UNITED STATES
 SECURITIES AND EXCHANGE
COMMISSION
 Washington, D.C.
20549
 
 FORM 10-Q
 
 (Mark
One)
 
 xQUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
quarterly period ended December 31,
2007
 
 or
 
  ̈TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the
transition period from 
to
 
 Commission
File Number: 0-19824
 
 Nutrition Management
      Services Company(Exact
      name of registrant as specified in its
charter)
 
 Pennsylvania
              23-2095332(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)
  Box 725, Kimberton
      Road, Kimberton, PA
              19442(Address
      of principal executive offices)
              (Zip
      Code)
  (610)
      935-2050(Registrant’s
      telephone number, including area code)N/A(Former
      name, former address and former fiscal year, if changed since last
      report)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.     Yes þ     No
 ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company.
See definition of “accelerated filer and a small reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
 Large accelerated
filer o                 Accelerated
filer o                 Non-accelerated
filer oSmall
Reporting Company þ
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).     Yes  ̈     No
þ
 
 2,747,000
Shares of Registrant's Class A Common Stock, with no par value, and 100,000
shares of Registrant's Class B Common Stock, with no par value, are outstanding
as of February 8, 2008.


Table of Contents




TABLEOF CONTENTSPart
      I.
              Financial
      Information
              Page
      No.Item 1. – Financial
      Information
              2Consolidated Balance Sheets as
      ofDecember 31, 2007 (unaudited) and June
      30, 2007
              2Consolidated Statements of
      Operations for the Threeand Six Months Ended December 31,
      2007 (unaudited) and2006
    (unaudited)
              3Consolidated Statements of Cash
      Flows for the SixMonths Ended December 31, 2007
      (unaudited) and2006
(unaudited)
              4Notes to Consolidated Financial
      Statements
              5 -
      9Item 2. - Management's Discussion and Analysis of Financial
      Conditionand Results of Operations
              10
      - 15Item 3. – Quantitative and Qualitative
      Disclosure aboutMarket Risk
              15Item 4T – Controls and
      Procedures
              16Part
      II.
              Other Information
              17Item 1A - Risk Factors
              17Item 4 - Submission of Matters to a
      Vote of Security Holders
              17Signatures
              18
    Table of Contents
  Item 1.Financial
Information
 NUTRITION
MANAGEMENT SERVICES COMPANY
 CONSOLIDATEDBALANCE SHEETS
 
 December
      31, 2007
                (unaudited)
              
              
              June
      30, 2007Current
      assets:Cash
      and cash equivalents
              
              $
              464,870
              
              
              $
              701,858Accounts
      receivable, net of allowance for doubtful accounts of $781,148 and
      $755,778, respectively
              
              
              2,774,651
              
              
              
              2,774,016Inventory
              
              
              143,135
              
              
              
              142,921Prepaid
      and other
              
              
              531,392
              
              
              
              277,343Assets
      held for sale
              
              
              6,182,092
              
              
              
              0Total
      current assets
              
              
              10,096,140
              
              
              
              3,896,138Property
      and equipment, net
              
              
              107,818
              
              
              
              115,126Assets
      held for sale
              
              
              0
              
              
              
              6,295,450Other
      assets:Note
      receivable
              
              
              85,246
              
              
              
              86,746Advances
      to employees
              
              
              246,432
              
              
              
              427,510Deferred
      income taxes
              
              
              2,265,908
              
              
              
              2,265,908Bond
      issue costs, net of accumulated amortization of $161,442 and $154,158
      respectively
              
              
              131,075
              
              
              
              138,359Other
      assets
              
              
              49,614
              
              
              
              49,614Total
      other assets
              
              
              2,778,275
              
              
              
              2,968,137Total
      assets
              
              $
              12,982,233
              
              
              $
              13,274,851Current
      liabilities:Current
      portion of long-term debt
              
              $
              170,000
              
              
              $
              170,000Current
      portion of line of credit
              
              
              3,499,114
              
              
              
              3,499,114Current
      portion of note payable
              
              
              145,866
              
              
              
              0Accounts
      payable
              
              
              3,205,751
              
              
              
              3,001,543Accrued
      payroll and related expenses
              
              
              219,442
              
              
              
              260,185Accrued
      expenses
              
              
              265,806
              
              
              
              282,703Other
              
              
              181,766
              
              
              
              202,555Total
      current liabilities
              
              
              7,687,745
              
              
              
              7,416,100Long-Term
      liabilities:Long-term
      debt, net of current portion
              
              
              1,875,000
              
              
              
              2,045,000Total
      Liabilities
              
              
              9,562,745
              
              
              
              9,461,100Commitments
      and contingencies
              
              
              0
              
              
              
              0Stockholders'
      equity:Undesignated
      preferred stock - no par, 2,000,000 shares authorized, none issued or
      outstandingCommon
      stock:Class
      A - no par, 10,000,000 shares authorized; 3,000,000 issued, 2,747,000
      outstanding
              
              
              3,801,926
              
              
              
              3,801,926Class
      B - no par, 100,000 shares authorized, issued and
    outstanding
              
              
              48
              
              
              
              48Retained
      earnings
              
              
              117,077
              
              
              
              511,340Less:  treasury
      stock (Class A common: 253,000 and 253,000 shares, respectively) - at
      cost
              
              
              (499,563
              )
              
              
              (499,563
              )Total
      stockholders' equity
              
              
              3,419,488
              
              
              
              3,813,751$
              12,982,233
              
              
              $
              13,274,851
  See Notes
to Unaudited Consolidated Financial Statements
   2
 Table of Contents
 NUTRITION
MANAGEMENT SERVICES COMPANY
 CONSOLIDATEDSTATEMENTS OF
OPERATIONS
 (Unaudited)
  Three
      months ended
              
              
              Six
      months endedDecember
      31,
              
              
              December
      31,2007
              
              
              2006
              
              
              2007
              
              
              2006Food
      Service Revenue
              
              $
              5,283,004
              
              
              $
              5,159,275
              
              
              $
              10,323,867
              
              
              $
              10,484,877Cost
      of OperationsPayroll
      and related expenses
              
              
              2,530,899
              
              
              
              2,140,782
              
              
              
              4,881,917
              
              
              
              4,291,970Other
      costs of operations
              
              
              1,758,457
              
              
              
              2,085,021
              
              
              
              3,454,282
              
              
              
              4,216,696Total
      cost of operations
              
              
              4,289,356
              
              
              
              4,225,803
              
              
              
              8,336,199
              
              
              
              8,508,666Gross
      Profit
              
              
              993,648
              
              
              
              933,472
              
              
              
              1,987,668
              
              
              
              1,976,211ExpensesGeneral
      and administrative expenses
              
              
              1,005,187
              
              
              
              1,079,812
              
              
              
              2,026,948
              
              
              
              2,125,056Depreciation
      and amortization
              
              
              64,606
              
              
              
              69,607
              
              
              
              131,355
              
              
              
              141,291Provision
      for doubtful accounts
              
              
              13,418
              
              
              
              15,000
              
              
              
              25,335
              
              
              
              30,000Total
      expenses
              
              
              1,083,211
              
              
              
              1,164,419
              
              
              
              2,183,638
              
              
              
              2,296,347Income/(loss)
      from operations
              
              
              (89,563
              )
              
              
              (230,947
              )
              
              
              (195,970
              )
              
              
              (320,136
              )Other
      income/(expense)Other
              
              
              (4,509
              )
              
              
              9,687
              
              
              
              (9,018
              )
              
              
              5,122Interest
      income
              
              
              9,345
              
              
              
              15,828
              
              
              
              10,429
              
              
              
              28,833Interest
      expense
              
              
              (94,762
              )
              
              
              (114,820
              )
              
              
              (199,704
              )
              
              
              (230,115
              )Total
      other income/(expense)
              
              
              (89,926
              )
              
              
              (89,305
              )
              
              
              (198,293
              )
              
              
              (196,160
              )Loss
      before income taxes
              
              
              (179,489
              )
              
              
              (320,252
              )
              
              
              (394,263
              )
              
              
              (516,296
              )Provision
      for income taxes
              
              
              0
              
              
              
              (78,684
              )
              
              
              0
              
              
              
              (157,303
              )Net
      loss
              
              $
              (179,489
              )
              
              $
              (241,568
              )
              
              $
              (394,263
              )
              
              $
              (358,993
              )Net
      loss per share - basic and diluted
              
              $
              (.06
              )
              
              $
              (0.08
              )
              
              $
              (.14
              )
              
              $
              (0.13
              )Weighted
      average number of shares
              
              
              2,847,000
              
              
              
              2,847,000
              
              
              
              2,847,000
              
              
              
              2,847,000
  See Notes
to Unaudited Consolidated Financial Statements
  3
 Table of Contents
  NUTRITION
MANAGEMENT  SERVICES COMPANY
 CONSOLIDATEDSTATEMENT OF CASH
FLOWS
 (Unaudited)
 
 Six
      Months Ended December 31,2007
              
              
              2006Operating
      activities:Net
      loss
              
              $
              (394,263
              )
              
              $
              (358,993
              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
              
              
              131,355
              
              
              
              141,291Provision
      for bad debts
              
              
              25,335
              
              
              
              30,000Amortization
      of bond costs
              
              
              7,282
              
              
              
              7,282(Benefit)/provision
      for deferred taxes
              
              
              0
              
              
              
              (157,303
              )Changes
      in assets and liabilities:Accounts
      receivable
              
              
              (24,470
              )
              
              
              (299,545
              )Inventory
              
              
              (214
              )
              
              
              (21,624
              )Prepaid
      and other current assets
              
              
              (254,049
              )
              
              
              (178,414
              )Accounts
      payable
              
              
              204,208
              
              
              
              200,078Accrued
      payroll and related expenses
              
              
              (40,742
              )
              
              
              30,439Accrued
      expenses and other
              
              
              (37,679
              )
              
              
              55,541Net
      cash used in operating activities
              
              
              (383,237
              )
              
              
              (551,248
              )Investing
      activities:Purchase
      of property and equipment
              
              
              (10,688
              )
              
              
              (42,746
              )Repayment
      of advance to employees
              
              
              181,078
              
              
              
              7,800Net
      cash used in investing activities
              
              
              170,390
              
              
              
              (34,946
              )Financing
      activities:Proceeds
      from note payable
              
              
              327,413
              
              
              
              177,661Repayment
      of note payable
              
              
              (181,554
              )
              
              
              (46,645
              )Repayments
      of long-term borrowing
              
              
              (170,000
              )
              
              
              (165,000
              )Net
      cash provided by financing activities
              
              
              (24,141
              )
              
              
              (33,984
              )Net
      decrease in cash
              
              
              (236,988
              )
              
              
              (620,178
              )Cash
      and cash equivalents - beginning of period
              
              
              701,858
              
              
              
              1,613,567Cash
      and cash equivalents - end of period
              
              $
              464,870
              
              
              $
              993,389Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
      Paid
              
              $
              203,362
              
              
              $
              206,071Taxes
      Paid
              
              
              2,562
              
              
              
              13,420
  See Notes
to Unaudited Consolidated Financial Statements
  4
 Table of Contents
 
 NUTRITION
MANAGEMENT SERVICES COMPANY
 NOTESTO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
 December
31, 2007
 
 1.           Basis
of Presentation
 
 The
accompanying unaudited consolidated financial statements were prepared in
accordance with generally accepted accounting principles for interim financial
information for quarterly reports on Form 10-Q and, therefore, do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.  However, all
adjustments that, in the opinion of management, are necessary for fair
presentation of the financial statements have been included and such adjustments
are of a normal recurring nature.  The results of operations for the
interim period presented is not necessarily indicative of the results that may
be expected for the entire fiscal year ending June 30, 2008.  The
financial information presented should be read in conjunction with the Company's
2007 financial statements that were filed under Form 10-K.
 
 2.           New
Accounting Pronouncements
 
 In
July 2006, the FASB issued SFAS Interpretation No. 48, ‘‘Accounting for Uncertainty in
Income Taxes – An Interpretation of SFAS No. 109’’ (‘‘FIN 48’’). FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. The evaluation of a tax position in accordance with FIN
48 is a two-step process. We first will be required to determine whether it is
more likely than not that a tax position, if any, will be sustained upon
examination, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. A tax position that
meets the ‘‘more likely than not’’ recognition threshold will then be measured
to determine the amount of benefit to recognize in the financial statements
based upon the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company is currently evaluating
the effect that FIN 48 may have on its financial statements.
 
 In
September, 2006, the FASB issued SFAS No. 157, “FairValue Measurements”. This
Statement defines fair value as ‘exit prices’ not‘entry prices’ in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements for the purpose of promoting consistency and
simplification of the existing codification of accounting principles. To
eliminate differences in practice and reduce complexity in the application of
GAAP, the Statement emphasizes that fair value is a market-based measurement,
not an entity specific measurement and should be determined based on the
assumptions that market participants would use in pricing the asset or
liability. This statement establishes a fair value hierarchy that distinguishes
between observable and unobservable inputs and clarifies the need for
adjustments to fair value based on nonperformance, other market risk assessment
criteria, certain asset or event restrictions, and trading blockage. The
adoption of this Statement is effective for financial statements beginning with
fiscal years on or after September 15, 2007, including interim financial
statements within that fiscal year.
    5
 Table of Contents
 
 In
September 2006, the Securities and Exchange Commission released Staff Accounting
Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB
108 provides guidance regarding the methodology for quantifying and evaluating
the materiality of financial statement misstatements.  SAB 108 is
effective for fiscal years ending after November 15,
2006.  Application of the guidance in SAB 108 is not expected to have
a material effect on the Company’s financial position, cash flows, or results of
operations.
 
 In
October, 2006, the FASB issued SFAS No.158, “Employers’ Accounting for Defined
Benefit Pension and other Postretirement Plans- An amendment of FASB Statements
No. 87, 88, 106 and 132( R )”. This statement requires an employer to
recognize the overfunded or underfunded  status of a defined benefit
postretirement plan, other than a multi-employer plan, as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through the comprehensive income
of a business entity. This statement requires the measurement and recognition of
the difference between plan assets at fair value and the benefit obligation, as
of the date of the employer’s fiscal year-end statement of financial position.
This statement also requires additional disclosure in the footnotes to the
financial statements about certain effects on net periodic benefit cost for the
next fiscal year that arise from delayed recognition of the gains or losses,
prior service costs or credits, and transition assets or obligations. Employers
who have issued outstanding publicly traded equity securities are required to
adopt this Statement by initially recognizing the funded status of a defined
benefit postretirement plan including the required footnote disclosures as of
the end of the fiscal year ending after December 15, 2006.
 
 3.           Earnings
Per Common Share
 
 Earnings
per common share amounts are based on the weighted-average number of shares of
common stock outstanding during the three-month and six-month period ended
December 31, 2007 and 2006.  The Company did not have any stock
options and warrants that impacted earnings per share in each
period.
 
 4.           Litigation
 
 On
February 7, 2001, the Company filed a suit against a major client in the Court
of Common Pleas of Chester County, Pennsylvania, which was subsequently
removed to the United States District Court for the Eastern District
of Pennsylvania.  On February 25, 2005, judgment was entered
on a jury verdict in favor of the Company, in the amount of $2,500,000 for
damages related to its claims, including breach of contract and contractual
interference. The client’s counterclaim was dismissed by the judge. The Company
filed a post-trial motion to amend the judgment to add prejudgment
interest.  On June 1, 2006 this motion was denied.  The
Company has engaged independent legal counsel to pursue alternative recourse in
regards to the denial of prejudgment interest.
 
 The
Company is involved in litigation with a construction contractor related to the
renovations of Collegeville Inn Conference and Training Center.  The
Company denies its liability for the contractor’s claims and has asserted
offsets against the amounts claimed.  The case is currently 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.
    6
 Table of Contents
 
 5.           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
Company’s reportable segments are (1) food service management and (2) training
and conference center.  The Company reports segment performance on an
after-tax basis.  Deferred taxes are not allocated to
segments.  The management accounting policies and processes utilized
in compiling segment financial information are highly subjective and, unlike
financial accounting, are not based on authoritative guidance similar to
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.
 
 For the
quarter ended December 31, 2007:
  Food
      Service Management
                
                
                Training
      and Conference
    Center
                
                
                TotalFood
      service revenue
                
                $
                5,195,939
                
                
                $
                87,065
                
                
                $
                5,283,004Depreciation
      and amortization
                
                
                6,803
                
                
                
                57,803
                
                
                
                64,606Income
      (loss) from operations
                
                
                97,435
                
                
                
                (186,998
                )
                
                
                (89,563
                )Interest
      income
                
                
                9,345
                
                
                
                0
                
                
                
                9,345Interest
      expense
                
                
                (69,626
                )
                
                
                (25,136
                )
                
                
                (94,762
                )Income
      (loss) before taxes (benefit)
                
                
                37,154
                
                
                
                (216,643
                )
                
                
                (179,489
                )Net
      income (loss)
                
                
                37,154
                
                
                
                (216,643
                )
                
                
                (179,489
                )Total
      assets
                
                $
                6,300,392
                
                
                $
                6,681,841
                
                
                $
                12,982,233
  For the quarter ended December 31, 2006:
  Food
      Service Management
              
              
              Training
      and Conference Center
              
              
              TotalFood
      service revenue
              
              $
              4,955,526
              
              
              $
              203,749
              
              
              
              5,159,275Depreciation
      and amortization
              
              
              9,944
              
              
              
              59,663
              
              
              
              69,607Income
      (loss) from operations
              
              
              (83,271
              )
              
              
              (147,676
              )
              
              
              (230,947
              )Interest
      income
              
              
              15,828
              
              
              
              0
              
              
              
              15,828Interest
      expense
              
              
              (77,610
              )
              
              
              (37,210
              )
              
              
              (114,820
              )Income
      (loss) before taxes (benefit)
              
              
              (130,857
              )
              
              
              (189,395
              )
              
              
              (320,252
              )Net
      income (loss)
              
              
              (52,173
              )
              
              
              (189,395
              )
              
              
              (241,568
              )Total
      assets
              
              $
              6,543,690
              
              
              $
              7,316,828
              
              
              $
              13,860,518
    7
 Table of Contents
  For the
six months ended December 31, 2007
  Food
      Service Management
              
              
              Training
      and Conference Center
              
              
              TotalFood
      service revenue
              
              $
              10,133,176
              
              
              $
              190,691
              
              
              $
              10,323,867Depreciation
      and amortization
              
              
              15,646
              
              
              
              115,709
              
              
              
              131,355Income
      (loss) from operations
              
              
              126,574
              
              
              
              (322,544
              )
              
              
              (195,970
              )Interest
      income
              
              
              10,429
              
              
              
              0
              
              
              
              10,429Interest
      expense
              
              
              (145,758
              )
              
              
              (53,946
              )
              
              
              (199,704
              )Income
      (loss) before taxes
              
              
              (8,755
              )
              
              
              (385,508
              )
              
              
              (394,263
              )Net
      income (loss)
              
              
              (8,755
              )
              
              
              (385,508
              )
              
              
              (394,263
              )Total
      assets
              
              $
              6,300,392
              
              
              $
              6,681,841
              
              
              $
              12,982,233
  For the six months ended December 31, 2006
  Food
      Service Management
              
              
              Training
      and Conference Center
              
              
              TotalFood
      service revenue
              
              $
              10,103,726
              
              
              $
              381,151
              
              
              $
              10,484,877Depreciation
      and amortization
              
              
              19,074
              
              
              
              122,217
              
              
              
              141,291Income
      (loss) from operations
              
              
              (27,459
              )
              
              
              (292,677
              )
              
              
              (320,136
              )Interest
      income
              
              
              28,833
              
              
              
              0
              
              
              
              28,833Interest
      expense
              
              
              (155,568
              )
              
              
              (74,547
              )
              
              
              (230,115
              )Income
      (loss) before taxes
              
              
              (140,054
              )
              
              
              (376,242
              )
              
              
              (516,296
              )Net
      income (loss)
              
              
              17,249
              
              
              
              (376,242
              )
              
              
              (358,993
              )Total
      assets
              
              $
              6,543,690
              
              
              $
              7,316,828
              
              
              $
              13,860,518
 
 6.           Revolving
Credit Facility
 
 In
February 2001, the Company executed a loan agreement with a bank for a revolving
credit facility 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.  The cash collateral account has been released and as of
December 31, 2007 and June 30, 2007, the Company had no restricted cash
balances.   In December 2007, the Company entered into an
agreement whereby the credit loan facility was extended to March 31,
2008.
 
 At
December 31, 2007 and June 30, 2007, the Company had $3,500,000 outstanding
under the revolving credit.  Advances under the revolving credit are
used for working capital purposes.
 
 7.           Collegeville
Inn Conference & Training Center
 
 Effective
June 27, 2005, the Company closed the buffet restaurant at the Collegeville Inn
Conference & Training Center to make the facility available for catered
events.  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, increasing revenues from the
sale of the Company’s Cook Chill products, the sale or lease of all or part of
the Collegeville Inn Conference and Training Center, sale of excess land at the
Collegeville Inn Conference and Training Center and reduction of operating
expenses. There can be no assurance as to the success of any or all of these
alternatives.
    8
 Table of Contents
 The
Company conducted a one-day auction on February 22, 2007 to attempt to sell its
banquet and training facility as well as the surrounding land.  The
offers received were not acceptable to the Company.  The auction
identified several interested and qualified parties.  The Company is
currently involved in discussions with several interested parties regarding the
sale of the Collegeville Inn.  Management expects to resolve and
complete a transaction for the sale within the next twelve
months.  However, there can be no assurances that the Company will
successfully conclude these discussions, or that it will be able to lease or
sell all or part of the facilities and land on acceptable terms, if at
all.
 
 8.           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.  Effective June 27, 2005, the
Company closed the buffet restaurant at the Collegeville Inn to make the
facility available for catered events.
 
 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, increasing revenues from the sale of the Company's
Cook Chill products, the sale or lease of all or part of the Collegeville Inn,
sale of excess land at the Collegeville Inn and reduction of operating
expenses.  The Company has entered into agreements with industry
experts to assess and examine these alternatives.  However, there can
be no assurance as to the success of any of these efforts.
 
 The
Company's financial statements as of December 31, 2007 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.
 
 Although
the Company had positive working capital at December 31, 2007 of approximately
$2.4 million, the Company did have negative working capital of approximately
$3.5 million as of June 30, 2007, which raised some doubt as to its ability to
satisfy its obligations during that next fiscal year as they become
due.  Such doubt was alleviated after careful review of Management's
plans for the future relating to the Collegeville Inn Assets and operations, and
the protections relating to the management fees from its contracts and future
contracts.
 
 Management
believes that operating cash flow, 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 December 31, 2008.
 
 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.
    9
 Table of Contents
 
 Item
2.
 
 Management’sDiscussion and Analysis of Financial Condition and
Results of Operations
 
 The
following discussion and analysis should be read in conjunction with the
financial statements and notes thereto.
 
 
 Forward
Looking Statements
 
 This Form
10-Q contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended, that are intended to be covered by the safe
harbors created thereby.  Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the adequacy of the Company's cash from operations, existing
balances and available credit line.  Although the Company believes
that the assumptions underlying the forward-looking statements contained herein
are reasonable, any of the assumptions could be inaccurate, and therefore, there
can be no assurance that the forward-looking statements included in this Form
10-Q will prove to be accurate.  Factors that could cause actual
results to differ from the results discussed in the forward-looking statements
include, but are not limited to, results of operations and the outcome of the
Company’s litigation discussed in Note 4 - Litigation.  In light of
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
 
 Results
of Operations
 
 Revenues
for the quarter ended December 31, 2007 were $5,283,004, an increase of $123,729
or 2.4% compared to revenues of $5,159,275 in the corresponding quarter last
year.  This increase is due to the net impact of revenue from new
contracts offsetting revenues from lost contracts.  Revenues from
ongoing contracts were consistent with the prior year.  Revenues for
the six month period ended December 31, 2007 were $10,323,867, compared to
$10,484,877 for the six month period ended December 31, 2006, a decrease of
$161,010 or 1.5%.  The decrease is primarily due to the net impact of
revenues from new contracts not offsetting revenues from lost contracts during
the quarter ended September, 30, 2007.  Revenues for the six month
period from Collegeville Inn operations decreased over the same period last
year, primarily due to a decrease in catering events and a slight decrease in
cook chill operations.
 
 Cost of
operations for the current quarter was $4,289,356, compared to $4,225,803 for
similar expenses in the same period last year, an increase of $63,553 or
1.5%.  The increase is primarily due to the costs associated with the
increase in revenues.  Cost of operations for the six month period
ended December 31, 2007 were $8,336,199 compared to $8,508,666 for the six month
period ended December 31, 2006, a decrease of $172,467 or 2.0%.  The
decrease is primarily due to lower revenues during the six month period and the
expenses associated with those revenues over the same period.
 
 Gross
profit for the current quarter was $993,648, or 18.8% of gross revenue,
compared to$933,472, or 18.1% of
gross revenue, for the same period last year, a increase of $60,176 or
6.5%.  Gross profit for the six month period ended December 31, 2007
was $1,987,668, or 19.3% of gross revenue, compared to $1,976,211, or 18.9%, for
the six month period ended December 31, 2006, an increase of $11,457 or .6%.  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.
    10
 Table of Contents
 
 General
and administrative expenses for the quarter were $1,005,187 or 19.0% of revenue,
compared to $1,079,812 or 20.9% of revenue for the same quarter last year, a
decrease of $74,625 or 6.9%.  General and administrative expenses for
the six month period ended December 31, 2007 were $2,026,948 compared to
$2,125,056 for the six month period ended December 31, 2006, a decrease of
$98,108 or 4.6%.  This decrease is due to lower payroll and related
expenses in the period as well as a reduction in travel and related
costs.
 
 Provision
for doubtful accounts for the quarter was $13,418 compared to $15,000 for the
corresponding quarter last year.  Provision for doubtful accounts for
the six month period ended December 31, 2007 was $25,335 compared to $30,000 for
the six month period ended December 31, 2006.
 
 Interest
expense for the three-month period totaled $94,762 compared to $114,820 for the
same period last year, an decrease of $20,058 or 17.5%.  Interest
expense for the six-month period ended December 31, 2007 was $199,704 compared
to $230,115 for the six-month period ended December 31, 2005, a decrease of
$30,411 or 13.2%.  The decreases in interest expense are the result of
a reduction in long term debt and a decrease in interest rates.
 
 For the
reasons stated above, net loss after taxes for the quarter ended December 31,
2007 was $179,489 compared to $241,568 for the corresponding quarter last year,
and the net loss for the six-month period ended December 31, 2007 was $394,263
compared to $358,993 for the six-month period ended December 31,
2006.
 
 Net loss
per share for the current quarter was $0.06 compared to net loss per
share of $0.08 for the same quarter last year.  Net loss per share for
the six-month period ended December 31, 2007 was $.14 compared to $.13 for the
six-month period ended December 31, 2006.
 
 Liquidity
and Capital Resources
 
 At
December 31, 2007 the Company had working capital of $2,408,395 compared to
negative working capital of $3,351,444 for the same quarter last
year.  This increase in working capital is primarily attributable to
the Company’s reclassification of the asset held for sale to a current asset as
management expects to resolve and complete a transaction for the sale of the
asset within the next twelve months.  However, there can be no assurances
that the Company will successfully conclude these discussions, or that it will
be able to lease or sell all or part of the facilities and land on acceptable
terms, if at all.
 
 Operating
Activities.  Cash used in operations for the six months ended
December 31, 2007 was $383,237 compared to $551,248 used by operations for the
six months ended December 31, 2006.  The current period’s activity is
primarily attributable to operating losses sustained in the current period as
well as an increase in accounts payable and prepaid expenses.
 
 Investing Activities. Investing activities
provided $170,390 in cash in the current six month period compared to $34,946 in
cash used in the same period last year.   Investing activities
include capital expenditures in the amount of $10,688 in the current period as
well as the repayment of advances to employees of $181,078.  Investing
activities include capital expenditures of $42,746 in the period December 31,
2006.
    11
 Table of Contents
 Financing
Activities.  Current year to date financing activities used
$24,141 in cash compared to $33,984 used in the same period last
year.  The current period activity includes proceeds from note payable
as well as payments of long term debt.
 
 Capital
Resources.  The Company has certain credit facilities with its
bank including a revolving credit facility of $3,500,000.  At December
31, 2007 and June 30, 2007, the Company had approximately $3,500,000 outstanding
under its revolving credit.  The Company had previously pledged a
$250,000 Certificate of Deposit as additional collateral against the revolving
line of credit.  This restricted cash has been
released.  The Company issued two series of Industrial Bonds totaling
$3,560,548 in December 1996.  The outstanding balance on the bonds was
$2,045,000 and $2,215,000 as of December 31, 2007 and June 30, 2007,
respectively.  The Company and the bank reached an agreement in
December, 2007 which maintains the revolving credit line in place to March 31,
2008.
 
 As
mentioned in previous filings, the Company has assets including its Collegeville
facility, which have appreciated substantially and are not considered essential
to its core business.  These assets have been the subject of Purchase
Offers from several parties.  The Company has plans to possibly sell
or lease a part of all of these assets in a fashion that will increase the
liquidity of the Company.  The Company conducted a one-day auction on
February 22, 2007 to attempt to sell its banquet and training facility as well
as the surrounding land.  The offers received were not acceptable to
the Company.  The auction identified several interested and qualified
parties.  To date, the Company has no agreements, commitments or
understandings with respect to the sale of all or any part of these assets and
there can be no assurance that any such sale will occur.
 
 
 Payment
      Due By PeriodContractual
      Obligations
              Total
              Less
      than 1 year
              1
      – 3 years
              4
      – 5 years
              After
      5 yearsLong-Term
      Debt  *
              $5,689,980
              $3,814,980
              $350,000
              $
      390,000
              $1,135,000Operating
      Leases
              17,860
              10,320
              7,540
              --
              --Total
      Contractual Cash Obligations
              $5,707,840
              $3,825,300
              $357,540
              $390,000
              $1,135,000
  *  Long-Term
Debt includes the $3,499,114 outstanding balance on the revolving credit
facility.
 
 Amount
      of Commitment ExpirationPer
      PeriodOther
      Commercial Commitments
              Total
      Amounts Committed
              Less
      than 1 year
              1
      – 3 years
              4
      – 5 years
              Over
      5 yearsLines
      of Credit
              $3,500,000
              $3,500,000
              $--
              $             --
              $
      --Standby
      Letter of Credit
              3,065,000
              --
              3,065,000
              --
              --Total
      Commercial Commitments
              $6,565,000
              $3,500,000
              $
      3,065,000
              $           
      --
              $--
    12
 Table of Contents
 
 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.
 
 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, increasing revenues from the sale of the Company's
Cook Chill products, the sale or lease of all or part of the Collegeville Inn,
sale of excess land at the Collegeville Inn and reduction of operating
expenses.  The Company has entered into agreements with industry
experts to assess and examine these alternatives.  However, there can
be no assurances as to the success of any of these efforts.
 
 The
Company's financial statements as of December 31, 2007 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.
 
 Although
the Company had positive working capital at December 31, 2007 of approximately
$2.4 million, the Company did have negative working capital of approximately
$3.5 million as of June 30, 2007, which raised some doubt as to its ability to
satisfy its obligations during that next fiscal year as they become
due.  Such doubt was alleviated after careful review of Management's
plans for the future relating to the Collegeville Inn Assets and operations, and
the protections relating to the management fees from its contracts and future
contracts.
 
 Management
believes that operating cash flow, 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 December 31, 2008.
  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.
 
 The
Company may seek to access the public equity market whenever conditions are
favorable. Any additional public funding may result in significant dilution for
existing shareholders 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 revenues from operations.
 
 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.
   13
 Table of Contents
 
 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
collectibility is reasonably assured.  Ongoing assessments of the
credit worthiness of customers provide the Company reasonable assurance of
collectibility upon performance of services.  The Company has no other
obligation with respect to its services once services are
performed.
 Accounts
Receivable
 
 The
Company performs ongoing credit evaluations of its customers and adjusts credit
limits based on payment history and the customer's current creditworthiness, 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 quarters ended December 31,
2007 or September 30, 2007; however,
there can be no assurance that the Company will not recognize an impairment loss
on its long-lived assets in future periods.
    14
 Table of Contents
 
 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 are also 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 as income in the
period that the change is enacted.
 
 As of
December 31 and June 30, 2007, the Company maintained a deferred tax asset of
$2,265,908 and $2,265,908, respectively.  The Company has provided a
valuation allowance of $107,919 against its deferred tax assets after
consideration of a future gain on the disposal of certain land adjacent 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.
 
 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
3.
 
 Quantitativeand Qualitative Disclosure
about Market Risk
 
 Not
applicable.
   15
 Table of Contents
 
 ITEM
4T.
 
 Controlsand Procedures
 
 Based on
their evaluation, as of the end of the period covered by this report, the
Company’s Chief Executive Officer and Principal Financial Manager have concluded
the Company’s disclosure controls and procedures (as defined in Rules 13a-15 and
15d-15 under the Securities Exchange Act of 1934) are
effective.  There have been no significant changes in internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
    16
 Table of Contents
 
 PART
II - OTHERINFORMATION
  Item
      1.
                Legal
      Proceedings
                NoneItem 1A.
                Risk
      FactorsThere
      are no material changes to the risk factors disclosed in the Company’s
      Annual Report on Form 10-K for the Fiscal Year ended June 30, 2007 (the
      "Form 10-K"). As
      described in Note C to the Financial Statements of the Form 10-K as well
      as in this form 10-Q, the Company’s Financial Statements 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.Item
      2.
                Changes
      in Securities
                NoneItem
      3.
                Defaults
      Upon Senior Securities
                NoneItem4.
                Submission
      of Matters to a Vote of Security Holders
                NoneResults
      of Vote at Annual Meeting held on December 17, 2007Total
      Shares
      voted                                                                   
      1,902,931
  Election
      of Directors:
                  For
                  WithheldJoseph
      V. Roberts
                  1,899,031
                  
                  3,900Kathleen
      A. Hill
                  1,899,031
                  
                  3,900Michael
      Gosman
                  1,902,931
                  
                  0Samuel
      R. Shipley, III
                  1,902,931
                  
                  0Michelle
      Roberts-O’Donnell
                  1,902,931
                  
                  0Richard
      Kresky
                  1,902,931
                  
                  0Jane
      Scaccetti
                  1,902,931
                  
                  0
 Item
      5.
                Other
      Information
                NoneItem
      6.
                Exhibits
      and Reports on Form 8-K
 (a)
              Exhibits
 31.1
              Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities
      and Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.
 31.2
              Certification
      of Principal Financial Officer pursuant to Rule 13a-14(a) under the
      Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.
 32.1
              Certification
      of Chief Executive Officer pursuant to 18 U.S. C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.
 32.2
              Certification
      of Principal Financial Officer pursuant to 18 U.S. C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
 
 
 
 
 
 17
 Table of Contents
  SIGNATURES
 
 Pursuant to the requirements of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
  Date:  February
14, 2008
 Nutrition
      Management Services Company/s/
      Joseph V. RobertsJoseph
      V. RobertsChairman
      and Chief Executive Officer/s/
      Linda J. HainesLinda
      J. HainesPrincipal
      Financial Manager
 18