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,
2008
  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 x     No
 ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
(Check one):
  Large
      accelerated filer  ̈
                Accelerated
      filer  ̈Non-accelerated
      filer  ̈ (Do
      not check if a smaller reporting company)
                Smaller
      reporting company x
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).     Yes o    No
x


TABLE
OF CONTENTS




Part
      I.
                Financial
      Information
                Page
      No.Item 1. – Financial Information
                2Consolidated Balance Sheets as of December 31, 2008
      (unaudited) and June 30, 2008
                2Consolidated Statements of Operations for
      the Three Months and Six Months Ended December 31, 2008 (unaudited) and
      2007 (unaudited)
                3Consolidated Statements of Cash Flows for the Six Months
      Ended December 31, 2008 (unaudited) and 2007
    (unaudited)
                4Notes to Consolidated Financial
    Statements
                5 -
      9Item 2. – Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                9 -
      14Item 3. – Quantitative and Qualitative Disclosure about
      Market Risk
                15Item 4T. – Controls and Procedures
                15
      - 16Part
      II.
                Other Information
                17Signatures
                18








Item
1.




Financial
Information





NUTRITION MANAGEMENT SERVICES COMPANY


CONSOLIDATED
BALANCE SHEETS






December
      31, 2008(unaudited)
                          
                          
                          June 30,
      2008Current
      assets:Cash
      and cash equivalents
                          
                          $
                          334,692
                          
                          
                          $
                          307,902Accounts
      receivable, net of allowance for doubtful accounts of $833,833 and
      $808,887, respectively
                          
                          
                          2,406,289
                          
                          
                          
                          2,648,181Inventory
                          
                          
                          160,023
                          
                          
                          
                          142,073Prepaid
      and other
                          
                          
                          619,669
                          
                          
                          
                          342,655Assets
      held for sale
                          
                          
                          6,295,450
                          
                          
                          
                          6,295,450Total
      current assets
                          
                          
                          9,816,123
                          
                          
                          
                          9,736,261Property
      and equipment, net
                          
                          
                          94,026
                          
                          
                          
                          104,939Other
      assets:Advances
      to employees
                          
                          
                          228,537
                          
                          
                          
                          238,381Deferred
      income taxes
                          
                          
                          2,265,908
                          
                          
                          
                          2,265,908Bond
      issue costs, net of accumulated amortization of $179,649 and $168,724,
      respectively
                          
                          
                          116,516
                          
                          
                          
                          123,800Other
      assets
                          
                          
                          246,831
                          
                          
                          
                          248,566Total
      other assets
                          
                          
                          2,857,792
                          
                          
                          
                          2,876,655Total
      assets
                          
                          $
                          12,767,941
                          
                          
                          $
                          12,717,855Current
      liabilities:Current
      portion of long-term debt
                          
                          $
                          180,000
                          
                          
                          $
                          180,000Current
      portion of line of credit
                          
                          
                          3,489,114
                          
                          
                          
                          3,499,114Current
      portion of note payable
                          
                          
                          29,726
                          
                          
                          
                          7,551Accounts
      payable
                          
                          
                          3,277,746
                          
                          
                          
                          3,196,032Accrued
      payroll and related expenses
                          
                          
                          142,167
                          
                          
                          
                          208,366Accrued
      expenses
                          
                          
                          155,010
                          
                          
                          
                          266,727Note
      payable-related parties
                          
                          
                          385,000
                          
                          
                          
                          -Other
                          
                          
                          62,153
                          
                          
                          
                          105,718Total
      current liabilities
                          
                          
                          7,720,916
                          
                          
                          
                          7,463,508Long-Term
      liabilities:Long-term
      debt, net of current portion
                          
                          
                          1,685,000
                          
                          
                          
                          1,865,000Total
      Liabilities
                          
                          
                          9,405,916
                          
                          
                          
                          9,328,508Commitments
      and contingenciesStockholders’
      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, and no par 10,000,000 shares authorized; 3,000,000 issued,
      2,747,000 outstanding, respectively
                          
                          
                          3,801,926
                          
                          
                          
                          3,801,926Class
      B - no par, 100,000 shares authorized, issued and
    outstanding
                          
                          
                          48
                          
                          
                          
                          48Retained
      earnings
                          
                          
                          59,614
                          
                          
                          
                          86,936Total
                          
                          
                          3,861,588
                          
                          
                          
                          3,888,910Less:  treasury
      stock (Class A common: 253,000 and 253,000 shares, respectively) - at
      cost
                          
                          
                          (499,563
                          )
                          
                          
                          (499,563
                          )Total
      stockholders’ equity
                          
                          
                          3,362,025
                          
                          
                          
                          3,389,347Total
      liabilities and stockholders’ equity
                          
                          $
                          12,767,941
                          
                          
                          $
                          12,717,855




See
Notes to Unaudited Consolidated Financial Statements
  2






NUTRITIONMANAGEMENT SERVICES
COMPANY


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)




Three
      months ended

                                                                    December
      31,
                                                                
                                                                
                                                                Six
      months ended

                                                                    December
      31,2008
                                                                
                                                                
                                                                2007
                                                                
                                                                
                                                                2008
                                                                
                                                                
                                                                2007Food
      Service Revenue
                                                                
                                                                $
                                                                5,246,936
                                                                
                                                                
                                                                $
                                                                5,283,004
                                                                
                                                                
                                                                $
                                                                10,601,474
                                                                
                                                                
                                                                $
                                                                10,323,867Cost
      of OperationsPayroll
      and related expenses
                                                                
                                                                
                                                                2,510,943
                                                                
                                                                
                                                                
                                                                2,530,899
                                                                
                                                                
                                                                
                                                                5,169,053
                                                                
                                                                
                                                                
                                                                4,881,917Other
      costs of operations
                                                                
                                                                
                                                                1,673,305
                                                                
                                                                
                                                                
                                                                1,758,457
                                                                
                                                                
                                                                
                                                                3,329,379
                                                                
                                                                
                                                                
                                                                3,454,282Total
      cost of operations
                                                                
                                                                
                                                                4,184,248
                                                                
                                                                
                                                                
                                                                4,289,356
                                                                
                                                                
                                                                
                                                                8,498,432
                                                                
                                                                
                                                                
                                                                8,336,199Gross
      Profit
                                                                
                                                                
                                                                1,062,688
                                                                
                                                                
                                                                
                                                                993,648
                                                                
                                                                
                                                                
                                                                2,103,042
                                                                
                                                                
                                                                
                                                                1,987,668ExpensesGeneral
      and administrative expenses
                                                                
                                                                
                                                                929,391
                                                                
                                                                
                                                                
                                                                1,005,187
                                                                
                                                                
                                                                
                                                                1,961,725
                                                                
                                                                
                                                                
                                                                2,026,948Depreciation
      and amortization
                                                                
                                                                
                                                                6,664
                                                                
                                                                
                                                                
                                                                64,606
                                                                
                                                                
                                                                
                                                                13,478
                                                                
                                                                
                                                                
                                                                131,355Provision
      for doubtful accounts
                                                                
                                                                
                                                                15,000
                                                                
                                                                
                                                                
                                                                13,418
                                                                
                                                                
                                                                
                                                                24,911
                                                                
                                                                
                                                                
                                                                25,335Total
      expenses
                                                                
                                                                
                                                                951,055
                                                                
                                                                
                                                                
                                                                1,083,211
                                                                
                                                                
                                                                
                                                                2,000,114
                                                                
                                                                
                                                                
                                                                2,183,638Income/(loss)
      from operations
                                                                
                                                                
                                                                111,633
                                                                
                                                                
                                                                
                                                                (89,563
                                                                )
                                                                
                                                                
                                                                102,928
                                                                
                                                                
                                                                
                                                                (195,970
                                                                )Other
      income/(expense)Other
                                                                
                                                                
                                                                (4,509
                                                                )
                                                                
                                                                
                                                                (4,509
                                                                )
                                                                
                                                                
                                                                (9,018
                                                                )
                                                                
                                                                
                                                                (9,018
                                                                )Interest
      income
                                                                
                                                                
                                                                325
                                                                
                                                                
                                                                
                                                                9,345
                                                                
                                                                
                                                                
                                                                1,547
                                                                
                                                                
                                                                
                                                                10,429Interest
      expense
                                                                
                                                                
                                                                (59,845
                                                                )
                                                                
                                                                
                                                                (94,762
                                                                )
                                                                
                                                                
                                                                (122,779
                                                                )
                                                                
                                                                
                                                                (199,704
                                                                )Total
      other income/(expense)
                                                                
                                                                
                                                                (64,029
                                                                )
                                                                
                                                                
                                                                (89,926
                                                                )
                                                                
                                                                
                                                                (130,250
                                                                )
                                                                
                                                                
                                                                (198,293
                                                                )Income/(Loss)
      before income taxes
                                                                
                                                                
                                                                47,604
                                                                
                                                                
                                                                
                                                                (179,489
                                                                )
                                                                
                                                                
                                                                (27,322
                                                                )
                                                                
                                                                
                                                                (394,263
                                                                )Provision
      for income taxes
                                                                
                                                                
                                                                0
                                                                
                                                                
                                                                
                                                                0
                                                                
                                                                
                                                                
                                                                0
                                                                
                                                                
                                                                
                                                                0Net
      Income/(Loss)
                                                                
                                                                
                                                                47,604
                                                                
                                                                
                                                                $
                                                                (179,489
                                                                )
                                                                
                                                                $
                                                                (27,322
                                                                )
                                                                
                                                                $
                                                                (394,263
                                                                )Net
      loss per share - basic and diluted
                                                                
                                                                $
                                                                0.02
                                                                
                                                                
                                                                $
                                                                (0.06
                                                                )
                                                                
                                                                $
                                                                (0.01
                                                                )
                                                                
                                                                $
                                                                (0.14
                                                                )Weighted
      average number of shares
                                                                
                                                                
                                                                2,847,000
                                                                
                                                                
                                                                
                                                                2,847,000
                                                                
                                                                
                                                                
                                                                2,847,000
                                                                
                                                                
                                                                
                                                                2,847,000




3




NUTRITIONMANAGEMENT SERVICES COMPANY


CONSOLIDATED
STATEMENT OF CASH FLOWS


(Unaudited)




Six
      months ended December 31,2008
                                    
                                    
                                    2007Operating
      activities:Net
      loss
                                    
                                    $
                                    (27,322
                                    )
                                    
                                    $
                                    (394,263
                                    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                                    
                                    
                                    13,478
                                    
                                    
                                    
                                    131,355Provision
      for bad debts
                                    
                                    
                                    24,911
                                    
                                    
                                    
                                    25,335Amortization
      of bond costs
                                    
                                    
                                    7,282
                                    
                                    
                                    
                                    7,282Changes
      in assets and liabilities:Accounts
      receivable
                                    
                                    
                                    216,981
                                    
                                    
                                    
                                    (24,470
                                    )Accrued
      Income
                                    
                                    
                                    (232,922
                                    )
                                    
                                    
                                    -Inventory
                                    
                                    
                                    (17,950
                                    )
                                    
                                    
                                    (214
                                    )Prepaid
      and other current assets
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (254,049
                                    )Other
      Assets
                                    
                                    
                                    (42,317
                                    )
                                    
                                    
                                    -Accounts
      payable
                                    
                                    
                                    81,713
                                    
                                    
                                    
                                    204,208Accrued
      Expenses
                                    
                                    
                                    (33,629
                                    )
                                    
                                    
                                    -Accrued
      payroll and related expenses
                                    
                                    
                                    (66,199
                                    )
                                    
                                    
                                    (40,742
                                    )Accrued
      Professional
                                    
                                    
                                    (78,088
                                    )
                                    
                                    
                                    -Accrued
      expenses and other
                                    
                                    
                                    (43,563
                                    )
                                    
                                    
                                    (37,679
                                    )Net
      cash provided (used) in operating activities
                                    
                                    
                                    (197,625
                                    )
                                    
                                    
                                    (383,237
                                    )Investing
      activities:Purchase
      of property and equipment
                                    
                                    
                                    (2,605
                                    )
                                    
                                    
                                    (10,688
                                    )Advances
      to employees
                                    
                                    
                                    9,844
                                    
                                    
                                    
                                    181,078Net
      cash provided (used) in investing activities
                                    
                                    
                                    7,239
                                    
                                    
                                    
                                    170,390Financing
      activities:Repayments
      of long-term debt
                                    
                                    
                                    (190,000
                                    )
                                    
                                    
                                    (170,000
                                    )Proceeds
      from note payable-related parties
                                    
                                    
                                    385,000
                                    
                                    
                                    
                                    -Proceeds
      from note payable
                                    
                                    
                                    102,585
                                    
                                    
                                    
                                    327,413Repayments
      of note payable
                                    
                                    
                                    (80,409
                                    )
                                    
                                    
                                    (181,554
                                    )Net
      cash provided (used) by financing activities
                                    
                                    
                                    217,176
                                    
                                    
                                    
                                    (24,141
                                    )Net
      increase (decrease) in cash
                                    
                                    
                                    26,790
                                    
                                    
                                    
                                    (236,988
                                    )Cash
      and cash equivalents - beginning of period
                                    
                                    
                                    307,902
                                    
                                    
                                    
                                    701,858Cash
      and cash equivalents - end of period
                                    
                                    $
                                    334,692
                                    
                                    
                                    $
                                    464,870Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
      Paid
                                    
                                    $
                                    62,488
                                    
                                    
                                    $
                                    203,362Taxes
      Paid
                                    
                                    
                                    6,507
                                    
                                    
                                    
                                    2,562




4




NUTRITIONMANAGEMENT SERVICES COMPANY


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





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, 2009.  The
financial information presented should be read in conjunction with the Company's
2008 financial statements that were filed under Form 10-K.
  2.
              New
      Accounting Pronouncements
  In
May 2008, the Financial Accounting Standards Board issued Statement
No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”
Statement No. 162 improves financial reporting by identifying a consistent
framework, or hierarchy, for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with U.S.
generally accepted accounting principles for nongovernmental entities. Statement
No. 162 is effective sixty days following the SEC’s approval of the Public
Company Accounting Oversight Board auditing amendments to AU Section 411,
“The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.” The Company is evaluating the impact of Statement
No. 162.
  In
April 2008, the Financial Accounting Standards Board issued FASB Staff
Position FSP No. FAS 142-3, “Determination of the Useful Life of Intangible
Assets.” FSP No. 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under FAS No. 142, “Goodwill and Other
Intangible Assets.” FSP No. FAS 142-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. The Company is evaluating the impact of FSP
No. FAS 142-3.
  In
March 2008, the Financial Accounting Standards Board issued Statement
No. 161, “Disclosures about Derivative Instruments and Hedging Activities.”
Statement No. 161 requires disclosure of the fair values of derivative
instruments and their gains and losses in a tabular format. It also requires
disclosure of derivative features that are credit risk-related and
cross-referencing within footnotes to enable financial statement users to locate
important information about derivative instruments. Statement No. 161 is
effective for financial statements issued for fiscal years and interim periods
after November 15, 2008, with early application encouraged. The Company is
evaluating the impact of Statement No. 161 on its consolidated financial
statements.
  5
  In December 2007, the Financial
Accounting Standards Board issued Statement No. 141(R), “Business
Combinations.” Statement No. 141(R) requires the acquiring entity in a
business combination to recognize all (and only) the assets acquired and
liabilities assumed in the transaction; establishes the acquisition-date fair
value as the measurement objective for all assets acquired and liabilities
assumed; and requires the acquirer to disclose to investors and other users all
of the information they need to evaluate and understand the nature and financial
effect of the business combination. Statement No. 141(R) is effective
for fiscal years beginning after December 15, 2008. The Company is
evaluating the impact of Statement No. 141(R) on its consolidated
financial statements.
  In
December 2007, the Financial Accounting Standards Board issued Statement
No. 160, “Non-controlling Interests in Consolidated Financial Statements.”
Statement No. 160 requires that a reporting entity provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. Statement No. 160
is effective for fiscal years beginning after December 15, 2008. The
Company is evaluating the impact of Statement No. 160 on its consolidated
financial statements.
  In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”). SFAS 157 establishes a framework for measuring fair
value in accordance with U.S. generally accepted accounting principles, and
enhances disclosures about fair value measurements. SFAS 157 applies when other
accounting pronouncements require fair value measurements; it does not require
new fair value measurements. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and for interim
periods within those years. The Company has adopted the requirements contained
in this statement.  The adoption of this statement is not expected to
have a material impact on the financial statements of the Company.
  In
February 2008, the Financial Accounting Standards Board issued FASB Staff
Position No. 157-2, “Effective Date of FASB Statement No. 157.” FSP
No. 157-2 delays the effective date of FASB Statement No. 157, “Fair
Value Measurements,” for non-financial assets and non-financial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually) to fiscal years beginning
after November 15, 2008 and interim periods within those fiscal years for
items within the scope of this FSP. The Company is currently assessing the
implications of this Statement on its consolidated financial
statements.
  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 period ended December 31, 2008
and 2007.  The Company did not have any dilutive stock options and
warrants that impacted earnings per share in each period.
  4.
              Litigation
  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.
  6
  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.
  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, 2008:
  Food
      Service
                        Management
                      
                      
                      Training
      and
                        Conference Center
                      
                      
                      TotalFood
      service revenue
                      
                      $
                      5,154,372
                      
                      
                      $
                      92,564
                      
                      
                      
                      5,246,936Depreciation
      and amortization
                      
                      
                      5,470
                      
                      
                      
                      1,194
                      
                      
                      
                      6,664Income
      (loss) from operations
                      
                      
                      193,277
                      
                      
                      
                      (81,644
                      )
                      
                      
                      111,633Interest
      income
                      
                      
                      325
                      
                      
                      
                      0
                      
                      
                      
                      325Interest
      expense
                      
                      
                      (44,409
                      )
                      
                      
                      (15,436
                      )
                      
                      
                      (59,845
                      )Income
      (loss) before taxes (benefit)
                      
                      
                      149,192
                      
                      
                      
                      (101,588
                      )
                      
                      
                      47,604Net
      income (loss)
                      
                      
                      149,192
                      
                      
                      
                      (101,588
                      )
                      
                      
                      47,604Total
      assets
                      
                      $
                      6,046,473
                      
                      
                      $
                      6,721,468
                      
                      
                      $
                      12,767,941
  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
  7
  For the
six months ended December 31, 2008:
 
 Food
      Service
                        Management
                      
                      
                      Training
      and
                        Conference Center
                      
                      
                      TotalFood
      service revenue
                      
                      $
                      10,446,025
                      
                      
                      $
                      155,449
                      
                      
                      $
                      10,601,474Depreciation
      and amortization
                      
                      
                      11,087
                      
                      
                      
                      2,391
                      
                      
                      
                      13,478Income
      (loss) from operations
                      
                      
                      282,535
                      
                      
                      
                      (179,607
                      )
                      
                      
                      102,928Interest
      income
                      
                      
                      1,547
                      
                      
                      
                      --
                      
                      
                      
                      1,547Interest
      expense
                      
                      
                      (93,511
                      )
                      
                      
                      (29,268
                      )
                      
                      
                      (122,779
                      )Income
      (loss) before taxes (benefit)
                      
                      
                      190,571
                      
                      
                      
                      (217,893
                      )
                      
                      
                      (27,322
                      )Net
      income (loss)
                      
                      
                      190,571
                      
                      
                      
                      (217,893
                      )
                      
                      
                      (27,322
                      )Total
      assets
                      
                      $
                      6,046,473
                      
                      
                      $
                      6,721,468
                      
                      
                      $
                      12,767,941
 
 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
                          
                          
                          
                          --
                          
                          
                          
                          10,429Interest
      expense
                          
                          
                          (145,758
                          )
                          
                          
                          (53,946
                          )
                          
                          
                          (199,704
                          )Income
      (loss) before taxes (benefit)
                          
                          
                          (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
 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.  As of December 31, 2008
and September 30, 2008 all of the cash collateral account has been released and
is available for operations.
  At
December 31, 2008 and September 30, 2008, the Company had approximately
$3,500,000 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
March 31, 2009.  The Company is currently negotiating to replace or
retire this debt with alternate financing.
  The
Company and Wilmington Trust bank have been working together in an attempt to
resolve a claim filed by Wilmington Trust Bank in the amount of $3,520,887 in
the Court of Common Pleas of Chester County, Pennsylvania.  However,
there can be no assurance as to the outcomes of these discussions and the
failure to resolve this matter or a resolution of this matter on terms which are
not beneficial to the Company will have a material adverse effect on the
business and financial operations of the Company.  To date, the
Company has made all principal, interest and bond payments which have been owed
to Wilmington Trust Bank.
  8
  7.
              Related
      Party Transactions
  As of
December 15, 2008, included in current liabilities –related parties is owed
$385,000 to an officer and director of the company.  Amounts due to
and from officers are unsecured, interest bearing at 4% and due on
demand.
  8.
              Collegeville
      Inn Conference & Training
Center
  The
Company owns approximately twenty-two acres of land in Collegeville,
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 the tracts or parcels of land together with the building,
Collegeville Inn Conference & Training Center for the sum of
$5,500,000.  The agreement provided for an initial deposit of
$500,000, which has been received and held in escrow. At closing the Purchaser
shall pay the remaining balance of the purchase price.  The Purchaser
had a period of sixty (60) days after the Agreement Date for a due diligence
period, and that period has expired.  The agreement of sale provides
that settlement occur within forty five (45) days of purchaser’s receipt of all
permits and approvals.  Upon closing of the transaction, the Company
plans on using the proceeds to retire the outstanding debt associated with the
property. However, there can be no assurance that this transaction will be
completed in accordance with the terms of the agreement of sale.
  9.
              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. 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 & Training Center for the sum of
$5,500,000.  Upon closing of the transaction, the Company plans on
using the proceeds to retire the outstanding debt associated with the
property.   However, there can be no assurance that this
transaction will be completed in accordance with the terms of the agreement of
sale.
  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, and reduction of operating expenses.
  The
Company had positive working capital at December 31, 2008 of approximately $2.1
million. 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,
2009.
  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 an ongoing 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




Item2.





Management’s
Discussion and Analysis of Financial Condition and Results of
Operations





The
following discussion and analysis should be read in conjunction with the
financial statements and notes thereto.





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 for the Period Ended December 31, 2008





Revenues
for the quarter ended December 31, 2008 were $5,246,936, a decrease of $36,068
or .07% compared to revenues of $5,283,004 in the corresponding quarter last
year.  This decrease is primarily due to the net impact of revenues
from new contracts offset by revenues from lost contracts.  Revenues
from ongoing accounts were consistent with prior years.  Revenues for
the six month period ended December 31, 2008 were $10,601,474, compared to
$10,323,867 for the six month period ended December 31, 2007, an increase of
$277,607 or 2.7%.  The increase is primarily due to the net impact of
revenues from new contracts not offsetting revenues from lost contracts during
the quarter ended December 31, 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 provided for the current quarter was $4,184,248, compared to
$4,289,356 for similar expenses in the same period last year, a decrease of
$105,108or
2.5%.  This decrease is the result of revenues mentioned above and the
expenses associated with those revenues.  Cost of operations for the
six month period ended December 31, 2008 were $8,498,432 compared to $8,336,199
for the six month period ended December 31, 2007, an increase of $162,233 or
2.0%.  The increase is primarily due to higher revenues during the six
month period and the expenses associated with those revenues over the same
period.




Gross
profit for the current quarter was $1,062,688, or 20.3% of gross revenue,
compared to$993,648, or 18.8% of
gross revenue, for the same period last year, an increase of $69,040 or
7.0%.    Gross profit for the six month period ended
December 31, 2008 was $2,103,042, or 19.8% of gross revenue, compared to
$1,987,668, or 19.3%, for the six month period ended December 31, 2007, an
increase of $115,374 or 5.8%.   The increase in gross profit is
due to the net impact of new contracts and lost contracts, partially offset by
the renegotiation of contract rates in the normal course of
business.




10




General
and administrative expenses for the quarter were $929,391 or 17.7% of revenue,
compared  to $1,005,187 or 19.0% of revenue  for
the  same  quarter  last  year,  a  decrease  of  $75,796  or  7.5%
General and administrative expenses for the six month period ended December 31,
2008 were $1,961,725 compared to $2,026,948 for the six month period ended
December 31, 2007, a decrease of $65,223 or 3.2%.  This decrease is
due to lower payroll and related expenses in the period as well as a reduction
in travel and legal expenses.




Provision
for doubtful accounts for the quarter ended December 31, 2008 was $15,000
compared to $13,418 for the corresponding quarter last
year.   Provision for doubtful accounts for the six month period
ended December 31, 2008 was $24,911 compared to $25,335 for the six month period
ended December 31, 2007.




Interest
income for the quarter ended December 31, 2008 was $325 compared to $9,345 for
the same period last year.




Interest
expense for the quarter ended December 31, 2008 was $59,845 compared to $94,762
for the same period last year.  Interest expense for the six-month
period ended December 31, 2008 was $122,779 compared to $199,704 for the
six-month period ended December 31, 2007, a decrease of $76,925 or 39.0%. This
decrease is primarily due to long term debt repayment and a reduction of
interest rates.




For the
reasons stated above, net profit before taxes for the quarter ended December 31,
2008 was $47,604 compared to a net loss of $179,489 for the corresponding
quarter last year.   The net loss for the six-month period ended
December 31, 2008 was $27,322 compared to $394,263 for the six-month period
ended December 31, 2007.




Net
profit per share for the current quarter was $0.02 compared to net loss per
share of $0.06 for the same quarter last year.  Net loss per share for
the six-month period ended December 31, 2008 was $.01 compared to $.14 for the
six-month period ended December 31, 2007.





Liquidity
and Capital Resources





At
December 31, 2008 the Company had positive working capital of $2,095,207
compared to working capital of $2,408,395 for the same quarter last
year.  This change in working capital is primarily attributable to the
use of cash in financing activities for the six months ended December 31, 2008
as well as the use of cash in operating activities for the six months ended June
30, 2008.




Operating
Activities.  Cash provided in operations for the six months
ended December 31, 2008 was $197,625 compared to $383,237 used in operations for
the six months ended December 31, 2007.  The current period’s activity
is primarily attributable to an increase in accounts payable, decrease in
accounts receivable and increase in prepaid expenses as well as operating income
sustained in the current period.




Investing Activities. Investing activities
provided $7,239 in cash in the current six months compared to $170,390 in cash
used in the same period last year.  Investing activities include
capital expenditures in the amount of $2,605 in the current period and $10,688
in the same period last year.




Financing
Activities.  Current quarter financing activities provided
$217,176 in cash compared to $24,141 provided in the same period last
year.  The current period’s activity was the result of proceeds from
the insurance notes payable, notes payable from related party, and repayment of
long-term debt.




Capital
Resources.  The Company has certain credit facilities with its
bank including a revolving credit of $3,500,000.  At December 31, 2008
and June 30, 2008, the Company had approximately $3,500,000 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 $1,685,000 as of December 31, 2008.  In June 2008,
the Company entered into an agreement whereby the credit loan facility was
extended to March 31, 2009.  The Company is currently negotiating to
replace or retire this debt with alternate financing.




11




The
Company and Wilmington Trust bank have been working together in an attempt to
resolve a claim filed by Wilmington Trust Bank in the amount of $3,520,887 in
the Court of Common Pleas of Chester County, Pennsylvania.  However,
there can be no assurance as to the outcomes of these discussions and the
failure to resolve this matter or a resolution of this matter on terms which are
not beneficial to the Company will have a material adverse effect on the
business and financial operations of the Company.  To date, the
Company has made all principal, interest and bond payments which have been owed
to Wilmington Trust Bank.





Payment
      Due By PeriodContractual
      Obligations
                
                Total
                
                
                Less
      than 1 year
                
                
                2
      – 3 years
                
                
                4
      – 5 years
                
                
                After
      5 yearsDebt  *
                
                $
                5,383,840
                
                
                
                3,698,840
                
                
                
                1,685,000
                
                
                $
                --
                
                
                $
                --Operating
      Leases
                
                
                810
                
                
                
                810
                
                
                
                --
                
                
                
                --
                
                
                
                --Total
      Contractual Cash Obligations
                
                $
                5,384,650
                
                
                $
                3,699,650
                
                
                $
                1,685,000
                
                
                $
                --
                
                
                $
                --




·
              Long-Term
      Debt includes approximately $3,489,114 outstanding on the revolving credit
      facility.




Amount
      of Commitment Expiration Per PeriodOther
      Commercial Commitments
                                  
                                  Total
      AmountsCommitted
                                  
                                  
                                  Less
      than 1 year
                                  
                                  
                                  1
      – 3 years
                                  
                                  
                                  4
      – 5 years
                                  
                                  
                                  Over
      5 yearLines
      of Credit
                                  
                                  $
                                  3,489,114
                                  
                                  
                                  $
                                  3,489,114
                                  
                                  
                                  $
                                  --
                                  
                                  
                                  $
                                  --
                                  
                                  
                                  $
                                  --Standby
      Letter of Credit
                                  
                                  
                                  1,865,000
                                  
                                  
                                  
                                  180,000
                                  
                                  
                                  
                                  1,685,000
                                  
                                  
                                  
                                  --
                                  
                                  
                                  
                                  --Total
      Commercial Commitments
                                  
                                  $
                                  5,354,114
                                  
                                  
                                  $
                                  3,669,114
                                  
                                  
                                  $
                                  1,685,000
                                  
                                  
                                  $
                                  --
                                  
                                  
                                  $
                                  --




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. In addition, on October 8, 2008 the Company
entered into an agreement of sale for the tracts or parcels of land together
with the building, Collegeville Inn Conference & Training Center for the sum
of $5,500,000.  The agreement provided for an initial deposit of
$500,000 which has been received and held in escrow.  At closing the
Purchaser shall pay the remaining balance of the purchase price.  The
Purchaser shall have a period of sixty (60) days after the Agreement Date for a
due diligence period, and that period has expired.  The agreement of
sale provides that settlement occur within forty five (45) days of purchaser’s
receipt of all permits and approvals.  Upon closing of the
transaction, the Company plans on using the proceeds to retire the outstanding
debt associated with the property.   However, there can be no
assurance that this transaction will be completed in accordance with the terms
of the agreement of sale.





12




The
Company had positive working capital at December 31, 2008 of approximately $2.1
million. 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,
2009.




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 an ongoing 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.




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.




13




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 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 quarter ended December 31,
2008 or fiscal year ended June 30, 2008; 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
December 31, 2008 and June 30, 2008, the Company maintained a deferred tax asset
of $2,265,908 and $2,265,908, respectively. The Company has provided a valuation
allowance of $125,461 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.





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.




14




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.




ITEM3.





Quantitative
and Qualitative Disclosure about Market Risk





Not
applicable.




ITEM4T.





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 President and Chief
Operating Officer (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 President and Chief Operating
Officer (Principal Financial Manager) (Principal Financial Manager) concluded
that, as of December 31, 2008, such controls and procedures were not
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 December
31, 2008. 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.




15




The
Company’s management performed an assessment of the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2008,
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 September 30, 2008,
based on the criteria in Internal Control—Integrated Framework issued by
COSO.




The
Company’s management identified the following deficiencies that would be
considered a material weakness in our internal control over financial reporting
as of December 31, 2008. A material weakness is a deficiency, or combination of
deficiencies, that results in more than a reasonable possibility that a material
misstatement in the Company’s annual or interim financial statements will not be
prevented or detected on a timely basis:




(i) The
Company did not maintain an effective control environment due to the lack of
documented, formal policies and procedures; and


(ii) The
Company did not maintain effective internal controls over the financial closing
and reporting process.




In light
of this conclusion, the Company has initiated documentation of its policies and
procedures and will institute compensating procedures and processes as necessary
to ensure the reliability of its financial reporting to include the development
of a standard closing checklist with specific assignment of duties,
responsibilities, and timetable for completions of assigned
tasks.  Management intends to remediate weaknesses in the control
environment and financial reporting through specific process improvements that
have been identified.  The Company will develop new processes in its
accounting department.  Each new process will be evaluated to ensure
it is supported by effectively designed level of controls and procedures 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 plans to
devote additional resources to its internal controls, and is currently engaged
in discussions with third parties regarding improvements.  In
addition, further resources will be devoted to developing and communicating its
policies and procedures to its employees and management.  This shall
include development and enforcement of compliance programs.  The
compliance program shall also include communication to set and reinforce the
right tone from the top.




These
remediation efforts, primarily associated with financial reporting, will require
significant ongoing effort and investment.  Management, with the
oversight of the audit committee, will continue to identify and take steps to
remedy known deficiencies as expeditiously as possible and enhance the overall
design and capability of the control environment.  The Company intends
to further expand its accounting policy and controls capabilities by providing
additional resources where deemed necessary and to enhance training of existing
staff in such matters.  Management believes that the foregoing actions
will continue to improve the Company’s internal control over financial
reporting, as well as its disclosure controls and procedures.





16




This
quarterly report does not include an attestation report of the company’s
registered public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the company to provide only
management’s report in this quarterly report.




Subsequent
to December 31, 2008, however, the Company has commenced a review by its
internal staff, including its accounting staff, of new processes to provide an
evaluation of the level of controls and related procedures currently in place
for each process.





17




PARTII - OTHER INFORMATION




Item
      1.
                  Legal
      Proceedings
                  NoneItem
      2.
                  Changes
      in Securities
                  NoneItem
      3.
                  Defaults
      Upon Senior Securities
                  NoneItem
      4.
                  Submission
      of Matters to a Vote of Security Holders
                  NoneItem
      5.
                  Other
      Information
                  NoneItem
      6.
                  Exhibits
      and Reports on Form 8K(a)
                  Exhibits31.1
                  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 President and Chief Operating Officer (Principal Financial Manager)
      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 President and Chief Operating Officer (Principal Financial Manager)
      pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002.




18




SIGNATURES








Pursuant to the requirements of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.


Nutrition
      Management Services Company/s/
      Joseph V. RobertsJoseph
      V. RobertsChairman
      and Chief Executive Officer/s/
      Kathleen A. HillKathleen
      A. HillPresident
      and Chief Operating Officer(Principal
      Financial Manager)








Date:  February
17, 2009






19