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, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 0-19824
Nutrition Management Services Company
-------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2095332
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer 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
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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, 2001 (unaudited) and June 30, 2001 2 - 3
Consolidated Statements of Operations for the Three and Six
Months Ended December 31, 2001 and 2000
(unaudited) 4
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 2001
and 2000 (unaudited) 5
Notes to Financial Statements 6 - 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 11
Part II. Other Information 12
Signatures 13
- 1 -
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
2001 2001
---- ----
(unaudited)
Current assets:
Cash and cash equivalents $760,236 $451,875
Accounts receivable, net of allowance for doubtful
accounts of $1,557,328 and $1,175,596, respectively 5,875,251 6,424,629
Unbilled Revenue 50,959 177,967
Deferred income taxes 636,617 636,617
Inventory 261,838 232,869
Prepaid and other 348,080 417,009
------- -------
Total current assets 7,932,981 8,340,966
--------- ---------
Property and equipment, net 8,989,679 9,127,742
--------- ---------
Other assets:
Investment in contracts 200,000 280,000
Advances to employees 475,113 328,988
Deferred income taxes 192,269 192,269
Bond issue costs 217,380 224,562
Deferred costs and other assets 10,020 10,020
------ ------
Total other assets 1,094,782 1,035,839
--------- ---------
$18,017,442 $18,504,547
=========== ===========
See Notes to Unaudited Consolidated Financial Statements
- 2 -
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
2001 2001
---- ----
Current liabilities:
Current portion of long-term debt $ 186,813 $ 186,813
Accounts payable 3,972,819 4,537,741
Accrued expenses 416,221 341,286
Accrued payroll and related expenses 276,442 273,217
Other 91,138 125,960
----------- ------------
Total current liabilities 4,943,433 5,465,017
----------- ------------
Long-Term liabilities:
Long-term debt, net of current portion 5,772,519 5,386,120
Long Term Note Payable 926,766 1,067,128
----------- ------------
Total long-term liabilities 6,699,285 6,453,248
----------- ------------
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 3,801,926 3,801,926
2,747,000 outstanding 48 48
Class B - no par, 100,000 shares authorized, issued and outstanding 3,072,313 3,283,871
----------- ------------
Retained earnings 6,874,286 7,085,845
Less: treasury stock (Class A common: 253,000 shares) - at cost (499,563) (499,563)
----------- ------------
Total stockholders' equity 6,374,724 6,586,282
----------- ------------
$18,017,442 $18,504,547
=========== ============
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,
2001 2000 2001 2000
---- ---- ---- ----
Food Service Revenue $ 7,871,823 12,214,557 $15,294,041 $24,407,120
Cost of operations
Payroll and related expenses 2,512,661 3,778,211 4,906,950 7,533,577
Other costs of operations 3,742,362 6,138,762 7,175,697 12,593,836
------------ ---------- ----------- -----------
Cost of operations 6,255,023 9,916,973 12,082,647 20,127,413
------------ ---------- ----------- -----------
Gross profit 1,616,800 2,297,584 3,211,394 4,279,707
------------ ---------- ----------- -----------
Expenses
General and administrative expenses 1,158,677 1,645,177 2,373,526 3,208,300
Depreciation and amortization 211,946 179,262 422,394 335,534
Provision for doubtful accounts 225,000 180,000 450,000 360,000
------------ ---------- ----------- ------------
Expenses 1,595,623 2,004,439 3,245,920 3,903,834
------------ ---------- ----------- ------------
Income from operations 21,177 293,145 (34,526) 375,873
------------ ---------- ----------- ------------
Other income (expense)
Other 1,104 6,591 (22,219) 12,706
Interest income 2,320 8,791 5,463 20,951
Interest expense (61,029) (137,470) (160,281) (282,061)
------------ ---------- ----------- ------------
Other income (expense) - net (57,605) (122,088) (177,037) (248,404)
------------ ---------- ----------- ------------
Income/(Loss) before income taxes (36,428) 171,057 (211,563) 127,469
Provision for income taxes 0 35,001 0 58,335
------------ ---------- ----------- ------------
Net income/(loss) $ (36,428) 136,056 $ (211,563) $69,134
============ ========== ============ ============
Basic and diluted earnings/(loss)
- basic and diluted $ ( .01) $ .05 $ (.07) $ .02
============ ========== ============ ============
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,
2001 2000
---- ----
Operating activities:
Net (loss)/Income ($ 211,558) $ 69,134
Adjustments to reconcile net income/(loss) to net cash provided
by/(used in) operating activities:
Depreciation and amortization 422,394 315,069
Provision for bad debts 450,000 360,000
Amortization of deferred gain 0 (13,182)
Amortization of bond costs 7,282 7,283
Changes in assets and liabilities:
Accounts receivable 99,378 (1,194,997)
Unbilled Revenue 127,009 (19,338)
Inventory and other (28,969) (9,048)
Accounts payable (564,923) 1,280,359
Accrued expenses 36,120 25,530
Accrued payroll and related expenses 3,225 139,552
Accrued professional 32,396 (38,146)
Accrued incomes taxes 6,419 64,334
Other 114,058 25,259
------- ----------
Net cash provided by operating activities 492,831 1,008,809
------- ----------
Investing activities:
Repayment (Advances) to employees (146,126) (7,970)
Purchase of property and equipment (284,332) (157,738)
--------- --------
Net cash used in investing activities (430,458) (165,708)
--------- --------
Financing activities:
Repayments of long-term debt (670,000) (2,038,715)
Repayments of long-term note payable (140,412) (168,494)
Repayments of term loan (30,601) (28,315)
Proceeds from line of credit 1,087,000 750,000
--------- -----------
Net cash provided by /(used in) financing activities 245,987 (1,485,524)
------- -----------
Net increase(decrease) in cash 308,360 (642,422)
------- ---------
Cash and cash equivalents - beginning of period 451,875 1,134,720
------- ---------
Cash and cash equivalents - end of period $760,236 $ 492,297
======== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest $161,786 $291,914
Income taxes $ 0 ($71,663)
See Notes to Unaudited Consolidated Financial Statements
- 5 -
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
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, 2001. The financial information presented should be read in
conjunction with the Company's financial statements that were filed
under Form 10-K.
2. 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, 2001 and 2000. Stock options
and warrants did not impact earnings per share each period as they
were anti-dilutive.
3. LITIGATION
On February 7, 2001, Nutrition Management Services Company filed
suit against a major client in the Court of Common Pleas of Chester
County, Pennsylvania. In the lawsuit, Nutrition Management Services
Company claims that the client failed to pay $2.4 million on account
of services Nutrition Management Services Company rendered, and that
the client should be required to reimburse Nutrition Management
Services Company for over $400,000 in start up expenses, in addition
to other claims. The client has filed a counterclaim which the
Company is contesting.
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.
- 6 -
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2001
4. 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, 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
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the quarter ended Dec. 31, 2000:
Food service revenue $11,909,686 $ 304,871 $12,214,557
Depreciation and amortization 54,138 125,124 179,262
Income (loss) from operations 460,666 (167,522) 293,144
Interest income 8,791 0 8,791
Interest expense (66,902) (70,568) (137,470)
Income (loss) before taxes (benefit) 409,146 (238,090) 171,057
Net income (loss) 374,145 (238,090) 136,056
Total assets 10,967,223 9,266,947 20,234,170
-7-
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2001
4. BUSINESS SEGMENTS - CONTINUED
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
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the six months ended Dec. 31, 2000:
Food service revenue $23,920,343 $ 486,777 $24,407,120
Depreciation and amortization 86,221 249,313 335,534
Income (loss) from operations 831,649 (455,776) 375,873
Interest income 20,951 0 20,951
Interest expense (150,986) (131,075) (282,061)
Income (loss) before taxes (benefit) 714,320 (586,851) 127,469
Net income (loss) 655,985 (586,851) 69,134
Total assets 10,967,223 9,266,947 20,234,170
-8-
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.
Results of Operations
Revenues for the quarter ended December 31, 2001 were $7,871,823, a
decrease of $4,342,734 or 35.5% compared to revenues of $12,214,557 for the
corresponding quarter last year. Revenues for the six month period ended
December 31, 2001 were $15,294,041, a decrease of $9,113,079 or 37.3% compared
to the corresponding period in 2000. The Company recorded revenue of $4,296,164
and $8,433,256 from a major client during the three and six month periods ended
December 31, 2000, respectively. The Company recorded no revenue from this
client during the three and six month periods ended December 31, 2001 due to the
termination of the Company's relationship with this client. See Note 3 of Notes
to Unaudited Consolidated Financial Statement.
Costs of operations for the current quarter were $6,255,023,
compared to $9,916,973 for similar expenses in the same period last year, a
decrease of $3,661,950 or 36.9%. For the six month period ended December 31,
2001, cost of operations were $12,082,647, compared to $20,127,413 for the same
period last year, a decrease of $8,044,766 or 40.0% compared to the
corresponding period in 2000. This decrease in cost of services is due to lower
revenues during the period offset by inflationary price, wage and expense
increases.
Gross Profit for the quarter was $1,616,800, compared to $2,297,584,
a decrease of $680,784 or 29.6%. As a percentage of revenue, gross profit
increased from 18.8% in 2000 to 20.5% in 2001. For the six month period ended
December 31, 2001, gross profit was $3,211,394 versus $4,297,707 a decrease of
$1,068,313 or 25.0%. These decreases are due to lower revenues during the period.
General and administrative expenses for the quarter were $1,158,677
or 14.7% of revenue, compared to $1,645,177 or 13.5% of revenue for the same
quarter last year, a decrease of $486,500. For the six month period ending
December 31, 2001 general and administrative expenses were $2,373,526 compared
to $3,208,300 for the corresponding period last year, a decrease of $834,774.
These decreases are due to certain cost cutting measures implemented by the
Company.
Provision for doubtful accounts for the quarter was $225,000
compared to $180,000 for the corresponding quarter last year. For the six month
period ending December 31, 2001 provision for doubtful accounts was $450,000
compared to $360,000 for the same period last year. This increase is
attributable to an increase in business activities and a change in contractual
relationships.
- 9 -
Interest expense for the quarter totaled $61,029 compared to
$137,470 for the same period last year. For the six month period ended December
31, 2001, interest expense was $160,281 versus $282,061 in the corresponding
period in 2000. 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, 2001 was ($36,428) compared to net income of $136,056 for the
corresponding quarter last year. Net loss per share for the current quarter was
($0.01) compared to net income per share of $0.05 for the corresponding quarter
last year.
Net loss for the six month period was ($211,563) versus net income
of $69,134 for the corresponding period last year. Net loss per share was
($0.07) compared to net income per share of $0.02 for the same period last year.
Liquidity and Capital Resources
At December 31, 2001, the Company had working capital of $2,989,547,
and cash and cash equivalents of $760,236 as compared to working capital of
$2,875,949 and cash and cash equivalents of $451,875 at June 30, 2001.
OPERATING ACTIVITIES. Cash provided by operations for the six month
period ended December 31, 2001 was $492,831 compared to $1,008,809 for the six
months ended December 31, 2000. A decrease in current liabilities offset by non
cash items was primarily responsible for the current period's activity.
INVESTING ACTIVITIES. Investing activities consumed $430,458 in cash
in the current period compared to $165,708 in cash consumed in the same period
last year.
FINANCING ACTIVITIES. Current period financing activities provided
$245,987 in cash compared to $1,485,524 consumed in the same period last year.
Proceeds of $1,087,000 offset by repayment of long term debt of $841,013 were
responsible for the current quarter's activity.
CAPITAL RESOURCES. In February 2001, the Company refinanced its
outstanding indebtedness. These credit facilities include a $4,000,000 line of
credit and letters of credit for $878,379 and $2,258,404 guaranteeing two
industrial revenue bond issues. The new loan agreement requires the Company to
maintain certain financial covenants. The Company is current with all its
obligations to its bank and on its bonds and is in compliance with their
financial convenants except those that were specifically waived by the bank.
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.
- 10 -
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.
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. 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.
- 11 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings See "Note 3 to
Unaudited Consolidated Financial Statements" for a description
of the Company's litigation.
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 18, 2001 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 1,850,000 0
Kathleen A. Hill 1,850,000 0
Michael Gosman 1,850,000 0
Samuel R. Shipley, III 1,850,000 0
Michelle Roberts-O'Donnell 1,850,000 0
Jane Scaccetti 1,850,000 0
Richard Kresky 1,850,000 0
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits None
(b) Reports on Form 8-K None
- 12 -
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, 2002
- 13 -
