UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K/A

(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, 2004
                                       OR
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(D)
     OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required)

     (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                (IRS Employer Identification No.)
incorporation or organization)

                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
  Title of Each Class  on Which Registered
  -------------------  -------------------

                                      None

          Securities registered pursuant to Section 12(g) of the Act:
  Title of Each Class
  -------------------

Share of Class A Common Stock (no par value)

                            (COVER PAGE 1 OF 2 PAGES)





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
    ---         ---

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 check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).    YES:        NO  X
                                             ---       ---

The aggregate  market value of voting stock (Class A Common Stock, no par value)
held by  non-affiliates of the Registrant as of March 31, 2004 was approximately
$205,576.

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: At December 7, 2004, there was
outstanding 2,494,000 share 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 21.


                            (COVER PAGE 2 OF 2 PAGES)





                                   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: December 29, 2004



EXPLANATORY NOTE

Nutrition  Management  Services  Company is filing  this Form  10-K/A  solely to
correct  typographical  errors  in Item  15 -  Exhibits,  Financial  Statements,
Schedules  and  Reports on Form 8-K  (Report of  Independent  Registered  Public
Accounting Firm, Grant Thornton LLP) included in the Company's Form 10-K for the
year  ended  June 30,  2004 which was filed  with the  Securities  and  Exchange
Commission on December 21, 2004.

NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
June 30, 2004, 2003 and 2002


                                TABLE OF CONTENTS


                                                                            Page
                                                                            ----


REPORTS OF INDEPENDENT REGISTERED  PUBLIC ACCOUNTING FIRMS                   F-2
                                                                              to
                                                                             F-3

     CONSOLIDATED BALANCE SHEETS                                             F-4

     CONSOLIDATED STATEMENTS OF OPERATIONS                                   F-5

     CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                          F-6

     CONSOLIDATED STATEMENTS OF CASH FLOWS                                   F-7

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              F-8
                                                                              to
                                                                            F-21

SUPPLEMENTAL INFORMATION

     SCHEDULE OF VALUATION ACCOUNTS                                         F-23




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors and Stockholders
Nutrition Management Services Company
Kimberton, Pennsylvania

We have  audited  the  accompanying  consolidated  balance  sheets of  Nutrition
Management  Services  Company  as of June 30,  2004  and  2003  and the  related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the two years in the period  ended June 30,  2004.  We have also audited
the schedule listed in the accompanying  index.  These financial  statements and
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements and schedule 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  and schedules are free of material  misstatement.  An audit includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the financial  statements  and schedules.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as  evaluating  the  overall   presentation  of  the  financial  statements  and
schedules.  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 at June 30, 2004 and 2003, and the results of their operations
and their  cash  flows for each of the two years in the  period  ended  June 30,
2004, in conformity with accounting  principles generally accepted in the United
States of America.

Also, in our opinion,  the schedule presents fairly,  in all material  respects,
the information set forth therein.


/s/ BDO Seidman, LLP
--------------------
BDO Seidman, LLP
Philadelphia, Pennsylvania

September 17, 2004 except
for Note E which is as of
December 15, 2004


                                      F-2




            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            -------------------------------------------------------


Board of Directors
Nutrition Management Services Company


            We have audited the accompanying  consolidated statements of income,
stockholders' equity and cash flows of Nutrition Management Services Company and
its subsidiaries for the year ended June 30, 2002. These consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

            We  conducted  our audit  in  accordance  with the  standards of the
Public Company Accounting  Oversight Board. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  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  audit  provides  a
reasonable basis for our opinion.

            In our opinion,  the consolidated  financial  statements referred to
above present fairly, in all material respects,  the consolidated  operations of
Nutrition  Management Services Company and its subsidiaries and their cash flows
for the year ended June 30,  2002,  in  conformity  with  accounting  principles
generally accepted in the United States of America.

            We  have  also  audited  the  schedule  of  valuation  accounts  for
Nutrition  Management  Services  Company and its subsidiaries for the year ended
June 30, 2002. In our opinion,  this schedule  presents fairly,  in all material
respects, the information required to be set forth therein.

/s/ Grant Thornton LLP
----------------------
Grant Thornton LLP

Philadelphia, Pennsylvania
September 20, 2002

                                      F-3




             Nutrition Management Services Company and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS
                                    June 30,
                                                                                                       2004             2003
                                                                                                  ------------    ------------
Current assets
     Cash and cash equivalents                                                                    $    946,523    $  1,360,512
     Marketable securities                                                                             202,969               -
     Accounts receivable (net of allowance for doubtful accounts of $2,877,336
         and $2,292,336 in 2004 and 2003, respectively)                                              2,259,582       2,843,764
     Unbilled revenue                                                                                   89,263          51,147
     Deferred income taxes                                                                             405,320       1,209,454
     Inventory                                                                                         159,181         155,945
     Prepaid and other                                                                                 372,945         365,558
     Income tax refund                                                                                  63,348          63,348
                                                                                                  ------------    ------------
           Total current assets                                                                      4,499,131       6,049,728
                                                                                                  ------------    ------------

Property and equipment - net                                                                         7,563,568       8,103,456
                                                                                                  ------------    ------------

Other assets
     Restricted cash                                                                                   250,000               -
     Note receivable                                                                                   120,608         136,110
     Advances to officers                                                                              435,283         435,283
     Deferred income taxes                                                                           1,218,521         212,687
     Bond issue costs (net of accumulated amortization of $110,461
         and $95,892 in 2004 and 2003, respectively)                                                   180,863         195,430
     Other assets                                                                                       11,321          10,020
                                                                                                  ------------    ------------
           Total other assets                                                                        2,216,596         989,530
                                                                                                  ------------    ------------

           Total assets                                                                           $ 14,279,295    $ 15,142,714
                                                                                                  ============    ============

              LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
     Current portion of long-term debt                                                            $    145,000    $    196,813
     Current portion of note payable                                                                   154,453         575,687
     Accounts payable                                                                                3,303,947       2,883,496
     Accrued expenses                                                                                  286,527         303,756
     Accrued payroll                                                                                   222,176         246,622
     Other                                                                                             160,587         116,880
                                                                                                  ------------    ------------
           Total current liabilities                                                                 4,272,690       4,323,254
                                                                                                  ------------    ------------
Long-term liabilities
     Long-term debt-net of current portion                                                           5,376,922       5,184,891
     Long-term note payable                                                                                  -         154,452
                                                                                                  ------------    ------------
           Total long-term liabilities                                                               5,376,922       5,339,343
                                                                                                  ------------    ------------
Commitments and contingencies

Stockholders' equity
     Undesignated  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                                                                               1,327,272       2,177,706
                                                                                                  ------------    ------------
                                                                                                     5,129,246       5,979,680
     Less treasury stock - (common - Class A: 253,000 shares - at cost )                              (499,563)       (499,563)
                                                                                                  ------------    ------------
           Total stockholders' equity                                                                4,629,683       5,480,117
                                                                                                  ------------    ------------
           Total liabilities and stockholders' equity                                             $ 14,279,295    $ 15,142,714
                                                                                                  ============    ============


         The accompanying notes are an integral part of these statements


                                       F-4




             Nutrition Management Services Company and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                               Year ended June 30,




                                                        2004            2003             2002
                                                    ------------    ------------    ------------

Food service revenue                                $ 27,999,905    $ 27,306,030    $ 29,906,631

Cost of operations
     Payroll and related expenses                     11,178,474      10,938,468      10,170,603
     Other costs of operations                        11,563,911      11,745,972      13,512,144
                                                    ------------    ------------    ------------
           Cost of operations                         22,742,385      22,684,440      23,682,747
                                                    ------------    ------------    ------------
           Gross profit                                5,257,520       4,621,590       6,223,884
                                                    ------------    ------------    ------------
Expenses
     General and administrative expenses               4,909,172       4,556,706       4,562,244
     Depreciation and amortization                       620,199         775,057         847,727
     Provision for doubtful accounts                     585,000         389,262         900,000
                                                    ------------    ------------    ------------

           Expenses                                    6,114,371       5,721,025       6,309,971
                                                    ------------    ------------    ------------

           (Loss)  from operations                      (856,851)     (1,099,435)        (86,087)
                                                    ------------    ------------    ------------

Other (expense) income
     Interest expense                                   (186,699)       (211,953)       (261,037)
     Interest income                                       9,564           9,763           9,131
     Other                                               (18,148)        (15,203)        (38,710)
                                                    ------------    ------------    ------------

           Other expense - net                          (195,283)       (217,393)       (290,616)
                                                    ------------    ------------    ------------

Loss before income taxes                              (1,052,134)     (1,316,828)       (376,703)

Income tax benefit                                      (201,700)       (497,387)        (89,979)
                                                    ------------    ------------    ------------

           Net loss                                 $   (850,434)   $   (819,441)   $   (286,724)
                                                    ============    ============    ============

           Net loss per share - basic and diluted   $      (0.30)   $      (0.29)   $      (0.10)
                                                    ============    ============    ============

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


         The accompanying notes are an integral part of these statements


                                       F-5




                                                Nutrition Management Services Company and Subsidiaries

                                                     CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                                          For the three years ended June 30, 2004




                                   Class A                   Class B
                                 Common stock               Common stock                         Treasury stock
                           ----------------------  ------------------------                   -------------------         Total
                           Number                      Number                  Retained       Number                   stockholders
                           of shares     Amount        of shares   Amount      earnings       of shares    Amount         equity
                         -----------  -----------  -----------  -----------  -----------   -----------   -----------   -----------

Balance - June 30, 2001    2,747,000  $ 3,801,926      100,000  $        48  $ 3,283,871      (253,000)  $  (499,563)  $ 6,586,282

Net loss                           -            -            -            -     (286,724)            -             -      (286,724)
                         -----------  -----------  -----------  -----------  -----------   -----------   -----------   -----------

Balance - June 30, 2002    2,747,000    3,801,926      100,000           48    2,997,147      (253,000)     (499,563)    6,299,558


Net loss                           -            -            -            -     (819,441)            -             -      (819,441)
                         -----------  -----------  -----------  -----------  -----------   -----------   -----------   -----------


Balance - June 30, 2003    2,747,000    3,801,926      100,000           48    2,177,706      (253,000)     (499,563)    5,480,117


Net loss                           -            -            -            -     (850,434)            -             -      (850,434)
                         -----------  -----------  -----------  -----------  -----------   -----------   -----------   -----------

Balance - June 30, 2004    2,747,000  $ 3,801,926      100,000  $        48  $ 1,327,272      (253,000)  ($  499,563)  $ 4,629,683


         The accompanying notes are an integral part of these statements

                                       F-6




                        Nutrition Management Services Company and Subsidiaries

                                 CONSOLIDATED STATEMENTS OF CASH FLOWS

                                            Year ended June 30,

                                                                         2004          2003            2002
                                                                    -----------    -----------    -----------
Operating activities
     Net loss                                                       $  (850,434)   $  (819,441)   $  (286,724)
     Adjustments to reconcile net (loss) income to net cash
              provided by operating activities
         Depreciation and amortization                                  620,199        775,057        847,727
         Amortization of bond costs                                      14,567         14,566         14,567
         Provision for bad debts                                        585,000        389,262        900,000
         Amortization of deferred gain                                        -              -            (50)
         Unrealized gain on trading securities                           (2,627)             -              -
         (Benefit) for deferred taxes                                  (201,700)      (436,565)      (156,690)
     Changes in assets and liabilities
         Accounts receivable                                             14,682      2,290,854       (135,361)
         Unbilled revenue                                               (38,116)        (4,642)       131,462
         Inventory                                                       (3,236)        74,293          2,631
         Prepaid and other                                               (7,390)       (76,479)       127,930
         Income tax refund                                                    -        (63,348)             -
         Accounts payable                                               420,451       (590,629)      (726,630)
         Accrued expenses                                               (17,229)      (139,727)       102,198
         Accrued payroll                                                (24,446)       (14,239)       (12,356)
         Accrued income taxes                                                 -              -              -
         Other                                                           42,415         45,687        (54,812)
                                                                    -----------    -----------    -----------
              Net cash provided by  operating activities                552,136      1,444,749        753,892
                                                                    -----------    -----------    -----------
Investing activities
     Purchase of property and equipment                                 (80,314)       (74,800)      (243,698)
     Purchase of marketable securities                                 (200,342)             -              -
     (Advances) repayments  to employees and officers                         -         88,207       (194,503)
                                                                    -----------    -----------    -----------

              Net cash (used in) provided by investing activities      (280,656)        13,407       (438,201)
                                                                    -----------    -----------    -----------
Financing activities
     Restricted cash                                                   (250,000)             -              -
     Proceeds from long-term borrowings                               4,225,000      1,775,900      1,217,000
     Repayment of long-term borrowings                               (4,084,783)    (2,129,866)    (1,054,268)
     Repayment of long-term accounts payable                           (575,686)      (336,988)      (336,988)
                                                                    -----------    -----------    -----------

         Net cash used in financing activities                         (685,469)      (690,954)      (174,256)
                                                                    -----------    -----------    -----------
              NET (DECREASE)/INCREASE  IN CASH AND
                  CASH EQUIVALENTS                                     (413,989)       767,202        141,435

Cash and cash equivalents - beginning of year                         1,360,512        593,310        451,875
                                                                    -----------    -----------    -----------
Cash and cash equivalents - end of year                             $   946,523    $ 1,360,512    $   593,310
                                                                    ===========    ===========    ===========
Supplemental disclosures of cash flow information

     Cash paid during the years for
         Interest                                                   $   185,000    $   213,625    $   270,483
         Income taxes                                               $     2,040    $     6,475    $  (113,473)


         The accompanying notes are an integral part of these statements

                                       F-7



             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,  comprehensive training facility,  and retail restaurant.  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 Food's operation is located in
     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.  Restricted cash
     is comprised of a  certificate  of deposit  which is pledged as  additional
     collateral against the revolver note.

     3.  MARKETABLE SECURITIES
     Nutrition   Management  Services  Company  classifies  its  investments  in
     marketable  securities  as  trading,  which are carried at their fair value
     based upon the quoted  market  prices of those  investments  at period end.
     Accordingly,  net  realized  and  unrealized  gains of  $2,969  on  trading
     securities are included in net earnings as of June 2004.

                                               Cost         Fair Value
                                             ---------      ---------
         Common and Preferred Stock          $ 119,284      $ 122,187
         Mutual Funds                        $  80,716      $  80,782
                                             ---------      ---------
               Total                         $ 200,000      $ 202,969
                                             =========      =========

     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 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.  In the fourth  quarter  2004,  the  Company  recorded an
     adjustment of $330,000 to increase the allowance for doubtful accounts. Due
     to the  passage of time,  the  Company  made a  decision  to  increase  the
     provision  for  doubtful  accounts  with  respect  to  certain   delinquent
     customers.  The Company  believes it will be successful  in its  collection
     efforts related to these outstanding balances.

     5.   Unbilled Revenue

     Unbilled revenue represents  amounts for services provided,  but not billed
     as of the balance sheet date.

     6.   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, 2004 and 2003,
     inventory is $159,181 and $155,945,  respectively.  As of June 30, 2004 and
     2003,   inventory   receivable   from  customers  is  $17,186  and  $21,730
     respectively,  while  inventory  payable  to  customers  is $0 and  $15,525
     respectively.

                                       F-8



             Nutrition Management Services Company and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     7. REVENUE RECOGNITION

     The Company  recognizes  revenue when  services  have been rendered and the
     contract price is determinable,  and collectibility is reasonably  assured.
     Revenue is generated  primarily  from fees for food service  management and
     facilities  management at continuing care and health care  facilities,  and
     the  Collegeville  Inn restaurant.  Revenue is recognized when services are
     performed.  Revenues are recorded net of discounts and rebates. The Company
     has no other  obligation  with  respect to its services  once  services are
     performed.

     8.  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.

     9.  DEFERRED FINANCING COSTS

     Debt  financing  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

     The Company follows the disclosure  provisions of SFAS No. 148, "Accounting
     for Stock-Based  Compensation-Transaction  and Disclosure,  an amendment of
     FASB  Statement  123" ("SFAS 148") for its stock  options.  SFAS 148 amends
     FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide
     alternative methods of transition for an entity that voluntarily changes to
     the  fair  value  based  method  of  accounting  for  stock-based  employee
     compensation. It also amends the disclosure provisions of that Statement to
     require prominent disclosure about the effects on reported net income of an
     entity's  accounting policy decisions with respect to stock-based  employee
     compensation.  Finally,  this Statement amends Accounting  Principles Board
     Opinion No. 28, Interim Financial  Reporting,  to require  disclosure about
     those  effects in interim  financial  information.  The Company  expects to
     continue to utilize the intrinsic  valuation  method for recoding  employee
     stock  based  compensation.  There are no  elements  of  compensation  that
     require disclosure.

     11.  INCOME TAXES

     The Company  determines  its provision for income taxes using the asset and
     liability  method.  Under this method,  deferred tax assets and liabilities
     are  recognized  for the future tax  effects of  temporary  differences  of
     existing assets and liabilities and their respective tax bases.  Future tax
     benefits  of tax loss and  credit  carryforwards  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, 2004 and 2003,  the Company  maintained a deferred tax asset
     of $1,623,841 and $1,422,141,  respectively. The Company has not provided a
     valuation  allowance against its deferred tax assets after consideration of
     a future gain on the disposal of certain land adjacent to its  Collegeville
     facility and anticipated future profitable operating results.  However, the
     amount  realizable may be reduced if future taxable income is reduced or is
     insufficient  to utilize  the  entire  deferred  tax asset.  See Note G for
     additional information.


                                       F-9




             Nutrition Management Services Company and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     12.  EARNINGS/LOSS PER SHARE

     The Company  follows the provisions of SFAS No. 128,  "Earnings Per Share."
     Basic earnings/loss per share excludes dilution and is computed by dividing
     income/loss available to common shareholders by the weighted average common
     shares outstanding during the period. Diluted earnings/loss per share takes
     into account the potential dilution that could occur if securities or other
     contracts to issue common stock were  exercised and  converted  into common
     stock.

     Options to purchase  82,750,  82,750 and 89,750  shares of common  stock at
     $4.00 per share were outstanding during 2004, 2003 and 2002,  respectively.
     The  Company  has  sustained  a net  loss  for  each  of the  fiscal  years
     presented.  As a result,  the common  stock  equivalents  of stock  options
     issued  and  outstanding  at  June  30,  2004  were  not  included  in  the
     computation of diluted earnings per share for the three years then ended as
     they were antidilutive.

     13.  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,
     2004, 2003 and 2002 was $112,404, $53,196 and $62,448, respectively.

     14.  RECLASSIFICATION

     Certain  2003 and 2002  items  have been  reclassified  to  conform  to the
     current year presentation.

     15.  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.

     16.  FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

     Long- and short-term  debt: We base the fair values of debt  instruments on
     quoted market prices.  Where quoted prices are not  available,  we base 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 are reported in the accompanying  balance sheet
     for debt approximate  their fair values.  See footnotes E and F for further
     discussion.

     17.  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.


                                       F-10




             Nutrition Management Services Company and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     18.   RESEARCH AND DEVELOPMENT

     The  Company  incurred  research  and  development  costs  related  to  the
     Company's  Cook-Chill  food  preparation   technology  in  the  amounts  of
     $159,893,  $138,605 and $43,730 for the years ended June 30, 2004, 2003 and
     2002, respectively.

     19.    NEW ACCOUNTING PRONOUNCEMENTS

     In January 2003 the FASB issued Financial Interpretation No. 46 ("FIN 46"),
     "CONSOLIDATION OF VARIABLE INTEREST ENTITIES" and in December 2003 the FASB
     issued   Financial   Interpretation   No.  46  (revised)   ("FIN   46(R)"),
     "CONSOLIDATION   OF   VARIABLE   INTEREST   ENTITIES   (REVISED)".    These
     interpretations  of  Accounting  Research  Bulletin  No. 51,  "CONSOLIDATED
     FINANCIAL  STATEMENTS,"  address  consolidation by business  enterprises of
     certain variable interest  entities where there is a controlling  financial
     interest in a variable  interest entity or where the variable interest does
     not have  sufficient  equity  at risk to  finance  its  activities  without
     additional  subordinated financial support from other parities. The Company
     will apply the consolidation  requirement of FIN 46 and FIN 46(R) in future
     periods if the Company  should own any  interest in any  variable  interest
     entity.

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, and retirement communities, as well
     as the  Collegeville Inn which includes the Conference and Training Center,
     Catering  facilities and the Cook Chill operations.  See Note P for segment
     reporting information.  The Company has a business plan in place to improve
     the operating  results from the  Collegeville  Inn  Conference and Training
     Center.

     On September 8, 2004 the Company  entered into an agreement of sale for the
     land adjacent to its  Collegeville  Inn Conference & Training  Center.  The
     agreement provides for an initial deposit of $10,000 within ten days of the
     effective date of the agreement,  with  additional  deposits of $50,000 and
     $25,000  payable to the  Company  upon the  occurrence  of certain  events,
     including,   but  not  limited  to,  zoning  approvals.  The  deposits  are
     non-refundable upon the end of a 120-day inspection period, which commenced
     on the date the Buyer received a fully  executed  original of the agreement
     of sale.  Pursuant to the terms of the  agreement of sale,  the Company may
     realize gross proceeds of not less than  $1,710,000.  However,  the Company
     may realize gross proceeds in excess of $1,710,000, if the buyer is able to
     maximize the yield of the  property.  The  agreement of sale  provides that
     settlement  occur within  twenty-four  months of the date of the agreement,
     however, upon payment of additional deposits, settlement may be extended an
     additional  twelve  months.  Upon closing of the  transaction,  the Company
     plans on using the proceeds to retire a proportional  amount of outstanding
     debt associated with the parcel of land. There can be no assurance that the
     sale of this land will be  completed  in  accordance  with the terms of the
     agreement of sale.

     The Company realizes that in order to reduce continuing operating losses it
     may  have  to  dispose  of  certain  assets,  including  its  research  and
     development facility,  the Collegeville Inn Conference and Training Center.
     The  Company is  exploring  all  reasonable  alternatives  to  improve  its
     operating  results,  including but not limited to,  increasing food service
     revenues with targeted marketing efforts, increasing revenues from the sale
     of the Company's Cook Chill  products,  the sale or lease of all or part of
     the Collegeville Inn Conference and Training Center, sale of excess land at
     the  Collegeville  Inn  Conference  and  Training  Center and  reduction of
     operating  expenses.  There can be no assurance as to the success of any or
     all of these alternatives.

     Management believes that operating cash flow, the proceeds from the sale of
     the land, 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, 2005.


                                      F-11



             Nutrition Management Services Company and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE C - BUSINESS CONDITIONS-continued

     At June 30, 2004 the Company was not in compliance with its bank covenants,
     which have been waived. The Company has amended its agreement with the bank
     that has extended the terms of the Company's  credit line through  December
     31, 2005. See Note E for additional information.

NOTE D - PROPERTY AND EQUIPMENT

     The following details the composition of property and equipment.

                                                                 Estimated
                                                                useful lives      2004           2003
                                                                               -----------   -----------
Property and equipment
     Land                                                               -      $   497,967   $   497,967
     Building                                                          40        7,491,984     7,491,984
     Machinery and equipment                                          2-8        3,864,941     3,812,628
     Furniture and fixtures                                           2-8          749,434       749,434
     Other, principally autos and trucks                             2-10          407,117       379,119
                                                                               -----------   -----------
                                                                                13,011,443    12,931,132
     Less accumulated depreciation                                               5,447,875     4,827,676
                                                                               -----------   -----------
                                                                               $ 7,563,568   $ 8,103,456
                                                                               ===========   ===========

NOTE E - LONG- TERM DEBT

     Long-term debt consisted of the following:

                                                                                  2004           2003
                                                                               -----------   -----------

Bank revolving  credit,  interest due monthly at the National  Consumer
     rate minus .25% (effectively 4.1% as of June 30, 2004),  secured by
     all corporate  assets and limited  personal  guarantee of the Chief
     Executive Officer; matures on December 31, 2005                           $ 2,846,922   $2,505,922

Note payable,  term loan incurred in connection with purchased computer
     equipment,  payable in equal  monthly  installments  of $6,722 at a
     fixed  rate of  interest  at 7.4%,  maturing  on May 1,  2004;  the
     acquired equipment was pledged as collateral                                        0       65,782

Industrial Revenue Bonds (Collegeville Inn Projects) (see bonds payable)         1,940,000    2,030,000

    Industrial Revenue Bonds (Apple Fresh Foods Projects) (see bonds
       payable)                                                                    735,000      780,000
                                                                               -----------   -----------
                                                                                 5,521,922    5,381,704
    Less current maturities                                                        145,000      196,813
                                                                               -----------   -----------
                                                                                $5,376,922   $5,184,891
                                                                               ===========   ===========


                                  F-12




         Nutrition Management Services Company and Subsidiaries

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE E - LONG- TERM DEBT-continued

     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.  At June  30,  2004,  the  Company  had  available
     approximately  $653,078  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  covenants  also
     include  the  maintenance  of a certain  consolidated  fixed  debt  service
     coverage  ratio,  ratio of total  consolidated  liabilities to consolidated
     tangible  net worth,  and  minimum  working  capital.  At June 30, 2004 the
     Company was not in compliance with these covenants. As of June 30, 2004 and
     2003 the Company  maintained  restricted  cash balances of $250,000 and $0,
     respectively,  which was not available for operating purposes.  On December
     15,  2004  the  Company  entered  into an  amended  agreement  whereby  the
     non-compliance  was  waived and new  financial  covenants  were  negotiated
     through  June 30,  2005,  which  reflect the  Company's  current  operating
     projections.  As  part  of  the  amended  agreement,  the  Company's  Chief
     Executive  Officer was required to execute a limited personal  guarantee in
     the amount of $3,000,000.

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, 2004 was
     1.6%)

     Term - 20 years (2016)

Purpose - Rehabilitate, furnish and equip the Collegeville Inn facility

     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, 2004 was
     1.25%)

     Term - 20 years (2016)

     Purpose - Develop a cook-chill food preparation technology

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.


                                  F-13




     Nutrition Management Services Company and Subsidiaries

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE E - LONG- TERM DEBT-continued

     The sinking fund requirements of the bonds are as follows:

                                Collegeville      Apple Fresh
                                     Inn             Foods             Total
                                    -------           ------            -------

     2004                          $100,000          $45,000           $145,000
     2005                           105,000           45,000            150,000
     2006                           115,000           50,000            165,000
     2007                           120,000           50,000            170,000
     2008                           130,000           50,000            180,000


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

         Year ending June 30,

                2005                             $   150,000
                2006                               3,011,922
                2007                                 170,000
                2008                                 180,000
                2009                                 190,000
                Thereafter                         1,675,000
                                                 -----------


                                                 $ 5,376,922
                                                 ===========

NOTE F - LONG-TERM NOTE PAYABLE

     The Company  entered into an agreement with a third party in July 2000. The
     agreement calls for the following payment terms:  $100,000 due on August 1,
     2000,  followed by 37 monthly payments of $28,000,  $323,000 due on October
     1, 2003,  and the  remaining  balance  paid at a rate of $28,000  per month
     until  paid in full.  The  payment  schedule  includes  total  payments  of
     $154,453 in 2005.

NOTE G - INCOME TAXES

     The components of income tax (benefit) expense are:                Year Ended June 30,
                                                                     -----------------------------------
                                                                        2004          2003       2002
                                                                     ---------    ---------    ---------
      Current
           Federal                                                   $       0    $ (47,422)   $  24,736
           State                                                             0      (13,400)      41,975
                                                                     ---------    ---------    ---------

                                                                             0      (60,822)      66,711
                                                                     ---------    ---------    ---------
      Deferred
           Federal                                                    (157,662)    (345,191)    (125,650)
           State                                                       (44,038)     (91,374)     (31,040)
                                                                     ---------    ---------    ---------

                                                                      (201,700)    (436,565)    (156,690)
                                                                     ---------    ---------    ---------


                                                                     $(201,700)   $(497,387)   $ (89,979)
                                                                     =========    =========    =========


                                      F-14




             Nutrition Management Services Company and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE G - INCOME TAXES-continued

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

                                                               June 30
                                                           2004          2003
                                                       ----------   ----------

         Deferred tax assets
              Provision for doubtful accounts          $1,095,349   $1,093,627
              Excess of tax over financial statement
                  basis of investments in contracts       147,970      184,825

              Vacation accrual                            114,956      115,827
              Charitable contribution carryforward         36,690       26,905
              Federal net operating loss                  324,893      165,322
              Other                                       107,879       63,842
                   Total deferred tax assets            1,827,737    1,650,348
                                                       ----------   ----------

Deferred tax liabilities

         Depreciation                                     203,896      228,207
                                                       ----------   ----------
              Net deferred tax assets                  $1,623,841   $1,422,141
                                                       ==========   ==========

     These amounts are classified in the balance sheet as follows:

                                                               June 30
                                                          2004           2003
                                                       ----------   ----------
         Current asset                                 $  405,320   $1,209,454
         Non-current asset                              1,218,521      212,687
                                                       ----------   ----------
                                                       $1,623,841   $1,422,141

The Company has not  provided a valuation  allowance  against its  deferred  tax
assets  after  consideration  of a future gain on the  disposal of certain  land
adjacent  to  its  Collegeville   facility  and  anticipated  future  profitable
operating results.


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

                                                   Year Ended June 30
                                               2004      2003        2002
                                               ----      ----        ----

   Income taxes at U.S. statutory rates       34.0%      34.0%      34.0%
   States taxes, net of federal tax benefit   (4.2)       5.3       (7.4)
   Nondeductible expenses                    (10.2)      (3.5)      (8.6)
   Other                                       (.4)       2.0        5.9
                                              ----       ----       ----
                                              19.2%      37.8%      23.9%
                                              ====       ====       ====


The Company  also has a federal  net  operating  loss carry  forward of $755,565
expiring on December 31, 2017.  The Company has  charitable  contribution  carry
forwards  in the amount of  $85,326,  which  begin to expire in the fiscal  year
2004.


                                      F-15




             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 725 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
     a corporation controlled by a related party to accommodate visiting clients
     and employees. See Note I for additional information.

     Joseph V.  Roberts,  Chief  Executive  Officer and Director of the Company,
     received long term advances of which $375,373 remain outstanding as of June
     30,  2004 and  2003,  respectively.  Kathleen  A.  Hill,  President,  Chief
     Operating Officer and Director of the Company,  received long term advances
     of  which  $59,910  remain  outstanding  as of  June  30,  2004  and  2003,
     respectively.  The Company will enter into a shareholder  note as part of a
     compensation  agreement,  currently  being  reviewed  by  the  compensation
     committee,  for all  notes to be  repaid  over  a five-year  period  at the
     Federal adjusted interest rate.

NOTE I - COMMITMENTS AND CONTINGENCIES

     The Company leases its corporate  office building from the  above-mentioned
     related  party  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,  2004,  2003 and 2002,  rent  expense  was
     $273,043, $255,587 and $248,252, respectively.

     1.  OPERATING LEASES

     The Company  leases real estate  facilities  from a corporation  owned by a
     principal stockholder under month-to-month operating leases.

     The Company is also obligated under various  operating leases for operating
     equipment for periods  expiring  through 2007.  During the years ended June
     30, 2004, 2003 and 2002, rent expense was $287,440,  $260,698 and $275,054,
     respectively, for all operating leases.

     Minimum annual rentals under non-cancelable  operating leases subsequent to
     June 30, 2004, are as follows:

                                                     Operating
        Year ending June 30,                         equipment

             2005                                    $   41,702
             2006                                        41,702
             2007                                        16,366
             2008                                             0


     2.  LITIGATION

     On February 7, 2001, the Company filed a suit against a major client in the
     Court of  Common  Pleas in  Chester  County,  Pennsylvania.  This  suit has
     subsequently  been  removed to the  United  States  District  Court for the
     Eastern  District of  Pennsylvania.  In the lawsuit,  NMSC has made various
     claims,  including  among  others a claim  that the  client  failed  to pay
     approximately  $2.1  million in invoiced  amounts,  a claim that the client
     failed to pay  approximately $1 million in other amounts owing, a claim for
     reimbursement  for start up costs in an amount  in  excess of  $400,000,  a
     claim for over $2 million in lost profits (or,  alternatively,  a claim for
     reimbursement  for over  $300,000  in credits  issued in  exchange  for the
     promise to extend the arrangement), a claim in the nature of treble damages
     and counsel  fees,  and other claims.  The client has filed a  counterclaim
     which the Company is  contesting  as part of the overall  proceedings.  The
     case is currently docketed for trial in early 2005.


                                      F-16




             Nutrition Management Services Company and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE I - COMMITMENTS AND CONTINGENCIES-continued

     The  Company is  involved  in  litigation  with two  separate  construction
     contractors  related to the renovations of Collegeville  Inn Conference and
     Training  Center.  The Company  denies each claim and has asserted  offsets
     against the amounts claimed. One case is docketed for early 2005, while the
     other 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.

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.


                                      F-17




             Nutrition Management Services Company and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE K - STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN

     1.  STOCK OPTIONS

     In  September  1991,  the Company  adopted  the 1991 Stock  Option Plan for
     officers,  directors and key employees to receive  incentive stock options.
     The options are  exercisable for a period up to 10 years from date of grant
     at an exercise price not less than fair market value of the common stock at
     date of grant.  The Plan expired in September 2001. There have been 500,000
     shares of common stock reserved for the Plan.

     The following is a summary of transactions:

                                             Number
                                           of options       Non-                   Weighted
                                           outstanding    qualified                 average
                                            incentive       stock                  exercise
                                          stock options    options       Total       price
                                          -------------    -------       -----       -----

     Outstanding at June 30, 2001            44,750        45,000       89,750       4.00
     Exercisable at June 30, 2001            44,750        45,000       89,750       4.00

     Outstanding at June 30, 2002            44,750        45,000       89,750       4.00
     Exercisable at June 30, 2002            44,750        45,000       89,750       4.00
     Forfeited/exercised                     (7,000)            -       (7,000)      4.00
                                             -------       -------      -------      -----

     Outstanding at June 30, 2003            37,750        45,000       82,750       4.00
     Exercisable at June 30, 2003            37,750        45,000       82,750       4.00

     Outstanding at June 30, 2004            37,750        45,000       82,750       4.00
     Exercisable at June 30, 2004            37,750        45,000       82,750       4.00

     All options were granted at exercise prices above market price. In addition
     the Company has not granted any stock options since 1998.

     The remaining  contractual  life of outstanding and exercisable  options is
     approximately  four years with respect to the  incentive  stock options and
     three years with respect to non-qualified stock options.

2.   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, 2004, all employees were eligible to participate in the plan. A summary
     of stock purchased under the plan is shown below.

                                    2004               2003             2001
                                   ------            --------       ---------

     Aggregate purchase$           $  -              $   720        $   4,445
     Shares purchased                 -                4,235           19,202
     Employee participants           14                   14               16

The Company  accounts for employee stock plans under the intrinsic  value method
prescribed  by  Accounting  Principles  Board  ("APB") No. 25. The effect of the
pro-forma  information in accordance with Financial  Accounting  Standards Board
SFAS  No.  123,  "Accounting  for  Stock-Based   Compensation,"  was  determined
immaterial.


                                      F-18




             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 6% of  employee  plan
     contributions.  Participants  are  vested  20% for  each  year  of  service
     beginning  after year 3 and are fully  vested  after seven  service  years.
     During the years ended June 30, 2004, 2003 and 2002, Company  contributions
     to the plan,  which were charged to expense,  amounted to $23,889,  $23,649
     and $25,630, 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.

     As of June 30, 2004,  the Company has cash accounts with various  financial
     institutions  having  high  credit  standings  and  periodically  has  cash
     balances subject to credit risk beyond insured  amounts.  As a consequence,
     it believes  that its exposure to credit risk loss is limited.  The Company
     does not  require  collateral  and  other  security  to  support  financial
     instruments subject to credit risk.

NOTE N - MAJOR CUSTOMERS

     The  Company's  Food Service  Management  Segment had sales to one customer
     representing approximately 28%, 26% and 15% of total revenues for the years
     ending  June  30,  2004,  2003  and  2002,  respectively.  The loss of such
     customer  could  have a material  adverse  effect on the  Company's  future
     results of operations.

NOTE O - MAJOR SUPPLIERS

     The Company's Food Service Management Segment purchased  approximately 34%,
     23% and 24% of its food and non-food products from one vendor for the years
     ending  June 30,  2004,  2003 and  2002,  respectively.  In the  event of a
     disruption in the Company's relationship with this vendor or any disruption
     in the vendor's  business,  the Company has alternate sources of supply for
     its food and non-food products.

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.


                                      F-19





             Nutrition Management Services Company and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE P - BUSINESS SEGMENTS-continued

     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.

                                                                Training and
                                               Food Service     Conference
                                                Management        Center          Total
                                              ------------    ------------    ------------

As of and for the year ended June 30, 2004:
    Food service revenue                      $ 27,074,155    $    925,750    $ 27,999,905
    Depreciation and amortization                  123,193         497,007         620,199
    Income (loss) from operations                  568,029      (1,424,886)       (856,851)
    Interest expense                              (117,524)        (69,175)       (186,699)
    Interest income                                  9,564               -           9,564
    Loss before taxes (benefit)                   (623,018)       (429,116)     (1,052,134)
    Net loss                                      (421,318)       (429,116)       (850,434)
    Total assets                                 6,427,248       7,852,047      14,279,295
    Capital expenditures                            60,785          19,529          80,314

As of and for the year ended June 30, 2003:
    Food service revenue                      $ 26,462,980    $    843,050    $ 27,306,030
    Depreciation and amortization                  253,328         521,729         775,057
    Income (loss) from operations                  452,565      (1,552,000)     (1,099,435)
    Interest expense                              (116,558)        (95,395)       (211,953)
    Interest income                                  9,763               -           9,763
    Loss before taxes (benefit)                   (726,133)       (590,695)     (1,316,828)
    Net loss                                      (228,746)       (590,695)       (819,441)
    Total assets                                 6,881,864       8,260,850      15,142,714
    Capital expenditures                            40,392          34,408          74,800

As of and for the year ended June 30, 2002:
    Food service revenue                      $ 28,951,584    $    955,047    $ 29,906,632
    Depreciation and amortization                  322,245         525,482         847,726
    Income (loss) from operations                1,129,630      (1,215,717)        (86,087)
    Interest expense                              (147,652)       (113,385)       (261,037)
    Interest income                                  9,131               -           9,131
    Loss before taxes (benefit)                   (177,199)       (199,504)       (376,703)
    Net loss                                       (87,220)       (199,504)       (286,724)
    Total assets                                 8,612,981       8,739,035      17,352,016
    Capital expenditures                            29,323         214,375         243,698


                                      F-20




             Nutrition Management Services Company and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE P - 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 2004
                                           --------------------------------------------------------
                                           September 30,  December 31,     March 31,       June 30,
                                           -----------    -----------    -----------    -----------

     Revenues                              $ 6,706,854    $ 7,175,557    $ 7,141,972    $ 6,975,523
     Gross profit                            1,313,334      1,339,557      1,341,253      1,263,377
     Net income (loss)                        (125,956)      (116,649)      (120,378)      (487,451)
     Net income (loss) per share - basic
          and diluted                      $     (0.04)   $     (0.04)   $     (0.04)   $     (0.22)


                                                             Fiscal 2003
                                           --------------------------------------------------------
                                          September 30,    December 31,   March 31,        June 30,
                                           -----------    -----------    -----------    -----------

     Revenues                              $ 7,256,400    $ 7,166,653    $ 6,358,301    $ 6,524,676
     Gross profit                            1,312,420      1,217,980      1,097,190        994,000
     Net income (loss)                        (174,945)      (282,217)      (306,759)       (55,520)
     Net income (loss) per share - basic
          and diluted                      $     (0.06)   $     (0.10)   $     (0.11)   $     (0.02)

     The  Company's  net loss for the quarter  ending June 30, 2004 includes the
     increase in reserve for  allowance for doubtful  accounts of $330,000.  See
     Note  B-Accounts   Receivable  and  Allowance  for  Doubtful  Accounts  for
     additional information. In addition, an adjustment to recorded income taxes
     amounting to $201,700 was also recorded in the fourth quarter.  See Note G-
     Income Taxes for additional information.


                                      F-21




                            SUPPLEMENTAL INFORMATION









             Nutrition Management Services Company and Subsidiaries

                         SCHEDULE OF VALUATION ACCOUNTS

                     For the three years ended June 30, 2004


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

                                                                   Allowance for
                                                                 Doubtful Accounts
                                                                 -----------------

Balance at June 30, 2001                                            $ 1,175,596

        Provision for bad debts                                         900,000

        Write-offs                                                     (300,843)
                                                                    -----------

Balance at June 30, 2002                                              1,774,753

         Provision for bad debts                                        389,262

         Recovery net of write-offs                                     128,321
                                                                    -----------

Balance at June 30, 2003                                              2,292,336

       Provision for bad debts                                          585,000

        Write-offs                                                            -
                                                                    -----------

Balance at June 30, 2004                                            $ 2,877,336
                                                                    ===========


                                      F-23