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, 1999
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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
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Nutrition Management Services Company
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(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 Identification No.)
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
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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 November 12, 1999.
<PAGE>
TABLE OF CONTENTS
Part I. Financial Information Page No.
--------------------- --------
Consolidated Balance Sheets of
September 30, 1999 (unaudited) and June 30, 1999 2 - 3
Consolidated Statements of Operations for the Three Months
Ended September 30, 1999 (unaudited) and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1999 (unaudited)
and 1998 (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
- 1 -
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
----------- --------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,062,847 $ 43,282
Accounts receivable, net of allowance for doubtful
accounts of $ 759,523 and $637,900, respectively 6,890,241 8,214,229
Unbilled revenue 578,812 435,663
Deferred income taxes 492,666 492,666
Inventory and other 836,563 785,943
---------- -----------
Total current assets 9,861,129 9,971,783
---------- -----------
Property and equipment, net 9,888,388 9,912,797
---------- -----------
Construction in Progress 12,810 12,810
---------- -----------
Other assets:
Advances to officers 308,785 346,871
Investment in contracts, net of accumulated
amortization of
$1,721,489 and $1,709,136, respectively --- 12,353
Deferred income taxes 404,315 404,315
Bond issue costs 250,053 253,694
Deferred costs and other assets 25,060 29,772
------------ -----------
Total other assets 988,213 1,047,005
------------ -----------
$ 20,944,395 $20,750,540
============ ===========
</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,
1999 1999
------------- -----------
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 5,483,099 $ 5,476,019
Accrued expenses 464,473 414,205
Accrued payroll and related expenses 471,177 458,370
Accrued professional 125,798 155,937
Accrued income taxes 26,173 13,992
Current portion of long-term debt 110,000 110,000
Other 322,860 338,878
------------ ------------
Total current liabilities 7,003,580 6,967,401
------------ ------------
Long-Term liabilities:
Long-term debt, net of current portion 7,185,000 7,185,000
Other 46,186 52,778
------------ ------------
Total long-term liabilities 7,231,186 7,237,778
------------ ------------
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 2,747,000 and 2,747,000
outstanding, respectively 3,801,926 3,801,926
Class B - no par, 100,000 shares authorized,
issued and outstanding 48 48
Retained earnings 3,213,363 3,436,805
------------ ------------
7,015,337 7,238,779
Less: treasury stock (Class A common:
253,000 and 253,000 shares,
respectively) - at cost (499,563) ( 499,563)
------------ ------------
Total stockholders' equity 6,515,774 6,739,216
------------ ------------
$ 20,750,540 $ 20,944,395
============ ============
</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,
1999 1998
---- ----
<S> <C> <C>
Food Service Revenue $9,782,518 $9,115,066
Cost of operations
Payroll and related expenses 4,024,940 3,921,992
Other costs of operations 4,002,323 3,651,298
----------- -------------
Cost of operations 8,027,263 7,573,290
----------- -------------
Gross profit 1,755,255 1,541,776
----------- -------------
Expenses
General and administrative expenses 1,586,681 1,325,583
Depreciation and amortization 205,263 174,404
Provision for doubtful accounts 80,000 80,981
----------- -------------
Expenses 1,871,944 1,580,968
----------- -------------
Loss from operations (116,689) (39,192)
----------- -------------
Other income (expense)
Other 22,764 1,323
Interest income 18,913 12,882
Interest expense (138,430) (104,796)
----------- -------------
Other income (expense) - net (96,753) (90,591)
----------- -------------
Loss before income taxes (213,442) (129,783)
Provision for income taxes 10,000 20,000
----------- -------------
Net loss ($223,442) ($149,783)
=========== =============
Net loss per share - basic and diluted ($0.08) ($0.05)
=========== =============
Weighted average number of shares 2,747,000 2,742,734
=========== =============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
- 4 -
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
Operating activities:
Net loss ($223,442) ($149,783)
Adjustments to reconcile net loss to
net cash provided by(used in)
operating activities:
Depreciation and amortization 205,263 174,404
Provision for bad debts 80,000 80,981
Amortization of deferred gain (6,592) (6,591)
Amortization of bond costs 3,641 3,641
Changes in assets and liabilities:
Accounts receivable 1,243,988 129,471
Deferred income taxes ---- (108,328)
Unbilled revenue (143,149) 61,370
Inventory and other (50,620) (118,648)
Accounts payable 7,080 (265,201)
Accrued expenses 50,268 191,577
Accrued payroll and related expenses 12,807 (14,687)
Accrued professional (30,139) -----
Accrued incomes taxes 12,181 ----
Other (16,018) 94,684
---------- -----------
Net cash provided by operating activities 1,145,268 72,890
---------- ----------
Investing activities:
Repayment (Advances) to officers 38,086 (2,750)
Transfer restricted cash to/(from) cash ----- (15,997)
Purchase of property and equipment (168,501) (78,291)
Deferred costs 4,712 ----
---------- -----------
Net cash (used in) investing activities (125,703) (97,038)
---------- -----------
Financing activities:
Repayments of long-term debt ---- (154,370)
Proceeds from line of credit ---- 122,500
---------- -----------
Net cash (used in) financing activities ---- (31,870)
---------- -----------
Net increase(decrease) in cash 1,019,565 (56,018)
---------- -----------
Cash and cash equivalents - beginning of period 43,282 13,517
Cash and cash equivalents - end of period $1,062,847 $75,499
========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $136,028 $104,796
Income taxes $3,300 $143,629
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
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<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
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, 2000. 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, 1999 and 1998. Stock options and warrants did not impact
earnings per share each period as they were anti-dilutive.
The Company follows the provisions of SFAS No. 128, Earnings Per Share,
which eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share in conjunction with
the disclosure of the methodology used in computing such earnings per
share. Basic earnings per share excludes dilution and is computed by
dividing income available to common shareholders by the weighted average
common shares outstanding during the period. Diluted earnings per share
takes into account the potential dilution that could occur if securities or
other contracts to issue common stock were exercised and converted into
common stock.
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 notes thereto.
Results of Operations
Revenues for the quarter ended September 30, 1999 were $9,782,518, an
increase of $667,452 or 7.3% compared to revenues of $9,115,066 in the
corresponding quarter last year. The increases are a result of new contracts,
growth within existing contracts, offset by contracts canceled during the
period.
Cost of operations provided for the current quarter was $8,027,263 or
82.1% of revenue, compared to $7,573,290 or 83.1% of revenue for similar
expenses in the same period last year, an increase of $453,973 or 6.0%. These
increases in costs of services provided are due to increased revenues during the
same period.
Gross Profit for the quarter was $1,755,255, compared to $1,541,776 for
the same quarter last year, an increase of $213,479 or 13.9%. As a percentage of
revenue, gross profit increased from 16.9% in 1998 to 17.9% in 1999. This
increase is due to revenues increasing at a greater percentage than direct
expenses.
General and administrative expenses for the quarter were 16.2% of
revenue, compared to 14.5% of revenue for the same quarter last year, an
increase of $261,098. The increase is the result of an increase in overhead
associated with new business start-up and additional costs incurred to support
the field operations.
Interest expense for the three-month period totaled $138,430 compared
to $104,796 for the same period last year. The increase in interest expense is
attributable to increased borrowings for working capital purposes.
Net loss after taxes for the quarter ended September 30, 1999 was
$223,442 compared to $149,783 for the corresponding quarter last year. Net loss
per share for the current quarter was $0.08 compared to net loss per share of
$0.05 for the same quarter last year. The increase in current quarter net loss
and earnings per share are primarily the result of the increase in general and
administrative expenses for the current quarter.
- 7 -
<PAGE>
Liquidity and Capital Resources
At September 30, 1999 the Company had working capital of $2,857,549.
Operating Activities. Cash provided by operations for the three months
ended September 30, 1999 was $1,145,268 compared to $72,890 provided by
operations for the three months ended September 30, 1998. A decrease in accounts
receivable of $1,243,988 due to increased cash collections was primarily
responsible for the current quarter's activity.
Investing Activities. Investing activities consumed $125,703 in cash in
the current quarter compared to $97,038 in cash consumed in the same period last
year. This use of cash is primarily associated with the purchase of property and
equipment.
Financing Activities. Current quarter financing activities consumed $ -
0 - in cash compared to $31,780 consumed in the same period last year. Repayment
of long term debt consumed approximately $154,370 in cash during the prior
period. The Company also received working capital line of credit advances of
$122,500 during the prior period.
Capital Resources. The Company has certain credit facilities with its
bank including a line of credit and two industrial revenue bond issues. The
Company obtained two series of Industrial Development Bonds totaling $3,560,548
in December 1996. 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
except those that were specifically waived by the bank.
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.
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.
NASDAQ Notification
On June 23, 1999, the NASDAQ Stock Market delisted the Company's Class A Common
Stock from the NASDAQ Small Cap market. This action was taken as a result of the
Company's failure to meet the market value of public float requirement in
Marketplace Rule 4310 (c) (07) and 4310 (c) (4).
Upon delisting, the securities of the Company immediately became eligible to
trade on the OTC Bulletin Board. Now that the Class A Common Stock is delisted
from NASDAQ, it is a penny stock. Securities and Exchange Commission regulations
generally define a penny stock to be an equity security that is not listed on
NASDAQ or a national securities exchange and that has a market price of less
than $5.00 per share, subject to certain exceptions. The regulations of the
Securities and Exchange Commission require broker-dealers to deliver to a
purchaser of the Company's Class A Common stock a disclosure schedule explaining
the penny stock market and the risks associated with it. Various sales practice
requirements are also imposed on broker-dealers who sell penny stocks to persons
other than established customers and accredited investors (generally
institutions). In addition, broker-dealers must provide the customer with
current bid and offer quotations for the penny stock, the compensation to the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account.
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 15, 1999
- 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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,063
<SECURITIES> 0
<RECEIVABLES> 6,890
<ALLOWANCES> 760
<INVENTORY> 837
<CURRENT-ASSETS> 9,861
<PP&E> 12,274
<DEPRECIATION> 2,386
<TOTAL-ASSETS> 20,751
<CURRENT-LIABILITIES> 7,004
<BONDS> 3,295
0
0
<COMMON> 3,302
<OTHER-SE> 3,213
<TOTAL-LIABILITY-AND-EQUITY> 20,751
<SALES> 9,783
<TOTAL-REVENUES> 9,824
<CGS> 8,027
<TOTAL-COSTS> 9,899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 80
<INTEREST-EXPENSE> 138
<INCOME-PRETAX> (213)
<INCOME-TAX> 10
<INCOME-CONTINUING> (223)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (223)
<EPS-BASIC> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
