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, 1999
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 (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
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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 / /.
2,727,734 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 May 17, 1999.
<PAGE>
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION PAGE NO.
Consolidated Balance Sheets of
March 31, 1999 (unaudited) and June 30, 1998 2 - 3
Consolidated Statements of Operations for the Three and
Nine Months Ended March 31, 1999 (unaudited) and
1998 (unaudited) 4
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1999 (unaudited)
and 1998 (unaudited) 5
Notes to Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 -10
Part II. Other Information 11
Signatures 12
- 1 -
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
---- ----
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 28,991 $ 131,517
Accounts receivable, net of allowance for doubtful
accounts of $967,940 and $702,406, respectively. 8,394,968 5,665,739
Unbilled revenue 150,435 201,950
Deferred income taxes 469,797 469,797
Inventory 393,239 336,380
Prepaid expenses 114,874 --
---------- ----------
Total current assets 9,552,304 6,805,383
---------- ----------
Property and equipment, net 10,131,390 10,386,775
---------- ----------
Other assets:
Restricted cash 11,299 906,838
Advances to officers 312,871 289,623
Investment in contracts, net of accumulated amortization of
$1,696,784 and $1,630,859, respectively. 24,705 90,630
Deferred income taxes 453,209 453,209
Bond issue costs 257,336 268,260
Deferred costs and other assets 17,837 10,122
---------- ----------
Total other assets 1,077,257 2,018,682
----------- -----------
Total assets $20,760,951 $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>
March 31, June 30,
1999 1998
---- ----
(unaudited)
Current liabilities:
<S> <C> <C>
Accounts payable $6,084,268 $ 4,984,804
Accrued expenses 411,871 601,526
Accrued payroll and related expenses 553,613 440,356
Current portion of long-term debt 110,000 407,311
Other 248,876 157,632
---------- -----------
Total current liabilities 7,408,628 6,591,629
---------- -----------
Long-term debt, net of current portion 6,487,053 5,616,552
Other 75,489 126,564
---------- -----------
Total long-term liabilities 6,562,542 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, 2,727,734 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 3,528,718 3,600,032
---------- ----------
7,330,692 7,402,006
Less: treasury stock (Class A common: 272,266 and 257,266
shares, respectively) - at cost (540,911) (525,911)
Total stockholders' equity 6,789,781 6,876,095
----------- -----------
Total liabilities and stockholders' equity $20,760,951 $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 Nine months ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Food service revenue $9,711,904 $8,850,579 $28,823,513 $27,400,357
Cost of operations
Payroll and related expenses 3,851,386 3,844,528 11,511,377 11,765,621
Other costs of operations 4,185,211 3,273,373 12,244,729 10,444,765
---------- ---------- ----------- -----------
Cost of operations 8,036,597 7,117,901 23,756,106 22,210,386
---------- ---------- ----------- -----------
Gross profit 1,675,307 1,732,678 5,067,407 5,189,971
---------- ----------- ----------- -----------
Expenses
General and administrative 1,338,737 1,534,235 4,082,993 3,996,916
Depreciation and amortization 152,629 317,495 500,376 703,726
Provision for doubtful accounts 140,000 (65,000) 265,534 235,041
---------- ----------- ----------- ---------
Expenses 1,631,366 1,786,730 4,848,903 4,935,683
---------- ---------- ----------- ---------
Income from operations 43,941 (54,052) 218,504 254,288
---------- ---------- ----------- ---------
Other income
Other income 28,241 98,363 35,695 111,844
Interest income 45,868 31,984 71,738 111,980
Interest (expense) (109,508) (124,635) (347,251) (294,904)
---------- ---------- ----------- ---------
Other expense - net (35,399) 5,712 (239,818) (71,080)
---------- ---------- ----------- ---------
Income (loss) before income taxes 8,542 (48,340) (21,314) 183,208
Provision for income taxes -- (84,303) 50,000 43,202
---------- --------- ----------- ---------
Net income (loss) $ 8,542 $ 35,963 $ (71,314) $ 140,006
========== ========= =========== =========
Basic and diluted earnings
(loss) per common share $ .00 $ .01 ($0.03) $ 0.05
========== ========= =========== =========
Weighted average share outstanding 2,727,734 2,847,892 2,734,799 2,847,892
========== ========= =========== =========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 1998
---- ----
Operating activities:
<S> <C> <C>
Net income/(loss) ($ 71,314) $ 140,006
Adjustment to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 500,376 703,726
Provision for doubtful accounts 265,534 207,338
Amortization of deferred gain 65,925 --
Amortization of bond costs 10,924 --
Amortization of unearned interest income -- (28,882)
Changes in assets and liabilities:
Accounts receivable (2,994,763) 415,743
Notes receivable -- 231,006
Prepaid expenses (114,874) (271,756)
Deferred income taxes -- (288,993)
Unbilled revenue 51,515 --
Accrued income receivable -- (41,676)
Deferred costs -- 414,313
Inventory and other (56,859) (74,520)
Accounts payable 1,099,464 (259,109)
Accrued legal and expenses (189,655) (84,830)
Accrued payroll and taxes 113,257 --
Accrued income taxes (5,092) (113,479)
Other 45,261 50,208
----------- -----------
Net cash provided by (used in) operating activities (1,280,301) 999,095
----------- -----------
Investing activities:
Deferred costs
Advances to employees and officers (7,715) --
Payment of lease receivable (23,248) 7,309
Transfer restricted cash (to)/from cash -- 157,952
Acquisition of fixed assets 895,539 --
Net cash (used in) investing activities (244,991) (2,871,154)
----------- -----------
619,585 (2,705,893)
----------- -----------
Financing activities:
Repayments of long term debt
Advances from line of credit (199,310) (818,254)
Purchase of treasury stock 772,500 --
Other (15,000) --
Net cash (used in) financing activities -- (193,401)
----------- -----------
Net (decrease) in cash 558,190 (1,011,655)
----------- -----------
Cash and cash equivalents at beginning of period (102,526) (2,718,453)
131,517 2,267,813
----------- -----------
Cash and cash equivalents at end of period
$ 28,991 ($ 450,640)
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid
Income taxes paid $ 347,251 $ 386,296
$ 143,629 $ 459,753
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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, 1999.
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 and
nine-month periods ending March 31, 1999 and 1998. Stock options and
warrants did not impact earnings per share each period 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.
During 1998, the Company adopted 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.
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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 March 31, 1999 were $9,711,904, an
increase of $861,325 or 9.7% compared to revenues of $8,850,579 in the
corresponding quarter last year. Revenues for the nine month period ended March
31, 1999 were $28,823,513 an increase of $1,423,156 and 5.2% compared to the
corresponding period in 1998. The increases are a result of new contracts and
revenues from the Company's Collegeville Inn Training & Conference Center, which
opened on September 14, 1997.
Cost of operations provided for the current quarter was $8,036,597,
compared to $7,117,901 for similar expenses in the same period last year, an
increase of $918,696 or 12.9%. For the nine month period ended March 31, 1999,
cost of operations provided were $23,756,106, compared to $22,210,386 for the
same period last year, an increase of $1,545,720 or 7.0% compared to the
corresponding period in 1998. These increases in costs of services provided are
due to increased revenues during the same period.
Gross Profit for the quarter was $1,675,307, compared to $1,732,678, a
decrease of $57,371 or 3.3%. As a percentage of revenue, gross profit decreased
from 19.7% in 1998 to 17.2% in 1999. This increase is due to costs increasing at
a greater percentage than revenue. For the nine-month period ended March 31,
1999, gross profit was $5,067,407 versus $5,189,971 a decrease of $122,564.
General and administrative expenses for the quarter were 16.8% of
revenue, compared to 20.1% of revenue for the same quarter last year, a decrease
of $155,364. The decrease is the result of decreases in professional services.
Interest expense for the three-month period totaled $109,508 compared
to $124,635 for the same period last year. For the nine-month period ended March
31, 1999, interest expense was $347,251 versus $294,904 in the corresponding
period in 1998. The decreases in quarterly interest expense is attributable to
reaching maturity dates for certain notes payable.
Net income after taxes for the quarter ended March 31, 1999 was $8,542
compared to $35,963 for the corresponding quarter last year. Earnings per share
for the current quarter was $0.00 compared to earnings per share of $0.01 for
the same quarter last year.
- 7 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999 the Company had working capital of $2,143,676.
OPERATING ACTIVITIES. Cash used in operations for the nine months ended
March 31, 1999 was $1,280,301 compared to $999,095 provided by operations for
the nine months ended March 31, 1998. An increase in accounts receivable of
$2,994,763 and an increase in accounts payable of $1,099,464 were primarily
responsible for the current quarter's activity.
INVESTING ACTIVITIES. Investing activities provided $619,585 in cash in
the current quarter compared to $2,705,893 in cash consumed in the same period
last year. During the quarter $895,539 in restricted cash related to
reimbursement for equipment purchased under the terms of an Industrial
Development Bond was transferred to the Company's operating accounts. 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 provided
$558,190 in cash compared to $1,011,655 consumed in the same period last year.
Repayment of long term debt consumed approximately $199,310 in cash during the
current period. The Company also received working capital line of credit
advances of $772,500 during the current period.
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 March 31, 1999, the Company has approximately $700,000 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 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 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
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<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
The Nasdaq Stock Market has notified the Company that the Company is in
violation of its requirement of maintaining as a minimum of $1,000,000 of the
market value of the public float. The Company had been advised that as a result
of this failure, its Common Stock could be delisted from the Nasdaq Stock
Market. In addition, the Nasdaq Stock Market has notified the Company that it is
in violation of a requirement that a listing company must maintain a closing bid
price greater than or equal to $1.00. The Company has been provided ninety (90)
calendar days in which to regain compliance with the minimum bid requirement and
maintain its listing of common stock (NMSCA) on The Nasdaq SmallCap Market. On
April 29, 1999, the Company attended a hearing with Nasdaq to stay the
delisting. No decision has been rendered at the time of this filing.
If the Common Stock is delisted from the Nasdaq Stock Market, trading, if any,
therein would be conducted on the OTC Bulletin Board and the Common Stock would
be considered a penny stock. SEC regulations generally define a penny stock to
be an equity security that is not listed on The Nasdaq Stock Market 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 Exchange
Commission would require broker-dealers to deliver to a purchaser of 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 of 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. If the Common Stock is traded on the
OTC Bulletin Board and becomes subject to the regulations applicable to penny
stocks, investors may find it more difficult to obtain timely and accurate
quotes and execute trades in the Common Stock.
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
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<PAGE>
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.
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<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
- 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
Date: March 17, 1999
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<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 29
<SECURITIES> 0
<RECEIVABLES> 9,363
<ALLOWANCES> 968
<INVENTORY> 393
<CURRENT-ASSETS> 9,552
<PP&E> 12,084
<DEPRECIATION> 1,953
<TOTAL-ASSETS> 20,761
<CURRENT-LIABILITIES> 7,409
<BONDS> 3,295
0
0
<COMMON> 3,261
<OTHER-SE> 3,529
<TOTAL-LIABILITY-AND-EQUITY> 20,761
<SALES> 9,712
<TOTAL-REVENUES> 9,758
<CGS> 8,037
<TOTAL-COSTS> 9,688
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 140
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> 9
<INCOME-TAX> 0
<INCOME-CONTINUING> 9
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
