Sounds like sour crop...
http://www.cockatiels.org/articles/vet/sourcrop.html

http://www.birdsnways.com/wisdom/ww61ev.htm

Now what can you do if you have a chick with sour crop. First and most important you do not want to feed more formula on top of that already sour food. You will want to get some unflavored Pedialyte (electrolyte replacement fluid) and feed small amounts, usually about two to four cc's depending on the age of the chick every two hours for the next twelve. At each feeding you will want to very gently massage the crop, making sure not to push up on the crop. Pushing up could cause the chick to aspirate food. This is a serious problem and can result in aspiration pneumonia or death. Critical to resolving this problem with sour crop is the formula temperature should be at least 105 degrees Fahrenheit.
I wish you luck!