Common Stock will be eligible for
Quotation on the OTCBB. The fact that the Company's Class A
Common Stock is not currently eligible for quotation on the
OTCBB may negatively impact the liquidity of the Class A
Common Stock. The Company believes it has adopted the
appropriate measures to ensure that its future filings will
be made on a timely basis.
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.
(b) Reports on Form 8-K
None.
14
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 Manager)
Date: January 12, 2005