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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, 2005
--------------
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 Identification No.)
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 May 6, 2005.
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION PAGE NO.
--------------------- --------
Item 1. - Financial Statements 2
Consolidated Balance Sheets as of
March 31, 2005 (unaudited) and June 30, 2004 2
Consolidated Statements of Operations for the Nine
Months Ended March 31, 2005 (unaudited) and
2004 (unaudited) 3
Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 2005 (unaudited) and
2004 (unaudited) 4
Notes to Consolidated Financial Statements 5 - 9
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 14
Item 3. - Quantitative and Qualitative Disclosure
about Market Risk 14
Item 4 - Controls and Procedures 14
Part II. Other Information 15
Signatures 16
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2005 JUNE 30, 2004
(UNAUDITED)
------------ ------------
Current assets:
Cash and cash equivalents $ 373,543 $ 946,523
Marketable securities 211,446 202,969
Accounts receivable, net of allowance for doubtful
accounts of $2,985,137 and $2,877,336, respectively 3,507,216 2,259,582
Deferred income taxes 405,320 405,320
Inventory 152,347 159,181
Prepaid and other current assets 567,557 525,556
------------ ------------
Total current assets 5,217,429 4,499,131
Property and equipment, net 7,123,206 7,563,568
Other assets:
Restricted cash 250,000 250,000
Note receivable 121,381 120,608
Advances to employees 435,283 435,283
Deferred income taxes 1,218,521 1,218,521
Bond issue costs, net of accumulated amortization of $121,387
and $110,461, respectively 169,937 180,863
Other assets 11,321 11,321
------------ ------------
Total other assets 2,206,443 2,216,596
------------ ------------
Total assets $ 14,547,078 $ 14,279,295
============ ============
Current liabilities:
Current portion of long-term debt $ 145,000 $ 145,000
Current portion of note payable 0 154,453
Accounts payable 4,367,609 3,303,947
Accrued payroll and related expenses 219,082 222,176
Accrued expenses and other 272,473 447,114
------------ ------------
Total current liabilities 5,004,164 4,272,690
Long-Term liabilities:
Long-term debt, net of current portion 5,609,922 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 623,862 1,327,272
Other comprehensive income 6,719 --
Less: treasury stock (Class A common: 253,000 and 253,000
shares, respectively) - at cost (499,563) (499,563)
------------ ------------
Total stockholders' equity 3,932,992 4,629,683
------------ ------------
$ 14,547,078 $ 14,279,295
============ ============
See Notes to Unaudited Consolidated Financial Statements
2
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2005 2004 2005 2004
---------- ---------- ---------- ----------
Food Service Revenue $6,627,280 $7,141,972 $20,006,860 $21,024,382
Cost of Operations
Payroll and related expenses 2,836,670 2,926,771 8,064,678 8,288,901
Other costs of operations 2,742,528 2,873,948 8,246,529 8,741,337
---------- ---------- ---------- ----------
Total cost of operations 5,579,198 5,800,719 16,311,207 17,030,238
---------- ---------- ---------- ----------
Gross Profit 1,048,082 1,341,253 3,695,653 3,994,144
Expenses
General and administrative expenses 1,239,134 1,202,066 3,624,399 3,569,531
Depreciation and amortization 140,339 152,398 443,323 462,343
Provision for doubtful accounts 30,000 60,000 135,000 180,000
---------- ---------- ---------- ----------
Total expenses 1,409,473 1,414,464 4,202,722 4,211,874
Loss from operations ( 361,391) ( 73,211) ( 507,069) ( 217,730)
Other income/(expense)
Other ( 12,467) ( 4,624) -- ( 13,642)
Interest income 2,223 3,067 4,478 6,623
Interest expense ( 74,257) ( 45,610) ( 200,819) ( 138,234)
---------- ---------- ---------- ----------
Total other income/(expense) ( 84,501) ( 47,167) ( 196,341) ( 145,253)
---------- ---------- ---------- ----------
Loss before income taxes ( 445,892) ( 120,378) ( 703,410) ( 362,983)
Provision for income taxes -- -- -- --
Net loss ($ 445,892) ($ 120,378) ($ 703,410) ($ 362,983)
========== ========== ========== ==========
Net loss per share - basic and diluted ($ 0.16) ($ 0.04) ($ 0.25) ($ 0.13)
========== ========== ========== ==========
Weighted average number of shares 2,847,000 2,847,000 2,847,000 2,847,000
========== ========== ========== ==========
See Notes to Unaudited Consolidated Financial Statements
3
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED MARCH 31,
2005 2004
---------- ----------
Operating activities:
Net loss ($ 703,410) ($ 362,983)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 443,323 462,343
Provision for bad debts 135,000 180,000
Amortization of bond costs 10,926 10,923
Changes in assets and liabilities:
Accounts receivable (1,383,407) ( 1,690)
Inventory 6,834 ( 22,328)
Prepaid and other current assets ( 42,001) --
Accounts payable 1,063,662 ( 250,500)
Accrued payroll and related expenses ( 3,094) ( 25,452)
Accrued expenses and other (174,641) ( 143,862)
---------- ----------
Net cash used in operating activities ( 646,808) ( 153,559)
Investing activities:
Purchases of marketable securities ( 37,328) --
Sales of marketable securities 35,570 --
Purchase of property and equipment ( 2,961) ( 49,212)
---------- ----------
Net cash used in investing activities ( 4,719) ( 49,212)
Financing activities:
Repayment of note payable ( 203,000) ( 154,452)
Repayments of long-term borrowing ( 154,453) (2,664,000)
Proceeds from long-term borrowing 436,000 2,955,000
Repayments of term loan -- ( 53,609)
---------- ----------
Net cash provided by financing activities 78,547 82,939
Net decrease in cash ( 572,980) ( 119,832)
Cash and cash equivalents - beginning of period 946,523 1,360,512
---------- ----------
Cash and cash equivalents - end of period $ 373,543 $1,240,680
========== ==========
See Notes to Unaudited Consolidated Financial Statements
4
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
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 nine-month period ending
March 31, 2005 and 2004. 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 of Chester County, Pennsylvania, which was
subsequently removed to the United States District Court for the Eastern
District of Pennsylvania. On February 25, 2005, judgment was entered on a
jury verdict in favor of the Company, in the amount of $2,500,000 in
damages related to its claims, including but not limited to, breach of
contract and lost profits. The client's counterclaim was dismissed by the
judge.
The Company is involved in litigation with a construction contractor
related to the renovations of Collegeville Inn Conference and Training
Center. The Company denies its liability for the claim and has asserted
offsets against the amounts claimed. The case is currently 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 March 31, 2005:
Food Service Training and
Management Conference Center Total
------------ ----------------- ------------
Food service revenue $ 6,453,511 $ 173,769 $ 6,527,280
Depreciation and amortization 15,141 125,198 140,339
Income (loss) from operations 139,575 ( 500,966) ( 361,391)
Interest income 2,223 -- 2,223
Interest expense ( 45,816) ( 28,441) ( 74,257)
Income (loss) before taxes (benefit) 83,515 ( 529,407) ( 445,892)
Net income (loss) 83,515 ( 529,407) ( 445,892)
Total assets $ 6,988,183 $ 7,558,895 $ 14,547,078
For the quarter ended March 31, 2004:
Food Service Training and
Management Conference Center Total
------------ ----------------- ------------
Food service revenue $ 6,925,999 $ 215,973 $ 7,141,972
Depreciation and amortization 28,291 124,107 152,398
Income (loss) from operations 218,318 ( 291,598) ( 73,211)
Interest income 3,067 -- 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
For the nine months ended March 31, 2005:
Food Service Training and
Management Conference Center Total
------------ ----------------- ------------
Food service revenue $ 19,355,672 $ 651,188 $ 20,006,860
Depreciation and amortization 69,331 373,992 443,323
Income (loss) from operations 593,150 ( 1,100,219) ( 507,069)
Interest income 4,478 -- 4,478
Interest expense ( 121,959) ( 78,861) ( 200,819)
Income (loss) before taxes (benefit) 476,534 ( 1,179,944) ( 703,410)
Net income (loss) 476,534 ( 1,179,944) ( 703,410)
Total assets $ 6,988,183 $ 7,558,895 $ 14,554,078
For the nine months ended March 31, 2004:
Food Service Training and
Management Conference Center Total
------------ ----------------- ------------
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) ( 362,982)
Net income (loss) 703,511 ( 1,066,493) ( 362,982)
Total assets $ 6,515,902 $ 8,003,460 $ 14,519,362
7
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 March 31, 2005, 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 March 31, 2005 the
Company was not in compliance with these covenants, however the Company's
bank has waived compliance with the covenants.
As of March 31, 2005 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 and 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 approximately $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.
8
8. OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes all revenues, expenses gains and
losses that affect the capital of the Company aside from issuing or
retiring shares of stock. Net income or loss is one component of
comprehensive income. Based on the Company's current activities, the only
component of comprehensive income consists of changes in the unrealized
gains or losses of marketable securities.
The difference between net loss and total comprehensive income (loss) is
shown below:
Three Months Ended Nine Months Ended
March 31, March 31,
2005 2004 2005 2004
--------- --------- --------- ---------
Net (Loss) ($445,892) ($120,378) ($703,410) ($362,983)
Unrealized gain (loss) on
investments 6,719 --- 6,719 ---
--------- --------- --------- ---------
Comprehensive (loss) ($439,173) ($120,378) ($696,691) ($362,983)
ITEM 2. 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.
9
RESULTS OF OPERATIONS
Revenues for the quarter ended March 31, 2005 were $6,627,280, a decrease of
$514,692 or 7.8% compared to revenues of $7,141,972 in the corresponding quarter
last year. Revenues for the nine months ended March 31, 2005 were $20,006,860, a
decrease of $1,017,522 or 5.1% compared to revenues of $21,024,382 in the
corresponding quarter last year. This decrease is primarily due to the net
impact of revenues from new contracts versus revenues from lost contracts, as
well as lower revenue from the Collegeville Inn.
Cost of operations provided for the current quarter was $5,579,198, compared to
$5,800,718 for similar expenses in the same period last year, a decrease of
$221,520 or 4.0%. Cost of operations for the nine months ended March 31, 2005
were $16,311,207, compared to $17,030,238, a decrease of $719,031 or 4.4%.
Gross profit for the current quarter was $1,048,082, or 15.8% of gross revenue,
compared to $1,341,253, or 18.8% of gross revenue, for the same period last
year, a decrease of $293,171 or 28.0%. Gross profit for the nine months ended
March 31, 1005 was $3,695,653 or 18.5% of gross revenue compared to $3,994,144
or 19.0% of gross revenue. The decrease in gross profit is due to an increase in
cost of operations that exceeds the increase in revenues.
General and administrative expenses for the quarter were $1,239,134 or 18.7% of
revenue, compared to $1,202,066 or 16.8% of revenue for the same quarter last
year, an increase of $37,068 or 3.0%. General and administrative expenses for
the nine months ended March 31, 2005 were $3,624,399 or 18.1% of gross revenue,
compared to $3,569,531 or 17.0% of gross revenue for the same period last year,
an increase of $54,868 or 1.5%. This increase is due to higher costs within the
general and administrative expenses including professional fees and operating
leases, which is offset by a reduction in expenses related to corporate overhead
personnel.
Provision for doubtful accounts for the quarter ended March 31, 2005 was $30,000
compared to $60,000 for the corresponding quarter last year. Provision for
doubtful accounts for the nine months ended March 31, 2005 and 2004 was $135,000
and $180,000, respectively.
Interest expense for the quarter ended March 31, 2005 was $74,257 compared to
$45,610 for the same period last year. Interest expense for the nine months
ended March 31, 2005 and 2004 was $200,819 and $138,234, respectively. 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 March
31, 2005 was $445,892 compared to $120,378 for the corresponding quarter last
year. For the nine months ended March 31, 2005 and 2004 the net loss was
$703,410 and $362,983, respectively.
Net loss per share for the current quarter was $0.16 compared to net loss per
share of $0.04 for the same quarter last year. Net loss per share for the nine
months ended March 31, 2005 and 2004 was $0.25 and $0.13, respectively.
10
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2005 the Company had working capital of $213,265.
OPERATING ACTIVITIES. Cash used in operations for the nine months ended March
31, 2005 was $646,808 compared to $153,559 used by operations for the nine
months ended March 31, 2004. The current period's activity is primarily
attributable to operating losses sustained in the current period as well as an
increase in accounts receivable and accounts payable.
INVESTING ACTIVITIES. Investing activities used $4,719 in cash in the current
quarter compared to $49,212 in cash used in the same period last year. The
Company's investing activities are due to purchases of investment securities and
property and equipment.
FINANCING ACTIVITIES. Current quarter financing activities provided $78,547 in
cash compared to $82,939 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 March 31, 2005 and June
30, 2004, the Company had $275,078 and $653,078 respectively, available under
its revolving credit. As of March 31, 2005 and June 30, 2004 the Company
maintained restricted cash balances of $250,000 with its bank as additional
collateral, which were not available for operating purposes. 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. In May 2005, the Company entered into an agreement
whereby its credit loan facility was extended to June 30, 2006. The Company is
current with all its obligations to its bank and on its bonds, but has not met
all financial covenants in its loan documents. The bank has waived the Company's
non-compliance with the covenants.
The Company issued two series of Industrial Revenue Bonds totaling $3,560,548 in
December 1996. The outstanding balance on the bonds was $2,530,000 as of March
31, 2005 and $2,675,000 as of June 30, 2004.
Payment Due by Period
-----------------------------------------------------------------------------
Less
Contractual Total Than 1 2 - 3 4 - 5 After 5
Obligations Year Years Years Years
Long-Term Debt* $5,744,922 145,000 3,539,922 350,000 1,720,000
- -------------------------------------------------------------------------------------------------------------
Operating Leases 68,498 41,698 26,795 -- --
- -------------------------------------------------------------------------------------------------------------
Total Contractual Cash
Obligations $5,813,420 $ 186,698 $3,566,717 $ 350,000 $1,720,000
- -------------------------------------------------------------------------------------------------------------
* Long-Term Debt includes the $3,224,922 outstanding balance on the revolving
credit facility.
11
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 $ -- $ --
- ----------------------------------------------------------------------------------------------------------------------
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 approximately $1,710,000. See Footnote #7 for additional
information.
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.
12
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.
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 March 31, 2005 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 March 31, 2005 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.
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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.
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
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 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.
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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 its 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
at such time as 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
The Company filed a Form 8-K on October 22, 2004.
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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/ Francine M. Tomlinson
--------------------------------------
Francine M. Tomlinson
(Principal Financial Manager)
Date: May 23, 2005
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