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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, 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Box 725, Kimberton Road, Kimberton, PA 19442
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 935-2050
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N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if change since last report.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days Yes /X/ No / /.
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, 2004.
TABLE OF CONTENTS
Part I. Financial Information Page No.
--------------------- --------
Consolidated Balance Sheets as of
December 31, 2003 (unaudited) and June 30, 2003 2
Consolidated Statements of Operations for the Three and Six
Months Ended December 31, 2003 and 2002
(unaudited) 3
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 2003
and 2002 (unaudited) 4
Notes to Consolidated Financial Statements 6 - 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations 11 - 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,
2003 2003
---- ----
(unaudited)
Current assets:
Cash and cash equivalents $ 763,165 $ 1,360,512
Accounts receivable, net of allowance for doubtful
accounts of $2,412,326 and $2,292,326, respectively 3,474,699 2,843,764
Accrued income 85,791 51,147
Deferred income taxes 1,209,454 1,209,454
Inventory 168,062 155,945
Prepaid and other 423,648 365,558
Income tax refund 63,348 63,348
----------- -----------
Total current assets 6,188,167 6,049,728
----------- -----------
Property and equipment, net 7,844,284 8,103,456
----------- -----------
Other assets:
Note Receivable 128,816 136,110
Advances to employees 435,283 435,283
Deferred income taxes 212,687 212,687
Bond issue costs 191,491 195,430
Deferred costs and other assets 10,020 10,020
----------- -----------
Total other assets 978,297 989,530
----------- -----------
$15,010,748 $15,142,714
=========== ===========
See Notes to Unaudited Consolidated Financial Statements
2
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
2003 2003
---- ----
(unaudited)
Current liabilities:
Current portion of long-term debt $ 165,380 $ 196,813
Current portion of note payable 322,946 575,687
Accounts payable 3,063,578 2,883,496
Accrued expenses 362,354 303,756
Accrued payroll and related expenses 241,016 246,622
Other 112,034 116,880
------------ ------------
Total current liabilities 4,267,308 4,323,254
------------ ------------
Long-Term liabilities:
Long-term debt, net of current portion 5,505,922 5,184,891
Long Term Note Payable - 0 - 154,452
------------ ------------
Total long-term liabilities 5,505,922 5,339,343
------------ ------------
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 1,935,107 2,177,706
------------ ------------
5,737,081 5,979,680
Less: treasury stock (Class A common: 253,000 shares) - at cost (499,563) (499,563)
------------ ------------
Total stockholders' equity 5,237,518 5,480,117
------------ ------------
$ 15,010,748 $ 15,142,714
============ ============
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,
2003 2002 2003 2002
---- ---- ---- ----
Food Service Revenue $ 7,175,557 $ 7,166,653 $ 13,882,411 $ 14,423,053
Cost of operations
Payroll and related expenses 2,851,728 2,797,621 5,362,130 5,621,275
Other costs of operations 2,984,272 3,151,052 5,867,390 6,271,378
------------ ------------ ------------ ------------
Cost of operations 5,836,000 5,948,673 11,229,520 11,892,653
------------ ------------ ------------ ------------
Gross profit 1,339,557 1,217,980 2,652,891 2,530,400
------------ ------------ ------------ ------------
Expenses
General and administrative expenses 1,190,626 1,236,910 2,367,466 2,260,433
Depreciation and amortization 155,547 200,953 309,945 413,806
Provision for doubtful accounts 60,000 7,262 120,000 192,262
------------ ------------ ------------ ------------
Expenses 1,406,173 1,445,125 2,797,411 2,866,501
------------ ------------ ------------ ------------
(Loss) from operations (66,616) (227,145) (144,520) (336,101)
------------ ------------ ------------ ------------
Other (expense) income
Other (4,509) (6,862) (9,018) (20,629)
Interest income 1,917 2,185 3,557 4,027
Interest expense (47,441) (50,395) (92,624) (104,459)
------------ ------------ ------------ ------------
Other (expense) income - net (50,033) (55,072) (98,085) (121,061)
------------ ------------ ------------ ------------
(Loss) before income taxes (116,649) $ (282,217) (242,605) (457,162)
Provision for income taxes 0 0 0 0
------------ ------------ ------------ ------------
Net Loss $ (116,649) (282,217) $ (242,605) $ (457,162)
============ ============ ============ ============
Basic and diluted loss
- basic and diluted $ (.04) $ (.10) $ (.08) $ (.16)
=========== ============ ============ ============
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,
2003 2002
---- ----
Operating activities:
Net (Loss) $ (242,605) $ (457,162)
Adjustments to reconcile net (loss) to net cash provided by/(used in)
operating activities:
Depreciation and amortization 309,945 413,806
Provision for bad debts 120,000 192,262
Amortization of bond costs 7,282 7,282
Changes in assets and liabilities:
Accounts receivable (743,640) 1,070,458
Accrued Income (34,644) (50,883)
Inventory and other (12,118) 92,557
Accounts payable (72,657) (137,210)
Accrued expenses 68,115 (49,050)
Accrued payroll and related expenses (5,607) (1,603)
Accrued professional (9,516) (28,088)
Accrued incomes taxes -0- (7,941)
Other (66,272) (197,814)
----------- -----------
Net cash (used in) / provided by operating activities (681,717) 846,614
----------- -----------
Investing activities:
Repayment (Advances) to employees -0- 87,088
Purchase of property and equipment (50,774) (31,311)
----------- -----------
(50,774) 55,777
Financing activities -- --
Repayments of long-term borrowing
Repayments of long-term payable
Repayments of term loan (1,680,000) (872,000)
Proceeds from long term borrowing (154,453) (84,247)
Net cash provided by / (used in) financing activities (35,403) (32,844)
2,005,000 585,000
----------- -----------
Net (decrease) / increase in cash 135,144 (404,091)
----------- -----------
Cash and cash equivalents - beginning of period (597,347) 498,300
=========== ===========
Cash and cash equivalents - end of period 1,360,512 593,310
----------- -----------
Supplemental disclosure of cash flow information: $ 763,165 $ 1,091,610
=========== ===========
Cash paid during the period for:
Interest $ 92,125 $ 106,432
Income taxes $ -0- $ (17,764)
See Notes to Unaudited Consolidated Financial Statements
5
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 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, 2004. 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 May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity" ("SFAS 150"). SFAS 150 clarifies the accounting for certain
financial instruments that, under previous guidance, issuers could
account for as equity. SFAS 150 requires that those instruments be
classified as liabilities in statements of financial position. SFAS 150
is effective for all financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. To date, the
adoption of this interpretation did not have an effect on the Company's
financial position or results of operations.
In April 2003, the FASB issued Statement No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS
149"). SFAS 149 amends SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" to clarify the financial accounting
and reporting for derivative instruments and hedging activities. SFAS
149 is intended to improve financial reporting by requiring comparable
accounting methods for similar contracts. SFAS 149 is effective for
contracts entered into or modified subsequent to June 30, 2003. The
requirements of SFAS 149 do not affect the Company's current accounting
for derivative instruments or hedging activities; therefore, it has no
effect on the Company's financial condition or results of operations.
6
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003
2. NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED
In January 2003 the FASB issued FIN 46, "Consolidation of Variable
Interest Entities" ("FIN 46"). This interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," addresses
consolidation by business enterprises of certain variable interest
entities where there is a controlling financial interest in a variable
interest entity or where the variable interest does not have sufficient
equity at risk to finance its activities without additional subordinated
financial support from other parities. The interpretation applies in the
first year or interim period beginning after January 31, 2003 and
applies in the first year or interim period beginning after June 15,
2003 to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003. The Company
will apply the consolidation requirement of FIN 46 in future periods if
the Company should own any interest in any variable interest entity.
3. EARNINGS PER COMMON SHARE
Earnings per common share amounts are based on the weighted-average
number of shares of common stock outstanding during the three and six
month periods ending December 31, 2003 and 2002. Stock options and
warrants did not impact earnings per share each period as they were
anti-dilutive.
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. Although it is not possible to predict with certainty the
outcome of these unresolved legal actions or the range of possible loss
or recovery, the Company believes these unresolved legal actions will
not have a material adverse effect on its financial position or results
of operations.
7
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003
4. LITIGATION - CONTINUED
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.
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the quarter ended Dec. 31, 2003:
Food service revenue $6,875,555 $ 300,002 $ 7,175,557
Depreciation and amortization 31,164 124,383 155,547
Income (loss) from operations 276,526 (343,142) (66,616)
Interest income 1,917 0 1,917
Interest expense (29,513) (17,928) (47,441)
Income (loss) before taxes 248,921 (365,570) (116,649)
Net income (loss) 248,921 (365,570) (116,649)
Total assets 6,850,101 8,160,648 15,010,748
8
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003
5. BUSINESS SEGMENTS - CONTINUED
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
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 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 six months ended Dec. 31, 2003:
Food service revenue $13,403,435 $ 478,976 $13,882,411
Depreciation and amortization 61,443 248,502 309,945
Income (loss) from operations 565,045 (709,565) (144,520)
Interest income 3,557 0 3,557
Interest expense (57,758) (34,866) (92,624)
Income (loss) before taxes 510,836 (753,441) (242,605)
Net income (loss) 510,836 (753,441) (242,605)
Total assets 6,850,101 8,160,647 15,010,748
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 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
9
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003
6. REVOLVING CREDIT FACILITY
In February 2001, the Company executed a loan agreement with a bank for
a revolving credit and two irrevocable letters of credit issued in
conjunction with the issuance of the Industrial Revenue Bonds, totaling
$4,000,000 and $3,065,000, respectively. In March 2003, the revolving
credit was extended from March 31, 2004 to December 31, 2004 and the
letters of credit are available for four years with annual renewals. At
June 30, 2003, the Company had available approximately $1,494,108 under
the revolving credit. Advances under the revolving credit are used for
working capital purposes.
These credit agreements contain covenants that include the submission of
specified financial information and the maintenance of insurance
coverage for the pledged assets during the term of the loans. The
covenants also include the maintenance of a certain fixed coverage
ratio, total liabilities to consolidated tangible net worth, and minimum
working capital. Compensating balances required for these credit
agreements totaled $655,102 as of June 30, 2003.
At June 30, 2003 the Company was not in compliance with these covenants.
On October 20, 2003, the Company entered into an amended credit
agreement whereby the non-compliance at June 30, 2003 was waived and new
financial covenants were negotiated through June 30, 2004, which reflect
the Company's current operating projections. As a condition of obtaining
said waivers and amendments, the Loan Facility availability was reduced
from $4,000,000 to $3,500,000 and $500,000 was placed in a cash
collateral account and pledged as additional collateral against the
revolver note.
The maturity date of the revolving credit faciltiy has been extended to
March 31, 2005.
10
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
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.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
ACCOUNTS RECEIVABLE
The Company performs ongoing credit evaluations of its customers and
adjusts credit limits based on payment history and the customer's current credit
worthiness, as determined by a review of their current credit information. The
Company continuously monitors collections and payments from its customers and
maintains a provision for estimated credit losses based on historical experience
and any specific customer collection issues that have been identified. While
such credit losses have historically been within the Company's expectations and
the provisions established, the Company cannot guarantee that it will continue
to experience the same credit loss rates that it has in the past.
IMPAIRMENT OF LONG-LIVED ASSETS EXCLUDING GOODWILL
The Company evaluates the carrying value of long-lived assets,
including intangible assets subject to amortization, when events and
circumstances warrant such a review. The carrying value of long-lived assets is
considered impaired when the anticipated undiscounted cash flows from such
assets are less than their carrying value. In that event, a loss is recognized
equal to the amount by which the carrying value exceeds the fair value of the
long-lived assets. The Company periodically reviews the appropriateness of the
estimated useful lives of its long-lived assets.
INCOME TAX ACCOUNTING
The Company determines its provision for income taxes using the
asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax effects of temporary differences
of existing assets and liabilities and their respective tax bases. Future tax
benefits of tax loss and credit carryforwards also are recognized as deferred
tax assets. Deferred tax assets are reduced by a valuation allowance to the
extent the Company concludes there is uncertainty as to their ultimate
realization. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are expected
to be recovered or settled. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that the change is enacted.
RESULTS OF OPERATIONS
Revenues for the quarter ended December 31, 2003 were $7,175,557, an
increase of $8,904 or .1% compared to revenues of $7,166,653 for the
corresponding quarter last year. Revenues for the six month period ended
December 31, 2003 were $13,882,411, a decrease of $540,642 or 3.9% compared to
the corresponding period in 2002. This change is primarily due to the net impact
of revenues from lost contracts versus revenues from new contracts.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
Costs of operations for the current quarter were $5,836,000,
compared to $5,948,673 for similar expenses in the same period last year, a
decrease of $112,673 or 1.9%. For the six month period ended December 31, 2003,
cost of operations were $11,229,520, compared to $11,892,653 for the same period
last year, a decrease of $663,133 or 5.9% compared to the corresponding period
in 2002. This decrease in cost of services is due to lower revenues during the
six month period partially offset by inflationary price, wage and expense
increases.
Gross Profit for the quarter was $1,339,557, compared to $1,217,980,
an increase of $121,577 or 9.0%. For the six month period ended December 31,
2003, gross profit was $2,652,891 versus $2,530,400 an increase of $122,491 or
4.6%. These increases are due to the cancellation of non performing contracts.
General and administrative expenses for the quarter were $1,190,626
or 16.6% of revenue, compared to $1,236,910 or 17.3% of revenue for the same
quarter last year, a decrease of $46,284. For the six month period ended
December 31, 2003 general and administrative expenses were $2,367,466 compared
to $2,260,433 for the corresponding period last year, an increase of $107,033.
The increase for the six month period versus the prior year is due to higher
fixed costs within the general and administrative expenses in the first quarter.
Provision for doubtful accounts for the quarter was $60,000 compared
to $7,262 for the corresponding quarter last year. For the six month period
ended December 31, 2003 provision for doubtful accounts was $120,000 compared to
$192,262 for the same period last year. The increase in the current quarter is a
result of a cash recovery of $141,738 of accounts receivable previously reserved
as uncollectible, being utilized to increase the allowance for doubtful accounts
in the 2002 quarter. For the six month period lower sales volume contributed to
the decrease.
Interest expense for the quarter totaled $47,441 compared to $50,395
for the same period last year. For the six month period ended December 31, 2003,
interest expense was $92,624 versus $104,459 in 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 December 31, 2003 was ($116,649) compared to ($282,217) for the
corresponding quarter last year. Net loss per share for the current quarter was
$0.04 compared to net loss per share of $0.10 for the corresponding quarter last
year.
Net loss for the six month period was ($242,605) versus ($457,162)
for the corresponding period last year. Net loss per share was ($0.08) compared
to net loss per share of ($0.16) for the same period last year.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2003, the Company had working capital of $1,920,857.
OPERATING ACTIVITIES. Cash consumed in operations for the six month
period ended December 31, 2003 was $681,717 compared to cash provided by
operations of $846,614 for the six months ended December 31, 2002. The current
period's activity is primarily due to an increase in accounts receivable.
INVESTING ACTIVITIES. Investing activities consumed $50,774 in cash
in the current period compared to $55,777 in cash provided in the same period
last year.
FINANCING ACTIVITIES. Current period financing activities provided
$135,144 in cash compared to $404,091 consumed in the same period last year. The
change is attributable to $1,869,856 of debt repayments offset by $2,005,000 of
debt proceeds.
CAPITAL RESOURCES. The Company has certain credit facilities with
its bank including a revolving credit of $3,500,000. At December 31, 2003 the
Company had $534,078 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 $2,675,000 as of December 31, 2003. On
October 20, 2003 the Company entered into an amended agreement. The Loan
Facility contains certain covenants that include maintenance of certain
financial ratios, maintenance of minimum levels of working capital as well as
affirmative and negative covenants. The Company is current with all its
obligations to its bank and on its bonds and has met all financial covenants in
its loan documents.
Payment Due By Period
---------------------------------------------------------------------------------------
Less
Contractual than 1 1 - 3 4 - 5 After 5
Obligations Total year years years years
--------------------------------------------------------------------------------------------------------------------------
Long-Term Debt* $5,671,302 $165,380 $3,260,922 $335,000 $1,910,000
Operating Leases 46,449 18,580 27,869 0 0
Total Contractual Cash
Obligations $5,717,751 $183,960 $3,288,791 $335,000 $1,910,000
--------------------------------------------------------------------------------------------------------------------------
* Long-Term Debt includes a $2,965,922 outstanding balance on the
revolving line of credit, leaving $534,078 available for borrowings
under the $3,500,000 revolving line of credit.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
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 3,500,000 0 3,500,000 0 0
Standby Letter of
Credit 3,065,000 0 3,065,000 0 0
Total Commercial
Commitments 6,565,000 0 6,565,000 0 0
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.
Based upon its present plans, management believes that operating
cash flow, available cash and available credit resources will be adequate to
make repayments of indebtedness described herein, to meet the working capital
cash needs of the Company and to meet anticipated capital expenditure needs
during the 12 months ending December 2004. In addition, the Company anticipates
the sale of certain land adjacent to its Collegeville facility that it believes
will net cash proceeds of not less than $2,000,000 during the fiscal year ending
June 30, 2004.
In an effort to extend our current bank debt, we may seek to access
the public equity market whenever conditions are favorable, even if we do 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. We
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.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
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 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.
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/ Linda J. Haines
--------------------------------
Linda J. Haines
(Principal Financial Officer)
Date: February 14, 2004
18