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, 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 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
----------------
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 / /.
2,746,171 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 14, 1998.
<PAGE>
TABLE OF CONTENTS
Part I. Financial Information Page No.
--------
Consolidated Balance Sheets of
March 31, 1998 (unaudited) and June 30, 1997 2-3
Consolidated Statements of Operations for the Three and
Nine Months Ended March 31, 1998 (unaudited) and
1997 (unaudited) 4
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1998 (unaudited)
and 1997 (unaudited) 5
Notes to Financial Statements 6
Management Discussion and Analysis of Financial Condition
and Results of Operations 7-8
Part II. Other Information 9
Signatures 10
- 1 -
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
---- ----
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ (450,640) $ 2,267,813
Restricted Cash 911,007 --
Accounts receivable, net of allowance for doubtful
accounts of $657,373 and $531,428, respectively. 5,328,306 5,900,572
Unbilled revenue 285,783 244,107
Notes and leases receivable -- 202,124
Advances to employees 273,717 281,026
Deferred income taxes 867,999 599,000
Inventory and Other 303,113 409,068
------------ ------------
Total current assets 7,519,285 9,903,710
------------ ------------
Property and equipment, net of accumulated depreciation of
$1,421,428 and $969,175, respectively. 10,562,031 8,143,131
Other assets:
Restricted Cash -- 1,096,076
Long-term accounts receivable, net of allowance for doubtful
accounts of $0 and $57,509 , respectively -- 50,815
Investment in contracts, net of accumulated amortization of
$1,545,034 and $1,278,561, respectively. 176,455 427,928
Deferred income taxes 252,994 233,000
Lease receivable -- 157,952
Deferred costs and other assets 406,864 368,945
------------ ------------
Total assets $ 18,917,629 $ 20,381,557
============ ============
</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>
March 31, June 30,
1998 1997
---- ----
(unaudited)
Current liabilities:
<S> <C> <C>
Accounts payable $4,063,553 $4,322,662
Accrued expenses 855,281 757,286
Accrued payroll and related expenses 171,392 460,898
Accrued professional fees 279,552 392,012
Current portion of long-term debt 125,000 744,504
Accrued income taxes 119,042 232,521
Other 277,733 193,453
--------- ---------
Total current liabilities 5,891,553 7,103,336
--------- ---------
Long-term debt, net of current portion 5,885,101 6,083,851
Other 127,402 222,217
Total long-term liabilities --------- ---------
6,012,503 6,306,068
Commitments and Contingencies --------- ---------
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, 2,746,171 and 2,797,665 outstanding, respectively. 3,801,926 3,801,926
Class B - no par, 100,000 shares authorized, issued and outstanding. 48 48
Retained earnings 3,731,216 3,591,210
------------ ----------
7,533,190 7,393,184
Less: treasury stock (Class A common: 253,829 and 202,335
shares, respectively) - at cost (519,617) (421,031)
------------ ----------
Total stockholders' equity 7,013,573 6,972,153
------------ -----------
Total liabilities and stockholders' equity $18,917,629 $20,381,557
============ ===========
</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 Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $8,850,579 $8,947,786 $27,400,357 $25,928,468
Operating costs and expenses
Cost of services provided 7,117,901 7,168,056 22,210,386 20,979,111
General and administrative 1,786,730 1,490,500 4,935,683 4,096,489
------------ ---------- ----------- -----------
Income from operations (54,052) 289,230 254,288 852,868
Other income
Other income 130,347 70,731 223,824 210,912
Interest expense (124,635) (57,833) (294,904) (204,543)
--------------- ---------- --------- ---------
Income before income taxes (48,340) 302,128 183,208 859,237
Provision for income taxes (84,303) 131,554 43,202 389,745
--------------- ---------- --------- ---------
Net income $ 35,963 $ 170,574 $ 140,006 $ 469,492
=============== ========== ========= ==========
Basic & Diluted Earnings per common
share $ 0.01 $ 0.06 $ 0.05 $ 0.16
=============== ========== ========= ==========
Weighted average share outstanding 2,847,892 2,934,377 2,847,892 2,941,525
=============== ========== ========= ==========
</TABLE>
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<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
1998 1997
---- ----
Operating activities:
<S> <C> <C>
Net Income $ 140,006 $ 469,492
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 703,726 481,673
Deferred income taxes (288,993) (157,000)
Provision for doubtful accounts 207,338 90,000
Amortization of unearned interest income (28,882) (20,833)
Changes in assets and liabilities:
Accounts receivable 415,743 (44,649)
Notes receivable 231,006 665,649
Prepaid expenses (271,756) (317,582)
Inventory (74,520) 51,763
Accrued Income Receivable (41,676) (67,020)
Deferred Costs 414,313 167,423
Accrued Expenses (84,830) 215,208
Accounts payable (259,109) (779,621)
Accrued/Prepaid income taxes (113,479) 124,522
Other 50,208 119,312
----------- -----------
Total adjustments 859,089 528,845
----------- -----------
Net cash provided by operating activities 999,095 998,337
----------- -----------
Investing activities:
Advances to employees and officers 7,309 (4,240)
Payment of lease receivable 157,952 113,275
Purchase of property and equipment (2,871,154) (2,149,305)
----------- -----------
Net cash provided by investing activities (2,705,893) (2,040,270)
----------- -----------
Financing activities:
Proceeds of long-term debt -- 2,551,956
Repayments of long term debt (818,254) (672,501)
Other (193,401) (79,424)
----------- -----------
Net cash (used in) financing activities (1,011,655) 1,800,031
----------- -----------
Net (decrease) in cash (2,718,453) 758,098
Cash and cash equivalents at beginning of period 2,267,813 3,026,607
----------- -----------
Cash and cash equivalents at end of period $ (450,640) $ 3,784,705
=========== ===========
Supplemental cash flow information:
Interest paid $ 386,296 $ 164,986
Income taxes paid $ 459,753 $ 423,471
</TABLE>
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<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 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, 1998.
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, 1998 and 1997. Stock options and
warrants did not impact earnings per share each quarter as they were
anti-dilutive.
The Company adopted Financial Accounting Standards Board ["FASB"]
Statement of Financial Accounting Standards ["SFAS"] No. 128, "Earnings
per Share", which was issued in February, 1997. SFAS No. 128 simplifies
the Earnings per Share ["EPS"] calculations required by Accounting
Principles Board ["APB"] opinion No. 15, and related interpretations,
by replacing the presentation of primary EPS with a presentation of
basic EPS. SFAS No. 128 requires Dual presentation of Basic and Diluted
EPS by entities with complex capital structures.
Basic EPS includes no dilution and is computed by dividing Income
Available to Common Stockholders by the Weighted-Average Number of
Common Shares Outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of an
entity, similar to the fully diluted EPS of APB Opinion No. 15. SFAS
No. 128 is effective for Financial Statements issued for periods ending
after December 15, 1997, including interim periods. When adopted, SFAS
No. 128 will require restatement of all prior-period EPS data presented
and accordingly, the Company Calculated Earnings Per Share in
accordance with FASB 128 and all prior-period EPS data was restated.
There was no material effect on the Company as a result of the
restatement of prior periods.
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.
- 6 -
<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, 1998 were $8,850,579, a
decrease of $97,207 or 1.1% compared to revenues of $8,947,786 in the
corresponding quarter last year. Revenues for the nine month period ended March
31, 1998 were $27,400,357 an increase of $1,471,889 or 5.7% compared to the
corresponding period in 1997. These changes were the result of normal additions
and terminations of customer accounts, and revenues from the Company's
Collegeville Inn Conference and Training Center, which opened on September 14,
1997.
Gross Profit for the current quarter amounted to $1,732,678 (19.6% of
revenues) for a decrease of $47,052 or 2.7%, compared to the third quarter last
year. For the nine month period ended March 31,1998, Gross Profit totaled
$5,189,971 (18.9% of revenues), compared to $4,949,357 (19.1% of revenues) for
the same period last year.
General and administrative expenses for the current quarter were 20.2%
of revenues, compared to 16.7% of revenues for the same quarter last year, an
increase of $296,230 or 19.9%. For the nine month period , general and
administrative expenses were 18.0% of revenues, compared to 15.8% for the same
period last year. These increases are the result of costs associated with the
Collegeville Inn Conference and Training Center during its initial months of
operation.
Other income (expense) for the three month period totaled $5,712
compared to $12,898 for the same period last year. For the nine months ended
March 31,1998, other income (expense) was ($71,080) compared to $6,369 for the
corresponding 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
Conference and Training Center.
Net income after taxes for the quarter ended March 31, 1998 was $35,963
compared to net income of $170,574 for the corresponding quarter last year, a
decrease of 78.9%. Earnings per share for the current quarter were $0.01
compared to $0.06 for the same quarter last year. For the nine month period
ended March 31,1998, net income was $140,006 as compared to $469,492 for the
corresponding period last year, a decrease of 70.2%. Earnings per share for the
nine month period were $.05 as compared to $.16 for the corresponding period
last year. Excluding the operating results for the Collegeville Inn Conference
and Training Center during its initial months of operation, net income would
have increased $ 378,712 over the same quarter last year, for an increase of
$0.13 per share. For the nine month period, net income would have increased
$610,180, for an increase $0.21 per share.
- 7 -
<PAGE>
Liquidity and Capital Resources
At March 31, 1998 the Company had working capital of $1,627,732. As of
June 30, 1997 the Company had working capital of $2,803,074. The decrease in
working capital between June 30, 1997 and March 31, 1998 is principally
attributable to expenses associated with the Company's contract with Service
America Corporation and capital expenditures relating to the development of the
Collegeville Inn Conference and Training Center. The Company believes that it
will not have to make any additional material commitments for capital
expenditures in the future for the Collegeville Inn Conference and Training
Center and its contact with Service America Corporation.
Operating Activities. Cash provided by operations for the nine months
ended March 31, 1998 was $999,095 compared to $998,337 provided by operations
for the nine months ended March 31, 1997. Decreases in accounts receivable of
$415,753 and accounts payable of $259,109, were primarily responsible for the
difference between the periods being compared.
Investing Activities. Investing activities utilized $2,705,893 in cash
during the nine month period compared to $2,040,270 in cash utilized in the same
period last year. Current fiscal year investing activities included $2,442,843
in purchases of property and equipment at the Collegeville Inn Conference and
Training Center.
Financing Activities. The nine month period financing activities
utilized $1,011,655 in cash compared to $1,800,031 in the same period last year.
The primary financing activities were repayment of long term debt, which
utilized $818,254 in cash, and purchases of treasury stock, which utilized
$98,586 in cash.
Capital Resources. The Company has certain credit facilities with its
bank, including a line of credit and one term loan. The Company issued two
series of Industrial Development Bonds totaling $3,560,548 in December 1996. As
of March 31, 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, 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 and
believes that its cash from operations, existing balances, and available credit
line are adequate for the near term to satisfy the needs of its operations and
to fund continued growth. However, if the need arose, the Company would seek to
obtain capital from such sources as continuing debt financing or equity
financing.
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, 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.
- 8 -
<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
- 9 -
<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
/s/ Ralph M. Van
------------------------------
Ralph M. Van
Controller
Date: May 14, 1998
- 10 -
<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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> (450,640)
<SECURITIES> 0
<RECEIVABLES> 5,985,679
<ALLOWANCES> (657,373)
<INVENTORY> 230,060
<CURRENT-ASSETS> 7,519,285
<PP&E> 11,983,460
<DEPRECIATION> (1,421,428)
<TOTAL-ASSETS> 18,917,629
<CURRENT-LIABILITIES> 5,891,553
<BONDS> 0
0
0
<COMMON> 3,801,926
<OTHER-SE> 3,731,216
<TOTAL-LIABILITY-AND-EQUITY> 18,917,629
<SALES> 27,400,357
<TOTAL-REVENUES> 27,400,357
<CGS> 22,210,386
<TOTAL-COSTS> 27,146,069
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 294,904
<INCOME-PRETAX> 183,208
<INCOME-TAX> 43,202
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,006
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
