UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number: 0-25064
HEALTH FITNESS CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1580506
(State of incorporation or organization) (I.R.S. Employer Identification No.)
3500 West 80th Street, Bloomington, Minnesota 55431
(Address of principal executive offices) (Zip Code)
(952) 831-6830
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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. [X] Yes [ ] No
The number of shares outstanding of each of the registrant's classes of
capital stock, as of August 03, 2000 was:
Common Stock, $.01 par value, 12,134,264 shares
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTH FITNESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31,
2000 1999
---------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 94,228 $ 139,852
Trade and other accounts receivable, less allowance for doubtful accounts of
$240,320 and $187,912, respectively 3,010,427 3,406,552
Trade and other notes receivable 48,252 308,841
Prepaid expenses and other 173,519 10,939
-------------- -------------
Total current assets 3,326,426 3,866,184
PROPERTY AND EQUIPMENT, net 426,738 554,885
OTHER ASSETS:
Intangible assets, less accumulated amortization of $2,400,557 and
$2,136,715, respectively 6,239,650 6,481,712
Trade and other notes receivable 25,128 340,731
Other 6,765 80,043
-------------- -------------
$ 10,024,707 $ 11,323,555
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 2,636,738 $ 2,862,128
Current maturities of long-term obligations 117,858 341,133
Subordinated notes payable 115,000 115,000
Trade accounts payable 129,800 672,322
Accrued salaries, wages, and payroll taxes 928,427 924,135
Accrued earn-out 31,662 186,425
Other accrued liabilities 809,624 407,997
Deferred revenue 804,831 1,381,752
Net liabilities of discontinued operations 527,795 810,987
-------------- -------------
Total current liabilities 6,101,735 7,701,879
LONG-TERM OBLIGATIONS, less current maturities 69,368 423,548
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued
or outstanding - -
Common stock, $.01 par value; 25,000,000 shares authorized, 12,147,690 and
12,112,015 shares issued and outstanding, respectively 121,477 121,120
Additional paid-in capital 16,880,208 16,855,438
-------------- -------------
Accumulated deficit (13,148,081) (13,778,430)
-------------- -------------
3,853,604 3,198,128
-------------- -------------
$ 10,024,707 $ 11,323,555
============== =============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
HEALTH FITNESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ending Six Months Ending
June 30, June 30,
2000 1999 2000 1999
_______________ _____________ _____________ _____________
<S> <C> <C> <C> <C>
REVENUE $ 6,284,961 $ 6,350,508 $ 13,024,142 $ 13,298,166
COST OF REVENUE 4,749,313 5,013,382 9,693,651 10,195,477
_______________ _____________ _____________ _____________
GROSS PROFIT 1,535,648 1,337,126 3,330,491 3,102,689
OPERATING EXPENSES
Salaries 467,319 510,313 985,222 978,940
Selling, general, and administrative 606,649 976,496 1,229,249 1,715,656
Re-engineering 66,867 197,647 154,427 272,254
_______________ _____________ _____________ _____________
Total operating expenses 1,140,835 1,684,456 2,368,898 2,966,850
_______________ _____________ _____________ _____________
OPERATING INCOME (LOSS) 394,813 (347,330) 961,593 135,839
OPERATING INCOME (EXPENSE)
Interest Expense (200,990) (236,380) (365,842) (477,624)
Other Income (Expense) 8,875 (3,159) 29,734 28,806
_______________ _____________ _____________ _____________
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 202,698 (586,869) 625,485 (312,979)
INCOME TAX (BENEFIT) EXPENSE (89) - (4,863) 831
_______________ _____________ _____________ ______________
INCOME (LOSS) FROM CONTINUING OPERATIONS 202,787 (586,869) 630,348 (313,810)
=============== ============= ============= ==============
DISCONTINUED OPERATIONS
LOSS FROM DISCONTINUED OPERATIONS - - - (1,425,000)
_______________ _____________ _____________ ______________
NET INCOME (LOSS) 202,787 (586,869) 630,348 (1,738,810)
=============== ============= ============= ==============
INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS
Basic $ 0.02 $ (0.05) $ 0.05 $ (0.03)
Diluted 0.02 (0.05) 0.05 (0.02)
LOSS PER SHARE FROM DISCONTINUED OPERATIONS
Basic $ - - - $ (0.12)
Diluted - - - (0.11)
NET INCOME (LOSS) PER SHARE
Basic $ 0.02 $ (0.05) $ 0.05 $ (0.15)
Diluted 0.02 (0.05) 0.05 (0.14)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic 12,139,906 11,949,383 12,130,831 11,917,078
Diluted 12,541,911 11,949,383 12,532,836 12,583,744
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
HEALTH FITNESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
2000 1999
______________ __________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 630,348 $ (1,738,810)
Adjustment to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 410,516 1,010,644
Common stock issued for services 6,250 -
Discontinued operations (244,244) 1,152,192
Change in operating assets and liabilities
Trade and other accounts receivable 396,125 (457,241)
Trade and other notes receivable 166,848 189,786
Prepaid expenses and other (162,580) (146,349)
Other assets 73,278 27,000
Trade accounts payable (542,522) 100,761
Accrued liabilities and other 405,919 (49,828)
Deferred revenue (576,921) 83,010
______________ __________________
Net cash provided by operating activities 563,017 171,165
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property (21,228) (4,735)
Proceeds from sale of property 2,700 700
Payments in connection with earn-out provisions (168,290) (316,925)
Discontinued operations - 2,577,410
______________ __________________
Net cash provided by (used in) investing activities (186,818) 2,256,450
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under line of credit (225,390) (2,243,426)
Proceeds from issuance of subordinated note payable - 115,000
Repayment of long term obligations (168,111) (250,479)
Discontinued operations (38,947) (97,469)
Proceeds from issuance of common stock 10,625 38,294
Other - (458)
Payments received on stockholder note receivable - 8,017
______________ __________________
Net cash used in financing activities (421,823) (2,430,521)
______________ __________________
NET DECREASE IN CASH (45,624) (2,906)
CASH AT BEGINNING OF PERIOD 139,852 29,598
______________ __________________
CASH AT END OF PERIOD $ 94,228 $ 26,692
============== ==================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
HEALTH FITNESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information. They should be read in
conjunction with the annual financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999. In the opinion
of management, the interim condensed consolidated financial statements include
all adjustments (consisting of normal recurring accruals) necessary for the fair
presentation of the results for interim periods presented. Operating results for
the three months and six months ended June 30, 2000 are not necessarily
indicative of the operating results for the year ending December 31, 2000.
Certain reclassifications have been made to the condensed consolidated
statements of operations and balance sheets for the three months and six months
ended June 30, 2000 and June 30, 1999. Such reclassifications had no effect on
net income or stockholders' equity as previously reported.
NOTE 2. FINANCING
During the six months ended June 30, 2000, the Company extended its loan
agreement with Abelco Finance, LLC to expire on September 16, 2000. The
extension called for nominal weekly reductions in maximum borrowing amounts. As
of June 30, 2000, the cap on borrowings was approximately $3,194,000. (See Note
5.)
NOTE 3. DISCONTINUED OPERATIONS
In August 1998 and November 1998, the Company formally adopted plans to dispose
of its freestanding physical therapy clinics business segment ("the PT clinic
division") and its fitness equipment business segment ("the equipment
division"). The Company incurred no operating losses from discontinued
operations in the quarter ended June 30, 2000. At June 30, 2000, net liabilities
associated with discontinued operations totaled $528,000.
NOTE 4. INCOME TAXES
The provision for income taxes for the three months ended June 30, 2000 and 1999
have been offset principally by a reduction in the valuation allowance for
deferred taxes.
NOTE 5. SUBSEQUENT EVENT
In July of 2000, the Company entered into a formal borrowing relationship with
Coast Business Credit for a $5.0 million working capital facility. The interest
rate on the loan is at Prime plus 3%, with future reductions based on the
achievement of certain net worth levels after March 31, 2001. Availability under
the loan is based upon certain profitability and cash collections multiples.
Additionally, the Company is subject to certain financial covenants that measure
net worth, interest coverage and debt capacity. The initial proceeds of the loan
were used to pay off existing loans with Abelco and with Subordinated Debt
Holders.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the condensed consolidated statements of operations of the Company:
<TABLE>
<CAPTION>
Three Months Ended
June 30
-----------------------------------------------------------------
2000 % 1999 %
------------------ --------- ----------------- --------
<S> <C> <C> <C> <C>
REVENUE $ 6,285,000 100.0 $ 6,350,000 100.0
COST OF REVENUE 4,749,000 75.6 5,013,000 78.9
GROSS PROFIT 1,536,000 24.4 1,337,000 21.1
OPERATING EXPENSES:
Salaries 467,000 7.4 510,000 8.0
Selling, general, and administrative 607,000 9.6 977,000 15.4
Re-engineering 67,000 1.1 198,000 3.1
------------------ --------- ----------------- --------
1,141,000 18.1 1,685,000 26.5
------------------ --------- ----------------- --------
OPERATING INCOME: 395,000 6.3 (348,000) (5.4)
INTEREST EXPENSE (201,000) (3.2) (236,000) (3.7)
OTHER INCOME (EXPENSE) 9,000 0.1 (3,000) (0.1)
------------------ --------- ----------------- --------
(192,000) (3.1) (239,000) (3.8)
------------------ --------- ----------------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 203,000 3.2 (587,000) (9.2)
INCOME TAX (BENEFIT) EXPENSE - - - -
------------------ --------- ----------------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 203,000 3.2 (587,000) (9.2)
DISCONTINUED OPERATIONS - - - -
------------------ --------- ----------------- --------
NET INCOME (LOSS) $ 203,000 3.2 $ (587,000) (9.2)
================== ========= ================= ========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------------------------------------------------------
2000 % 1999 %
------------------ --------- ----------------- --------
<S> <C> <C> <C> <C>
REVENUE $ 13,024,000 100.0 $ 13,298,000 100.0
COST OF REVENUE 9,694,000 74.4 10,195,000 76.7
GROSS PROFIT 3,330,000 25.6 3,103,000 23.3
OPERATING EXPENSES:
Salaries 985,000 7.6 979,000 7.4
Selling, general, and administrative 1,229,000 9.4 1,716,000 12.9
Re-engineering 154,000 1.2 272,000 2.0
------------------ --------- -------------- --------
2,368,000 18.2 2,967,000 22.3
------------------ --------- ----------------- --------
<PAGE>
OPERATING INCOME: 962,000 7.4 136,000 1.0
INTEREST EXPENSE (366,000) (2.8) (478,000) (3.6)
OTHER INCOME (EXPENSE) 30,000 0.2 29,000 .2
------------------ --------- ----------------- --------
(336,000) (2.6) (449,000) (3.4)
------------------ --------- ----------------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 626,000 4.8 (313,000) (2.4)
INCOME TAX (BENEFIT) EXPENSE (5,000) (0.0) 1,000 0.0
------------------ --------- ----------------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 631,000 4.8 (314,000) (2.4)
DISCONTINUED OPERATIONS - - (1,425,000) (10.7)
------------------ --------- ----------------- --------
NET INCOME (LOSS) $ 631,000 4.8 $ (1,739,000) (13.1)
================== ========= ================= ========
</TABLE>
General. Health Fitness Corporation provides wellness services and products to
major corporations and health care organizations. Fitness center based services
include the development and management of corporate and hospital-based fitness
centers, health related programming, and on-site physical therapy. Wellness
services are provided to dispersed employee populations of major corporations
and insurance companies through the International Fitness Club Network. While
consumers of the services are typically corporate employees and hospital
customers, revenues are generated almost exclusively through business to
business, contractual relationships.
On April 8, 1999, the Company retained Manchester Companies, Inc., a
Minneapolis-based multi-disciplinary professional services firm which provides
investment banking, finance, turnaround and management advisory services to
small and middle market companies. Manchester has assisted with the sale of the
physical therapy clinics and fitness equipment business segments, and will
assist with restructuring the Company's financing and with the Company's
re-engineering efforts.
Results of Operations for the quarter ended June 30, 2000 compared to the
quarter ended June 30, 1999.
For the quarter ended June 30, 2000, total revenues declined by $65,000 to
$6,285,000, or 1.0%, from the quarter ended June 30, 1999. The decrease is due
to corporate and hospital center revenues increases being more than offset by
decreases attributable to the Isernhagen and PTPA business lines which were sold
in 1999. Gross profit as a percent of revenue increased 3.3%, or $199,000, to
$1,536,000 as compared to $1,337,000 for the quarter ended June 30, 1999.
Operating expenses as a percentage of revenue decreased to 18.1% or $1,141,000
from 26.5% or $1,685,000 due to the achievement of targeted expense reductions
and nonrecurring software expenses recorded in 1999. As a result of these
expense reductions, operating income as a percentage of revenue increased to
6.3%, or $395,000 as compared to an operating loss in the prior year quarter of
$348,000. Interest expense decreased by $35,000 to $201,000 from the prior year
period due to the decreased level of borrowing. Net income for the quarter ended
June 30, 2000 was $203,000, a $790,000 increase from the prior year period.
Revenues. Revenues decreased $65,000 to $6,285,000 for the three months ended
June 30, 2000, from $6,350,000 for the three months ended June 30, 1999.
Consulting and Management Fee revenues increased $409,000, or 7.4%, for the
three months ended June 30, 2000, compared to the same period in 1999. The
increase was primarily due to the addition of large revenue generating
contracts. Occupational Health and On-Site Physical Therapy revenues decreased
$560,000, or 74.0%, for the quarter ended June 30, 2000, compared to the same
period in 1999. The decrease is attributable to the Isernhagen and PTPA business
lines which were sold in the 3rd quarter of 1999. International Fitness Club
Network (IFCN) revenues increased $86,000, or 182.2%, for the quarter ended June
30, 2000 compared to the same period in 1999 due to timing differences in when
existing contract revenue was recognized and to contractual price increases in
existing contracts.
Operating Income (Loss). Operating income increased $743,000 to $395,000 for the
three months ended June 30, 2000, from a loss of $348,000 for the same period in
<PAGE>
1999. Salaries and benefits decreased $43,000 to $467,000 due to staffing
reductions. Selling, general and administrative costs decreased by $370,000 to
$607,000, or 9.6% of sales, primarily due to nonrecurring software expenses
recorded in 1999, reductions in amortization of intangibles related to the PTPA
and Isernhagen business lines, reductions in bad debt write-offs and non
re-engineering based legal expenses. Re-engineering expenses were $67,000 and
related largely to contract services, legal and accounting fees.
Interest Expense and Other Income (Expense). Interest expense of $201,000 for
the three months ended June 30, 2000, decreased $35,000 from $236,000 for the
same period in 1999 due to lower average borrowings. Other income/expense
increased $12,000 from expense of $3,000 for the three months ended June 30,
1999, to $9,000 income for the same period in 2000.
Income (Loss) From Continuing Operations. The Company's income from continuing
operations increased $790,000 to $203,000, or $.02 diluted income per share, for
the three months ended June 30, 2000, from a loss of $587,000 or $.05 diluted
loss per share from continuing operations for the same period in 1999.
Discontinued Operations. In August 1998 and November 1998, the Company formally
adopted plans to dispose of its freestanding physical therapy clinics business
segment and its fitness equipment business segment. The company recorded no loss
from these operations in either of the three months ended June 30, 2000 or June
30, 1999.
Net Income. As a result of the above, net income for the three months ended June
30, 2000 was $203,000, a $790,000 increase from the prior year period.
Results of Operations for the six months ended June 30, 2000 compared to the six
months ended June 30, 1999.
For the six months ended June 30, 2000, total revenues declined by $274,000 to
$13,024,000, or 2.1%, from the six months ended June 30, 1999. . The decrease is
due to corporate and hospital center revenues increases being more than offset
by decreases attributable to the Isernhagen and PTPA business lines which were
sold in 1999. Gross profit increased $227,000, to $3,330,000 or 25.6% as
compared to $3,103,000 or 23.3% for the six months ended June 30, 1999.
Operating expenses as a percentage of revenue decreased by 4.1% from $2,967,000
or 22.3% to $2,368,000 or 18.2% due to the achievement of targeted expense
reductions and nonrecurring software expenses recorded in 1999. Operating income
as a percentage of revenue increased to 7.4% or $826,000. Interest expense
decreased by $112,000 to $366,000 from the prior year period due to the
decreased level of borrowing. Net income for the six months ended June 30, 2000
was $631,000, a $2,370,000 increase from the prior year period.
Revenues. Revenues decreased $274,000, or 2.1%, to $13,024,000 for the six
months ended June 30, 2000, from $13,298,000 for the six months ended June 30,
1999. Consulting and Management Fee revenues increased $783,000, or 6.9%, for
the six months ended June 30, 2000, compared to the same period in 1999. The
increase was primarily due to the addition of large revenue generating
contracts. Occupational Health and On-Site Physical Therapy revenues decreased
$1,094,000, or 73.4%, for the six months ended June 30, 2000, compared to the
same period in 1999. The decrease is attributable to the Isernhagen and PTPA
business lines which were sold in the 3rd quarter of 1999. International Fitness
Club Network (IFCN) revenues increased $37,000, or 8.7%, for the six months
ended June 30, 2000 compared to the same period in 1999 due to contractual price
increases in existing contracts.
Operating Income. Operating income increased $826,000 to $962,000 for the six
months ended June 30, 2000, from $136,000 for the same period in 1999. Salaries
and benefits increased $6,000 to $985,000 as staffing reductions were more than
offset by increases in benefit costs and incentive compensation. Selling,
general and administrative costs decreased by $487,000 to $1,229,000, or 9.4% of
sales, primarily due to nonrecurring software expenses recorded in 1999,
reductions in amortization of intangibles related to the PTPA and Isernhagen
business lines, travel and entertainment expenditures, and reductions in bad
debt write-offs. Re-engineering expenses were $154,000 and related largely to
contract services, legal and accounting fees.
Interest Expense and Other Income (Expense). Interest expense of $366,000 for
the six months ended June 30, 2000, decreased $112,000 from $478,000 for the
same period in 1999 due to lower average borrowings. Other income/expense
increased $1,000 from $29,000 for the six months ended June 30, 1999, to $30,000
for the same period in 2000.
<PAGE>
Income (Loss) From Continuing Operations. The Company's income from continuing
operations increased $945,000 to $631,000, or $.05 diluted income per share, for
the six months ended June 30, 2000, from a loss of $314,000 or $.02 diluted loss
per share from continuing operations for the same period in 1999.
Discontinued Operations. The Company incurred no losses from discontinued
operations for the six months ended June 30, 2000. In August 1998 and November
1998, the Company formally adopted plans to dispose of its freestanding physical
therapy clinics business segment and its fitness equipment business segment. The
Company recorded a loss of $1,425,000 for the six months ended June 30, 1999
from these operations.
Net Income. As a result of the above, net income for the six months ended June
30, 2000 was $631,000, a $2,370,000 increase from the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $(2,775,000) at June 30, 2000, versus working
capital of $(5,112,000) at June 30, 1999. The increase in working capital is due
to the reduction of borrowings under the line of credit as well as the reduction
of accounts payable and other obligations.
Until July of 2000, the Company had a revolving credit facility with Abelco
Finance L.L.C. and other affiliates of Cerberus Partners, L.P. (the "Lender").
The Company's ability to draw down on the facility was tied to the borrowing
base formula which was based upon the Company's EBITDA (defined as earnings
before interest, taxes, depreciation and amortization), revenues, or
collections, whichever is less. The credit facility was secured by all of the
Company's assets, including its accounts receivable, inventory, equipment, and
general intangibles and was guaranteed in part by the Company's founder and
former Chief Executive Officer. The advances under the credit facility accrued
interest at a rate equal to 7.0% in excess of Chase Manhattan's prime rate, with
a minimum rate of 15.5%. The Company was required to pay monthly interest
payments on outstanding borrowings at the prime rate plus 4.5%, with a minimum
rate of 13%. The unpaid interest (2.5%) was added to the principal balance of
the facility, and accrued interest until paid. The credit facility was due
September 2000. The credit facility was subject to various affirmative and
negative covenants customary in transactions of this type, including a
requirement to maintain certain financial ratios and limitations on the
Company's ability to incur additional indebtedness, to make acquisitions outside
of certain established parameters, or to make dividend distributions.
In July of 2000, the Company entered into a formal borrowing relationship with
Coast Business Credit for a $5.0 million working capital facility. Interest on
the loan is at Prime plus 3%, with future reductions based on the achievement of
certain net worth levels after March 31, 2001. Availability under the loan is
based upon certain profitability and cash collections multiples. Additionally,
the Company is subject to certain financial covenants that measure net worth,
interest coverage and debt capacity. The initial proceeds of the loan were used
to pay off existing loans with Abelco and with Subordinated Debt Holders. The
facility expires in July, 2003.
Sources of capital to meet future obligations in 2000 are anticipated to be cash
provided by operations and the Company's new revolving credit facility. In order
to conserve capital resources, the Company's policy is to lease its physical
facilities. The Company does not believe that inflation has had a significant
impact on the results of its operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the Company's exposure to market risk since
December 31, 1999. Please refer to Item 7A (quantitative and Qualitative
Disclosures about Market Risk) of the Company's Annual Report on Form 10-K for
the year ended December 31, 199 for more information.
Cautionary Statement
This Form 10-Q contains forward-looking statements within the meaning of federal
securities laws. These statements include statements regarding intent, belief,
or current expectations of the Company and its management. These forward-looking
statements are not guarantees of the future performance and involve a number of
<PAGE>
risks and uncertainties that may cause the Company's actual results to differ
materially from the results discussed in these statements. Please refer to the
Management's Discussion and Analysis section of the Company's Annual Report on
Form 10-K for the year ended December 31, 1999, for cautionary statements on
important factors to consider in evaluating the forward-looking statements
included in this Form 10-Q.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
In April 2000, HealthSouth Corporation filed a lawsuit against the Company and
two former employees in U.S. District Court in Minnesota arising out of
HealthSouth's purchase of several rehabilitation and physical therapy clinics
from the Company in May 1999. The lawsuit relates to two of the purchased
clinics located in Minneapolis, Minnesota. HealthSouth claims that the two
former employees improperly diverted business away from the purchased clinics.
As against the Company, HealthSouth claims that such conduct constitutes a
breach of the asset purchase agreement. HealthSouth seeks damages in excess of
$1,000,000 as a refund of a portion of the purchase price paid by it for the
clinics. The Company believes that HealthSouth's claims are without merit. The
Company intends to vigorously defend the claims and to assert any counterclaims
that may be appropriate. It is not possible to predict the outcome of this
action with any certainty.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index immediately following signature page.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Company during the quarter
ended June 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: August 10, 2000 HEALTH FITNESS CORPORATION
By /s/ Charles Mitchell
Charles J. B. Mitchell
Acting Chief Executive Officer
(Principal Executive Officer)
By /s/ Sean Kearns
Sean Kearns
Vice President - Finance
(Principal Financial and Accounting Officer)
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX
HEALTH FITNESS CORPORATION
FORM 10-Q
Exhibit No. Description
3.1 Articles of Incorporation, as amended, of the Company -
incorporated by reference to the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30,
1997
3.2 Restated By-Laws of the Company - incorporated by
reference to the Company's Registration Statement on
Form SB-2 No. 33-83784C
4.1 Specimen of Common Stock Certificate - incorporated by
reference to the Company's Registration Statement on
Form SB-2 No. 33-83784C
4.2 Form of Secured Convertible Subordinated Debentures --
incorporated by reference to the Company's Form 10-Q for
the quarter ended March 31, 1999
4.3 Extension of Secured Convertible Subordinated Debentures
dated as of October 1, 1999 among the Company and
Debenture holders - incorporated by reference by the
Company's Form 10-Q for the quarter ended September 30,
1999
11.0 Statement re Computation of per Share Earnings
27.1 Financial Data Schedule for 6-month period ended
June 30, 2000 (in electronic version only)
<PAGE>
Exhibit 11 - Statement re Computation of per Share Earnings
The following represents the computation of earnings per share reflecting the
assumption that the granted shares under the option and warrants plan which
would be dilutive will be exercised.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
_______________________ ______________________
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ----- ---- ----
<S> <C> <C> <C> <C>
Net Income $202,787 $(586,869) $630,348 $ (1,738,810)
Interest Expense relating to convertible debt 4,600 - 9,200 -
Adjusted Net Income for computation $207,387 $(586,869) $639,548 $ (1,738,810)
======== ========== ======== =============
Weighted Average Common 12,139,906 11,949,383 12,130,831 11,917,078
Shares outstanding
Common share equivalents relating
to stock options, warrants, and convertible debt 402,005 - 402,005 666,666
Adjusted common and common equivalent
shares for computation 12,541,911 11,949,383 12,532,836 12,583,744
========== ========== ========== ===========
Net earnings per share:
Basic $.02 $(.05) $.05 $(.15)
==== ====== ==== ======
Diluted $.02 $(.05) $.05 $(.14)
==== ====== ==== ======
The accompanying notes are an integral part of these statements.
</TABLE>
