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 March 31, 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)
(612) 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 May 5, 2000 was:
Common Stock, $.01 par value, 12,134,063 shares
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTH FITNESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------- ----------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 134,590 $ 139,852
Trade and other accounts receivable, less
allowance for doubtful accounts of
$222,591 and $187,912, respectively 2,798,610 3,406,552
Trade and other notes receivable 224,990 308,841
Prepaid expenses and other 53,520 10,939
--------------- ----------------
Total current assets 3,211,710 3,866,184
PROPERTY AND EQUIPMENT, net 506,598 554,885
OTHER ASSETS:
Intangible assets, less accumulated amortization of
$2,269,925 and 2,136,715, respectively 6,319,403 6,481,712
Trade and other notes receivable 285,630 340,731
Other 7,497 80,043
--------------- ----------------
$ 10,330,838 $ 11,323,555
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 1,994,006 $ 2,862,128
Current maturites of long-term obligations 319,859 341,133
Subordinated notes payable 115,000 115,000
Trade accounts payable 312,889 672,322
Accrued salaries, wages, and payroll taxes 1,008,769 924,135
Accrued earn-out 93,522 186,425
Other accrued liabilities 513,136 407,997
Deferred revenue 1,302,992 1,381,752
Net liabilities of discontinued operations 683,227 810,987
--------------- ----------------
Total current liabilities 6,343,400 7,701,879
LONG-TERM OBLIGATIONS, less current maturities 347,245 423,548
-
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, 12,124,078 and 12,112,015
shares issued and outstanding, respectively 121,241 121,120
Additional paid-in capital 16,869,820 16,855,438
Accumulated deficit (13,350,868) (13,778,430)
--------------- ----------------
3,640,193 3,198,128
--------------- ----------------
$ 10,330,838 $ 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
March 31,
2000 1999
------------ ------------
<S> <C> <C>
REVENUE $ 6,738,891 $ 6,947,658
COST OF REVENUE 4,944,077 5,182,095
------------ ------------
GROSS PROFIT 1,794,814 1,765,563
OPERATING EXPENSES
Salaries 517,952 468,626
Selling, general, and administrative 622,520 739,161
Re-engineering 87,560 74,607
------------ ------------
Total operating expenses 1,228,032 1,282,394
------------ ------------
OPERATING INCOME 566,782 483,169
OTHER INCOME (EXPENSE)
Interest Expense (164,852) (241,245)
Other Income 20,857 31,966
------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 422,787 273,890
INCOME TAXES (4,774) 831
------------ ------------
INCOME FROM CONTINUING OPERATIONS 427,561 273,059
------------ ------------
DISCONTINUED OPERATIONS
Loss from operations of Physical Therapy Clinic segment and
Equipment segment -- (1,425,000)
------------ ------------
LOSS FROM DISCONTINUED OPERATIONS -- (1,425,000)
------------ ------------
NET INCOME (LOSS) $ 427,561 $ (1,151,941)
============ ============
INCOME PER SHARE FROM CONTINUING OPERATIONS
Basic $ 0.04 $ 0.02
Diluted 0.03 0.02
LOSS PER SHARE FROM DISCONTINUED OPERATIONS
Basic $ -- $ (0.12)
Diluted -- (0.11)
NET INCOME (LOSS) PER SHARE
Basic $ 0.04 $ (0.10)
Diluted 0.03 (0.09)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic 12,121,756 11,884,413
Diluted 12,523,255 13,217,746
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
HEALTH FITNESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 427,561 $(1,151,941)
Adjustment to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 200,070 526,323
Common stock issued for services 6,250 --
Discontinued operations (105,174) 1,068,429
Change in operating assets and liabilities
Trade and other accounts receivable 607,942 (489,961)
Trade and other notes receivable 138,952 131,328
Prepaid expenses and other (42,581) (90,307)
Other assets 72,546 25,000
Trade accounts payable (359,433) 71,662
Accrued liabilities and other 189,773 184,078
Deferred revenue (78,761) 32,169
----------- -----------
Net cash provided by operating activities 1,057,145 306,780
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property (21,274) (3,861)
Proceeds from sale of property 2,700 --
Payments in connection with earn-out provisions (55,550) (277,414)
Discontinued operations -- (85,310)
----------- -----------
Net cash used in investing activities (74,124) (366,585)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under line of credit (868,122) 108,339
Proceeds from issuance of subordinated note payable -- 115,000
Repayment of long term obligations (97,577) (164,738)
Discontinued operations (22,584) (4,433)
Advances on stockholder note receivable -- (698)
Payments received on stockholder note receivable -- 3,429
----------- -----------
Net cash provided by (used in) financing activities (988,283) 56,899
----------- -----------
NET DECREASE IN CASH (5,262) (2,906)
CASH AT BEGINNING OF PERIOD 139,852 29,598
----------- -----------
CASH AT END OF PERIOD $ 134,590 $ 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 ended March 31, 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 operation and balance sheet for the three months ended March 31,
2000 and March 31, 1999. Such reclassifications had no effect on net income or
stockholders' equity as previously reported.
NOTE 2. FINANCING
During the quarter ended March 31, 2000, the Company extended its loan agreement
with Abelco Finance, LLC to expire on September 16, 2000. The extension calls
for nominal weekly reductions in maximum borrowing amounts.
As of March 31, 2000, the cap on borrowings was approximately $3,400,000.
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 March 31, 2000. At March 31, 2000, net
liabilities associated with discontinued operations totalled $683,000.
NOTE 4. INCOME TAXES
The provision for income taxes for the three months ended March 31, 2000 and
1999 have been offset principally by a reduction in the valuation allowance for
deferred taxes.
NOTE 5. SUBSEQUENT EVENT
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. 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.
<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
March 31,
-------------------------------------------------------
2000 % 1999 %
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
REVENUE $ 6,739,000 100.0 $ 6,948,000 100.0
COST OF REVENUE 4,944,000 73.4 5,182,000 74.6
GROSS PROFIT 1,795,000 26.6 1,766,000 25.4
OPERATING EXPENSES:
Salaries 518,000 7.7 469,000 6.8
Selling, general, and administrative 622,000 9.2 739,000 10.6
Re-engineering 88,000 1.3 75,000 1.0
----------- ----- ----------- -----
1,228,000 18.2 1,283,000 18.4
----------- ----- ----------- -----
OPERATING INCOME: 567,000 8.4 483,000 7.0
INTEREST EXPENSE (165,000) (2.4) (241,000) (3.5)
OTHER INCOME 21,000 0.3 32,000 0.4
----------- ----- ----------- -----
(144,000) (2.1) (209,000) (3.1)
----------- ----- ----------- -----
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES 423,000 6.3 274,000 3.9
INCOME TAXES (5,000) (0.1) 1,000 0.0
----------- ----- ----------- -----
INCOME FROM CONTINUING OPERATIONS 428,000 6.4 273,000 3.9
DISCONTINUED OPERATIONS -- -- (1,425,000) (20.5)
----------- ----- ----------- -----
NET INCOME (LOSS) $ 428,000 6.4 $(1,152,000) (16.6)
=========== ===== =========== =====
</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.
<PAGE>
Summary of First Quarter Results. For the quarter ended March 31, 2000, total
revenues declined by $209,000 to $6,739,000, or 3.0%, from the quarter ended
March 31, 1999. The decrease is primarily attributable to the Isernhagen and
PTPA business lines which were sold in 1999. Gross profit increased 1.2%, or
$29,000, to $1,795,000 as compared to $1,766,000 for the quarter ended March 31,
1999 . Operating expenses as a percentage of revenue decreased .2%, or $55,000,
to $1,228,000 over the prior year period due to management's aggressive
initiative to reduce expenses. Operating income as a percentage of revenue
increased by 1.4%, or $84,000, to $567,000. Interest expense decreased by
$76,000 to $165,000 from the prior year period due to the decreased level of
borrowing. Net income for the quarter ended March 31, 2000 was $428,000, a
$1,580,000 increase from the prior year period.
Revenues. Revenues decreased $209,000, or 3.0%, to $6,739,000 for the three
months ended March 31, 2000, from $6,948,000 for the three months ended March
31, 1999. Consulting and Management Fee revenues increased $373,000, or 6.4%,
for the three months ended March 31, 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
$533,000, or 72.8%, for the quarter ended March 31, 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 $49,000, or 13.1%, for the quarter ended March
31, 2000 compared to the same period in 1999 due to advance payment discounts
and timing differences.
Operating Income. Operating income increased $84,000 to $567,000 for the three
months ended March 31, 2000, from $483,000 for the same period in 1999. Salaries
and benefits increased by $49,000 to $518,000 as staffing reductions were more
than offset by increases in benefit costs and incentive compensation. Selling,
general and administrative costs decreased by $117,000 to $622,000, or 9.2% of
sales, primarily due to reductions in equipment depreciation, in amortization of
intangibles related to the PTPA and Isernhagen business lines, and in travel and
entertainment expenditures. Re-engineering expenses were $88,000 and related
largely to contract services, legal and accounting fees.
Interest Expense and Other Income. Interest expense of $165,000 for the three
months ended March 31, 2000, decreased $76,000 from $241,000 for the same period
in 1999 due to lower average borrowings. Other income decreased $11,000 from
$32,000 for the three months ended March 31, 1999, to $21,000 for the same
period in 2000.
Income From Continuing Operations. The Company's income from continuing
operations increased $155,000 to $428,000, or $.03 diluted income per share, for
the three months ended March 31, 2000, from $273,000 or $.02 diluted income per
share from continuing operations for the same period in 1999.
Discontinued Operations. The Company incurred no losses from discontinued
operations for the three months ended March 31, 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 three months ended
March 31, 1999 from these operations.
Net Income. As a result of the above, net income for the three months ended
March 31, 2000 was $428,000, a $1,580,000 increase from the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $(3,132,000) at March 31, 2000, versus
working capital of $(7,272,000) at March 31, 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.
<PAGE>
The Company has 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 is tied to the borrowing base formula which is based
upon the Company's EBITDA (defined as earnings before interest, taxes,
depreciation and amortization), revenues, or collections, whichever is less. The
credit facility is secured by all of the Company's assets, including its
accounts receivable, inventory, equipment, and general intangibles and is
guaranteed in part by the Company's founder and former Chief Executive Officer.
The advances under the credit facility accrue 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 is 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%) is added to the principal balance of the facility, and will accrue
interest until paid. The credit facility is due September 2000. The credit
facility is 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. The Lender has waived the Company's failure to
comply with financial covenants as of March 31, 2000.
Sources of capital to meet future obligations in 2000 are anticipated to be cash
provided by operations and the Company's revolving credit facility. The Company
expects to renegotiate its revolving credit facility prior to its due date of
September 2000. 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.
Year 2000 Compliance
Health Fitness Corporation undertook several initiatives to eliminate the impact
of Year 2000 date conversion problems with its computer hardware and systems.
The date conversion had no adverse impact on the Company.
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.
<PAGE>
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. 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
In January 2000, the Company issued 10,000 shares of common stock to Aspen
Information Systems, Inc. in consideration of services performed under a
Software License Agreement and Computer Consulting Agreement entered into in
1996. The Company claims exemption from registration under the Securities Act of
1933 by virtue of Section 4(2) thereof. A restrictive securities legend has been
placed on the certificate representing the shares. In January 2000, the Company
issued 2,063 shares of Common Stock to Jaxene Hillebert in payment of earnout
consideration of $8,252 relating to the Company's 1996 acquisition of Preferred
Therapy Providers. The Company claims exemption from registration under the
Securities Act of 1933 by virtue of Section 4(2) thereof.
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 March 31, 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: May 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
10.1 Amendment No. 17 to Loan and Security Agreement dated as of May 3, 2000
among the Company, the Company's subsidiaries and Abelco Finance L.L.C.
as assignee of Madeleine L.L.C.
27.1 Financial Data Schedule for 3-month period ended March 31, 2000 (in
electronic version only)
AMENDMENT NO. 17 TO LOAN AND SECURITY AGREEMENT
May 3, 2000
Health Fitness Corporation
3500 West 80th Street, Suite 130
Bloomington, Minnesota 55431
Ladies and Gentlemen:
Ableco Finance LLC, The Long Horizons Overseas Fund, Ltd., Styx
Partners, L.P. and Styx International, Ltd., as direct or indirect assignees of
Madeleine L.L.C. (individually and collectively, "Lender") and Health Fitness
Corporation ("Borrower") have entered into certain financing arrangements as set
forth in the Loan and Security Agreement, dated February 17, 1998 by and among
Lender, Borrower and Health Fitness Rehab, Inc., The Preferred Companies, Inc.,
Health Fitness Rehab of Iowa, Inc., Duffy & Associates Physical Therapy Services
Corp., Medlink Corporation, Medlink Services, Inc., Fitness Centers of America,
Sports & Orthopedic Physical Therapy, Inc., Midlands Physical Therapy, Inc. and
International Fitness Club Network, Inc. (collectively, "Guarantors"), as
amended pursuant to Amendment No. 1 to Loan and Security Agreement, dated
February 28, 1998, by and among Lender, Borrower and Guarantors, Amendment No. 2
to Loan and Security Agreement, dated June 4, 1998, by and among Lender,
Borrower and Guarantors, Amendment No. 3 to Loan and Security Agreement, dated
June 26, 1998, by and among Lender, Borrower and Guarantors, Amendment No. 4 to
Loan and Security Agreement, dated September 10, 1998, by and among Lender,
Borrower and Guarantors, Amendment No. 5 to Loan and Security Agreement, dated
November 2, 1998, by and among Lender, Borrower and Guarantors, Amendment No. 6
to Loan and Security Agreement, dated January 8, 1999, by and among Lender,
Borrower and Guarantors ("Amendment No. 6"), Amendment No. 7 to Loan and
Security Agreement, dated February 26, 1999, by and among Lender, Borrower and
Guarantors, Amendment No. 8 to Loan and Security Agreement, dated as of March
12, 1999, by and among Lender, Borrower and Guarantors, Consent and Amendment
No. 9 to Loan and Security Agreement, dated as of May 10, 1999, by and among
Lender, Borrower and Guarantors, Consent and Amendment No. 10 to Loan and
Security Agreement, dated May 24, 1999, by and among Lender, Borrower and
Guarantors, as amended by a letter agreement dated as of June 1, 1999, by and
among Lender, Borrower and Guarantors, Consent and Amendment No. 11 to Loan and
Security Agreement, dated as of June 30, 1999, by and among Lender, Borrower and
Guarantors, Amendment No. 12 to Loan and Security Agreement, dated July 15,
1999, by and among Lender, Borrower and Guarantors, Consent and Amendment No. 13
to Loan and Security Agreement, dated as of September 22, 1999, by and among
Lender, Borrower and Guarantors, Consent and Amendment No. 14 to Loan and
Security Agreement, dated October 12, 1999, by and among Lender, Borrower and
Guarantors, Amendment No. 15 to Loan and Security Agreement, dated December 20,
1999, by and among Lender, Borrower and Guarantors and Amendment No. 16 to Loan
and Security Agreement, dated March 15, 2000, by and among Lender, Borrower and
Guarantors (and together with all supplements thereto and as the same may
hereafter be further amended, modified, supplemented, extended, renewed,
restated or replaced, the "Loan Agreement") and other agreements, documents and
instruments referred to therein or at any time executed and/or delivered in
<PAGE>
connection therewith or related thereto, including this letter agreement (all of
the foregoing, together with the Loan Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, being collectively referred to herein as the "Financing Agreements").
Borrower and Guarantors have requested certain amendments to the Loan
Agreement and Lender is willing to agree to such amendments, subject to the
terms and conditions set forth herein.
In consideration of the foregoing, and other good and valuable
consideration, the parties hereto agree as follows:
1. Definitions. For purposes of this Amendment, unless otherwise
defined herein, all terms used herein, including, but not limited to, those
terms used and/or defined in the recitals above, shall have the respective
meanings assigned to such terms in the Loan Agreement.
2. Waivers.
(a) Subject to the terms and condition contained herein, Lender
hereby waives the Event of Default arising under Section 9.1(b) of the Loan
Agreement as a result of the failure of Borrower to comply with Section 8.10,
Section 8.10A and Section 8.11 of the Loan Agreement as of March 31, 2000,
provided, that, (i) such waiver shall only apply to the failure of Borrower to
comply with such Sections for the period from January 1, 2000 through and
including March 31, 2000 (and not as of the end of any month thereafter) and
(ii) such waiver shall not be effective unless and until Lender shall have
received an original of this Amendment duly executed and delivered by Borrower
and Guarantors.
(b) Lender has not waived, is not by this Amendment waiving, and
has no intention of waiving any other Event of Default which may have occurred
on or prior to the date hereof, whether or not continuing on the date hereof, or
which may occur after the date hereof (whether the same or similar to the Events
of Default referred to above), other than the Event of Default specifically
referred to in Section 2(a) for the period ending March 31, 2000. Upon the
occurrence of any other Event of Default, whether or not continuing on the date
hereof, or which may occur on or after the date hereof (whether the same or
similar to the Event of Default described above, including an Event of Default
pursuant to the failure of Borrower and Guarantors to comply with Sections 8.10,
8.10A or 8.11 of the Loan Agreement as of the last day of any month after March
31, 2000), Lender shall have and hereby specifically reserves the right in its
discretion, to exercise any and all of its rights and remedies under the Loan
Agreement, the other Financing Agreements, applicable law or otherwise.
<PAGE>
(c) The foregoing waiver shall not be construed as a bar to or a
waiver of any other or further Event of Default on any future occasion; whether
similar in kind or otherwise and shall not constitute a waiver, express or
implied of any of the rights and remedies of Lender arising under the terms of
the Financing Agreements of any future occasion or otherwise.
3. Further Assurances. The parties hereto shall execute and deliver
such additional documents and take such additional action as may be necessary or
proper to effectuate the provisions and purposes of this Amendment.
4. Governing Law. The rights and obligations hereunder of each of the
parties hereto shall be governed by and interpreted and determined in accordance
with the internal laws of the State of New York (without giving effect to
principles of conflicts of law or choice of law).
5. Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be necessary
to produce or account for more than one counterpart hereof signed by each of the
parties hereto.
Very truly yours,
ABLECO FINANCE LLC, for itself
and as agent
By:
Title:
AGREED:
HEALTH FITNESS CORPORATION
HEALTH FITNESS REHAB, INC.
DUFFY & ASSOCIATES PHYSICAL
THERAPY SERVICES CORP.
THE PREFERRED COMPANIES, INC.
MEDLINK CORPORATION
HEALTH FITNESS REHAB OF IOWA, INC.
MEDLINK SERVICES, INC.
FITNESS CENTERS OF AMERICA
SPORTS & ORTHOPEDIC PHYSICAL THERAPY, INC.
INTERNATIONAL FITNESS CLUB NETWORK, INC.
MIDLANDS PHYSICAL THERAPY, INC.
By:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 134,590
<SECURITIES> 0
<RECEIVABLES> 3,021,201
<ALLOWANCES> (222,591)
<INVENTORY> 0
<CURRENT-ASSETS> 3,211,710
<PP&E> 1,484,719
<DEPRECIATION> 978,121
<TOTAL-ASSETS> 10,330,838
<CURRENT-LIABILITIES> 6,343,400
<BONDS> 347,245
0
0
<COMMON> 121,241
<OTHER-SE> 3,518,952
<TOTAL-LIABILITY-AND-EQUITY> 10,330,838
<SALES> 6,738,891
<TOTAL-REVENUES> 6,738,891
<CGS> 4,944,097
<TOTAL-COSTS> 4,944,097
<OTHER-EXPENSES> 1,228,032
<LOSS-PROVISION> 34,679
<INTEREST-EXPENSE> 164,852
<INCOME-PRETAX> 422,787
<INCOME-TAX> (4,774)
<INCOME-CONTINUING> 427,561
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 427,561
<EPS-BASIC> .04
<EPS-DILUTED> .03
</TABLE>
