Nutrition Management Services 10Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2007

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-19824

Nutrition Management Services Company

(Exact name of registrant as specified in its charter)

Pennsylvania	23-2095332
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Box 725, Kimberton Road, Kimberton, PA	19442
(Address of principal executive offices)	(Zip Code)

(610) 935-2050

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definition of “accelerated filer and a small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o Small Reporting Company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

2,747,000 Shares of Registrant's Class A Common Stock, with no par value, and 100,000 shares of Registrant's Class B Common Stock, with no par value, are outstanding as of February 8, 2008.

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TABLE OF CONTENTS


Part I.	Financial Information	Page No.

	Item 1. – Financial Information	2

	Consolidated Balance Sheets as of
	December 31, 2007 (unaudited) and June 30, 2007	2

	Consolidated Statements of Operations for the Three
	and Six Months Ended December 31, 2007 (unaudited) and
	2006 (unaudited)	3

	Consolidated Statements of Cash Flows for the Six
	Months Ended December 31, 2007 (unaudited) and
	2006 (unaudited)	4

	Notes to Consolidated Financial Statements	5 - 9

	Item 2. - Management's Discussion and Analysis of Financial Condition
	and Results of Operations	10 - 15

	Item 3. – Quantitative and Qualitative Disclosure about
	Market Risk	15

	Item 4T – Controls and Procedures	16

Part II.	Other Information	17

	Item 1A - Risk Factors	17

	Item 4 - Submission of Matters to a Vote of Security Holders	17

	Signatures	18

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Item 1. Financial Information

NUTRITION MANAGEMENT SERVICES COMPANY

CONSOLIDATED BALANCE SHEETS

	December 31, 2007 (unaudited)			June 30, 2007

Current assets:
Cash and cash equivalents	$	464,870		$	701,858
Accounts receivable, net of allowance for doubtful accounts of $781,148 and $755,778, respectively		2,774,651			2,774,016
Inventory		143,135			142,921
Prepaid and other		531,392			277,343
Assets held for sale		6,182,092			0
Total current assets		10,096,140			3,896,138

Property and equipment, net		107,818			115,126

Assets held for sale		0			6,295,450

Other assets:
Note receivable		85,246			86,746
Advances to employees		246,432			427,510
Deferred income taxes		2,265,908			2,265,908
Bond issue costs, net of accumulated amortization of $161,442 and $154,158 respectively		131,075			138,359
Other assets		49,614			49,614
Total other assets		2,778,275			2,968,137
Total assets	$	12,982,233		$	13,274,851

Current liabilities:
Current portion of long-term debt	$	170,000		$	170,000
Current portion of line of credit		3,499,114			3,499,114
Current portion of note payable		145,866			0
Accounts payable		3,205,751			3,001,543
Accrued payroll and related expenses		219,442			260,185
Accrued expenses		265,806			282,703
Other		181,766			202,555
Total current liabilities		7,687,745			7,416,100

Long-Term liabilities:
Long-term debt, net of current portion		1,875,000			2,045,000

Total Liabilities		9,562,745			9,461,100

Commitments and contingencies		0			0

Stockholders' equity:
Undesignated preferred stock - no par, 2,000,000 shares authorized, none issued or outstanding
Common stock:
Class A - no par, 10,000,000 shares authorized; 3,000,000 issued, 2,747,000 outstanding		3,801,926			3,801,926
Class B - no par, 100,000 shares authorized, issued and outstanding		48			48
Retained earnings		117,077			511,340
Less: treasury stock (Class A common: 253,000 and 253,000 shares, respectively) - at cost		(499,563	)		(499,563	)
Total stockholders' equity		3,419,488			3,813,751
	$	12,982,233		$	13,274,851

See Notes to Unaudited Consolidated Financial Statements

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NUTRITION MANAGEMENT SERVICES COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended						Six months ended
	December 31,			December 31,
	2007			2006			2007			2006
Food Service Revenue	$	5,283,004		$	5,159,275		$	10,323,867		$	10,484,877
Cost of Operations
Payroll and related expenses		2,530,899			2,140,782			4,881,917			4,291,970
Other costs of operations		1,758,457			2,085,021			3,454,282			4,216,696
Total cost of operations		4,289,356			4,225,803			8,336,199			8,508,666

Gross Profit		993,648			933,472			1,987,668			1,976,211

Expenses
General and administrative expenses		1,005,187			1,079,812			2,026,948			2,125,056
Depreciation and amortization		64,606			69,607			131,355			141,291
Provision for doubtful accounts		13,418			15,000			25,335			30,000
Total expenses		1,083,211			1,164,419			2,183,638			2,296,347

Income/(loss) from operations		(89,563	)		(230,947	)		(195,970	)		(320,136	)

Other income/(expense)
Other		(4,509	)		9,687			(9,018	)		5,122
Interest income		9,345			15,828			10,429			28,833
Interest expense		(94,762	)		(114,820	)		(199,704	)		(230,115	)
Total other income/(expense)		(89,926	)		(89,305	)		(198,293	)		(196,160	)

Loss before income taxes		(179,489	)		(320,252	)		(394,263	)		(516,296	)

Provision for income taxes		0			(78,684	)		0			(157,303	)

Net loss	$	(179,489	)	$	(241,568	)	$	(394,263	)	$	(358,993	)

Net loss per share - basic and diluted	$	(.06	)	$	(0.08	)	$	(.14	)	$	(0.13	)

Weighted average number of shares		2,847,000			2,847,000			2,847,000			2,847,000

See Notes to Unaudited Consolidated Financial Statements

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NUTRITION MANAGEMENT SERVICES COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

	Six Months Ended December 31,
	2007			2006

Operating activities:
Net loss	$	(394,263	)	$	(358,993	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		131,355			141,291
Provision for bad debts		25,335			30,000
Amortization of bond costs		7,282			7,282
(Benefit)/provision for deferred taxes		0			(157,303	)
Changes in assets and liabilities:
Accounts receivable		(24,470	)		(299,545	)
Inventory		(214	)		(21,624	)
Prepaid and other current assets		(254,049	)		(178,414	)
Accounts payable		204,208			200,078
Accrued payroll and related expenses		(40,742	)		30,439
Accrued expenses and other		(37,679	)		55,541
Net cash used in operating activities		(383,237	)		(551,248	)

Investing activities:
Purchase of property and equipment		(10,688	)		(42,746	)
Repayment of advance to employees		181,078			7,800
Net cash used in investing activities		170,390			(34,946	)

Financing activities:
Proceeds from note payable		327,413			177,661
Repayment of note payable		(181,554	)		(46,645	)
Repayments of long-term borrowing		(170,000	)		(165,000	)
Net cash provided by financing activities		(24,141	)		(33,984	)

Net decrease in cash		(236,988	)		(620,178	)

Cash and cash equivalents - beginning of period		701,858			1,613,567

Cash and cash equivalents - end of period	$	464,870		$	993,389

Supplemental disclosure of cash flow information:
Cash paid during the period for:

Interest Paid	$	203,362		$	206,071
Taxes Paid		2,562			13,420

See Notes to Unaudited Consolidated Financial Statements

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NUTRITION MANAGEMENT SERVICES COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

1. Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in accordance with generally accepted accounting principles for interim financial information for quarterly reports on Form 10-Q and, therefore, do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, all adjustments that, in the opinion of management, are necessary for fair presentation of the financial statements have been included and such adjustments are of a normal recurring nature. The results of operations for the interim period presented is not necessarily indicative of the results that may be expected for the entire fiscal year ending June 30, 2008. The financial information presented should be read in conjunction with the Company's 2007 financial statements that were filed under Form 10-K.

2. New Accounting Pronouncements

In July 2006, the FASB issued SFAS Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes – An Interpretation of SFAS No. 109’’ (‘‘FIN 48’’). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The evaluation of a tax position in accordance with FIN 48 is a two-step process. We first will be required to determine whether it is more likely than not that a tax position, if any, will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. A tax position that meets the ‘‘more likely than not’’ recognition threshold will then be measured to determine the amount of benefit to recognize in the financial statements based upon the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the effect that FIN 48 may have on its financial statements.

In September, 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. This Statement defines fair value as ‘exit prices’ not‘entry prices’ in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements for the purpose of promoting consistency and simplification of the existing codification of accounting principles. To eliminate differences in practice and reduce complexity in the application of GAAP, the Statement emphasizes that fair value is a market-based measurement, not an entity specific measurement and should be determined based on the assumptions that market participants would use in pricing the asset or liability. This statement establishes a fair value hierarchy that distinguishes between observable and unobservable inputs and clarifies the need for adjustments to fair value based on nonperformance, other market risk assessment criteria, certain asset or event restrictions, and trading blockage. The adoption of this Statement is effective for financial statements beginning with fiscal years on or after September 15, 2007, including interim financial statements within that fiscal year.

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In September 2006, the Securities and Exchange Commission released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides guidance regarding the methodology for quantifying and evaluating the materiality of financial statement misstatements. SAB 108 is effective for fiscal years ending after November 15, 2006. Application of the guidance in SAB 108 is not expected to have a material effect on the Company’s financial position, cash flows, or results of operations.

In October, 2006, the FASB issued SFAS No.158, “Employers’ Accounting for Defined Benefit Pension and other Postretirement Plans- An amendment of FASB Statements No. 87, 88, 106 and 132( R )”. This statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan, other than a multi-employer plan, as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through the comprehensive income of a business entity. This statement requires the measurement and recognition of the difference between plan assets at fair value and the benefit obligation, as of the date of the employer’s fiscal year-end statement of financial position. This statement also requires additional disclosure in the footnotes to the financial statements about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition assets or obligations. Employers who have issued outstanding publicly traded equity securities are required to adopt this Statement by initially recognizing the funded status of a defined benefit postretirement plan including the required footnote disclosures as of the end of the fiscal year ending after December 15, 2006.

3. Earnings Per Common Share

Earnings per common share amounts are based on the weighted-average number of shares of common stock outstanding during the three-month and six-month period ended December 31, 2007 and 2006. The Company did not have any stock options and warrants that impacted earnings per share in each period.

4. Litigation

On February 7, 2001, the Company filed a suit against a major client in the Court of Common Pleas of Chester County, Pennsylvania, which was subsequently removed to the United States District Court for the Eastern District of Pennsylvania. On February 25, 2005, judgment was entered on a jury verdict in favor of the Company, in the amount of $2,500,000 for damages related to its claims, including breach of contract and contractual interference. The client’s counterclaim was dismissed by the judge. The Company filed a post-trial motion to amend the judgment to add prejudgment interest. On June 1, 2006 this motion was denied. The Company has engaged independent legal counsel to pursue alternative recourse in regards to the denial of prejudgment interest.

The Company is involved in litigation with a construction contractor related to the renovations of Collegeville Inn Conference and Training Center. The Company denies its liability for the contractor’s claims and has asserted offsets against the amounts claimed. The case is currently in discovery.

Although it is not possible to predict with certainty the outcome of the unresolved legal action, or the range of possible loss or recovery, the Company believes these unresolved legal actions will not have a material effect on its financial position or results of operations.

In addition to the litigation described above, the Company is exposed to asserted and unasserted claims in the normal course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

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5. Business Segments

The Company follows the disclosure provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. This management approach focuses on internal financial information that is used by management to assess performance and to make operating decisions. SFAS No. 131 also requires disclosures about products, services, geographic areas, and major customers.

The Company’s reportable segments are (1) food service management and (2) training and conference center. The Company reports segment performance on an after-tax basis. Deferred taxes are not allocated to segments. The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to accounting principles generally accepted in the United States of America. As a result, reported segment results are not necessarily comparable with similar information reported by other similar companies.

For the quarter ended December 31, 2007:

	Food Service Management			Training and Conference Center			Total
Food service revenue	$	5,195,939		$	87,065		$	5,283,004
Depreciation and amortization		6,803			57,803			64,606
Income (loss) from operations		97,435			(186,998	)		(89,563	)
Interest income		9,345			0			9,345
Interest expense		(69,626	)		(25,136	)		(94,762	)
Income (loss) before taxes (benefit)		37,154			(216,643	)		(179,489	)
Net income (loss)		37,154			(216,643	)		(179,489	)
Total assets	$	6,300,392		$	6,681,841		$	12,982,233

For the quarter ended December 31, 2006:

	Food Service Management			Training and Conference Center			Total
Food service revenue	$	4,955,526		$	203,749			5,159,275
Depreciation and amortization		9,944			59,663			69,607
Income (loss) from operations		(83,271	)		(147,676	)		(230,947	)
Interest income		15,828			0			15,828
Interest expense		(77,610	)		(37,210	)		(114,820	)
Income (loss) before taxes (benefit)		(130,857	)		(189,395	)		(320,252	)
Net income (loss)		(52,173	)		(189,395	)		(241,568	)
Total assets	$	6,543,690		$	7,316,828		$	13,860,518

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For the six months ended December 31, 2007

	Food Service Management			Training and Conference Center			Total
Food service revenue	$	10,133,176		$	190,691		$	10,323,867
Depreciation and amortization		15,646			115,709			131,355
Income (loss) from operations		126,574			(322,544	)		(195,970	)
Interest income		10,429			0			10,429
Interest expense		(145,758	)		(53,946	)		(199,704	)
Income (loss) before taxes		(8,755	)		(385,508	)		(394,263	)
Net income (loss)		(8,755	)		(385,508	)		(394,263	)
Total assets	$	6,300,392		$	6,681,841		$	12,982,233

For the six months ended December 31, 2006

	Food Service Management			Training and Conference Center			Total
Food service revenue	$	10,103,726		$	381,151		$	10,484,877
Depreciation and amortization		19,074			122,217			141,291
Income (loss) from operations		(27,459	)		(292,677	)		(320,136	)
Interest income		28,833			0			28,833
Interest expense		(155,568	)		(74,547	)		(230,115	)
Income (loss) before taxes		(140,054	)		(376,242	)		(516,296	)
Net income (loss)		17,249			(376,242	)		(358,993	)
Total assets	$	6,543,690		$	7,316,828		$	13,860,518

6. Revolving Credit Facility

In February 2001, the Company executed a loan agreement with a bank for a revolving credit facility and two irrevocable letters of credit issued in conjunction with the issuance of the Industrial Revenue Bonds, totaling $4,000,000 and $3,065,000, respectively. In October 2003, the Company entered into an amended credit agreement whereby the $4,000,000 Revolving Credit Loan Facility was reduced to $3,500,000 and $500,000 was placed in a cash collateral account and pledged as additional collateral against the revolving credit line. The cash collateral account has been released and as of December 31, 2007 and June 30, 2007, the Company had no restricted cash balances. In December 2007, the Company entered into an agreement whereby the credit loan facility was extended to March 31, 2008.

At December 31, 2007 and June 30, 2007, the Company had $3,500,000 outstanding under the revolving credit. Advances under the revolving credit are used for working capital purposes.

7. Collegeville Inn Conference & Training Center

Effective June 27, 2005, the Company closed the buffet restaurant at the Collegeville Inn Conference & Training Center to make the facility available for catered events. The Company is exploring all reasonable alternatives to improve its operating results, including but not limited to, increasing food service revenues with targeted marketing efforts, increasing revenues from the sale of the Company’s Cook Chill products, the sale or lease of all or part of the Collegeville Inn Conference and Training Center, sale of excess land at the Collegeville Inn Conference and Training Center and reduction of operating expenses. There can be no assurance as to the success of any or all of these alternatives.

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The Company conducted a one-day auction on February 22, 2007 to attempt to sell its banquet and training facility as well as the surrounding land. The offers received were not acceptable to the Company. The auction identified several interested and qualified parties. The Company is currently involved in discussions with several interested parties regarding the sale of the Collegeville Inn. Management expects to resolve and complete a transaction for the sale within the next twelve months. However, there can be no assurances that the Company will successfully conclude these discussions, or that it will be able to lease or sell all or part of the facilities and land on acceptable terms, if at all.

8. Business Conditions

The Company's primary sources of revenues are the management fees it receives from contracts to provide food and housekeeping services to continuing care facilities, hospitals, retirement communities and schools, as well as the Collegeville Inn, which includes the Conference and Training Center, Catering facilities and the Cook Chill operations. The Company has a business plan in place to improve the operating results from the Collegeville Inn while it continues its sale/lease efforts. Effective June 27, 2005, the Company closed the buffet restaurant at the Collegeville Inn to make the facility available for catered events.

The Company is exploring all reasonable alternatives to improve its operating results, including but not limited to, increasing food service revenues with targeted marketing efforts, increasing revenues from the sale of the Company's Cook Chill products, the sale or lease of all or part of the Collegeville Inn, sale of excess land at the Collegeville Inn and reduction of operating expenses. The Company has entered into agreements with industry experts to assess and examine these alternatives. However, there can be no assurance as to the success of any of these efforts.

The Company's financial statements as of December 31, 2007 have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Although the Company had positive working capital at December 31, 2007 of approximately $2.4 million, the Company did have negative working capital of approximately $3.5 million as of June 30, 2007, which raised some doubt as to its ability to satisfy its obligations during that next fiscal year as they become due. Such doubt was alleviated after careful review of Management's plans for the future relating to the Collegeville Inn Assets and operations, and the protections relating to the management fees from its contracts and future contracts.

Management believes that operating cash flow, proceeds from the sale or lease of certain assets, available cash and available credit resources will be adequate to make repayments of indebtedness, meet the working capital needs, satisfy the needs of its operations, and to meet anticipated capital expenditures during the next twelve months ending December 31, 2008.

In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the Company's accompanying balance sheet is dependent upon continued operations of a continuing basis, to maintain present financing, and to succeed in its future operations. The Company's financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

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Item 2.

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

Revenues for the quarter ended December 31, 2007 were $5,283,004, an increase of $123,729 or 2.4% compared to revenues of $5,159,275 in the corresponding quarter last year. This increase is due to the net impact of revenue from new contracts offsetting revenues from lost contracts. Revenues from ongoing contracts were consistent with the prior year. Revenues for the six month period ended December 31, 2007 were $10,323,867, compared to $10,484,877 for the six month period ended December 31, 2006, a decrease of $161,010 or 1.5%. The decrease is primarily due to the net impact of revenues from new contracts not offsetting revenues from lost contracts during the quarter ended September, 30, 2007. Revenues for the six month period from Collegeville Inn operations decreased over the same period last year, primarily due to a decrease in catering events and a slight decrease in cook chill operations.

Cost of operations for the current quarter was $4,289,356, compared to $4,225,803 for similar expenses in the same period last year, an increase of $63,553 or 1.5%. The increase is primarily due to the costs associated with the increase in revenues. Cost of operations for the six month period ended December 31, 2007 were $8,336,199 compared to $8,508,666 for the six month period ended December 31, 2006, a decrease of $172,467 or 2.0%. The decrease is primarily due to lower revenues during the six month period and the expenses associated with those revenues over the same period.

Gross profit for the current quarter was $993,648, or 18.8% of gross revenue, compared to $933,472, or 18.1% of gross revenue, for the same period last year, a increase of $60,176 or 6.5%. Gross profit for the six month period ended December 31, 2007 was $1,987,668, or 19.3% of gross revenue, compared to $1,976,211, or 18.9%, for the six month period ended December 31, 2006, an increase of $11,457 or .6%. The increase in gross profit is due to improved operating processes as well as the net impact of new contracts and lost contracts, which was partially offset by the renegotiation of contract rates in the normal course of business.

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General and administrative expenses for the quarter were $1,005,187 or 19.0% of revenue, compared to $1,079,812 or 20.9% of revenue for the same quarter last year, a decrease of $74,625 or 6.9%. General and administrative expenses for the six month period ended December 31, 2007 were $2,026,948 compared to $2,125,056 for the six month period ended December 31, 2006, a decrease of $98,108 or 4.6%. This decrease is due to lower payroll and related expenses in the period as well as a reduction in travel and related costs.

Provision for doubtful accounts for the quarter was $13,418 compared to $15,000 for the corresponding quarter last year. Provision for doubtful accounts for the six month period ended December 31, 2007 was $25,335 compared to $30,000 for the six month period ended December 31, 2006.

Interest expense for the three-month period totaled $94,762 compared to $114,820 for the same period last year, an decrease of $20,058 or 17.5%. Interest expense for the six-month period ended December 31, 2007 was $199,704 compared to $230,115 for the six-month period ended December 31, 2005, a decrease of $30,411 or 13.2%. The decreases in interest expense are the result of a reduction in long term debt and a decrease in interest rates.

For the reasons stated above, net loss after taxes for the quarter ended December 31, 2007 was $179,489 compared to $241,568 for the corresponding quarter last year, and the net loss for the six-month period ended December 31, 2007 was $394,263 compared to $358,993 for the six-month period ended December 31, 2006.

Net loss per share for the current quarter was $0.06 compared to net loss per share of $0.08 for the same quarter last year. Net loss per share for the six-month period ended December 31, 2007 was $.14 compared to $.13 for the six-month period ended December 31, 2006.

Liquidity and Capital Resources

At December 31, 2007 the Company had working capital of $2,408,395 compared to negative working capital of $3,351,444 for the same quarter last year. This increase in working capital is primarily attributable to the Company’s reclassification of the asset held for sale to a current asset as management expects to resolve and complete a transaction for the sale of the asset within the next twelve months. However, there can be no assurances that the Company will successfully conclude these discussions, or that it will be able to lease or sell all or part of the facilities and land on acceptable terms, if at all.

Operating Activities. Cash used in operations for the six months ended December 31, 2007 was $383,237 compared to $551,248 used by operations for the six months ended December 31, 2006. The current period’s activity is primarily attributable to operating losses sustained in the current period as well as an increase in accounts payable and prepaid expenses.

Investing Activities. Investing activities provided $170,390 in cash in the current six month period compared to $34,946 in cash used in the same period last year. Investing activities include capital expenditures in the amount of $10,688 in the current period as well as the repayment of advances to employees of $181,078. Investing activities include capital expenditures of $42,746 in the period December 31, 2006.

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Financing Activities. Current year to date financing activities used $24,141 in cash compared to $33,984 used in the same period last year. The current period activity includes proceeds from note payable as well as payments of long term debt.

Capital Resources. The Company has certain credit facilities with its bank including a revolving credit facility of $3,500,000. At December 31, 2007 and June 30, 2007, the Company had approximately $3,500,000 outstanding under its revolving credit. The Company had previously pledged a $250,000 Certificate of Deposit as additional collateral against the revolving line of credit. This restricted cash has been released. The Company issued two series of Industrial Bonds totaling $3,560,548 in December 1996. The outstanding balance on the bonds was $2,045,000 and $2,215,000 as of December 31, 2007 and June 30, 2007, respectively. The Company and the bank reached an agreement in December, 2007 which maintains the revolving credit line in place to March 31, 2008.

As mentioned in previous filings, the Company has assets including its Collegeville facility, which have appreciated substantially and are not considered essential to its core business. These assets have been the subject of Purchase Offers from several parties. The Company has plans to possibly sell or lease a part of all of these assets in a fashion that will increase the liquidity of the Company. The Company conducted a one-day auction on February 22, 2007 to attempt to sell its banquet and training facility as well as the surrounding land. The offers received were not acceptable to the Company. The auction identified several interested and qualified parties. To date, the Company has no agreements, commitments or understandings with respect to the sale of all or any part of these assets and there can be no assurance that any such sale will occur.

	Payment Due By Period
Contractual Obligations	Total	Less than 1 year	1 – 3 years	4 – 5 years	After 5 years
Long-Term Debt *	$5,689,980	$3,814,980	$350,000	$ 390,000	$1,135,000
Operating Leases	17,860	10,320	7,540	--	--
Total Contractual Cash Obligations	$5,707,840	$3,825,300	$357,540	$390,000	$1,135,000

* Long-Term Debt includes the $3,499,114 outstanding balance on the revolving credit facility.

		Amount of Commitment Expiration Per Period
Other Commercial Commitments	Total Amounts Committed	Less than 1 year	1 – 3 years	4 – 5 years	Over 5 years
Lines of Credit	$3,500,000	$3,500,000	$--	$ --	$ --
Standby Letter of Credit	3,065,000	--	3,065,000	--	--
Total Commercial Commitments	$6,565,000	$3,500,000	$ 3,065,000	$ --	$--

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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.

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Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. The Company believes that its critical accounting policies include those described below.

Revenue Recognition

Revenue is generated primarily from fees for food service management and facilities management at continuing care and health care facilities, schools and the Collegeville Inn Conference and Training Center.

The Company provides its services under several different financial arrangements including a fee basis and guaranteed rate basis.For Fee Contracts, certain expenses are paid directly by the Customer and certain expenses are paid by the Company and billed to the Customer. The Company recognizes Revenue in the amount of the expenses billed and the fees for providing services.

For Guaranteed Rate Contracts, the Company charges Customers an established amount for services provided (for example, per patient day) and is responsible for all the expenses related to the delivery of those services. The amount of the billing is recorded as Revenue and the delivery costs are recorded as cost of sales.

Regardless of the different financial arrangements, the Company recognizes revenue when services have been rendered and the contract price is determinable, and collectibility is reasonably assured. Ongoing assessments of the credit worthiness of customers provide the Company reasonable assurance of collectibility upon performance of services. The Company has no other obligation with respect to its services once services are performed.

Accounts Receivable

The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on payment history and the customer's current creditworthiness, as determined by a review of their current credit information. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based on historical experience and any specific customer collection issues that have been identified. While such credit losses have historically been within the Company's expectations and the provisions established, the Company cannot guarantee that it will continue to experience the same credit loss rates that it has in the past.

Impairment or Disposal of Long Lived Assets

The carrying value of property, plant, and equipment is evaluated based upon current and anticipated undiscounted operating cash flows before debt service charges. An impairment is recognized when it is probable that such estimated future cash flows will be less than the carrying value of the assets. Measurement of the amount of impairment, if any, is based upon the difference between the net carrying value and the fair value, which is estimated based upon anticipated undiscounted operating cash flows before debt service charges. Based upon a review of its long-lived assets, the Company did not recognize an impairment loss for the quarters ended December 31, 2007 or September 30, 2007; however, there can be no assurance that the Company will not recognize an impairment loss on its long-lived assets in future periods.

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Income Tax Accounting

The Company determines its provision for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax effects of temporary differences of existing assets and liabilities and their respective tax bases. Future tax benefits of tax loss and credit carry forwards are also recognized as deferred tax assets. When necessary, deferred tax assets are reduced by a valuation allowance to the extent the Company concludes there is uncertainty as to their ultimate realization. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized as income in the period that the change is enacted.

As of December 31 and June 30, 2007, the Company maintained a deferred tax asset of $2,265,908 and $2,265,908, respectively. The Company has provided a valuation allowance of $107,919 against its deferred tax assets after consideration of a future gain on the disposal of certain land adjacent to its Collegeville facility and anticipated future profitable operating results. However, the amount realizable may be reduced if future taxable income is reduced or is insufficient to utilize the entire deferred tax asset.

Capital Expenditures

The Company has no other material commitments for capital expenditures and believes that its existing cash and cash equivalents, cash from operations and available revolving credit will be sufficient to satisfy the needs of its operations and its capital commitments for the next twelve months. However, if the need arose, the Company would seek to obtain capital from such sources as continuing debt financing or equity financing.

Effects of Inflation

Substantially all of the Company's agreements with its customers allow the Company to pass through to its customers its increases in the cost of labor, food and supplies. The Company believes that it will be able to recover increased costs attributable to inflation by continuing to pass through cost increases to its customers.

Medicare and Medicaid Reimbursements

A substantial portion of the Company's revenue is dependent upon the payment of its fees by customer health care facilities, which, in turn, are dependent upon third-party payers such as state governments, Medicare and Medicaid. Delays in payment by third party payers, particularly state and local governments, may lead to delays in collection of accounts receivable.

ITEM 3.

Quantitative and Qualitative Disclosure about Market Risk

Not applicable.

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ITEM 4T.

Controls and Procedures

Based on their evaluation, as of the end of the period covered by this report, the Company’s Chief Executive Officer and Principal Financial Manager have concluded the Company’s disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934) are effective. There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	None

Item 1A.	Risk Factors

	There are no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the Fiscal Year ended June 30, 2007 (the "Form 10-K"). As described in Note C to the Financial Statements of the Form 10-K as well as in this form 10-Q, the Company’s Financial Statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Item 2.	Changes in Securities	None

Item 3.	Defaults Upon Senior Securities	None

Item 4.	Submission of Matters to a Vote of Security Holders	None

	Results of Vote at Annual Meeting held on December 17, 2007

	Total Shares voted 1,902,931

Election of Directors:	For	Withheld
Joseph V. Roberts	1,899,031	3,900
Kathleen A. Hill	1,899,031	3,900
Michael Gosman	1,902,931	0
Samuel R. Shipley, III	1,902,931	0
Michelle Roberts-O’Donnell	1,902,931	0
Richard Kresky	1,902,931	0
Jane Scaccetti	1,902,931	0

Item 5.	Other Information	None

Item 6.	Exhibits and Reports on Form 8-K

(a)

Exhibits

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief Executive Officer pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Principal Financial Officer pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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

Date: February 14, 2008

	Nutrition Management Services Company

	/s/ Joseph V. Roberts
	Joseph V. Roberts
	Chairman and Chief Executive Officer



	/s/ Linda J. Haines
	Linda J. Haines
	Principal Financial Manager

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Nutrition Management Services (NMSCA) Inactive 10-Q2008 Q2 Quarterly report

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