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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, 2000
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 19, 2000 was
approximately $ 429,919.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: At September 19, 2000, 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 1998. The remaining division of the project was
available for operations in 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 M 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
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
June 30, 2000 and 1999
TABLE OF CONTENTS
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF OPERATIONS 5
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
SUPPLEMENTAL INFORMATION
SCHEDULE OF VALUATION ACCOUNTS 24
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, 2000
and 1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended June 30,
2000. 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 auditing standards generally
accepted in the United States of America. 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, 2000
and 1999, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended June 30, 2000, in conformity
with accounting principles generally accepted in the United States of America.
We have also audited the schedule of valuation accounts for Nutrition
Management Services Corporation and its subsidiaries for each of the three years
in the period ended June 30, 2000. In our opinion, this schedule presents
fairly, in all material respects, the information required to be set forth
therein.
Philadelphia, Pennsylvania
September 1, 2000
Nutrition Management Services Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS 2000 1999
------------ ------------
Current assets
Cash and cash equivalents $ 1,134,720 $ 43,282
Accounts receivable (net of allowance for doubtful accounts of $853,005
and $637,900 in 2000 and 1999, respectively) 6,837,269 8,214,229
Unbilled revenue 595,228 435,663
Deferred income taxes 534,022 492,666
Inventory 227,379 245,642
Prepaid and other 460,903 366,232
------------ ------------
Total current assets 9,789,521 9,797,714
------------ ------------
Property and equipment - net 9,570,651 9,912,797
------------ ------------
Construction in progress 12,810 12,810
------------ ------------
Other assets
Investment in contracts (net of accumulated amortization of $1,721,489 and
$1,709,136 in 2000 and 1999, respectively) - 12,353
Advances to officers 302,221 346,871
Deferred income taxes 242,503 404,315
Bond issue costs 239,128
253,694
Deferred costs and other assets 10,020 29,772
------------ ------------
Total other assets 793,872 1,047,005
------------ ------------
$20,166,854 $20,770,326
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 174,000 $ 110,000
Accounts payable 3,970,660 5,476,019
Accrued expenses 541,346 414,205
Accrued payroll 350,547 458,370
Accrued professional 48,450 155,937
Accrued income taxes 18,466 13,992
Other 131,953 164,809
------------ ------------
Total current liabilities 5,235,422 6,793,332
------------ ------------
Long-term liabilities
Long-term debt - net of current portion 6,598,668 7,185,000
Long-term note payable 1,404,116 -
Other 26,414 52,778
------------ ------------
Total long-term liabilities 8,029,198 7,237,778
------------ ------------
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 outstanding in 2000 and 1999 3,801,926 3,801,926
Class B - no par, 100,000 shares authorized; 100,000 shares issued
and outstanding 48 48
Retained earnings 3,599,823 3,436,805
------------ ------------
7,401,797 7,238,779
Less treasury stock - (common - Class A: 253,000 shares in
2000 and 1999 - at cost ) (499,563) (499,563)
------------ ------------
Total stockholders' equity 6,902,234 6,739,216
------------ ------------
$20,166,854 $20,777,326
============ ============
The accompanying notes are an integral part of these statements.
4
Nutrition Management Services Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30,
2000 1999 1998
----------- ----------- -------------
Food service revenue $42,613,978 $38,773,935 $36,156,074
Cost of operations
Payroll and related expenses 15,304,354 15,490,739 14,864,985
Other costs of operations 18,721,452 15,666,942 14,571,756
----------- ----------- -------------
Cost of operations 34,025,806 31,157,681 29,436,741
----------- ----------- -------------
Gross profit 8,588,172 7,616,254 6,719,333
----------- ----------- -------------
Expenses
General and administrative expenses 6,461,990 6,188,531 5,191,218
Depreciation and amortization 731,271 831,482 959,356
Provision for doubtful accounts 584,193 380,000 529,639
----------- ----------- -------------
Expenses 7,777,454 7,400,013 6,680,213
----------- ----------- -------------
Income from operations 810,718 216,241 39,120
----------- ----------- -------------
Other income (expense)
Interest expense (605,806) (505,324) (391,861)
Interest income 68,188 92,939 194,727
Other 70,380 70,071 276,742
----------- ----------- -------------
Other income (expense) - net (467,238) (342,314) 79,608
----------- ----------- -------------
Income (loss) before income taxes 343,480 (126,073) 118,728
Income tax expense 180,462 37,154 109,906
----------- ----------- -------------
Net income (loss) $ 163,018 $ (163,227) $ 8,822
=========== ============ ==============
Net income (loss) per share - basic and diluted $ 0.06 $ (0.06) $ 0.00
=========== ============ ==============
Weighted average number of shares 2,847,000 2,859,959 2,845,845
=========== ============ ==============
The accompanying notes are an integral part of these statements.
5
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,
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
Net income -- -- -- -- 163,018 -- -- 163,018
--------- ----------- ------- --------- ----------- -------- ----------- -----------
Balance - June 30,
2000 2,747,000 3,801,926 100,000 48 3,599,823 (253,000) (499,563) 6,902,234
========= =========== ======= ========= =========== ======== =========== ===========
The accompanying notes are an integral part of this statement.
6
Nutrition Management Services Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
2000 1999 1998
--------------- --------------- ----------
Operating activities
Net (loss) income $ 163,018 $ (163,227) $ 8,822
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities
Depreciation and amortization 731,271 831,482 959,356
Amortization of bond costs 14,566 14,566 13,566
Provision for bad debts 584,193 380,000 529,639
Amortization of deferred gain (26,364) (26,364) (26,372)
Provision for deferred taxes 121,000 26,025 (254,967)
Loss on sale of equipment 11,159 - -
Changes in assets and liabilities
Accounts receivable 792,767 (2,928,490) (294,806)
Notes receivable - - 15,261
Unbilled revenue (159,565) (233,713) 42,157
Inventory 18,262 (71,583) 134,519
Prepaid and other (94,671) (182,974) (57,219)
Accounts payable (101,243) 491,215 662,142
Accrued professional and expenses 19,654 (31,384) (547,772)
Accrued payroll (107,823) 66,362 (68,890)
Accrued income taxes 4,474 8,900 (63,468)
Other (18,160) (8,668) (54,700)
----------- ------------ ------------
Net cash (used in) provided by operating activities 1,952,538 (1,827,853) 997,268
----------- ------------ ------------
Investing activities
Purchase of property and equipment (403,169) (292,037) (706,295)
Construction in progress expenditures - - (2,146,453)
Transfers from restricted cash - 906,838 189,238
Other - (47,422) 18,353
Payment of lease receivable - - 287,023
Repayments (advances) to employees and officers 44,650 (57,248) 8,597
Deferred costs 19,751 (19,650) 76,997
----------- ------------ ------------
Net cash (used in) provided by investing activities (338,768) 490,481 (2,272,540)
----------- ------------ ------------
Financing activities
Proceeds from long-term borrowings - 1,470,447 -
Repayment of long-term borrowings (747,332) (199,310) (804,492)
Proceeds of term note 225,000 - -
Purchase of treasury stock - (22,000) (56,532)
----------- ------------ ------------
Net cash (used in) provided by financing activities (522,332) 1,249,137 (861,024)
----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,091,438 (88,235) (2,136,296)
Cash and cash equivalents - beginning of year 43,282 131,517 2,267,813
----------- ------------ ------------
Cash and cash equivalents - end of year $ 1,134,720 $ 43,282 $ 131,517
=========== ============ ============
Supplemental disclosures of cash flow information
Cash paid during the years for
Interest (net of amounts capitalized) $ 566,891 $ 480,614 $ 391,860
Income taxes $ 175,988 $ 240,813$ -
The accompanying notes are an integral part of these statements.
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
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 restaurant. 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.
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 accounting
principles generally accepted in the United States of America 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.
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. The Company records inventory for
contracts which require goods to be owned. For the remaining customers, a
payable or receivable is recorded for the goods purchased on behalf of the
Company's customers, and billed back to customers quarterly. As of June 30,
2000 and 1999, inventory is $227,329 and $245,641, respectively. As of June
30, 2000 and 1999, inventory receivable from customers is $143,167 and
$40,016, respectively, while inventory payable to customers is $48,658 and
$22,296, respectively.
(Continued)
8
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
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, 2000, 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, 2000,
1999 and 1998, amortization expense was $12,353, $78,278 and $352,298,
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.
(Continued)
9
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
8. Accounting for Stock-Based Compensation
---------------------------------------
The Company follows the disclosure provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, for its stock options. This statement 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.
10. Earnings Per Share
------------------
The Company follows the provisions of SFAS No. 128, Earnings Per Share,
which eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share in conjunction with the
disclosure of the methodology used in computing such earnings per share.
Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted average common
shares outstanding during the period. Diluted earnings per share takes into
account the potential dilution that could occur if securities or other
contracts to issue common stock were exercised and converted into common
stock.
Options to purchase 108,000, 127,000 and 156,750 shares of common stock at
$4.00 per share were outstanding during 2000, 1999 and 1998, 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. Advertising expense for the years ended June 30,
2000, 1999 and 1998 was $46,976, $127,919 and $40,866, respectively.
12. Reclassification
----------------
Certain 1999 and 1998 items have been reclassified to conform to the current
year presentation.
10
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE C - PROPERTY AND EQUIPMENT
The following details the composition of property and equipment.
Estimated
useful lives 2000 1999
------------ ------------- ---------
Property and equipment
Land - $ 497,967 $ 497,967
Building 40 7,473,318 7,465,377
Machinery and equipment 2 - 8 3,281,337 2,916,560
Furnitures and fixtures 2 - 8 699,545 693,247
Other, principally autos and trucks 2 - 10 532,284 532,284
------------ ------------
12,484,451 12,105,435
Less accumulated depreciation 2,913,800 2,192,638
----------- -----------
$ 9,570,651 $ 9,912,797
=========== ===========
Depreciation expense amounted to $721,598, $753,204 and $699,038 for the
years ended June 30, 2000, 1999 and 1998, respectively.
The Company capitalized interest costs of $86,266 for the year ended June
30, 1998, for qualifying construction projects. No interest was capitalized
for the years ended June 30, 2000 and 1999. Total interest costs incurred
before recognition of the capitalized amounts were $605,806, $505,324 and
$478,127 for the years ended June 30, 2000, 1999 and 1998, respectively.
NOTE D - LONG- TERM DEBT
Long-term debt consisted of the following:
2000 1999
-------------- --------------
Bankrevolving credit, interest due monthly at the bank's prime rate plus
0.5% (9.5% at June 30, 2000), secured by all corporate assets as well
as a negative pledge on all assets;
matures on July 1, 2001 $ 3,385,802 $ 4,000,000
Notepayable, term loan incurred in connection with purchased computer
equipment, payable in equal monthly installments of $6,250 at a
variable interest rate (9.5% at June 30, 2000), maturing on February
1, 2003; the acquired equipment was
pledged as collateral 201,866 -
(Continued)
11
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE D - LONG- TERM DEBT - Continued
2000 1999
----------- -----------
Industrial Revenue Bonds (Collegeville Inn Projects)
(see bonds payable) $ 2,285,000 $ 2,360,000
Industrial Revenue Bonds (Apple Fresh Foods Projects)
(see bonds payable) 900,000 935,000
----------- -----------
6,772,668 7,295,000
Less current maturities 174,000 110,000
----------- -----------
$ 6,598,668 $ 7,185,000
========== ==========
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, 2000, the Company used $3,385,802. Advances under the
revolving credit are used for working capital purposes and the acquisition
and renovation of the Collegeville Inn. Subsequently, the Bank has provided
an extension of the revolving credit line through July 1, 2001.
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, 2000. Subsequently, the Bank has provided a waiver of
compliance for this covenant extending through July 1, 2001.
Maturities of principal due in the following years are set forth below:
Year ending June 30,
2001 $ 174,000
2002 3,564,802
2003 223,866
2004 135,000
2005 145,000
Thereafter 2,530,000
-----------
$ 6,772,668
===========
(Continued)
12
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE D - LONG- TERM DEBT - Continued
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.
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
------------- --------------- -----------
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
2005 100,000 45,000 145,000
13
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE E - INCOME TAXES
The components of income tax expense are:
2000 1999 1998
--------- --------- ---------
Current
Federal $ 17,716 $ (51,732) $ 128,064
State 41,746 62,886 72,842
--------- --------- ---------
59,462 11,154 200,906
--------- --------- ---------
Deferred
Federal 87,000 13,000 (69,000)
State 34,000 13,000 (22,000)
--------- --------- ---------
Total deferred (benefit) expense 121,000 26,000 (91,000)
--------- --------- ---------
$ 180,462 $ 37,154 $ 109,906
========= ========= =========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
approximately:
2000 1999
----------- -----------
Deferred tax assets
Provision for doubtful accounts $ 384,000 $ 287,000
Excess of tax over financial statement
basis of investments in contracts 309,000 342,000
Deferred gains 24,000 35,000
Vacation accrual 150,000 182,000
Other compensation accrual -- 24,000
Federal capital loss carryforwards -- 28,000
Charitable contribution carryforward 36,000 39,000
Federal net operating loss -- 53,000
Other 92,000 92,000
----------- -----------
Gross deferred tax assets 995,000 1,082,000
Deferred tax asset valuation allowance -- (28,000)
----------- -----------
Total deferred tax assets 995,000 1,054,000
Deferred tax liabilities
Deferred costs capitalized for financial statement purposes -- 1,000
Depreciation 219,000 156,000
----------- -----------
Total deferred tax liabilities 219,000 157,000
----------- -----------
Net deferred tax assets $ 776,000 $ 897,000
=========== ===========
(Continued)
14
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE E - INCOME TAXES - Continued
These amounts are classified in the balance sheet as follows:
2000 1999
---------- ----------
Current asset $ 534,000 $ 493,000
Non-current asset 242,000 404,000
---------- ----------
$ 776,000 $ 897,000
========== ==========
The following reconciles the tax provision with the U.S. statutory tax
rates:
2000 1999 1998
------ ------ ------
Income taxes at U.S. statutory rates 34.0% 34.0% 34.0%
States taxes, net of federal tax benefit 8.1 (32.9) 28.1
Nondeductible expenses 13.9 (45.4) 44.5
Decrease in valuation allowance (8.2) 32.5 (9.0)
Other 4.7 (17.7) (5.2)
------ ------ ------
52.5% (29.5)% 92.4%
====== ====== ======
The Company has charitable contribution carryforwards in the amount of
$73,000, which begin to expire in the year 2004.
NOTE F - 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, 2000, the Company recognized a gain of $26,364. As of
June 30, 2000 and 1999, the balance of the unamortized gain on the sale was
$52,778 and $79,154, respectively.
The Company leases its corporate office building from the above-mentioned
related party. During the years ended June 30, 2000, 1999 and 1998, rent
expense was $256,304, $228,862 and $229,705, respectively.
15
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE G - 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 F).
The Company is also obligated under various operating leases for operating
equipment for periods expiring through 2000. During the years ended June 30,
2000, 1999 and 1998, rent expense was $341,781, $300,300 and $259,546,
respectively.
Minimum annual rentals under non-cancellable operating leases subsequent to
June 30, 2000, are as follows:
Operating Real estate
Year ending June 30, equipment Facilities
------------ ----------
2001 $ 13,609 $ 199,862
2002 19,128 199,862
2003 19,128 -
2004 9,564 -
------------ ----------
$ 61,429 $ 399,724
=========== ==========
2. 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.
NOTE H - 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.
(Continued)
16
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE H - STOCKHOLDERS' EQUITY - Continued
During the fiscal year ended June 30, 1999, the Company repurchased 23,000
shares of common stock, for an aggregate price of $22,000. 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.
NOTE I - 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.
(Continued)
17
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE I - STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN - Continued
The following is a summary of transactions:
Number of
options Weighted
outstanding average
incentive Non-qualified exercise
stock options stock options Total price
------------- ------------- --------------- ----------
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
Granted - - - -
Forfeited/exercised (4,000) (15,000) - 4.00
-------- ------- --------
Outstanding at June 30, 2000 63,000 45,000 108,000 4.00
Exercisable at June 30, 2000 56,000 45,000 101,000 4.00
All options were granted at exercise prices above market price. The exercise
price was $4.00 per share for grants in 2000 and 1999, for the incentive
stock options.
The remaining contractual life of outstanding and exercisable options is
approximately five years and four years, respectively.
(Continued)
18
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE I - STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN - Continued
Had compensation cost for the plans been determined based on the fair value
of the options at the grant dates consistent with the method of SFAS No.
123, the Company's net income and earnings per share of common stock would
have been reduced to the pro forma amounts indicate below:
2000 1999 1998
--------- ---------- --------
Net (loss) income
As reported $ 163,018 $ (163,227) $ 8,822
Pro forma 163,018 (163,227) (6,170)
Per Share- basic and diluted
As reported $ 0.06 $ (0.06) $ 0.00
Pro forma $ 0.06 $ (0.06) $ 0.00
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-, $-0-and $.96
during the years ended June 30, 2000, 1999 and 1998, using the Black-Scholes
option-pricing model with the following assumptions used for grants in the
fiscal year 2000, 1999 and 1998: 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-, $-0-% and 5.6%, 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, 2000,
all employees were eligible to participate in the plan. A summary of stock
purchased under the plan is shown below.
2000 1999 1998
--------- ------- ----------
Aggregate purchase price $ 9,310 $ - $ 21,093
Shares purchased 18,316 - 12,691
Employee participants 26 23 23
The Employee Stock Purchase Plan currently holds 4,427 shares of stock in
excess of the amounts required by participating employees.
19
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE J - 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, 2000, 1999 and 1998, company contributions to the plan, which were
charged to expense, amounted to $30,252, $10,092 and $22,526, respectively.
NOTE K - 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, 2000, 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 L - MAJOR CUSTOMERS
The Company had sales to one customer representing approximately 17%, 17%
and 15% of total revenues for the years ending June 30, 2000, 1999 and 1998,
respectively. The loss of such customer could have a material adverse effect
on the Company's future results of operations.
NOTE M - 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) training and conference center. 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.
(Continued)
20
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE M - BUSINESS SEGMENTS - Continued
As of and for the year ended June 30, 2000:
Food Service Training and
Management Conference Center Total
---------- ----------------- -----
Food service revenue $41,476,456 $ 1,137,522 $42,613,978
Depreciation and amortization 218,533 512,738 731,271
Income from operations 1,809,219 (998,501) 810,718
Interest income 68,188 - 68,188
Interest expense (365,663) (240,143) (605,806)
Income (loss) before taxes (benefit) (80,504) 423,984 343,480
Net income (loss) (260,966) 423,984 163,018
Total assets 10,779,442 9,387,432 20,166,854
Capital expenditures 403,169 - 403,169
As of and for the year ended June 30, 1999:
Food service revenue $37,439,489 $ 1,334,446 $38,773,935
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 9,779,322 10,991,004 20,770,326
Capital expenditures 92,472 199,565 292,037
As of and for the year ended June 30, 1998:
Food service revenue $34,780,125 $ 1,375,949 $36,156,074
Depreciation and amortization 677,092 282,264 959,356
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 (benefit) 1,555,921 (1,437,193) 118,728
Net income (loss) 1,446,015 (1,437,193) 8,822
Total assets 7,964,135 11,246,705 19,210,840
Capital expenditures 83,229 2,769,519 2,852,748
21
Nutrition Management Services Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE N - 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 2000
----------------------------------------------------------------
September 30, December 31, March 31, June 30,
------------- ------------ ------------- -----------
Revenues $ 9,782,518 $10,108,393 $ 9,964,677 $12,758,390
Gross profit 1,755,255 2,157,875 2,026,378 2,648,664
Net income (loss) (223,442) 77,220 111,119 198,121
Net income (loss) per share - basic
and diluted $ (0.08) $ 0.03 $ 0.04 $ 0.07
Fiscal 1999
----------------------------------------------------------------
September 30, December 31, March 31, June 30,
------------- ------------ ------------- -----------
Revenues $ 9,115,066 $ 9,996,543 $ 9,711,904 $ 9,950,422
Gross profit 1,541,776 1,850,324 1,675,307 2,548,847
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)
NOTE O - SUBSEQUENT EVENTS
The Company entered into an agreement with a third party subsequent to June
30, 2000. As of June 30, 2000, $1,785,000 is due to this third party. The
agreement calls for the payment of the full amount outstanding in accordance
with an agreed upon schedule of payments. Payment terms begin with $100,000
due on August 1, 2000, followed by 35 monthly payments of $28,000, with a
final payment of $702,000 due at the end of the payment term. Accordingly,
$1,404,000 of the total due will be classified as a long-term liability on
the June 30, 2000 balance sheet.
22
SUPPLEMENTAL INFORMATION
Nutrition Management Services Company and Subsidiaries
SCHEDULE OF VALUATION ACCOUNTS
June 30, 2000 and 1999
The following sets forth the activity in the Company's valuation accounts:
Long-term
Accounts accounts
receivable receivable
------------- ------------
Balance at July 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 --
Provision for bad debts 584,193 --
Write-offs (369,088) --
--------- ---------
Balance at June 30, 2000 $ 853,005 $ --
========= =========
24
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,
2000 the Company provided services under various service agreements at 155
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:
2000 1999 1998
---- ---- ----
Agreements in effect at
beginning of fiscal year 110 103 102
New agreements during
the fiscal year 85 17 23
Contracts canceled during
the fiscal year 40 10 22
---- ---- ----
Agreements in effect at the
end of the fiscal year 155 110 103
---- ---- ----
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 2000, 17% of the Company's revenues and 16.6% of the
Company's gross profit 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 2001.
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, 2000, the Company employed a total of approximately 585
employees. Approximately 365 of those employees serve in various executive,
management, administrative, quality assurance and sales capacities. The
remaining 220 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 conference center.
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.
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 2000 High Low
----------- ---- ---
First Quarter 3/4 9/16
Second Quarter 3/4 33/64
Third Quarter 11/16 7/16
Fourth Quarter 7/8 1/2
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
5
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 August 14, 2000, there were approximately forty seven holders of
record of the Class A Common Stock. It is estimated that there are in excess of
500 beneficial holders of record.
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
-------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Revenue $ 42,613,918 $ 38,773,935 $ 36,156,074 $ 35,293,962 $ 35,138,432
Gross profit 8,588,173 7,616,254 6,719,333 6,782,040 6,801,924
Income from
Operations 810,718 216,241 39,120 1,020,689 418,991
Other income
(Expense) (467,238) (342,314) 79,608 242,383 128,563
Net Income(Loss) $ 163,018 $ (163,227) $ 8,822 $ 752,276 $ 301,954
============ ============ ============ ============ ============
Per share of common stock (basic and diluted):
Net Income $ 0.06 $ (0.06) $ 0.00 $ 0.26 $ 0.10
============ ============ ============ ============ ============
Weighted average
common shares
outstanding 2,847,000 2,859,959 2,845,845 2,921,549 2,956,504
============ ============ ============ ============ ============
6
As of June 30
-------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Working capital $ 4,554,099 $ 3,004,382 $ 262,102 $ 2,519,348 $ 3,921,140
Total Assets 20,166,854 20,770,376 19,210,840 20,381,557 16,962,352
Long-term debt 8,002,784 7,185,000 5,616,552 6,083,851 3,267,808
Shareholders'
equity 6,902,234 6,739,216 6,924,443 6,972,153 6,309,595
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Year Ended June 30, 2000 Compared to Year Ended June 30, 1999
Revenues for the year June 30, 2000 ("Fiscal 2000") increased by 9.9%
to $42,613,918 compared to revenues of $38,773,935 for the year ended June 30,
1999 ("Fiscal 1999"). The increase results from revenue growth from new business
and growth within existing contracts, offset by contracts canceled during the
period.
Direct cost of operations for fiscal 2000 was $34,025,806 compared to
$31,209,907 for similar expenses in fiscal 1999, an increase of $2,815,899 or
9.0%. This increase in direct costs is due to operating and inflationary price,
wage, and expense increases and related higher revenues during the period.
Gross Profit for fiscal 2000 was $8,588,173, compared to $7,616,254, an
increase of $971,919 or 12.8%. This increase is due to revenues increasing at a
greater percentage than direct expenses.
General and Administrative expenses for fiscal 2000 were $6,461,990 or
15.2% of revenue, compared to $6,188,531 or 16.0% of revenue for fiscal 1999.
The percentage decrease is due to revenues growing at a greater rate than the
general and administrative expenses.
Depreciation and amortization for fiscal 2000 was $731,271, compared to
$831,482 for fiscal 1999. The decrease of $100,211 or 12.1% was due to a
decrease in amortization expenses.
Provision for doubtful accounts for fiscal 2000 was $584,193 compared
to $380,000 for fiscal 1999. The increase of $204,193 is attributable to an
increase in business activities and a change in contractual relationships.
7
Income from operations for fiscal 2000 was $810,718 or 1.9% of revenue
compared to $216,241 or .5% of revenue for fiscal 1999, an increase of $594,477.
This increase is due to operating efficiencies and an increase in operating
revenues.
Interest expense for fiscal year 2000 was $605,806 or 1.4% of revenue,
compared to $505,324 or 1.3% of revenue for fiscal 1999. This increase is due to
an increase in market interest rates as well as an increase in equipment
financing activities, which were necessary to support start-up operations
associated with the new business contracts discussed above.
For the reasons stated above, the net income before income taxes for
the fiscal year 2000 was $343,480 or 0.8% of revenue compared to the net loss
before income taxes $(126,073) or (.3%) of revenue for fiscal 1999, an increase
of $469,553 or 372.5% from fiscal 1999.
The Net Income for fiscal 2000 was $163,018 or $0.06 per share as
compared to Net Loss of $(163,227) or ($0.06) per share for fiscal 1999.
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
Revenues for the year ended June 30, 1999 ("Fiscal 1999") increased by
7.2% to $38,773,935 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 operating and inflationary price,
wage, and expense increases and related higher revenues during the period.
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.
8
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.
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.
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.
Liquidity and Capital Resources
At June 30, 2000, the Company had working capital of $4,554,099 as
compared to $3,004,382 at June 30, 1999. This increase in working capital is
primarily attributable to a decrease in the Company's current liabilities which
were effected by an increase in cash collections and the reclassification of an
amount payable under a third party agreement. The Company's holdings in cash,
cash equivalents and marketable securities increased by $1,091,438 to
$1,134,720. 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.
9
Operating Activities
Cash provided by operations for fiscal 2000 was $1,958,538, compared to
$1,827,853 used in operations for fiscal 1999. An increase in collection efforts
which reduced accounts receivable was primarily responsible for the change in
cash.
Investing Activities
Investing activities consumed $338,768 in cash during fiscal 2000
compared to $490,481 provided in cash in fiscal 1999. Investing activities for
fiscal 2000 include capital expenditures in the amount of $403,169. During
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.
Financing Activities
During fiscal 2000, financing activities consumed $522,332 in cash ,
compared to $1,249,137 provided in cash in fiscal 1999. Repayment of debt
consumed $747,332 in fiscal 2000 compared to $199,310 in fiscal 1999. The
Company also borrowed $225,000 in long term debt to fund capital expenditures
for Y2K upgrades.
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. As of June 30,
2000 the Company has $614,197 available on its line of credit. The Company is
current with all its obligations to its Bank and on its bonds and has met all
financial covenants in its loan documents except those that were specifically
waived by the bank.
A substantial portion of the Company's 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
10
to obtain capital from such sources as continuing debt financing or equity
financing.
Effects of Inflation
Substantially 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.
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.
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.
11
PART III
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information will be contained in the Proxy Statement of the
Company for the 2000 Annual Meeting of Shareholders under the caption "Directors
and Executive Officers of the Registrant", and is incorporated herein by
reference.
ITEM 10 - EXECUTIVE COMPENSATION
This information will be contained in the Proxy Statement of the
Company for the 2000 Annual Meeting of Shareholders under the caption "Executive
Compensation and Compensation of Directors" and is incorporated herein by
reference.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information will be contained in the Proxy Statement of the
Company for the 2000 Annual Meeting of Shareholders under the caption "Security
Ownership" and "Election of Directors" and is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will be contained in the Proxy Statements of the
Company for the 2000 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-3,4
Consolidated Balance Sheets as of
June 30, 2000 and 1999
F-5
12
Consolidated Statements of Operations for
the Years Ended June 30, 2000, 1999 and 1998 F-6
Consolidated Statements of Stockholders'
Equity for the Years Ended June 30, 2000,
1999 and 1998 F-7
Consolidated Statements of Cash Flows for
the Years Ended June 30, 2000, 1999 and 1998 F-8
Notes to Consolidated Financial Statements F-9 to F-23
Schedule of Valuation Accounts
F-25
(B) Reports on Form 8-K
None
(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
(Inco rporated by reference to Exhibit 4.5 of the S-1).
13
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).
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.)
14
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)
----------------------------------
Joseph V. Roberts, Chief Executive Officer
and Director
Date: September 28, 2000
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, 2000.
/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/ Richard Kresky /s/ Samuel R. Shipley
- --------------------------------- -----------------------------------
Richard Kresky, Director Samuel R. Shipley, Director
/s/ Michael M. Gosman /s/ Michelle L. Roberts-O'Donnell
- --------------------------------- -----------------------------------
Michael M. Gosman, Director Michelle L. Roberts-O'Donnell, Director
/s/ Jane Scaccetti
- --------------------------------- -----------------------------------
Jane Scaccetti, Director