NUTRITION MANAGEMENT SERVICES CO/PA - FORM 10-K

Attached files

file	filename
EX-32.2 - NUTRITION MANAGEMENT SERVICES CO/PA	ex322to10k01523_06302009.htm
EX-32.1 - NUTRITION MANAGEMENT SERVICES CO/PA	ex321to10k01523_06302009.htm
EX-31.1 - NUTRITION MANAGEMENT SERVICES CO/PA	ex311to10k01523_06302009.htm
EX-31.2 - NUTRITION MANAGEMENT SERVICES CO/PA	ex312to10k01523_06302009.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

	x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee required)
		For Fiscal year ended June 30, 2009

	o	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(D)OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required)


		For the transition period from _____ to _____

Commission file Number 0-19824

NUTRITION MANAGEMENT SERVICES COMPANY

(Exact name of registrant as specified in its charter)

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

725 Kimberton Road, Kimberton, Pennsylvania 19442

(Address of principal executive office) (Zip Code)

Registrant’s telephone number, including area code: 610-935-2050

Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange on Which Registered	Title of Each Class

None

Securities registered pursuant to Section 12(g) of the Act:

Title of Each Class

Shares of Class A Common Stock (no par value)

(Cover Page 1 of 3 pages)

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES o NO x

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (2) of the Act

YES o NO x

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchanges Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 605 of Regulation S –T (§232.405 of this chapter) during the previous 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES o NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

LARGE ACCELERATED FILER		o		ACCELERATED FILER		o
NON-ACCELERATED FILER		o		SMALLER REPORTING COMPANY		x

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO x

(Cover page 2 of 3 pages)

The aggregate market value of voting stock (Class A Common Stock, no par value) held by non-affiliates of the Registrant as of December 31, 2008 was approximately $17,141.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At October 13, 2009, there was outstanding 2,747,000 shares of the Registrant’s Class A Common Stock, no par value, and 100,000 shares of the Registrant’s Class B Common Stock, no par value.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III for Form 10-K will be incorporated by reference to certain portions of a definitive proxy statement which is expected to be filed by the Registrant pursuant to Regulation 14A within 120 days after the close of its Fiscal year.

This report consists of consecutively numbered pages (inclusive of all exhibits and including this cover page). The Exhibit Index appears on page 24.

(Cover page 3 of 3 pages)

PART I

ITEM 1 - BUSINESS

General

Nutrition Management Services Company (the “Company” or the “Registrant”) provides food, facilities operations and housekeeping management services to continuing care facilities, hospitals, retirement communities and schools.

The Company was incorporated under the laws of the Commonwealth of Pennsylvania on March 28, 1979, and focuses on the continuing care and health-care segments of the food service market. Its customers include continuing care facilities, hospitals, retirement communities and schools.

On November 25, 1991, the Company organized Apple Management Services Company to provide management service expertise.

On May 31, 1994, the Company purchased twenty-two (22) acres of land containing a 40,000 square foot building formerly used as a restaurant and banquet facility. The Company renovated the property to serve as a comprehensive training facility for Company employees. In addition, the facility serves as a showroom for prospective customers who can observe the Company's programs for nursing and retirement home dining and hospital cafeteria operations. In September 1997, the Company opened the retail restaurant portion of the Collegeville Inn Conference & Training Center. In connection therewith, the Company expended approximately $6,000,000 in renovation work through the issuance of two twenty-year bonds dated December 1996 and its internal working capital. The Company opened the banquet and training division during its second quarter of Fiscal year 1998. The remaining division of the project was available for operations in the third quarter of Fiscal 2000. Effective June 27, 2005, the Company closed the buffet restaurant at the Collegeville Inn Conference and Training Center to make the facility available for catered events.

On November 14, 1997, the Company organized Apple Fresh Foods, Ltd. to develop a cook-chill food preparation technology for use in the Company’s food service business. Apple Fresh Foods, Ltd. operations are located in the Collegeville Inn.

The Company owns approximately twenty-two acres of land in Collegeville, Montgomery County, Pennsylvania. In 1997, the Company completed its renovations of an existing 40,000 square foot building to serve as a training facility and conference center. On October 8, 2008, the Company entered into an agreement of sale for certain tracts or parcels of land, together with the building, Collegeville Inn Conference and Training Center, for the sum of $5,500,000. The Agreement of Sale was contingent upon the Buyer being able to obtain all necessary permits and approvals for the development of an age restricted living facility on the property. In April 2009, it became apparent to the Buyer that the permit and approval process was going to take longer than originally anticipated and that it would not be able to meet its target deadlines. As a result, the Company and the Buyer executed a mutual release, releasing both parties from any further obligations under the Agreement of Sale. The Company continues to protect the zoning of the property so as to permit future development. Immediately following the execution of the mutual release, the Company listed the property for sale with a nationwide commercial real estate brokerage.

Financial Information About Industry Segments

See Note P on page F-21 of the Consolidated Financial Statements.

Description of Services

The Company provides contract food, facilities operations and housekeeping services to continuing care facilities, hospitals, retirement communities and schools. The Company provides complete management and supervision of the dietary, facilities and housekeeping operations in its customers’ facilities through the use of on-site management staff, quality and cost-control programs, and training and education of dietary staff. The Company’s operational districts are supported by Regional Managers, District Managers, Registered Dietitians and Quality Assurance staff.

The Company seeks to provide its services at a lower cost than self-managed facilities, while maintaining or improving existing service, nutritional care standards and regulatory compliance.

Marketing and Sales

The Company’s customers include continuing care facilities, hospitals, retirement communities as well as schools, which range in size from small individual facilities to large multi-facility operations. Although many facilities perform their own food service functions without relying upon outside management firms such as the Company, the Company expects the market for its services to grow as facilities increasingly seek to contain costs and are required to comply with increased governmental regulations.

The Company’s services are marketed at the corporate level by its Chief Executive Officer, its President, and its Operating Personnel. The Company’s services are marketed primarily through in-person solicitation of facilities. The Company also utilizes direct mail and participates in industry trade shows.

Market for Services

The market for the Company’s services consists of a large number of facilities involved in various aspects of the continuing care and health care fields, including nursing homes, retirement communities, hospitals and rehabilitation centers. Such facilities may be specialized or general, privately owned or publicly traded, for profit or not-for-profit and may serve residents and patients on a continuing or short-term basis.

Service Agreements

The Company provides its services under several different financial arrangements including a fee basis and guaranteed rate basis. As of June 30, 2009, the Company provided services under various service agreements at thirty eight (38) facilities. At some of these facilities, the Company has contracts to provide vending services and housekeeping services in addition to the contract to provide food services. Most of these contracts have one year terms and are automatically renewable at the end of each service year. The agreements generally provide that either party may cancel the agreement upon ninety (90) days written notice.

In consideration for providing its services, the Company expects to be paid by its clients in accordance with the credit terms agreed upon which range from 30 days to 90 days.

Major Customers

The Company’s Food Service Management Segment had sales to one customer representing approximately 9%, 8% and 8% of the total revenues for the years ending June 30, 2009, 2008 and 2007, respectively. Sales to one other customer represented 8%, 7% and 7% of the total sales for the years ending June 30, 2009, 2008 and 2007, respectively.

The loss of any of these customers could have a material adverse effect on the Company’s future results of operations.

Competition

The Company competes mainly with regional and national food service management companies operating in the continuing care and health care industries, as well as with the self-managed departments of its potential clients.

Although the competition to service these facilities is intense, the Company believes that it competes effectively for new agreements as well as for renewals of existing agreements based upon the quality and dependability of its services. The Company's ability to compete successfully depends upon its ability to maintain and improve quality, service and reliability, to attract and retain qualified employees and to continue to expand its marketing and service activities.

Employees

At June 30, 2009, the Company employed a total of approximately 289 employees. Approximately 103 of those employees serve in various executive, management, administrative, quality assurance and sales capacities. The remaining 186 employees are primarily dietary and housekeeping workers. Approximately 121 (65%) of the Company’s dietary and housekeeping workers are covered by a collective bargaining agreement. The Company’s collective bargaining agreements cover various food service and housekeeping facilities. Their terms cover various time periods. The Company makes contributions to the unions’ benefits funds as required by the collective bargaining agreements. The Company considers its relationships with its employees and unions to be satisfactory.

Purchasing

For the year June 30, 2009, the Company purchased approximately 28% of its food and non-food products from one vendor. Purchases from two other vendors amounted to 32% and 11% of the total purchases for the year ended June 30, 2008; the same two vendors represented 29% and 18% of the total purchases for the year ended June 30, 2007, respectively.

While the Company maintains a good relationship with these vendors, in the event of a disruption in the Company’s relationship with these vendors or any disruption in the vendors’ business, the Company has alternate sources of supply for its food and non-food products.

Financial Information About Foreign and Domestic Operations and Export Sales

Not applicable.

ITEM 1A – RISK FACTORS

Investors should be aware of several risks before investing in the Company including but not limited to (i) the Company had a net loss of $424,404 for the Fiscal year ended June 30, 2008 (ii) the Company’s Class A Common stock is traded on the Pink Sheets and hence there is limited liquidity of the Company’s Class A Common Stock, (iii) the Company has never paid any dividends and its credit facility prohibits it from paying any cash dividends, and (iv) the Company’s Chief Executive Officer is the holder of in excess of 70% of the Company’s voting stock.

ITEM 1B – UNRESOLVED STAFF COMMENTS

The Company is unaware of any unresolved staff comments.

ITEM 2 - PROPERTIES

The Company leases its corporate offices, located at 2071 Kimberton Road, Kimberton, Pennsylvania, which consists of approximately 8,500 square feet from Ocean 7, Inc., a corporation controlled by the Chief Executive Officer of the Company. Currently the lease is on a month-to-month basis on terms generally similar to those prevailing to unrelated parties.

During the three years ended June 30, 2009, 2008 and 2007, the Company paid the related party entity rent in the amounts of $258,414, $259,347 and $265,283, respectively. The Company leases an apartment from the same company to accommodate visiting clients and employees.

In addition, the Company is provided with office space at each of its client facilities.

For a further description of issues relating to the properties refer to the Management’s Discussion and Analysis-Liquidity and Capital Resources.

The Company presently owns food service equipment, computers, office furniture, and equipment, automobiles and trucks. Management believes that all properties and equipment are sufficient for the conduct of the Company's current operations.

ITEM 3 - LEGAL PROCEEDINGS

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

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

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

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s Class A Common Stock No Par Value, (the “Class A Common Stock”) is currently trading on the OTC Pink Sheets (Ticker Symbol – NMSCA.PK) and is a penny stock. The Company’s Class A Common Stock traded on the OTC Bulletin Board until January 7, 2005, at which time trading commenced on the OTC Pink Sheets. Securities and Exchange Commission regulations generally define a penny stock to be an equity security that is not listed on NASDAQ or a national securities exchange and that has a market price of less than $5.00 per share, subject to certain exceptions. The regulations of the Securities and Exchange Commission require broker-dealers to deliver to a purchaser of the Company’s Class A Common Stock a disclosure schedule explaining the penny stock market and the risks associated with it. Various sales practice requirements are also imposed on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions). In addition, broker-dealers must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account.

The following table shows the range of high and low bid quotations as reported on the OTC Electronic Bulletin Board or the OTC Pink Sheets for the quarters ending during the last two Fiscal years for the Class A Common Stock:

Fiscal 2009

High

Low

Fourth Quarter	$0.06	$0.04
Third Quarter	0.10	0.03
Second Quarter	0.25	0.02
First Quarter	0.25	0.24

Fiscal 2008

High

Low

Fourth Quarter	$0.24	$0.24
Third Quarter	0.25	0.24
Second Quarter	0.40	0.22
First Quarter	0.45	0.40

The prices presented are bid prices, which represent prices between broker-dealers and do not include retail mark-ups and mark-downs or any commission to the broker-dealer. The above prices do not reflect prices in actual transactions.

Holders

As of October 1, 2009, there were approximately thirty-seven (37) holders of record of the Class A Common Stock.

Dividends

The Company has not paid any dividends on its Class A or Class B Common Stock. It is not expected that the Company will pay any dividends in the foreseeable future. The Company’s credit facilities prohibit it from paying any cash dividends.

ITEM 6 - SELECTED FINANCIAL DATA

The selected historical financial data presented below should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements and the notes thereto.

	Year ended June 30,
	2009			2008			2007			2006			2005
Revenue	$	20,013,903		$	20,860,543		$	20,911,939		$	23,366,435		$	26,602,121
Gross Profit		4,298,008			3,993,436			3,877,032			4,273,467			4,914,568
Income (Loss) from Operations		366,897			(78,118	)		(699,461	)		(1,151,505	)		(770,800	)
Other Income / (Expense)		(281,528	)		(346,286	)		(333,261	)		(198,203	)		1,854,038
Net Income / (Loss)		85,369			(424,404	)		(771,147	)		(820,442	)		775,657

Per share of Common Stock (basic and diluted):
Net Income / (Loss)	$	0.03		$	( 0.15	)	$	( 0.27	)	$	( 0.29	)	$	0.27

Weighted average Common Shares Outstanding (basic and diluted)		2,847,000			2,847,000			2,847,000			2,847,000			2,847,000

	As of June 30,
		2009			2008			2007			2006			2005
Working Capital	$	2,195,335		$	2,272,753		$	( 3,519,962	)	$	687,126		$	1,581,159
Total Assets		12,663,486			12,717,855			13,274,851			13,967,438			16,190,634
Long-Term Debt		2,089,146			1,865,000			2,045,000			5,714,922			5,604,921
Stock Holders Equity		3,474,716			3,389,347			3,813,751			4,584,898			5,413,580

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Form 10-K contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 as amended, which are intended to be covered by the safe harbors created thereby. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Form 10-K will prove to be accurate.

In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

Result of Operations Year Ended June 30, 2009 Compared to year Ended June 30, 2008

Revenues for the year ended June 30, 2009 (“Fiscal 2009”) were $20,013,903, a decrease of $846,640 compared to revenues of $20,860,543 for the year ended June 30, 2008 (“Fiscal 2008”). This decrease is attributable to a decrease in revenues from Collegeville Inn operations. Revenue from new food service accounts during the current year has not been sufficient to offset any contracts terminating in the current year. Revenues at ongoing facilities increased slightly year over year.

Cost of operations for Fiscal 2009 was $15,715,895 compared to $16,867,107 in Fiscal 2008, a decrease of $1,151,212 or 6.83%. The decrease is due to lower revenues during the period and the expenses associated with those revenues over the same period. Improved operating performance also contributed to the reduced costs.

Gross profit for Fiscal 2009 was $4,298,008 or 21.5% of revenue, compared to $3,993,436 or 19.1% of revenue in Fiscal 2008, an increase of $304,572 or 7.63%. The increase in gross profit is due to improved operating processes as well as the net impact of new contracts and lost contracts, which was partially offset by the renegotiation of contract rates in the normal course of business.

General and administrative expenses for Fiscal 2009 were $3,845,120 or 19.21% of revenue, compared to $3,979,501 or 19.0% of revenue for Fiscal 2008, a decrease of $134,381 or 3.4%. This decrease is due to lower payroll and related expenses as well as a reduction in travel and related costs.

Depreciation and amortization for Fiscal 2009 was $25,353, compared to $28,985 for Fiscal 2008.

Bad debt expense for Fiscal 2009 was $51,735 compared to $63,068 for Fiscal 2008. Bad debt expense represents an amount considered uncollectible based on specifically identified amounts that we believe to be based on historical collection experience, adverse situations that may affect the customers ability to repay and prevailing economic conditions.

Income from operations for Fiscal 2009 was $366,897 or 1.8% of revenue compared to a loss of $78,118 or 0.37% of revenue for Fiscal 2008, an improvement of $445,015 or 569.7%. This improvement is the result of cost effectiveness and performance offsetting reduced revenues as well as a reduction of general and administrative expenses.

Interest expense for Fiscal 2009 was $278,876 or 1.4% of revenue, compared to $334,190 or 1.6% of revenue for Fiscal 2008. This decrease in interest expense is the result of a reduction in long term debt.

Other income/(expense) for Fiscal 2009 was ($4,302) or .02% of revenue compared to ($29,028) or .1% of revenue for Fiscal 2008.

For the reasons stated above, net income before income taxes for Fiscal 2009 was $94,272 or 0.47% of revenue compared to net loss before income taxes of $424,404 or 2.0% of revenue for Fiscal 2008.

The net income for Fiscal 2009 was $85,369 or $0.03 per share compared to a net loss of $424,404 or $0.15 per share for Fiscal 2008.

Liquidity and Capital Resources

The Company’s requirement for capital is to fund (i) sales growth, (ii) food purchases and wage costs at certain facilities in advance of customer reimbursement, and (iii) financing for acquisitions. Our primary source of financing during 2009 and 2008 was cash flow from operations.

At June 30, 2009, the Company had positive working capital of $2,609,481 as compared to positive working capital of $2,272,753 at June 30, 2008. Cash used by operations for Fiscal 2009 was $428,319, compared to $401,877 used by operations for Fiscal 2008. This activity was primarily attributed to changes in accounts receivable and accounts payable.

Investing activities provided $32,745 during Fiscal 2009 compared to $170,372 used in cash during Fiscal 2008. Fiscal 2009 included capital expenditures of $2,606 while Fiscal 2008 included capital expenditures of $18,757. Fiscal 2009 included repayment of employee advances of $27,416. Fiscal 2009 also included the sale of assets for $7,935. During Fiscal 2009, financing activities provided $140,281 which included the repayment of $273,831 in long term debt and proceeds of $414,146 from a related party. Fiscal 2008 used $162,449 financing activities which included the repayment of $170,000 in long term debt.

The Company has certain credit facilities with its bank including a revolving credit of $3,500,000. At June 30, 2009 the Company had approximately $3,400,000 outstanding under its revolving credit. The Company issued two series of Industrial Bonds totaling $3,560,548 in December 1996. The outstanding balance on the bonds was $1,865,000 as of June 30, 2009. In December 2008, the Company entered into an agreement whereby the credit loan facility was extended to December 31, 2009. The Company is currently negotiating to replace or retire this debt with alternate financing.

	Payment Due By Period
Contractual Obligations	Total	Less than 1 year	2 – 3 years	4 – 5 years	After 5 years
Total Debt *	$5,270,283	$3,595,283	$415,000	$465,000	$795,000

Total Contractual Cash Obligations	$5,270,283	$3,595,283	$415,000	$465,000	$795,000

* Long-Term Debt includes approximately $3,400,00 outstanding on the revolving credit facility.

The Company is exploring all reasonable alternatives to improve its operating results, including but not limited to, increasing food service revenues with targeted marketing efforts, and increasing revenues from the sale of the Company’s Cook Chill products. On October 8, 2008, the Company entered into an agreement of sale for certain tracts or parcels of land, together with the building, Collegeville Inn Conference and Training Center, for the sum of $5,500,000. The Agreement of Sale was contingent upon the Buyer being able to obtain all necessary permits and approvals for the development of an age restricted living facility on the property. In April 2009, it became apparent to the Buyer that the permit and approval process was going to take longer than originally anticipated and that it would not be able to meet its target deadlines. As a result, the Company and the Buyer executed a mutual release, releasing both parties from any further obligations under the Agreement of Sale. The Company continues to protect the zoning of the property so as to permit future development. Immediately following the execution of the mutual release, the Company listed the property for sale with a nationwide commercial real estate brokerage.

The Company's financial statements as of June 30, 2009, have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Based upon its present plans, management believes that operating cash flow, available cash, proceeds from the sale or lease of certain assets and available credit resources will be adequate to make repayments of indebtedness described herein, to meet the working capital cash needs of the Company, satisfy the needs of its operations and to meet anticipated capital expenditure needs during the twelve months ending June 30, 2010.

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

In an effort to extend its current bank debt, the Company may seek to access the public equity markets whenever conditions are favorable, even if it does not have an immediate need for additional capital at that time. Any additional funding may result in significant dilution and could involve the issuance of securities with rights, which are senior to those of existing stockholders. The Company may also need additional funding earlier than anticipated, and its cash requirements, in general, may vary materially from those now planned, for reasons including, but not limited to, competitive advances and higher than anticipated expenses and lower than anticipated revenues from operations.

NEW AUTHORITATIVE PRONOUNCEMENTS

In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS 165"). SFAS 165 establishes general standards of accounting for and disclosures of subsequent events that occurred after the balance sheet date but prior to the issuance of financial statements. SFAS 165 is effective for financial statements issued for interim or Fiscal years ending after June 15, 2009. The adoption of SFAS 165, effective June 2009, did not affect the consolidated financial position, results of operations or cash flows of the Company.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP shall be effective for interim reporting periods ending after June 15, 2009.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. This FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. The FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The FSP shall be effective for interim and annual reporting periods ending after June 15, 2009.

In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This FSP amends FASB Statement No. 157, Fair Value Measurements to provide additional guidance on estimating fair value when the volume and level of transaction activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability. The FSP also provides additional guidance on circumstances that may indicate that a transaction is not orderly. This FSP supersedes FSP No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active and requires additional disclosures about fair value measurements in annual and interim reporting periods. FSP No. FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009.

In April 2009, the SEC released Staff Accounting Bulletin No. 111 ("SAB 111"), which amends SAB Topic 5-M. SAB 111 notes that FSP No. 115-2 and FAS 124-2 were scoped to debt securities only, and the FSP referred readers to SEC SAB Topic 5-M for factors to consider with respect to other-than-temporary impairments for equity securities. With the amendments in SAB 111, debt securities are excluded from the scope of Topic 5-M, but the SEC staff’s views on equity securities are still included within the topic.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, "The FASB Accounting Standards Codification(TM) and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162" ("SFAS 168"). SFAS 168 establishes the FASB Accounting Standards Codification(TM) ("Codification") as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in preparing financial statements in conformity with generally accepted accounting principles in the United States. Once effective, all guidance in the Codification will carry the same level of authority, and all future changes or additions to U.S. generally accepted accounting principles will be issued as Accounting Standards Updates. SFAS 168 does not make any changes to existing accounting guidance that will impact the Company's accounting and financial reporting. It is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

The Public Company Accounting Oversight Board voted on July 28, 2009 to adopt Auditing Standard No. 7, "Engagement Quality Review" ("EQR"), and to issue a Concept Release on requiring the engagement partner to sign the audit report. The EQR standard provides a framework for the engagement quality reviewer to objectively evaluate the significant judgments made and related conclusions reached by the engagement team in forming an overall conclusion about the engagement.

The Sarbanes-Oxley Act of 2002 directs the Board to include in its auditing standards a requirement that each registered public accounting firm "provide a concurring or second partner review and approval of [each] audit report (and other related information), and concurring approval in its issuance, by a qualified person (as prescribed by the Board) associated with the public accounting firm, other than the person in charge of the audit, or by an independent reviewer (as prescribed by the Board)." The Board initially proposed the auditing standard on February 26, 2008, and re-proposed it on March 4, 2009.

Auditing Standard No. 7 applies to all audit engagements, and engagements to review interim financial information, conducted pursuant to the standards of the PCAOB. The standard supersedes the Board's quality control standard, SECPS Requirements of Membership, Section 1000.08(f); 1000.39, Appendix E. The standard, if approved by the U.S. Securities and Exchange Commission (SEC), will become effective for both the EQR of audits and the EQR of interim reviews for Fiscal years beginning on or after December 15, 2009.

Separately, the Board also is seeking comment on a Concept Release to consider the effects of a potential requirement for the engagement partner to sign the audit report. Any such requirement would be in addition to the existing requirement for the audit firm to sign its name on the audit report. The Board is seeking comment on the Concept Release for a 45-day period.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the Company’s financial statements. Actual results may differ from these estimates under different assumptions or conditions.

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

Revenue Recognition

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

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

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

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

Accounts Receivable

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

Impairment or Disposal of Long Lived Assets

The carrying value of property, plant, and equipment is evaluated based upon current and anticipated undiscounted operating cash flows before debt service charges. An impairment is recognized when it is probable that such estimated future cash flows will be less than the carrying value of the assets. Measurement of the amount of impairment, if any, is based upon the difference between the net carrying value and the fair value, which is estimated based upon anticipated undiscounted operating cash flows before debt service charges. Based upon a review of its long-lived assets, the Company did not recognize an impairment loss for the Fiscal year ended June 30, 2009; however, there can be no assurance that the Company will not recognize an impairment loss on its long-lived assets in future periods.

Income Tax Accounting

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

As of June 30, 2009 and 2008, the Company maintained a deferred tax asset of $2,265,908, respectively. The Company has provided a valuation allowance $88,752 for the year ended June 30, 2009 and in $125,461 for the year ended June 30, 2008, against its deferred tax assets after consideration of a future gain on the disposal of certain land and assets relative to its Collegeville facility and anticipated future profitable operating results. However, the amount realizable may be reduced if future taxable income is reduced or is insufficient to utilize the entire deferred tax asset.

Employment Contracts

For the Fiscal years ended June 30, 2009, 2008 and 2007, the Company paid a base salary of $296,310, $298,758 and $290,344 to Joseph Roberts, Chairman and Chief Executive Officer and $218,824, $222,127 and $213,544 to Kathleen Hill, President and Chief Operating Officer, respectively. The Company currently has no employment contracts with either of such individuals, as all previous employment contracts with such individuals expired. The Compensation Committee of the Board of Directors is currently engaged in discussions with Mr. Roberts and Ms. Hill with respect to their compensation for the Fiscal year ending June 30, 2010.

Capital Expenditures

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

Effects of Inflation

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

Medicare and Medicaid Reimbursements

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

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements and Supplementary Data to be provided pursuant to this Item 8 are included under Part IV, Item 15, of this Form 10-K.

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A (T).

Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Principal Financial Manager, on the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon that evaluation, the Chief Executive Officer and Principal Financial Manager concluded that, as of June 30, 2009, such controls and procedures were effective.

In making this evaluation, management considered, among other matters, the material weaknesses in the Company’s internal control over financial reporting that have been identified. See “Management’s report on Internal Control over Financial Reporting” below.

There have been no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of June 30, 2009. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on its financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

The Company’s management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2009, based upon criteria in Internal Control—Integrated Framework issued by COSO. Based on the Company’s assessment, management has concluded that its internal control over financial reporting was not effective as of June 30, 2009, based on the criteria in Internal Control—Integrated Framework issued by COSO.

ITEM 9B – OTHER INFORMATION

Not applicable.

PART III

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

This information will be contained in the Proxy Statement of the Company for the 2009 Annual Meeting of Shareholders under the caption “Directors and Executive Officers of the Registrant”, and is incorporated herein by reference.

ITEM 11 - EXECUTIVE COMPENSATION

This information will be contained in the Proxy Statement of the Company for the 2009 Annual Meeting of Shareholders under the caption “Executive Compensation and Compensation of Directors” and is incorporated herein by reference.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND ANAGEMENT AND RELATED STOCKHOLDER MATTERS

This information will be contained in the Proxy Statement of the Company for the 2009 Annual Meeting of Shareholders under the caption “Security Ownership” and “Election of Directors” and is incorporated herein by reference.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

This information will be contained in the Proxy Statements of the Company for the 2009 Annual Meeting of Shareholders under the caption “Certain Relationships and Related Transactions” and is incorporated herein by reference.

ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES

The accounting firm of MSPC, Certified Public Accountants and Advisors, A Professional Corporation (“MSPC”) served as the Company’s independent registered public accounting firm for the Fiscal years ended June 30, 2009, 2008, and 2007, respectively. Such firm has no other relationship to the Company or its affiliates.

Audit Fees

MSPC billed the Company $55,000 for audit fees for the Company’s annual consolidated financial statements for the Fiscal year ended June 30, 2009, $50,000 for Fiscal year ended June 30, 2008 and June 30, 2007.

Audit Related Fees

MSPC billed the Company $24,000 for audit related services for the Fiscal year ended June 30, 2009, 2008 and 2007.

Tax Fees

MSPC billed the Company $12,000 for tax services during the Fiscal year ended June 30, 2009, 2008 and 2007.

All Other Fees

MSPC did not bill the Company for any other professional services for the Fiscal years ended June 30, 2009, 2008, and 2007, respectively.

Pre-approval Policies and Procedures

All audit and non-audit services to be performed by the Company’s independent accountant must be approved in advance by the Audit Committee. Consistent with applicable law, limited amounts of services, other than audit, review or attest services, may be approved by one or more members of the Audit Committee pursuant to authority delegated by the Audit Committee, provided each such approved service is reported to the full Audit Committee at its next meeting.

All of the engagements and fees for the Company’s Fiscal year ended June 30, 2009 were approved by the Audit Committee.

The Audit Committee of the Board of Directors considered whether the provision of non-audit services by MSPC was compatible with its ability to maintain independence from an audit standpoint and concluded that MSPC independence was not compromised.

PART IV

ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A)	Consolidated Financial Statements

	Reports of Independent Registered Public Accounting Firm		F-2

	Consolidated Balance Sheets as of June 30, 2009 and 2008		F-3

	Consolidated Statements of Operations for the Years Ended June 30, 2009, 2008 and 2007		F-4

	Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 2009, 2008 and 2007		F-5

	Consolidated Statements of Cash Flows for the Years Ended June 30, 2009, 2008 and 2007		F-6

	Notes to Consolidated Financial Statements		F-7

	Schedule of Valuation Accounts		F-23

(B)	Exhibits
	The following Exhibits are filed as part of this report (references are to Reg. S-K Exhibit Numbers):

	3.1	Amended and Restated Certificate of Incorporation of Company (Incorporated by reference to Exhibit 3.1 of the Company’s Statement on Form S-1 (File No. 33-4281).

	3.2	By-laws of the Company (Incorporated by reference to Exhibit 3.2 of the S-1).

	4.1	Specimen Stock Certificate of the Company (Incorporated by reference to Exhibit 4.1 of the S-1).

	4.5	Registration Rights Agreement between the Company and Kathleen Hill (Incorporated by reference to Exhibit 4.5 of the S-1).

	10.4	Company's 1991 Stock Option Plan (Incorporated by reference to Exhibit 10.4 of the S-1).

	10.8	Guaranty Agreement between the Company and Joseph Roberts (Incorporated by reference to Exhibit 10.9 Annual Report on Form 10-K filed September 27, 1992).


	10.9	Lease Agreement Between the Company and Ocean 7, Inc. (Incorporated by reference to Exhibit 10.11 Annual Report of Form10-K filed September 27, 1992).

	10.14	Loan Agreement between the Montgomery County Industrial Development Authority and Collegeville Inn Conference & Training Center, Inc. (a wholly-owned subsidiary of the Company). (Incorporated by reference to exhibit 10.14, annual report on Form 10-K Filed on September 27, 1997).

	10.15	Trust Indenture between Montgomery County Industrial Development Authority and Dauphin Deposit Bank and Trust Company, as Trustee. (Incorporated by reference to exhibit 10.15, annual report on Form 10-K filed September 27, 1997).

	10.16	Loan Agreement between Montgomery County Industrial Development Authority and Apple Fresh Foods Limited (a wholly-owned subsidiary of the Company). (Incorporated by reference to exhibit 10.16, annual report on Form 10-K Filed on September 27, 1997).

	10.17	Trust Indenture between the Montgomery County Development Authority and Dauphin Deposit Bank and Trust Company, as Trustee. (Incorporated by reference to exhibit 10.17, annual report on Form 10-K Filed on September 27, 1997).

	10.19	Fourth Amendment to Revolving Credit Note between the Company and Wilmington Trust of Pennsylvania (Incorporated by reference to exhibit 10.19, annual report on Form 10-K filed on September 28, 2005).

	10.20	Ninth Amendment to Loan Agreement between the Company and Wilmington Trust of Pennsylvania (Incorporated by reference to exhibit 10.20, annual report on Form 10-K filed on September 28, 2005).

	10.21	Guaranty and Suretyship of Joseph V. Roberts (Incorporated by reference to exhibit 10.21, annual report on Form 10-K filed on September 28, 2005).

	31.1	Section 302 Certification of Principal Executive Officer

	31.2	Section 302 Certification of Principal Financial Manager

	32.1	Section 906 Certification of Chief Executive Officer

	32.2	Section 906 Certification of Principal Financial Manager (the Company does not have a Chief Financial Officer).

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

Nutrition Management Services Company

(Registrant)

/s/ Joseph V. Roberts

Joseph V. Roberts,

Chief Executive Officer and Director

Date: October 13, 2009

Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, this annual report has been signed by the following persons on behalf of the registrant and in the capacities indicated as of October 13, 2009.



/s/ Joseph V. Roberts		/s/ Kathleen A. Hill
Joseph V. Roberts, Chief		Kathleen A. Hill, President and
Executive Officer and Director		Director
(Principal Financial Officer)


/s/ Samuel R. Shipley		/s/ Jane Scaccetti
Samuel R. Shipley, Director		Jane Scaccetti, Director


/s/ Michael M. Gosman
Michael M. Gosman, Director

Financial Statements and Report of Registered Public Accounting Firm

Nutrition Management Services Company and Subsidiaries

June 30, 2009, 2008 and 2007

TABLE OF CONTENTS

	Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F – 2

CONSOLIDATED BALANCE SHEETS	F - 3

CONSOLIDATED STATEMENTS OF OPERATIONS	F - 4

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY	F - 5

CONSOLIDATED STATEMENTS OF CASH FLOWS	F - 6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F – 7

SUPPLEMENTAL INFORMATION

SCHEDULE OF VALUATION ACCOUNTS	F - 23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Nutrition Management Services Company and Subsidiary

We have audited the consolidated balance sheets of Nutrition Management Services Company and Subsidiary as of June 30, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2009. These financial statements are the responsibility of the Nutrition Management Services Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nutrition Management Services Company and Subsidiary as of June 30, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2009, in conformity with U.S. generally accepted accounting principles.

MSPC

Certified Public Accountants and Advisors,

A Professional Corporation

Cranford, New Jersey

October 13, 2009

F-2

Nutrition Management Services Company and Subsidiaries

CONSOLIDATED BALANCE SHEETS

June 30,

	2009			2008
Current Assets
Cash and cash equivalents	$	52,609		$	307,902
Accounts receivable (net of allowance for doubtful accounts of $860,346 and $808,887 in 2009 and 2008, respectively)		2,494,193			2,648,181
Inventory		143,213			142,073
Prepaid and other current assets		311,178			342,655
Assets held for sale		6,295,450			6,295,450
Total Current Assets		9,296,643			9,736,261

Property and Equipment – Net		74,217			104,939

Other Assets
Advances to Officers		210,965			238,381
Deferred Income Taxes		2,265,908			2,265,908
Bond Issue Costs (net of accumulated amortization of $183,290 and $168,724 in 2009 and 2008, respectively)		109,234			123,800
Other Assets		294,057			248,566
Total Other Assets		2,880,164			2,876,655
Total Assets		12,251,024			12,717,855

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of Long-Term Debt	$	190,000		$	180,000
Current portion of Line of Credit		3,405,283			3,499,114
Current portion of Note Payable		7,517			7,551
Accounts Payable		2,758,410			3,196,032
Accrued Expenses		179,231			266,727
Accrued Payroll		69,742			208,366
Other		76,979			105,718
Total Current Liabilities		6,687,162			7,463,508

Long- Term Liabilities
Long-Term Debt – Net of current portion		1,675,000			1,865,000
Note Payable Related Party		414,146			-
Total Long-Term Liabilities		2,089,146			1,865,000

Commitments and Contingencies
Stockholders’ Equity
Preferred Stock – no Par, 2,000,000 shares authorized, none issued and outstanding
Common Stock
Class A – no par, 10,000,000 shares authorized; 3,000,000 issued, 2,747,000 outstanding		3,801,926			3,801,926
Class B – no par, 100,000 shares authorized; 100,000 shares issued and outstanding		48			48
Retained Earnings		172,305			86,936
		3,974,279			3,888,910
Less Treasury Stock – (Common – Class A: 253,000 shares – at cost)		(499,563	)		(499,563	)
Total Stockholders’ Equity		3,474,716			3,389,347
Total Liabilities and Stockholders’ Equity	$	12,251,024		$	12,717,855

The accompanying notes are an integral part of these statements

F-3

Nutrition Management Services Company and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

Year ended June 30,

	2009			2008			2007

Food Service Revenue	$	20,013,903		$	20,860,543		$	20,911,939

Cost of Operations
Payroll and Related Expenses		9,727,407			9,913,066			8,816,497
Other Costs of Operations		5,988,488			6,954,041			8,218,410
Cost of Operations		15,715,895			16,867,107			17,034,907
Gross Profit		4,298,008			3,993,436			3,877,032

Expenses
General and Administrative Expenses		3,854,023			3,975,501			4,278,885
Depreciation and Amortization		25,353			28,985			275,980
Bad Debt Expense		51,735			63,068			21,628
Total Expenses		3,931,111			4,071,554			4,576,493

Income (Loss) from Operations		366,897			(78,118	)		(699,461	)

Other Income / (Expense)
Interest Expense		(278,876	)		(334,190	)		(472,454	)
Interest Income		1,650			16,932			72,136
Other		(4,302	)		(29,028	)		67,057
Other Income / (Expense) – Net		(281,528	)		(346,286	)		(333,261	)

Income / (Loss) before Income Taxes		85,369			(424,404	)		(1,032,722	)

Income Tax (Benefit) / Expense		-			-			(261,575	)

Net Income (Loss)		85,369			(424,404	)		(771,147	)

Net Income / (Loss) per Share – Basic and Diluted	$	0.03		$	(0.15	)	$	(0.27	)

Weighted Average Number of Shares – Basic and Diluted		2,847,000			2,847,000			2,847,000

The accompanying notes are an integral part of these statements

F-4

Nutrition Management Services Company and Subsidiaries

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the three years ended June 30, 2009

	Class A Common Stock				Class B Common Stock							Treasury Stock
	Number of Shares		Amount		Number of Shares		Amount		Retained Earnings			Number of Shares			Amount			Total Stockholders’ Equity
Balance June 30, 2006		2,747,000	$	3,801,926		100,000	$	48	$	1,282,487			(253,000	)	$	(499,563	)	$	4,584,898
Net Loss		-		-		-		-		(771,147	)		-			-			(771,147	)
Balance-June 30, 2007		2,747,000	$	3,801,926		100,000	$	48	$	511,340			(253,000	)	$	(499,563	)	$	3,813,751
Net loss		-		-		-		-		(424,404	)		-			-			(424,404	)
Balance-June 30, 2008		2,747,000	$	3,801,926		100,000	$	48	$	86,936			(253,000	)	$	(499,563	)	$	3,389,347
Net Income		-		-		-		-		85,369			-			-			85,369
Balance-June 30, 2009		2,747,000	$	3,801,926		100,000	$	48	$	172,305			(253,000	)	$	(499,563	)	$	3,474,716

The accompanying notes are an integral part of these statements

F-5

Nutrition Management Services Company and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended June 30,

	2009			2008			2007

Operating Activities
Net Income / (Loss)	$	85,369		$	(424,404	)	$	(771,147	)
Adjustment to reconcile Net Income / (Loss) to net cash provided by Operating Activities
Depreciation and Amortization		25,353			28,985			275,980
Amortization of Bond Costs		14,564			14,559			14,564
Provision for Bad Debts		51,735			63,038			21,628
(Benefit) / Expense for Deferred Taxes		-			-			(261,575	)

Changes in Assets and Liabilities
Accounts Receivable		102,253			149,513			(417,924	)
Inventory		(1,140	)		848			(701	)
Prepaid and Other		(13,974	)		(264,306	)		(47,399	)
Accounts Payable		(437,622	)		194,489			3,494
Accrued Expenses		(87,496	)		(15,976	)		68,820
Accrued Payroll		(138,624	)		(51,818	)		33,574
Other		(28,737	)		(96,837	)		118,061

Net Cash Provided by Operating Activities		(428,319	)		(401,879	)		(962,625	)

Investing Activities
Purchase of Property and Equipment		(2,606	)		(18,757	)		(49,482	)
Sale of Property and Equipment		7,935			-			-
Repayments / (Advances) by employees and officers		27,416			189,129			(4,216	)
Net Cash Provided by / (used in) investing activities		32,745			170,372			(53,698	)

Financial Activities
Restricted Cash		-			-			250,000
Proceeds from Financing		102,585			327,413			297,659
Proceeds from Related Party		414,146			-			-
Repayment of Long-Term Borrowings		(180,000	)		(170,000	)		(165,808	)
Repayment of Line of Credit		(93,831	)		-			-
Repayment of Financing		(102,619	)		(319,862	)		(277,237	)
Net Cash Provided by / (used in) Financing Activities		140,281			(162,449	)		104,614

NET (DECREASE) / INCREASE IN CASH AND CASH EQUITIES		(255,293	)		(393,956	)		(911,709	)

Cash and Cash Equivalents – Beginning of Year		307,902			701,858			1,613,567

Cash and Cash Equivalents – End of Year	$	52,609		$	307,902		$	701,858

Supplemental Disclosures of Cash Flow Information
Cash Paid During the Years for
Interest	$	254,135		$	348,705		$	445,220
Income Taxes	$	10,129		$	19,432		$	38,459

The accompanying notes are an integral part of these statements

F-6

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - ORGANIZATION AND BUSINESS

Nutrition Management Services Company (the “Company”) was organized on March 28, 1979, to provide professional management expertise and food services to continuing care and health care facilities in the domestic United States. The Company competes mainly with regional and national food service management companies as well as self-managed departments. Apple Management Services Company (“Apple Management”), a wholly owned subsidiary, was organized on November 25, 1991, to provide management service expertise. The Collegeville Inn Conference and Training Center, Inc. (“Collegeville Inn” located in Lower Providence Township, Pennsylvania), a wholly owned subsidiary, was organized on April 29, 1994. This facility opened in September 1997, and is used as a showroom for prospective customers and a comprehensive training facility. Effective June 27, 2005, the Company closed the buffet restaurant at the Collegeville Inn to make the entire facility available for catered events. Apple Fresh Foods, Ltd. (“Apple Fresh Foods”) was organized on November 14, 1997, to develop a cook-chill food preparation technology for use in the Company’s food service business. Apple Fresh Foods operations are located at the Collegeville Inn.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Financial Statement Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

2. Cash and Cash Equivalents

Cash equivalents are comprised of certain highly liquid investments with an original maturity of three months or less when purchased.

3. Marketable Securities

The Company classifies its investments in marketable securities as available for sale, which are carried at the lower of cost or market based upon the quoted market prices of those investments at period end. As of June 30, 2009 there were no marketable securities.

4. Accounts Receivable and Allowance for Doubtful Accounts

The Company’s accounts receivable are primarily related to food service management fees. Credit is extended based on prior experience with the customer and evaluation of a customer’s financial condition. Accounts receivable are generally due within thirty to sixty days. The allowance for doubtful accounts represents an estimate of amounts considered uncollectible and is determined based on specifically identified amounts that we believe to be based on historical collection experience, adverse situations that may affect the customer’s ability to repay and prevailing economic conditions. If our actual collections experience changes, revisions to our allowance may be required. The Company believes it will be successful in its collection efforts related to its outstanding balances.

5. Inventory

Inventory, which consists primarily of food, is stated at the lower of cost (first-in, first-out method) or market. The Company records inventory for contracts which require goods to be owned by the Company. For the remaining customers, the Company purchases inventory on their behalf and a payable or receivable is recorded for the change in the value of these goods, which is then collected from or paid to customers. As of June 30, 2009 and 2008, inventory was $143,213 and $142,073, respectively. As of June 30, 2009 and 2008, inventory receivable from customers was $12,503 and $19,558 respectively, while inventory payable to customers was $9,545 and $18,225 respectively.

F-7

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

6. Revenue Recognition

The Company recognizes revenue when services have been rendered and the contract price is determinable, and collectability is reasonably assured. Revenue is generated primarily from fees for food service management and facilities management at continuing care and health care facilities, schools and the Collegeville Inn Conference and Training Center. The Company provides its services under several different financial arrangements including a fee basis and guaranteed rate basis. For Fee Contracts, certain expenses are paid directly by the Customer and certain expenses are paid by the Company and billed to the Customer. The Company recognizes Revenue in the amount of the expenses billed and the fees for providing services. For a Guaranteed Rate Contract, the Company charges Customers an established amount for services provided (for example, per Patient Day) and is responsible for all the expenses related to the delivery of those services. The amount of the billing is recorded as Revenue and the delivery costs are recorded as Cost of Sales. Regardless of the different financial arrangements, the Company recognizes revenue when services have been rendered and the contract price is determinable, and is reasonably assured. Ongoing assessments of the credit worthiness of customers provide the Company reasonable assurance of upon performance of services. The Company has no other obligation with respect to its services once services are performed.

7. Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets or the remaining lease term, if less.

8. Assets Held for Sale

The Company continues its efforts to sell or lease all or part of the Collegeville Inn Conference and Training Center and or certain excess land adjacent to the facility. The Company has reclassified these assets as held for sale.

9. Bond Issue Costs

Bond issue costs incurred in connection with the bonds payable are deferred and amortized, using the interest method, over the term of the related debt and are classified as other assets on the balance sheet.

10. Accounting for Stock-Based Compensation

Stock Options issued to Employees – On July 1, 2005 we adopted the fair value recognitions provisions of SFAS No. 123 R, “Share-Based Payments”, under the modified prospective transition method. Prior to July 1, 2005, we applied the Accounting Principles Board (APB) Opinion No. 25 intrinsic value accounting method for its stock incentive plans. Under the modified prospective transition method, the fair value recognition provisions apply only to new awards or awards modified after July 1, 2005. Additionally, the fair value of existing unvested awards at the date of adoption is recorded in compensation expense over the remaining requisite service period.

11. Income Taxes

As of June 30, 2009 and 2008, the Company maintained a deferred tax asset of $2,265,908, respectively. The Company has provided a valuation allowance $88,752 for the year ended June 30, 2009 and in $125,461 for the year ended June 30, 2008 against its deferred tax asset after consideration of a future gain on the disposal of certain land and assets relative to its Collegeville facility and anticipated future profitable operating results. However, the amount realizable may be reduced if future taxable income is reduced or is insufficient to utilize the entire deferred tax asset. See Note G for additional information.

F-8

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

12. Accumulated Other Comprehensive Income/(Loss)

Based on the Company’s current activities, there is no accumulated other comprehensive income.

13. Earnings/(Loss) Per Share

The Company has adopted the provisions of SFAS No. 128. Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. SFAS No. 128 also requires a dual presentation of basic and diluted earnings per share on the face of the statement of operations for all companies with complex capital structures. Diluted earnings per share reflects the amount of earnings for the period available to each share of common stock outstanding during the reporting period, while giving effect to all dilutive potential common shares that were outstanding during the period, such as common shares that could result from the potential exercise into common stock.

The computation of diluted earnings per share does not assume exercise of securities that would have an antidilutive effect on per share amounts (i.e., increasing earnings per share or reducing loss per share). The dilutive effect of outstanding options are reflected in dilutive earnings per share by the application of the treasury stock method which recognizes the use of proceeds that could be obtained upon exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common stock at the average market price during the period. Options will have a dilutive effect only when the average market price of the common stock during the period exceeds the exercise price of the options. Options that may have a dilutive effect in the future are listed in Note J.

14. Advertising Costs

It is the Company’s policy to expense advertising costs in the period in which they are incurred. Advertising expense for the years ended June 30, 2009, 2008 and 2007 was $4,647, $8,845 and $5,247 respectively.

15. Reclassification

Certain 2007 items have been reclassified to conform to the current year presentation.

16. Use of Estimates

In preparing the Company’s financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

17. Fair Value of Financial Instruments

The Company used the following methods and assumptions in estimating our fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts the Company has reported in the accompanying balance sheet for cash and cash equivalents approximate their fair values.

Investments: The Company estimates the fair values of investments based on quoted market prices. The carrying amounts the Company has reported in the accompanying balance sheet for investments in contracts approximate their fair values.

Long- and short-term debt: The Company bases the fair values of debt instruments on quoted market prices. Where quoted prices are not available, the Company bases the fair values on the present value of future cash flows discounted as estimated borrowing rates for similar debt instruments or on estimated prices based on current yields for debt issues of similar quality and terms. The carrying amounts the Company has reported in the accompanying balance sheet for debt approximate their fair values. See footnote F for further discussion.

F-9

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

18. Impairment or Disposal of Long Lived Assets

The Company adopted SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). Under the requirements of SFAS 144, the Company assesses the potential impairment of property, plant and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An asset’s value is impaired if management’s estimate of the aggregate future cash flows, undiscounted and without interest charges, to be generated by the asset are less than the carrying value of the asset. Such cash flows consider factors such as expected future operating income and historical trends, as well as the effects of demand and competition. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the asset over the fair value of the asset. Such estimates require the use of judgment and numerous subjective assumptions, which, if actual experience varies, could result in material differences in the requirements for impairment charges.

19. New Authoritative Pronouncements

F-10

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

The Sarbanes-Oxley Act of 2002 directs the Board to include in its auditing standards a requirement that each registered public accounting firm "provide a concurring or second partner review and approval of [each] audit report (and other related information), and concurring approval in its issuance, by a qualified person (as prescribed by the Board) associated with the public accounting firm, other than the person in charge of the audit, or by an independent reviewer (as prescribed by the Board)."The Board initially proposed the auditing standard on February 26, 2008, and re-proposed it on March 4, 2009.

F-11

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

NOTE C – BUSINESS CONDITIONS

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

The Company owns approximately twenty-two acres of land in Collegeville, Montgomery County, Pennsylvania. In 1997, the Company completed its renovations of an existing 40,000 square foot building to serve as a training facility and conference center. On October 8, 2008, the Company entered into an agreement of sale for certain tracts or parcels of land, together with the building, Collegeville Inn Conference and Training Center, for the sum of $5,500,000.00. The Agreement of Sale was contingent upon the Buyer being able to obtain all necessary permits and approvals for the development of an age restricted living facility on the property. In April of 2009, it became apparent to the Buyer that the permit and approval process was going to take longer than originally anticipated and that it would not be able to meet its target deadlines. As a result, the Company and the Buyer executed a mutual release, releasing both parties from any further obligations under the Agreement of Sale. The Company continues to protect the zoning of the property so as to permit future development. Immediately following the execution of the mutual release, the Company listed the property for sale with a nationwide commercial real estate brokerage.

The Company's financial statements as of June 30, 2009 have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Management believes that operating cash flow, the possible proceeds from the sale or lease of certain assets, available cash and available credit resources will be adequate to make repayments of indebtedness, meet the working capital needs, satisfy the needs of its operations, and to meet anticipated capital expenditures during the next twelve months ending June 30, 2010.

F-12

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

NOTE D - PROPERTY AND EQUIPMENT

The following details the composition of property and equipment.

	Estimated Useful Lives		2009		2008

Building		40	$	7,829	$	7,829
Machinery and Equipment		2 – 8		2,347,273		2,352,735
Furniture and Fixture		2 – 8		26,374		26,374
Other, Principally Autos and Trucks		2 – 10		211,335		211,335
				2,592,811		2,598,273
Less: Accumulated Depreciation				2,518,594		2,493,334
			$	74,217	$	104,939

NOTE E – ASSETS HELD FOR SALE

The following details the composition of assets held for sale.

	Estimated Useful Lives		2009		2008

Property and Equipment
Land		-	$	497,967	$	497,967
Building		40		7,491,263		7,491,263
Other, Principally Equipment, Furniture and Fixtures		2 – 8		2,386,716		2,386,717
				10,375,946		10,375,946
Less: Accumulated Depreciation				4,080,496		4,080,496
			$	6,295,450	$	6,295,450

F-13

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

NOTE F - LONG- TERM DEBT

Long-Term Debt Consisted of the Following:	2009		2008
Bank revolving credit, interest due monthly at the National Consumer rate 4 minus .25% (effectively 4.00% as of June 30, 2009), secured by all corporate assets and personal guarantee of the Chief Executive Officer; matures on December 31, 2009	$	3,405,283	$	3,499,114
Industrial Revenue Bonds (Collegeville Inn Projects) (See bonds payable)		1,365,000		1,495,000
Industrial Revenue Bonds (Apple Fresh Foods Projects) See bonds payable)		500,000		550,000
		5,270,283		5,544,114
Less: Current Maturities (includes bank revolving credit)		3,595,283		3,679,114

	$	1,675,000	$	1,865,000

In February 2001, the Company executed a loan agreement with a bank for a revolving credit and two irrevocable letters of credit issued in conjunction with the issuance of the Industrial Revenue Bonds, totaling $4,000,000 and $3,065,000, respectively. In October 2003, the Company entered into an amended credit agreement whereby the $4,000,000 Revolving Credit Loan Facility was reduced to $3,500,000 and $500,000 was placed in a cash collateral account and pledged as additional collateral against the revolving credit line. As of June 30, 2009 all of the cash collateral account has been released and is available for operations.

At June 30, 2009, the Company had approximately $3,400,000 outstanding under the revolving credit. Advances under the revolving credit are used for working capital purposes.

These credit agreements contain covenants that include the submission of specified financial information and the maintenance of insurance coverage for the pledged assets during the term of the loans. The Company and the bank reached an agreement in December 2008 which maintains the revolving credit line in place to December 31, 2009. The Company is currently negotiating to replace or retire this debt with alternate financing.

Bonds Payable - In December 1996, the Company, through its subsidiaries, authorized two industrial revenue bond issues.

Issue #1

Title - Montgomery County Industrial Development Authority, $2,500,000 aggregate principal amount, federally taxable variable rate demand/fixed rate revenue bonds (“Collegeville Inn Project”) Series of 1996

Rate - Variable, to a maximum of 17% (Variable Rate at June 30, 2009 was 6.00%)

Term - 20 years (2016)

Purpose - Rehabilitate, furnish and equip the Collegeville Inn

Issue #2

Title - Montgomery County Industrial Development Authority, $1,000,000 aggregate principal amount, federally taxable variable rate demand/fixed rate revenue bonds (“Apple Fresh Foods, Ltd. Project”) Series of 1996

Rate - Variable, to a maximum of 15% (Variable Rate at June 30, 2009 was 6.00%)

Term - 20 years (2016)

Purpose - Develop a cook-chill food preparation technology

F-14

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

NOTE F - LONG- TERM DEBT - Continued

The Company issued two series of Industrial Revenue Bonds totaling $3,560,548 in December 1996, one to Collegeville Inn and one to Apple Fresh Foods. The outstanding balance on the bond issues was $1,865,000 as of May 2009. Both bond issues were secured in part by Letters of Credit issued by Wilmington Trust. In February of 2009, both Moody’s and Standard and Poors downgraded the credit rating of Wilmington Trust, which downgrade had no relationship to any business Wilmington Trust was doing with NMSC or its subsidiaries. As a result of this downgrade, Janney, Montgomery Scott, the remarketer, began experiencing difficulty selling the Bonds to the institutional investors. Janney began inventorying the Bonds while continuing to try to find buyers. On April 24, 2009, Moody’s further downgraded the credit rating of Wilmington Trust. Again, this had no direct relationship to any business with NMSC. This action prompted Janney to send a Notice to M&T Bank, the Trustee for the Bonds, that if no buyers were found by May 4, 2009, they would be tendering the Bonds for redemption. With no buyers coming forward, Janney tendered the Bonds on May 4, 2009, which caused M&T Bank to initiate a draw down on the LOCs in the amounts of $1,365,000 (Collegeville) and $500,000 (Apple Fresh) respectively. Thus, the two LOCs have now been converted to direct loans to Collegeville Inn and Apple Fresh Foods.

Each series of bonds is guaranteed by the Company and each of its subsidiaries. The assets of Collegeville Inn and Apple Fresh Foods are pledged as collateral for both series of bonds.

The Company’s bank has issued irrevocable letters of credit in favor of the bond trustee for the full amount of both bond issues. The letters of credit have a term of four years and can be renewed on an annual basis by the bank. The bank holds the mortgage on the Collegeville Inn building and property. The letters of credit are guaranteed by the parent company.

The sinking fund requirements of the bonds are as follows:

	Collegeville Inn		Apple Fresh Foods		Total
2010		135,000		55,000		190,000
2011		145,000		55,000		200,000
2012		155,000		60,000		215,000
2013		165,000		60,000		225,000
2014		175,000		65,000		240,000
Thereafter		590,000		205,000		795,000
Total		1,365,000		500,000		1,865,000

Maturities of principal due in the following years are set forth below:

Year ending June 30,
2010			$3,595,283
2011			200,000
2012			215,000
2013			225,000
2014			240,000
Thereafter			795,000
			$ 5,270,283

F-15

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

NOTE G - INCOME TAXES

The components of income tax (benefit)/expense are:

	Year Ended June 30,
	2009		2008		2007
Current
Federal	$	0	$	0	$	(266,597	)
State		0		0		(47,046	)
	$	0	$	0	$	(313,643	)

Deferred
Federal	$	0	$	0	$	44,258
State		0		0		7,810
	$	0	$	0	$	52,068
	$	0	$	0	$	(261,575	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are approximately:

F-16

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

NOTE G - INCOME TAXES – continued

	June 30
	2009			2008

Deferred Tax Assets
Provision for doubtful accounts	$	369,949		$	347,839
Excess of tax over financial statement basis of investments in contracts		94,650			94,650
Vacation Accrual		27,529			99,008
Charitable Contribution Carry-Forward		17,199			48,919
Federal Net Operating Loss		1,895,138			1,831,968
Other		(35,258	)		74,181
Total Deferred Tax Assets		2,369,207			2,496,565

Deferred Tax Liabilities
Depreciation		14,547			105,196

Allowance		88,752			125,461

Net Deferred Tax Assets	$	2,265,908		$	2,265,908

The deferred tax amounts are classified on the balance sheet as follows:

	June 30,
	2009		2008
Current Assets	$	--	$	--
Non-Current Assets		2,265,908		2,265,908
	$	2,265,908	$	2,265,908

The Company also has a federal net operating loss carry forward of approximately $4,740,000 expiring on various dates beginning in the year 2026. The Company has charitable contribution carry forwards in the amount of $117,340.

The Company has provided a valuation allowance of $88,752 against its deferred tax assets after consideration that the future gain on the disposal of certain land and assets relative to the Collegeville Inn and anticipated future profitable operating results.

The following reconciles the tax provision with the U.S. statutory tax rates:

	Year Ended June 30
	2009			2008			2007
Income Taxes, at U.S. Statutory Rates		(34.0	)%		(34.0	)%		(34.0	)%
State Taxes, Net of Federal Tax Benefit		(5.0	)		(5.0	)		(5.0	)
Nondeductible Expenses		8.0			10.0			10.0
Other		3.3			3.7			3.7
Effect of NOLs		27.7			-			-
Tax Expense / (Benefit)		0	%		(25.3	)%		(25.3	)%

F-17

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

NOTE H - RELATED PARTY TRANSACTIONS

The Company leases its corporate offices, located at 2071 Kimberton Road, Kimberton, Pennsylvania, which consists of approximately 8,500 square feet from Ocean 7, Inc., a corporation controlled by the Chief Executive Officer of the Company, The initial term of the lease expired on June 30, 2003 and continues on a month to month lease based on terms generally similar to those prevailing to unrelated parties. The Company leases an apartment from the same company to accommodate visiting clients and employees.

Joseph V. Roberts, Chief Executive Officer and Director of the Company, received long term advances of which $165,749 and $187,503 remains outstanding as of June 30, 2009 and 2008, respectively. Kathleen A. Hill, President, Chief Operating Officer and Director of the Company, received long term advances of which $45,215 and $50,567 remains outstanding as of June 30, 2009 and 2008, respectively. Interest for Fiscal year ended June 30, 2009 of $1,270 has been included in the outstanding amounts. These amounts are currently under agreement whereby monthly payments are being made to reduce the outstanding amounts.

As of June 30, 2009, included in long term liabilities a related party is owed $414,146 to Joseph V. Roberts an officer and director of the company. Amounts due to and from officers are unsecured, interest bearing at 4%.

NOTE I – COMMITMENTS AND CONTINGENCIES

1. Operating Leases

The Company leases real estate facilities from a corporation owned by a principal stockholder under month-to-month operating leases, including its corporate office building under a month-to-month lease based on terms management believes to be generally similar to those prevailing to unrelated parties. During the years ended June 30, 2009, 2008 and 2007, rent expense paid to the related party was $258,414, $259,347 and $265,283, respectively.

The Company is also obligated under various operating leases for operating equipment for periods expiring through 2009. During the years ended June 30, 2009, 2008 and 2007, rent expense was $271,746, $323,114 and $334,845, respectively, for all operating leases.

Minimum annual rentals under non-cancelable operating leases subsequent to June 30, 2009 are as follows:

Year Ending June 30,	Operating Equipment
2010	4,445

2. Litigation

The Company is involved in litigation with a construction contractor related to the renovations of Collegeville Inn. The Company denies the claims and has asserted offsets against the amounts claimed. The case is in discovery.

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

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

F-18

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

NOTE I – COMMITMENTS AND CONTINGENCIES - continued

3. Employment Contracts

NOTE J - STOCKHOLDERS’ EQUITY

1. Class A Common Stock

The Company is authorized to issue 10,000,000 shares of Class A Common Stock, no par value, of which holders of Class A Common Stock have the right to cast one vote for each share held of record in all matters submitted to a vote of holders of Class A Common Stock. The Class A Common Stock and Class B Common Stock vote together as a single class on all matters on which shareholders may vote, except when class voting is required by applicable law.

Holders of Class A Common Stock are entitled to dividends, together with the holders of Class B Common Stock, pro rata based on the number of shares held. In the event of the liquidation, dissolution or winding up of the affairs of the Company, all assets and funds of the Company remaining after the payment to creditors and to holders of Preferred Stock, if any, shall be distributed, pro rata, among the holders of the Class A Common Stock and Class B Common Stock.

2. Class B Common Stock

The Company has authorized 100,000 shares of Class B Common Stock, all of which were issued to the Chief Executive Officer and majority shareholder of the Company, in exchange for 100,000 shares of Class A Common Stock. Each share of Class B Common Stock is entitled to seven votes on all matters on which shareholders may vote, including the election of directors. The Class A Common Stock and Class B Common Stock vote together as a single class on all matters on which shareholders may vote, except when class voting is required by applicable law.

Each share of Class B Common Stock also is convertible at any time upon the option of the holder into one share of Class A Common Stock. There are no preemptive, redemption, conversion or cumulative voting rights applicable to the Class B Common Stock.

3. Preferred Stock

The Company is authorized to issue 2,000,000 shares of Preferred Stock, no par value, of which no shares have been issued. The Preferred Stock may be issued by the Company’s Board of Directors from time to time in one or more series.

NOTE K - STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN

1. Employee Stock Purchase Plan

The Company has a stock purchase plan that allows participating employees to purchase, through payroll deductions, shares of the Company’s common stock at 85 percent of the fair market value at specified dates. At June 30, 2009, all employees were eligible to participate in the plan. During the years ended June 2009, 2008 and 2007 there were fourteen participants and no shares purchased.

F-19

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

NOTE L - DEFINED CONTRIBUTION PENSION PLAN

The Company sponsors a 401(k) plan for all employees who have attained the age of twenty-one and have completed one year of service. Eligible employees may contribute up to 15% of their annual compensation to the plan. The Company can match 100% up to the first 4% of employee plan contributions. Participants are vested 20% for each year of service beginning after year three and are fully vested after seven service years. During the years ended June 30, 2009, 2008 and 2007, Company contributions to the plan, which were charged to expense, amounted to $12,910, $16,471 and $20,081 respectively.

NOTE M - CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents and accounts receivable. A substantial portion of the Company’s revenues are dependent upon the payment by customers who are dependent upon third-party payers, such as state governments, Medicare and Medicaid. Generally, the Company does not require collateral or other security to support customer receivables. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowances is limited.

NOTE N - MAJOR CUSTOMERS

The loss of any such customer could have a material adverse effect on the Company’s future results of operations.

NOTE O – MAJOR SUPPLIERS

In the event of a disruption in the Company’s relationship with these vendors or any disruption in the vendor’s business, the Company has alternate sources of supply for its food and non-food products.

F-20

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

NOTE P - BUSINESS SEGMENTS

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

The financial information of the Company’s reportable segments have been compiled utilizing the accounting policies described in Note A Organization and Business. The Company’s reportable segments are (1) food service management and (2) training and conference center. Deferred taxes are not allocated to segments. The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to accounting principles generally accepted in the United States of America. As a result, reported segment results are not necessarily comparable with similar information reported by other similar companies.

	Food Service Management			Training and Conference Center			Total
As of and for the year ended June 30, 2009:
Food Service Revenue	$	19,779,084		$	234,819		$	20,013,903
Depreciation and Amortization		20,570			4,783			25,353
Income / (Loss) from Operations		731,530			(364,633	)		366,897
Interest Expense		(193,021	)		(85,855	)		(278,876	)
Interest Income		1,650			-			1,650
Income / (Loss) before Tax Expense / (Benefit)		539,326			(453,957	)		85,369
Net Income / (Loss)		539,326			(453,957	)		85,369
Total Assets		5,716,969			6,534,055			12,251,024
Capital Expenditures		2,606			-			2,606

As of and for the year ended June 30, 2008:
Food Service Revenue	$	20,463,614		$	396,929		$	20,860,543
Depreciation and Amortization		24,202			4,783			28,985
Income / (Loss) from Operations		313,111			(391,229	)		(78,118	)
Interest Expense		(251,138	)		(83,052	)		(334,190	)
Interest Income		16,932			-			16,932
Income / (Loss) before Tax Expense / (Benefit)		67,901			(492,305	)		(424,404	)
Net Income / (Loss)		67,901			(492,305	)		(424,404	)
Total Assets		5,832,385			6,885,470			12,717,855
Capital Expenditures		18,757			-			18,757

As of and for the year ended June 30, 2007:
Food Service Revenue	$	20,246,350		$	665,589		$	20,911,939
Depreciation and Amortization		37,417			238,563			275,980
Income / (Loss) from Operations		12,101			(711,561	)		(699,460	)
Interest Expense		(307,488	)		(164,966	)		(472,454	)
Interest Income		72,136			-			72,136
Income / (Loss) before Tax Expense / (Benefit)		(966,548	)		(66,173	)		(1,032,721	)
Net Income / (Loss)		(704,973	)		(66,173	)		(771,146	)
Total Assets		5,934,042			7,340,809			13,274,851
Capital Expenditures		35,627			13,855			49,482

F-21

Nutrition Management Services Company and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

NOTE Q - QUARTERLY FINANCIAL DATA (UNAUDITED)

The following quarterly financial data is unaudited, but in the opinion of management includes all necessary adjustments for a fair presentation of the interim results.

	Fiscal 2009
	September 30,			December 31,		March 31,		June 30,
Revenues	$	5,354,538		$	5,246,936	$	4,748,742	$	4,663,687
Gross Profit		1,040,354			1,062,688		1,020,452		1,174,514
Net Income (Loss)		(74,928	)		47,604		18,841		93,852
Net Income (Loss) per share – basic and diluted	$	(0.03	)	$	0.02	$	0.01	$	0.03

	Fiscal 2008
	September 30,			December 31,			March 31,			June 30,
Revenues	$	5,040,863		$	5,283,004		$	5,118,571		$	5,418,105
Gross Profit		994,020			993,648			932,972			1,072,796
Net Income (Loss)		(214,771	)		(179,489	)		(181,298	)		151,153
Net Income (Loss) per share – basic and diluted	$	(0.08	)	$	(0.06	)	$	(0.06	)	$	0.05

F-22

SUPPLEMENTAL INFORMATION

Nutrition Management Services Company and Subsidiaries

SCHEDULE OF VALUATION ACCOUNTS

For the three years ended June 30, 2009

The following sets forth the activity in the Company’s valuation accounts:

	Allowance for Doubtful Accounts
Balance at June 30, 2006		964,188
Provisions for bad debts		21,628
Write-offs		(230,038	)

Balance at June 30, 2007		755,778
Provisions for bad debts		63,068
Write-offs		(9,959	)

Balance at June 30, 2008		808,887
Provision for bad debts		51,735
Write-offs		(276	)
Balance as of June 30, 2009	$	860,346

F-23

NUTRITION MANAGEMENT SERVICES CO/PA - FORM 10-K - October 13, 2009

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