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 December 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
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 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 February 16, 1999.
<PAGE>
TABLE OF CONTENTS
Part I. Financial Information Page No.
Consolidated Balance Sheets of
December 31, 1998 (unaudited) and June 30, 1998 2 - 3
Consolidated Statements of Operations for the Three and
Six Months Ended December 31, 1998 (unaudited) and
1997 (unaudited) 4
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1998 (unaudited)
and 1997 (unaudited) 5
Notes to Unaudited Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 9
Part II. Other Information 10
Signatures 11
- 1 -
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------ --------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,853 $ 131,517
Accounts receivable, net of allowance for doubtful
accounts of $843,387 and $702,406, respectively. 7,374,701 5,665,739
Unbilled revenue 48,333 201,950
Deferred income taxes 469,797 469,797
Inventory 439,169 336,380
Prepaid expenses 173,541 -----
--------- ----------
Total current assets 8,519,394 6,805,383
--------- ----------
Property and equipment, net 10,250,867 10,386,775
---------- ----------
Other assets:
Restricted cash 946,349 906,838
Advances to officers 333,265 289,623
Investment in contracts, net of accumulated amortization of
$1,691,137 and $1,630,859, respectively. 30,352 90,630
Deferred income taxes 453,209 453,209
Bond issue costs 260,977 268,260
Deferred costs and other assets 4,962 10,122
---------- ---------
Total other assets 2,029,114 2,018,682
--------- ---------
Total assets $20,799,375 $19,210,840
=========== ===========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
- 2 -
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
---- ----
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $5,972,143 $ 4,984,804
Accrued expenses 856,274 601,526
Accrued payroll and related expenses 510,019 440,356
Current portion of long-term debt 141,250 407,311
Other 195,439 157,632
--------- ----------
Total current liabilities 7,675,125 6,591,629
--------- ----------
Long-term debt, net of current portion 6,237,053 5,616,552
Other 105,958 126,564
--------- -----------
Total long-term liabilities 6,343,011 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 3,520,176 3,600,032
--------- ----------
7,322,150 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 6,781,239 6,876,095
---------- ----------
Total liabilities and stockholders' equity $20,799,375 $19,210,840
----------- -----------
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
- 3 -
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Food service revenue $9,996,543 $9,421,397 $19,111,609 $18,549,778
Cost of operations
Payroll and related expenses 3,756,574 4,131,532 7,659,991 7,921,093
Other costs of operations 4,389,645 3,585,495 8,059,518 7,171,392
--------- --------- ----------- -----------
Cost of operations 8,146,219 7,717,027 15,719,509 15,092,485
--------- --------- ---------- -----------
Gross profit 1,850,324 1,704,370 3,392,100 3,457,293
--------- --------- ---------- ----------
Expenses
General and administrative 1,399,793 1,242,203 2,749,790 2,575,519
Depreciation and amortization 176,776 286,276 347,747 425,551
Provision for doubtful accounts 60,000 60,726 120,000 147,884
--------- --------- --------- ---------
Expenses 1,636,569 1,589,205 3,217,537 3,148,954
--------- --------- --------- ---------
Income from operations 213,755 115,165 74,563 308,339
--------- --------- --------- ---------
Other income
Other income 6,130 10,024 7,454 13,433
Interest income 12,989 27,835 25,870 80,044
Interest (expense) (132,947) (101,371) (237,743) (170,269)
--------- -------- --------- --------
Other expense - net (113,828) (63,962) (204,419) (76,792)
--------- -------- --------- --------
Income (loss) before income taxes 99,927 51,203 (29,856) 231,547
Provision for income taxes 30,000 32,433 50,000 127,505
--------- -------- --------- --------
Net income (loss) $ 69,927 $ 18,770 ($79,856) $104,042
========= ======== ========= ========
Basic and diluted earnings
(loss) per common share $ .03 $ .01 ($0.03) $ 0.04
--------- -------- --------- ---------
Weighted average share outstanding 2,735,560 2,866,619 2,738,332 2,869,609
========== ========= ========= =========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
- 4 -
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1998 1997
---- ----
Operating activities:
<S> <C> <C>
Net income/ (loss) ($ 79,856) $104,042
Adjustment to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 347,747 425,551
Provision for doubtful accounts 120,000 147,884
Amortization of deferred gain (60,278) -----
Amortization of bond costs 7,283 -----
Amortization of unearned interest income --- (16,714)
Changes in assets and liabilities:
Accounts receivable (1,708,962) 328,859
Notes receivable --- 4,546
Prepaid expenses (173,541) (71,934)
Deferred income taxes --- (62,663)
Unbilled revenue 153,617 -----
Accrued income receivable ----- (11,660)
Deferred costs ----- 84,259
Inventory and other (102,789) (51,636)
Accounts payable 987,339 483,864
Accrued legal and expenses 254,748 35,258
Accrued payroll and taxes 69,663 -----
Accrued income taxes (5,092) (112,503)
Other 22,849 (25,894)
------ -----
Net cash provided by (used in) operating activities (167,272) 1,261,259
--------- -------
Investing activities:
Deferred costs 5,160 ----
Advances to employees and officers (43,642) (18,752)
Payment of lease receivable ---- 78,976
Transfer restricted cash to/(from) cash (39,511) -----
Acquisition of fixed assets (211,839) (2,603,682)
-------- ---------
Net cash (used in) investing activities (289,832) (2,543,458)
-------- ---------
Financing activities:
Repayments of long term debt (168,060) (548,332)
Advances from line of credit 522,500 -------
Purchase of treasury stock (15,000) -------
Other ------- (165,372)
------- ------------
Net cash (used in) financing activities 339,440 (713,704)
------- ------------
Net (decrease) in cash (117,664) (1,995,903)
Cash and cash equivalents at beginning of period 131,517 2,267,813
------- ------------
Cash and cash equivalents at end of period $13,853 $271,910
======= ===========
Supplemental cash flow information:
Interest paid $237,743 $170,089
Income taxes paid $143,629 $41,067
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
- 5 -
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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 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 six-month periods ending December
31, 1998 and 1997. 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.
- 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 note thereto.
Results of Operations
Revenues for the quarter ended December 31, 1998 were $9,996,543, an
increase of $575,146 or 6.1% compared to revenues of $9,421,397 in the
corresponding quarter last year. Revenues for the six month period ended
December 31, 1998 were $19,111,609 an increase of $561,831 and 3% compared to
the corresponding period in 1997. The increases are a result of new contracts
and revenues from the Company's Collegeville Inn & Conference Center, which
opened on September 14, 1997.
Cost of operations provided for the current quarter was $8,146,219,
compared to $7,717,027 for similar expenses in the same period last year, an
increase of $429,192 or 5.6%. For the six month period ended December 31, 1998,
cost of operations provided were $15,719,509, compared to $15,092,485 for the
same period last year, an increase of $627,024 or 4.2% compares to the
corresponding period in 1997. These increases in costs of services provided are
due to increased revenues during the same period.
Gross Profit for the quarter was $1,850,324, compared to $1,704,370, an
increase of $145,954 or 8.6%. As a percentage of revenue, gross profit increased
from 18.1% in 1997 to 18.5% in 1998. This increase is due to revenues increasing
at a greater percentage than direct expenses. For the six-month period ended
December 31, 1998, gross profit was $3,392,100 versus $3,457,293 a decrease of
$65,193.
General and administrative expenses for the quarter were 16.4% of
revenue, compared to 16.9% of revenue for the same quarter last year, an
increase of $47,364. 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 $132,947 compared
to $101,371 for the same period last year. For the six-month period ended
December 31, 1998, interest expense was $237,743 versus $170,269 in the
corresponding period in 1997. The increases in interest expense are attributable
to increased short-term borrowings for working capital purposes.
Net income after taxes for the quarter ended December 31, 1998 was
$69,927 compared to $18,770 for the corresponding quarter last year. Earnings
per share for the current quarter was $0.03 compared to earnings per share of
$0.01 for the same quarter last year. The increase in current quarter net income
and earnings per share are the result of the improved income from operations in
the Company's core business and reduced losses at the Collegeville Inn.
- 7 -
<PAGE>
Liquidity and Capital Resources
At December 31, 1998 the Company had working capital of $884,269.
Operating Activities. Cash used in operations for the six months ended
December 31, 1998 was $167,272 compared to $1,261,259 provided by operations for
the six months ended December 31, 1997. A increase in accounts receivable of
$1,708,962 and an increase in accounts payable of $987,339 were primarily
responsible for the current quarter's activity.
Investing Activities. Investing activities consumed $289,832 in cash in
the current quarter compared to $2,543,458 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
$117,664 in cash compared to $713,704 consumed in the same period last year.
Repayment of long term debt consumed approximately $168,060 in cash during the
current period. The Company also received working capital line of credit
advances of $522,500 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 December 31, 1998, the Company has approximately $950,000 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
- 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
The Nasdaq Stock Market has notified the Company that the Company is in
violation of its requirement of maintaining a minimum of $1,000,000 of the
market value of the public float. The Company has been advised that as a result
of this failure, its Common Stock will be delisted from The Nasdaq Stock Market
on February 23, 1999. To stay the delisting, the Company may request a hearing
by the close of business on February 23, 1999. 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. To stay the delisting, the
Company may request a hearing by the close of business on April 14, 1999.
If the Common Stock is delisted from The Nasdaq Stock Market, trading, if any,
therein would thereafter 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 and 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 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: February 16, 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 DECEMBER 31, 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> DEC-31-1998
<CASH> 14
<SECURITIES> 0
<RECEIVABLES> 8,218
<ALLOWANCES> 843
<INVENTORY> 439
<CURRENT-ASSETS> 8,519
<PP&E> 12,402
<DEPRECIATION> 2,151
<TOTAL-ASSETS> 20,799
<CURRENT-LIABILITIES> 7,675
<BONDS> 3,330
0
0
<COMMON> 3,261
<OTHER-SE> 3,520
<TOTAL-LIABILITY-AND-EQUITY> 20,799
<SALES> 9,997
<TOTAL-REVENUES> 10,010
<CGS> 8,146
<TOTAL-COSTS> 9,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 133
<INCOME-PRETAX> 100
<INCOME-TAX> 30
<INCOME-CONTINUING> 70
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
