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 September 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 November 10, 2000 was:
Common Stock, $.01 par value, 12,155,250 shares
<PAGE>
Health Fitness Corporation
Condensed Consolidated Financial Statements
Table of Contents
PAGE
PART I. Item 1.
Condensed Consolidated Balance Sheets as of September 30, 2000 and F-1
December 31, 1999
Condensed Consolidated Statements of Operations for the three and F-2
nine months periods ended September 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows for the nine month F-3
periods ended September 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements F-4
Item 2.
Management's Discussion and Analysis of Financial Condition 5
Item 3.
Quantitative and Qualitative Disclosures About Market Risk 8
PART II. Other Information 9
Item 1. Legal Proceedings
Items 2-5. Not Applicable
Item 6. Exhibits and reports on Form 8-K
Signatures 10
<PAGE>
HEALTH FITNESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 97,207 $ 139,852
Trade and other accounts receivable, less
allowance for doubtful accounts of
$255,300 and $187,900, respectively 3,576,511 3,406,552
Trade and other notes receivable 48,252 308,841
Prepaid expenses and other 88,340 10,939
------------ ------------
Total current assets 3,810,310 3,866,184
PROPERTY AND EQUIPMENT, net 344,674 554,885
OTHER ASSETS:
Intangible assets, less accumulated amortization
of $2,565,200 and
$2,136,700, respectively 6,425,473 6,481,712
Trade and other notes receivable 25,128 340,731
Other 5,629 80,043
------------ ------------
$ 10,611,214 $ 11,323,555
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 2,891,961 $ 2,862,128
Current maturites of long-term obligations 122,564 341,133
Subordinated notes payable -- 115,000
Trade accounts payable 244,820 672,322
Accrued salaries, wages, and payroll taxes 1,122,964 924,135
Accrued earn-out -- 186,425
Other accrued liabilities 790,474 407,997
Deferred revenue 1,163,227 1,381,752
Net liabilities of discontinued operations 319,819 810,987
------------ ------------
Total current liabilities 6,655,829 7,701,879
LONG-TERM OBLIGATIONS, less current maturities 36,910 423,548
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, 12,150,250 and 12,112,015
shares issued and outstanding, respectively 121,502 121,120
Additional paid-in capital 16,867,184 16,855,438
Accumulated deficit (13,070,211) (13,778,430)
------------ ------------
3,918,475 3,198,128
------------ ------------
$ 10,611,214 $ 11,323,555
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
F-1
<PAGE>
HEALTH FITNESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ending Nine Months Ending
Sept 30, Sept 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE $ 6,495,863 $ 6,467,158 $19,520,005 $19,765,324
COST OF REVENUE 4,991,275 4,982,471 14,684,926 15,177,948
----------- ----------- ----------- -----------
GROSS PROFIT 1,504,588 1,484,687 4,835,079 4,587,376
OPERATING EXPENSES
Salaries 451,212 497,305 1,436,434 1,476,245
Selling, general, and administrative 593,261 923,580 1,822,507 2,639,234
Re-engineering 167,342 333,089 321,769 605,343
----------- ----------- ----------- -----------
Total operating expenses 1,211,815 1,753,974 3,580,710 4,720,822
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 292,773 (269,287) 1,254,369 (133,446)
OTHER INCOME (EXPENSE)
Interest Expense (185,687) (302,522) (551,529) (780,146)
Other Income (Expense) (596) (363,669) 29,138 (334,861)
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 106,490 (935,478) 731,978 (1,248,453)
INCOME TAXES 28,622 5,582 23,759 (6,413)
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 77,868 (941,060) 708,219 (1,254,866)
----------- ----------- ----------- -----------
LOSS FROM DISCONTINUED OPERATIONS - - - (1,425,000)
----------- ----------- ----------- -----------
NET INCOME (LOSS) 77,868 (941,060) 708,219 (2,679,866)
=========== =========== =========== ===========
INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS
Basic $ 0.01 $ (0.08) $ 0.06 $ (0.10)
Diluted 0.01 (0.08) 0.06 (0.10)
LOSS PER SHARE FROM DISCONTINUED OPERATIONS
Basic $ - $ - $ - $ (0.12)
Diluted - - - (0.12)
NET INCOME (LOSS) PER SHARE
Basic $ 0.01 $ (0.08) $ 0.06 $ (0.22)
Diluted 0.01 (0.08) 0.06 (0.22)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic 12,272,792 11,982,132 12,133,675 11,939,001
Diluted 12,273,301 11,982,132 12,146,344 11,939,001
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
HEALTH FITNESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
Sept 30,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 708,219 $(2,679,866)
Adjustment to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 627,591 797,363
Amortization of financing costs 26,667 585,260
Loss on disposition of assets -- 356,195
Discontinued operations (410,793) 4,110,456
Change in operating assets and liabilities
Trade and other accounts receivable (169,959) 286,122
Trade and other notes receivable 166,848 169,832
Prepaid expenses and other (77,401) (191,676)
Other assets 74,414 32,889
Trade accounts payable (427,502) (381,681)
Accrued liabilities and other 581,306 149,918
Deferred revenue (218,525) 76,833
----------- -----------
Net cash provided by operating activities 880,865 3,311,644
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (48,217) (99,409)
Net proceeds from sale of property and equipment 2,700 1,316,613
Payment in connection with non-compete agreement (120,000) --
Payments in connection with earn-out provisions (203,541) (317,585)
----------- -----------
Net cash provided by (used in) investing activities (369,058) 899,619
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under line of credit 29,833 (3,810,875)
Proceeds from (payments on) subordinated notes payable (115,000) 115,000
Repayment of long term obligations (195,863) (353,323)
Payment of financing costs (226,831) --
Discontinued operations (59,062) (46,626)
Proceeds from issuance of common stock 12,471 53,727
Payments received on stockholder note receivable -- 10,884
----------- -----------
Net cash used in financing activities (554,452) (4,031,213)
----------- -----------
NET INCREASE (DECREASE) IN CASH (42,645) 180,050
CASH AT BEGINNING OF PERIOD 139,852 29,598
----------- -----------
CASH AT END OF PERIOD $ 97,207 $ 209,648
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
HEALTH FITNESS CORPORATION
NOTES TO CONDENSED 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 nine months ended September 30, 2000 are not necessarily
indicative of the operating results for the year ending December 31, 2000. The
unaudited condensed consolidated balance sheet as of December 31, 1999 has been
derived from the audited balance sheet as of that date.
Certain reclassifications have been made to the condensed consolidated financial
statements as of and for the three months and nine months ended September 30,
1999. Such reclassifications had no effect on net loss or stockholders' equity
as previously reported.
NOTE 2. FINANCING
In July 2000, the Company entered into a credit agreement with Coast Business
Credit for a $5.0 million working capital facility. The interest rate on the
loan is prime plus 3.0%, with future reductions based on the achievement of
certain net worth levels after March 31, 2001. Availabe credit under the loan is
based upon certain profitability and cash collection multiples. As of September
30, 2000, the available credit was approximately $3,800,000. Additionally, the
Company is subject to certain financial covenants that measure net worth,
interest coverage and debt capacity. The Company is in compliance with all of
the covenants in effect on September 30, 2000.
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 September 30, 2000. At September 30, 2000, net
liabilities associated with discontinued operations totaled $320,000.
NOTE 4. INCOME TAXES
The provision for federal income taxes for the three months and nine months
ended September 30, 2000 have been offset principally by a reduction in the
valuation allowance for deferred taxes. Income taxes represent minimum payments
for states.
F-4
<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
September 30,
-----------------------------------------------------
2000 % 1999 %
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
REVENUE $ 6,496,000 100.0 $ 6,467,000 100.0
COST OF REVENUE 4,991,000 76.8 4,982,000 77.0
----------- ----- ----------- -----
GROSS PROFIT 1,505,000 23.2 1,485,000 23.0
OPERATING EXPENSES:
Salaries 451,000 7.0 497,000 7.7
Selling, general, and administrative 593,000 9.1 924,000 14.3
Re-engineering 168,000 2.6 333,000 5.2
----------- ----- ----------- -----
1,212,000 18.7 1,754,000 27.2
----------- ----- ----------- -----
OPERATING INCOME (LOSS): 293,000 4.5 (269,000) (4.2)
INTEREST EXPENSE (186,000) (2.9) (302,000) (4.7)
OTHER EXPENSE (1,000) (0.0) (364,000) (5.6)
----------- ----- ----------- -----
(187,000) (2.9) (666,000) (10.3)
----------- ----- ----------- -----
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 106,000 1.6 (935,000) (14.5)
INCOME TAXES 28,000 .4 6,000 .1
----------- ----- ----------- -----
INCOME (LOSS) FROM CONTINUING OPERATIONS 78,000 1.2 (941,000) (14.6)
DISCONTINUED OPERATIONS -- -- -- --
----------- ----- ----------- -----
NET INCOME (LOSS) $ 78,000 1.2 $ (941,000) (14.6)
=========== ===== =========== =====
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------------------------------
2000 % 1999 %
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
REVENUE $ 19,520,000 100.0 $ 19,765,000 100.0
COST OF REVENUE 14,685,000 75.2 15,178,000 76.8
------------ ----- ------------ -----
GROSS PROFIT 4,835,000 24.8 4,587,000 23.2
OPERATING EXPENSES:
Salaries 1,436,000 7.4 1,476,000 7.5
Selling, general, and administrative 1,823,000 9.4 2,640,000 13.4
Re-engineering 322,000 1.7 605,000 3.0
------------ ----- ------------ -----
3,581,000 18.5 4,721,000 23.9
------------ ----- ------------ -----
OPERATING INCOME (LOSS): 1,254,000 6.3 (134,000) (.7)
INTEREST EXPENSE (551,000) (2.8) (780,000) (3.9)
OTHER INCOME (EXPENSE) 29,000 0.2 (335,000) (1.7)
------------ ----- ------------ -----
(522,000) (2.6) (1,115,000) (5.6)
------------ ----- ------------ -----
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 732,000 3.7 (1,249,000) (6.3)
INCOME TAXES 24,000 0.1 6,000 0.0
------------ ----- ------------ -----
INCOME (LOSS) FROM CONTINUING OPERATIONS 708,000 3.6 (1,255,000) (6.3)
DISCONTINUED OPERATIONS -- -- (1,425,000) (7.2)
------------ ----- ------------ -----
NET INCOME (LOSS) $ 708,000 3.6 $ (2,680,000) (13.5)
============ ===== ============ =====
</TABLE>
General. Health Fitness Corporation provides wellness services and products to
major corporations, healthcare and community organizations. Fitness center based
services include the development and management of corporate, hospital, and
community 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, hospital customers and community members,
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 has
assisted with restructuring the Company's financing and with the Company's
re-engineering efforts.
Results of Operations for the quarter ended September 30, 2000 compared to the
quarter ended September 30, 1999.
Revenues. Revenues increased $29,000 to $6,496,000 for the three months ended
September 30, 2000, from $6,467,000 for the three months ended September 30,
1999. Consulting and Management Fee revenues increased $483,000, or 8.4%, for
the three months ended September 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
$410,000, or 70.4%, for the quarter ended September 30, 2000, compared to the
same period in 1999. The decrease is
6
<PAGE>
attributable to the Isernhagen and PTPA business lines which were sold in the
3rd quarter of 1999. International Fitness Club Network (IFCN) revenues
decreased $44,000, or 35.2%, for the quarter ended September 30, 2000 compared
to the same period in 1999 due to timing differences in when existing contract
revenue was recognized.
Operating Income (Loss). Operating income increased $562,000 to $293,000 or 4.5%
of revenue for the three months ended September 30, 2000, from a loss of
$269,000 for the same period in 1999. Salaries and benefits decreased $46,000 to
$451,000 due to staffing reductions. Selling, general and administrative costs
decreased by $331,000 to $593,000, or 9.1% of sales, primarily due to the
achievement of targeted expense reductions, the reductions of bad debt expenses
and amortization relating to the PTPA and Isernhagen divisions. Re-engineering
expenses decreased $165,000 to $168,000 for the three months ended September 30,
2000 from $333,000 for the same period in 1999. The decrease is due to the lack
of noncompete expenses that were recorded in 1999 and decreased re-engineering
related contract services which were offset by merger related due diligence
expenses associated with the terminated HealthTrax merger in the third quarter
of 2000.
Interest Expense and Other Income (Expense). Interest expense of $186,000 for
the three months ended September 30, 2000, decreased $116,000 from $302,000 for
the same period in 1999 due to a decreased levels of borrowing and decreased
fees and interest rate on the Company's line of credit. Other expense decreased
$363,000 from $364,000 for the three months ended September 30, 1999, to $1,000
for the same period in 2000 primarily due to a $368,000 loss on sale of the
assets of the Isernhagen and PTPA divisions recorded in 1999.
Income (Loss) From Continuing Operations. The Company's income from continuing
operations increased $1,019,000 to $78,000, or $.01 diluted income per share,
for the three months ended September 30, 2000, from a loss of $941,000 or $.08
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 September 30, 2000 or
September 30, 1999.
Net Income (Loss). As a result of the above, net income for the three months
ended September 30, 2000 was $78,000, a $1,019,000 increase from the prior year
period.
Results of Operations for the nine months ended September 30, 2000 compared to
the nine months ended September 30, 1999.
Revenues. Revenues decreased $245,000, or 1.2%, to $19,520,000 for the nine
months ended September 30, 2000, from $19,765,000 for the nine months ended
September 30, 1999. Consulting and Management Fee revenues increased $1,266,000,
or 7.4%, for the nine months ended September 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 $1,504,000, or 72.5%, for the nine months ended September 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 decreased $7,000, or 1.3%,
for the nine months ended September 30, 2000 compared to the same period in
1999.
Operating Income (Loss). Operating income increased $1,388,000 to $1,254,000 for
the nine months ended September 30, 2000, from a loss of $134,000 for the same
period in 1999. Salaries and benefits decreased $40,000 to $1,436,000 due to
staffing reductions. Selling, general and administrative costs decreased by
$817,000 to $1,823,000, or 9.4% of sales, primarily due to the achievement of
targeted expense reductions, the reductions of bad debt expenses and
amortization relating to the PTPA and Isernhagen divisions, and software
replacement expenses which were recorded in 1999. Re-engineering expenses
decreased $283,000 to $322,000 for the nine months ended September 30, 2000 from
$605,000 for the same period in 1999. The decrease is due to the lack of
noncompete expenses that were recorded in 1999 and a decrease in re-engineering
related contract services offset by merger related due diligence expenses
associated with the terminated HealthTrax merger in the third quarter of 2000.
Interest Expense and Other Income (Expense). Interest expense of $551,000 for
the nine months ended September 30, 2000, decreased $229,000 from $780,000 for
the same period in 1999 due to decreased level of borrowing and decreased
7
<PAGE>
fees and interest rates on the line of credit. Other income (expense) decreased
$364,000 from an expense of $335,000 for the nine months ended September 30,
1999, to income of $29,000 for the same period in 2000 primarily due to a
$368,000 loss on the sale of the assets of the Isernhagen and PTPA divisions in
September of 1999.
Income (Loss) From Continuing Operations. The Company's income from continuing
operations increased $1,963,000 to $708,000, or $.06 diluted income per share,
for the nine months ended September 30, 2000, from a loss of $1,255,000 or $.10
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 nine months ended September 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 nine months ended
September 30, 1999 from these operations.
Net Income (Loss). As a result of the above, net income for the nine months
ended September 30, 2000 was $708,000, a $3,388,000 increase from the prior year
period.
Liqudity and Capital Resources
The Company had working capital of $(2,846,000) at September 30, 2000, versus
working capital of $(3,869,000) at September 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 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 2000, the Company entered into a credit agreement 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. Availabile credit under the credit facility
is based upon certain profitability and cash collection 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 the holders of certain
subordinated debentures. The facility expires in July 2003. The Company is in
compliance with all of the financial covenants in effect on September 30, 2000.
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. 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, 1999 for more information.
8
<PAGE>
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
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 on page following signatures.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Company during the quarter
ended September 30, 2000.
9
<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: November 13, 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)
10
<PAGE>
EXHIBIT INDEX
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
10.1 Loan and Security Agreement dated July 14, 2000 by and among
the Company and Coast Business Credit
11.0 Statement re Computation of per Share Earnings
27.1 Financial Date Schedule for 9-month period ended September 30,
2000 (in electronic version only)
