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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 December 31, 2002
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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Box 725, Kimberton Road, Kimberton, PA 19442
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 935-2050
-----------------------------
N/A
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Former name, former address and former fiscal year, if change since last report.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days Yes /X/ No / /.
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 February 14, 2002.
TABLE OF CONTENTS
Part I. Financial Information Page No.
--------------------- --------
Consolidated Balance Sheets as of
December 31, 2002 (unaudited) and June 30, 2002 2
Consolidated Statements of Operations for the Three and Six
Months Ended December 31, 2002 and 2001
(unaudited) 3
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 2002
and 2001 (unaudited) 4
Notes to Consolidated Financial Statements 6 - 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12 - 15
Item 4 - Controls and Procedures 16
Part II. Other Information 17
Signatures 18
-1-
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
2002 2002
---- ----
(unaudited)
Current assets:
Cash and cash equivalents $ 1,091,610 $ 593,310
Accounts receivable, net of allowance for doubtful
accounts of $2,108,743 and $1,774,753, respectively 4,397,270 5,659,990
Unbilled Revenue 97,388 46,505
Deferred income taxes 882,487 882,487
Inventory 137,681 230,238
Prepaid and other 469,462 289,079
----------- -----------
Total current assets 7,075,898 7,701,609
----------- -----------
Property and equipment, net 8,384,550 8,683,712
----------- -----------
Other assets:
Investment in contracts 36,667 120,000
Advances to employees 436,402 523,490
Deferred income taxes 103,089 103,089
Bond issue costs 202,712 210,096
Deferred costs and other assets 10,020 10,020
----------- -----------
Total other assets 788,890 966,695
----------- -----------
$16,249,338 $17,352,016
=========== ===========
See Notes to Unaudited Consolidated Financial Statements
- 2 -
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
2002 2002
(unaudited)
Current liabilities:
Current portion of long-term debt $ 196,813 $ 191,814
Accounts payable 4,319,793 3,811,110
Accrued expenses 358,405 443,483
Accrued payroll and related expenses 259,258 260,861
Other 53,659 71,192
Total current liabilities 5,187,928 4,778,460
----------- ------------
Long-Term liabilities:
Long-term debt, net of current portion 5,219,008 5,543,852
Long Term Note Payable - 0 - 730,146
Total long-term liabilities 5,219,008 6,273,998
----------- ------------
Stockholders' equity:
Undesignated preferred stock - no par, 2,000,000 shares authorized, none
issued or outstanding -- --
Common stock:
Class A - no par, 10,000,000 shares authorized; 3,000,000 issued and
2,747,000 outstanding 3,801,926 3,801,926
Class B - no par, 100,000 shares authorized, issued and outstanding 48 48
Retained earnings 2,539,991 2,997,147
----------- ------------
6,341,965 6,799,121
Less: treasury stock (Class A common: 253,000 shares) - at cost (499,563) (499,563)
Total stockholders' equity 5,842,402 6,299,558
----------- ------------
$ 16,249,338 $ 17,352,016
============ ------------
See Notes to Unaudited Consolidated Financial Statements
- 3 -
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
December 31, December 31,
2002 2001 2002 2001
---- ---- ---- ----
Food Service Revenue $ 7,166,653 7,871,823 $ 14,423,053 $ 15,294,041
Cost of operations
Payroll and related expenses 2,797,621 2,512,661 5,621,275 4,906,950
Other costs of operations 3,151,052 3,742,362 6,271,378 7,175,697
------------ ------------ ------------ ------------
Cost of operations 5,948,673 6,255,023 11,892,653 12,082,647
------------ ------------ ------------ ------------
Gross profit 1,217,980 1,616,800 2,530,400 3,211,394
------------ ------------ ------------ ------------
Expenses
General and administrative expenses 1,236,910 1,158,677 2,260,433 2,373,526
Depreciation and amortization 200,953 211,946 413,806 422,394
Provision for doubtful accounts 7,262 225,000 192,262 450,000
------------ ------------ ------------ ------------
Expenses 1,445,125 1,595,623 2,866,501 3,245,920
------------ ------------ ------------ ------------
(Loss)/Income from operations (227,145) 21,177 (336,101) (34,526)
------------ ------------ ------------ ------------
Other (expense) income
Other (6,862) 1,104 (20,629) (22,219)
Interest income 2,185 2,320 4,027 5,463
Interest expense (50,395) (61,029) (104,459) (160,281)
------------ ------------ ------------ ------------
Other (expense) income - net (55,072) (57,605) (121,061) (177,037)
------------ ------------ ------------ ------------
(Loss) before income taxes (282,217) (36,428) (457,162) (211,563)
Provision for income taxes 0 0 0 0
------------ ------------ ------------ ------------
Net Loss $ (282,217) (36,428) $ (457,162) $ (211,563)
============ ============ ============ ============
Basic and diluted loss
- basic and diluted $ (.10) $ (.01) $ (.16) $ (.07)
============ ============ ============ ============
Weighted average number of shares 2,847,000 2,847,000 2,847,000 2,847,000
============ ============ ============ ============
See Notes to Unaudited Consolidated Financial Statements
- 4 -
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
2002 2001
---- ----
Operating activities:
Net (Loss) ($ 457,162) ($ 211,558)
Adjustments to reconcile net (loss) to net cash provided by/(used in)
operating activities:
Depreciation and amortization 413,806 422,394
Provision for bad debts 192,262 450,000
Amortization of bond costs 7,282 7,282
Changes in assets and liabilities:
Accounts receivable 1,070,458 99,378
Unbilled Revenue (50,883) 127,009
Inventory and other 92,557 (28,969)
Accounts payable (137,210) (564,923)
Accrued expenses (49,050) 36,120
Accrued payroll and related expenses (1,603) 3,225
Accrued professional (28,088) 32,396
Accrued incomes taxes (7,941) 6,419
Other (197,814) 114,058
----------- -----------
Net cash provided by operating activities 846,614 492,831
Investing activities:
Repayment (Advances) to employees 87,088 (146,126)
Purchase of property and equipment (31,311) (284,332)
----------- -----------
Net cash provided by / (used in) investing activities 55,777 (430,458)
Financing activities
Repayments of long-term borrowing (872,000) (670,000)
Repayments of long-term payable (84,247) (140,412)
Repayments of term loan (32,844) (30,601)
Proceeds from long term borrowing 585,000 1,087,000
----------- -----------
Net cash (used in) / provided by financing activities (404,091) 245,987
Net increase in cash 498,300 308,360
Cash and cash equivalents - beginning of period 593,310 451,875
----------- -----------
Cash and cash equivalents - end of period $ 1,091,610 $ 760,236
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 106,432 $ 161,786
Income taxes $ (17,764) $ 0
See Notes to Unaudited Consolidated Financial Statements
- 5 -
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were
prepared in accordance with generally accepted accounting principles
for interim financial information for quarterly reports on Form 10-Q
and, therefore, do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. However, all adjustments that, in the opinion of
management are necessary for fair presentation of the financial
statements, have been included. The results of operations for the
interim periods presented are not necessarily indicative of the
results that may be expected for the entire fiscal year ending June
30, 2003. The financial information presented should be read in
conjunction with the Company's financial statements that were filed
under Form 10-K.
2. NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS 143, "Accounting for Asset
Retirement Obligations" (SFAS 143) was issued. SFAS 143 applies to all
entities, including rate-regulated entities, that have legal
obligations associated with the retirement of a tangible long-lived
asset that result from acquisition, construction or development and
(or) normal operations of the long-lived asset. The application of
this Statement is not limited to certain specialized industries, such
as the extractive or nuclear industries. A liability for an asset
retirement obligation should be recognized if the obligation meets the
definition of a liability and can be reasonably estimated. The initial
recording should be at fair value. SFAS 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002, with
earlier application encouraged. The provisions of the Statement have
not had a material impact on the financial condition or results of
operations of the Company.
In August 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144) was issued.
SFAS 144 retains the existing requirements to recognize and measure
the impairment of long-lived assets to be held and used or to be
disposed of by sale. However, SFAS 144 makes changes to the scope and
certain measurement requirements of existing accounting guidance. SFAS
144 also changes the requirements relating to reporting the effects of
a disposal or discontinuation of a segment of a business. SFAS 144 is
effective for financial statements issued for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years.
The adoption of this Statement did not have a significant impact on
the financial condition or results of operations of the Company.
In April 2002, Statement of Financial Accounting Standards No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB No.
13, and Technical Corrections" (SFAS No. 145) was issued. This
standard changes the accounting principles governing extraordinary
- 6 -
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2002
items by, among other things, providing more definitive criteria for
extraordinary items by clarifying and, to some extent, modifying the
existing definition and criteria, specifying disclosure for
extraordinary items and specifying disclosure requirements for other
unusual or infrequently occurring events and transactions that are not
extraordinary items. SFAS 145 is effective for financial statements
issued for fiscal years beginning after June 15, 2002, with early
adoption encouraged. The adoption of this Statement did not have a
significant impact on the financial condition or results of operations
of the Company.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS 146) was issued.
SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of
a commitment to an exit or disposal plan. SFAS 146 is effective
prospectively for exit and disposal activities initiated after
December 31, 2002. The Company does not anticipate that the adoption
of this Statement will have a significant impact on the financial
condition or results of operations of the Company.
In December 2002, the FASB issued SFAS 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" (SFAS 148) was
issued. SFAS 148 amends SFAS 123 "Accounting for Stock-Based
Compensation" (SFAS 123), to provide alternative methods of transition
for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the
effect of the method used on reported results. SFAS 148 is effective
for fiscal years beginning after December 15, 2002. The expanded
annual disclosure requirements and the transition provisions are
effective for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reports containing
financial statements for interim periods beginning after December 15,
2002. Management does not expect the adoption of SFAS 148 to have a
material effect on the Company's financial position, results of
operations, or cash flows.
3. EARNINGS PER COMMON SHARE
Earnings per common share amounts are based on the weighted-average
number of shares of common stock outstanding during the three and six
month periods ending December 31, 2002 and 2001. Stock options and
warrants did not impact earnings per share each period as they were
anti-dilutive.
- 7 -
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2002
4. LITIGATION
On February 7, 2001, NMSC filed a suit against a major client in the
Court of Common Pleas in Chester County, PA. This suit has
subsequently been removed to the United States District Court for the
Eastern District of Pennsylvania. In the lawsuit, NMSC has made
various claims, including among others a claim that the client failed
to pay approximately $2.1 million in invoiced amounts, a claim that
the client failed to pay approximately $1 million in other amounts
owing, a claim for reimbursement for start up costs in an amount in
excess of $400,000, a claim for over $2 million in lost profits (or,
alternatively, a claim for reimbursement for over $300,000 in credits
issued in exchange for the promise to extend the arrangement), a claim
in the nature of treble damages and counsel fees, and other claims.
The client has filed a counterclaim which the Company is contesting as
part of the overall proceedings.
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 adoption of SFAS
No. 131 had no effect on the Company's results of operations or
financial position.
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.
- 8 -
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2002
5. BUSINESS SEGMENTS - CONTINUED
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the quarter ended Dec. 31, 2002:
Food service revenue $6,859,980 $ 306,673 $ 7,166,653
Depreciation and amortization 73,005 127,948 200,953
Income (loss) from operations 175,938 (403,083) (227,145)
Interest income 2,185 0 2,185
Interest expense (29,115) (21,280) (50,395)
Income (loss) before taxes (benefit) 146,654 (428,871) (282,217)
Net income (loss) 146,654 (428,871) (282,217)
Total assets 7,647,018 8,602,320 16,249,338
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the quarter ended Dec. 31, 2001:
Food service revenue $7,573,069 $ 298,754 $ 7,871,823
Depreciation and amortization 84,724 127,222 211,946
Income (loss) from operations 340,417 (319,240) 21,177
Interest income 2,320 0 2,320
Interest expense (40,499) (20,530) (61,029)
Income (loss) before taxes (benefit) 299,574 (336,004) (36,428)
Net income (loss) 299,574 (336,004) (36,428)
Total assets 8,982,309 9,035,133 18,017,442
- 9 -
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2002
5. BUSINESS SEGMENTS - CONTINUED
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the six months ended Dec. 31, 2002:
Food service revenue $ 13,955,952 $ 467,101 $14,423,053
Depreciation and amortization 149,236 264,570 413,806
Income (loss) from operations 420,283 (756,384) (336,101)
Interest income 4,027 0 4,027
Interest expense (60,622) (43,837) (104,459)
Income (loss) before taxes (benefit) 352,076 (809,238) (457,162)
Net income (loss) 352,076 (809,238) (457,162)
Total assets 7,647,018 8,602,320 16,249,338
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the six months ended Dec. 31, 2001:
Food service revenue $ 14,908,383 $ 385,658 $15,294,041
Depreciation and amortization 169,178 253,216 422,394
Income (loss) from operations 605,819 (640,345) (34,526)
Interest income 5,463 0 5,463
Interest expense (85,779) (74,502) (160,281)
Income (loss) before taxes (benefit) 520,175 (731,738) (211,563)
Net income (loss) 520,175 (731,738) (211,563)
Total assets 8,982,309 9,035,133 18,017,442
- 10 -
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2002
6. STOCK-BASED COMPENSATION
The Company accounts for stock options under SFAS No. 123, "Accounting
for Stock-Based Compensation", as amended by SFAS No. 148, which
contains a fair value-based method for valuing stock-based
compensation that entities may use, which measures compensation cost
at the grant date based on the fair value of the award. Compensation
is then recognized over the service period, which is usually the
vesting period. Alternatively, SFAS No. 123 permits entities to
continue accounting for employee stock options and similar equity
instruments under Accounting Principles Board (APB) Opinion 25,
Accounting for Stock Issued to Employees. Entities that continue to
account for stock options using APB Opinion 25 are required to make
pro forma disclosures of net income and earnings per share, as if the
fair value-based method of accounting defined in SFAS No. 123 had been
applied.
The Company accounts for its plan under the recognition and
measurement principles of APB No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Stock-based employee
compensation costs are not reflected in net loss, as all options
granted under the plan had an exercise price equal to the market value
of the underlying common stock on the date of grant. The following
table illustrates the effect on net loss and loss per share if the
Company had applied the fair value recognition provisions of SFAS No.
123, to stock-based employee compensation.
Three months ended Six months ended
December 31, December 31,
2002 2001 2002 2001
---- ---- ---- ----
Net loss:
As reported ($ 282,217) ($ 36,428) ($ 457,162) ($ 211,563)
Pro forma ($ 282,217) ($ 36,428) ($ 457,162) ($ 211,563)
Diluted loss per share:
As reported $ (.10) $ (.01) $ (.16) $ (.07)
Pro forma $ (.10) $ (.01) $ (.16) $ (.07)
The Company has not granted stock options since June of 1998
- 11 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended, that are intended to be
covered by the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the adequacy of the Company's cash from operations, existing
balances and available credit line. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this Form 10-Q
will prove to be accurate. Factors that could cause actual results to differ
from the results discussed in the forward-looking statements include, but are
not limited to, the outcome of the Company's litigation discussed under Item 4 -
Litigation. In light of significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results
of operations are based upon the Company's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amount of assets and liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities at the date of the Company's
financial statements. Actual results may differ from these estimates under
different assumptions or conditions.
Critical accounting policies are defined as those that are
reflective of significant judgments and uncertainties, and potentially result in
materially different results under different assumptions and conditions. The
Company believes that its critical accounting policies include those described
below.
REVENUE RECOGNITION
Sales revenue is generated primarily from fees for food service
management at continuing care and health care facilities and the Collegeville
Inn restaurant. Revenue is recognized when services are performed. Ongoing
assessments of the credit worthiness of customers provide the Company reasonable
assurance of collectibility upon performance of services.
- 12 -
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.
RESULTS OF OPERATIONS
Revenues for the quarter ended December 31, 2002 were $7,166,653, a
decrease of $705,170 or 9.0% compared to revenues of $7,871,823 for the
corresponding quarter last year. Revenues for the six month period ended
December 31, 2002 were $14,423,053, a decrease of $870,988 or 5.7% compared to
the corresponding period in 2001. This decrease is primarily due to the net
impact of revenues from lost contracts versus revenues from new contracts.
Costs of operations for the current quarter were $5,948,673,
compared to $6,255,023 for similar expenses in the same period last year, a
decrease of $306,350 or 4.9%. For the six month period ended December 31, 2002,
cost of operations were $11,892,653, compared to $12,082,647 for the same period
last year, a decrease of $189,994 or 1.6% compared to the corresponding period
in 2001. This decrease in cost of services is due to lower revenues during the
period partially offset by inflationary price, wage and expense increases along
with payroll and related costs for new contracts.
Gross Profit for the quarter was $1,217,980, compared to $1,616,800,
a decrease of $398,820 or 24.7%. For the six month period ended December 31,
2002, gross profit was $2,530,400 versus $3,211,394 a decrease of $680,994 or
21.2%. These decreases are due to both lower revenues during the period and a
change in the nature of client contracts.
General and administrative expenses for the quarter were $1,236,910
or 17.3% of revenue, compared to $1,158,677 or 14.7% of revenue for the same
quarter last year, an increase of $78,233. For the six month period ending
December 31, 2002 general and administrative expenses were $2,260,433 compared
to $2,373,526 for the corresponding period last year, a decrease of $113,093.
The current quarter increase versus the prior year's quarter is primarily due to
increased marketing activities. The decrease for the six month period versus the
prior year is due to certain cost cutting measures implemented by the Company.
- 13 -
Provision for doubtful accounts for the quarter was $7,262 compared
to $225,000 for the corresponding quarter last year. For the six month period
ending December 31, 2002 provision for doubtful accounts was $192,262 compared
to $450,000 for the same period last year. The aforementioned decreases are due
to increased collection activities, which led to overall declines in accounts
receivables in each of the current year's quarters. Additionally, a cash
recovery of $141,738 of accounts receivable previously reserved as uncollectible
was utilized to increase the allowance for doubtful accounts in the current
quarter. Lower sales volume also contributed to the aforementioned decreases.
Interest expense for the quarter totaled $50,395 compared to $61,029
for the same period last year. For the six month period ended December 31, 2002,
interest expense was $104,459 versus $160,281 in the corresponding period in
2001. The decrease in interest expense is a result of the repayment of
borrowings as well as a reduction in interest rates.
For the reasons stated above net loss after taxes for the quarter
ended December 31, 2002 was ($282,217) compared to ($36,428) for the
corresponding quarter last year. Net loss per share for the current quarter was
$0.10 compared to net loss per share of $0.01 for the corresponding quarter last
year.
Net loss for the six month period was ($457,162) versus ($211,563)
for the corresponding period last year. Net loss per share was ($0.16) compared
to net loss per share of ($0.07) for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002, the Company had working capital of $1,887,970.
Consummation of the sale of land by the Company as more fully described in Part
II - Item 5 of this Form 10-Q would increase the Company's working capital by
approximately $3 million.
OPERATING ACTIVITIES. Cash provided by operations for the six month
period ended December 31, 2002 was $846,614 compared to $492,831 for the six
months ended December 31, 2001. The current period's activity is primarily due
to increased collections of accounts receivable. The aforementioned item is also
the primary reason for the improvement versus the prior year.
INVESTING ACTIVITIES. Investing activities provided $55,777 in cash
in the current period compared to $430,458 in cash consumed in the same period
last year.
FINANCING ACTIVITIES. Current period financing activities consumed
$404,091 in cash compared to $245,987 provided in the same period last year. The
change is attributable to $1,989,091 of debt repayments offset by $585,000 of
debt proceeds. Long-term payables declined by $730,146 from June 30, 2002
primarily due to a reclassification to Accounts Payable.
- 14-
CAPITAL RESOURCES. The Company has certain credit facilities with
its bank including a revolving credit of $4,000,000. At December 31, 2002 the
Company had $1,494,079 available under its revolving credit facility. The
Company issued two series of Industrial Bonds totaling $3,560,548 in December of
1996. The outstanding balance on the bonds was $2,810,000 as of December 31,
2002. The Company is current with all its obligations to its bank and on its
bonds and is in compliance with their financial covenants except one covenant
which was specifically waived by the bank. Additionally, the maturity date of
the revolving credit facility was extended from December 31, 2003 to March 31,
2004.
Payment Due By Period
Less
Contractual Total than 1 1 - 3 4 - 5 After 5
Obligations year years years years
Long-Term Debt* 5,415,821 196,813 2,689,008 315,000 2,215,000
Operating Leases 15,971 15,971 0 0 0
Total Contractual Cash
Obligations 5,431,792 212,873 2,689,008 315,000 2,215,000
EMPLOYMENT CONTRACTS. For the Fiscal Year ended June 30, 2002, the
Company paid a base salary of $305,004 and $222,674 to Joseph Roberts, Chairman
and Chief Executive Officer and Kathleen Hill, Chief Operating Officer,
respectively. The Company currently has no employment contracts with either of
such individuals. The Compensation Committee of the Board of Directors is
currently engaged in discussions with Mr. Roberts and Ms. Hill with respect to
their compensation for the Fiscal Year ending June 30, 2003.
o Long-Term Debt includes a $2,505,922 outstanding balance on the
revolving line of credit, leaving $1,494,079 available for
borrowings under the $4,000,000 revolving line of credit.
Amount of Commitment Expiration
Per Period
Other Commercial Total Amounts Less than 1 - 3 4 - 5 Over 5
Commitments Committed 1 year years years years
Lines of Credit 4,000,000 0 4,000,000 0 0
Standby Letter of
Credit 3,065,000 0 3,065,000 0 0
Total Commercial
Commitments 7,065,000 0 7,065,000 0 0
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A substantial portion of the Company's revenues are dependent upon
the payment of its fees by customer healthcare facilities, that, in turn, are
dependent upon third-party payers such as state governments, Medicare and
Medicaid. Delays in payment by third-party payers, particularly state and local
governments, may lead to delays in collection of accounts receivable.
The Company has no material commitments for capital expenditures,
including the Collegeville Inn & Conference Center, and believes that its
cash from operations, existing balances, and available credit facilities are
adequate for the foreseeable future to satisfy the needs of its operations.
ITEM 4.
CONTROLS AND PROCEDURES
Based on their evaluation, as of a date within 90 days of the filing
of this Form 10-Q, the Company's Chief Executive Officer and Chief Financial
Officer have concluded the Company's disclosure controls and procedures (as
defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934)
are effective. There have been no significant changes in internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
- 16 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders
On December 23, 2002 the Company held its Annual Meeting of
Stockholders, whereby the stockholders elected Directors. The vote on such
matter was as follows:
Election of Directors:
For Withheld
--- --------
Joseph V. Roberts 2,076,346 0
Kathleen A. Hill 2,076,346 0
Michael Gosman 2,076,346 0
Samuel R. Shipley, III 2,076,346 0
Michelle Roberts-O'Donnell 2,076,346 0
Jane Scaccetti 2,076,346 0
Richard Kresky 2,076,346 0
Item 5. Other Information
The Company entered into an agreement dated December 18, 2002 to
sell approximately 19 acres of land for $3,000,000. Such agreement is subject to
a due diligence review by the purchaser and satisfaction of certain closing
conditions. While there can be no assurance that the sale will be consummated,
completion of the sale would increase the Company's working capital by
approximately $3,000,000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Certifications under
Section 906 of the
Sarbanes Oxley Act
(b) Reports on Form 8-K None
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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/ William E. Sturgis
--------------------------------
William E. Sturgis
(Principal Financial Officer)
Date: February 14, 2003
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NUTRITION MANAGEMENT SERVICES COMPANY
a Pennsylvania Corporation
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Section 302 Certification
I, Joseph Roberts, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Nutrition Management Services Company, Inc.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
- 19-
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 14, 2003 /s/ Joseph Roberts
-------------------------- -----------------------------------
Joseph Roberts
Chairman of the Board and Chief
Executive Officer
- 20 -
NUTRITION MANAGEMENT SERVICES COMPANY
a Pennsylvania Corporation
CERTIFICATION OF PRINCIPAL FINANCIAL MANAGER
Section 302 Certification
I, William Sturgis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Nutrition Management Services Company, Inc.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
- 21 -
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date:February 14, 2003 /s/ William Sturgis
---------------------------- ----------------------------------
William Sturgis
Principal Financial Manager
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