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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended March 31, 2003
--------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ______________ to
_______________
Commission File Number 0-19824
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Nutrition Management Services Company
-------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2095332
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Box 725, Kimberton Road, Kimberton, PA 19442
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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
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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
--- ---
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes No X
--- ---
2,747,000 Shares of Registrant's Class A Common Stock, with no par value, and
100,000 shares of Registrant's Class B Common Stock, with no par value, are
outstanding as of May 20, 2003.
TABLE OF CONTENTS
Part I. Financial Information Page No.
--------------------- ---------
Consolidated Balance Sheets as of
March 31, 2003 (unaudited) and June 30, 2002 2
Consolidated Statements of Operations for the
Three and Nine Months Ended March 31, 2003 and
2002 (unaudited) 3
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 2003
and 2002 (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
March 31, June 30,
2003 2002
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $ 819,269 $ 593,310
Accounts receivable, net of allowance for doubtful
accounts of $2,181,326 and $1,774,753, respectively 4,123,964 5,659,990
Notes Receivable 11,545 0
Unbilled Revenue 187,171 46,505
Deferred income taxes 0 882,487
Inventory 158,155 230,238
Prepaid and other 427,796 289,079
----------- -----------
Total current assets 5,727,900 7,701,609
----------- -----------
Property and equipment, net 8,258,685 8,683,712
----------- -----------
Other assets:
Investment in contracts 0 120,000
Notes Receivable 138,330 0
Advances to employees 437,126 523,490
Deferred income taxes 985,576 103,089
Bond issue costs 199,071 210,096
Deferred costs and other assets 10,021 10,020
----------- -----------
Total other assets 1,770,124 966,695
----------- -----------
$15,756,709 $17,352,016
=========== ===========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-2-
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30,
2003 2002
------------ ------------
(unaudited)
Current liabilities:
Current portion of long-term debt $ 191,813 $ 191,814
Accounts payable 4,180,831 3,811,110
Accrued expenses 270,950 443,483
Accrued payroll and related expenses 298,483 260,861
Other 71,903 71,192
------------ ------------
Total current liabilities 5,013,980 4,778,460
------------ ------------
Long-Term liabilities:
Long-term debt, net of current portion 5,207,093 5,543,852
Long Term Note Payable - 0 - 730,146
------------ ------------
Total long-term liabilities 5,207,093 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, respectively 3,801,926 3,801,926
Class B - no par, 100,000 shares authorized, issued and outstanding 48 48
Retained earnings 2,233,225 2,997,147
------------ ------------
6,035,199 6,799,121
Less: treasury stock (Class A common: 253,000 shares) - at cost (499,563) (499,563)
------------ ------------
Total stockholders' equity 5,535,636 6,299,558
------------ ------------
$ 15,756,709 $ 17,352,016
============ ============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-3-
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
March 31, March 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Food Service Revenue $ 6,358,301 $ 6,945,186 $ 20,781,354 $ 22,239,227
Cost of operations
Payroll and related expenses 2,645,415 2,351,595 8,266,690 7,258,545
Other costs of operations 2,615,696 3,123,867 8,887,074 10,299,564
------------ ------------ ------------ ------------
Cost of operations 5,261,111 5,475,462 17,153,764 17,558,109
------------ ------------ ------------ ------------
Gross profit 1,097,190 1,469,724 3,627,590 4,681,118
------------ ------------ ------------ ------------
Expenses
General and administrative expenses 1,071,604 1,064,830 3,332,037 3,438,356
Depreciation and amortization 201,808 210,827 615,614 633,221
Provision for doubtful accounts 85,999 225,000 278,261 675,000
------------ ------------ ------------ ------------
Expenses 1,359,411 1,500,657 4,225,912 4,746,577
------------ ------------ ------------ ------------
(Loss) from operations (262,221) (30,933) (598,322) (65,459)
------------ ------------ ------------ ------------
Other (expense) income
Other (4,508) 2,545 (25,137) (19,674)
Interest income 3,832 1,702 7,859 7,165
Interest expense (43,862) (53,088) (148,321) (213,369)
------------ ------------ ------------ ------------
Other (expense) income - net (44,538) (48,841) (165,599) (225,878)
------------ ------------ ------------ ------------
(Loss) before income taxes (306,759) (79,774) (763,921) (291,337)
Provision for income taxes 0 0 0 0
------------ ------------ ------------ ------------
Net Loss $ (306,759) (79,774) $ (763,921) $ (291,337)
============ ============ ============ ============
Basic and diluted loss
- basic and diluted $ (.11) $ (.03) $ (.27) $ (.10)
============ ============ ============ ============
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)
Nine Months Ended
March 31,
2003 2002
--------- --------
Operating activities:
Net (Loss) ($ 763,921) ($ 291,337)
Adjustments to reconcile net (loss) to net cash provided by/(used in)
operating activities:
Depreciation and amortization 615,614 633,221
Provision for bad debts 278,261 675,000
Amortization of bond costs 10,923 10,825
Changes in assets and liabilities:
Accounts receivable 1,257,765 339,968
Notes Receivable (149,875)
Unbilled Revenue (140,666) 94,900
Inventory and other 72,083 (30,345)
Accounts payable (276,169) (707,554)
Accrued expenses (146,451) (36,056)
Accrued payroll and related expenses 37,622 6,844
Accrued professional (26,083) 15,725
Accrued incomes taxes (9,691) (7,217)
Other (128,213) (30,925)
--------- --------
Net cash provided by operating activities 631,198 673,049
--------- --------
Investing activities:
Repayment (Advances) to employees 86,363 (147,763)
Purchase of property and equipment (70,587) (218,450)
--------- --------
Net cash provided by / (used in) investing activities 15,776 (366,213)
--------- --------
Financing activities
Repayments of long-term borrowing (1,386,900) (922,000)
Repayments of long-term payable (84,247) (252,741)
Repayments of term loan (49,768) (46,316)
Proceeds from long term borrowing 1,099,900 1,087,000
--------- --------
Net cash (used in) financing activities (421,015) (134,057)
--------- --------
Net increase in cash 225,959 172,779
--------- --------
Cash and cash equivalents - beginning of period 593,310 451,875
--------- --------
Cash and cash equivalents - end of period $ 819,269 $ 624,654
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest $ 152,393 $ 221,570
Income taxes $ (15,644) $ 20,452
See Notes to Unaudited Consolidated Financial Statements
-5-
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
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 Financial Accounting Standards Board (the "FASB")
issued SFAS 143, Accounting for Asset Retirement Obligations. 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 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)
MARCH 31, 2003
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). 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 amends SFAS 123
"Accounting for Stock-Based Compensation," 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 nine
month periods ending March 31, 2003 and 2002. 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)
MARCH 31, 2003
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)
MARCH 31, 2003
5. BUSINESS SEGMENTS - CONTINUED
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the quarter ended Mar. 31, 2003:
Food service revenue $ 6,212,344 $ 145,957 $ 6,358,301
Depreciation and amortization 73,927 127,881 201,808
Income (loss) from operations 157,066 (419,287) (262,221)
Interest income 3,832 0 3,832
Interest expense (25,146) (18,716) (43,862)
Income (loss) before taxes (benefit) 135,752 (442,511) (306,759)
Net income (loss) 135,752 (442,511) (306,759)
Total assets 7,280,692 8,476,017 15,756,709
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the quarter ended Mar. 31, 2002:
Food service revenue $ 6,681,838 $ 263,348 $ 6,945,186
Depreciation and amortization 76,947 133,880 210,827
Income (loss) from operations 256,900 (287,833) (30,933)
Interest income 1,702 0 1,702
Interest expense (30,276) (22,812) (53,088)
Income (loss) before taxes (benefit) 225,662 (305,436) (79,774)
Net income (loss) 225,662 (305,436) (79,774)
Total assets 8,401,295 8,909,814 17,311,109
- 9 -
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
MARCH 31, 2003
5. BUSINESS SEGMENTS - CONTINUED
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the nine months ended Mar. 31, 2003:
Food service revenue $ 20,168,296 $ 613,058 $ 20,781,354
Depreciation and amortization 223,163 392,451 615,614
Income (loss) from operations 577,349 (1,175,671) (598,322)
Interest income 7,859 0 7,859
Interest expense (85,768) (62,553) (148,321)
Income (loss) before taxes (benefit) 487,828 (1,251,749) (763,921)
Net income (loss) 487,828 (1,251,749) (763,921)
Total assets 7,280,692 8,476,017 15,756,709
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the nine months ended Mar. 31, 2002:
Food service revenue $ 21,590,221 $ 649,006 $ 22,239,227
Depreciation and amortization 246,126 387,095 633,221
Income (loss) from operations 862,719 (928,180) (65,459)
Interest income 7,165 0 7,165
Interest expense (116,055) (97,314) (213,369)
Income (loss) before taxes (benefit) 745,837 (1,037,174) (291,337)
Net income (loss) 745,837 (1,037,174) (291,337)
Total assets 8,401,295 8,909,814 17,311,109
-10-
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
MARCH 31, 2003
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 Nine months ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
Net loss:
As reported ($306,759) ($79,774) ($763,921) ($291,337)
Pro forma ($306,759) ($79,774) ($763,921) ($291,337)
Diluted loss per share:
As reported $ (.11) $ (.03) $ (.27) $ (.10)
Pro forma $ (.11) $ (.03) $ (.27) $ (.10)
The Company has not granted stock options since June 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 March 31, 2003 were $6,358,301, a
decrease of $586,885 or 8.5% compared to revenues of $6,945,186 for the
corresponding quarter last year. Revenues for the nine month period ended March
31, 2003 were $20,781,354, a decrease of $1,457,873 or 6.6% compared to the
corresponding period in 2002. 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 $5,261,111,
compared to $5,475,462 for similar expenses in the same period last year, a
decrease of $214,351 or 3.9%. For the nine month period ended March 31, 2003,
cost of operations were $17,153,764, compared to $17,588,109 for the same period
last year, a decrease of $404,345 or 2.3% compared to the corresponding period
in 2002. 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 $1,097,190, compared to $1,469,724,
a decrease of $372,534 or 25.3%. For the nine month period ended March 31, 2003,
gross profit was $3,627,590 versus $4,681,118 a decrease of $1,053,528 or 22.5%.
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 $1,071,604
or 16.9% of revenue, compared to $1,064,830 or 15.3% of revenue for the same
quarter last year, an increase of $6,774. For the nine month period ended March
31, 2003 general and administrative expenses were $3,332,037 compared to
$3,438,356 for the corresponding period last year, a decrease of $106,319. The
decrease for the nine 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 $85,999 compared
to $225,000 for the corresponding quarter last year. For the nine month period
ended March 31, 2003 provision for doubtful accounts was $278,261 compared to
$675,000 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
year. Lower sales volume also contributed to the aforementioned decreases.
Interest expense for the quarter totaled $43,862 compared to $53,088
for the same period last year. For the nine month period ended March 31, 2003,
interest expense was $148,321 versus $213,369 for the corresponding period in
2002. 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 March 31, 2003 was ($306,759) compared to ($79,774) for the corresponding
quarter last year. Net loss per share for the current quarter was $0.11 compared
to net loss per share of $0.03 for the corresponding quarter last year.
Net loss for the nine month period was ($763,921) versus ($291,337)
for the corresponding period last year. Net loss per share for the nine month
period was ($0.27) compared to net loss per share of ($0.10) for the same period
last year.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, the Company had working capital of $713,920.
OPERATING ACTIVITIES. Cash provided by operations for the nine month
period ended March 31, 2003 was $631,198 compared to $673,049 for the nine
months ended March 31, 2002. The current period's activity is primarily due to
increased collections of accounts receivable.
INVESTING ACTIVITIES. Investing activities provided $15,776 in cash
in the current period compared to $366,213 in cash consumed in the same period
last year.
FINANCING ACTIVITIES. Current period financing activities consumed
$421,015 in cash compared to $134,057 in the same period last year. The change
is attributable to $1,520,915 of debt repayments offset by $1,099,900 of debt
proceeds. Long-Term Note Payable 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 March 31, 2003 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 March 31, 2003.
The Company is current with all its obligations to its bank and on its bonds and
is in compliance with their financial covenants except covenants which were
specifically waived by the bank. Additionally, the maturity date of the
revolving credit facility was extended from March 31, 2004 to December 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 * 5,398,906 191,813 2,677,093 315,000 2,215,000
Operating Leases 15,971 15,971 0 0 0
Total Contractual Cash
Obligations 5,414,877 207,784 2,677,093 315,000 2,215,000
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
- 15-
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 None
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
$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
-17-
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: May 20, 2003
-18-
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
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: May 20, 2003 /s/ Joseph Roberts
--------------------------- -------------------------
Joseph Roberts
Chairman of the Board and
Chief Executive Officer
-19-
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
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: May 20, 2003 /s/ William Sturgis
------------------------------ --------------------------
William Sturgis
Principal Financial Manager
-20-