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, 2007 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
     -------------------

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         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         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
     -----     -----

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, or a non-accelerated  filer (as defined in Exchange Act Rule
12b-2).

LARGE ACCELERATED FILER       ACCELERATED FILER       NON-ACCELERATED FILER  X
                       -----                   -----                       -----

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

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 June 30, 2007 was approximately
$377,109.

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest  practicable  date: At August 25, 2007, 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.


                            (Cover Page 2 of 3 Pages)


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 20.


                            (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 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.


                                       2


FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

See Note P on page F-19 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.


                                       3


SERVICE AGREEMENTS

The Company provides its services under several different financial arrangements
including  a fee basis and  guaranteed  rate  basis.  As of June 30,  2007,  the
Company provided  services under various service  agreements at forty-three (43)
facilities. At certain 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 CUSTOMER

The  Company's  Food  Service  Management  Segment had sales to three  customers
representing  approximately the following percentage of total revenues,  for the
years ended June 30, 2007, 2006, and 2005, respectively:

               Years Ending June 30,
               ---------------------
                 2007  2006  2005
                 ----  ----  ----
Customer A        38%   34%   29%
Customer B         4%   14%   21%
Customer C        12%   10%   11%

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, 2007, the Company employed a total of  approximately  269 employees.
Approximately  130 of those  employees serve in various  executive,  management,
administrative,  quality  assurance  and sales  capacities.  The  remaining  139
employees are primarily  dietary and  housekeeping  workers.  Approximately  101
(73%) of the  Company's  dietary  and  housekeeping  workers  are  covered  by a
collective bargaining agreement. The Company's collective bargaining


                                       4


agreement  commenced in 2003 and ended in August 2006.  The Company is currently
involved in  negotiations to enter into a new collective  bargaining  agreement,
although there can be no assurance that a new  collective  bargaining  agreement
will be entered into. The Company makes  contributions  to the union's  benefits
funds as required by the collective bargaining agreement.  The Company considers
its relationships with its employees and unions to be satisfactory.

PURCHASING

For the years  ended June 30,  2007,  2006 and 2005,  respectively,  the Company
purchased the following  percentages of its food and non-food  products from two
vendors:

                                   Years Ended June 30,
                                   --------------------
                                     2007  2006  2005
                                     ----  ----  ----
                          Vendor A:   29%   38%   45%
                          Vendor B:   18%   19%   19%

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 $771,147 for the
fiscal year ended June 30, 2007,  (ii) the  Company's  revenues  decreased  from
$23,366,435  for fiscal year ended June 30, 2006 to  $20,911,939  for the fiscal
year ended June 30,  2007,  (iii) the Company had  negative  working  capital of
$3,519,962 at June 30, 2007 (primarily the result of a  reclassification  of the
line of credit debt from long term to short term) as compared to working capital
of $687,123 at June 30, 2006,  (iv) 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,  (v) the  Company  has never  paid any  dividends  and its credit
facility  prohibits it from paying any cash  dividends,  and (vi) 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 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.  Currently the lease is on a  month-to-month  basis on terms  generally
similar to those prevailing to unrelated parties.


                                       5


During the three years ended June 30, 2007,  2006 and 2005, the Company paid the
related  party  entity rent in the amounts of $265,283,  $261,165 and  $259,758,
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.

The  Company  owns  approximately  twenty-two  acres  of land  in  Collegeville,
Pennsylvania.  In 1997,  the Company  completed its  renovations  of an existing
40,000  square foot  building  to serve as a training  facility  and  conference
center.  The Company conducted a one-day auction on February 22, 2007 to attempt
to sell its banquet and training  facility as well as the surrounding  land. The
offers  received  were not  acceptable  to the Company.  The auction  identified
several interested and qualified  parties.  The Company continues its efforts to
lease or sell all or part of the  facility  and land.  The  Company is in active
discussions with several parties;  however,  there can be no assurances that the
Company will successfully conclude these discussions, or that it will be able to
lease or sell all or part of the facilities and land on acceptable  terms, if at
all

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

On February  7, 2001,  the Company  filed a suit  against a major  client in the
Court of Common Pleas of Chester County,  Pennsylvania,  which was  subsequently
removed  to the  United  States  District  Court  for the  Eastern  District  of
Pennsylvania.  On February 25,  2005,  judgment was entered on a jury verdict in
favor of the Company,  in the amount of  $2,500,000  for damages  related to its
claims, including breach of contract and contractual interference.  The client's
counterclaim was dismissed by the judge.  The Company filed a post-trial  motion
to amend the judgment to add prejudgment  interest.  On June 1, 2006 this motion
was  denied.  For the year ended June 30,  2005,  the jury award is  reported as
Other Income, net of legal fees and related expenses in the amount of $378,762.

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

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

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


                                       6


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

Not applicable.


                                       7


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 2007          High       Low
                         --------------      ------     ------
                         Fourth Quarter      $ 0.47     $ 0.44
                         Third Quarter         0.60       0.45
                         Second Quarter        0.51       0.44
                         First Quarter         0.45       0.43

                         Fiscal 2006          High       Low
                         --------------      ------     ------
                         Fourth Quarter      $ 0.45     $ 0.40
                         Third Quarter         0.43       0.35
                         Second Quarter        0.65       0.35
                         First Quarter         0.55       0.37

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 August 25, 2007, there were approximately  forty (40) holders of record of
the Class A Common Stock.


                                       8


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.

                                                                 Years ended June 30
                                                                 -------------------
                                         2007           2006            2005            2004           2003
                                    ------------    ------------    ------------    ------------    ------------
Revenue                             $ 20,911,939    $ 23,366,435    $ 26,602,161    $ 27,999,905    $ 27,306,030
Gross profit                           3,877,032       4,273,467       4,914,568       5,257,520       4,621,590
Loss from Operations                    (699,461)     (1,151,505)       (770,800)       (856,851)     (1,099,435)
Other income/(expense)                  (333,261)       (198,203)      1,854,038        (195,283)       (217,393)
Net income/(loss)                       (771,147)       (820,442)        775,657        (850,434)       (819,441)

Per share of common stock (basic and diluted):
Net income/(loss)                   $      (0.27)   $      (0.29)   $       0.27    $      (0.30)   $      (0.29)
                                    ============    ============    ============    ============    ============
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
                                                                   -------------
                                         2007           2006            2005            2004           2003
                                    ------------    ------------    ------------    ------------    ------------
Working capital                     $ (3,519,962)   $    687,126    $  1,581,159    $    266,441    $  1,726,474
Total assets                          13,274,851      13,967,438      16,190,634      14,279,295      15,142,714
Long-term debt                         2,045,000       5,714,922       5,604,921       5,376,922       5,339,343
Stockholders' equity                   3,813,751       4,584,898       5,413,580       4,629,683       5,480,117


                                                        9


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 1993, 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, 2007 COMPARED TO YEAR ENDED JUNE 30, 2006

Revenues for the year ended June 30, 2007 ("Fiscal  2007") were  $20,911,939,  a
decrease of $2,454,496 or 10.5% compared to revenues of $23,366,435 for the year
ended  June  30,  2006  ("Fiscal  2006").   This  decrease  is  almost  entirely
attributable  to accounts which had terminated  during the previous  fiscal year
and for which no revenues were recognized during the current year.  Revenue from
new  accounts  during  the  current  year have  been  sufficient  to offset  any
contracts  terminating  in the  current  year.  Revenues  at ongoing  facilities
increased  slightly year over year.  Revenues for fiscal 2007 from  Collegeville
Inn  operations  increased  over fiscal 2006 primarily due to an increase in the
cook chill operations.

Cost of operations  for Fiscal 2007 was  $17,034,907  compared to $19,092,968 in
Fiscal  2006,  a decrease  of  $2,058,061  or 10.8%.  This  decrease in costs of
operations  is  primarily  related to lower  revenues  during the period and the
expenses associated with those revenues.

Gross  profit for Fiscal 2007 was  $3,877,032  or 18.5% of revenue,  compared to
$4,273,467  or 18.3% of revenue in Fiscal  2006, a decrease of $396,435 or 9.3%.
The decrease in gross profit is due to 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.  The Gross Margin Percentage of Sale increased to
18.5% from 18.3% due to cost  takeouts and  improved  operating  performance  at
fixed rate accounts.  The Company has adapted to changing market conditions with
cost reductions in the Cost of Operations and General & Administrative areas.

General and administrative  expenses for Fiscal 2007 were $4,278,885 or 20.5% of
revenue,  compared to $4,965,732 or 21.3% of revenue for Fiscal 2006, a decrease
of $686,847 or 13.8%. This decrease is due to lower staffing related expenses as
well as a reduction in travel and related costs.

Depreciation and amortization for Fiscal 2007 was $275,980, compared to $399,240
for Fiscal  2006.  This  reduction  is the result of certain  fixed assets being
fully depreciated.


                                       10


Provision for doubtful  accounts for Fiscal 2007 was $21,628 compared to $60,000
for  Fiscal  2006.  The  decrease  is due to the  Company  having  a  sufficient
provision  providing  for  potential  non-payments  on a specific  customer  and
general  unallocated  basis. The provision for doubtful  accounts  represents an
estimate of amounts 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.

Loss from operations for Fiscal 2007 was $699,461 or 3.3% of revenue compared to
$1,151,505  or 4.9% of revenue for Fiscal 2006,  an  improvement  of $452,044 or
39.3%.  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 2007 was  $472,454 or 2.2% of revenue,  compared to
$404,494 or 1.7% of revenue for Fiscal 2006. This increase is due to an increase
in amount borrowed and increases in interest rates.

Other  income for Fiscal 2007 was  $67,057 or .3% of revenues  compared to other
income of $128,276 or .6% of revenue for Fiscal 2006.  Fiscal 2007  includes the
recovery  of  a  previously  fully  reserved  outstanding  amount  for  accounts
receivable as well as the  reimbursement of fees from the successful  resolution
of the litigation  detailed in Item 3 - Legal Proceedings.  Fiscal 2006 includes
the gain on sale of securities  sold in the third quarter of 2006 as well as the
receipt of funds for the  Company  granting  an  easement  on  Collegeville  Inn
property.

For the reasons  stated above,  net loss before income taxes for Fiscal 2007 was
$1,032,722  or 4.9% of  revenue  compared  to net loss  before  income  taxes of
$1,349,708 or 5.8% of revenue for Fiscal 2006.

The net loss for Fiscal 2007 was $771,147 or 0.27 per share compared to net loss
of $820,442 or $0.29 per share for Fiscal 2006.

RESULT OF OPERATIONS YEAR ENDED JUNE 30, 2006 COMPARED TO YEAR ENDED JUNE 30, 2005

Revenues for the year ended June 30, 2006 ("Fiscal  2006") were  $23,366,435,  a
decrease of $3,235,726 or 12.2% compared to revenues of $26,602,161 for the year
ended June 30, 2005 ("Fiscal  2005").  This decrease is primarily due to the net
impact of revenues from new  contracts  versus  revenues from lost  contracts as
well as lower revenues from the  Collegeville  Inn.  Effective June 27, 2005 the
Company closed the buffet  restaurant at  Collegeville  Inn to make the facility
available for catered events.

Cost of operations  for Fiscal 2006 was  $19,092,968  compared to $21,687,593 in
Fiscal  2005,  a decrease  of  $2,594,625  or 12.0%.  This  decrease in costs of
operations  is  primarily  related to lower  revenues  during the period and the
expenses associated with those revenues.

Gross  profit for Fiscal 2006 was  $4,273,467  or 18.3% of revenue,  compared to
$4,914,568  or 18.5% of revenue in Fiscal 2005, a decrease of $641,101 or 13.0%.
The decrease in gross profit is due to 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.


                                       11


General and administrative  expenses for Fiscal 2006 were $4,965,732 or 21.3% of
revenue, compared to $4,943,466 or 18.6% of revenue for Fiscal 2005, an increase
of $22,265 or 0.1%. These increases are due to additional marketing and business
development  positions,  higher  professional  fees and travel related  expenses
associated with new business. Salary and payroll related expenses for additional
management  support personnel also contributed to the increase over the previous
year.

Depreciation and amortization for Fiscal 2006 was $399,240, compared to $576,902
for Fiscal 2005.

Provision for doubtful accounts for Fiscal 2006 was $60,000 compared to $165,000
for  Fiscal  2005.  The  decrease  is due to the  Company  having  a  sufficient
provision  providing  for  potential  non-payments  on a specific  customer  and
general  unallocated  basis. The provision for doubtful  accounts  represents an
estimate of amounts 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.  As a result there was no additional provision provided in
the third or fourth quarter of Fiscal 2006.

Loss from operations for Fiscal 2006 was $1,151,505 or 4.9% of revenue  compared
to  $770,800  or 2.9% of revenue  for Fiscal  2005,  an  increase of $380,704 or
49.4%.  This increase in loss from operations is due to the decrease in revenues
and gross profit resulting from the impact of new and lost contracts.

Interest  expense for Fiscal 2006 was  $404,494 or 1.7% of revenue,  compared to
$279,245 or 1.0% of revenue for Fiscal 2005.  This  increase is primarily due to
the continued rise in interest rates in Fiscal 2006.

Other income for Fiscal 2006 was  $128,276 or .6% of revenues  compared to other
expense of $2,121,238  or 8.0% of revenue for Fiscal 2005.  Fiscal 2006 includes
the gain on sale of securities  sold in the third quarter of 2006 as well as the
receipt of funds for the  Company  granting  an  easement  on  Collegeville  Inn
property.  Fiscal 2005 includes the receipt of the proceeds from the  successful
resolution of the litigation as detailed in Item 3-Legal  Proceedings.  The jury
award of $2,500,000 is reflected net of legal and related expenses in the amount
of $378,762.

For the reasons  stated above,  net loss before income taxes for Fiscal 2006 was
$1,349,708  or 5.8% of  revenue  compared  to  income  before  income  taxes  of
$1,083,238 or 4.1% of revenue for Fiscal 2005.

The net loss for Fiscal  2006 was  $820,442  or 0.29 per share  compared  to net
income of $775,657 or $0.27 per share for Fiscal 2005.

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 2007 and 2006 was cash flow from operations.


                                       12


At June 30, 2007,  the Company had negative  working  capital of  $3,519,962  as
compared  to working  capital of  $687,123 at June 30,  2006.  This  decrease in
working capital is primarily  attributable to the Company's  reclassification of
the line of credit  debt  from  long  term to short  term and the use of cash in
operations.  Cash used by operations  for Fiscal 2007 was $962,625,  compared to
$1,614,930  used by operations for Fiscal 2006.  This activity was attributed to
operating losses in the period as well as an increase in accounts receivable.

Investing  activities  used $53,698  during  Fiscal 2007 compared to $213,881 in
cash provided during Fiscal 2006.  Fiscal 2007 includes capital  expenditures of
$49,482.  Investing  activities for Fiscal 2006 include capital  expenditures in
the amount of $46,685 as well as the sale of marketable  securities of $249,577.
During Fiscal 2007,  financing  activities  provided  $104,614 which include the
release of  $250,000  of  restricted  cash.  Fiscal  2006  financing  activities
provided $125,000 in cash,  primarily due to proceeds from the Company's line of
credit.

The Company has certain  credit  facilities  with its bank including a revolving
credit of $3,500,000. At June 30, 2007, the Company had approximately $3,500,000
outstanding  under its  revolving  credit.  The  Company  had pledged a $250,000
Certificate  of Deposit as additional  collateral  against the revolving line of
credit which has now been released as part of the new agreement  reached in June
2007. The Company issued two series of Industrial  Bonds totaling  $3,560,548 in
December  1996. The  outstanding  balance on the bonds was $2,215,000 as of June
30, 2007. In June 2007, the Company entered into an agreement whereby the credit
loan facility was extended to December 31, 2007. The Company  intends to replace
or retire this debt prior to that date.

===============================================================================================================
                                                      Payment Due by Period
===============================================================================================================
Contractual Obligations              Total        Less Than 1     2 - 3 years     4 - 5 years     After 5 years
                                                                     year
===============================================================================================================
Long-Term Debt*                    $5,734,536      $3,689,536     $  350,000       $  390,000       $1,305,000
===============================================================================================================
Operating Leases                   $   24,120      $   12,520     $   11,601             --               --
===============================================================================================================
Total Contractual Cash             $5,758,656      $3,702,056     $  361,601       $  390,000       $1,305,000
Obligations
===============================================================================================================

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


                                       13


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

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.

The Company's  financial  statements as of June 30, 2007 have been  presented on
the basis that it is a going  concern,  which  contemplates  the  realization of
assets and the satisfaction of liabilities in the normal course of business.

Although the Company had negative working capital of approximately  $3.5 million
as of June 30,  2007,  which  raises some doubt as to its ability to satisfy its
obligations  during the next  fiscal  year as they  become  due,  such doubt was
alleviated after careful review of Management's plans for the future relating to
the Collegeville Inn Assets and operations,  and the protections relating to the
management  fees from its contracts and future  contracts.  Management  believes
that these plans,  supported by the fact that the Company still had stockholders
equity  of  approximately  $3.8  million  as of June 30,  2007,  reinforces  the
Company's ability to continue as a going concern.

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, 2008.

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

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


                                       14


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 ACCOUNTING PRONOUNCEMENTS

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

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.


                                       15


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

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

ACCOUNTS RECEIVABLE

The Company  performs  ongoing  credit  evaluations of its customers and adjusts
credit  limits  based on  payment  history  and the  customer's  current  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, 2007;  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  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.


                                       16


As of June 30, 2007 and 2006,  the Company  maintained  a deferred  tax asset of
$2,265,908  and  $2,004,333,  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.

EMPLOYMENT CONTRACTS

For the fiscal years ended June 30, 2007, 2006 and 2005, the Company paid a base
salary of $290,344,  $333,727 and $335,768 to Joseph Roberts, Chairman and Chief
Executive  Officer  and  $213,544,  $237,846  and  $236,324  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, 2008.

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.


                                       17


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 9A - CONTROLS AND PROCEDURES

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

ITEM 9B - OTHER INFORMATION

Not applicable.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

This information will be contained in the Proxy Statement of the Company for the
2007 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
2007 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
MANAGEMENT

This information will be contained in the Proxy Statement of the Company for the
2007 Annual Meeting of Shareholders  under the caption "Security  Ownership" and
"Election of Directors" and is incorporated herein by reference.


                                       18


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

This  information  will be contained in the Proxy  Statements of the Company for
the 2007 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 Moore Stephens,  P.C.  ("Moore  Stephens")  served as the
Company's  independent  registered  public  accounting firm for the fiscal years
ended  June  30,  2007,  2006 and  2005,  respectively.  Such  firm has no other
relationship to the Company or its affiliates.

AUDIT FEES

Moore  Stephens  billed the  Company  $50,000  for audit fees for the  Company's
annual  consolidated  financial  statements  for the fiscal  year ended June 30,
2007,  $45,000  for fiscal  year ended June 30, 2006 and $40,000 for fiscal year
ended 2005.

AUDIT RELATED FEES

Moore  Stephens  billed the Company  $6,000 for audit  related  services for the
fiscal year ended June 30, 2007,  $15,000 for June 2006 and $12,000 for June 30,
2005.

TAX FEES

Moore  Stephens  billed the Company  $12,000 for tax services  during the fiscal
year ended June 30,  2007 and June 2006 and  $11,900  for the fiscal  year ended
June 30, 2005.

ALL OTHER FEES

Moore Stephens did not bill the Company for any other professional  services for
the fiscal years ended June 30, 2007, 2006, and 2005, 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,
2007 were approved by the Audit Committee.

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


                                       19


PART IV

ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A)   1.    Consolidated Financial Statements

            Reports of Independent Registered Public Accounting Firm        F-2

            Consolidated Balance Sheets as of June 30, 2007 and 2006        F-3

            Consolidated Statements of Operations for the
            Years Ended June 30, 2007, 2006 and 2005                        F-4

            Consolidated Statements of Stockholders' Equity for the
            Years Ended June 30, 2007, 2006 and 2005                        F-5

            Consolidated Statements of Cash Flows for the
            Years Ended June 30, 2007, 2006 and 2005                        F-6

            Notes to Consolidated Financial Statements                      F-7 to F-20

            Schedule of Valuation Accounts                                  F-21

(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).


                                       20


           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).


                                       21


                                   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 15, 2007
      ----------------

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 15, 2007_.

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

/s/ Richard Kresky                         /s/ Samuel R. Shipley
------------------------------------       -------------------------------------
Richard Kresky, Director                   Samuel R. Shipley, Director

/s/ Michael M. Gosman                      /s/ Michelle L. Roberts-O'Donnell
------------------------------------       -------------------------------------
Michael M. Gosman, Director                Michelle L. Roberts-O'Donnell, Director

/s/ Jane Scaccetti
------------------------------------
Jane Scaccetti, Director


                                       22


FINANCIAL STATEMENTS AND REPORTS OF REGISTERED PUBLIC ACCOUNTING FIRMS
NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
JUNE 30, 2007, 2006 AND 2005

                                TABLE OF CONTENTS

                                                      Page
                                                      ----

REPORTS 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 to F -19


SUPPLEMENTAL INFORMATION

      SCHEDULE OF VALUATION ACCOUNTS                  F - 20



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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


We have  audited  the  accompanying  consolidated  balance  sheets of  Nutrition
Management  Services  Company and Subsidiaries as of June 30, 2007 and 2006, and
the related  consolidated  statements of  operations,  changes in  stockholders'
equity,  and cash flows for each of the three years in the period ended June 30,
2007. These  consolidated  financial  statements and the consolidated  financial
statement  schedule  referred to below are the  responsibility  of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements and the consolidated  financial statement 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
consolidated 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 audit 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 also
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the consolidated  financial statements,  assessing the accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall consolidated 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  consolidated  financial  position  of
Nutrition  Management  Services Company and Subsidiaries as of June 30, 2007 and
2006, and the consolidated  results of their operations and their cash flows for
each of the three years in the period ended June 30, 2007,  in  conformity  with
accounting  principles  generally accepted in the United States of America.  Our
audit was made for the  purpose of forming an opinion on the basic  consolidated
financial  statements  taken as a whole.  The  schedule  listed  in the index to
consolidated  financial statements is the responsibility of Nutrition Management
Services  Company's  management  and is presented for purposes of complying with
the  Securities  and  Exchange  Commission's  rules and is not part of the basic
consolidated  financial  statements.  The  schedule  has been  subjected  to the
auditing  procedures  applied in the audit of the basic  consolidated  financial
statements  and, in our  opinion,  fairly  states in all  material  respects the
financial  data  required  to be set  forth  therein  in  relation  to the basic
consolidated financial statements taken as a whole.


                                                 /s/ MOORE STEPHENS, P.C.

                                                 MOORE STEPHENS, P.C.
                                                 Certified Public Accountants

Cranford, New Jersey
October 15, 2007


                                      F-2




                                  Nutrition Management Services Company and Subsidiaries
                                               CONSOLIDATED BALANCE SHEETS
                                                         June 30,

                                                                                              2007                2006
                                                                                        ------------        ------------
Current assets
     Cash and cash equivalents                                                          $    701,858        $  1,613,567
     Accounts receivable (net of allowance for doubtful accounts of $755,778
          and $964,188 in 2007 and 2006, respectively)                                     2,774,016           2,329,601
     Inventory                                                                               142,921             142,220
     Prepaid and other                                                                       277,343             269,353
                                                                                        ------------        ------------
          Total current assets                                                             3,896,138           4,354,741
                                                                                        ------------        ------------

Property and equipment - net                                                                 115,126             114,921
Assets held for sale                                                                       6,295,450           6,522,152
Other assets
     Restricted cash                                                                            --               250,000
     Note receivable                                                                          86,746             134,865
     Advances to officers                                                                    427,510             423,294
     Deferred income taxes                                                                 2,265,908           2,004,333
     Bond issue costs (net of accumulated amortization of $154,158
     and $139,597 in 2007 and 2006, respectively)                                            138,359             151,731
     Other assets                                                                             49,614              11,401
                                                                                        ------------        ------------
          Total other assets                                                               2,968,137           2,975,624
                                                                                        ------------        ------------
          Total assets                                                                  $ 13,274,851        $ 13,967,438
                                                                                        ============        ============
                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
     Current portion of long-term debt                                                  $    170,000        $    165,000
     Current portion of line of credit                                                     3,499,114                --
     Accounts payable                                                                      3,001,543           2,998,049
     Accrued expenses                                                                        282,703             213,883
     Accrued payroll                                                                         260,185             226,611
     Other                                                                                   202,555              64,075
                                                                                        ------------        ------------
          Total current liabilities                                                        7,416,100           3,667,618
                                                                                        ------------        ------------

Long-term liabilities
     Long-term debt - net of current portion                                               2,045,000           5,714,922
                                                                                        ------------        ------------
          Total long-term liabilities                                                      2,045,000           5,714,922
                                                                                        ------------        ------------

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
     Accumulated other comprehensive income (net of tax)                                        --                  --
     Retained earnings                                                                       511,340           1,282,487
                                                                                        ------------        ------------
                                                                                           4,313,314           5,084,461
     Less treasury stock - (common - Class A: 253,000 shares - at cost )                    (499,563)           (499,563)
                                                                                        ------------        ------------
          Total stockholders' equity                                                       3,813,751           4,584,898
                                                                                        ------------        ------------
          Total liabilities and stockholders' equity                                    $ 13,274,851        $ 13,967,438
                                                                                        ============        ============

                             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,

                                                                        2007                2006               2005
                                                                    ------------        ------------        ------------

Food service revenue                                                $ 20,911,939        $ 23,366,435        $ 26,602,161

Cost of operations
     Payroll and related expenses                                      8,816,497           9,540,157          10,789,982
     Other costs of operations                                         8,218,410           9,552,811          10,897,611
                                                                    ------------        ------------        ------------

     Cost of operations                                               17,034,907          19,092,968          21,687,593
                                                                    ------------        ------------        ------------

Gross profit                                                           3,877,032           4,273,467           4,914,568
                                                                    ------------        ------------        ------------

Expenses
General and administrative expenses                                    4,278,885           4,965,732           4,943,466
     Depreciation and amortization                                       275,980             399,240             576,902
     Provision for doubtful accounts                                      21,628              60,000             165,000
                                                                    ------------        ------------        ------------

     Total Expenses                                                    4,576,493           5,424,972           5,685,369
                                                                    ------------        ------------        ------------

     Loss from operations                                               (699,461)         (1,151,505)           (770,800)
                                                                    ------------        ------------        ------------

Other income/(expense)
     Interest expense                                                   (472,454)           (404,494)           (279,245)
     Interest income                                                      72,136              78,015              12,045
     Gain on Sale of Securities                                             --                44,256                --
     Other                                                                67,057              84,020           2,121,238
                                                                    ------------        ------------        ------------

     Other income/(expense) - net                                       (333,261)           (198,203)          1,854,038
                                                                    ------------        ------------        ------------

(Loss)/income before income taxes                                     (1,032,722)         (1,349,708)          1,083,238

Income tax (benefit)/expense                                            (261,575)           (529,266)            307,580
                                                                    ------------        ------------        ------------

Net (loss)/income                                                       (771,147)           (820,442)            775,657

Other comprehensive income/(loss) (net of tax):
     Unrealized holding gains/(losses) arising during period                --                  --                 8,240
     Less: Reclassification adjustment for realized gains
     included in net income                                                 --                  --                  --
                                                                    ------------        ------------        ------------

     Total other comprehensive income                                       --                  --                 8,240
                                                                    ------------        ------------        ------------


Comprehensive income/(loss)                                         $   (771,147)       $   (820,442)       $    783,897
                                                                    ============        ============        ============

Net income/(loss) per share - basic and diluted                     $      (0.27)       $       (.29)       $        .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, 2005

                         Class A Common Stock    Class B Common Stock                                  Treasury Stock
                         --------------------    --------------------                                  --------------
                                                                                  Accumulated
                                                                                     Other                               Total
                         Number of             Number of               Retained   Comprehensive Number of              Stockholders'
                          Shares      Amount    Shares      Amount     Earnings      Income      Shares       Amount      Equity
                        ---------- ----------- --------- ----------- -----------  ------------- --------- ------------ -------------

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

Net Income                   --           --       --           --       775,657          --        --           --        775,657
Other Comprehensive
 Income                      --           --       --           --          --           8,240      --           --          8,240

Balance-June 30, 2005   2,747,000  $ 3,801,926  100,000  $        48 $ 2,102,929   $     8,240  (253,000) $  (499,563) $ 5,413,580

Other Comprehensive
 Income                      --           --       --           --          --          (8,240)     --           --         (8,240)

Net loss                     --           --       --           --      (820,442)         --        --           --       (820,442)


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

                                   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,

                                                                           2007               2006              2005
                                                                      ------------       ------------       -----------
Operating activities
Net income/(loss)                                                     $  (771,147)       $  (820,442)       $   775,657
         Adjustments to reconcile net income/(loss) to net cash
              provided by operating activities
     Gain on sale of marketable securities                                   --              (44,256)              --
     Depreciation and amortization                                        275,980            399,240            576,902
     Amortization of bond costs                                            14,564             14,564             14,568
     Provision for bad debts                                               21,628             60,000            165,000
     (Benefit)/expense for deferred taxes                                (261,575)          (548,219)           167,727

Changes in assets and liabilities
Accounts receivable                                                      (417,924)           668,750           (978,026)
     Inventory                                                               (701)           (13,265)            30,232
     Prepaid and other                                                    (47,399)           144,566             48,286
     Income tax refund                                                       --               43,730             19,618
     Accounts payable                                                       3,494           (993,217)           687,320
     Accrued expenses                                                      68,820           (484,477)           411,830
     Accrued payroll                                                       33,574            (30,708)            35,143
     Other                                                                118,061            (11,196)           (85,398)
                                                                      -----------        -----------        -----------

         Net cash provided by operating activities                       (962,625)        (1,614,930)         1,868,859

Investing activities
     Purchase of property and equipment                                   (49,482)           (46,685)            (2,961)
     Purchase of marketable securities                                       --                 --              (38,660)
     Net proceeds of marketable securities                                   --              249,577             36,308
     (Advances)/repayments by employees and officers                       (4,216)            10,989              1,000
                                                                      -----------        -----------        -----------

         Net cash provided by/(used in) investing activities              (53,698)           213,881             (4,313)
Financing activities
     Restricted cash                                                      250,000               --                 --
     Proceeds from financing                                              297,659            238,869               --
     Proceeds from long-term borrowings                                      --              275,000            436,000
     Repayment of long-term borrowings                                   (165,808)          (150,000)          (203,000)
     Repayment of financing                                              (277,237)          (238,869)              --
     Repayment of note payable                                               --                 --             (154,453)
                                                                      -----------        -----------        -----------

         Net cash provided by/(used in) financing activities              104,614            125,000            (78,547)
                                                                      -----------        -----------        -----------

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS                     (911,709)        (1,276,049)         1,943,093
Cash and cash equivalents - beginning of year                           1,613,567          2,889,616            946,523
                                                                      -----------        -----------        -----------
Cash and cash equivalents - end of year                               $   701,858        $ 1,613,567        $ 2,889,616
                                                                      ===========        ===========        ===========
Supplemental disclosures of cash flow information
     Cash paid during the years for
       Interest                                                       $   445,220        $   419,416        $   217,764
       Income taxes                                                   $    38,459        $     5,362        $     3,014

                             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.  Restricted cash is
   comprised  of a  certificate  of  deposit  which  is  pledged  as  additional
   collateral against the revolver note.

   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.  Accordingly,  net
   unrealized  gains  of  $8,240  on  marketable   securities  are  included  in
   accumulated other comprehensive  income as of June 30, 2005. The Company sold
   the  marketable  securities  during  the third  quarter  of  Fiscal  2006 and
   realized a gain of $44,256.

   As of June 30, 2007 there were no marketable securities.

   During the years ended June 30, 2007, 2006 and 2005, sales proceeds and gross
   realized gains and losses on securities classified as available for sale were
   as follows:

                                      2007        2006        2005
                                   ---------   -----------   -------

           Sales proceeds          $    --     $   249,577   $36,308
                                   =========   ===========   =======

           Gross realized gains    $    --     $    44,256   $  --
                                   =========   ===========   =======

           Gross realized losses   $    --     $      --     $  --
                                   =========   ===========   =======


                                      F-7


             Nutrition Management Services Company and Subsidiaries
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

   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,  2007 and  2006,
   inventory  was $142,921 and $142,220,  respectively.  As of June 30, 2007 and
   2006,   inventory   receivable   from   customers   was  $9,737  and  $11,445
   respectively,  while  inventory  payable to  customers  was $4,204 and $3,766
   respectively.

   6.  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,  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 fo 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 collectibility is reasonably assured. Ongoing assessments of
  the credit worthiness of customers provide the Company reasonable assurance of
  collectibility  upon  performance  of  services.  The  Company  has  no  other
  obligation with respect to its services once services are performed.

   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.


                                      F-8


             Nutrition Management Services Company and Subsidiaries
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

   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

   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, 2007 and 2006, the Company  maintained a deferred tax asset of
   $2,265,908  and  $2,004,333,  respectively.  The  Company  hs not  provided a
   valuation  allowance against its deferred tax asset 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.

   12. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

   Based on the Company's current activities,  the only component of accumulated
   other  comprehensive  income  consists of changes in the unrealized  gains or
   losses of marketable securities.

                                           For the year ended June 30,
                                           ---------------------------
                                                2007         2006
                                              -------      --------
                 Beginning balance            $  --        $  8,240
                 Current period change           --          60,026
                 Tax effect                      --         (24,010)
                                              ---          --------
                 Ending balance               $  --        $ 44,256
                                              ===          ========

                 Gain on sale of securities      --            --
                                              ---          --------
                 Ending Balance                  --        $   --
                                              ===          ========

   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.


                                      F-9


             Nutrition Management Services Company and Subsidiaries
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

   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,
   2007, 2006 and 2005 was $5,247, $24,600 and $78,789 respectively.

   15. RECLASSIFICATION

   Certain 2006 and 2005 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 are 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 are reported in the  accompanying  balance
   sheet for debt  approximate  their fair  values.  See  footnote E for further
   discussion.

   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. RESEARCH AND DEVELOPMENT

   The Company incurred  research and development costs related to the Company's
   Cook-Chill food preparation  technology in the amounts of $565,111,  $301,548
   and $98,083 for the years ended June 30, 2007, 2006 and 2005, respectively.

   20. NEW ACCOUNTING PRONOUNCEMENTS

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


                                      F-10


             Nutrition Management Services Company and Subsidiaries
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE C - BUSINESS CONDITIONS

   The Company's financial statements as of June 30, 2007 have been presented on
   the basis that it is a going concern,  which  contemplates the realization of
   assets and the satisfaction of liabilities in the normal course of business.

   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.

   See Note O for segment reporting information. The Company has a business plan
   in place to improve the operating results from the Collegeville Inn.

   The Company is exploring all reasonable alternatives to improve its operating
   results,  including but not limited to, increasing food service revenues with
   targeted  marketing  efforts,  increasing  revenues  from  the  sale  of  the
   Company's Cook Chill products,  reduction of operating expenses, and the sale
   or lease of all or part of the  Collegeville  Inn, and sale of excess land at
   the  Collegeville  Inn.  The Company  has been in  discussions  with  several
   interested parties. There can be no assurance as to the success of any or all
   of these alternatives.

   Although  the Company had  negative  working  capital of  approximately  $3.5
   million as of June 30,  2007,  which  raised  some doubt as to its ability to
   satisfy its obligations during that next fiscal year as they become due, such
   doubt was  alleviated  after  careful  review of  Management's  plans for the
   future  relating  to the  Collegeville  Inn  Assets and  operations,  and the
   projections  relating to the  management  fees from its  contracts and future
   contracts.  These plans,  together  with the fact that the Company  still had
   stockholders equity of approximately $3.8 million as of June 30, 2007, helped
   alleviate any doubt of the Company's ability to continue as a going concern.

   Management believes that operating cash flow, proceeds from the sale or lease
   of certain  assets,  available  cash and available  credit  resources will be
   adequate to make repayments of indebtedness,  meet the working capital needs,
   satisfy  the  needs  of its  operations,  and  to  meet  anticipated  capital
   expenditures during the next twelve months ending June 30, 2008.

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

NOTE D - PROPERTY AND EQUIPMENT

   The following details the composition of property and equipment.

                                        Estimated
                                       useful lives       2007         2006
                                       ------------    ----------    ---------

Building                                     40        $    7,829        7,829
Machinery and equipment                     2-8         2,422,005    2,379,629
Furniture and fixtures                      2-8            26,374       26,374
Other, principally autos and trucks        2-10           211,335      211,335
                                                       ----------   ----------
                                                        2,667,543    2,625,167
Less: accumulated depreciation                          2,552,416    2,501,247
                                                       ----------   ----------
                                                       $  115,126   $  114,920
                                                       ==========   ==========


                                      F-11


             Nutrition Management Services Company and Subsidiaries
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE E - ASSETS HELD FOR SALE

The following details the composition of assets held for sale.

                                                           Estimated
                                                          Useful Lives       2007          2006
                                                          ------------   ------------   ------------

Property and equipment
Land                                                           --        $    497,967   $    497,967
Building                                                       40           7,491,263      7,484,155
Other, principally equipment, furniture and fixtures          2-8           2,386,717      2,386,717
                                                                         ------------   ------------
                                                                           10,375,946     10,368,838
Less: accumulated depreciation                                              6,632,918      6,356,932
                                                                         ------------   ------------
                                                                         $  6,295,450   $  6,522,153
                                                                         ============   ============

   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.

NOTE F - LONG- TERM DEBT

Long-term debt consisted of the following:                                            2007          2006
                                                                                   ----------    ----------
Bank revolving credit, interest due monthly at the National
     Consumer  rate  minus  .25%  (effectively  8.25% as of June  30,  2007),
     secured by all  corporate  assets and  personal  guarantee  of the Chief
     Executive Officer; matures on December 31, 2007                               $3,499,114    $3,499,922
Industrial Revenue Bonds (Collegeville Inn Projects) (see
     bonds payable)                                                                 1,615,000     1,730,000
Industrial Revenue Bonds (Apple Fresh Foods Projects) (see
     bonds payable)                                                                   600,000       650,000
                                                                                   ----------    ----------
                                                                                    5,714,114     5,879,922
Less: current maturities (includes bank revolving credit)                           3,669,114       165,000
                                                                                   ----------    ----------
                                                                                   $2,045,000    $5,714,922
                                                                                   ==========    ==========

   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, 2007 all of the cash collateral  account has been
   released  and is available  for  operations.  At June 30,  2006,  the Company
   maintained restricted cash balances of $250,000,  which was not available for
   operating purposes.

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

   These credit  agreements  contain  covenants  that include the  submission of
   specified financial information and the maintenance of insurance coverage for
   the  pledged  assets  during the term of the loans.  The Company and the bank
   reached an agreement in June 2007 which  maintains the revolving  credit line
   in place to December 31, 2007. The Company  intends to replace or retire this
   debt prior to that date.


                                      F-12


             Nutrition Management Services Company and Subsidiaries
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE F - LONG - TERM DEBT - Continued

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, 2007 was
     5.42%)

     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, 2007 was
     3.84%)

     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.

The sinking fund requirements of the bonds are as follows:

                        Collegeville       Apple Fresh
                            Inn               Foods            Total
                         ---------         ---------         ---------
            2008           120,000            50,000           170,000
            2009           130,000            50,000           180,000
            2010           135,000            55,000           190,000
            2011           145,000            55,000           200,000
            2012           155,000            60,000           215,000
            Thereafter     930,000           330,000         1,260,000
                         ---------         ---------         ---------
            Total        1,615,000           600,000         2,215,000


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

            Year Ending June 30,

                    2008            $3,669,114
                    2009               180,000
                    2010               190,000
                    2011               200,000
                    2012               215,000
                    Thereafter       1,260,000
                                    $5,714,114


                                      F-13



             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,
                                                          2007         2006        2005
                                                       --------    ---------    ---------
Current
  Federal                                             $(266,597)  $        0    $ 139,853
  State                                                 (47,046)           0            0
                                                       --------    ---------    ---------
                                                       (313,643)           0            0
Deferred
  Federal                                                44,258     (403,176)     156,584
  State                                                   7,810     (126,090)      11,143
                                                       --------    ---------    ---------
                                                         52,068     (529,266)     167,727
                                                       --------    ---------    ---------
                                                      $(261,575)   $(529,266)   $ 307,580
                                                       ========    =========    =========


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
                                                                 -------
                                                           2006           2006
v                                                       ----------     ----------
Deferred tax assets
  Provision for doubtful accounts                      $  421,051     $  414,601
  Excess of tax over financial statement
    basis of investments in contracts                      94,650        147,970
Vacation accrual                                          136,558        111,547
  Bonus accrual                                              --             --
  Charitable contribution carryforward                     48,919         48,919
  Federal net operating loss                            1,501,994      1,304,749
  Other                                                    74,181        108,181
                                                       ----------     ----------
Total deferred tax assets                               2,277,353      2,135,967
                                                       ----------     ----------
Deferred tax liabilities
  Depreciation                                             11,443        131,635
                                                       ----------     ----------
  Net deferred tax assets                              $2,265,910     $2,004,332
                                                       ==========     ==========


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

                                      June 30
                                      -------
                               2007             2006
                            ----------      ----------
Current asset               $     --        $     --
Non-current asset            2,265,910       2,004,333
                            ----------      ----------
                            $2,265,910      $2,004,333
                            ==========      ==========


   The  Company  also  has  a  federal  net  operating  loss  carry  forward  of
   approximately  $4,000,000  expiring on  December  31,  2026.  The Company has
   charitable contribution carry forwards in the amount of $113,765, which began
   to expire in the fiscal year ended June 30, 2007.

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

                                      F-14



             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE G - INCOME TAXES - continued

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

                                                            Year Ended June 30
                                                            ------------------
                                                      2007       2006       2005
                                                     -----      -----      -----
Income taxes, at U.S. statutory rates                (34.0)%    (34.0)%    (34.0)%
States taxes, net of federal tax benefit              (5.0)      (5.0)      (1.0)
Nondeductible expenses                                10.0        7.0        8.9
Other                                                  3.7       (8.6)     (13.6)
                                                     -----      -----      -----
Tax expense/(benefit)                                (25.3)%    (40.6)%    (39.7)%
                                                     =====      =====      =====


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 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   $372,315  and  $365,622   remains
   outstanding  as of June 30,  2007 and 2006,  respectively.  Kathleen A. Hill,
   President, Chief Operating Officer and Director of the Company, received long
   term advances of which $54,695 and $57,172 remains outstanding as of June 30,
   2007 and 2006, respectively.  Interest for fiscal year ended June 30, 2007 of
   $21,740  has been  included in the  outstanding  amounts.  These  amounts are
   currently under agreement  whereby monthly  payments are being made to reduce
   the outstanding amounts.

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, 2007,  2006 and 2005,  rent expense
   paid to the related party was $265,283, $261,165 and $259,758, respectively.

   The Company is also obligated  under various  operating  leases for operating
   equipment for periods expiring through 2007.  During the years ended June 30,
   2007,  2006 and 2005,  rent  expense was  $334,845,  $317,486  and  $390,341,
   respectively, for all operating leases.

   Minimum annual rentals under  non-cancelable  operating leases  subsequent to
   June 30, 2006, are as follows:

                                            Operating
   Year Ending June 30,                     Equipment
   --------------------                     ---------
           2008                              $12,520
           2009                               11,601
           2010                                    0
           2011                                    0
                                             -------
           Total                              24,121

   2.  LITIGATION

   On February 7, 2001,  the Company  filed a suit against a major client in the
   Court of Common Pleas of Chester County, Pennsylvania, which was subsequently
   removed to the United  States  District  Court for the  Eastern  District  of
   Pennsylvania. On February 25, 2005, judgment was entered on a jury verdict in
   favor of the Company,  in the amount of $2,500,000 in damages  related to its
   claims.  The  former  client  did not appeal  the  judgment  and the  Company
   received  $2,500,000  on June 1, 2005.  For the year ended June 30,  2005 the
   Company  reported  this award as Other  Income in the  amount of  $2,121,238,
   which  comprises  the jury award net of legal fees and expenses in the amount
   of $378,762.  The Company filed a post-trial  motion to amend the judgment to
   add prejudgment interest. On June 1, 2006, this motion was denied.


                                      F-15



             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 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.

   3.  Employment Contracts

   For the fiscal years ended June 30, 2007,  2006 and 2005,  the Company paid a
   base salary of $290,344,  $333,727 and $335,768 to Joseph  Roberts,  Chairman
   and Chief Executive  Officer and $213,544,  $237,846 and $236,324 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, 2008.

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, 2007, all
   employees  were  eligible  to  participate  in the plan.  A summary  of stock
   purchased under the plan is shown below.

                                                2007        2006        2005
                                              --------    --------    --------
Aggregate purchase price                        $--         $--         $--
Shares purchased                                 --          --          --
Employee participants                            14          14          14

   As of  July  1,  2005,  the  Company  adopted  the  fair  value  recognitions
   provisions  of SFAS No. 123 R,  "Share-Based  Payments",  under the  modified
   prospective transition method.


                                      F-16



             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, 2007, 2006 and 2005,  Company  contributions to the plan, which were
   charged to expense, amounted to $20,081, $13,378, and $12,886, 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,  2007,  the  Company  had  cash  balances  of  approximately
   $1,080,259 subject to credit risk beyond insured amounts at various financial
   institutions  having high credit  standings.  The Company  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 three  customers
   representing  approximately the following  percentage of total revenues,  for
   the years ended June 30, 2007, 2006, and 2005, respectively:

                           Years Ending June 30,
                           ---------------------
                            2007   2006   2005
                            ----   ----   ----
Customer  A:                 38%    34%    29%
Customer B:                   4%    14%    21%
Customer C:                  12%    10%    11%

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

NOTE O - MAJOR SUPPLIERS

   For the years ended June 30, 2007, 2006 and 2005,  respectively,  the Company
   purchased the following  percentages  of its food and non-food  products from
   two vendors:

                           Years Ending June 30,
                           ---------------------
                            2007   2006   2005
                            ----   ----   ----
Vendor A:                    29%    38%    45%
Vendor B:                    18%    19%    19%

   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-17



             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.

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


As of and for the year ended June 30, 2006:
   Food service revenue                               $ 22,854,359     $    512,076      $ 23,366,435
   Depreciation and amortization                            44,712          354,528           399,240
   Income/(loss) from operations                          (266,472)        (885,033)       (1,151,505)
   Interest expense                                       (251,281)        (153,213)         (404,494)
   Interest income                                          78,015             --              78,015
   Income/(loss) before tax expense/(benefit)           (1,309,629)         (40,079)       (1,349,708)
   Net income/(loss)                                      (780,363)         (40,079)         (820,442)
   Total assets                                          6,727,731        7,239,707        13,967,438
   Capital expenditures                                     46,685             --              46,685


As of and for the year ended June 30, 2005:
   Food service revenue                               $ 25,736,139     $    866,022      $ 26,602,161
   Depreciation and amortization                            78,034          498,868           576,902
   Income/(loss) from operations                           673,251       (1,444,051)         (770,801)
   Interest expense                                       (168,476)        (110,769)         (279,245)
   Interest income                                          12,045             --              12,045
   Income/(loss) before tax expense/(benefit)            1,581,374         (498,137)        1,083,237
   Net income/(loss)                                     1,273,794         (498,137)          775,657
   Total assets                                          8,839,079        7,351,555        16,190,634
 Capital expenditures                                       25,139           15,266            40,405


                                                 F-18



             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 2007
                                       September 30,     December 31,       March 31,        June 30,
                                       -------------    -------------    -------------    --------------
Revenues                                $ 5,325,602      $ 5,159,275      $ 4,953,280      $ 5,473,782
   Gross profit                           1,042,739          933,472          895,892        1,004,929
   Net income (loss)                       (117,423)        (241,568)        (242,489)        (169,667)
   Net income (loss) per share
      - basic and diluted               $      (.04)     $      (.08)     $      (.09)     $      (.06)

                                                                  Fiscal 2007
                                       September 30,     December 31,       March 31,        June 30,
                                       -------------    -------------    -------------    --------------
Revenues                                $ 6,210,508      $ 6,222,872      $ 5,515,970      $ 5,417,085
   Gross profit                           1,215,509        1,120,659          895,912        1,041,387
   Net income (loss)                       (205,827)        (138,107)        (276,027)        (200,481)
   Net income (loss) per share
      - basic and diluted               $      (.07)     $      (.05)     $      (.10)     $      (.07)


                                                   F-19



                            SUPPLEMENTAL INFORMATION

             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
                         SCHEDULE OF VALUATION ACCOUNTS
                     For the three years ended June 30, 2007


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


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

Balance at June 30, 2004                             2,877,336

     Provision for bad debts                           165,000

     Recoveries, net of write-offs                   2,083,634
                                                   -----------

Balance at June 30, 2005                               958,702

     Provision for bad debts                            60,000

     Write-offs                                        (54,514)
                                                   -----------

Balance at June 30, 2006                               964,188

     Provision for bad debts                            21,628

     Write-offs                                       (230,038)

Balance at June 30, 2007                           $   755,778
                                                   ===========


                                      F-20