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, 1997
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 identification no.)
incorporation or organization)
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 changed 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 / /.
2,789,569 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
outstanding as of May 14, 1997.
<PAGE>
INDEX
Part I. Financial Information Page No.
--------------------- --------
Consolidated Balance Sheets as of
March 31, 1997 and June 30, 1996 2 - 3
Consolidated Statements of Operations for the
Three and Nine Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1997 and 1996 5
Notes to Financial Statements 6 - 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 10
Part II. Other Information 11
-----------------
Signatures 12
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
(unaudited) --------
-----------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,784,705 $ 3,026,607
Accounts receivable, less allowance for doubtful
accounts of $486,428 and $362,065, respectively 5,817,754 5,863,105
Unbilled revenue 340,152 273,132
Notes and lease receivable 157,953 823,602
Advances to employees 266,655 257,415
Deferred income taxes 544,183 387,183
Prepaid expenses 349,953 32,371
Inventory and Other 170,520 374,850
----------- -----------
Total current assets 11,431,875 11,038,265
Property and equipment, net of accumulated
depreciation of $888,949 and $663,250, respectively 6,373,915 4,450,309
Other assets:
Restricted cash 146,827 146,827
Long-term accounts receivable, net of allowance
for doubtful accounts of $57,509 and $57,509, respectively 50,815 50,815
Deferred income taxes 200,000 112,000
Investment in contracts, net of accumulated
amortization of $1,193,237 and $937,263, respectively 513,252 769,226
Lease receivable 197,440 289,882
Advances to employees -- 5,000
Deferred costs and other 85,172 100,028
----------- -----------
Total assets $18,999,296 $16,962,352
=========== ===========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
2
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
(unaudited) ---------
-----------
Current liabilities:
<S> <C> <C>
Accounts payable $ 4,262,404 $ 5,042,025
Accrued expenses 612,262 397,054
Accrued payroll and related expenses 466,409 471,806
Current portion of long-term debt 837,421 896,667
Accrued income taxes 257,585 45,063
Other 473,722 349,013
------------ ------------
Total current liabilities 6,909,803 7,201,628
Long-term debt, net of current portion 5,206,509 3,267,808
Other 207,932 262,824
Commitments and Contingencies -- --
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;
3,012,500 issued, 2,796,069 and 2,810,569
shares outstanding, respectively 3,826,926 3,826,926
Class B - no par, 100,000 shares authorized,
issued and outstanding 48 48
Retained earnings 3,308,426 2,838,934
------------ ------------
7,135,400 6,665,908
Less: Treasury stock (Class A common: 216,431 and 201,931
shares, respectively) - at cost (460,348) (435,816)
------------ ------------
Total stockholders' equity 6,675,052 6,230,092
------------ ------------
Total liabilities and stockholders' equity $ 18,999,296 $ 16,962,352
============ ============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
3
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 8,947,786 $ 8,728,220 $ 25,928,468 $ 26,825,367
Operating costs and expenses:
Cost of services provided 7,168,056 7,068,933 20,979,111 21,818,654
General and administrative expenses 1,490,500 1,505,208 4,096,489 4,815,740
----------- ----------- ----------- -----------
Income from operations 289,230 154,079 852,868 190,973
Other income:
Other income 70,731 92,119 210,912 284,622
Interest expense (57,833) (85,202) (204,543) (213,326)
----------- ----------- ----------- -----------
Income before income taxes
302,128 160,996 859,237 262,269
Provision for income taxes 131,554 75,012 389,745 118,095
----------- ----------- ----------- -----------
Net income $ 170,574 $ 85,984 $ 469,492 $ 144,174
=========== =========== =========== ===========
Earnings per common share $ 0.06 $ 0.03 $ 0.16 $ 0.05
=========== =========== =========== ===========
Weighted average shares outstanding 2,934,377 2,975,000 2,941,525 2,975,000
=========== =========== =========== ===========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
4
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
March 31,
1997 1996
---- ----
Operating activities:
<S> <C> <C>
Net income $ 469,492 $ 144,174
Adjustments to reconcile net income to net
cash provided by/(used in) operating activities:
Depreciation and amortization 481,673 470,636
Deferred income taxes (157,000) (127,000)
Provision for doubtful accounts 90,000 110,000
Gain on sale of assets -- (19,773)
Amortization of unearned interest income (20,833) (34,348)
Changes in assets and liabilities:
Accounts receivable (44,649) (1,145,347)
Inventory 51,763 38,146
Prepaid expenses (317,582) 6,101
Accrued income receivable (67,020) 246,101
Deferred costs 167,423 --
Notes receivable 665,649 192,025
Accounts payable (779,621) 685,519
Accrued expenses 215,208 136,291
Accrued/prepaid income taxes 124,522 14,298
Other 119,312 (69,971)
----------- -----------
Total adjustments 528,845 502,678
----------- -----------
Net cash provided by/(used in) operating activities 998,337 646,852
----------- -----------
Investing activities:
Proceeds from sale of marketable securities -- 2,970,099
Advances to employees and officers (4,240) (97,682)
Repayments - mortgage to related party -- 55,577
Deferred costs -- 255,140
Payment of lease receivable 113,275 118,465
Security deposits -- 16,093
Purchase of property and equipment (2,149,305) (1,045,015)
----------- -----------
Net cash (used in)/provided by investing activities (2,040,270) 2,272,677
----------- -----------
Financing activities:
Proceeds of long-term debt 2,551,956 125,000
Repayments of long-term debt (672,501) (672,500)
Other (79,424) 107,692
----------- -----------
Net cash provided by/(used in) financing activities 1,800,031 (439,808)
----------- -----------
Net increase (decrease) in cash and cash equivalents 758,098 2,479,721
Cash and cash equivalents at begin-
ning of period 3,026,607 1,444,558
----------- -----------
Cash and cash equivalents at end
of period $ 3,784,705 $ 3,924,279
=========== ===========
Supplemental cash flow information:
Interest paid (Net of amounts capitalized) $ 164,986 $ 318,626
Income taxes paid $ 423,471 $ 279,089
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
5
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
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, 1997. The financial information presented should be read in
conjunction with the Company's financial statements which 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, 1997. Shares issued in connection with the
employee stock purchase plan were included as common stock equivalents.
Stock options did not impact earnings per share each quarter as they were
anti-dilutive.
3. New Financing and Credit Facilities
On December 26, 1996, the Company completed a $7,500,000 financing
arrangement with its primary bank, CoreStates Financial Corporation.
Included in these arrangements was a $4,000,000 unsecured 3-year revolving
credit facility which can be used for general corporate purposes, and
$3,500,000 in standby letters of credit which were used to guarantee a
$2,500,000 taxable, 20-year Industrial Revenue Bond financing for the
Company's subsidiary, the Collegeville Inn Conference and Training Center
and a $1,000,000 tax-exempt, 20-year Industrial Revenue Bond financing for
the Company's subsidiary, Apple Fresh Foods Limited. The new revolving
credit replaced a $2,900,000 line of credit. The Bonds were issued through
the Montgomery County (PA) Industrial Development Authority. The net
proceeds of the Collegeville financing were designated for payment of
construction expenditures of that facility, part of which had been
previously funded by the Company and for which the Company was reimbursed.
The net proceeds of the Apple Fresh Foods financing were designated for the
purchase of cook chill food preparation equipment. Until that equipment has
been delivered to that subsidiary, part of the proceeds will be held in
escrow by the Trustee.
4. Redeemable Warrants
In connection with the public offering on January 29, 1992, there were
warrants outstanding to purchase 1,150,000 shares of the Company's Class A
Common Stock. Effective February 28, 1992, each registered warrant holder
was 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 unexercised warrants expired on
January 29, 1997.
6
<PAGE>
5. Litigation
In the normal course of its business, 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 affect on the Company's
financial position, results of operations or cash flows.
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, 1997 increased by $219,566 or
2.5% to $8,947,786, compared to revenues of $8,728,220 in the corresponding
quarter last year. Revenues for the nine month period ended March 31, 1997 were
$25,928,468, a decrease of 3.3% compared to the corresponding period in 1996.
These decreases are the result of three accounts being sold to a non-contracted
nursing home chain, the loss of an account at the end of the first quarter last
year, and another at the end of the first quarter this year.
Gross Profit amounted to $4,949,357 or 19.1% of revenues through the
first nine months of the current fiscal year, compared to $5,006,713 or 18.7%
for the same period last year.
General and administrative expenses for the current quarter were 16.7%
of revenue, compared to 17.2% of revenue for the same quarter last year, a
decrease of $14,708. For the nine month period, general and administrative
expenses were 15.8% of revenue, compared to 18.0% for the same period last year.
The expense reductions realized this year are the result of last year's
increased expenses associated with the start-up of two major customers and the
installation of a company-wide computer network.
Other income (expense) for the three month period totaled $12,898
compared to $6,917 for the same period last year. For the nine months ended
March 31,1997, other income (expense) was $6,369 compared to $71,296 for the
corresponding period last year. The nine month period includes interest
capitalization of $102,423 related to the capital expenditures at the
Collegeville Inn & Conference Center.
Net income after taxes for the quarter ended March 31, 1997 was
$170,574 compared to $85,984 for the corresponding quarter last year. Earnings
per share for the current quarter were $0.06 as compared to $0.03 for the same
quarter last year. For the nine month period ended March 31, 1997, net income
was $469,492 or $0.16 per share as compared to $144,174 or $0.05 per share for
the corresponding period last year. The improvement in net income was the result
of the $719,251 reduction in general and administrative expenses through the
first nine months as compared to the same period last year, which more than
off-set the lower gross profit of $57,356 due to the reduced revenues.
8
<PAGE>
Liquidity and Capital Resources
At March 31, 1997, the Company had working capital of $4,522,072.
Operating Activities. Cash generated by operations for the nine months
ended March 31, 1997 was $998,337 compared to $646,852 in cash generated by
operations for the nine months ended March 31, 1996. The primary factors
affecting the $998,337 in cash provided in this category were: (1) net income
(plus depreciation and amortization) of $951,165, (2) pay-off of $639,910 note
from Meritcare Ventures Inc., and (3) reduction in accounts payable of
($779,621).
Investing Activities. Investing activities during the current nine
month period consumed $2,040,270 in cash compared to $2,272,677 provided by
similar activities in the same period last year. Investing activities for the
current period included capital expenditures of $2,111,284 for the Collegeville
Inn & Conference Center. The prior year's activity provided cash of $2,970,099
from the sale of marketable securities, partially off-set by capital
expenditures of $1,163,119 at the Collegeville Inn & Conference Center.
Financing Activities. During the nine months ended March 31, 1997,
financing activities generated $1,800,031 in cash compared to $439,808 in cash
consumed by similar activities in the same period last year. New Financing and
Credit Facilities (see Note #3 on Page 6) arranged with the Company's primary
bank, CoreStates Financial Corporation, was responsible for $2,551,956 of this
activity off-set by repayments of $672,501 in long term debt.
Capital Resources. The Company has certain credit facilities with its
bank including a line of credit and three term loans. As of March 31, 1997, the
Company had $1,470,447 available on its line of credit. 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 & Conference Center) and believes that its cash from
operations, existing balances, and available credit line are adequate for the
next twelve months to satisfy the needs of its operations and to fund its
continued growth. However, if the need arose, the Company would seek to obtain
capital from such sources as continuing debt financing or equity financing.
9
<PAGE>
Forward Looking Statements
This Form 10-Q contains certain 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, which 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.
10
<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) Exhibit 27
(b) Reports on Form 8-K None
11
<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
-----------------------------
Joseph V. Roberts
Chairman and Chief Executive
Officer (Principal Accounting Officer)
Date: May 14, 1997
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S 10-Q FOR THE PERIOD
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 3,784,705
<SECURITIES> 0
<RECEIVABLES> 5,817,754
<ALLOWANCES> (486,428)
<INVENTORY> 323,087
<CURRENT-ASSETS> 11,431,875
<PP&E> 6,373,915
<DEPRECIATION> (888,949)
<TOTAL-ASSETS> 18,999,296
<CURRENT-LIABILITIES> 6,909,803
<BONDS> 0
0
0
<COMMON> 3,826,926
<OTHER-SE> 2,848,078
<TOTAL-LIABILITY-AND-EQUITY> 18,999,296
<SALES> 25,928,468
<TOTAL-REVENUES> 25,928,468
<CGS> 20,979,111
<TOTAL-COSTS> 25,075,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204,543
<INCOME-PRETAX> 859,237
<INCOME-TAX> 389,745
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 469,492
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
