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, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 0-19824
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
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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 May 13, 2002.
TABLE OF CONTENTS
Part I. Financial Information Page No.
Consolidated Balance Sheets of
March 31, 2002 (unaudited) and June 30, 2001 2 - 3
Consolidated Statements of Operations for the Three and Nine
Months Ended March 31, 2002 and 2001
(unaudited) 4
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 2002
and 2001 (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
March 31, June 30,
2002 2001
---- ----
(unaudited)
Current assets:
Cash and cash equivalents $ 624,654 $ 451,875
Accounts receivable, net of allowance for doubtful
accounts of $1,763,553 and $1,175,596, respectively 5,409,661 6,424,629
Unbilled Revenue 83,067 177,967
Deferred income taxes 636,617 636,617
Inventory 263,214 232,869
Prepaid and other 408,148 417,009
----------- -----------
Total current assets 7,425,361 8,340,966
----------- -----------
Property and equipment, net 8,832,970 9,127,742
----------- -----------
Other assets:
Investment in contracts 160,000 280,000
Advances to employees 476,750 328,988
Deferred income taxes 192,269 192,269
Bond issue costs 213,739 224,562
Deferred costs and other assets 10,020 10,020
----------- -----------
Total other assets 1,052,778 1,035,839
----------- -----------
$17,311,109 $18,504,547
=========== ===========
See Notes to Unaudited Consolidated Financial Statements
- 2 -
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30,
2002 2001
---- ----
(unaudited)
Current liabilities:
Current portion of long-term debt $ 186,814 $ 186,813
Accounts payable 3,830,187 4,537,741
Accrued expenses 313,738 341,286
Accrued payroll and related expenses 280,061 273,217
Other 86,166 125,960
------------ ----------
Total current liabilities 4,696,966 5,465,017
------------ ----------
Long-Term liabilities:
Long-term debt, net of current portion 5,504,804 5,386,120
Long Term Note Payable 814,387 1,067,128
------------ ---------
Total long-term liabilities 6,319,191 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
2,747,000 outstanding 3,801,926 3,801,926
Class B - no par, 100,000 shares authorized, issued and outstanding 48 48
Retained earnings 2,992,541 3,283,871
------------ ---------
6,794,515 7,085,845
Less: treasury stock (Class A common: 253,000 shares) - at cost (499,563) (499,563)
------------ ---------
Total stockholders' equity 6,294,952 6,586,282
$ 17,311,109 $ 18,504,547
============ ============
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,
2002 2001 2002 2001
---- ---- ---- ----
Food Service Revenue $ 6,945,186 $ 9,012,310 $ 22,239,227 $ 33,419,430
Cost of operations
Payroll and related expenses 2,351,595 3,077,556 7,258,545 10,611,133
Other costs of operations 3,123,867 4,269,213 10,299,564 16,863,049
------------ ------------ ------------ ------------
Cost of operations 5,475,462 7,346,769 17,558,109 27,474,182
------------ ------------ ------------ ------------
Gross profit 1,469,724 1,665,541 4,681,118 5,945,248
------------ ------------ ------------ ------------
Expenses
General and administrative expenses 1,064,830 1,476,650 3,438,356 4,684,949
Depreciation and amortization 210,827 172,310 633,221 507,844
Provision for doubtful accounts 225,000 180,000 675,000 540,000
------------ ------------ ------------ ------------
Expenses 1,500,657 1,828,960 4,746,577 5,732,793
------------ ------------ ------------ ------------
Loss from operations (30,933) (163,419) (65,459) 212,455
------------ ------------ ------------ ------------
Other income (expense)
Other 2,545 6,591 (19,674) 19,297
Interest income 1,702 6,508 7,165 27,459
Interest expense (53,088) (112,004) (213,369) (394,065)
------------ ------------ ------------ ------------
Other income (expense) - net (48,841) (98,905) (225,878) (347,309)
------------ ------------ ------------ ------------
Loss before income taxes (79,774) (262,324) (291,337) (134,854)
Provision for income taxes 0 35,001 0 93,336
------------ ------------ ------------ ------------
Net loss $ (79,774) $ (297,325) $ (291,337) $ (228,190)
============ ============ ============ ============
Basic and diluted loss per share $ (0.03) $ (0.10) $ (0.10) $ (0.08)
============ ============ ============ ============
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,
2002 2001
---- ----
Operating activities:
Net loss $ (291,337) $ (228,190)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 633,221 507,844
Provision for bad debts 675,000 540,000
Amortization of deferred gain 0 (19,773)
Amortization of bond costs 10,825 10,924
Changes in assets and liabilities:
Accounts receivable 339,968 (978,122)
Unbilled Revenue 94,900 281,270
Inventory and other (30,345) (24,544)
Accounts payable (707,554) 871,347
Accrued expenses (36,056) 52,947
Accrued payroll and related expenses 6,844 40,339
Accrued professional 15,725 (38,146)
Accrued incomes taxes (7,217) 102,632
Other (30,925) (47,978)
----------- -----------
Net cash provided by operating activities 673,049 1,070,550
Investing activities:
Advances to employees (147,763) (23,605)
Purchase of property and equipment (218,450) (233,694)
----------- -----------
Net cash used in investing activities (366,213) (257,299)
----------- -----------
Financing activities:
Repayments of long-term debt (922,000) (2,642,500)
Repayments of long-term note payable (252,741) (252,789)
Repayments of term loan (46,316) (201,866)
Proceeds from line of credit 1,087,000 1,595,137
----------- -----------
Net cash used in financing activities (134,057) (1,502,018)
----------- -----------
Net increase/(decrease) in cash 172,779 (688,767)
----------- -----------
Cash and cash equivalents - beginning of period 451,875 1,134,720
----------- -----------
Cash and cash equivalents - end of period $ 624,654 $ 445,953
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 221,570 $ 369,270
Income taxes $ 20,542 ($ 40,359)
See Notes to Unaudited Consolidated Financial Statements
- 5 -
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with generally accepted accounting principles
for interim financial information for quarterly reports on Form 10-Q
and, therefore, do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. However, all adjustments that, in the opinion
of management are necessary for fair presentation of the financial
statements, have been included. The results of operations for the
interim periods presented are not necessarily indicative of the
results that may be expected for the entire fiscal year ending June
30, 2002. 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
nine month periods ending March 31, 2002 and 2001. Stock options 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 they failed to pay $2.4 million on account of
services Nutrition Management Services Company rendered, and that
they 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. The parties have agreed to participate in mediation.
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)
March 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 principles 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 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
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the quarter ended Mar. 31, 2001:
Food service revenue $8,792,039 $ 220,271 $9,012,310
Depreciation and amortization 46,541 125,769 172,310
Income (loss) from operations 139,059 (302,478) (163,419)
Interest income 6,508 0 6,508
Interest expense (39,675) (72,329) (112,004)
Income (loss) before taxes (benefit) 99,739 (362,063) (262,324)
Net income (loss) 64,738 (362,063) (297,325)
Total assets 10,234,298 9,221,822 19,456,120
- 7 -
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2002
4. Business Segments - Continued
Food Service Training and
Management Conference Center Total
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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 8,366,295 8,909,814 17,311,109
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
For the nine months ended Mar. 31, 2001:
Food service revenue $32,712,382 $ 707,048 $33,419,430
Depreciation and amortization 132,762 375,082 507,844
Income (loss) from operations 978,558 (766,103) 212,455
Interest income 27,459 0 27,459
Interest expense (190,661) (203,404) (394,065)
Income (loss) before taxes (benefit) 821,910 (956,764) (134,854)
Net income (loss) 728,574 (956,764) (228,190)
Total assets 10,234,298 9,221,822 19,456,120
- 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 March 31, 2002 were $6,945,186, a
decrease of $2,067,124 or 22.9% compared to revenues of $9,012,310 for the
corresponding quarter last year. Revenues for the nine months ended March 31,
2002 were $22,239,227, a decrease of $11,180,203 or 33.5% compared to revenues
of $33,419,430 for the corresponding period in 2001. The Company recorded
revenue of $1,455,312 and $9,888,568 from a major client during the three and
nine month periods ended March 31, 2001, respectively. The Company recorded no
revenue from this client during the three and nine month periods ended March 31,
2002 due to the termination of the Company's relationship with this client. See
Note 3 of Notes to Unaudited Consolidated Financial Statement.
Cost of operations for the quarter ended March 31, 2002 were
$5,475,462, compared to $7,346,769 for similar expenses in the same period last
year, a decrease of $1,871,307 or 25.5%. For the nine month period ended March
31, 2002, cost of operations were $17,558,109, compared to $27,474,182, for the
same period last year, a decrease of $9,916,073 or 36.1%. 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 $1,469,724, compared to $1,665,541,
a decrease of $195,817 or 11.7%. For the nine month period ended March 31, 2002,
gross profit was $4,681,118 versus $5,945,248 a decrease of $1,264,130 or 21.2%.
These decreases are due to lower revenues during the period offset by
inflationary price, wage and expense increases. The Company recorded revenue of
$1,455,312 and $9,888,568 from a major client during the three and nine month
periods ended March 31, 2001, respectively. The Company recorded no revenue from
this client during the three and nine month periods ended March 31, 2002 due to
the termination of the Company's relationship with this client. See Note 3 of
Notes to Unaudited Consolidated Financial Statement.
General and administrative expenses for the quarter were $1,064,830
or 15.3% of revenue, compared to $1,476,650 or 16.4% of revenue for the same
quarter last year, a decrease of $411,820. For the nine month period ended March
31, 2002 general and administrative expenses were $3,438,356 compared to
$4,684,950 for the corresponding period last year, a decrease of $1,246,593.
- 9 -
Interest expense for the quarter totaled $53,088 compared to
$112,004 for the same period last year. For the nine month period ended March
31, 2002, interest expense was $213,369 compared to $394,065 in the
corresponding period in 2001. The decrease in interest expense is a result of
the reduction in interest rates.
For the reasons stated above net loss after taxes for the quarter
ended March 31, 2002 was ($79,774) compared to net loss of ($297,325) for the
corresponding quarter last year. Net loss per share for the current quarter was
($0.03) compared to net loss per share of ($0.10) for the corresponding quarter
last year.
Net loss for the nine month period was ($291,337) versus net loss of
($228,190) for the corresponding period last year. Net loss per share was
($0.10) compared to net loss per share of ($0.08) for the same period last year.
Liquidity and Capital Resources
At March 31, 2002, the Company had working capital of $2,728,444,
and cash and cash equivalents of $624,654 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 nine month
period ended March 31, 2002 was $673,047 compared to $1,070,550 for the nine
months ended March 31, 2001. A decrease in current liabilities offset by non
cash items was primarily responsible for the current period's activity.
Investing Activities. Investing activities consumed $366,213 in cash
in the current period compared to $257,299 in cash consumed in the same period
last year.
Financing Activities. Current period financing activities consumed
$134,057 in cash compared to $1,502,018 consumed in the same period last year.
Proceeds of $1,087,000 offset by repayment of long term debt of $1,221,057 were
responsible for the current period's activity.
Capital Resources. The current credit facilities include a
$4,000,000 line of credit and letters of credit totaling $2,940,000 guaranteeing
two industrial revenue bond issues. The agreements require the Company to
maintain certain financial covenants. The Company is current with all its
obligations to its bank and on its bonds and believes it is in compliance with
their financial covenants.
- 10 -
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.
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
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
Date: May 15, 2002
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