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, 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
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
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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/.
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). 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 November 2, 2005.
TABLE OF CONTENTS
Part I. Financial Information Page No.
--------------------- --------
Item 1. - Financial Information 2
Consolidated Balance Sheets as of
September 30, 2005 (unaudited) and June 30, 2005 2
Consolidated Statements of Operations for the Three
Months Ended September 30, 2005 (unaudited) and
2004 (unaudited) 3
Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 2005 (unaudited) and
2004 (unaudited) 4
Notes to Consolidated Financial Statements 5 - 8
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 13
Item 3. - Quantitative and Qualitative Disclosure
about Market Risk 13
Item 4. - Controls and Procedures 13
Part II. Other Information 14
Signatures 15
Certifications 16-19
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
September 30, 2005
(unaudited) June 30, 2005
------------------ -----------------
Current assets:
Cash and cash equivalents $ 2,141,385 $ 2,889,616
Marketable securities 223,178 213,561
Accounts receivable, net of allowance for doubtful
accounts of $988,702 and $958,702, respectively 2,979,217 3,063,514
Inventory 144,956 128,949
Prepaid and other 408,673 413,922
Income tax refund 0 43,730
------------ ------------
Total current assets 5,897,409 6,753,292
Property and equipment, net 6,851,905 6,989,627
Other assets:
Restricted cash 250,000 250,000
Note receivable 124,811 129,702
Advances to employees 433,283 434,283
Deferred income taxes 1,456,114 1,456,114
Bond issue costs, net of accumulated amortization of $128,671
and $125,029, respectively 162,653 166,295
Other assets 11,321 11,321
------------ ------------
Total other assets 2,438,182 2,447,715
------------ ------------
Total assets $ 15,187,496 $ 16,190,634
============ ============
Current liabilities:
Current portion of long-term debt $ 150,000 $ 150,000
Current portion of note payable 136,965 0
Accounts payable 3,375,503 3,991,267
Accrued payroll and related expenses 217,451 257,319
Accrued expenses and other 485,976 773,547
------------ ------------
Total current liabilities 4,365,895 5,172,133
Long-Term liabilities:
Long-term debt, net of current portion 5,604,921 5,604,921
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 1,897,102 2,102,929
Other comprehensive income 17,167 8,240
Less: treasury stock (Class A common: 253,000 and 253,000
shares, respectively) - at cost (499,563) (499,563)
------------ ------------
5,216,680 5,413,580
Total stockholders' equity ------------ ------------
$ 15,187,496 $ 16,190,634
============ ============
See Notes to Unaudited Consolidated Financial Statements
2
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30,
2005 2004
------------- -------------
Food Service Revenue $ 6,210,508 $ 6,769,547
Cost of Operations
Payroll and related expenses 2,523,940 2,702,347
Other costs of operations 2,471,059 2,763,888
----------- -----------
Total cost of operations 4,994,999 5,466,235
----------- -----------
Gross Profit 1,215,509 1,303,312
Expenses
General and administrative expenses 1,188,091 1,225,294
Depreciation and amortization 137,722 151,676
Provision for doubtful accounts 30,000 75,000
----------- -----------
Total expenses 1,355,813 1,451,970
----------- -----------
Loss from operations ( 140,304) ( 148,658)
Other income/(expense)
Other 0 ( 2,383)
Interest income 24,205 1,035
Interest expense ( 89,728) ( 58,660)
----------- -----------
Total other income/(expense) ( 65,523) ( 60,008)
----------- -----------
Loss before income taxes ( 205,827) ( 208,666)
Provision for income taxes -- --
----------- -----------
Net loss ( 205,827) ( 208,666)
Other comprehensive income/(loss) (net of tax):
Unrealized holding gains/(losses) arising during period 17,167 0
----------- -----------
Total other comprehensive income 17,167 0
----------- -----------
Comprehensive income/(loss) $ 188,660 ($ 208,666)
=========== ===========
Net income/(loss) per share - basic and diluted ($ 0.07) ($ 0.07)
=========== ===========
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,
2005 2004
------------- -------------
Operating activities:
Net loss ($ 205,827) ($ 208,666)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 137,722 151,676
Provision for bad debts 30,000 75,000
Amortization of bond costs 3,642 3,642
Changes in assets and liabilities:
Accounts receivable 59,187 (823,397)
Inventory (16,007) 2,477
Prepaid and other current assets 5,249 (114,733)
Income tax refund 43,730 0
Accounts payable (615,764) 37,280
Accrued payroll and related expenses (39,868) (30,553)
Accrued expenses and other (287,570) 24,844
----------- -----------
Net cash used in operating activities (885,506) (882,430)
Investing activities:
Purchase of property and equipment 0 (20,560)
Advances to employees 1,000 0
Marketable Securities (690) 1,517
----------- -----------
Net cash provided by/(used in) investing activities 310 (19,043)
Financing activities:
Proceeds from note payable 189,698 0
Repayments of note payable (52,733) (84,247)
Repayments of long-term borrowing 0 (58,000)
Proceeds from long-term borrowing 0 436,000
----------- -----------
Net cash provided by financing activities 136,965 293,753
Net decrease in cash (748,231) (607,720)
Cash and cash equivalents - beginning of period 2,889,616 946,523
----------- -----------
Cash and cash equivalents - end of period $ 2,141,385 $ 338,803
=========== ===========
See Notes to Unaudited Consolidated Financial Statements
4
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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, 2006. The financial information presented should be read
in conjunction with the Company's 2005 financial statements that were
filed under Form 10-K.
2. NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 151, "INVENTORY COSTS - AN AMENDMENT TO APB NO. 43." This
statement provides guidance to clarify the accounting for abnormal
amounts of idle facility expense, freight handling costs, and wasted
material (spoilage), among other production costs. Provisions of APB No.
43 stated that under some circumstances, items such as idle facility
expense, excessive spoilage and other costs may be so abnormal as to
require treatment as current period charges. This statement requires that
those items be recognized as current period charges regardless of whether
they meet the criterion of "so abnormal." In addition, SFAS 151 requires
that allocation of fixed production overheads to the costs of conversion
be based on the normal capacity of the production facilities. The
adoption of this statement is required for fiscal years beginning after
June 15, 2005. Adoption of the Statement has not had and is not expected
to have a material impact on the financial statements of the Company.
In November 2004, the FASB issued SFAS No. 152 "ACCOUNTING FOR REAL
ESTATE TIME-SHARING TRANSACTIONS - AN AMENDMENT OF SFAS NO. 66 AND 67".
This Statement amends SFAS No. 66 "ACCOUNTING FOR SALES OF REAL ESTATE",
to reference the financial accounting and reporting guidance for real
estate time-sharing transactions that is provided in AICPA Statement of
Position (SOP) 04-2, Accounting for Real Estate Time-Sharing
Transactions. This Statement also amends SFAS No. 67, "ACCOUNTING FOR
COSTS AND INITIAL RENTAL OPERATIONS OF REAL ESTATE PROJECTS," to state
the guidance for (a) incidental costs and (b) costs incurred to sell real
estate projects does not apply to real estate time-sharing transactions.
The accounting for those operations and costs is subject to guidance in
SOP 04-2, effective for financial statements with fiscal years beginning
after June 15, 2005. Adoption of this statement has not had and is not
expected to have a material impact on the financial statements of the
Company.
5
In November 2004, the FASB issued SFAS No. 153, "EXCHANGES OF NONMONETARY
ASSETS - AN AMENDMENT TO APB NO. 29." This Statement amends Opinion No.
29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of
the entity are expected to change significantly as a result of the
exchange. The adoption of this statement is required for fiscal years
beginning after June 15, 2005. Adoption of this statement has not had and
is not expected to have a material impact on the financial statements of
the Company.
In December 2004, the FASB issued SFAS No. 123 (Revised 2004)
"SHARE-BASED PAYMENT." The statement requires that the compensation cost
relating to share-based payment transactions be recognized in financial
statements. That cost will be measured based on the fair value of the
equity or liability instrument issued. The statement covers a wide range
of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation
rights, and employee share purchase plans. The Company will be required
to adopt SFAS 123 (R) as of July 1, 2006. The adoption of this statement
is not expected to have a material impact on the consolidated financial
statements of the Company.
In May 2005, the FASB issued SFAS No. 154 "ACCOUNTING CHANGES AND ERROR
CORRECTIONS". This Statement replaces APB Opinion No. 20, Accounting
Changes, and FASB Statement No. 3, "REPORTING ACCOUNTING CHANGES IN
INTERIM FINANCIAL STATEMENTS", and changes the requirements for the
accounting for and reporting of a change in accounting principle. This
Statement applies to all voluntary changes in accounting principle. It
also applies to changes required by an accounting pronouncement in the
unusual instance that the pronouncement does not include specific
transition provisions. When a pronouncement includes specific transition
provisions, those provisions should be followed. Adoption of this
statement is required for fiscal years starting after December 15, 2005.
The adoption of this statement is not expected to have a material impact
on the consolidated financial statements of the Company.
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 ended September 30, 2005 and 2004. The Company did not have any
dilutive stock options and warrants that impacted earnings per share in
each period.
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 for
damages related to its claims, including breach of contract and
contractual interference. The client's counterclaim was dismissed by the
judge. The Company filed an appeal of the jury's failure to award
interest. Fees due to the Company's legal counsel in the amount of
$340,000 have been placed in escrow pending the outcome of the appeal.
The former client did not appeal the jury verdict and the Company
received $2,500,000 on June 1, 2005.
6
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 contractor's claims 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 the
unresolved legal action, or the range of possible loss or recovery, the
Company believes these unresolved legal actions will not have a material
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 normal course of business. 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
principles 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.
For the quarter ended September 30, 2005:
Food Service Training and
Management Conference Center Total
------------ ----------------- -----
Food service revenue $ 6,119,510 $ 90,998 $ 6,210,508
Depreciation and amortization 12,847 124,875 137,722
Income (loss) from operations 158,558 ( 298,862) ( 140,304)
Interest income 24,205 -- 24,205
Interest expense ( 54,971) ( 34,757) ( 89,728)
Income (loss) before taxes (benefit) 127,792 ( 333,619) ( 205,827)
Net income (loss) 127,792 ( 333,619) ( 205,827)
Total assets $ 7,919,772 $ 7,267,724 $15,187,496
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) ( 23,447) ( 58,660)
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
7
6. REVOLVING CREDIT FACILITY
In February 2001, the Company executed a loan agreement with a bank for a
revolving credit facility 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 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. A portion of the cash collateral account has
been released and as of September 30, 2005 and June 30, 2005, the Company
maintained restricted cash balances of $250,000, which was not available
for operating purposes.
At September 30, 2005 and June 30, 2005, the Company had available
approximately $275,079 under the revolving credit. Advances under the
revolving credit are used for working capital purposes.
In November 2005, the Company entered into an agreement whereby the
credit loan facility was extended to December 31, 2006. The Company is
current with all its obligations to its bank and on its bonds.
7. COLLEGEVILLE INN CONFERENCE & TRAINING CENTER
Effective June 27, 2005, the Company closed the buffet restaurant at the
Collegeville Inn Conference & Training Center to make the facility
available for catered events. Additionally, the agreement of sale for the
land dated September 8, 2004 has been terminated and the Company is
currently exploring several alternatives for the land, including, but not
limited to, the sale of the land. The Company has no agreements,
commitments or understandings with respect to the land or the sale of the
land.
8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Based on the Company's current activities, the only component of
accumulated other comprehensive income consists of changes in the
unrealized gains or losses of marketable securities.
Three Months Ended
September 30,
2005 2004
--------- ---------
Beginning balance $ 8,240 $ --
Current period change 14,878 --
Tax effect ( 5,951) --
------- ------
Ending balance $17,167 $ --
======= ======
8
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 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.
RESULTS OF OPERATIONS
Revenues for the quarter ended September 30, 2005 were $6,210,508, a decrease of
$559,039 or 8.2% compared to revenues of $6,769,547 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. Effective June 27, 2005, the Company closed the buffet
restaurant at the Collegeville Inn Conference and Training Center to make the
facility available for catered events.
Cost of operations provided for the current quarter was $4,994,999, compared to
$5,466,235 for similar expenses in the same period last year, a decrease of
$471,236 or 8.6%.
Gross profit for the current quarter was $1,215,509, or 19.6% of gross revenue,
compared to $1,303,312, or 19.3% of gross revenue, for the same period last
year, a decrease of $87,803 or 6.7%. 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 $1,188,091 or 19.1% of
revenue, compared to $1,225,294 or 18.1% of revenue for the same quarter last
year, a decrease of $37,203 or 3.1%. This decrease is due to lower payroll and
insurance expense, offset by higher professional fees and travel expense.
9
Provision for doubtful accounts for the quarter ended September 30, 2005 was
$30,000 compared to $75,000 for the corresponding quarter last year.
Interest income for the quarter ended September 30, 2005 was $24,205 compared to
$1,035 for the same period last year. The increase in interest income is a
result of higher cash and cash equivalents on deposit in interest bearing
accounts.
Interest expense for the quarter ended September 30, 2005 was $89,728 compared
to $61,043 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, 2005 was $205,827 compared to $208,666 for the corresponding
quarter last year.
Net loss per share for the current quarter was $0.07 compared to net loss per
share of $0.07 for the same quarter last year.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2005 the Company had working capital of $1,531,514.
OPERATING ACTIVITIES. Cash used in operations for the three months ended
September 30, 2005 was $885,506 compared to $882,430 used in operations for the
three months ended September 30, 2004. The current period's activity is
primarily attributable to operating losses sustained in the current period as
well as a decrease in accounts payable and accrued expenses.
INVESTING ACTIVITIES. Investing activities provided $310 in cash in the current
quarter compared to $19,043 in cash used in the same period last year.
FINANCING ACTIVITIES. Current quarter financing activities provided $136,965 in
cash compared to $293,753 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, 2005 and
June 30, 2005, the Company had $275,079 available under its revolving credit.
The Company has pledged a $250,000 Certificate of Deposit as additional
collateral against the revolving line of credit. The Company issued two series
of Industrial Bonds totaling $3,560,548 in December 1996. The outstanding
balance on the bonds was $2,530,000 as of September 30, 2005 and June 30, 2005.
In November 2005, the Company entered into an agreement whereby the credit loan
facility was extended to December 31, 2006. The Company is current with all its
obligations to its bank and on its bonds.
10
=======================================================================================================================
Payment Due by Period
=======================================================================================================================
Contractual Less Than 4 - 5 After 5
Obligations Total 1 Year 2 - 3 Years Years Years
=======================================================================================================================
Long-Term Debt * $5,744,921 150,000 3,539,921 370,000 1,675,000
=======================================================================================================================
Operating Leases 60,751 44,859 14,339 1,552 --
=======================================================================================================================
Total Contractual Cash
Obligations $5,815,673 $ 194,859 $3,574,260 $ 371,552 $1,675,000
=======================================================================================================================
* Long-Term Debt includes the $3,224,921 outstanding balance on the revolving
credit facility.
=======================================================================================================================
Amount of Commitment Expiration
Per Period
=======================================================================================================================
Other
Commercial Total Amounts Less Than 4 - 5 Over 5
Commitments Committed 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 next twelve months.
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.
11
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 Conference and Training Center. 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.
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 fiscal year ended June 30, 2005; 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 also are 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 in income in the period that the change is enacted.
12
As of September 30 and June 30, 2005, the Company maintained a deferred tax
asset of $1,456,114. 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.
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.
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
The Company's Class A Common Stock No Par Value, (the "Class
A Common Stock") is currently trading on the OTC Pink Sheets
(Ticker Symbol - NMSCA.PK) and is a penny stock. The
Company's Class A Common Stock traded on the OTC Bulletin
Board until January 7, 2005, at which time trading commenced
on the OTC Pink Sheets. 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.
Item 6. Exhibits
(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.
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/ Francine M. Tomlinson
---------------------------------------
Francine M. Tomlinson
(Principal Financial Manager)
Date: November 14, 2005
15
