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, 1996
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
- - ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Box 725 Kimberton Road, Kimberton, PA 19442
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (610) 935-2050
-----------------------------
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 reports), and (2) has been subject to such filing
requirements for the past 90 days Yes [X] No [ ].
2,850,000 shares of Registrant's Class A Common Stock, without par value, and
100,000 shares of Registrant's Class B Common Stock, without par value, are
issued and outstanding as of May 9, 1996.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1996 and June 30, 1995 2 - 3
Consolidated Statements of Operations for the
Three and Nine Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1996 and 1995 5
Notes to Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 9
PART II. OTHER INFORMATION 10
Signatures 11
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,924,279 $ 1,444,558
Investments -- 2,970,099
Restricted cash 221,827 221,827
Accounts receivable, less allowance for doubtful
accounts of $695,613 and $381,669 6,363,053 5,892,480
Accrued income receivable 91,575 337,676
Notes and leases receivable, less allowance for
doubtful accounts of $-0- and $121,448 830,706 453,810
Advances to employees and related party mortgage 216,792 144,539
Deferred income taxes 451,265 420,265
Inventory and other 383,999 428,246
------------ ------------
Total current assets 12,483,496 12,313,500
Property and equipment, net of accumulated
depreciation of $844,396 and $648,561 2,978,106 2,147,753
Other assets:
Long-term accounts receivable, less allowance
for doubtful accounts of $57,509 and $57,509 50,814 57,509
Deferred income taxes 18,918 --
Investment in contracts, net of accumulated
amortization of $851,939 and $595,965 854,550 1,110,524
Lease receivable 319,258 403,375
Advances to employees and related party mortgage 10,000 40,148
Deferred costs and other
22,117 293,350
------------ ------------
Total assets $ 16,737,259 $ 16,366,159
============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
March 31, June 30,
1996 1995
---- ----
Current liabilities:
Current portion of long-term debt $ 896,667 $ 896,667
Accounts payable 4,643,175 3,957,656
Accrued expenses 490,525 354,234
Accrued payroll and related expenses 371,845 413,962
Accrued income taxes 94,224 79,926
Other 227,145 257,547
------------ ------------
Total current liabilities 6,723,581 5,959,992
Long-term debt, net of current portion 3,491,974 4,039,474
Deferred income taxes -- 77,082
Other 340,201 252,282
Stockholders' equity:
Undesignated preferred stock - no par,
2,000,000 shares authorized, none outstanding -- --
Common stock:
Class A - no par, 10,000,000 shares authorized;
3,000,000 issued, 2,875,000 outstanding 3,801,926 3,801,926
Class B - no par, 100,000 shares authorized,
issued and outstanding 48 48
Retained earnings 2,681,154 2,536,980
------------ ------------
6,483,128 6,338,954
Less: treasury stock (class A common:
125,000 shares) - at cost
(301,625) (301,625)
------------ ------------
Total stockholders' equity
6,181,503 6,037,329
------------ ------------
Total liabilities and stockholders' equity $ 16,737,259 $ 16,366,159
============ ============
</TABLE>
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
March 31
1996 1995
------------ -----------
(restated)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 144,174 $ 246,781
Adjustments to reconcile net income to net cash provided by/(used in) operating
activities:
Depreciation and amortization 470,636 393,153
Deferred income taxes (127,000) 72,526
Provision for doubtful accounts 110,000 96,962
Amortization of deferred gain (19,773) (19,773)
Amortization of unearned interest income (34,348) (41,851)
Changes in assets and liabilities:
Accounts receivable (1,145,347) (639,267)
Inventory 38,146 (59,355)
Prepaid expenses 6,101 (67,394)
Accrued income receivable 246,101 (370,404)
Notes receivable 192,025 17,435
Accounts payable 685,519 713,526
Accrued expenses 136,291 (1,178)
Customer deposits 2,548 (31,513)
Accrued payroll (42,117) 17,424
Accrued/prepaid income taxes 14,298 (724,097)
Other (30,402) (2,586)
Total adjustments 502,678 (646,392)
----------- -----------
Net cash provided by/(used in) operating activities 646,852 (399,611)
INVESTING ACTIVITIES:
Net investment activity 2,970,099 1,128,059
Advances to employees and officers (97,682) (210,985)
Repayments - mortgage to related party 55,577 15,625
Release of restricted cash -- 452,017
Repayments - employees and officers -- 181,216
Acquisition of contracts -- (232,053)
Deferred costs 255,140 (1,237)
Payment of lease receivable 118,465 118,464
Security deposits 16,093 (9,314)
Purchase of property and equipment (1,045,015) (863,206)
----------- -----------
Net cash provided by investing activities 2,272,677 578,586
FINANCING ACTIVITIES:
Proceeds from long-term debt 125,000 1,455,000
Repayments of long-term debt (672,500) (1,269,783)
Other 107,692 120,833
----------- -----------
Net cash used in financing activities (439,808) 296,050
Net increase 2,479,721 475,025
Cash and cash equivalents at beginning of period 1,444,558 1,515,506
----------- -----------
Cash and cash equivalents at end of period $ 3,924,279 $ 1,990,531
=========== -----------
Supplemental cash flow information:
Interest paid $ 318,626 $ 264,437
Income taxes paid $ 279,089 $ 822,806
</TABLE>
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31 March 31
1996 1995 1996 1995
------------ ------------ ------------ ------------
(Restated)
<S> <C> <C> <C> <C>
Revenues $ 8,728,220 $ 8,583,376 $ 26,825,367 $ 24,223,348
Operating Costs and expenses:
Cost of services provided $ 7,068,933 7,070,050 21,818,654 19,601,580
General and administrative expenses 1,505,208 1,417,347 4,815,740 4,164,486
------------ ------------ ------------ ------------
Income from operations 154,079 95,979 190,973 457,282
Other income:
Interest income 85,640 70,594 221,049 235,713
Interest expense (85,202) (88,957) (213,326) (264,437)
Other 6,479 27,092 63,573 5,135
------------ ------------ ------------ ------------
Income before income taxes 160,996 104,708 262,269 433,693
Provision for income taxes 75,012 33,037 118,095 186,912
------------ ------------ ------------ ------------
Net income $ 85,984 $ 71,671 $ 144,174 $ 246,781
============ ============ ============ ============
Earnings per common share $ 0.03 $ 0.02 $ 0.05 $ 0.08
============ ============ ============ ============
Weighted average shares outstanding 2,975,000 2,975,000 2,975,000 2,975,000
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
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 which, 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 which may be expected for the entire fiscal year
ending June 30, 1996. The financial information presented should be read in
conjunction with the Company's financial statements which were filed under
Form 10KSB.
Certain fiscal year 1995 items have been reclassified to conform to the
current year presentation.
2. Earnings Per Common Share
Earnings per common share amounts are based on the weighted average number
of shares outstanding. Common stock equivalents are included when dilutive.
3. Redeemable Warrants
In connection with the public offering on January 29, 1992, there are
warrants outstanding to purchase 1,150,000 shares of the Company's Class A
Common Stock. Effective February 28, 1992, each registered warrant holder
is entitled to purchase from the Company one share of Class A Common Stock
of the Company at the exercise price of $6.00 (120% of the initial public
offering price of a Unit) per share. These warrants expire on January 29,
1997.
4. Restatement of Financial Statements
Included in cash and cash equivalents at June 30, 1994 were holdings in
certain GNMA funds of $4,093,500. The securities underlying these funds
were investments in federal government backed mortgages. The market value
of these funds was $3,812,500 at June 30, 1994. No accounting recognition
was made regarding the $281,000 market decline in the GNMA funds because
management had no plan to sell these investments and believed that the
market decline was temporary. At the end of the first quarter of fiscal
1995, management changed its strategy regarding the GNMA funds and
liquidated its investment on September 27, 1994, incurring a loss on sale
of $316,000 which was originally recorded as a charge to earnings in the
first quarter of fiscal 1995.
6
<PAGE>
The staff of the Securities and Exchange Commission ("SEC") believes that
the most authoritative accounting literature directly bearing on the issue
of the accounting for the market decline in the GNMA funds at June 30,
1994, and the subsequent sale of the Company's investment in those funds on
September 27, 1994 requires the Company to record an unrealized loss of
$281,000 for the year ended June 30, 1994, representing the market decline
of the GNMA funds at that time. As a result, an unrealized loss of $281,000
($165,000 net of income taxes) was included in the Company's results of
operations for the year ended June 30, 1994. Accordingly, the amount of the
loss charged to earnings for the sale of the GNMA investments was reduced
from $316,000 to $35,000 in the Company's statement of operations for the
quarter ended September 30, 1994.
7
<PAGE>
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, 1996 increased by 1.7% to
$8,728,220 over revenues in the corresponding quarter last year. Revenues for
the nine month period ended March 31, 1996 were $26,825,367, an increase of
10.7% over the corresponding period in 1995. The increase results from growth
within existing accounts as well as new accounts opened during the intervening
period.
General and administrative expenses for the current quarter were 17.2%
of revenue, compared to 16.5% of revenue for the same quarter last year. For the
nine month period, general and administrative expenses were 18.0% of revenue,
compared to 17.2% for the same period last year. These increases are due to
additional administrative personnel being employed during the intervening period
and the additional expense incurred by the Company's installation of a
company-wide computer network, as well as operating losses associated with the
start-up of two major customers of which one relationship has been terminated.
Other income/(expense) for the three month period ended March 31, 1996
totaled $6,917 compared to $8,729 for the same period last year. For the nine
months ended March 31, 1996, other income (expense) was $71,296 as compared to
$(23,589) for the corresponding period in fiscal 1995.
Net income for the quarter ended March 31, 1996 was $85,984 or $0.03
per share as compared to $71,671 and $0.02 per share for the corresponding
quarter last year. For the nine month period ended March 31, 1996, net income
was $144,174 or $0.05 per share as compared to $246,781 and $0.08 per share in
the similar period last year.
Liquidity and Capital Resources
At March 31, 1996, the Company had working capital of $5,759,915.
Operating Activities. Cash provided by operations for the nine months
ended March 31, 1996 was $646,852 compared to $399,611 in cash consumed by
operations for the nine months ended March 31, 1995.
Investing Activities. Investing activities during the nine month period
ended March 31, 1996 provided $2,272,677 in cash compared to $578,586 provided
by similar activities in the same period last year. The net investment activity
reflects the Company's shifting of a portion of its holdings from U.S. Treasury
bills (all with maturity dates of less than a year) into more liquid investments
classified as cash equivalents. (Also see Note 4 on page 6.)
8
<PAGE>
Investing Activities (cont.)
Investing activities for the nine months ended March 31, 1996 also
included $1,045,015 in purchases on property and equipment, approximately
$990,000 of which related to the renovation work at the Collegeville Inn
Conference and Training Center. The Company intends to incur costs of between
$2,000,000 and $2,500,000 for the remainder of the renovation, the majority of
which is expected to be expended before the end of the fiscal year.
Financing Activities. During the nine months ended March 31, 1996,
financing activities consumed $439,808 in cash compared to $296,050 in cash
provided by similar activities in the same period last year.
Capital Resources. The Company has certain credit facilities with its
bank including a line of credit and three term loans. The Company is current
with all its obligations to its Bank and has met all financial covenants in its
loan documents.
A substantial portion of the Company's revenues are dependent upon the
payment of its fees by customer healthcare facilities, which, 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 (aside
from the Collegeville Inn) and believes that its cash from operations, existing
balances, and available credit line are adequate for the foreseeable future to
satisfy the needs of its operations and to fund its continued growth.
9
<PAGE>
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 None
(b) Reports on Form 8-K None
10
<PAGE>
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
---------------------
Chairman and Chief Executive
Officer
/s/ P. Joseph Scott III
-----------------------
Vice President of Finance
Date: May 13, 1996
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFOMRATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S 10-Q FOR THE QUARTER
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 3,924,279
<SECURITIES> 0
<RECEIVABLES> 6,363,053
<ALLOWANCES> (695,613)
<INVENTORY> 361,024
<CURRENT-ASSETS> 12,483,496
<PP&E> 2,978,106
<DEPRECIATION> (844,396)
<TOTAL-ASSETS> 16,737,259
<CURRENT-LIABILITIES> 6,723,581
<BONDS> 0
0
0
<COMMON> 3,801,974
<OTHER-SE> 2,379,529
<TOTAL-LIABILITY-AND-EQUITY> 16,737,259
<SALES> 26,825,367
<TOTAL-REVENUES> 26,825,367
<CGS> 21,818,654
<TOTAL-COSTS> 26,634,394
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 213,326
<INCOME-PRETAX> 262,269
<INCOME-TAX> 118,095
<INCOME-CONTINUING> 144,174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144,174
<EPS-PRIMARY> $0.05
<EPS-DILUTED> $0.05
</TABLE>
