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 September 30, 1998
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
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
-----------------
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 / /.
2,742,734 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 November 16, 1998.
<PAGE>
TABLE OF CONTENTS
Part I. Financial Information Page No.
Consolidated Balance Sheets of
September 30, 1998 (unaudited) and June 30, 1998 2 - 3
Consolidated Statements of Operations for the
Three Months Ended September 30, 1998 (unaudited) and
1997 (unaudited) 4
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1998 (unaudited)
and 1997 (unaudited) 5
Notes to Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 8
Part II. Other Information 10
Signatures 11
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<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
---- ----
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 75,499 $ 131,517
Accounts receivable, net of allowance for doubtful
accounts of $783,387 and $702,406, respectively. 5,455,287 5,665,739
Unbilled revenue 140,580 201,950
Deferred income taxes 455,625 469,797
Inventory and Other 455,028 336,380
----------- -----------
Total current assets 6,582,019 6,805,383
----------- -----------
Property and equipment, net 10,325,061 10,386,775
Other assets:
Restricted cash 922,835 906,838
Advances to officers 292,373 289,623
Investment in contracts, net of accumulated amortization of
$1,658,667 and $1,630,859, respectively. 62,822 90,630
Deferred income taxes 575,709 453,209
Bond issue costs 264,619 268,260
Deferred costs and other assets 10,122 10,122
----------- -----------
Total assets $19,035,560 $19,210,840
=========== ===========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
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<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
---- ----
(unaudited)
Current liabilities:
<S> <C> <C>
Accounts payable $4,719,603 $ 4,984,804
Accrued expenses 793,103 601,526
Accrued payroll and related expenses 425,669 440,356
Current portion of long-term debt 407,311 407,311
Other 289,660 157,632
--------- ---------
Total current liabilities 6,635,346 6,591,629
--------- ---------
Long-term debt, net of current portion 5,584,682 5,616,552
Other 89,220 126,564
--------- ---------
Total long-term liabilities 5,673,902 5,743,116
--------- ---------
Stockholders' equity:
Undesignated preferred stock - no par, 2,000,000 shared authorized, none
issued or outstanding. ----- ----
Common stock:
Class A - no par, 10,000,000 shares authorized; 3,000,000 and
3,000,000 issued, 2,742,734 and 2,742,734 outstanding, respectively. 3,801,926 3,801,926
Class B - no par, 100,000 shares authorized, issued and outstanding. 48 48
Retained earnings 3,450,249 3,600,032
--------- ---------
7,252,223 7,402,006
Less: treasury stock (Class A common: 257,266 and 257,266
shares, respectively) - at cost (525,911) (525,911)
--------- ----------
Total stockholders' equity 6,726,312 6,876,095
--------- ----------
Total liabilities and stockholders' equity $19,035,560 $19,210,840
=========== ===========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
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<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Revenues $9,115,066 $9,128,381
Operating costs and expenses
Cost of services provided 7,573,290 7,375,458
General and administrative expenses 1,580,968 1,559,749
--------- ---------
Income/(loss) from operations (39,192) 193,174
Other income
Other income 14,205 56,068
Interest (expense) (104,796) (68,898)
--------- --------
Income/ (loss) before income taxes (129,783) 180,344
Provision for income taxes 20,000 95,072
--------- --------
Net income/ (loss) ($149,783) $ 85,272
========== ===========
Earnings/(loss) per common share - basic and diluted ($0.05) $ 0.03
========== ==========
Weighted average share outstanding 2,742,734 2,866,619
========== ===========
</TABLE>
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<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Operating activities:
Net income/ (loss) ($149,783) $ 85,272
Adjustment to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 174,404 175,762
Provision for doubtful accounts 80,981 60,000
Amortization of deferred gain (6,591) (6,591)
Amortization of bond costs 3,641 ----
Amortization of lease receivable (6,474)
Changes in assets and liabilities:
Accounts receivable 129,471 240,607
Deferred taxes (108,328) 64,500
Unbilled revenue 61,370 36,662
Inventory and other (118,648) ----
Accounts payable (265,201) 699,911
Accrued legal and expenses 191,577 (242,856)
Accrued payroll (14,687) 41,551
Other 94,684 (232,964)
---------- ---------
Net cash provided by operating activities 72,890 915,380
---------- ---------
Investing activities:
Advances to employees and officers (2,750) (903)
Payment of lease receivable ---- 39,488
Transfer restricted cash to/(from) cash (15,997) 9,550
Acquisition of fixed assets (78,291) (2,206,948)
--------- ----------
Net cash (used in) investing activities (97,038) (2,158,813)
--------- ----------
Financing activities:
Repayments of long term debt (154,370) (224,706)
Advances from line of credit 122,500 ----
Purchase of treasury stock ---- (48,521)
-------- ----------
Net cash (used in) financing activities (31,870) (273,227)
-------- ----------
Net (decrease) in cash (56,018) (1,516,660)
Cash and cash equivalents at beginning of period 131,517 2,267,813
------- ----------
Cash and cash equivalents at end of period $75,499 $751,153
======= ==========
Supplemental cash flow information:
Interest paid $104,796 $116,628
Income taxes paid $143,629 $292,184
</TABLE>
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<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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, 1998.
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-month
period ending September 30, 1998 and 1997. Stock options and warrants
did not impact earnings per share each quarter as they were
anti-dilutive.
3. 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 effect on
the Company's financial position, results of operations or cash flows.
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<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 note thereto.
Results of Operations
Revenues for the quarter ended September 30, 1998 were $9,115,066, a
slight decrease compared to revenues of $9,128,381 in the corresponding quarter
last year. Revenues generated by the Collegeville Inn were approximately
$264,000.
Direct cost of operations for the quarter was $7,573,290, compared to
$7,375,458 for similar expenses in the same period last year, an increase of
$197,832 or 2.7%. This increase in direct costs is due to cost of living
adjustments and higher food costs.
Gross Profit for the quarter was $1,541,776, compared to $1,752,923, a
decrease of $211,147 or 2.3%. This decrease is due to revenues increasing at a
lesser percentage than direct expenses.
General and administrative expenses for the quarter were 17.3% of
revenue, compared to 17.1% of revenue for the same quarter last year, an
increase of $21,219. The increase is the result of an increase in overhead
associated with the new business start-up.
Interest expense for the three-month period totaled $104,796 compared
to $68,898 for the same period last year. The increase in interest expense is
attributable to the increased debt, including $3,560,548 of Industrial
Development bonds issued in December 1996, used to finance construction of the
Collegeville Inn and additional short-term borrowings for working capital
purposes.
Net loss after taxes for the quarter ended September 30, 1998 was
($149,783) compared to $85,272 for the corresponding quarter last year. Loss per
share for the current quarter was ($0.05) compared to earnings per share of
$0.03 for the same quarter last year. The decrease in current quarter net income
and earnings per share are the result of the increased costs associated with the
start up of the Collegeville Inn. Excluding Collegeville Inn, net income would
have increased approximately $209,800 for an earnings per share of $0.08
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<PAGE>
Liquidity and Capital Resources
At September 30, 1998 the Company had working capital of ($53,327).
Operating Activities. Cash provided by operations for the three months
ended September 30, 1998 was $72,890 compared to $915,380 provided by operations
for the three months ended September 30, 1997. A decrease in accounts payable of
$265,201 and an increase in inventory of $118,648 were primarily responsible for
the current quarter's activity.
Investing Activities. Investing activities consumed $97,038 in cash in
the current quarter compared to $2,158,813 in cash consumed in the same period
last year. Prior year investing activities included $2,189,427 in purchases of
property and equipment at the Collegeville Inn & Conference Center.
Financing Activities. Current quarter financing activities consumed
$31,870 in cash compared to $273,227 consumed in the same quarter last year.
Repayment of long term debt consumed approximately $154,370 in cash during the
current quarter. The Company also received working capital line of credit
advances of $122,500 during the current quarter.
Capital Resources. The Company has certain credit facilities with its
bank including a line of credit and three term loans. The Company issued two
series of Industrial Development Bonds totaling $3,560,548 in December 1996. As
of September 30, 1998, the Company has approximately $1,500,000 available on its
line of credit. 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.
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 is cash
from operations, existing balances, and available credit facilities are adequate
for the foreseeable future to satisfy the needs of its operations and to fund
continued growth.
Year 2000 Compliance
The Company is aware of the issues related to the Year 2000 that are associated
with the programming code in existing computer systems. The "Year 2000 problem"
may affect every computer operation to varying degrees. Systems that do not
properly recognize the Year 2000 could generate erroneous data or cause a system
to fail. Management is in the process of working with technical support staff
and software vendors to affirm that the Company is prepared for the Year 2000.
Management does not
- 8 -
<PAGE>
anticipate that the Company will incur significant operating expenses or be
required to invest heavily in computer systems improvements to be Year 2000
compliant. However, significant uncertainty exists concerning the potential
costs and effects associated with any Year 2000 compliance. Any Year 2000
compliance problem of either the Company or its customers could materially
adversely affect the Company's business, operating results, financial condition
and prospects.
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.
- 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 Exhibit 27
(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
-------------------------------
Joseph V. Roberts
Chairman and Chief Executive Officer
Date: November 16, 1998
- 11 -
<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 SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 75
<SECURITIES> 0
<RECEIVABLES> 6,238
<ALLOWANCES> 783
<INVENTORY> 455
<CURRENT-ASSETS> 6,582
<PP&E> 12,307
<DEPRECIATION> 1,982
<TOTAL-ASSETS> 19,036
<CURRENT-LIABILITIES> 6,635
<BONDS> 3,401
0
0
<COMMON> 3,276
<OTHER-SE> 3,450
<TOTAL-LIABILITY-AND-EQUITY> 19,036
<SALES> 9,115
<TOTAL-REVENUES> 36,628
<CGS> 29,527
<TOTAL-COSTS> 36,118
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 132
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> (130)
<INCOME-TAX> 20
<INCOME-CONTINUING> (150)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (150)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
