<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1995 Commission File Number 0-12015
HEALTHCARE SERVICES GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2018365
------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification number)
incorporation or organization)
2643 Huntingdon Pike, Huntingdon Valley, Pennsylvania 19006
-----------------------------------------------------------------
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: 215-938-1661
------------------
Indicate mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for past 90 days.
YES X NO
------- -------
Number of shares of common stock, issued and outstanding as of August 7, 1995
is 8,142,213
Total 17 Pages
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------------------- --------
Balance Sheets as of June 30, 1995 and
December 31, 1994 2
Statements of Income for the Three Months
ended June 30, 1995 and 1994 3
Statements of Income for the Six Months
ended June 30, 1995 and 1994 4
Statements of Cash Flows for the Six Months
ended June 30, 1995 and 1994 5 to 6
Notes to Financial Statements 7 to 10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11 to 13
PART II. OTHER INFORMATION 14 to 15
SIGNATURES 16
- 1 -
<PAGE>
HEALTHCARE SERVICES GROUP, INC.
Balance Sheets
<TABLE>
<CAPTION>
June 30, 1995 December 31,
1995 1994
(Unaudited) (Audited)
--------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $14,001,423 $11,230,118
Accounts and notes receivable, less allowance
for doubtful accounts of $4,577,000
in 1995 and $4,500,000 in 1994 33,111,176 32,773,299
Inventories and supplies 6,962,940 6,298,370
Deferred income taxes 1,146,097 1,435,350
Prepaid expenses and other 1,855,767 2,791,376
--------------- --------------
Total current assets 57,077,403 54,528,513
PROPERTY AND EQUIPMENT:
Laundry and linen equipment 11,739,601 10,835,247
Housekeeping equipment and office
furniture 5,774,496 5,174,624
Autos and trucks 140,703 140,703
--------------- --------------
17,654,800 16,150,574
Less accumulated depreciation 11,346,767 10,207,941
--------------- --------------
6,308,033 5,942,633
INTANGIBLE ASSETS less accumulated
amortization of $256,366 in 1995
and $398,565 in 1994 396,464 1,106,666
COST IN EXCESS OF FAIR VALUE OF NET
ASSETS ACQUIRED less accumulated
amortization of $1,043,601 in 1995 and
$1,008,455 in 1994 2,311,876 2,367,021
CERTIFICATES OF DEPOSIT PLEDGED FOR
LOAN GUARANTEES (Note 4) 1,500,000
DEFERRED INCOME TAXES 2,345,525 2,207,236
OTHER NONCURRENT ASSETS 8,836,159 8,163,134
--------------- --------------
$77,275,460 $75,815,203
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,871,763 $ 3,630,573
Accrued payroll 1,318,135 1,769,544
Accrued and withheld payroll taxes 135,516 176,545
Other accrued expenses 522,721 720,749
Income taxes payable 689,850 727,741
Accrued insurance claims 900,303 1,356,984
--------------- --------------
Total current liabilities 5,438,288 8,382,136
ACCRUED INSURANCE CLAIMS 3,386,852 2,883,591
LIABILITY FOR CONTINGENT LOSSES ON
PROMISSORY NOTES (Note 2 ) 100,000 300,000
LITIGATION SETTLEMENT LIABILITY (Note 3) 2,125,000
LIABILITY FOR ESTIMATED COST RELATED TO SEC
INQUIRY AND OTHER MATTERS (Note 5) 1,991,177
COMMITMENTS AND CONTINGENCIES (Notes 2,3,4, & 5)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value: 10,000,000
shares authorized, 8,142,213 shares
issued in 1995 and 7,935,874 in 1994 81,422 79,359
Additional paid in capital 35,027,506 32,621,034
Retained earnings 31,250,215 29,424,083
--------------- --------------
Total stockholders' equity 66,359,143 62,124,476
--------------- --------------
$77,275,460 $75,815,203
=============== ==============
</TABLE>
See accompanying notes.
-2-
<PAGE>
HEALTHCARE SERVICES GROUP, INC.
Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
1995 1994 1995 1994
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 36,624,908 $ 32,923,001 $ 73,010,685 $ 64,518,283
Operating costs and expenses:
Cost of services provided 30,851,285 27,462,458 61,617,275 54,066,035
Selling, general and administrative 3,326,305 2,764,630 6,254,069 5,157,698
Recovery of contingent losses on promissory notes sold (Note 2) (50,000) (75,000) (200,000) (125,000)
Other income (expense):
Provision for estimated cost related to SEC
Inquiry and other matters (Note 5) (2,400,000) (2,400,000)
Interest income 233,634 141,081 433,791 223,497
------------ ------------ ------------ ------------
Income before income taxes 330,952 2,911,994 3,373,132 5,643,047
Income taxes 314,000 1,223,000 1,547,000 2,370,000
------------ ------------ ------------ ------------
Net income $ 16,952 $ 1,688,994 $ 1,826,132 $ 3,273,047
============ ============ ============ ============
Earnings per common share $ 0.00 $ 0.21 $ 0.22 $ 0.41
============ ============ ============ ============
Weighted average number of common
shares outstanding 8,212,021 8,187,756 8,261,678 8,169,432
============ ============ ============ ============
</TABLE>
See accompanying notes.
-3-
<PAGE>
HEALTHCARE SERVICES GROUP, INC.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
June 30,
------------------------
1995 1994
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,826,132 $ 3,273,046
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,333,090 1,320,394
Bad debt provision 250,514 319,377
Recovery of contingent losses on
promissory notes sold (Note 2) (200,000) (125,000)
Deferred income taxes 150,964 (1,000)
Tax benefit of stock option transactions 59,000 47,872
Changes in operating assets and liabilities:
Accounts receivable (588,391) (1,017,983)
Inventories and supplies (664,570) (385,461)
Changes to long term trade notes
receivable (790,412) (1,794,032)
Accounts payable and other accrued expenses (1,956,839) (2,048,781)
Accrued payroll, accrued and withheld payroll
taxes (492,438) (461,995)
Accrued insurance claims 46,580 46,000
Liability for estimated cost related to SEC
inquiry and other matters (Note 5) 1,991,177
Income taxes payable (37,891) 1,178,461
Prepaid expenses and other assets 1,638,184 (700,409)
----------- -----------
Net cash provided by (used in) operating
activities 2,565,100 (349,511)
----------- -----------
Cash flows from investing activities:
Disposals of fixed assets 32,283
Additions to property and equipment (1,518,332) (918,694)
Release of certificates of deposits pledged
for loan guarantees 1,500,000
----------- -----------
Net cash used in investing activities (18,332) (886,411)
----------- -----------
Cash flows from financing activities:
Proceeds from the exercise of stock options 224,537 49,625
----------- -----------
Net cash provided by financing activities 224,537 49,625
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,771,305 (1,186,297)
Cash and cash equivalents at beginning of the period 11,230,118 7,858,694
----------- -----------
Cash and cash equivalents at end of the period $14,001,423 $ 6,672,397
=========== ===========
</TABLE>
See accompanying notes.
-4-
<PAGE>
HEALTHCARE SERVICES GROUP, INC.
Supplemental Disclosure of Noncash Financing Activity:
On August 1, 1995, the Company issued 180,851 shares of its common stock
representing its payment obligation under the 1993 settlement of the
consolidated class action complaints filed against it in 1991 and 1992.
Accordingly, the June 30, 1995 Balance Sheet reflects the payment of the
previously recorded Litigation Liability of $2,125,000 by increasing
stockholders' equity in the same amount.
- 5 -
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Reporting
The accompanying financial statements are unaudited and do not include
certain information and note disclosures required by generally accepted
accounting principles for complete financial statements. The balance sheet shown
in this report as of June 30, 1995 has been derived from, and does not include,
all the disclosures contained in the financial statements for the year ended
December 31, 1994. These statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual report
on Form 10-K for the year ended December 31, 1994. However, in the opinion of
the Company, all adjustments considered necessary for a fair presentation have
been included. The results of operations for the three and six months ended June
30, 1995 are not necessarily indicative of the results that may be expected for
the full fiscal year.
Note 2 - Sale of Promissory Notes Receivable and Provision for Contingent
Losses on Promissory Notes Sold
In 1991 and 1990, the Company sold to its bank, with recourse, promissory
notes receivable at face value of approximately $3,800,000 and $2,500,000,
respectively. As of June 30, 1995 the 1991 promissory notes sold have an
outstanding balance of $100,000, while the 1990 promissory notes have been paid
in full. As of December 31, 1994 approximately $300,000 and $800,000,
respectively, of the aggregate amount of such promissory notes sold in each year
remained outstanding. On July 15, 1992, a client paid in full to the Company's
bank one of the promissory notes in the amount of $910,000. In addition, the
client paid $100,000 in each quarter of 1993 (in the aggregate $400,000 ), as
well as $50,000 in the first quarter of 1994 and $75,000 in each of the second
and third quarters of 1994 and $100,000 in the fourth quarter of 1994 (in the
aggregate $300,000), and payments of $150,000 and $50,000 in the first and
second quarters of 1995, respectively as partial payment on another note (see
discussion below regarding these promissory notes). Therefore, the Company
reversed the provision recorded as of December 31, 1991 and recognized the
$910,000, $400,000, $300,000 and $200,000 payments as income in 1992, 1993, 1994
and the six month period ending June 30, 1995, respectively. All of the
promissory notes sold during 1990 and all but one of the promissory notes sold
during 1991 represent accounts receivable due to the Company for services
rendered. These accounts receivable had been converted to promissory notes prior
to their sale to the bank. The Company converted the accounts receivable to
interest bearing promissory notes receivable in order to further evidence the
amounts owed and to enhance its collection efforts. All of the promissory notes
( except the one mentioned in the following paragraph ) provided for monthly
payments of principal and interest and some were secured by certain assets of
the issuers. Pursuant to agreements with its bank, the Company may be required
to post substitute collateral if its line of credit from its bank expires or is
terminated prior to the promissory notes being paid in full.
- 6 -
<PAGE>
In 1991, the Company made arrangements with its bank to provide financing
of $1,000,000 to one of its clients for which the Company agreed to guarantee
payment. In order for the Company to negotiate maximum security for its
guarantee, the Company made the loan directly to the client and simultaneously
sold the promissory note receivable to the bank. In addition, among the notes
sold during 1991, is a promissory note in the amount of $910,000 which was
issued in 1990 by an entity related to this client and subsequently paid in full
to the bank on July 15, 1992. On April 22, 1992 a director of the Company, who
is not an officer, agreed to purchase these promissory notes (for the full
principal amount thereof plus accrued interest) without recourse to the Company,
upon a request by the bank that the Company post substitute collateral. Any such
purchase would include the assignment of the collateral pledged as security. The
Company entered into this agreement (which was approved by the Board of
Directors) with the director in order to protect its interests with respect to
these promissory notes. The director is engaged in the operation of nursing
homes. Although the Company believes that it will not incur any financial loss
as a result of these promissory notes, it has, as of June 30, 1995 and December
31, 1994 established a reserve for contingent losses in the amount of $100,000
and $300,000, respectively. The borrower of the $1,000,000 financing used the
proceeds to fully fund the purchase price for its acquisition of the client. The
equity method of accounting had been used to value the collateral held as
security for these promissory notes, which, as a consequence of losses incurred
by the client after the closing date of the transaction had resulted in the
Company providing a reserve for the total unpaid amount of the promissory notes
as of June 30, 1995 and December 31, 1994.
Note 3 - Settlement of Class Action Litigation
In the fourth quarter of 1993 the Company and its insurer consummated an
agreement to settle the consolidated class action complaints filed against it in
Federal District Court in 1991 and 1992. The settlement was approved by court
order dated September 8, 1994 and became effective on October 10, 1994. The
settlement provided for the payment of $2,625,000 by the Company's insurer and
the issuance of common shares by the Company having a value of $2,125,000. The
settlement and related estimated legal costs have been recorded as an
extraordinary item in 1993. Such extraordinary item reduced 1993 net income by
approximately $1,437,000, net of income tax benefit of $844,000.
On August 1, 1995, the Company issued 180,851 shares of its common stock
representing its payment obligation under the 1993 settlement of the
consolidated class action complaints. Accordingly, the effect of issuing these
shares is reflected in the per share amounts reported for the three and six
month periods ended June 30, 1995. The June 30, 1995 Balance Sheet also reflects
the payment of the previously recorded Litigation Liability of $2,125,000 by
increasing stockholders' equity in the same amount.
- 7 -
<PAGE>
Note 4 - Other Contingencies
In 1988, the Company acquired a 19.5% interest in T.L.C. St Petersburg,
Inc. ("TLC"), a corporation which owned and operated a long-term care facility
in Florida and which was a client of the Company. The Company had guaranteed
$1,500,000 of working capital loans of TLC at both December 31, 1994 and
December 31, 1993 and had pledged equal amounts of certificates of deposit as
collateral for the guarantee ( which are listed as Certificates of Deposit
Pledged for Loan Guarantees in the accompanying balance sheet at December 31,
1994 ). In addition, the Company had guaranteed TLC notes payable of
approximately $1,700,000. TLC made all required principal and interest payments
due under the terms of these loans through December 31, 1994.Total guarantees
for TLC aggregated $3,200,000 at both December 31, 1994 and December 31, 1993.
During 1993, one of the Company's clients, which owns and operates a
significant number of long-term care facilities throughout the country,
purchased from a third party the balance of the issued and outstanding shares of
TLC and that client now holds 90.1% of the issued and outstanding shares of TLC.
During the fourth quarter of 1993, TLC entered into an agreement to sell
substantially all of its assets to an unrelated third party. The sale closed on
March 28, 1995 and all loans guaranteed by the Company have been paid in full
and the Certificates of Deposit pledged for the loan guarantees have been
released to the Company.
As of January 1, 1994, TLC entered into a twenty year agreement to lease
the operations of the facility to an entity controlled by TLC's majority
shareholder. The purchaser of TLC's assets assumed such operating lease.
By reason of TLC's uncertain financial condition, the Company, until the
time TLC entered into an agreement to sell its assets, fully reserved advances
to and receivables from TLC which amounted to approximately $2,000,000 at both
December 31, 1994 and 1993 and $1,200,000 at December 31, 1992. Subsequent to
the sales agreement, the Company advanced approximately $2,900,000 to TLC. All
obligations due the Company have been assumed by the entity that began operating
the facility on January 1, 1994. The obligations are being repaid in accordance
with the terms of a promissory note issued to the Company.
The Company has a $13,000,000 bank line of credit on which it may draw to
meet short-term liquidity requirements or for other purposes. This line expires
on June 30, 1996. Amounts drawn under the line are payable upon demand. At both
June 30, 1995 and December 31, 1994, there were no borrowings under the line.
However, during 1991 and 1990, the Company sold promissory notes receivable of
approximately $3,800,000 and $2,500,000, respectively, to its bank, with
recourse. As of June 30, 1995 the 1991 promissory notes sold have an outstanding
balance of approximately $100,000, while the 1990 promissory notes sold have
been paid in full. At December 31, 1994, the unpaid balance of the promissory
notes receivable sold was approximately $1,100,000 (see Note 6 of Notes to
Financial Statements at December 31, 1994).
- 8 -
<PAGE>
In addition, at both June 30, 1995 and December 31, 1994 the Company had
outstanding approximately $8,200,000 of irrevocable standby letters of credit,
which primarily relate to payment obligations under the Company's insurance
program. Both the promissory notes receivable sold ( see Note 2 above ) and
letters of credits issued reduced the amount available under the line by
approximately $8,300,000 at June 30, 1995 and $9,300,000 at December 31, 1994.
Note 5 - Provision for Estimated Cost Related to SEC Inquiry and Other Matters
The Securities and Exchange Commission (SEC) has been conducting a
non-public investigation since 1990 with respect to certain matters, including
the Company's financial statements, financial condition and results of
operations. The Company has been cooperating fully with such inquiry on a
voluntary basis. The Staff of the SEC has recently advised the Company that it
is considering recommendations to the Commission about certain allegations of
violations of the Federal securities laws by the Company and certain of its
officers with respect to periods ended on or before December 31, 1991. However,
the Staff has advised the Company that it will not make any recommendations to
the Commission until the Company has the opportunity to address the issues
raised by the Staff, which it is still in the process of doing.
In addition, the United States Attorney for the Eastern District of
Pennsylvania is investigating certain payments ( approximately $84,000 in 1988,
$54,000 in 1989, $110,000 in 1990, $125,000 in 1991 and $34,000 in 1992 ) made
by the Company between June 1988 and January 1992 to certain vendors that were
not in accordance with Company policy. This matter was previously investigated
and reported upon by the Company in its Form 10-K for the year ended December
31, 1991. The information regarding this matter was voluntarily furnished to the
U.S. Attorney's office in New Jersey in May 1992 and such payments were
recovered by the Company in 1992.
The Company anticipates that it will incur a significant amount of legal
and related costs in connection with these matters. As of June 30, 1995, the
Company has already incurred approximately $900,000 of costs and estimates that
the additional costs which may be incurred in connection with these matters will
be in a range of approximately $1,500,000 to $3,500,000 and accordingly has set
up a provision for the estimated low range of this liability. The result of this
$2,400,000 provision was to reduce both the three and the six month net income
by approximately $1,594,000 or $.20 per common share.
- 9 -
<PAGE>
PART I.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto.
RESULTS OF OPERATIONS
Revenues for the second quarter of 1995 increased by 11.2% over revenues in
the corresponding 1994 quarter. Revenues for the six months ending June 30, 1995
increased by 13.2% over the same 1994 period. The following factors contributed
to the increase in revenues: service agreements with new clients in existing
geographic areas increased 20.6% for the second quarter and 21.1% for the six
month period; geographic expansion increased revenues 2.6 % for the second
quarter and 3.0% for the six month period and cancellations and other minor
changes decreased revenues 12.0% for the second quarter and 10.9% for the six
month period.
Cost of services provided as a percentage of revenues increased slightly to
84.2% for the second quarter of 1995 from 83.4% in the corresponding 1994
quarter. In addition, cost of services provided as a percentage of revenue
increased to 84.4% for the six month period ending June 30, 1995 from 83.8% in
the same 1994 period. The primary factors affecting the variations in comparing
the 1995 three and six month periods, respectively, in cost of services provided
as a percentage of revenue and their effects on the respective .8% and .6%
increases are as follows: in the second quarter an increase in labor cost of
1.8%; and an increase of .5% in amortization of service agreements and costs
associated with service agreements cancelled (see Note 1-Intangible Assets in
Notes to Financial Statements at December 31, 1994); and offsetting these
increases was a decrease in workers' compensation, general liability and other
insurance of 1.4%; in the six month period an increase of 1.2% in labor cost;
and a .9% increase in amortization of service agreements and costs associated
with service agreements cancelled (see Note 1-Intangible Assets in Notes to
Financial Statements at December 31, 1994); and offsetting these increases was a
decrease of .5% in depreciation; and a .4% decrease in workers' compensation,
general liability and other insurance costs.
Selling, general and administrative expenses as a percentage of revenue
increased to 9.1% for the second quarter of 1995 as compared to 8.4% in the
corresponding 1994 period. The six month period ending June 30, 1995 also
recognized an increase in SG & A expenses to 8.6% as a percentage of revenue as
compared to 8.0% in the corresponding 1994 period. The three and six month
period increases are primarily attributable to additional costs associated with
the expansion of the divisional and regional staffs.
- 10 -
<PAGE>
The Company presently anticipates that it will incur a significant amount
of additional legal and related costs in connection with the pending
governmental investigations and accordingly has established a provision for this
purpose (see Note 5 - Provision for Estimated Cost Related to SEC Inquiry and
Other Matters).
Liquidity and Capital Resources
At June 30, 1995 the Company had working capital of $51,639,115 compared to
$46,146,376 at December 31, 1994.
The Company's current ratio at June 30, 1995 is 10.5 to 1 as compared to
6.5 to 1 at December 31, 1994.
The net cash provided by the Company's operating activities was $2,565,100
for the six month period ended June 30, 1995. The components of working capital
that required the largest amount of cash were; a $1,956,839 decrease in accounts
payable and other accrued expenses, and increases in long term trade notes
receivable and accounts receivable of $790,412 and $588,391, respectively. The
increased use of cash associated with accounts payable and other accrued
expenses resulted primarily from the timing of payments to vendors. The increase
in long term trade notes receivable and accounts receivable resulted primarily
from the continued growth in the Company's revenues which increased by 13.2% in
the six month period ended June 30, 1995.
The Company expends considerable effort to collect the amounts due for its
services on the terms agreed upon with its clients. Many of the Company's
clients participate in programs funded by federal and state governmental
agencies which historically have encountered delays in making payments to its
program participants. Whenever possible, when a client falls behind in making
agreed-upon payments, the Company converts the unpaid accounts receivable to
interest bearing promissory notes receivable. The promissory notes receivable
provide a definitive repayment plan and therefore may enhance the ultimate
collectibility of the amounts due. In some instances the Company obtains a
security interest in certain of the debtors' assets. Certain of the Company's
promissory notes receivable have been sold to its bank (see Note 2 of Notes to
Financial Statements).
The Company has a $13,000,000 bank line of credit on which it may draw to
meet short-term liquidity requirements in excess of internally generated cash
flow. This line expires on June 30, 1996. Amounts drawn under the line are
payable on demand. At June 30, 1995, there were no borrowings under the line.
However, at such date, the amount available under the line had been reduced by
approximately $8,300,000 as a result of contingent liabilities of the Company to
the lender relating to letters of credit issued for and guaranties of promissory
notes receivable sold by the Company.
- 11 -
<PAGE>
At June 30, 1995, the Company had $14,001,423 of cash and cash equivalents,
which it views as its principal measure of liquidity.
In the fourth quarter of 1993, the Company and its insurer reached an
agreement in principle to settle the consolidated class action complaint filed
against it in Federal District Court. The Order approving the settlement was
approved by the court on September 8, 1994 and became effective on October 10,
1994. The settlement provided for the payment of $2,625,000 by the Company's
insurer and common shares having a value of $2,125,000 to be issued by the
Company ( see Note 8 of Notes to Financial Statements at December 31, 1994.).
On August 1, 1995, the Company issued 180,851 shares of its common stock
representing its payment obligation under the 1993 settlement of the
consolidated class action complaints. Accordingly, the June 30, 1995 Balance
Sheet reflects the payment of the previously recorded Litigation Liability of
$2,125,000 by increasing stockholders' equity in the same amount.
The Company has no specific material commitments for capital expenditures
and believes that its cash from operations, existing balances and available
credit line will be adequate for the foreseeable future to satisfy the needs of
its operations and to fund its continued growth. However, if the need arose, the
Company would seek to obtain capital from such sources as long-term debt or
equity financing.
- 12 -
<PAGE>
<TABLE>
<CAPTION>
PART II. Other Information
-----------------
<S> <C> <C>
Item 1. Legal Proceedings. None
Item 2. Changes in Securities.
(b) Registrant's Articles of Incorporation were amended on
May 23, 1995 to provide for an increase in the number of
authorized shares of common stock from 10,000,000 to
15,000,000.
Item 3. Defaults under Senior Securities. None
Item 4. Submission of Matters to a Vote of Security
Holders.
(c) The Company's Annual Meeting of Shareholders was held on
May 23, 1995 for the purpose of electing a board of directors,
approving the appointment of auditors, and voting
on the proposals described below. Proxies for the meeting
were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934 and there was no
solicitation in opposition to management's solicitations.
(1) All of management's nominees for directors were elected
as follows:
Shares Voted Withheld
For
7,246,445 38,831
(2) Proposal to engage Grant Thornton LLP as the independent
public accountants of the Company for its current fiscal
year ending December 31, 1995 was approved as follows:
Shares Voted Shares Voted Shares
"FOR" "AGAINST" "ABSTAINING"
7,235,047 21,427 8,695
(3) The proposal to approve and ratify the adoption of the
Company's 1995 Incentive and Non-Qualified Stock Option
Plan for Key Employees was approved by the following vote:
Shares Voted Shares Voted Shares Broker
"FOR" "AGAINST" "ABSTAINING" Non-
Votes
4,637,588 1,539,343 36,235 1,072,110
- 13 -
<PAGE>
(4) The proposal to approve the adoption of the Company's
1995 Directors' Stock Option Plan was approved by the
following vote:
Shares Voted Shares Voted Shares Broker
"FOR" "AGAINST" "ABSTAINING" Non-
Votes
4,522,009 1,714,568 34,210 1,014,539
(5) The proposal to approve the amendment to the Company's
Articles of Incorporation which increases the number
of authorized shares of common stock, of the Company
from 10,000,000 to 15,000,000 was approved by the
following vote:
Shares Voted Shares Voted Shares Broker
"FOR" "AGAINST" "ABSTAINED" Non-
Votes
6,583,919 583,043 26,645 91,669
Item 5. Other Information.
a) None.
Item 6. Exhibits and Reports on Form 8-K.
a) None.
b) Reports on Form 8-K - None
</TABLE>
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHCARE SERVICES GROUP, INC.
-------------------------------
August 11, 1995 /s/ Daniel P. McCartney
------------------------ ---------------------------------
Date DANIEL P. McCARTNEY, Director and
Chief Executive Officer
August 11, 1995 /s/ Thomas A. Cook
------------------------ -----------------------------------
Date THOMAS A. COOK, Director, President,
and Chief Operating Officer
August 11, 1995 /s/ James L. DiStefano
------------------------ -----------------------------------
Date JAMES L. DiSTEFANO, Chief Financial
Officer and Treasurer
August 11, 1995 /s/ Richard W. Hudson
------------------------ -----------------------------------
Date RICHARD W. HUDSON, Vice President-
Finance, Secretary and Chief Accounting
Officer
- 15 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<PERIOD-TYPE> 6-MOS
<CASH> 14,001,423
<SECURITIES> 0
<RECEIVABLES> 37,688,176
<ALLOWANCES> 4,577,000
<INVENTORY> 6,962,940
<CURRENT-ASSETS> 57,077,403
<PP&E> 17,654,800
<DEPRECIATION> 11,346,767
<TOTAL-ASSETS> 77,275,460
<CURRENT-LIABILITIES> 5,438,288
<BONDS> 0
<COMMON> 81,422
0
0
<OTHER-SE> 66,277,721
<TOTAL-LIABILITY-AND-EQUITY> 77,275,460
<SALES> 0
<TOTAL-REVENUES> 73,010,685
<CGS> 61,617,275
<TOTAL-COSTS> 67,871,344
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,400,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,373,132
<INCOME-TAX> 1,547,000
<INCOME-CONTINUING> 1,826,132
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,826,132
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
