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, 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 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 / /.
2,747,000 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 February 14, 2000.
<PAGE>
TABLE OF CONTENTS
Part I. Financial Information Page No.
Consolidated Balance Sheets of
December 31, 1999 (unaudited) and June 30, 1999 2 - 3
Consolidated Statements of Operations for the
Three and Six Months Ended December 31, 1999
and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1999
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>
December 31, June 30,
1999 1999
---- ----
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 998,233 $ 43,282
Accounts receivable, net of allowance for doubtful
accounts of $879,522 and $637,900, respectively 7,284,729 8,214,229
Unbilled revenue 668,960 435,663
Deferred income taxes 492,666 492,666
Inventory and other 866,034 785,943
------- -----------
Total current assets 10,310,622 9,971,783
---------- -----------
Property and equipment, net 9,725,408 9,912,797
--------- ---------
Construction in Progress 12,810 12,810
--------- ---------
Other assets:
Advances to officers 304,371 346,871
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 246,411 253,694
Deferred costs and other assets 80,057 29,772
----------- ------------
Total other assets 1,035,154 1,047,005
----------- ------------
$21,083,994 $ 20,944,395
=========== ============
</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,
1999 1999
---- ----
(unaudited)
Current liabilities:
<S> <C> <C>
Accounts payable $5,839,639 $ 5,476,019
Accrued expenses 353,853 414,205
Accrued payroll and related expenses 301,703 458,370
Accrued professional 167,831 155,937
Accrued income taxes 35,378 13,992
Current portion of long-term debt 203,333 110,000
Other 343,000 338,878
---------- -----------
Total current liabilities 7,244,737 6,967,401
---------- -----------
Long-Term liabilities:
Long-term debt, net of current portion 7,206,667 7,185,000
Other 39,596 52,778
---------- -----------
Total long-term liabilities 7,246,263 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 outstanding 3,801,926 3,801,926
Class B - no par, 100,000 shares authorized, issued and outstanding 48 48
Retained earnings 3,290,583 3,436,805
--------- ----------
7,092,557 7,238,779
Less: treasury stock (Class A common: 253,000 shares) - at cost (499,563) (499,563)
---------- ---------
6,592,994 6,739,216
----------- ---------
Total stockholders' equity $21,083,994 $20,944,395
----------- -----------
</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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Food Service Revenue $10,108,393 $9,996,543 $19,890,911 $19,111,609
Cost of operations
Payroll and related expenses 3,793,690 3,756,574 7,818,630 7,659,991
Other costs of operations 4,156,828 4,389,645 8,159,151 8,059,518
----------- ---------- ----------- ----------
Cost of operations 7,950,518 8,146,219 15,977,781 15,719,509
----------- ---------- ----------- ----------
Gross profit 2,157,875 1,850,324 3,913,130 3,392,100
----------- ---------- ----------- ----------
Expenses
General and administrative expenses 1,589,243 1,399,793 3,175,924 2,749,790
Depreciation and amortization 198,113 176,776 403,376 347,747
Provision for doubtful accounts 120,000 60,000 200,000 120,000
----------- ---------- ----------- ----------
Expenses 1,907,356 1,636,569 3,779,300 3,217,537
----------- ---------- ----------- ----------
Income from operations 250,519 213,755 133,830 174,563
----------- ---------- ----------- ----------
Other income (expense)
Other (7,354) 6,130 15,410 7,454
Interest income 21,161 12,989 40,074 25,870
Interest expense (151,156) (132,947) (289,586) (237,743)
----------- ---------- ----------- ----------
Other income (expense) - net (137,349) (113,828) (234,102) (204,419)
----------- ---------- ----------- ----------
Income/(Loss) before income taxes 113,170 99,927 (100,272) (29,856)
Provision for income taxes 35,950 30,000 45,950 50,000
----------- ---------- ----------- ----------
Net income/(loss) $ 77,220 $ 69,927 $(146,222) $ (79,856)
----------- ---------- ----------- ----------
Basic and diluted earnings/(loss)
- basic and diluted $ .03 $ .03 $ (0.05) $ (0.03)
----------- ---------- ----------- ----------
Weighted average number of shares 2,847,000 2,735,560 2,847,000 2,738,332
----------- ---------- ----------- ----------
</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,
1999 1998
---- ----
Operating activities:
<S> <C> <C>
Net loss $(146,222) $(79,856)
Adjustments to reconcile net loss to net cash provided by(used in)
operating activities:
Depreciation and amortization 403,376 347,747
Provision for bad debts 200,000 120,000
Amortization of deferred gain (13,182) (60,278)
Amortization of bond costs 7,283 7,283
Changes in assets and liabilities:
Accounts receivable 729,500 (1,708,962)
Unbilled revenue (233,297) 153,617
Inventory and other (80,091) (276,330)
Accounts payable 363,620 987,339
Accrued expenses (60,352) ------
Accrued payroll and related expenses (156,667) 69,663
Accrued professional 11,894 254,748
Accrued incomes taxes 21,386 (5,092)
Other 4,122 22,849
--------- --------
Net cash provided by (used in) operating activities 1,051,370 (167,272)
--------- ---------
Investing activities:
Repayment (Advances) to officers 42,500 (43,642)
Transfer restricted cash to/(from) cash ---- (39,511)
Purchase of property and equipment (203,634) (211,839)
Deferred costs and other assets (50,285) 5,160
-------- --------
Net cash used in investing activities (211,419) (289,832)
-------- --------
Financing activities:
Repayments of long-term debt (110,000) (168,060)
Proceeds from line of credit ----- 522,500
Proceeds from term note 225,000 -----
Purchase of treasury stock ----- (15,000)
-------- ---------
Net cash provided by financing activities 115,000 339,440
-------- ---------
Net increase(decrease) in cash 954,951 (117,664)
------- ---------
Cash and cash equivalents - beginning of period 43,282 131,517
-------- ---------
Cash and cash equivalents - end of period $998,233 $13,853
-------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $283,077 $237,743
Income taxes $35,350 $143,629
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
- 5 -
<PAGE>
NUTRITION MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 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, 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 and six
month periods ending December 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.
- 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 December 31, 1999 were
$10,108,393, an increase of $111,850 or 1% compared to revenues of $9,996,543
for the corresponding quarter last year. Revenues for the six month period ended
December 31, 1999 were $19,890,911, an increase of $779,302 or 4% compared to
the corresponding period in 1998. The increases are a result of new contracts,
growth within existing contracts, offset by contracts canceled during the period
Costs of operations for the current quarter were $7,950,518, compared
to $8,146,219 for similar expenses in the same period last year, a decrease of
$195,701 or 2%. This decrease is due to a reduction in other costs of
operations. For the six month period ended December 31, 1999, cost of operations
were $15,977,781, compared to $15,719,509 for the same period last year, an
increase of $258,272 or 2% compared to the corresponding period in 1998. This
increase in cost of operations is due primarily to an increase in payroll and
related expenses.
Gross Profit for the quarter was $2,157,875, compared to
$1,850,324, an increase of $307,551 or 17%. As a percentage of revenue, gross
profit increased from 18.5% in 1998 to 21.3% in 1999. For the six month period
ended December 31, 1999, gross profit was $3,913,130 versus $3,392,100, an
increase of $521,030. These increases in gross profit are due to revenues
increasing at a greater percentage than direct expenses.
General and administrative expenses for the quarter were 15.7%
of revenue, compared to 14% of revenue for the same quarter last year, an
increase of $189,450. The increase is the result of an increase in overhead
associated with new business start-up and additional costs incurred to support
operations.
Interest expense for the three-month period totaled $151,156
compared to $132,947 for the same period last year. For the six month period
ended December 31, 1999, interest expense was $289,586 versus $237,743 in the
corresponding period in 1998. The increase in interest expense is attributable
to increased short-term borrowings for working capital purposes.
Net income after taxes for the quarter ended December 31, 1999
was $77,220 compared to $69,927 for the corresponding quarter last year. Net
income per share for the current quarter was $0.03 compared to net income per
share of $0.03 for the corresponding quarter last year. The consistency in
current quarter net income and earnings per share are primarily the result of
the increases in gross profit offset by increases in general and administrative
expenses for the current quarter.
- 7 -
<PAGE>
Net loss for the six month period was $146,222 versus $79,856 for the
corresponding period last year. Net loss per share was $0.05 compared to $0.03
for the same period last year. The increase in current period net loss and loss
per share are primarily the result of the increase in general and administrative
expenses for the current quarter.
Liquidity and Capital Resources
At December 31, 1999, the Company had working capital of
$3,065,885.
Operating Activities. Cash provided by operations for the six
month period ended December 31, 1999 was $1,051,370 compared to $167,272 used by
operations for the six months ended December 31, 1998. A decrease in accounts
receivable of $729,500 was primarily responsible for the current period's
activity.
Investing Activities. Investing activities consumed $211,419 in
cash in the current period compared to $289,832 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 period financing activities
provided $115,000 in cash compared to $339,440 provided in the same period last
year. Repayment of long term debt consumed approximately $110,000 in cash during
the current period. The Company also received proceeds of $225,000 in the form
of a term note from its existing bank.
Capital Resources. The Company has certain credit facilities
with its bank including a line of credit, a term note, 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.
- 8 -
<PAGE>
NASDAQ Notification
On June 23, 1999, the NASDAQ Stock market notified the Company that it's shares
of Class A common stock, traded under the symbol NMSCA, were delisted 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. Prior to the notification the Company's Class A
Common Stock No Par Value, (the "Class A Common Stock") was traded on the NASDAQ
Small Cap Market ("NASDAQ"). 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
On December 15, 1999 the Company held its Annual Meeting of
Stockholders, whereby the stockholders elected Directors. The vote on such
matter was as follows:
Election of Directors:
For Withheld
--- --------
Joseph V. Roberts 2,358,294 35,945
Kathleen A. Hill 2,358,294 35,945
Michael Gosman 2,356,294 37,945
Samuel R. Shipley, III 2,356,794 37,445
Michelle Roberts-O'Donnell 2,356,294 37,945
Jane Scaccetti 2,356,294 37,945
Richard Kresky 2,356,294 37,945
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 14, 2000
- 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, 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> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 998
<SECURITIES> 0
<RECEIVABLES> 7,285
<ALLOWANCES> 880
<INVENTORY> 866
<CURRENT-ASSETS> 10,311
<PP&E> 12,308
<DEPRECIATION> 2,583
<TOTAL-ASSETS> 21,084
<CURRENT-LIABILITIES> 7,245
<BONDS> 3,185
0
0
<COMMON> 3,302
<OTHER-SE> 3,291
<TOTAL-LIABILITY-AND-EQUITY> 21,084
<SALES> 10,108
<TOTAL-REVENUES> 10,129
<CGS> 7,951
<TOTAL-COSTS> 9,857
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 151
<INCOME-PRETAX> 113
<INCOME-TAX> 36
<INCOME-CONTINUING> 77
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
