-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KDoitEP1LqtWHBHqPUWfIWXqymYimekb7A2mcq2jx41Uhjk0Fr8OEESJ+Q6MrSK6 d6jaoAkCrSVXTn3PfcWCfg== 0000921895-99-000676.txt : 20000211 0000921895-99-000676.hdr.sgml : 20000211 ACCESSION NUMBER: 0000921895-99-000676 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990930 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUTRITION MANAGEMENT SERVICES CO/PA CENTRAL INDEX KEY: 0000879303 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 232095332 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19824 FILM NUMBER: 99721158 BUSINESS ADDRESS: STREET 1: 725 KIMBERTON RD CITY: KIMBERTON STATE: PA ZIP: 19442 BUSINESS PHONE: 6109352050 MAIL ADDRESS: STREET 1: 725 KIMBERTON ROAD CITY: KIMBERTON STATE: PA ZIP: 19442 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee required) For the fiscal year ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required) (NO FEE REQUIRED) 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 (IRS Employer Identification No.) incorporation or organization) 725 Kimberton Road, Kimberton, Pennsylvania 19442 ------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 610-935-2050 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered None Securities registered pursuant to Section 12(g) of the Act: Title of Each Class Shares of Class A Common Stock (no par value) (Cover page 1 of 2 pages) Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchanges Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES / X / NO / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value of voting stock (Class A Common Stock, no par value) held by non-affiliates of the Registrant as of September 21, 1999 was approximately $ 521,356. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: At September 21, 1999, there was outstanding 2,747,000 shares of the Registrant's Class A Common Stock, no par value, and 100,000 shares of the Registrant's Class B Common Stock, no par value. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III for Form 10-K will be incorporated by reference to certain portions of a definitive proxy statement which is expected to be filed by the Registrant pursuant to Regulation 14A within 120 days after the close of its fiscal year. This report consists of consecutively numbered pages (inclusive of all exhibits and including this cover page). The Exhibit Index appears on pages 13-15. (Cover page 2 of 2 pages) PART I ITEM 1 - BUSINESS General Nutrition Management Services Company (the "Company" or the "Registrant") provides food management services to continuing care facilities, hospitals and retirement communities. The Company was incorporated under the laws of the Commonwealth of Pennsylvania on March 28, 1979, and focuses on the continuing care and health-care segments of the food service market. Its customers include continuing care facilities, hospitals, and retirement communities. On May 31, 1994, the Company purchased twenty-two (22) acres of land containing a 40,000 square foot building formerly used as a restaurant and banquet facility. The Company has recently renovated the property to serve as a comprehensive training facility for Company employees. In addition, the facility will serve as a showroom for prospective customers who will be able to observe the Company's programs for nursing and retirement home dining and hospital cafeteria operations. In September 1997, the Company opened the retail restaurant portion of the Collegeville Inn Conference & Training Center. In connection therewith, the Company expended approximately $6,000,000 in renovation work. The Company opened the banquet and training division during its second quarter of fiscal year 1999. The remaining division of the project is expected to open by the third quarter of fiscal 2000. See "Management's Discussion of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Investing Activities" for a description of the costs relating to the renovation work. Financial Information About Industry Segments See Note N on page 20 of the Financial Statements. Description of Services The Company provides contract food service to continuing care facilities, hospitals, and retirement communities. The Company provides complete management and supervision of the dietary operations in its customers' facilities through the use of on-site management staff, quality and cost-control programs, and training and education of dietary staff. The Company's operational districts are supported by Regional Managers, District Managers, registered dietitians and quality assurance staff. 1 The Company seeks to provide food service at a lower cost than self-managed facilities, while maintaining or improving existing service, nutritional care standards and regulatory compliance. Marketing and Sales The Company's customers include continuing care facilities, hospitals and retirement communities, which range in size from small individual facilities to large multi-facility operations. Although many facilities perform their own food service functions without relying upon outside management firms such as the Company, the Company expects the market for its services to grow as facilities increasingly seek to contain costs and are required to comply with increased governmental regulations. The Company's services are marketed at the corporate level by its Chief Executive Officer, its President, and its Marketing Representatives. The Company's services are marketed primarily through in-person solicitation of facilities. The Company also utilizes direct mail and participates in industry trade shows. Market for Services The market for the Company's services consists of a large number of facilities involved in various aspects of the continuing care and health care fields, including nursing homes, retirement communities, hospitals and rehabilitation centers. Such facilities may be specialized or general, privately owned or public, profit or not-for-profit and may serve residents and patients on a continuing or short-term basis. Service Agreements The Company provides its services under several different financial arrangements including a fee basis and profit and loss basis. As of June 30, 1999 the Company provided services under various service agreements at 110 facilities. At certain of these facilities, the Company has contracts to provide vending services in addition to the contract to provide food services. Most of these contracts have one year terms and are automatically renewable at the end of each service year. The agreements generally provide that either party may cancel the agreement upon ninety (90) days written notice. 2 The following table shows the number of customer accounts maintained by the Company during each of the last three fiscal years: 1999 1998 1997 ---- ---- ---- Agreements in effect at beginning of fiscal year 103 102 92 New agreements during the fiscal year 17 23 24 Contracts canceled during the fiscal year 10 22 14 --- --- --- Agreements in effect at the end of the fiscal year 110 103 102 --- --- --- In consideration for providing its services, the Company expects to be paid by its clients in accordance with the credit terms agreed upon. Historically, the Company has not incurred any significant losses related to amounts not collected for services rendered. Major Customer In fiscal 1999, 17% of the Company's revenues were derived from sales to one customer. The loss of such customer could have a material adverse affect on the Company's results of operations in fiscal 2000. Competition The Company competes mainly with regional and national food service management companies operating in the continuing care and health care industries, as well as with the self managed departments of its potential clients. Although the competition to service these facilities is intense, the Company believes that it competes effectively for new agreements as well as for renewals of existing agreements based upon the quality and dependability of its services. The Company's ability to compete successfully depends upon its ability to maintain and improve quality, service and reliability, to attract and retain qualified employees and to continue to expand its marketing and service activities. 3 Employees At June 30, 1999, the Company employed a total of approximately 805 employees. Approximately 323 of those employees serve in various executive, management, administrative, quality assurance and sales capacities. The remaining 482 employees are primarily dietary workers. A small percentage of the Company's dietary workers were covered by collective bargaining agreements. The Company considers relationships with its employees to be satisfactory. Financial Information About Foreign and Domestic Operations and Export Sales Not applicable. ITEM 2 - PROPERTIES The Company leases its corporate offices, located at 725 Kimberton Road, Kimberton, PA 19442, which consists of approximately 8,500 square feet from a corporation controlled by a related party. The initial term of the lease expires on June 30, 2002. The Company leases an apartment from a corporation controlled by a related party to accommodate visiting clients and employees. In addition, the Company is provided with office space at each of its client facilities. The Company owns approximately twenty-two acres of land in Collegeville, Pennsylvania, upon which construction was completed in 1997. The Company renovated an existing 40,000 square foot building to serve as a training facility and restaurant. The Company presently owns food service equipment, computers, office furniture, and equipment, automobiles and trucks. Management believes that all properties and equipment are sufficient for the conduct of the Company's current operations. ITEM 3 - LEGAL PROCEEDINGS There are no material legal proceedings pending against the Company. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 4 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 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 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. The following table shows the range of high and low bid quotations as reported by NASDAQ for the quarters ending during the last two fiscal years for the Class A Common Stock: Fiscal 1999 High Low ----------------------------------------------- First Quarter 1 9/32 1 3/16 Second Quarter 1 5/16 21/32 Third Quarter 7/8 13/16 Fourth Quarter 1 1/4 11/16 Fiscal 1998 High Low ----------------------------------------------- First Quarter 1 11/16 1 11/16 Second Quarter 1 5/8 1 17/32 Third Quarter 1 3/4 1 3/4 Fourth Quarter 1 9/16 1 9/16 The prices presented are bid prices, which represent prices between broker-dealers and do not include retail mark-ups and mark-downs or any commission to the broker-dealer. The above prices do not reflect prices in actual transactions. Holders As of September 21, 1999, there were approximately fifty-two holders of record of the Class A Common Stock. It is estimated that there are in excess of 500 beneficial holders of record. 5 Dividends The Company has not paid any dividends on its Class A or Class B Common Stock. It is not expected that the Company will pay any dividends in the foreseeable future. ITEM 6 - SELECTED FINANCIAL DATA The selected historical financial data presented below should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements and the notes thereto.
Years ended June 30 ------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Revenue $38,826,161 $36,156,074 $35,293,962 $35,138,432 $33,352,992 Gross profit 7,616,254 6,719,333 6,782,040 6,801,924 6,337,036 Income from Operations 216,241 39,120 1,020,689 418,991 553,050 Other income (Expense) (342,314) 79,608 242,383 128,563 (41,187) Net Income(Loss) $ (163,227) $ 8,822 $ 752,276 $ 301,954 $ 265,461 ============================================================================
Per share of common stock (basic and diluted):
Net Income $( 0.06) $ 0.00 $ 0.26 $ 0.10 $ 0.09 ============================================================================ Weighted average common shares outstanding 2,859,959 2,845,845 2,921,549 2,956,504 2,975,000 ===========================================================================
As of June, 30 -------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Working capital $ 3,004,382 $ 262,102 $ 2,519,348 $ 3,921,140 $ 6,131,681 Total Assets 20,944,395 19,210,840 20,381,557 16,962,352 16,366,159 Long-term debt 7,185,000 5,616,552 6,083,851 3,267,808 4,039,474 Shareholders' equity 6,739,216 6,924,443 6,972,153 6,309,595 6,037,329 ============================================================================
6 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year Ended June 30, 1999 Compared to year Ended June 30, 1998 Revenues ended for the June 30, 1999 ("Fiscal 1999") increased by 7.4% to $38,826,161 compared to revenues of $36,156,074 for the year ended June 30, 1998 ("Fiscal 1998"). The increase results from revenues generated by the Collegeville Inn Conference & Training Center, Inc., growth within existing contracts, offset by contracts canceled during the period. Direct cost of operations for fiscal 1999 was $31,209,907 compared to $29,436,741 for similar expenses in fiscal 1998, an increase of $1,773,166 or 6.0%. This increase in direct costs is due to cost of living adjustments during the year and higher revenues described above. Gross Profit for fiscal 1999 was $7,616,254, compared to $6,719,333, an increase of $896,921 or 13.4%. This increase is due to revenues increasing at a greater percentage than direct expenses. General and Administrative expenses for fiscal 1999 were $6,188,531 or 15.9% of revenue, compared to $5,191,218 or 14.4% of revenue for fiscal 1998. The increases are due to additional costs incurred to support the field operations and a full year of operations at the Collegeville Inn Training & Conference Center. Depreciation and amortization for fiscal 1999 was $831,482, compared to $959,356 for fiscal 1998. The decrease of $127,874 or 13.3% was due to a decrease in amortization expenses for purchased contracts, offset by a full year of depreciation expense for the Collegeville Inn Conference & Training Center. Provision for doubtful accounts for fiscal 1999 was $380,000 compared to $529,639 for fiscal 1998. The decrease of $149,639 is attributable to the Company's providing for past due accounts in prior years. Income from operations for fiscal 1999 was $216,241 or .5% of revenue compared to $39,120 or .1% of revenue for fiscal 1998, an increase of $177,121. The increase in operating income is the result of efficiencies at the operating levels. Interest expense for fiscal year 1999 was $505,324 or 1.3% of revenue, compared to $391,861 or 1.1% of revenue for fiscal 1998. This increase is due to an increase in borrowings from the Company's line of credit, which were necessary to cover slowdowns in collections from the Company's customers. These temporary customer shortfalls were primarily caused by a slowdown in reimbursement from government agencies to the customers. 7 For the reasons stated above, the net loss before income taxes for the fiscal year 1999 was ($126,073) or (0.3)% of revenue compared to the net income before income taxes $118,728 or .3% of revenue for fiscal 1998, a decrease of $244,801 or 206.2% from fiscal 1998. The Net Loss for fiscal 1999 was ($163,227) or $(0.06) per share as compared to net income of $8,822 or $0.00 per share for fiscal 1998. Year Ended June 30, 1998 Compared to year Ended June 30, 1997 Revenues for fiscal 1998 increased by 2.4% to $36,156,074 over revenues for the year ended June 30, 1997 ("fiscal 1997"). The increase results from revenues generated by the Collegeville Inn and Conference Center, growth within existing accounts as well as new accounts opened during the intervening period, offset by contracts canceled during the period. Direct cost of operations for fiscal 1998 was $29,436,741, compared to $28,511,922 for similar expenses in fiscal 1997, an increase of $924,819 or 3.2%. This increase in direct costs is due to cost of living adjustments during the year and higher revenues described above. Gross Profit for fiscal 1998 was $6,719,333, compared to $6,782,040, a decrease of $62,707 or 0.9%. This decrease is due to revenues increasing at a lesser percentage than direct expenses. General and administrative expenses for fiscal 1998 were $5,191,218 or 14.4% of revenue, compared to $4,929,812 or 14.0% of revenue for fiscal 1997. These increases are due to additional administrative personnel being employed during the current year to support field operations and the Collegeville Inn and Conference Center. Depreciation and amortization for fiscal 1998 was $959,356, compared to $651,539 for fiscal 1997. The increase of $307,817 or 47.2%, was largely attributable to the transfer of construction-in-progress to capital assets related to the Collegeville Inn and Conference Center. Provision for doubtful accounts for fiscal 1998 was $529,639 as compared to $180,000 for fiscal 1997. The increase of $349,639 or 194.2% was 8 attributable to the Company providing for additional past due accounts, especially those facilities in bankruptcy and terminated status. Income from operations for fiscal 1998 was $39,120 or .1% of revenue compared to $1,020,689 or 2.9% of revenue for fiscal 1997, a decrease of $981,569. This decrease in operating income is primarily the result of the operating losses incurred by the Collegeville Inn Conference & Training Center. Interest expense for fiscal 1998 was $391,861 or 1.1% of revenue, compared to $95,157 or .3% of revenue for fiscal 1997. This increase is primarily due from the issuance of two bonds for the Collegeville Inn Conference & Training Center in 1997. For the reasons stated above, net income before taxes for fiscal 1998 was $118,728 or .3% of revenue compared to $1,263,072 or 3.6% of revenue for fiscal 1997, a decrease of $1,144,344, or 90.1% from fiscal 1997. Net income for fiscal 1998 was $8,822 or $0.00 per share as compared to $752,276 and $0.26 per share for fiscal 1997. Liquidity and Capital Resources At June 30, 1999, the Company had working capital of $3,004,382 as compared to $262,102 at June 30, 1998. This increase in working capital is primarily attributable to the fact that investing activities provided $490,481 in cash during fiscal 1999 compared to $2,272,540 consumed in cash in fiscal 1998 and an increase in the Company's accounts. The Company's holdings in cash, cash equivalents and marketable securities decreased by $88,235 to $43,282. The Company believes that its existing cash and cash equivalents, investments, accounts receivable, and anticipated revenues will be sufficient to meet its liquidity and cash requirements for the next twelve months. Operating Activities Cash used in operations for fiscal 1999 was $1,827,853, compared to $997,268 provided by operations for fiscal 1998. This increase of cash used is primarily attributable to an increase in accounts receivable of $2,928,490 in fiscal 1999. Investing Activities Investing activities provided $490,481 in cash during 1999 compared to $2,272,540 consumed in cash in fiscal 1998. Investing activities for fiscal 1999 include capital expenditures in the amount of $292,037. During 9 fiscal 1999, $906,838 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. For fiscal 1998, investing activities included capital expenditures in the amount of $2,852,748, of which $2,146,453 related to the completion of renovation work at the Collegeville Inn Conference & Training Center. Financing Activities During fiscal 1999, financing activities provided $1,249,137 in cash , compared to a decrease in cash of $861,024 in fiscal 1998. Repayment of long term debt consumed $199,310 in fiscal 1999 compared to $804,492 in fiscal 1998. The Company also received from the term credit line, advances of $1,470,447 in fiscal 1999. Capital Resources The Company has certain credit facilities with its bank including a line of credit and two Industrial Revenue Bond issues. The Company issued two series of Industrial 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 revenue is dependent upon the payment of its fees by customer health care 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 other material commitments for capital expenditures and believes that its cash from operations, existing balances and available credit line will be sufficient to satisfy the needs of its operations and its capital commitments for the foreseeable future. However, if the need arose, the Company would seek to obtain capital from such sources as continuing debt financing or equity financing. Effects of Inflation All of the Company's agreements with its customers allow the Company to pass through to its customers its increases in the cost of labor. The Company believes that it will be able to recover increased costs attributable to inflation by continuing to pass through cost increases to its customers. 10 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 other 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 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 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. See "Market for Registrant's Common Equity and Related Stockholder Matters." Forward-Looking Statements This Form 10-K contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1993, 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. 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-K will provide to be accurate. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to, expenditures relating to the renovation work at the Collegeville Inn Conference & Training Center. In light of the 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. 11 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Supplementary Data to be provided pursuant to this Item 8 are included under Part IV, Item 14, of this Form 10-K. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On July 9, 1998, the Audit Committee of the Board of Directors of the Registrant has dismissed Moore Stephens, P.C. ("Moore Stephens") as independent accountants to the Registrant and appointed Grant Thornton LLP as the independent accountants to the Registrant. Moore Stephens' accountant's report on the financial statements of the Registrant for the year ended June 30, 1997, and any subsequent interim period through the date of dismissal did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles. There were no other reportable events or disagreements with Moore Stephens to report in response to item 304(a) of Regulation S-K. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT This information will be contained in the Proxy Statement of the Company for the 1999 Annual Meeting of Shareholders under the caption "Directors and Executive Officers of the Registrant", and is incorporated herein by reference. ITEM 11 - EXECUTIVE COMPENSATION This information will be contained in the Proxy Statement of the Company for the 1999 Annual Meeting of Shareholders under the caption "Executive Compensation and Compensation of Directors" and is incorporated herein by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information will be contained in the Proxy Statement of the Company for the 1999 Annual Meeting of Shareholders under the caption "Security Ownership" and "Election of Directors" and is incorporated herein by reference. 12 ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information will be contained in the Proxy Statements of the Company for the 1999 Annual Meeting of Shareholders under the caption "Certain Relationships and Related Transactions" and is incorporated herein by reference. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (A) 1. Consolidated Financial Statements Reports of Independent Certified Public Accountants F-3 Consolidated Balance Sheets as of June 30, 1999 and 1998 F-5 Consolidated Statements of Operations for the Years Ended June 30, 1999, 1998 and 1997 F-6 Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1999 1998 and 1997 F-7 Consolidated Statements of Cash Flows for the Years Ended June 30, 1999, 1998 and 1997 F-8 Notes to Consolidated Financial Statements F-9 to F-21 Schedule of Valuation Accounts F-23 (B) Reports on Form 8-K None 13 (C) Exhibits The following Exhibits are filed as part of this report (references are to Reg. S-K Exhibit Numbers): 3.1 Amended and Restated Certificate of Incorporation of Company (Incorporated by reference to Exhibit 3-1 of the Company's Registration Statement on Form S-1 (File No. 33-4281). 3.2 By-laws of the Company (Incorporated by reference to Exhibit 3.2 of the S-1). 4.1 Specimen Stock Certificate of the Company (Incorporated by reference to Exhibit 4.1 of the S-1). 4.5 Registration Rights Agreement between the Company and Kathleen Hill (Incorporated by reference to Exhibit 4.5 of the S-1). 10.1 Employment Agreement between the Company and Joseph Roberts (Incorporated by reference to Exhibit 10.1 of the S-1). 10.3 Employment Agreement between the Company and Kathleen Hill (Incorporated by reference 10.3 of the S-1). 10.4 Company's 1991 Stock Option Plan (Incorporated by reference to Exhibit 10.4 of the S-1). 10.8 Guaranty Agreement between the Company and Joseph Roberts (Incorporated by reference to Exhibit 10.9 Annual Report on Form 10-K filed September 27, 1992). 10.9 Lease Agreement Between the Company and Ocean 7, Inc. (Incorporated by reference to Exhibit 10.11 Annual Report of Form 10-K filed September 27, 1992). 10.11 Escrow Agreement among the Company, Service America Corporation and Meridian Bank (Incorporated by reference to Exhibit 2, Current Report on Form 8-K filed July 29, 1993). 10.13 Agreement of Purchase and Sale between the Company and REVEST II Corporation, with Amendments. (Incorporated by reference to Exhibit 10.13, Annual Report on Form 10-K filed September 27, 1994). 14 10.14 Loan Agreement between the Montgomery County Industrial Development Authority and Collegeville Inn Conference & Training Center, Inc. (a wholly-owned subsidiary of the Company). (Incorporated by reference to exhibit 10.14, annual report on Form 10-K Filed on September 27, 1997.) 10.15 Trust Indenture between Montgomery County Industrial Development Authority and Dauphin Deposit Bank and Trust Company, as Trustee. (Incorporated by reference to exhibit 10.15, annual report on Form 10-K filed September 27, 1997.) 10.16 Loan Agreement between Montgomery County Industrial Development Authority and Apple Fresh Foods Limited (a wholly- owned subsidiary of the Company). (Incorporated by reference to exhibit 10.16, annual report on Form 10-K Filed on September 27, 1997.) 10.17 Trust Indenture between the Montgomery County Development Authority and Dauphin Deposit Bank and Trust Company, as Trustee. (Incorporated by reference to exhibit 10.17, annual report on Form 10-K Filed on September 27, 1997.) 10.18 Loan Agreement between the Company and Corestates Bank, N.A. (Incorporated by reference to exhibit 10.18, annual report on Form 10-K Filed on September 27, 1997.) 27 Financial Data Schedule (Filed herewith) 15 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Nutrition Management Services Company (Registrant) /s/ Joseph V. Roberts ---------------------------------- Joseph V. Roberts, Chief Executive Officer and Director Date: September 28, 1999 Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated as of September 28, 1999. /s/ Joseph V. Roberts /s/ Kathleen A. Hill - -------------------------- ---------------------------------- Joseph V. Roberts, Chief Kathleen A. Hill, President and Executive Officer and Director Director (Principal Financial Officer) /s/ Janet Paroo /s/ Samuel R. Shipley - -------------------------- ---------------------------------- Janet Paroo, Director Samuel R. Shipley, Director /s/ Michael M. Gosman /s/ Michelle L. Roberts __________________________ ---------------------------------- Michael M. Gosman, Director Michelle L. Roberts, Director FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES June 30, 1999 and 1998 TABLE OF CONTENTS Page REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3 CONSOLIDATED BALANCE SHEETS F-5 CONSOLIDATED STATEMENTS OF OPERATIONS F-6 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-7 CONSOLIDATED STATEMENTS OF CASH FLOWS F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9 SUPPLEMENTAL INFORMATION SCHEDULE OF VALUATION ACCOUNTS F-23 Report of Independent Certified Public Accountants -------------------------------------------------- Board of Directors and Stockholders Nutrition Management Services Company We have audited the accompanying consolidated balance sheets of Nutrition Management Services Company and its subsidiaries as of June 30, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Nutrition Management Services Company and its subsidiaries as of June 30, 1999 and 1998, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. We have also audited the schedule of valuation accounts for Nutrition Management Services Corporation and its subsidiaries as of June 30, 1999. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. GRANT THORNTON LLP Philadelphia, Pennsylvania September 22, 1999 F-3 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Nutrition Management Services Company We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of Nutrition Management Services Company and its subsidiaries for the year ended June 30, 1997. Our audit also included the financial statement schedule of valuation accounts for the year ended June 30, 1997. These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations of Nutrition Management Services Company and its subsidiaries and their cash flows for the year ended June 30, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. MOORE STEPHENS, P. C. Certified Public Accountants. Cranford, New Jersey September 10, 1997 F-4 Nutrition Management Services Company and Subsidiaries CONSOLIDATED BALANCE SHEETS
June 30, ASSETS 1999 1998 ---- ---- Current assets Cash and cash equivalents $ 43,282 $ 131,517 Accounts receivable (net of allowance for doubtful accounts of $637,900 and $702,406 in 1999 and 1998, respectively) 8,214,229 5,665,739 Unbilled revenue 435,663 201,950 Deferred income taxes 492,666 469,797 Inventory and other 785,943 336,380 ------------ ------------ Total current assets 9,971,783 6,805,383 ------------ ------------ Property and equipment - net 9,912,797 9,959,691 ------------ ------------ Construction in progress 12,810 427,084 ------------ ------------ Other assets Restricted cash -- 906,838 Investment in contracts (net of accumulated amortization of $1,709,136 and $1,630,859 in 1999 and 1998, respectively) 12,353 90,630 Advances to officers 346,871 289,623 Deferred income taxes 404,315 453,209 Bond issue costs 253,694 268,260 Deferred costs and other assets 29,772 10,122 ------------ ------------ Total other assets 1,047,005 2,018,682 ------------ ------------ $ 20,944,395 $ 19,210,840 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ 110,000 $ 407,311 Accounts payable 5,476,019 4,984,804 Accrued expenses 414,205 375,238 Accrued payroll 458,370 392,008 Accrued professional 155,937 226,288 Accrued income taxes 13,992 5,092 Other 338,878 152,540 ------------ ------------ Total current liabilities 6,967,401 6,543,281 ------------ ------------ Long-term liabilities Long-term debt - net of current portion 7,185,000 5,616,552 Other 52,778 126,564 ------------ ------------ Total long-term liabilities 7,237,778 5,743,116 ------------ ------------ Stockholders' equity Undesignated preferred stock - no par, 2,000,000 shares authorized, none outstanding -- -- Common stock Class A - no par, 10,000,000 shares authorized; 3,000,000 issued, 2,747,000 and 2,770,000 outstanding in 1999 and 1998, respectively 3,801,926 3,801,926 Class B - no par, 100,000 shares authorized; 100,000 shares issued and outstanding 48 48 Retained earnings 3,436,805 3,600,032 ------------ ------------ 7,238,779 7,402,006 Less treasury stock - (common - Class A: 253,000 and 230,000, shares in 1999 and 1998, respectively) - at cost (499,563) (477,563) ------------ ------------ Total stockholders' equity 6,739,216 6,924,443 ------------ ------------ $ 20,944,395 $ 19,210,840 ============ ============
The accompanying notes are an integral part of these statements. F-5 Nutrition Management Services Company and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS Years ended June 30,
1999 1998 1997 ---- ---- ---- Food service revenue $38,826,161 $36,156,074 $35,293,962 Cost of operations Payroll and related expenses 15,490,739 14,864,985 13,918,106 Other costs of operations 15,719,168 14,571,756 14,593,816 ---------- ---------- ---------- Cost of operations 31,209,907 29,436,741 28,511,922 ---------- ---------- ---------- Gross profit 7,616,254 6,719,333 6,782,040 ----------- ----------- ----------- Expenses General and administrative expenses 6,188,531 5,191,218 4,929,812 Depreciation and amortization 831,482 959,356 651,539 Provision for doubtful accounts 380,000 529,639 180,000 ------------ ------------ ------------ Expenses 7,400,013 6,680,213 5,761,351 ----------- ----------- ----------- Income from operations 216,241 39,120 1,020,689 ------------ ------------- ----------- Other income (expenses) Interest expense (505,324) (391,861) (95,157) Interest income 92,939 194,727 309,158 Other 70,071 276,742 28,382 ------------- ------------ ------------- Other income (expense) - net (342,314) 79,608 242,383 ----------- ------------- ------------ (Loss) income before income taxes (126,073) 118,728 1,263,072 Income tax expense 37,154 109,906 510,796 ------------- ------------ ------------- Net (loss) income $ (163,227) $ 8,822 $ 752,276 ============ ============== ============ Net income per share - basic and diluted $ (0.06) $ 0.00 $ 0.26 ============ ============= ============ Weighted average number of shares 2,859,959 2,845,845 2,921,549 =========== =========== ===========
The accompanying notes are an integral part of these statements. F-6 Nutrition Management Services Company and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Years ended June 30,
Class A Class B Common stock Common stock Treasury stock Total ------------ ------------ -------------- ----- Number Number Retained Number stockholders of shares Amount of shares Amount earnings of shares Amount equity --------- ------ --------- ------ -------- --------- ------ ------ Balance - July 1, 1996 2,850,000 $ 3,801,926 100,000 $ 48 $ 2,838,934 (150,000) $ (331,313) $ 6,309,595 Repurchase of company stock (52,335) - - - - (52,335) (89,718) (89,718) Net income - - - - 752,276 - - 752,276 ------------------------------------------------------------------------------------------------------ Balance - June 30, 1997 2,797,665 3,801,926 100,000 48 3,591,210 (202,335) (421,031) 6,972,153 Repurchase of company stock (27,665) - - - - (27,665) (56,532) (56,532) Net income - - - - 8,822 - - 8,822 ------------------------------------------------------------------------------------------------------ Balance - June 30, 1998 2,770,000 3,801,926 100,000 48 3,600,032 (230,000) (477,563) 6,924,443 Repurchase of company stock (23,000) - - - - (23,000) (22,000) (22,000) Net loss - - - - (163,227) - - (163,227) ------------------------------------------------------------------------------------------------------ Balance - June 30, 1999 2,747,000 $ 3,801,926 100,000 $ 48 $ 3,436,805 (253,000) $ (499,563) $6,739,216 ========== ========== ========== ======== =========== ======== ========== ==========
The accompanying notes are an integral part of this statement. F-7 Nutrition Management Services Company and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended June 30,
1999 1998 1997 ---- ---- ---- Operating activities Net (loss) income $ (163,227) $ 8,822 $ 752,276 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization 831,482 959,356 651,539 Amortization of bond costs 14,566 13,566 -- Provision for bad debts 380,000 529,639 180,000 Amortization of deferred gain (26,364) (26,372) (26,372) Provision for deferred taxes 26,025 (254,967) (333,000) Amortization of lease receivable -- -- (28,438) Changes in assets and liabilities Accounts receivable (2,928,490) (294,806) (217,467) Notes receivable -- 15,261 637,057 Unbilled revenue (233,713) 42,157 29,025 Accounts payable 491,215 662,142 (719,363) Accrued professional and expenses (70,351) (547,772) 752,244 Accrued payroll 66,362 (68,890) (10,908) Accrued income taxes 8,900 (63,468) 187,458 Other (224,258) 22,600 (77,904) ----------- ----------- ----------- Net cash (used in) provided by operating activities (1,827,853) 997,268 1,776,147 ----------- ----------- ----------- Investing activities Purchase of property and equipment (292,037) (706,295) (154,503) Construction in progress expenditures -- (2,146,453) (3,848,361) Transfers from (to) restricted cash 906,838 189,238 (949,249) Other (47,422) 18,353 (296,079) Payment of lease receivable -- 287,023 144,790 Advances to employees and officers (57,248) 8,597 (18,611) Deferred costs (19,650) 76,997 12,910 ----------- ----------- ----------- Net cash provided by (used in) investing activities 490,481 (2,272,540) (5,109,103) ----------- ----------- ----------- Financing activities Proceeds from long-term borrowings 1,470,447 -- 3,560,547 Repayment of long-term borrowings (199,310) (804,492) (896,667) Purchase of treasury stock (22,000) (56,532) (89,718) ----------- ----------- ----------- Net cash (used in) provided by financing activities 1,249,137 (861,024) 2,574,162 ----------- ----------- ----------- Net decrease in cash and cash equivalents (88,235) (2,136,296) (758,794) Cash and cash equivalents - beginning of years 131,517 2,267,813 3,026,607 ----------- ----------- ----------- Cash and cash equivalents - end of years $ 43,282 $ 131,517 $ 2,267,813 =========== =========== =========== Supplemental disclosures of cash flow information Cash paid during the years for Interest (net of amounts capitalized) $ 480,614 $ 391,860 $ 100,987 Income taxes $ 240,813 $ -- $ 674,903
The accompanying notes are an integral part of these statements. F-8 Nutrition Management Services Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1999 and 1998 NOTE A - ORGANIZATION AND BUSINESS Nutrition Management Services Company (the Company) was organized on March 28, 1979, to provide professional management expertise and food services to continuing care and health care facilities in the domestic United States. The Company competes mainly with regional and national food service management companies as well as self-managed departments. Apple Management Services (Apple Management), a wholly owned subsidiary, was organized on November 25, 1991, to provide management service expertise. The Collegeville Inn Conference and Training Center, Inc. (Collegeville Inn located in Lower Providence Township, Pennsylvania), a wholly owned subsidiary, was organized on April 29, 1994. This facility opened in September 1997, and is used as a showroom for prospective customers, comprehensive training facility, and retail restaurants. Apple Fresh Foods, Ltd. (Apple Fresh Foods), was organized on November 14, 1997, to develop a cook-chill food preparation technology for use in the Company's food service business. Apple Fresh Food's operation is located in the Collegeville Inn. Apple Management and Apple Fresh Foods were not operational as of June 30, 1999. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Basis of Financial Statement Presentation ----------------------------------------- The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's primary estimate is its allowance for doubtful accounts. The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, which is effective for all periods beginning after December 15, 1997. SFAS No. 131 requires that public business enterprises report certain information about operating segments in complete sets of financial statements of the enterprise and in condensed financial statements of interim periods issued to shareholders. It also requires that public business enterprises report certain information about their products and services, the geographic areas in which they operate, and their major customers. The adoption of SFAS No. 131 will not have a material effect on the presentation of the Company's financial position or results of operations. 2. Cash and Cash Equivalents ------------------------- Cash equivalents are comprised of certain highly liquid investments with a maturity of three months or less when purchased. 3. Unbilled Revenue ---------------- Unbilled revenue represents amounts for services provided, but not billed as of the balance sheet date. 4. Inventory --------- Inventory, which consists primarily of food, is stated at the lower of cost (first-in, first-out method) or market. Inventory of $459,727 and $226,002 has been included in inventory and other as of June 30, 1999 and 1998, respectively. (Continued) F-9 Nutrition Management Services Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 1999 and 1998 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 5. Property and Equipment ---------------------- Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets or the remaining lease term. Certain long-term assets of the Company are reviewed at least annually as to whether their carrying value has become impaired, pursuant to guidance established in SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value or projected discounted cash flows from related operations. Management also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of June 30, 1999, management expects these assets to be fully recoverable. Construction in progress was stated at cost and represented costs incurred in the construction of the Collegeville Inn's facilities. No depreciation was provided on construction in progress, and costs incurred were transferred to property and equipment in September 1997 and is being depreciated accordingly. 6. Investment in Contracts ----------------------- During 1993, the Company entered into an agreement for the acquisition of various service facility contracts. The costs associated with this acquisition were capitalized and are being amortized over a period of five years using the straight-line method. During the years ended June 30, 1999, 1998 and 1997, amortization expense was $78,278 $352,298 and $341,298, respectively. 7. Deferred Financing Costs ------------------------ Debt financing costs incurred in connection with the bonds payable are deferred and amortized, using the interest method, over the term of the related debt and are classified as other assets on the balance sheet. 8. Accounting for Stock-Based Compensation --------------------------------------- The Company accounts for its stock options under the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, which contains a fair value-based method for valuing stock-based compensation that entities may use, which measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. Alternatively, the standard permits entities to continue accounting for employee stock options and similar equity instruments under Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees. Entities that continue to account for stock options using APB Opinion 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting defined in SFAS 123 had been applied. The Company's employee stock option plan is accounted for under APB Opinion 25. 9. Income Taxes ------------ Income taxes consist of taxes currently due plus deferred taxes related primarily to temporary differences between the basis of assets and liabilities for financial and income tax reporting. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. (Continued) F-10 Nutrition Management Services Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 1999 and 1998 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 10. Earnings Per Share ------------------ 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. Options to purchase 127,000, 156,750 and 316,250 shares of common stock at $4.00 per share were outstanding during 1999, 1998 and 1997, respectively. They were not included in the computation of diluted earnings per share because the option price is greater than the average market price. 11. Advertising Costs ----------------- It is the Company's policy to expense advertising costs in the period in which they are incurred. 12. Reclassification ---------------- Certain 1998 and 1997 items have been reclassified to conform to the current year presentation. NOTE C - PROPERTY AND EQUIPMENT The following details the composition of property and equipment.
Estimated useful lives 1999 1998 ------------ ---- ---- Property and equipment Land - $ 497,967 $ 497,967 Building 40 7,465,377 7,427,415 Machinery and equipment 2-8 2,916,560 2,357,354 Furnitures and fixtures 2-8 693,247 651,557 Other, principally autos and trucks 2-10 532,284 428,003 ------------ ------------ 12,105,435 11,362,296 Less accumulated depreciation 2,192,638 1,402,605 ----------- ----------- $ 9,912,797 $ 9,959,691 =========== ===========
Depreciation expense amounted to $753,204, $699,038 and $310,241 for the years ended June 30, 1999, 1998 and 1997, respectively. The Company capitalized interest costs of $-0-, $86,266 and $366,492 for the years ended 1999, 1998 and 1997, respectively, for qualifying construction projects. Total interest costs incurred before recognition of the capitalized amounts were $505,324, $478,127 and $461,649 for the years ended June 30, 1999, 1998 and 1997, respectively. F-11 Nutrition Management Services Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 1999 and 1998 NOTE D - RESTRICTED CASH At June 30, 1999 and 1998, the Company had $-0- and $906,838 of restricted cash, respectively. This balance was attributable to the Industrial Revenue Bond proceeds of $1,000,000 to finance the acquisition, construction, installation and renovation of certain equipment to be used in connection with a cook-chill system of batch food processing; and the payment of a portion of the costs and expenses of issuing the Bonds. NOTE E - LONG- TERM DEBT Long-term debt consisted of the following:
1999 1998 ---- ---- Bank revolving credit, interest due monthly at the bank's prime rate plus 0.5%, secured by all corporate assets as well as a negative pledge on all assets; matures on July 1, 2000 $ 4,000,000 $ 2,529,553 Note payable, term loan incurred in connection with purchased equipment, payable in equal monthly installments of $10,417 bearing interest at 9.5%, matured in fiscal 1999; the acquired equipment was pledged as collateral - 93,750 Industrial Revenue Bonds (Collegeville Inn Projects) (see bonds payable) 2,360,000 2,430,560 Industrial Revenue Bonds (Apple Fresh Foods Projects) (see bonds payable) 935,000 970,000 ----------- ---------- 7,295,000 6,023,863 Less current maturities 110,000 407,311 ----------- ---------- $ 7,185,000 $ 5,616,552 ========== ==========
In December 1996, the Company executed a loan agreement with a bank for a revolving credit and two irrevocable letters of credit, totaling approximately $7,500,000. The revolving credit is available through December 2000 and the letters of credit are available for four years with annual renewals. At June 30, 1999, the Company used $4,000,000. Advances under the revolving credit are used for working capital purposes and the acquisition and renovation of the Collegeville Inn. These credit agreements contain covenants that include the submission of specified financial information and the maintenance of insurance coverage for the pledged assets during the term of the loans. The covenants also include the maintenance of a certain current ratio, minimum net worth, minimum cash and cash equivalents balance and other ratios. Collegeville Inn and Apple Fresh Foods were not in compliance with the debt service coverage ratio as of June 30, 1999. Subsequently, the Bank has provided a waiver of compliance for this covenant extending through July 1, 2000. (Continued) F-12 Nutrition Management Services Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 1999 and 1998 NOTE E - LONG- TERM DEBT - Continued The bank's prime rate at June 30, 1999, was 7.25%. All borrowing is from a single lender. Maturities of principal due in the following years are set forth below: Year ending June 30, -------------------- 2000 $ 110,000 2001 4,120,000 2002 125,000 2003 130,000 2004 135,000 Thereafter 2,675,000 ------------ $ 7,295,000 ============ Bonds Payable - In December 1996, the Company, through its subsidiaries, authorized two industrial revenue bond issues. Issue #I -------- Title - Montgomery County Industrial Development Authority, $2,500,000 aggregate principal amount, federally taxable variable rate demand/fixed rate revenue bonds (Collegeville Inn Project) Series of 1996. Rate - Variable, to a maximum of 17% Term - 20 years (2016) Purpose - Rehabilitate, furnish and equip the Collegeville Inn facility. Issue #2 -------- Title - Montgomery County Industrial Development Authority, $1,000,000 aggregate principal amount, federally taxable variable rate demand/fixed rate revenue bonds (Apple Fresh Foods, Ltd. Project) Series of 1996. Rate - Variable, to a maximum of 15% Term - 20 years (2016) Purpose - Develop a cook-chill food preparation technology. Note: This issue is tax-exempt. Each series of bonds is guaranteed by the parent company and the other subsidiaries. The assets of Collegeville Inn and Apple Fresh Foods are pledged as collateral for both series of bonds. (Continued) F-13 Nutrition Management Services Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 1999 and 1998 NOTE E- LONG- TERM DEBT - Continued The Company's bank has issued irrevocable letters of credit in favor of the bond trustee for the full amount of both bond issues. The letters of credit have a term of four years and can be renewed on an annual basis by the bank. The bank holds the mortgage on the Collegeville Inn building and property. The letters of credit are guaranteed by the parent company. The sinking fund requirements are as follows: Collegeville Apple Fresh Inn Foods Total ------------ ----------- ----- 2000 $ 75,000 $ 35,000 $ 110,000 2001 80,000 40,000 120,000 2002 85,000 40,000 125,000 2003 90,000 40,000 130,000 2004 95,000 40,000 135,000 NOTE F - INCOME TAXES The components of income tax expense are:
1999 1998 1997 ---- ---- ---- Current Federal $ (51,732) $ 128,064 $ 618,839 State 62,886 72,842 224,957 ----------- ----------- ---------- 11,154 200,906 843,796 ----------- ---------- ---------- Deferred Federal 13,000 (69,000) (266,000) State 13,000 (22,000) (67,000) ----------- ----------- ----------- Total deferred (benefit) expense 26,000 (91,000) (333,000) ----------- ----------- ---------- $ 37,154 $ 109,906 $ 510,796 =========== ========== ===========
F-14 Nutrition Management Services Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 1999 and 1998 NOTE F - INCOME TAXES - Continued The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are approximately:
1999 1998 ---- ---- Deferred tax assets Provision for doubtful accounts $ 287,000 $ 316,000 Excess of tax over financial statement basis of investments in contracts 342,000 342,000 Deferred gains 35,000 47,000 Vacation accrual 182,000 198,000 Other compensation accrual 24,000 31,000 Federal capital loss carryforwards 28,000 40,980 Charitable contribution carryforward 39,000 22,000 Federal net operating loss 53,000 -- Other 92,000 64,000 ----------- ----------- Gross deferred tax assets 1,082,000 1,060,980 Deferred tax asset valuation allowance (28,000) (40,980) ----------- ----------- Total deferred tax assets 1,054,000 1,020,000 Deferred tax liabilities Deferred costs capitalized for financial statement purposes 1,000 $ 10,000 Depreciation 156,000 87,000 ----------- ----------- Total deferred tax liabilities 157,000 97,000 ----------- ----------- Net deferred tax assets $ 897,000 $ 923,000 =========== ===========
These amounts are classified in the balance sheet as follows:
1999 1998 Current asset $493,000 $470,000 Non-current asset 404,000 453,000 -------- -------- $897,000 $923,000 ======== ========
The following reconciles the tax provision with the U.S. statutory tax rates:
1999 1998 1997 ---- ---- ---- Income taxes at U.S. statutory rates 34.0% 34.0% 34.0% States taxes, net of federal tax benefit (32.9) 28.1 7.3 Nondeductible expenses (45.4) 44.5 0.6 Decrease in valuation allowance 32.5 (9.0) -- Other (17.7) (5.2) -- ------ ------ ------ (29.5)% 92.4% 41.9% ====== ====== ======
The Company has available federal capital loss carryforwards in the amount of $82,652, which expire in the year 2000. The Company has charitable contribution carryforwards in the amount of $86,000, which begin to expire in the year 2004. The Company has available federal net operating carryforwards of $155,712, which may be carry backed or forward, and will expire in 2019. F-15 Nutrition Management Services Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 1999 and 1998 NOTE G - RELATED PARTY During 1992, the Company sold its building for a purchase price of $610,000 to a related party (a corporation wholly-owned by the principal stockholder of the Company). At the time of the sale a lease was entered into for ten years, whereby the Company will lease back the building from the purchaser. The sale resulted in a gain of $263,717, which has been deferred and will be amortized over the life of the lease. During each of the three years in the period ended June 30, 1999, the Company recognized a gain of $26,364. As of June 30, 1999 and 1998, the balance of the unamortized gain on the sale was $79,154 and $105,510, respectively. The Company leases its corporate office building from the above-mentioned related party. During the years ended June 30, 1999, 1998 and 1997, rent expense was $228,862, $229,705 and $195,178, respectively. NOTE H - COMMITMENTS AND CONTINGENCIES 1. Operating Leases ---------------- The Company leases real estate facilities from a corporation owned by a principal stockholder under operating leases. In addition to the minimum annual rentals, the lease requires additional rentals based upon increases in the consumer price index. These leases range from one to five years (see note G). The Company is also obligated under various operating leases for operating equipment for periods expiring through 2000. During the years ended June 30, 1999, 1998 and 1997, rent expense was $300,300, $259,546 and $216,778, respectively. Minimum annual rentals under non-cancellable operating leases subsequent to June 30, 1999, are as follows: Operating Real estate Year ending June 30, equipment Facilities -------------------- --------- ---------- 2000 $ 16,238 $ 199,862 2001 - 199,862 2002 - 199,862 ------------ ---------- $ 16,238 $ 599,586 =========== ========== 2. Purchase Commitment ------------------- The Company has entered into a commitment to purchase a minimum of $5,000,000 in supplies between February 1995 and January 2000 from one of its vendors. If the Company does not meet this commitment during the term of the agreement, the agreement automatically extends until the minimum commitment is met. There is no penalty to the Company for its failure to meet the minimum purchase requirement during the agreement period. In exchange for this commitment, the vendor made a donation to the Company to be used to acquire equipment for the Collegeville Inn. The amount of the donation is being amortized over five years. In the event the agreement is terminated prior to January 2000, the Company is required to repay to the vendor a proportionate amount of the donation received. 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 affect on the Company's consolidated financial position, results of operations or cash flows. F-16 Nutrition Management Services Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 1999 and 1998 NOTE I - STOCKHOLDERS' EQUITY 1. Class A Common Stock -------------------- The Company is authorized to issue 10,000,000 shares of Class A Common Stock, no par value, of which holders of Class A Common Stock have the right to cast one vote for each share held of record in all matters submitted to a vote of holders of Class A Common Stock. The Class A Common Stock and Class B Common Stock vote together as a single class on all matters on which shareholders may vote, except when class voting is required by applicable law. Holders of Class A Common Stock are entitled to dividends, together with the holders of Class B Common Stock, pro rata based on the number of shares held. In the event of the liquidation, dissolution or winding up of the affairs of the Company, all assets and funds of the Company remaining after the payment to creditors and to holders of Preferred Stock, if any, shall be distributed, pro rata, among the holders of the Class A Common Stock and Class B Common Stock. During the fiscal years ended June 30, 1999 and 1998, the Company repurchased 23,000 and 27,665 shares of common stock, respectively, for an aggregate price of $22,000 and $56,532, respectively. The repurchase price is recorded as a reduction of stockholders' equity. 2. Class B Common Stock -------------------- The Company has authorized 100,000 shares of Class B Common Stock, all of which were issued to the Chief Executive Officer and majority shareholder of the Company, in exchange for 100,000 shares of Class A Common Stock. Each share of Class B Common Stock is entitled to seven votes on all matters on which shareholders may vote, including the election of directors. The Class A Common Stock and Class B Common Stock vote together as a single class on all matters on which shareholders may vote, except when class voting is required by applicable law. Each share of Class B Common Stock also is convertible at any time upon the option of the holder into one share of Class A Common Stock. There are no preemptive, redemption, conversion or cumulative voting rights applicable to the Class B Common Stock. 3. Preferred Stock --------------- The Company is authorized to issue 2,000,000 shares of Preferred Stock, no par value, of which no shares have been issued. The Preferred Stock may be issued by the Company's Board of Directors from time to time in one or more series. F-17 Nutrition Management Services Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 1999 and 1998 NOTE J - STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN 1. Stock Options ------------- In September 1991, the Company adopted the 1991 Stock Option Plan for officers, directors and key employees to receive incentive stock options. The options are exercisable for a period up to 10 years from date of grant at an exercise price not less than fair market value of the common stock at date of grant. The Plan expires in September 2001. There have been 500,000 shares of common stock reserved for the Plan. The following is a summary of transactions:
Number of options Weighted outstanding average incentive Non-qualified exercise Underwriters stock options stock options Total price ------------ ------------- ------------- ----- ----- Outstanding at June 30, 1996 100,000 191,250 45,000 336,250 $ 4.89 Exercisable at June 30, 1996 100,000 184,250 45,000 329,250 4.91 Granted - 80,000 - 80,000 4.00 Forfeited/exercised (100,000) - - (100,000) 7.00 ---------- --------------- --------------- ---------- Outstanding at June 30, 1997 - 271,250 45,000 316,250 4.00 Exercisable at June 30, 1997 - 185,650 45,000 230,650 4.00 Granted - 33,000 30,000 63,000 4.00 Forfeited/exercised - (207,500) (15,000) (222,500) 4.00 --------------- ---------- ----------- ---------- Outstanding at June 30, 1998 - 96,750 60,000 156,750 4.00 Exercisable at June 30, 1998 - 81,350 60,000 141,350 4.00 Granted - - - - - Forfeited/exercised - (29,750) - (29,750) 4.00 --------------- ----------- --------------- ----------- Outstanding at June 30, 1999 - 67,000 60,000 127,000 4.00 Exercisable at June 30, 1999 - 55,800 60,000 115,800 4.00
All options were granted at exercise prices above market price. The exercise price was $4.00 per share for grants in 1998 and 1997, for the incentive stock options. The remaining contractual life of outstanding and exercisable options is approximately six years and five years, respectively. Had compensation cost for the Company's stock options issued to employees been determined based upon the fair value at the grant date for stock options issued under these plans pursuant to the fair value methodology prescribed under Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. (Continued) F-18 Nutrition Management Services Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 1999 and 1998 NOTE J - STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN - Continued Net (loss) income and net (loss) income per share as reported, and on a pro forma basis as if compensation cost had been determined on the basis of fair value pursuant to SFAS No. 123, are as follows:
1999 1998 1997 ---- ---- ---- Net (loss) income As reported $ (163,227) $ 8,822 $ 752,276 Pro forma (163,227) (6,170) 709,488 Per Share- basic and diluted As reported $ (0.06) $ 0.00 $ 0.26 Pro forma $ (0.06) $ 0.00 0.24
These pro forma amounts, may not be representative of future disclosures because they do not take into effect pro forma compensation expense related to grants before July 1, 1995. The weighted average fair value of the stock options granted to employees used in determining the pro forma amounts is estimated at $-0-, $.96 and $.89 during the years ended June 30, 1999, 1998 and 1997, using the Black-Scholes option-pricing model with the following assumptions used for grants in the fiscal year 1999, 1998 and 1997: dividend yields of 0%, expected volatility of 84%, expected useful life of 5 years for all three years and risk-free interest rate of $-0-%, 5.6% and 6.7%, respectively. 2. Employee Stock Purchase Plan ---------------------------- The Company has a stock purchase plan that allows participating employees to purchase, through payroll deductions, shares of the Company's common stock at 85 percent of the fair market value at specified dates. At June 30, 1999, all employees were eligible to participate in the plan. A summary of stock purchased under the plan is shown below. 1999 1998 1997 ---- ---- ---- Aggregate purchase price $ - $ 21,093 $ 30,871 Shares purchased - 12,691 21,388 Employee participants 23 23 40 The Employee Stock Purchase Plan currently holds 19,517 shares of stock in excess of the amounts required by participating employees. NOTE K - DEFINED CONTRIBUTION PENSION PLAN The Company sponsors a 401 (k) plan for all employees who have attained the age of twenty-one and have completed one year of service. Eligible employees may contribute up to 15% of their annual compensation to the plan. The Company can match 100% up to the first 6% of employee plan contributions. Participants are vested 20% for each year of service beginning after year 3 and are fully vested after seven service years. During the years ended June 30, 1999, 1998 and 1997, company contributions to the plan, which were charged to expense, amounted to $10,092, $22,526 and $25,976, respectively. F-19 Nutrition Management Services Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 1999 and 1998 NOTE L - CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. A substantial portion of the Company's revenues are dependent upon the payment by customers who are dependent upon third-party payers, such as state governments, medicare and medicaid. Generally, the Company does not require collateral or other security to support customer receivables. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowances is limited. As of June 30, 1999, the Company has cash accounts with various financial institutions having high credit standings and periodically has cash balances subject to credit risk beyond insured amounts. As a consequence, it believes that its exposure to credit risk loss is limited. The Company does not require collateral and other security to support financial instruments subject to credit risk. NOTE M - MAJOR CUSTOMERS The Company had sales to one customer representing approximately 17%, 15% and 13% of total revenues for the years ending June 30, 1999, 1998 and 1997, respectively. The loss of such customer could have a material adverse effect on the Company's future results of operations. NOTE N - BUSINESS SEGMENTS In 1999, the Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 supercedes SFAS No. 14, Financial Reporting for Segments of a Business Enterprise, replacing the "industry segment" approach with the "management" approach. The management approach focuses on internal financial information that is used by management to assess performance and to make operating decisions. SFAS No. 131 also requires disclosures about products, services, geographic areas, and major customers. The adoption of SFAS No. 131 had no effect on the Company's results of operations or financial position. The financial information of the Company's reportable segments have been compiled utilizing the accounting policies described in Note A Organization and Business. The Company's reportable segments are (1) food service management and (2) retail restaurants and banquet facilities. The Company reports segment performance on an after tax basis. Deferred taxes are not allocated to segments. The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to generally accepted accounting principles. As a result, reported segment results are not necessarily comparable with similar information reported by other similar companies. As of and for the year ended June 30, 1999:
Food Service Retail Restaurants Management and Banquet Facilities Total ---------- ---------------------- ----- Food service revenue $37,439,489 $ 1,386,672 $38,826,161 Depreciation and amortization 298,946 532,536 831,482 Income from operations 1,840,664 (1,624,423) 216,241 Interest income 59,762 33,177 92,939 Interest expense (261,459) (243,865) (505,324) Income (loss) before taxes (benefit) 178,971 (305,044) (126,073) Net income (loss) 141,817 (305,044) (163,227) Total assets 9,953,391 10,991,004 20,944,395 Capital expenditures 92,472 199,565 292,037
(Continued) F-20 Nutrition Management Services Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 1999 and 1998 NOTE N - BUSINESS SEGMENTS - Continued As of and for the year ended June 30, 1998:
Food Service Retail Restaurants Management and Banquet Facilities Total ------------ ---------------------- ----- Food service revenue $37,439,489 $ 1,386,672 $38,826,161 Depreciation and amortization 299,356 532,536 831,892 Income from operations 1,485,887 (1,446,767) 39,120 Interest income 146,822 47,905 194,727 Interest expense (215,023) (176,838) (391,861) Income (loss) before taxes 1,555,901 (1,437,193) 118,728 Net income (loss) 1,495,106 (1,803,201) (308,095) Total assets 7,964,135 11,246,705 19,210,840 Capital expenditures 83,229 2,769,519 959,356 Total assets 9,678,223 9,953,391 19,631,614
The retail restaurants and banquet facilities were placed in service in September, 1997 and December, 1998, respectively, therefore all information included in the financial statements for the year ended June 30, 1997 was attributable to the food service management segment. NOTE O - QUARTERLY FINANCIAL DATA (UNAUDITED) The following quarterly financial data is unaudited, but in the opinion of management includes all necessary adjustments for a fair presentation of the interim results.
Fiscal 1999 ------------------------------------------------------------------ September 30, December 31, March 31, June 30, ------------- ------------ --------- -------- Revenues $ 9,115,066 $ 9,996,543 $ 9,711,904 $10,002,648 Gross profit 1,541,776 1,850,324 1,675,307 2,452,824 Net income (loss) (149,783) 69,927 8,542 (91,913) Net income (loss) per share - basic and diluted $ (0.05) $ 0.03 $ 0.00 $ (0.03)
Fiscal 1998 ----------------------------------------------------------------- September 30, December 31, March 31, June 30, ------------- ------------ --------- -------- Revenues $ 9,128,381 $ 9,421,397 $ 8,850,579 $ 8,755,717 Gross profit 1,752,923 1,704,370 1,732,678 1,439,428 Net (loss) income 85,272 18,770 35,963 (131,183) Net (loss) income per share - basic and diluted $ 0.03 $ 0.01 $ 0.01 $ (0.05)
F-21 SUPPLEMENTAL INFORMATION F-22 Nutrition Management Services Company and Subsidiaries SCHEDULE OF VALUATION ACCOUNTS June 30, 1999 and 1998 The following sets forth the activity in the Company's valuation accounts: Long-term Accounts accounts receivable receivable ---------- ---------- Balance at July 1, 1996 $ 362,065 $ 57,509 Provision for bad debts 180,000 - Write-offs (10,637) - ----------- ----------- Balance at June 30, 1997 531,428 57,509 Provision for bad debts 529,639 - Write-offs (358,661) (57,509) ---------- ----------- Balance at June 30, 1998 702,406 - Provision for bad debts 380,000 - Write-offs (444,506) - ---------- ----------- Balance at June 30, 1999 $ 637,900 $ - ========== =========== F-23 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S 10-K FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS JUN-30-1999 JUL-01-1998 JUN-30-1999 43 0 8,214 638 786 9,972 12,105 2,193 20,944 6,967 3,295 0 0 3,302 3,437 20,944 38,826 38,989 31,210 38,610 0 380 505 (126) 37 (163) 0 0 0 (163) (0.06) (0.06)
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