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, 2006
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
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 a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and larger accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large Accelerated Filer |_| Accelerated Filer |_| Non-Accelerated Filer |X|
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of 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 May 5, 2006.
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION PAGE NO.
Item 1. - Financial Information 2
Consolidated Balance Sheets as of
March 31, 2006 (unaudited) and June 30, 2005 2
Consolidated Statements of Operations for the Nine
Months Ended March 31, 2006 (unaudited) and
2005 (unaudited) 3
Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 2006 (unaudited) and
2005 (unaudited) 4
Notes to Consolidated Financial Statements 5 - 9
Item 2. -- Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 14
Item 3. - Quantitative and Qualitative Disclosure
about Market Risk 14
Item 4 - Controls and Procedures 14 - 15
Part II. Other Information 15
Signatures 16
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
March 31, 2006 June 30, 2005
(Unaudited)
-------------- -------------
Current assets:
Cash and cash equivalents $ 1,178,633 $ 2,889,616
Marketable securities - 0 - 213,561
Accounts receivable, net of allowance for doubtful
accounts of $973,900 and $958,702, respectively 3,218,324 3,063,514
Inventory 159,980 128,949
Prepaid and other current assets 319,682 413,922
Income Tax Refund -0- 43,730
------------ ------------
Total current assets 4,876,619 6,753,292
Property and equipment, net 6,719,959 6,989,627
Other assets:
Restricted cash 250,000 250,000
Note receivable 101,911 129,702
Advances to employees 424,794 434,283
Deferred income taxes 1,890,709 1,456,114
Bond issue costs, net of accumulated amortization of $135,955
and $125,029, respectively 155,969 166,295
Other assets 11,321 11,321
------------ ------------
Total other assets 2,834,704 2,447,715
------------ ------------
Total assets $ 14,431,282 $ 16,190,634
============ ============
Current liabilities:
Current portion of long-term debt $ 150,000 $ 150,000
Current portion of note payable 41,732 - 0 -
Accounts payable 3,111,431 3,991,267
Accrued payroll and related expenses 262,247 257,319
Accrued expenses and other 350,573 773,547
------------ ------------
Total current liabilities 3,915,983 5,172,133
Long-Term liabilities:
Long-term debt, net of current portion 5,729,922 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 1,482,966 2,102,929
Other comprehensive income - 0 - 8,240
Less: treasury stock (Class A common: 253,000 and 253,000
shares, respectively) - at cost (499,563) (499,563)
------------ ------------
Total stockholders' equity 4,785,377 5,413,580
------------ ------------
$ 14,431,282 $ 16,190,634
============ ============
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,
2006 2005 2006 2005
------------ ------------ ------------ ------------
Food Service Revenue $ 5,515,970 $ 6,627,280 $ 17,949,350 $ 20,006,860
Cost of Operations
Payroll and related expenses 2,382,632 2,836,670 7,447,719 8,064,678
Other costs of operations 2,237,426 2,742,528 7,269,551 8,246,529
------------ ------------ ------------ ------------
Total cost of operations 4,620,058 5,579,198 14,717,270 16,311,207
------------ ------------ ------------ ------------
Gross Profit 895,912 1,048,082 3,232,080 3,695,653
Expenses
General and administrative expenses 1,321,411 1,239,134 3,812,057 3,624,399
Depreciation and amortization 86,970 140,339 316,354 443,323
Provision for doubtful accounts - 0 - 30,000 60,000 135,000
------------ ------------ ------------ ------------
Total expenses 1,408,381 1,409,473 4,188,411 4,202,722
------------ ------------ ------------ ------------
Loss from operations (512,469) (361,391) (956,331) (507,069)
Other income/(expense)
Other 84,132 (12,467) 82,398 - 0 -
Gain on sale of securities 44,256 - 0 - 44,256 - 0 -
Interest income 17,615 2,223 59,849 4,478
Interest expense (100,015) (74,257) (284,728) (200,819)
------------ ------------ ------------ ------------
Total other income/(expense) 45,988 (84,501) (98,225) (196,341)
------------ ------------ ------------ ------------
Loss before income taxes (466,481) (445,892) (1,054,556) (703,410)
Income tax benefit (190,454) -0- (434,595) -0-
------------ ------------ ------------ ------------
Net loss $ (276,027) $ (445,892) $ (619,961) $ (703,410)
============ ============ ============ ============
Net loss per share - basic and diluted $ (0.10) $ (0.16) $ (0.22) $ (0.25)
============ ============ ============ ============
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,
2006 2005
------------ ------------
Operating activities:
Net loss $ (619,961) $ (703,410)
Adjustments to reconcile net loss to
net cash used in operating activities:
Gain on sale of marketable securities (44,256) -0-
Depreciation and amortization 316,354 443,323
Provision for bad debts 60,000 135,000
Amortization of bond costs 10,326 10,926
(Benefit)/provision for deferred taxes (434,595) -0-
Changes in assets and liabilities:
Accounts receivable (187,019) (1,383,407)
Inventory (31,031) 6,834
Prepaid and other current assets 94,240 (42,001)
Income tax refund 43,730 -0-
Accounts payable (879,836) 1,063,662
Accrued payroll and related expenses 4,928 (3,094)
Accrued expenses and other (422,975) (174,641)
------------ ------------
Net cash used in operating activities (2,090,095) (646,808)
Investing activities:
Purchases of marketable securities -0- (37,328)
Proceeds from sale of marketable securities 249,577 35,570
Repayment of advance to employee 9,489 -0-
Purchase of property and equipment (46,686) (2,961)
------------ ------------
Net cash provided by/(used in) investing activities 212,380 (4,719)
Financing activities:
Proceeds from note payable 238,869 -0-
Repayment of note payable (197,137) (203,000)
Repayments of long-term borrowing (150,000) (154,453)
Proceeds from long-term borrowing 275,000 436,000
------------ ------------
Net cash provided by financing activities 166,732 78,547
------------ ------------
Net decrease in cash (1,710,983) (572,980)
Cash and cash equivalents - beginning of period 2,889,616 946,523
------------ ------------
Cash and cash equivalents - end of period $ 1,178,633 $ 373,543
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest Paid $ 276,984 $ 193,819
Taxes Paid 5,362 3,187
See Notes to Unaudited Consolidated Financial Statements
4
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2006
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.
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
5
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 nine-month period ending
March 31, 2006 and 2005. The Company did not have any 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 former client did not appeal the jury
verdict and the Company received $2,500,000 on June 1, 2005. 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. Arguments are scheduled for
review by the Appellate Judge in May 2006.
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.
6
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
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.
For the quarter ended March 31, 2006:
Food Service Training and
Management Conference Center Total
------------ ----------------- ------------
Food service revenue $ 5,369,310 $ 146,660 $ 5,515,970
Depreciation and amortization 12,235 74,735 86,970
Income (loss) from operations (322,841) (189,628) (512,469)
Interest income 17,615 0 17,615
Other income 0 85,000 85,000
Interest expense (62,485) (37,530) (100,015)
Income (loss) before taxes (benefit) (323,455) (143,026) (466,481)
Net income (loss) (133,001) (143,026) (276,027)
Total assets $ 7,135,317 $ 7,295,965 $ 14,431,282
For the quarter ended March 31, 2005:
Food Service Training and
Management Conference Center Total
------------ ----------------- ------------
Food service revenue $ 6,453,511 $ 173,769 $ 6,627,280
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
7
For the nine months ended March 31, 2006:
Food Service Training and
Management Conference Center Total
------------ ----------------- ------------
Food service revenue $ 17,587,432 $ 361,918 $ 17,949,350
Depreciation and amortization 37,317 279,037 316,354
Income (loss) from operations (245,224) (711,107) (956,331)
Interest income 59,849 0 59,849
Other Income 0 85,000 85,000
Interest expense (176,557) (108,171) (284,728)
Income (loss) before taxes (benefit) (317,676) (736,880) (1,054,556)
Net income (loss) 116,919 (736,880) (619,961)
Total assets $ 7,135,317 $ 7,295,965 $ 14,431,282
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 $ 14,547,078
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 of cash was
placed in a cash collateral account and pledged as additional collateral
against the revolving credit line. A portion of the cash collateral
account, $250,000 has been released and is available for operating
purposes. At March 31, 2006 the Company maintained restricted cash
balances of $250,000, which was not available for operating purposes.
At March 31, 2006 the Company had utilized all of the revolving credit
line. At June 30, 2005, the Company had available approximately $275,079
under the revolving credit facility. Advances under the revolving credit
facility are used for working capital purposes.
In March 2006, the Company entered into an agreement whereby the credit
loan facility was extended to April 1, 2007. The Company is current with
all its obligations to its bank and on its bonds. These credit agreements
contain covenants that include the maintenance of certain consolidated
fixed debt service coverage ratio, ratio of total consolidated liabilities
to consolidated tangible net worth, and minimum working capital. At March
31, 2006 the Company had a total liabilities to tangible net worth ratio
of 4.17, exceeding the covenant requirement of 4.0. The Company has
requested a waiver of this covenant. The Company satisfied its
profitability and working capital covenants.
8
7. COLLEGEVILLE INN
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. As of February 16, 2006
the Company has entered into a letter of intent for an agreement of sale
for a minimum of $3,200,000. A formal agreement of sale has not been
executed while the Company evaluates its strategic alternatives.
8. 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. The Company has sold
the securities as March 31, 2006. The gain of $44,256 has been reflected
in Gain on Sale of Securities in the current quarter.
Three months Ended Nine months End
March 31, March 31,
2006 2005 2006 2005
-------- -------- -------- --------
Beginning balance $ 20,610 $ -- $ 8,240 $ --
Current period change 39,410 -- 60,026 --
Tax effect (15,764) -- (24,010) --
-------- -------- -------- --------
Ending balance 44,256 $ -- 44,256 $ --
======== ======== ======== ========
Gain on Sale of Securities (44,256) -- (44,256) --
Ending Balance $ -- $ -- $-- $ --
======== ======== ======== ========
9
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.
RESULTS OF OPERATIONS
Revenues for the quarter ended March 31, 2006 were $5,515,970, a decrease of
$1,111,310 or 16.8% compared to revenues of $6,627,280 in the corresponding
quarter last year. Revenues for the nine months ended March 31, 2006 were
$17,949,350, a decrease of $2,057,510 or 10.3% compared to revenues of
$20,006,860 in the corresponding quarter last year. The decreases are 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 $4,620,058, compared to
$5,579,198 for similar expenses in the same period last year, a decrease of
$959,140 or 17.2%. Cost of operations for the nine months ended March 31, 2006
were $14,717,270, compared to $16,311,207, a decrease of $1,593,937 or 9.8%. The
decreases are primarily due to lower revenues during the period and the expenses
associated with those revenues.
Gross profit for the current quarter was $895,912, or 16.2% of gross revenue,
compared to $1,048,082, or 15.8% of gross revenue, for the same period last
year, a decrease of $152,170 or 14.5%. Gross profit for the nine months ended
March 31, 2006 was $3,232,080 or 18.0% of gross revenue compared to $3,695,653
or 18.5% of gross revenue. The decrease in gross profit is primarily due to a
reduction in revenue.
General and administrative expenses for the quarter were $1,321,411 or 24.0% of
revenue, compared to $1,239,134 or 18.7% of revenue for the same quarter last
year, an increase of $82,277 or 6.6%. General and administrative expenses for
the nine months ended March 31, 2006 were $3,812,057 or 21.2% of gross revenue,
compared to $3,624,399 or 18.1% of gross revenue for the same period last year,
an increase of $187,658 or 5.2%. These increases are due to additional marketing
10
and business development positions, higher professional fees and travel related
expenses associated with new business. Salary and payroll related expenses for
additional management support personnel also contributed to the increase over
the previous period.
The Company entered the quarter with sufficient provision for doubtful accounts
providing for potential non-payments on a specific customer and general
unallocated basis. It was determined that no additional provisions were required
during the quarter, versus an increase in the provision of $30,000 during the
quarter ended March 31, 2005. Provision for doubtful accounts for the nine
months ended March 31, 2006 and 2005 was $60,000 and $135,000, respectively.
Interest expense for the quarter ended March 31, 2006 was $100,015 compared to
$74,257 for the same period last year. Interest expense for the nine months
ended March 31, 2006 and 2005 was $284,728 and $200,819, respectively. The
increase in interest expense is a result of an increase in interest rates.
For the reasons stated above, net loss after taxes for the quarter ended March
31, 2006 was $276,027 compared to $445,892 for the corresponding quarter last
year. For the nine months ended March 31, 2006 and 2005 the net loss was
$619,961 and $703,410, respectively.
Net loss per share for the current quarter was $0.10 compared to net loss per
share of $0.16 for the same quarter last year. Net loss per share for the nine
months ended March 31, 2006 and 2005 was $0.22 and $0.25, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2006 the Company had working capital of $960,636.
OPERATING ACTIVITIES. Cash used in operations for the nine months ended March
31, 2006 was $2,090,095 compared to $646,808 used by operations for the nine
months ended March 31, 2005. The current period's activity is primarily
attributable to operating losses sustained in the current period.
INVESTING ACTIVITIES. Investing activities provided $212,380 in cash in the
current quarter compared to $4,719 in cash used in the same period last year.
The Company's investing activities are due to the sale of investment securities
and the purchase of property and equipment.
FINANCING ACTIVITIES. Current quarter financing activities provided $166,732 in
cash compared to $78,547 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, 2006 the
company had utilized all of the revolving credit line. At 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. 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 $2,380,000 and $2,530,000 as of March 31, 2006 and June 30,
2005 respectively. In March 2006, the Company entered into an agreement whereby
the credit loan facility was extended to April 1, 2007. 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.
11
================================================================================================================
Payment Due By Period
===============================================================================
Less than 1
Contractual Obligations Total year 2 - 3 years 4 - 5 years After 5 years
================================================================================================================
Long-Term Debt * $5,879,922 150,000 3,834,922 370,000 1,525,000
================================================================================================================
Operating Leases 41,665 33,909 7,756 -- --
================================================================================================================
Total Contractual Cash
Obligations $5,921,587 $183,909 $3,842,678 $ 370,000 $1,525,000
================================================================================================================
* Long-Term Debt includes the $3,500,000 outstanding balance on the
revolving credit facility.
================================================================================================================
Amount of Commitment Expiration
Per Period
============================================================
Other Commercial Total Amounts Less than 1
Commitments Committed year 1 - 3 years 4 - 5 years Over 5 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.
12
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.
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 quarters ending March 31, 2006, December 31, 2005 or
September 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 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, 2006 and June 30, 2005 the Company maintained a deferred tax
asset of $1,890,709 and $1,456,114 respectively. The Company has not provided a
valuation allowance against its deferred tax assets after consideration of a
13
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.
14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 1A. Risk Factors Not applicable
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 None
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.
15
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: May 15, 2006
16
