Attached files
file | filename |
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EX-32.2 - NUTRITION MANAGEMENT SERVICES CO/PA | ex322to10k01523_06302009.htm |
EX-32.1 - NUTRITION MANAGEMENT SERVICES CO/PA | ex321to10k01523_06302009.htm |
EX-31.1 - NUTRITION MANAGEMENT SERVICES CO/PA | ex311to10k01523_06302009.htm |
EX-31.2 - NUTRITION MANAGEMENT SERVICES CO/PA | ex312to10k01523_06302009.htm |
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 Fiscal year ended June 30, 2009 |
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 or 15(D)OF
THE SECURITIES EXCHANGE ACT OF 1934 (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
incorporation or organization)
|
(IRS
Employer Identification No.)
|
725
Kimberton Road, Kimberton, Pennsylvania 19442
(Address
of principal executive office) (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 on
Which Registered
|
Title
of Each Class
|
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 3 pages)
Indicate by checkmark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
YES o NO
x
Indicate
by checkmark if the registrant is not required to file reports pursuant to
Section 13 or Section 15 (2) of the Act
YES o
NO x
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 o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 605 of Regulation S
–T (§232.405 of this chapter) during the previous 12 months (or for
such shorter period that the registrant was required to submit and post such
files).
YES o
NO o
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
Indicate
by checkmark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See
the definition of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
LARGE ACCELERATED FILER | o | ACCELERATED FILER | o | |||
NON-ACCELERATED FILER | o | SMALLER REPORTING COMPANY | x |
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
YES o
NO x
(Cover
page 2 of 3 pages)
The
aggregate market value of voting stock (Class A Common Stock, no par value) held
by non-affiliates of the Registrant as of December 31, 2008 was approximately
$17,141.
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: At October 13, 2009, 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 page
24.
(Cover
page 3 of 3 pages)
PART
I
ITEM
1 - BUSINESS
General
Nutrition
Management Services Company (the “Company” or the “Registrant”) provides food,
facilities operations and housekeeping management services to continuing care
facilities, hospitals, retirement communities and schools.
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, retirement communities and schools.
On
November 25, 1991, the Company organized Apple Management Services Company
to provide management service expertise.
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 renovated the property to serve as a
comprehensive training facility for Company employees. In addition,
the facility serves as a showroom for prospective customers who can 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 through the issuance of two twenty-year bonds
dated December 1996 and its internal working capital. 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. Effective June
27, 2005, the Company closed the buffet restaurant at the Collegeville Inn
Conference and Training Center to make the facility available for catered
events.
On
November 14, 1997, the Company organized Apple Fresh Foods, Ltd. to develop a
cook-chill food preparation technology for use in the Company’s food service
business. Apple Fresh Foods, Ltd. operations are located in the
Collegeville Inn.
The Company owns approximately
twenty-two acres of land in Collegeville, Montgomery County,
Pennsylvania. In 1997, the Company completed its renovations of an
existing 40,000 square foot building to serve as a training facility and
conference center. On October 8, 2008, the Company entered into an
agreement of sale for certain tracts or parcels of land, together with the
building, Collegeville Inn Conference and Training Center, for the sum of
$5,500,000. The Agreement of Sale was contingent upon the Buyer being
able to obtain all necessary permits and approvals for the development of an age
restricted living facility on the property. In April 2009, it became
apparent to the Buyer that the permit and approval process was going to take
longer than originally anticipated and that it would not be able to meet its
target deadlines. As a result, the Company and the Buyer executed a
mutual release, releasing both parties from any further obligations under the
Agreement of Sale. The Company continues to protect the zoning of the
property so as to permit future development. Immediately following
the execution of the mutual release, the Company listed the property for sale
with a nationwide commercial real estate brokerage.
1
Financial
Information About Industry Segments
See Note
P on page F-21 of the Consolidated Financial Statements.
Description
of Services
The
Company provides contract food, facilities operations and housekeeping services
to continuing care facilities, hospitals, retirement communities and
schools. The Company provides complete management and supervision of
the dietary, facilities and housekeeping 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.
The
Company seeks to provide its services 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, retirement
communities as well as schools, 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 Operating Personnel. 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 publicly traded, for profit or not-for-profit and may serve residents
and patients on a continuing or short-term basis.
2
Service
Agreements
The
Company provides its services under several different financial arrangements
including a fee basis and guaranteed rate basis. As of June 30, 2009, the
Company provided services under various service agreements at thirty eight (38)
facilities. At some of these facilities, the Company has contracts to
provide vending services and housekeeping 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.
In
consideration for providing its services, the Company expects to be paid by its
clients in accordance with the credit terms agreed upon which range from 30 days
to 90 days.
Major
Customers
The
Company’s Food Service Management Segment had sales to one customer representing
approximately 9%, 8% and 8% of the total revenues for the years ending June 30,
2009, 2008 and 2007, respectively. Sales to one other customer represented 8%,
7% and 7% of the total sales for the years ending June 30, 2009, 2008 and 2007,
respectively.
The loss
of any of these customers could have a material adverse effect on the Company’s
future results of operations.
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.
Employees
At June
30, 2009, the Company employed a total of approximately 289
employees. Approximately 103 of those employees serve in various
executive, management, administrative, quality assurance and sales
capacities. The remaining 186 employees are primarily dietary and
housekeeping workers. Approximately 121 (65%) of the Company’s
dietary and housekeeping workers are covered by a collective bargaining
agreement. The Company’s collective bargaining agreements cover
various food service and housekeeping facilities. Their terms cover
various time periods. The Company makes contributions to the unions’ benefits
funds as required by the collective bargaining agreements. The Company considers
its relationships with its employees and unions to be satisfactory.
3
Purchasing
For the
year June 30, 2009, the Company purchased approximately 28% of its food and
non-food products from one vendor. Purchases from two other vendors amounted to
32% and 11% of the total purchases for the year ended June 30, 2008; the same
two vendors represented 29% and 18% of the total purchases for the year ended
June 30, 2007, respectively.
While the
Company maintains a good relationship with these vendors, in the event of a
disruption in the Company’s relationship with these vendors or any disruption in
the vendors’ business, the Company has alternate sources of supply for its food
and non-food products.
Financial
Information About Foreign and Domestic Operations and Export Sales
Not
applicable.
ITEM
1A – RISK FACTORS
Investors
should be aware of several risks before investing in the Company including but
not limited to (i) the Company had a net loss of $424,404 for the Fiscal year
ended June 30, 2008 (ii) the Company’s Class A Common stock is traded on the
Pink Sheets and hence there is limited liquidity of the Company’s Class A Common
Stock, (iii) the Company has never paid any dividends and its credit facility
prohibits it from paying any cash dividends, and (iv) the Company’s Chief
Executive Officer is the holder of in excess of 70% of the Company’s voting
stock.
ITEM
1B – UNRESOLVED STAFF COMMENTS
The
Company is unaware of any unresolved staff comments.
ITEM
2 - PROPERTIES
The
Company leases its corporate offices, located at 2071 Kimberton Road, Kimberton,
Pennsylvania, which consists of approximately 8,500 square feet from Ocean 7,
Inc., a corporation controlled by the Chief Executive Officer of the
Company. Currently the lease is on a month-to-month basis on terms
generally similar to those prevailing to unrelated parties.
During
the three years ended June 30, 2009, 2008 and 2007, the Company paid the related
party entity rent in the amounts of $258,414, $259,347 and $265,283,
respectively. The Company leases an apartment from the same company
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, Montgomery
County, Pennsylvania. In 1997, the Company completed its renovations
of an existing 40,000 square foot building to serve as a training facility and
conference center. On October 8, 2008, the Company entered into an
agreement of sale for certain tracts or parcels of land, together with the
building, Collegeville Inn Conference and Training Center, for the sum of
$5,500,000. The Agreement of Sale was contingent upon the Buyer being
able to obtain all necessary permits and approvals for the development of an age
restricted living facility on the property. In April 2009, it became
apparent to the Buyer that the permit and approval process was going to take
longer than originally anticipated and that it would not be able to meet its
target deadlines. As a result, the Company and the Buyer executed a
mutual release, releasing both parties from any further obligations under the
Agreement of Sale. The Company continues to protect the zoning of the
property so as to permit future development. Immediately following
the execution of the mutual release, the Company listed the property for sale
with a nationwide commercial real estate brokerage.
4
For a
further description of issues relating to the properties refer to the
Management’s Discussion and Analysis-Liquidity and Capital
Resources.
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
The
Company is involved in litigation with a construction contractor related to the
renovations of Collegeville Inn Conference and Training Center. The
Company denies the claims and has asserted offsets against the amounts
claimed. The case is in discovery.
Although
it is not possible to predict with certainty the outcome of the unresolved legal
action, or the range of possible loss or recovery, the Company believes these
unresolved legal actions will not have a material effect on its financial
position or results of operations.
In
addition to the litigation described above, the Company is exposed to asserted
and unasserted claims in the normal course of business. In the
opinion of management, the resolution of these matters will not have a material
adverse effect on the Company’s financial position, results of operations or
cash flows.
ITEM
4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not
applicable.
5
PART
II
ITEM
5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The
Company’s Class A Common Stock No Par Value, (the “Class A Common Stock”) is
currently trading on the OTC Pink Sheets (Ticker Symbol – NMSCA.PK) and is a
penny stock. The Company’s Class A Common Stock traded on the OTC
Bulletin Board until January 7, 2005, at which time trading commenced on the OTC
Pink Sheets. 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 on
the OTC Electronic Bulletin Board or the OTC Pink Sheets for the quarters ending
during the last two Fiscal years for the Class A Common Stock:
Fiscal 2009
|
High
|
Low
|
Fourth
Quarter
|
$0.06
|
$0.04
|
||
Third
Quarter
|
0.10
|
0.03
|
||
Second
Quarter
|
0.25
|
0.02
|
||
First
Quarter
|
0.25
|
0.24
|
||
Fiscal 2008
|
High
|
Low
|
Fourth
Quarter
|
$0.24
|
$0.24
|
||
Third
Quarter
|
0.25
|
0.24
|
||
Second
Quarter
|
0.40
|
0.22
|
||
First
Quarter
|
0.45
|
0.40
|
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
October 1, 2009, there were approximately thirty-seven (37) holders of record of
the Class A Common Stock.
6
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. The Company’s credit facilities prohibit it
from paying any cash dividends.
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.
Year ended June 30,
|
||||||||||||||||||||
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
Revenue
|
$ | 20,013,903 | $ | 20,860,543 | $ | 20,911,939 | $ | 23,366,435 | $ | 26,602,121 | ||||||||||
Gross
Profit
|
4,298,008 | 3,993,436 | 3,877,032 | 4,273,467 | 4,914,568 | |||||||||||||||
Income
(Loss) from Operations
|
366,897 | (78,118 | ) | (699,461 | ) | (1,151,505 | ) | (770,800 | ) | |||||||||||
Other
Income / (Expense)
|
(281,528 | ) | (346,286 | ) | (333,261 | ) | (198,203 | ) | 1,854,038 | |||||||||||
Net
Income / (Loss)
|
85,369 | (424,404 | ) | (771,147 | ) | (820,442 | ) | 775,657 | ||||||||||||
Per
share of Common Stock (basic and diluted):
|
||||||||||||||||||||
Net Income /
(Loss)
|
$ | 0.03 | $ | ( 0.15 | ) | $ | ( 0.27 | ) | $ | ( 0.29 | ) | $ | 0.27 | |||||||
Weighted
average Common Shares
Outstanding
(basic and diluted)
|
2,847,000 | 2,847,000 | 2,847,000 | 2,847,000 | 2,847,000 | |||||||||||||||
As of June 30,
|
||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Working
Capital
|
$ | 2,195,335 | $ | 2,272,753 | $ | ( 3,519,962 | ) | $ | 687,126 | $ | 1,581,159 | |||||||||
Total
Assets
|
12,663,486 | 12,717,855 | 13,274,851 | 13,967,438 | 16,190,634 | |||||||||||||||
Long-Term
Debt
|
2,089,146 | 1,865,000 | 2,045,000 | 5,714,922 | 5,604,921 | |||||||||||||||
Stock
Holders Equity
|
3,474,716 | 3,389,347 | 3,813,751 | 4,584,898 | 5,413,580 |
7
ITEM
7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking
Statements
This Form
10-K contains certain forward looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934 as amended, 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 prove to be accurate.
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.
Result
of Operations Year Ended June 30, 2009 Compared to year Ended June 30,
2008
Revenues
for the year ended June 30, 2009 (“Fiscal 2009”) were $20,013,903, a decrease of
$846,640 compared to revenues of $20,860,543 for the year ended June 30, 2008
(“Fiscal 2008”). This decrease is attributable to a decrease in
revenues from Collegeville Inn operations. Revenue from new
food service accounts during the current year has not been sufficient to offset
any contracts terminating in the current year. Revenues at ongoing
facilities increased slightly year over year.
Cost of
operations for Fiscal 2009 was $15,715,895 compared to $16,867,107 in Fiscal
2008, a decrease of $1,151,212 or 6.83%. The decrease is due to lower
revenues during the period and the expenses associated with those revenues over
the same period. Improved operating performance also contributed to the reduced
costs.
Gross
profit for Fiscal 2009 was $4,298,008 or 21.5% of revenue, compared to
$3,993,436 or 19.1% of revenue in Fiscal 2008, an increase of $304,572 or
7.63%. The increase in gross profit is due to improved operating
processes as well as the net impact of new contracts and lost contracts, which
was partially offset by the renegotiation of contract rates in the normal course
of business.
General
and administrative expenses for Fiscal 2009 were $3,845,120 or 19.21% of
revenue, compared to $3,979,501 or 19.0% of revenue for Fiscal 2008, a decrease
of $134,381 or 3.4%. This decrease is due to lower payroll and
related expenses as well as a reduction in travel and related
costs.
Depreciation
and amortization for Fiscal 2009 was $25,353, compared to $28,985 for Fiscal
2008.
Bad debt
expense for Fiscal 2009 was $51,735 compared to $63,068 for Fiscal 2008. Bad
debt expense represents an amount considered uncollectible based on
specifically identified amounts that we believe to be based on
historical collection experience, adverse situations that may affect the
customers ability to repay and prevailing economic conditions.
8
Income
from operations for Fiscal 2009 was $366,897 or 1.8% of revenue compared to a
loss of $78,118 or 0.37% of revenue for Fiscal 2008, an improvement of $445,015
or 569.7%. This improvement is the result of cost effectiveness and
performance offsetting reduced revenues as well as a reduction of general and
administrative expenses.
Interest
expense for Fiscal 2009 was $278,876 or 1.4% of revenue, compared to $334,190 or
1.6% of revenue for Fiscal 2008. This decrease in interest expense is
the result of a reduction in long term debt.
Other
income/(expense) for Fiscal 2009 was ($4,302) or .02% of revenue compared to
($29,028) or .1% of revenue for Fiscal 2008.
For the
reasons stated above, net income before income taxes for Fiscal 2009 was $94,272
or 0.47% of revenue compared to net loss before income taxes of $424,404 or 2.0%
of revenue for Fiscal 2008.
The net
income for Fiscal 2009 was $85,369 or $0.03 per share compared to a net loss of
$424,404 or $0.15 per share for Fiscal 2008.
Liquidity
and Capital Resources
The
Company’s requirement for capital is to fund (i) sales growth, (ii) food
purchases and wage costs at certain facilities in advance of customer
reimbursement, and (iii) financing for acquisitions. Our primary
source of financing during 2009 and 2008 was cash flow from
operations.
At June
30, 2009, the Company had positive working capital of $2,609,481 as compared to
positive working capital of $2,272,753 at June 30, 2008. Cash used by operations
for Fiscal 2009 was $428,319, compared to $401,877 used by operations for Fiscal
2008. This activity was primarily attributed to changes in accounts
receivable and accounts payable.
Investing
activities provided $32,745 during Fiscal 2009 compared to $170,372 used in cash
during Fiscal 2008. Fiscal 2009 included capital expenditures of
$2,606 while Fiscal 2008 included capital expenditures of
$18,757. Fiscal 2009 included repayment of employee advances of
$27,416. Fiscal 2009 also included the sale of assets for $7,935. During Fiscal
2009, financing activities provided $140,281 which included the repayment of
$273,831 in long term debt and proceeds of $414,146 from a related party. Fiscal
2008 used $162,449 financing activities which included the repayment of $170,000
in long term debt.
The
Company has certain credit facilities with its bank including a revolving credit
of $3,500,000. At June 30, 2009 the Company had approximately
$3,400,000 outstanding under its revolving credit. The Company issued
two series of Industrial Bonds totaling $3,560,548 in December
1996. The outstanding balance on the bonds was $1,865,000 as of June
30, 2009. In December 2008, the Company entered into an agreement
whereby the credit loan facility was extended to December 31,
2009. The Company is currently negotiating to replace or retire this
debt with alternate financing.
9
Payment
Due By Period
|
|||||
Contractual
Obligations
|
Total
|
Less
than 1 year
|
2
– 3 years
|
4
– 5 years
|
After
5 years
|
Total
Debt *
|
$5,270,283
|
$3,595,283
|
$415,000
|
$465,000
|
$795,000
|
Total
Contractual Cash Obligations
|
$5,270,283
|
$3,595,283
|
$415,000
|
$465,000
|
$795,000
|
* Long-Term Debt includes
approximately $3,400,00 outstanding on the revolving credit facility.
The
Company is exploring all reasonable alternatives to improve its operating
results, including but not limited to, increasing food service revenues with
targeted marketing efforts, and increasing revenues from the sale of the
Company’s Cook Chill products. On October 8, 2008, the Company entered into an
agreement of sale for certain tracts or parcels of land, together with the
building, Collegeville Inn Conference and Training Center, for the sum of
$5,500,000. The Agreement of Sale was contingent upon the Buyer being
able to obtain all necessary permits and approvals for the development of an age
restricted living facility on the property. In April 2009, it became
apparent to the Buyer that the permit and approval process was going to take
longer than originally anticipated and that it would not be able to meet its
target deadlines. As a result, the Company and the Buyer executed a
mutual release, releasing both parties from any further obligations under the
Agreement of Sale. The Company continues to protect the zoning of the
property so as to permit future development. Immediately following
the execution of the mutual release, the Company listed the property for sale
with a nationwide commercial real estate brokerage.
The
Company's financial statements as of June 30, 2009, have been presented on the
basis that it is a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of
business.
10
Based
upon its present plans, management believes that operating cash flow, available
cash, proceeds from the sale or lease of certain assets and available credit
resources will be adequate to make repayments of indebtedness described herein,
to meet the working capital cash needs of the Company, satisfy the needs of its
operations and to meet anticipated capital expenditure needs during the twelve
months ending June 30, 2010.
In view
of the matters described above, recoverability of a major portion of the
recorded asset amounts shown in the Company's accompanying balance sheet is
dependent upon continued operations of a continuing basis, to maintain present
financing, and to succeed in its future operations. The Company's financial
statements do not include any adjustment relating to the recoverability and
classification of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable to continue in
existence.
In an
effort to extend its current bank debt, the Company may seek to access the
public equity markets whenever conditions are favorable, even if it does not
have an immediate need for additional capital at that time. Any
additional funding may result in significant dilution and could involve the
issuance of securities with rights, which are senior to those of existing
stockholders. The Company may also need additional funding earlier
than anticipated, and its cash requirements, in general, may vary materially
from those now planned, for reasons including, but not limited to, competitive
advances and higher than anticipated expenses and lower than anticipated
revenues from operations.
NEW
AUTHORITATIVE PRONOUNCEMENTS
In
May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS
165"). SFAS 165 establishes general standards of accounting for and disclosures
of subsequent events that occurred after the balance sheet date but prior to the
issuance of financial statements. SFAS 165 is effective for financial statements
issued for interim or Fiscal years ending after June 15, 2009. The adoption
of SFAS 165, effective June 2009, did not affect the consolidated financial
position, results of operations or cash flows of the Company.
In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments. This FSP amends FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. This FSP also amends APB Opinion No.
28, Interim Financial
Reporting, to require those disclosures in summarized financial
information at interim reporting periods. This FSP shall be effective for
interim reporting periods ending after June 15, 2009.
In April
2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP amends the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. The FSP does not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity
securities. The FSP shall be effective for interim and annual reporting periods
ending after June 15, 2009.
11
In April
2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly. This FSP
amends FASB Statement No. 157, Fair Value Measurements to
provide additional guidance on estimating fair value when the volume and level
of transaction activity for an asset or liability have significantly decreased
in relation to normal market activity for the asset or liability. The FSP also
provides additional guidance on circumstances that may indicate that a
transaction is not orderly. This FSP supersedes FSP No. FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active and requires
additional disclosures about fair value measurements in annual and interim
reporting periods. FSP No. FAS 157-4 is effective for interim and annual
reporting periods ending after June 15, 2009.
In April
2009, the SEC released Staff Accounting Bulletin No. 111 ("SAB 111"), which
amends SAB Topic 5-M. SAB 111 notes that FSP No. 115-2 and FAS 124-2 were scoped
to debt securities only, and the FSP referred readers to SEC SAB Topic 5-M for
factors to consider with respect to other-than-temporary impairments for equity
securities. With the amendments in SAB 111, debt securities are excluded from
the scope of Topic 5-M, but the SEC staff’s views on equity securities are still
included within the topic.
In June
2009, the FASB issued Statement of Financial Accounting Standards No. 168, "The
FASB Accounting Standards Codification(TM) and the Hierarchy of Generally
Accepted Accounting Principles - a replacement of FASB Statement No. 162" ("SFAS
168"). SFAS 168 establishes the FASB Accounting Standards Codification(TM)
("Codification") as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in preparing financial
statements in conformity with generally accepted accounting principles in the
United States. Once effective, all guidance in the Codification will carry the
same level of authority, and all future changes or additions to U.S. generally
accepted accounting principles will be issued as Accounting Standards Updates.
SFAS 168 does not make any changes to existing accounting guidance that will
impact the Company's accounting and financial reporting. It is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009.
The
Public Company Accounting Oversight Board voted on July 28, 2009 to adopt
Auditing Standard No. 7, "Engagement Quality Review" ("EQR"), and to issue a
Concept Release on requiring the engagement partner to sign the audit report.
The EQR standard provides a framework for the engagement quality reviewer to
objectively evaluate the significant judgments made and related conclusions
reached by the engagement team in forming an overall conclusion about the
engagement.
The
Sarbanes-Oxley Act of 2002 directs the Board to include in its auditing
standards a requirement that each registered public accounting firm "provide a
concurring or second partner review and approval of [each] audit report (and
other related information), and concurring approval in its issuance, by a
qualified person (as prescribed by the Board) associated with the public
accounting firm, other than the person in charge of the audit, or by an
independent reviewer (as prescribed by the Board)." The Board initially proposed
the auditing standard on February 26, 2008, and re-proposed it on March 4,
2009.
12
Auditing
Standard No. 7 applies to all audit engagements, and engagements to review
interim financial information, conducted pursuant to the standards of the PCAOB.
The standard supersedes the Board's quality control standard, SECPS Requirements
of Membership, Section 1000.08(f); 1000.39, Appendix E. The standard, if
approved by the U.S. Securities and Exchange Commission (SEC), will become
effective for both the EQR of audits and the EQR of interim reviews for Fiscal
years beginning on or after December 15, 2009.
Separately,
the Board also is seeking comment on a Concept Release to consider the effects
of a potential requirement for the engagement partner to sign the audit report.
Any such requirement would be in addition to the existing requirement for the
audit firm to sign its name on the audit report. The Board is seeking comment on
the Concept Release for a 45-day period.
CRITICAL
ACCOUNTING POLICIES
The
discussion and analysis of our financial condition and results of operations are
based upon the Company's consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
the Company to make estimates and judgments that affect the reported amount of
assets and liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities at the date of the Company’s financial
statements. Actual results may differ from these estimates under different
assumptions or conditions.
Critical
accounting policies are defined as those that are reflective of significant
judgments and uncertainties, and potentially result in materially different
results under different assumptions and conditions. The Company believes that
its critical accounting policies include those described below.
Revenue
Recognition
Revenue
is generated primarily from fees for food service management and facilities
management at continuing care and health care facilities, schools and the
Collegeville Inn Conference and Training Center.
The
Company provides its services under several different financial arrangements
including a fee basis and guaranteed rate basis. For Fee Contracts,
certain expenses are paid directly by the Customer and certain expenses are paid
by the Company and billed to the Customer. The Company recognizes
revenue in the amount of the expenses billed and the fees for providing
services.
For
Guaranteed Rate Contracts, the Company charges Customers an established amount
for services provided (for example, per patient day) and is responsible for all
the expenses related to the delivery of those services. The amount of
the billing is recorded as revenue and the delivery costs are recorded as cost
of sales.
Regardless
of the different financial arrangements, the Company recognizes revenue when
services have been rendered and the contract price is determinable, and
collectability is reasonably assured. Ongoing assessments of the
credit worthiness of customers provide the Company reasonable assurance of
collectability upon performance of services. The Company has no other
obligation with respect to its services once services are
performed.
13
Accounts
Receivable
The
Company performs ongoing credit evaluations of its customers and adjusts credit
limits based on payment history and the customer's current credit worthiness, as
determined by a review of their current credit information. The Company
continuously monitors collections and payments from its customers and maintains
a provision for estimated credit losses based on historical experience and any
specific customer collection issues that have been identified. While such credit
losses have historically been within the Company’s expectations and the
provisions established, the Company cannot guarantee that it will continue to
experience the same credit loss rates that it has in the past.
Impairment
or Disposal of Long Lived Assets
The
carrying value of property, plant, and equipment is evaluated based upon current
and anticipated undiscounted operating cash flows before debt service charges.
An impairment is recognized when it is probable that such estimated future cash
flows will be less than the carrying value of the assets. Measurement
of the amount of impairment, if any, is based upon the difference between the
net carrying value and the fair value, which is estimated based upon anticipated
undiscounted operating cash flows before debt service charges. Based
upon a review of its long-lived assets, the Company did not recognize an
impairment loss for the Fiscal year ended June 30, 2009; however, there can be
no assurance that the Company will not recognize an impairment loss on its
long-lived assets in future periods.
Income
Tax Accounting
The
Company determines its provision for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the future tax effects of temporary differences of existing
assets and liabilities and their respective tax bases. Future tax
benefits of tax loss and credit carry forwards also are recognized as deferred
tax assets. When necessary, deferred tax assets are reduced by a
valuation allowance to the extent the Company concludes there is uncertainty as
to their ultimate realization. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that the change is enacted.
As of
June 30, 2009 and 2008, the Company maintained a deferred tax asset of
$2,265,908, respectively. The Company has provided a valuation
allowance $88,752 for the year ended June 30, 2009 and in $125,461 for the year
ended June 30, 2008, against its deferred tax assets after consideration of a
future gain on the disposal of certain land and assets relative to its
Collegeville facility and anticipated future profitable operating
results. However, the amount realizable may be reduced if future
taxable income is reduced or is insufficient to utilize the entire deferred tax
asset.
14
Employment
Contracts
For the
Fiscal years ended June 30, 2009, 2008 and 2007, the Company paid a base salary
of $296,310, $298,758 and $290,344 to Joseph Roberts, Chairman and Chief
Executive Officer and $218,824, $222,127 and $213,544 to Kathleen Hill,
President and Chief Operating Officer, respectively. The Company
currently has no employment contracts with either of such individuals, as all
previous employment contracts with such individuals expired. The
Compensation Committee of the Board of Directors is currently engaged in
discussions with Mr. Roberts and Ms. Hill with respect to their compensation for
the Fiscal year ending June 30, 2010.
Capital
Expenditures
The
Company has no other material commitments for capital expenditures and believes
that its existing cash and cash equivalents, cash from operations and available
revolving credit will be sufficient to satisfy the needs of its operations and
its capital commitments for the next twelve months. 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
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, food and
supplies. 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.
Medicare
and Medicaid Reimbursements
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.
ITEM
7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
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 15, of this Form 10-K.
ITEM
9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not
applicable.
15
ITEM
9A (T).
Controls
and Procedures
As of the
end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the Company’s management,
including the Company’s Chief Executive Officer and Principal Financial Manager,
on the effectiveness of the design and operation of the Company’s disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15(e) and
15d-15(e). Based upon that evaluation, the Chief Executive Officer
and Principal Financial Manager concluded that, as of June 30, 2009, such
controls and procedures were effective.
In making
this evaluation, management considered, among other matters, the material
weaknesses in the Company’s internal control over financial reporting that have
been identified. See “Management’s report on Internal Control over
Financial Reporting” below.
There
have been no significant changes in the Company’s internal controls over
financial reporting or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
Management’s
Report on Internal Control Over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, and for performing an assessment of
the effectiveness of internal control over financial reporting as of June 30,
2009. Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. The Company’s system of internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the Company’s
assets; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures are
being made only in accordance with authorizations of the Company’s management
and directors; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on its financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements.
The
Company’s management performed an assessment of the effectiveness of the
Company’s internal control over financial reporting as of June 30, 2009, based
upon criteria in Internal Control—Integrated Framework issued by COSO. Based on
the Company’s assessment, management has concluded that its internal control
over financial reporting was not effective as of June 30, 2009, based on the
criteria in Internal Control—Integrated Framework issued by COSO.
16
ITEM
9B – OTHER INFORMATION
Not
applicable.
PART
III
ITEM
10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
This
information will be contained in the Proxy Statement of the Company for the 2009
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 2009
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 ANAGEMENT
AND RELATED STOCKHOLDER MATTERS
This
information will be contained in the Proxy Statement of the Company for the 2009
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, AND DIRECTOR
INDEPENDENCE
This
information will be contained in the Proxy Statements of the Company for the
2009 Annual Meeting of Shareholders under the caption “Certain Relationships and
Related Transactions” and is incorporated herein by reference.
ITEM
14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
accounting firm of MSPC, Certified Public Accountants and Advisors, A
Professional Corporation (“MSPC”) served as the Company’s independent registered
public accounting firm for the Fiscal years ended June 30, 2009,
2008, and 2007, respectively. Such firm has no other relationship to
the Company or its affiliates.
Audit
Fees
MSPC
billed the Company $55,000 for audit fees for the Company’s annual consolidated
financial statements for the Fiscal year ended June 30, 2009, $50,000 for Fiscal
year ended June 30, 2008 and June 30, 2007.
17
Audit
Related Fees
MSPC
billed the Company $24,000 for audit related services for the Fiscal year ended
June 30, 2009, 2008 and 2007.
Tax
Fees
MSPC
billed the Company $12,000 for tax services during the Fiscal year ended June
30, 2009, 2008 and 2007.
All
Other Fees
MSPC did
not bill the Company for any other professional services for the Fiscal years
ended June 30, 2009, 2008, and 2007, respectively.
Pre-approval
Policies and Procedures
All audit
and non-audit services to be performed by the Company’s independent accountant
must be approved in advance by the Audit Committee. Consistent with
applicable law, limited amounts of services, other than audit, review or attest
services, may be approved by one or more members of the Audit Committee pursuant
to authority delegated by the Audit Committee, provided each such approved
service is reported to the full Audit Committee at its next
meeting.
All of
the engagements and fees for the Company’s Fiscal year ended June 30, 2009 were
approved by the Audit Committee.
The Audit
Committee of the Board of Directors considered whether the provision of
non-audit services by MSPC was compatible with its ability to maintain
independence from an audit standpoint and concluded that MSPC independence was
not compromised.
18
PART
IV
ITEM
15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A)
|
Consolidated
Financial Statements
|
|||
Reports
of Independent Registered Public Accounting Firm
|
F-2
|
|||
Consolidated
Balance Sheets as of June 30, 2009 and 2008
|
F-3
|
|||
Consolidated
Statements of Operations for the Years Ended June 30, 2009, 2008 and
2007
|
F-4
|
|||
Consolidated
Statements of Stockholders' Equity for the Years Ended June 30, 2009, 2008
and 2007
|
F-5
|
|||
Consolidated
Statements of Cash Flows for the Years Ended June 30, 2009,
2008 and 2007
|
F-6
|
|||
Notes
to Consolidated Financial Statements
|
F-7
|
|||
Schedule
of Valuation Accounts
|
F-23
|
|||
(B)
|
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 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).
|
|||
10.4
|
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).
|
19
10.9
|
Lease
Agreement Between the Company and Ocean 7, Inc. (Incorporated by reference
to Exhibit 10.11 Annual Report of Form10-K filed September 27,
1992).
|
|
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).
|
|
10.19
|
Fourth
Amendment to Revolving Credit Note between the Company and Wilmington
Trust of Pennsylvania (Incorporated by reference to exhibit 10.19, annual
report on Form 10-K filed on September 28, 2005).
|
|
10.20
|
Ninth
Amendment to Loan Agreement between the Company and Wilmington Trust of
Pennsylvania (Incorporated by reference to exhibit 10.20, annual report on
Form 10-K filed on September 28, 2005).
|
|
10.21
|
Guaranty
and Suretyship of Joseph V. Roberts (Incorporated by reference to exhibit
10.21, annual report on Form 10-K filed on September 28,
2005).
|
|
31.1
|
Section
302 Certification of Principal Executive Officer
|
|
31.2
|
Section
302 Certification of Principal Financial Manager
|
|
32.1
|
Section
906 Certification of Chief Executive Officer
|
|
32.2
|
Section
906 Certification of Principal Financial Manager (the Company does not
have a Chief Financial
Officer).
|
20
Signatures
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this annual 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:
October 13,
2009
Pursuant
to the requirements of the Securities and Exchange Act of 1934, as amended, this
annual report has been signed by the following persons on behalf of the
registrant and in the capacities indicated as of October 13,
2009.
/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/
Samuel R. Shipley
|
/s/
Jane Scaccetti
|
||
Samuel
R. Shipley, Director
|
Jane
Scaccetti, Director
|
||
/s/
Michael M. Gosman
|
|||
Michael
M. Gosman, Director
|
21
Financial
Statements and Report of Registered Public Accounting Firm
Nutrition
Management Services Company and Subsidiaries
June
30, 2009, 2008 and 2007
TABLE OF CONTENTS
|
|
Page
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F –
2
|
CONSOLIDATED
BALANCE SHEETS
|
F -
3
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
F -
4
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
|
F -
5
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
F -
6
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
F –
7
|
SUPPLEMENTAL
INFORMATION
|
|
SCHEDULE
OF VALUATION ACCOUNTS
|
F -
23
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
Nutrition
Management Services Company and Subsidiary
We have
audited the consolidated balance sheets of Nutrition Management Services Company
and Subsidiary as of June 30, 2009 and 2008, and the related consolidated
statements of operations, stockholders’ equity and cash flows for each of the
three years in the period ended June 30, 2009. These financial
statements are the responsibility of the Nutrition Management Services Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall 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 financial position of Nutrition Management
Services Company and Subsidiary as of June 30, 2009 and 2008, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 2009, in conformity with U.S. generally accepted accounting
principles.
MSPC
|
Certified
Public Accountants and Advisors,
|
A
Professional Corporation
|
Cranford,
New Jersey
October
13, 2009
F-2
Nutrition
Management Services Company and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
June
30,
2009
|
2008
|
|||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 52,609 | $ | 307,902 | ||||
Accounts
receivable (net of allowance for doubtful accounts of $860,346 and
$808,887 in 2009 and 2008, respectively)
|
2,494,193 | 2,648,181 | ||||||
Inventory
|
143,213 | 142,073 | ||||||
Prepaid
and other current assets
|
311,178 | 342,655 | ||||||
Assets
held for sale
|
6,295,450 | 6,295,450 | ||||||
Total
Current Assets
|
9,296,643 | 9,736,261 | ||||||
Property
and Equipment – Net
|
74,217 | 104,939 | ||||||
Other
Assets
|
||||||||
Advances
to Officers
|
210,965 | 238,381 | ||||||
Deferred
Income Taxes
|
2,265,908 | 2,265,908 | ||||||
Bond
Issue Costs (net of accumulated amortization of $183,290 and $168,724 in
2009 and 2008, respectively)
|
109,234 | 123,800 | ||||||
Other
Assets
|
294,057 | 248,566 | ||||||
Total
Other Assets
|
2,880,164 | 2,876,655 | ||||||
Total
Assets
|
12,251,024 | 12,717,855 | ||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Current
portion of Long-Term Debt
|
$ | 190,000 | $ | 180,000 | ||||
Current
portion of Line of Credit
|
3,405,283 | 3,499,114 | ||||||
Current
portion of Note Payable
|
7,517 | 7,551 | ||||||
Accounts
Payable
|
2,758,410 | 3,196,032 | ||||||
Accrued
Expenses
|
179,231 | 266,727 | ||||||
Accrued
Payroll
|
69,742 | 208,366 | ||||||
Other
|
76,979 | 105,718 | ||||||
Total
Current Liabilities
|
6,687,162 | 7,463,508 | ||||||
Long-
Term Liabilities
|
||||||||
Long-Term
Debt – Net of current portion
|
1,675,000 | 1,865,000 | ||||||
Note
Payable Related Party
|
414,146 | - | ||||||
Total
Long-Term Liabilities
|
2,089,146 | 1,865,000 | ||||||
Commitments
and Contingencies
|
||||||||
Stockholders’
Equity
|
||||||||
Preferred
Stock – no Par, 2,000,000 shares authorized, none issued and
outstanding
|
||||||||
Common
Stock
|
||||||||
Class
A – no par, 10,000,000 shares authorized; 3,000,000 issued, 2,747,000
outstanding
|
3,801,926 | 3,801,926 | ||||||
Class
B – no par, 100,000 shares authorized; 100,000 shares issued and
outstanding
|
48 | 48 | ||||||
Retained
Earnings
|
172,305 | 86,936 | ||||||
3,974,279 | 3,888,910 | |||||||
Less
Treasury Stock – (Common – Class A: 253,000 shares – at
cost)
|
(499,563 | ) | (499,563 | ) | ||||
Total
Stockholders’ Equity
|
3,474,716 | 3,389,347 | ||||||
Total
Liabilities and Stockholders’ Equity
|
$ | 12,251,024 | $ | 12,717,855 |
The
accompanying notes are an integral part of these statements
F-3
Nutrition
Management Services Company and Subsidiaries
CONSOLIDATED
STATEMENTS OF OPERATIONS
Year
ended June 30,
2009
|
2008
|
2007
|
||||||||||
Food
Service Revenue
|
$ | 20,013,903 | $ | 20,860,543 | $ | 20,911,939 | ||||||
Cost
of Operations
|
||||||||||||
Payroll
and Related Expenses
|
9,727,407 | 9,913,066 | 8,816,497 | |||||||||
Other
Costs of Operations
|
5,988,488 | 6,954,041 | 8,218,410 | |||||||||
Cost
of Operations
|
15,715,895 | 16,867,107 | 17,034,907 | |||||||||
Gross
Profit
|
4,298,008 | 3,993,436 | 3,877,032 | |||||||||
Expenses
|
||||||||||||
General
and Administrative Expenses
|
3,854,023 | 3,975,501 | 4,278,885 | |||||||||
Depreciation
and Amortization
|
25,353 | 28,985 | 275,980 | |||||||||
Bad
Debt Expense
|
51,735 | 63,068 | 21,628 | |||||||||
Total
Expenses
|
3,931,111 | 4,071,554 | 4,576,493 | |||||||||
Income
(Loss) from Operations
|
366,897 | (78,118 | ) | (699,461 | ) | |||||||
Other
Income / (Expense)
|
||||||||||||
Interest
Expense
|
(278,876 | ) | (334,190 | ) | (472,454 | ) | ||||||
Interest
Income
|
1,650 | 16,932 | 72,136 | |||||||||
Other
|
(4,302 | ) | (29,028 | ) | 67,057 | |||||||
Other
Income / (Expense) – Net
|
(281,528 | ) | (346,286 | ) | (333,261 | ) | ||||||
Income
/ (Loss) before Income Taxes
|
85,369 | (424,404 | ) | (1,032,722 | ) | |||||||
Income
Tax (Benefit) / Expense
|
- | - | (261,575 | ) | ||||||||
Net
Income (Loss)
|
85,369 | (424,404 | ) | (771,147 | ) | |||||||
Net
Income / (Loss) per Share – Basic and Diluted
|
$ | 0.03 | $ | (0.15 | ) | $ | (0.27 | ) | ||||
Weighted
Average Number of Shares – Basic and Diluted
|
2,847,000 | 2,847,000 | 2,847,000 |
The
accompanying notes are an integral part of these statements
F-4
Nutrition
Management Services Company and Subsidiaries
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
For the
three years ended June 30, 2009
Class A Common Stock
|
Class B Common Stock
|
Treasury Stock
|
||||||||||||||||||||||||||||||
Number
of Shares
|
Amount
|
Number
of Shares
|
Amount
|
Retained
Earnings
|
Number
of Shares
|
Amount
|
Total
Stockholders’
Equity
|
|||||||||||||||||||||||||
Balance
June 30, 2006
|
2,747,000 | $ | 3,801,926 | 100,000 | $ | 48 | $ | 1,282,487 | (253,000 | ) | $ | (499,563 | ) | $ | 4,584,898 | |||||||||||||||||
Net
Loss
|
- | - | - | - | (771,147 | ) | - | - | (771,147 | ) | ||||||||||||||||||||||
Balance-June
30, 2007
|
2,747,000 | $ | 3,801,926 | 100,000 | $ | 48 | $ | 511,340 | (253,000 | ) | $ | (499,563 | ) | $ | 3,813,751 | |||||||||||||||||
Net
loss
|
- | - | - | - | (424,404 | ) | - | - | (424,404 | ) | ||||||||||||||||||||||
Balance-June
30, 2008
|
2,747,000 | $ | 3,801,926 | 100,000 | $ | 48 | $ | 86,936 | (253,000 | ) | $ | (499,563 | ) | $ | 3,389,347 | |||||||||||||||||
Net
Income
|
- | - | - | - | 85,369 | - | - | 85,369 | ||||||||||||||||||||||||
Balance-June
30, 2009
|
2,747,000 | $ | 3,801,926 | 100,000 | $ | 48 | $ | 172,305 | (253,000 | ) | $ | (499,563 | ) | $ | 3,474,716 |
The
accompanying notes are an integral part of these statements
F-5
Nutrition
Management Services Company and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Year
ended June 30,
2009
|
2008
|
2007
|
||||||||||
Operating
Activities
|
||||||||||||
Net
Income / (Loss)
|
$ | 85,369 | $ | (424,404 | ) | $ | (771,147 | ) | ||||
Adjustment
to reconcile Net Income / (Loss) to net cash provided
by Operating Activities
|
||||||||||||
Depreciation
and Amortization
|
25,353 | 28,985 | 275,980 | |||||||||
Amortization
of Bond Costs
|
14,564 | 14,559 | 14,564 | |||||||||
Provision
for Bad Debts
|
51,735 | 63,038 | 21,628 | |||||||||
(Benefit)
/ Expense for Deferred Taxes
|
- | - | (261,575 | ) | ||||||||
Changes
in Assets and Liabilities
|
||||||||||||
Accounts
Receivable
|
102,253 | 149,513 | (417,924 | ) | ||||||||
Inventory
|
(1,140 | ) | 848 | (701 | ) | |||||||
Prepaid
and Other
|
(13,974 | ) | (264,306 | ) | (47,399 | ) | ||||||
Accounts
Payable
|
(437,622 | ) | 194,489 | 3,494 | ||||||||
Accrued
Expenses
|
(87,496 | ) | (15,976 | ) | 68,820 | |||||||
Accrued
Payroll
|
(138,624 | ) | (51,818 | ) | 33,574 | |||||||
Other
|
(28,737 | ) | (96,837 | ) | 118,061 | |||||||
Net
Cash Provided by Operating Activities
|
(428,319 | ) | (401,879 | ) | (962,625 | ) | ||||||
Investing
Activities
|
||||||||||||
Purchase
of Property and Equipment
|
(2,606 | ) | (18,757 | ) | (49,482 | ) | ||||||
Sale
of Property and Equipment
|
7,935 | - | - | |||||||||
Repayments
/ (Advances) by employees and officers
|
27,416 | 189,129 | (4,216 | ) | ||||||||
Net
Cash Provided by / (used in) investing activities
|
32,745 | 170,372 | (53,698 | ) | ||||||||
Financial
Activities
|
||||||||||||
Restricted
Cash
|
- | - | 250,000 | |||||||||
Proceeds
from Financing
|
102,585 | 327,413 | 297,659 | |||||||||
Proceeds
from Related Party
|
414,146 | - | - | |||||||||
Repayment
of Long-Term Borrowings
|
(180,000 | ) | (170,000 | ) | (165,808 | ) | ||||||
Repayment
of Line of Credit
|
(93,831 | ) | - | - | ||||||||
Repayment
of Financing
|
(102,619 | ) | (319,862 | ) | (277,237 | ) | ||||||
Net
Cash Provided by / (used in) Financing Activities
|
140,281 | (162,449 | ) | 104,614 | ||||||||
NET
(DECREASE) / INCREASE IN CASH AND CASH EQUITIES
|
(255,293 | ) | (393,956 | ) | (911,709 | ) | ||||||
Cash
and Cash Equivalents – Beginning of Year
|
307,902 | 701,858 | 1,613,567 | |||||||||
Cash
and Cash Equivalents – End of Year
|
$ | 52,609 | $ | 307,902 | $ | 701,858 | ||||||
Supplemental
Disclosures of Cash Flow Information
|
||||||||||||
Cash
Paid During the Years for
|
||||||||||||
Interest
|
$ | 254,135 | $ | 348,705 | $ | 445,220 | ||||||
Income
Taxes
|
$ | 10,129 | $ | 19,432 | $ | 38,459 |
The
accompanying notes are an integral part of these statements
F-6
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 Company
(“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 and a comprehensive
training facility. Effective June 27, 2005, the Company closed the
buffet restaurant at the Collegeville Inn to make the entire facility available
for catered events. 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 Foods operations are located at 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.
2. Cash and Cash
Equivalents
Cash
equivalents are comprised of certain highly liquid investments with an original
maturity of three months or less when purchased.
3. Marketable
Securities
The
Company classifies its investments in marketable securities as available for
sale, which are carried at the lower of cost or market based upon the quoted
market prices of those investments at period end. As of June 30, 2009
there were no marketable securities.
4. Accounts Receivable and
Allowance for Doubtful Accounts
The
Company’s accounts receivable are primarily related to food service management
fees. Credit is extended based on prior experience with the customer
and evaluation of a customer’s financial condition. Accounts
receivable are generally due within thirty to sixty days. The
allowance for doubtful accounts represents an estimate of amounts considered
uncollectible and is determined based on specifically identified amounts that we
believe to be based on historical collection experience, adverse situations that
may affect the customer’s ability to repay and prevailing economic
conditions. If our actual collections experience changes, revisions
to our allowance may be required. The Company believes it will be
successful in its collection efforts related to its outstanding
balances.
5.
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 by the Company. For the
remaining customers, the Company purchases inventory on their behalf and a
payable or receivable is recorded for the change in the value of these goods,
which is then collected from or paid to customers. As of June 30,
2009 and 2008, inventory was $143,213 and $142,073, respectively. As
of June 30, 2009 and 2008, inventory receivable from customers was $12,503 and
$19,558 respectively, while inventory payable to customers was $9,545 and
$18,225 respectively.
F-7
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE B -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
6. Revenue
Recognition
The
Company recognizes revenue when services have been rendered and the contract
price is determinable, and collectability is reasonably
assured. Revenue is generated primarily from fees for food service
management and facilities management at continuing care and health care
facilities, schools and the Collegeville Inn Conference and Training
Center. The Company provides its services under several different
financial arrangements including a fee basis and guaranteed rate
basis. For Fee Contracts, certain expenses are paid directly by the
Customer and certain expenses are paid by the Company and billed to the
Customer. The Company recognizes Revenue in the amount of the
expenses billed and the fees for providing services. For a Guaranteed
Rate Contract, the Company charges Customers an established amount for services
provided (for example, per Patient Day) and is responsible for all the expenses
related to the delivery of those services. The amount of the billing
is recorded as Revenue and the delivery costs are recorded as Cost of Sales.
Regardless of the different financial arrangements, the Company recognizes
revenue when services have been rendered and the contract price is determinable,
and is reasonably assured. Ongoing assessments of the
credit worthiness of customers provide the Company reasonable assurance
of upon performance of services. The Company has no other
obligation with respect to its services once services are
performed.
7. 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, if less.
8. Assets Held for
Sale
The
Company continues its efforts to sell or lease all or part of the Collegeville
Inn Conference and Training Center and or certain excess land adjacent to the
facility. The Company has reclassified these assets as held for
sale.
9. Bond Issue
Costs
Bond
issue 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.
10. Accounting for Stock-Based
Compensation
Stock
Options issued to Employees – On July 1, 2005 we adopted the fair value
recognitions provisions of SFAS No. 123 R, “Share-Based Payments”, under the
modified prospective transition method. Prior to July 1, 2005, we
applied the Accounting Principles Board (APB) Opinion No. 25 intrinsic value
accounting method for its stock incentive plans. Under the
modified prospective transition method, the fair value recognition provisions
apply only to new awards or awards modified after July 1,
2005. Additionally, the fair value of existing unvested awards at the
date of adoption is recorded in compensation expense over the remaining
requisite service period.
11. Income
Taxes
The
Company determines its provision for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the future tax effects of temporary differences of existing
assets and liabilities and their respective tax bases. Future tax
benefits of tax loss and credit carry forwards also are recognized as deferred
tax assets. When necessary, deferred tax assets are reduced by a
valuation allowance to the extent the Company concludes there is uncertainty as
to their ultimate realization. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that the change is enacted.
As of
June 30, 2009 and 2008, the Company maintained a deferred tax asset of
$2,265,908, respectively. The Company has provided a valuation
allowance $88,752 for the year ended June 30, 2009 and in $125,461 for the year
ended June 30, 2008 against its deferred tax asset after consideration of a
future gain on the disposal of certain land and assets relative to its
Collegeville facility and anticipated future profitable operating
results. However, the amount realizable may be reduced if future
taxable income is reduced or is insufficient to utilize the entire deferred tax
asset. See Note G for additional information.
F-8
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE B -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
12. Accumulated Other
Comprehensive Income/(Loss)
Based on
the Company’s current activities, there is no accumulated other comprehensive
income.
13. Earnings/(Loss) Per
Share
The
Company has adopted the provisions of SFAS No. 128. Basic earnings
per share is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the
period. SFAS No. 128 also requires a dual presentation of basic and
diluted earnings per share on the face of the statement of operations for all
companies with complex capital structures. Diluted earnings per share
reflects the amount of earnings for the period available to each share of common
stock outstanding during the reporting period, while giving effect to all
dilutive potential common shares that were outstanding during the period, such
as common shares that could result from the potential exercise into
common stock.
The
computation of diluted earnings per share does not assume exercise of securities
that would have an antidilutive effect on per share amounts (i.e., increasing
earnings per share or reducing loss per share). The dilutive effect
of outstanding options are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be
used to purchase common stock at the average market price during the period.
Options will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the
options. Options that may have a dilutive effect in the future
are listed in Note J.
14. 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, 2009, 2008
and 2007 was $4,647, $8,845 and $5,247 respectively.
15. Reclassification
Certain
2007 items have been reclassified to conform to the current year
presentation.
16. Use of
Estimates
In
preparing the Company’s financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the 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.
17. Fair Value of Financial
Instruments
The
Company used the following methods and assumptions in estimating our fair value
disclosures for financial instruments:
Cash and
cash equivalents: The carrying amounts the Company has reported in
the accompanying balance sheet for cash and cash equivalents approximate their
fair values.
Investments: The
Company estimates the fair values of investments based on quoted market
prices. The carrying amounts the Company has reported in the
accompanying balance sheet for investments in contracts approximate their fair
values.
Long- and
short-term debt: The Company bases the fair values of debt
instruments on quoted market prices. Where quoted prices are not
available, the Company bases the fair values on the present value of future cash
flows discounted as estimated borrowing rates for similar debt instruments or on
estimated prices based on current yields for debt issues of similar quality and
terms. The carrying amounts the Company has reported in the
accompanying balance sheet for debt approximate their fair
values. See footnote F for further discussion.
F-9
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE B -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
18. Impairment or Disposal of
Long Lived Assets
The
Company adopted SFAS 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“SFAS 144”). Under the
requirements of SFAS 144, the Company assesses the potential impairment of
property, plant and equipment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. An asset’s
value is impaired if management’s estimate of the aggregate future cash flows,
undiscounted and without interest charges, to be generated by the asset are less
than the carrying value of the asset. Such cash flows consider
factors such as expected future operating income and historical trends, as well
as the effects of demand and competition. To the extent impairment
has occurred, the loss will be measured as the excess of the carrying amount of
the asset over the fair value of the asset. Such estimates require
the use of judgment and numerous subjective assumptions, which, if actual
experience varies, could result in material differences in the requirements for
impairment charges.
19. New Authoritative
Pronouncements
In
May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS
165"). SFAS 165 establishes general standards of accounting for and disclosures
of subsequent events that occurred after the balance sheet date but prior to the
issuance of financial statements. SFAS 165 is effective for financial statements
issued for interim or Fiscal years ending after June 15, 2009. The adoption
of SFAS 165, effective June 2009, did not affect the consolidated financial
position, results of operations or cash flows of the Company.
In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments. This FSP amends FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. This FSP also amends APB Opinion No.
28, Interim Financial
Reporting, to require those disclosures in summarized financial
information at interim reporting periods. This FSP shall be effective for
interim reporting periods ending after June 15, 2009.
In April
2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary
Impairments. This FSP amends the other-than-temporary impairment guidance
in U.S. GAAP for debt securities to make the guidance more operational and to
improve the presentation and disclosure of other-than-temporary impairments on
debt and equity securities in the financial statements. The FSP does not amend
existing recognition and measurement guidance related to other-than-temporary
impairments of equity securities. The FSP shall be effective for interim and
annual reporting periods ending after June 15, 2009.
In April
2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly. This FSP amends FASB Statement No. 157, Fair Value Measurements to
provide additional guidance on estimating fair value when the volume and level
of transaction activity for an asset or liability have significantly decreased
in relation to normal market activity for the asset or liability. The FSP also
provides additional guidance on circumstances that may indicate that a
transaction is not orderly. This FSP supersedes FSP No. FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active and requires
additional disclosures about fair value measurements in annual and interim
reporting periods. FSP No. FAS 157-4 is effective for interim and annual
reporting periods ending after June 15, 2009.
In April
2009, the SEC released Staff Accounting Bulletin No. 111 ("SAB 111"), which
amends SAB Topic 5-M. SAB 111 notes that FSP No. 115-2 and FAS 124-2 were scoped
to debt securities only, and the FSP referred readers to SEC SAB Topic 5-M for
factors to consider with respect to other-than-temporary impairments for equity
securities. With the amendments in SAB 111, debt securities are excluded from
the scope of Topic 5-M, but the SEC staff’s views on equity securities are still
included within the topic.
In June
2009, the FASB issued Statement of Financial Accounting Standards No. 168, "The
FASB Accounting Standards Codification(TM) and the Hierarchy of Generally
Accepted Accounting Principles - a replacement of FASB Statement No. 162" ("SFAS
168"). SFAS 168 establishes the FASB Accounting Standards Codification(TM)
("Codification") as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in preparing financial
statements in conformity with generally accepted accounting principles in the
United States. Once effective, all guidance in the Codification will carry the
same level of authority, and all future changes or additions to U.S. generally
accepted accounting principles will be issued as Accounting Standards Updates.
SFAS 168 does not make any changes to existing accounting guidance that will
impact the Company's accounting and financial reporting. It is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009.
F-10
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
The
Public Company Accounting Oversight Board voted on July 28, 2009 to adopt
Auditing Standard No. 7, "Engagement Quality Review" ("EQR"), and to issue a
Concept Release on requiring the engagement partner to sign the audit report.
The EQR standard provides a framework for the engagement quality reviewer to
objectively evaluate the significant judgments made and related conclusions
reached by the engagement team in forming an overall conclusion about the
engagement.
The
Sarbanes-Oxley Act of 2002 directs the Board to include in its auditing
standards a requirement that each registered public accounting firm "provide a
concurring or second partner review and approval of [each] audit report (and
other related information), and concurring approval in its issuance, by a
qualified person (as prescribed by the Board) associated with the public
accounting firm, other than the person in charge of the audit, or by an
independent reviewer (as prescribed by the Board)."The Board initially proposed
the auditing standard on February 26, 2008, and re-proposed it on March 4,
2009.
Auditing
Standard No. 7 applies to all audit engagements, and engagements to review
interim financial information, conducted pursuant to the standards of the PCAOB.
The standard supersedes the Board's quality control standard, SECPS Requirements
of Membership, Section 1000.08(f); 1000.39, Appendix E. The standard, if
approved by the U.S. Securities and Exchange Commission (SEC), will become
effective for both the EQR of audits and the EQR of interim reviews for Fiscal
years beginning on or after December 15, 2009.
Separately,
the Board also is seeking comment on a Concept Release to consider the effects
of a potential requirement for the engagement partner to sign the audit report.
Any such requirement would be in addition to the existing requirement for the
audit firm to sign its name on the audit report. The Board is seeking comment on
the Concept Release for a 45-day period.
F-11
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE C –
BUSINESS CONDITIONS
The
Company's primary sources of revenues are the management fees it receives from
contracts to provide food and housekeeping services to continuing care
facilities, hospitals, retirement communities and schools, as well as the
Collegeville Inn, which includes the Conference and Training Center, Catering
facilities and the Cook Chill operations. The Company has a business plan in
place to improve the operating results from the Collegeville Inn while it
continues its sale/lease efforts. See Note O for segment reporting
information. Effective June 27, 2005, the Company closed the buffet
restaurant at the Collegeville Inn to make the facility available for catered
events.
The
Company owns approximately twenty-two acres of land in Collegeville, Montgomery
County, Pennsylvania. In 1997, the Company completed its renovations
of an existing 40,000 square foot building to serve as a training facility and
conference center. On October 8, 2008, the Company entered into an
agreement of sale for certain tracts or parcels of land, together with the
building, Collegeville Inn Conference and Training Center, for the sum of
$5,500,000.00. The Agreement of Sale was contingent upon the Buyer
being able to obtain all necessary permits and approvals for the development of
an age restricted living facility on the property. In April of 2009,
it became apparent to the Buyer that the permit and approval process was going
to take longer than originally anticipated and that it would not be able to meet
its target deadlines. As a result, the Company and the Buyer executed
a mutual release, releasing both parties from any further obligations under the
Agreement of Sale. The Company continues to protect the zoning of the
property so as to permit future development. Immediately following
the execution of the mutual release, the Company listed the property for sale
with a nationwide commercial real estate brokerage.
The
Company's financial statements as of June 30, 2009 have been presented on the
basis that it is a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of
business.
Management
believes that operating cash flow, the possible proceeds from the sale or lease
of certain assets, available cash and available credit resources will be
adequate to make repayments of indebtedness, meet the working capital needs,
satisfy the needs of its operations, and to meet anticipated capital
expenditures during the next twelve months ending June 30, 2010.
In view
of the matters described above, recoverability of a major portion of the
recorded asset amounts shown in the Company's accompanying balance sheet is
dependent upon continued operations of a continuing basis, to maintain present
financing, and to succeed in its future operations. The Company's financial
statements do not include any adjustment relating to the recoverability and
classification of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable to continue in
existence.
F-12
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
NOTE D -
PROPERTY AND EQUIPMENT
The
following details the composition of property and equipment.
Estimated
Useful
Lives
|
2009
|
2008
|
||||||||||
Building
|
40 | $ | 7,829 | $ | 7,829 | |||||||
Machinery and
Equipment
|
2 – 8 | 2,347,273 | 2,352,735 | |||||||||
Furniture and
Fixture
|
2 – 8 | 26,374 | 26,374 | |||||||||
Other, Principally Autos
and Trucks
|
2 – 10 | 211,335 | 211,335 | |||||||||
2,592,811 | 2,598,273 | |||||||||||
Less: Accumulated
Depreciation
|
2,518,594 | 2,493,334 | ||||||||||
$ | 74,217 | $ | 104,939 |
NOTE E –
ASSETS HELD FOR SALE
The
following details the composition of assets held for sale.
Estimated
Useful
Lives
|
2009
|
2008
|
||||||||||
Property and
Equipment
|
||||||||||||
Land
|
- | $ | 497,967 | $ | 497,967 | |||||||
Building
|
40 | 7,491,263 | 7,491,263 | |||||||||
Other, Principally
Equipment, Furniture and Fixtures
|
2 – 8 | 2,386,716 | 2,386,717 | |||||||||
10,375,946 | 10,375,946 | |||||||||||
Less: Accumulated
Depreciation
|
4,080,496 | 4,080,496 | ||||||||||
$ | 6,295,450 | $ | 6,295,450 |
The
Company continues its efforts to sell or lease all or part of the Collegeville
Inn Conference and Training Center and or certain excess land adjacent to the
facility. The Company has reclassified these assets as held for
sale.
F-13
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
NOTE F -
LONG- TERM DEBT
Long-Term
Debt Consisted of the Following:
|
2009
|
2008
|
||||||
Bank
revolving credit, interest due monthly at the National Consumer rate 4
minus
.25% (effectively 4.00% as of June 30, 2009), secured by all corporate
assets
and personal guarantee of the Chief Executive Officer; matures on
December
31, 2009
|
$ | 3,405,283 | $ | 3,499,114 | ||||
Industrial
Revenue Bonds (Collegeville Inn Projects) (See bonds
payable)
|
1,365,000 | 1,495,000 | ||||||
Industrial
Revenue Bonds (Apple Fresh Foods Projects) See bonds
payable)
|
500,000 | 550,000 | ||||||
5,270,283 | 5,544,114 | |||||||
Less: Current
Maturities (includes bank revolving credit)
|
3,595,283 | 3,679,114 | ||||||
$ | 1,675,000 | $ | 1,865,000 |
In
February 2001, the Company executed a loan agreement with a bank for a revolving
credit and two irrevocable letters of credit issued in conjunction with the
issuance of the Industrial Revenue Bonds, totaling $4,000,000 and $3,065,000,
respectively. In October 2003, the Company entered into an amended
credit agreement whereby the $4,000,000 Revolving Credit Loan Facility was
reduced to $3,500,000 and $500,000 was placed in a cash collateral account and
pledged as additional collateral against the revolving credit
line. As of June 30, 2009 all of the cash collateral account has been
released and is available for operations.
At June
30, 2009, the Company had approximately $3,400,000 outstanding under the
revolving credit. Advances under the revolving credit are used for
working capital purposes.
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 Company and the bank reached
an agreement in December 2008 which maintains the revolving credit line in place
to December 31, 2009. The Company is currently negotiating to replace
or retire this debt with alternate financing.
Bonds
Payable - In December 1996, the Company, through its subsidiaries, authorized
two industrial revenue bond issues.
Issue #1
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% (Variable Rate at June 30, 2009 was
6.00%)
Term - 20
years (2016)
Purpose -
Rehabilitate, furnish and equip the Collegeville Inn
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% (Variable Rate at June 30, 2009 was
6.00%)
Term - 20
years (2016)
Purpose -
Develop a cook-chill food preparation technology
F-14
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
NOTE F -
LONG- TERM DEBT - Continued
The
Company issued two series of Industrial Revenue Bonds totaling $3,560,548 in
December 1996, one to Collegeville Inn and one to Apple Fresh Foods. The
outstanding balance on the bond issues was $1,865,000 as of May 2009.
Both bond issues were secured in part by Letters of Credit issued by
Wilmington Trust. In February of 2009, both Moody’s and Standard and Poors
downgraded the credit rating of Wilmington Trust, which downgrade had no
relationship to any business Wilmington Trust was doing with NMSC or its
subsidiaries. As a result of this downgrade, Janney, Montgomery Scott, the
remarketer, began experiencing difficulty selling the Bonds to the institutional
investors. Janney began inventorying the Bonds while continuing to try to
find buyers. On April 24, 2009, Moody’s further downgraded the credit
rating of Wilmington Trust. Again, this had no direct relationship to any
business with NMSC. This action prompted Janney to send a Notice to
M&T Bank, the Trustee for the Bonds, that if no buyers were found by May 4,
2009, they would be tendering the Bonds for redemption. With no buyers
coming forward, Janney tendered the Bonds on May 4, 2009, which caused M&T
Bank to initiate a draw down on the LOCs in the amounts of $1,365,000
(Collegeville) and $500,000 (Apple Fresh) respectively. Thus, the two LOCs
have now been converted to direct loans to Collegeville Inn and Apple Fresh
Foods.
Each
series of bonds is guaranteed by the Company and each of its
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 of the bonds are as follows:
Collegeville
Inn
|
Apple
Fresh
Foods
|
Total
|
||||||||||
2010
|
135,000 | 55,000 | 190,000 | |||||||||
2011
|
145,000 | 55,000 | 200,000 | |||||||||
2012
|
155,000 | 60,000 | 215,000 | |||||||||
2013
|
165,000 | 60,000 | 225,000 | |||||||||
2014
|
175,000 | 65,000 | 240,000 | |||||||||
Thereafter
|
590,000 | 205,000 | 795,000 | |||||||||
Total
|
1,365,000 | 500,000 | 1,865,000 |
Maturities
of principal due in the following years are set forth below:
Year
ending June 30,
|
|||
2010
|
$3,595,283
|
||
2011
|
200,000
|
||
2012
|
215,000
|
||
2013
|
225,000
|
||
2014
|
240,000
|
||
Thereafter
|
795,000
|
||
$ 5,270,283
|
F-15
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
NOTE G -
INCOME TAXES
The
components of income tax (benefit)/expense are:
|
Year Ended June 30,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Current
|
||||||||||||
Federal
|
$ | 0 | $ | 0 | $ | (266,597 | ) | |||||
State
|
0 | 0 | (47,046 | ) | ||||||||
$ | 0 | $ | 0 | $ | (313,643 | ) | ||||||
Deferred
|
||||||||||||
Federal
|
$ | 0 | $ | 0 | $ | 44,258 | ||||||
State
|
0 | 0 | 7,810 | |||||||||
$ | 0 | $ | 0 | $ | 52,068 | |||||||
$ | 0 | $ | 0 | $ | (261,575 | ) |
The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities are approximately:
F-16
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
NOTE G -
INCOME TAXES – continued
June 30
|
||||||||
2009
|
2008
|
|||||||
Deferred
Tax Assets
|
||||||||
Provision for doubtful
accounts
|
$ | 369,949 | $ | 347,839 | ||||
Excess of tax over
financial statement basis of investments in contracts
|
94,650 | 94,650 | ||||||
Vacation
Accrual
|
27,529 | 99,008 | ||||||
Charitable Contribution
Carry-Forward
|
17,199 | 48,919 | ||||||
Federal Net Operating
Loss
|
1,895,138 | 1,831,968 | ||||||
Other
|
(35,258 | ) | 74,181 | |||||
Total Deferred Tax
Assets
|
2,369,207 | 2,496,565 | ||||||
Deferred
Tax Liabilities
|
||||||||
Depreciation
|
14,547 | 105,196 | ||||||
Allowance
|
88,752 | 125,461 | ||||||
Net Deferred Tax
Assets
|
$ | 2,265,908 | $ | 2,265,908 |
The
deferred tax amounts are classified on the balance sheet as
follows:
June 30,
|
||||||||
2009
|
2008
|
|||||||
Current
Assets
|
$ | -- | $ | -- | ||||
Non-Current
Assets
|
2,265,908 | 2,265,908 | ||||||
|
$ | 2,265,908 | $ | 2,265,908 |
The
Company also has a federal net operating loss carry forward of approximately
$4,740,000 expiring on various dates beginning in the year 2026. The
Company has charitable contribution carry forwards in the amount of
$117,340.
The
Company has provided a valuation allowance of $88,752 against its deferred tax
assets after consideration that the future gain on the disposal of
certain land and assets relative to the Collegeville Inn and anticipated future
profitable operating results.
The
following reconciles the tax provision with the U.S. statutory tax
rates:
Year Ended June 30
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Income
Taxes, at U.S. Statutory Rates
|
(34.0 | )% | (34.0 | )% | (34.0 | )% | ||||||
State
Taxes, Net of Federal Tax Benefit
|
(5.0 | ) | (5.0 | ) | (5.0 | ) | ||||||
Nondeductible
Expenses
|
8.0 | 10.0 | 10.0 | |||||||||
Other
|
3.3 | 3.7 | 3.7 | |||||||||
Effect
of NOLs
|
27.7 | - | - | |||||||||
Tax
Expense / (Benefit)
|
0 | % | (25.3 | )% | (25.3 | )% |
F-17
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
NOTE H -
RELATED PARTY TRANSACTIONS
The
Company leases its corporate offices, located at 2071 Kimberton Road, Kimberton,
Pennsylvania, which consists of approximately 8,500 square feet from Ocean 7,
Inc., a corporation controlled by the Chief Executive Officer of the Company,
The initial term of the lease expired on June 30, 2003 and continues on a month
to month lease based on terms generally similar to those prevailing to unrelated
parties. The Company leases an apartment from the same company to accommodate
visiting clients and employees.
Joseph V.
Roberts, Chief Executive Officer and Director of the Company, received long term
advances of which $165,749 and $187,503 remains outstanding as of June 30, 2009
and 2008, respectively. Kathleen A. Hill, President, Chief Operating
Officer and Director of the Company, received long term advances of which
$45,215 and $50,567 remains outstanding as of June 30, 2009 and 2008,
respectively. Interest for Fiscal year ended June 30, 2009 of $1,270
has been included in the outstanding amounts. These amounts are
currently under agreement whereby monthly payments are being made to reduce the
outstanding amounts.
As of
June 30, 2009, included in long term liabilities a related party is owed
$414,146 to Joseph V. Roberts an officer and director of the company. Amounts
due to and from officers are unsecured, interest bearing at 4%.
NOTE I –
COMMITMENTS AND CONTINGENCIES
1. Operating
Leases
The
Company leases real estate facilities from a corporation owned by a principal
stockholder under month-to-month operating leases, including its corporate
office building under a month-to-month lease based on terms management believes
to be generally similar to those prevailing to unrelated
parties. During the years ended June 30, 2009, 2008 and 2007,
rent expense paid to the related party was $258,414, $259,347 and $265,283,
respectively.
The
Company is also obligated under various operating leases for operating equipment
for periods expiring through 2009. During the years ended June 30,
2009, 2008 and 2007, rent expense was $271,746, $323,114 and $334,845,
respectively, for all operating leases.
Minimum
annual rentals under non-cancelable operating leases subsequent to June 30, 2009
are as follows:
Year Ending June 30,
|
Operating Equipment
|
2010
|
4,445
|
2. Litigation
The
Company is involved in litigation with a construction contractor related to the
renovations of Collegeville Inn. The Company denies the claims and
has asserted offsets against the amounts claimed. The case is in
discovery.
Although
it is not possible to predict with certainty the outcome of these unresolved
legal actions or the range of possible loss or recovery, the Company believes
these unresolved legal actions will not have a material effect on its financial
position or results of operations.
In
addition to the litigation described above, the Company is exposed to asserted
and unasserted claims. In the opinion of management, the resolution
of these matters will not have a material adverse effect on the Company’s
financial position, results of operations or cash flows.
F-18
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
NOTE I –
COMMITMENTS
AND CONTINGENCIES - continued
3. Employment
Contracts
For the
Fiscal years ended June 30, 2009, 2008 and 2007, the Company paid a base salary
of $296,310, $298,758 and $290,344 to Joseph Roberts, Chairman and Chief
Executive Officer and $218,824, $222,127 and $213,544 to Kathleen Hill,
President and Chief Operating Officer, respectively. The Company
currently has no employment contracts with either of such individuals, as all
previous employment contracts with such individuals expired. The
Compensation Committee of the Board of Directors is currently engaged in
discussions with Mr. Roberts and Ms. Hill with respect to their compensation for
the Fiscal year ending June 30, 2010
NOTE J -
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.
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 K -
STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
1. 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,
2009, all employees were eligible to participate in the plan. During
the years ended June 2009, 2008 and 2007 there were fourteen participants and no
shares purchased.
F-19
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
NOTE L -
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 4% of employee plan
contributions. Participants are vested 20% for each year of service
beginning after year three and are fully vested after seven service
years. During the years ended June 30, 2009, 2008 and 2007, Company
contributions to the plan, which were charged to expense, amounted to $12,910,
$16,471 and $20,081 respectively.
NOTE M -
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.
NOTE N -
MAJOR CUSTOMERS
The
Company’s Food Service Management Segment had sales to one customer representing
approximately 9%, 8% and 8% of the total revenues for the years ending June 30,
2009, 2008 and 2007, respectively. Sales to one other customer represented 8%,
7% and 7% of the total sales for the years ending June 30, 2009, 2008 and
2007, respectively.
The loss
of any such customer could have a material adverse effect on the Company’s
future results of operations.
NOTE O –
MAJOR SUPPLIERS
For the
year June 30, 2009, the Company purchased approximately 28% of its food and
non-food products from one vendor. Purchases from two other vendors amounted to
32% and 11% of the total purchases for the year ended June 30, 2008; the same
two vendors represented 29% and 18% of the total purchases for the year ended
June 30, 2007, respectively.
In the
event of a disruption in the Company’s relationship with these vendors or any
disruption in the vendor’s business, the Company has alternate sources of supply
for its food and non-food products.
F-20
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
NOTE P -
BUSINESS SEGMENTS
The
Company follows the disclosure provisions of SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. This 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
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. 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 accounting principles generally accepted in
the United States of America. As a result, reported segment results
are not necessarily comparable with similar information reported by other
similar companies.
Food
Service Management
|
Training
and
Conference Center
|
Total
|
||||||||||
As
of and for the year ended June 30, 2009:
|
||||||||||||
Food Service
Revenue
|
$ | 19,779,084 | $ | 234,819 | $ | 20,013,903 | ||||||
Depreciation and
Amortization
|
20,570 | 4,783 | 25,353 | |||||||||
Income / (Loss) from
Operations
|
731,530 | (364,633 | ) | 366,897 | ||||||||
Interest
Expense
|
(193,021 | ) | (85,855 | ) | (278,876 | ) | ||||||
Interest
Income
|
1,650 | - | 1,650 | |||||||||
Income / (Loss) before
Tax Expense / (Benefit)
|
539,326 | (453,957 | ) | 85,369 | ||||||||
Net Income /
(Loss)
|
539,326 | (453,957 | ) | 85,369 | ||||||||
Total
Assets
|
5,716,969 | 6,534,055 | 12,251,024 | |||||||||
Capital
Expenditures
|
2,606 | - | 2,606 | |||||||||
As
of and for the year ended June 30, 2008:
|
||||||||||||
Food Service
Revenue
|
$ | 20,463,614 | $ | 396,929 | $ | 20,860,543 | ||||||
Depreciation and
Amortization
|
24,202 | 4,783 | 28,985 | |||||||||
Income / (Loss) from
Operations
|
313,111 | (391,229 | ) | (78,118 | ) | |||||||
Interest
Expense
|
(251,138 | ) | (83,052 | ) | (334,190 | ) | ||||||
Interest
Income
|
16,932 | - | 16,932 | |||||||||
Income / (Loss) before
Tax Expense / (Benefit)
|
67,901 | (492,305 | ) | (424,404 | ) | |||||||
Net Income /
(Loss)
|
67,901 | (492,305 | ) | (424,404 | ) | |||||||
Total
Assets
|
5,832,385 | 6,885,470 | 12,717,855 | |||||||||
Capital
Expenditures
|
18,757 | - | 18,757 | |||||||||
As
of and for the year ended June 30, 2007:
|
||||||||||||
Food Service
Revenue
|
$ | 20,246,350 | $ | 665,589 | $ | 20,911,939 | ||||||
Depreciation and
Amortization
|
37,417 | 238,563 | 275,980 | |||||||||
Income / (Loss) from
Operations
|
12,101 | (711,561 | ) | (699,460 | ) | |||||||
Interest
Expense
|
(307,488 | ) | (164,966 | ) | (472,454 | ) | ||||||
Interest
Income
|
72,136 | - | 72,136 | |||||||||
Income / (Loss) before
Tax Expense / (Benefit)
|
(966,548 | ) | (66,173 | ) | (1,032,721 | ) | ||||||
Net Income /
(Loss)
|
(704,973 | ) | (66,173 | ) | (771,146 | ) | ||||||
Total
Assets
|
5,934,042 | 7,340,809 | 13,274,851 | |||||||||
Capital
Expenditures
|
35,627 | 13,855 | 49,482 |
F-21
Nutrition
Management Services Company and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED
NOTE Q -
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
2009
|
||||||||||||||||
September
30,
|
December
31,
|
March
31,
|
June
30,
|
|||||||||||||
Revenues
|
$ | 5,354,538 | $ | 5,246,936 | $ | 4,748,742 | $ | 4,663,687 | ||||||||
Gross
Profit
|
1,040,354 | 1,062,688 | 1,020,452 | 1,174,514 | ||||||||||||
Net
Income (Loss)
|
(74,928 | ) | 47,604 | 18,841 | 93,852 | |||||||||||
Net
Income (Loss) per share – basic and diluted
|
$ | (0.03 | ) | $ | 0.02 | $ | 0.01 | $ | 0.03 |
Fiscal
2008
|
||||||||||||||||
September
30,
|
December
31,
|
March
31,
|
June
30,
|
|||||||||||||
Revenues
|
$ | 5,040,863 | $ | 5,283,004 | $ | 5,118,571 | $ | 5,418,105 | ||||||||
Gross
Profit
|
994,020 | 993,648 | 932,972 | 1,072,796 | ||||||||||||
Net
Income (Loss)
|
(214,771 | ) | (179,489 | ) | (181,298 | ) | 151,153 | |||||||||
Net
Income (Loss) per share – basic and diluted
|
$ | (0.08 | ) | $ | (0.06 | ) | $ | (0.06 | ) | $ | 0.05 |
F-22
SUPPLEMENTAL
INFORMATION
Nutrition
Management Services Company and Subsidiaries
SCHEDULE
OF VALUATION ACCOUNTS
For the
three years ended June 30, 2009
The
following sets forth the activity in the Company’s valuation
accounts:
Allowance
for Doubtful Accounts
|
||||
Balance
at June 30, 2006
|
964,188 | |||
Provisions
for bad debts
|
21,628 | |||
Write-offs
|
(230,038 | ) | ||
Balance
at June 30, 2007
|
755,778 | |||
Provisions
for bad debts
|
63,068 | |||
Write-offs
|
(9,959 | ) | ||
Balance
at June 30, 2008
|
808,887 | |||
Provision
for bad debts
|
51,735 | |||
Write-offs
|
(276 | ) | ||
Balance
as of June 30, 2009
|
$ | 860,346 |
F-23