================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
COMMISSION FILE NO. 000-25064
----------------------------
HEALTH FITNESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA NO. 41-1580506
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3600 AMERICAN BOULEVARD WEST, BLOOMINGTON, MINNESOTA 55431
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER (952) 831-6830
----------------------------
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the 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 the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).YES [ ] NO [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
The number of shares outstanding of the registrant's common stock as of
November 11, 2005 was: Common Stock, $0.01 par value, 12,914,523 shares
================================================================================
HEALTH FITNESS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of September 30, 2005 and December
31, 2004 3
Consolidated Statements of Earnings for the three and nine months
ended September 30, 2005 and 2004 4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2005 and 2004 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION 19
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6. Exhibits
Signatures 20
Exhibit Index 21
2
HEALTH FITNESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2005 2004
------------- ------------
ASSETS
CURRENT ASSETS
Cash $ 38,031 $ 241,302
Trade and other accounts receivable, less allowances of $199,400 and $210,700 8,428,337 8,147,430
Prepaid expenses and other 840,576 213,954
Deferred tax assets 483,100 1,660,100
------------- ------------
Total current assets 9,790,044 10,262,786
PROPERTY AND EQUIPMENT, net 190,581 150,308
OTHER ASSETS
Goodwill 9,022,501 9,022,501
Customer contracts, less accumulated amortization of $1,481,900 and $875,700 248,056 854,306
Trademark, less accumulated amortization of $129,000 and $75,800 228,068 274,167
Other intangible assets, less accumulated amortization of $86,300 and $81,300 11,767 61,493
Deferred tax assets 352,000 221,400
Other 55,953 87,015
------------- ------------
$ 19,898,970 $ 20,933,976
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 799,167 $ 840,155
Accrued salaries, wages, and payroll taxes 1,885,032 2,768,734
Other accrued liabilities 378,568 495,770
Accrued self funded insurance 184,592 225,500
Deferred revenue 1,814,137 1,977,093
------------- ------------
Total current liabilities 5,061,496 6,307,252
LONG-TERM OBLIGATIONS - 1,612,759
COMMITMENTS AND CONTINGENCIES - -
CUMULATIVE CONVERTIBLE PREFERRED STOCK, 10,000,000 shares
authorized, 1,111,105 and 1,063,945 issued and outstanding 1,567,715 1,530,232
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; 50,000,000 shares authorized;
12,907,023 and 12,582,170 shares issued and outstanding 129,070 125,822
Additional paid-in capital 17,982,591 17,836,675
Accumulated comprehensive income 6,717 2,459
Accumulated deficit (4,848,619) (6,481,223)
------------- ------------
13,269,759 11,483,733
------------- ------------
$ 19,898,970 $ 20,933,976
============= ============
See notes to consolidated financial statements.
3
HEALTH FITNESS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ---------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
REVENUE $13,464,278 $13,154,340 $40,607,994 $38,950,429
COSTS OF REVENUE 9,965,464 9,807,257 30,216,762 29,074,051
----------- ----------- ----------- -----------
GROSS PROFIT 3,498,814 3,347,083 10,391,232 9,876,378
OPERATING EXPENSES
Salaries 1,449,297 1,408,482 4,243,782 4,180,760
Other selling, general and administrative 945,540 784,560 2,625,037 2,438,170
Amortization of acquired intangible assets 220,095 219,583 659,432 658,750
----------- ----------- ----------- -----------
Total operating expenses 2,614,932 2,412,625 7,528,251 7,277,680
----------- ----------- ----------- -----------
OPERATING INCOME 883,882 934,458 2,862,981 2,598,698
OTHER INCOME (EXPENSE )
Interest expense 4,035 (118,102) (24,214) (380,698)
Other, net (2,404) 908 (4,394) 2,298
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 885,513 817,264 2,834,373 2,220,298
INCOME TAX EXPENSE 354,206 330,500 1,133,749 882,873
----------- ----------- ----------- -----------
NET EARNINGS 531,307 486,764 1,700,624 1,337,425
Dividend to preferred shareholders 24,819 21,600 68,019 64,800
----------- ----------- ----------- -----------
NET EARNINGS APPLICABLE TO
COMMON SHAREHOLDERS $ 506,488 $ 465,164 $ 1,632,605 $ 1,272,625
=========== =========== =========== ===========
NET EARNINGS PER SHARE:
Basic $ 0.04 $ 0.04 $ 0.13 $ 0.10
Diluted 0.03 0.03 0.10 0.08
WEIGHTED AVERAGE COMMON SHARES:
Basic 12,836,971 12,550,679 12,704,035 12,482,060
Diluted 16,662,753 16,122,175 16,633,799 16,078,873
See notes to consolidated financial statements.
4
HEALTH FITNESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
--------------------------
2005 2004
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,700,624 $1,337,425
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation of property and equipment 63,786 71,520
Amortization of intangible assets and other 653,350 746,171
Deferred taxes 1,046,400 728,917
Common stock issued for compensation - 60,600
Changes in operating assets and liabilities, net of assets acquired:
Trade and other accounts receivable (280,907) (2,695,366)
Prepaid expenses and other (626,622) (96,832)
Other assets 31,062 23,183
Trade accounts payable (36,728) (223,765)
Accrued liabilities and other (1,041,812) 1,357,945
Deferred revenue (162,958) 98,011
----------- ----------
Net cash provided by operating activities 1,346,195 1,407,809
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (104,059) (56,017)
Other (7,084) -
Acquisition of business - (256,927)
----------- ----------
Net cash used in investing activities (111,143) (312,944)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under note payable 13,837,389 13,087,343
Repayments of note payable (15,450,148) (14,835,830)
Proceeds from issuance of common stock 163,008 71,540
Proceeds from the exercise of stock options 11,428 35,247
Proceeds from closing cash escrow account - 471,999
----------- ----------
Net cash used in financing activities (1,438,323) (1,169,701)
----------- ----------
NET (DECREASE) IN CASH (203,271) (74,836)
CASH AT BEGINNING OF PERIOD 241,302 281,294
----------- ----------
CASH AT END OF PERIOD $ 38,031 $ 206,458
=========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Supplemental cash flow information
Cash paid for interest $ 30,297 $ 293,226
Cash paid for taxes 403,651 116,365
Noncash investing and financing activities affecting cash flows:
Dividend to preferred shareholders 68,019 64,800
See notes to consolidated financial statements.
5
HEALTH FITNESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements for the third
quarter ended September 30, 2005 have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information. Financial information as of December 31, 2004 has
been derived from our audited consolidated financial statements. In accordance
with the rules and regulations of the United States Securities and Exchange
Commission, the Company has omitted footnote disclosures that would
substantially duplicate the disclosures contained in the audited financial
statements of the Company. The unaudited consolidated financial statements
should be read together with the financial statements for the year ended
December 31, 2004, and footnotes thereto included in the Company's Form 10-K as
filed with the United States Securities and Exchange Commission on March 31,
2005.
In the opinion of management, the interim consolidated financial statements
include all adjustments (consisting of normal recurring accruals) necessary for
the fair presentation of the results for interim periods presented. These
financial statements include some amounts that are based on management's best
estimates and judgments. These estimates may be adjusted as more information
becomes available, and any adjustment could be significant. The impact of any
change in estimates is included in the determination of earnings in the period
in which the change in estimate is identified. Operating results for the nine
months ended September 30, 2005 are not necessarily indicative of the operating
results that may be expected for the year ended December 31, 2005.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Health Fitness Corporation and its wholly owned subsidiaries (the
Company) provide fitness and health management services and programs to
corporations, hospitals, communities and universities located in the United
States and Canada. Fitness and health management services include the
development, marketing and management of corporate, hospital, community and
university based fitness centers, injury prevention and work-injury management
consulting, on-site physical therapy and employee health management services.
Programs include wellness and health programs for individual customers,
including health risk assessments, biometric screenings, nutrition and weight
loss programs, smoking cessation, massage therapy, back care and ergonomic
injury prevention.
Consolidation - The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
Cash - The Company maintains cash balances at several financial institutions,
and at times, such balances exceed insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk on cash.
Trade and Other Accounts Receivable - Trade and other accounts receivable
represent amounts due from companies and individuals for services and products.
The Company grants credit to customers in the ordinary course of business, but
generally does not require collateral or any other security to support amounts
due. Management performs ongoing credit evaluations of customers. The Company
determines its allowance for discounts and doubtful accounts by considering a
number of factors, including the length of time trade accounts receivable are
past due, the Company's previous loss history, the customer's current ability to
pay its obligation to the Company, and the condition of the general economy and
the industry as a whole. The Company writes off accounts receivable when they
become uncollectible, and payments subsequently received on such
6
receivable are credited to the allowance. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
and their geographic dispersion.
Property and Equipment - Property and equipment are stated at cost. Depreciation
and amortization are computed using both straight-line and accelerated methods
over the useful lives of the assets.
Goodwill - Goodwill represents the excess of the purchase price and related
costs over the fair value of net assets of businesses acquired. The carrying
value of goodwill is not amortized, but is tested for impairment on an annual
basis or when factors indicating impairment are present. Projected discounted
cash flows are used in assessing these assets.
Intangible Assets - The Company's intangible assets include customer contracts
and trademark that are amortized on a straight-line basis. Customer contracts
represent the fair value assigned to acquired management contracts and are
amortized over the remaining life of the contracts, of which 4 months remain at
September 30, 2005. Trademark represents the value assigned to an acquired
trademark and is amortized over a period of five years.
Revenue Recognition - Revenue is recognized at the time the service is provided
to the customer. For annual contracts, monthly amounts are recognized ratably
over the term of the contract. Certain services provided to the customer may
vary on a periodic basis and are invoiced to the customer in arrears. The
revenues relating to theses services are estimated in the month that the service
is performed based the cost of the services.
Amounts received from customers in advance of providing the services of the
contract are treated as deferred revenue and recognized when the services are
provided.
The Company has contracts with third-parties (e.g. janitorial services) to
provide ancillary services in connection with their fitness and wellness
management services and programs. Under such arrangements the third-parties
invoice and receive payments from the Company based on transactions with the
ultimate customer. The Company does not recognize revenues related to such
transactions as the ultimate customer assumes the risk and rewards of the
contract and the amounts billed to the customer are either at cost or with a
fixed markup.
Comprehensive Income - Comprehensive income represents net earnings adjusted for
foreign currency translation adjustments. Total comprehensive income was
$1,636,863 and $1,269,462 for the nine months ended September 30, 2005 and 2004.
Net Earnings Per Share - Basic net earnings per common share is computed by
dividing net earnings applicable to common shareholders by the number of
weighted average common shares outstanding. Diluted net earnings per share is
computed by dividing net earnings applicable to common shareholders plus
dividends to preferred shareholders (net earnings) by the number of weighted
average common shares outstanding, and common share equivalents relating to
stock options and stock warrants, when dilutive.
Common stock options and warrants to purchase 584,163 and 470,100 shares of
common stock were excluded from the three months ended September 30, 2005 and
2004 calculation, and 481,298 and 365,100 shares were excluded from the nine
months ended September 30, 2005 and 2004 calculation because they are
anti-dilutive.
Stock-based Compensation - The Company utilizes the intrinsic value method of
accounting for its stock based employee compensation plans. All options granted
had an exercise price equal to the market value of the underlying common stock
on the date of grant and accordingly, no compensation cost is reflected in net
earnings for the three and nine months ended September 30, 2005 and 2004. The
following table illustrates the effect on net earnings and earnings per share if
the Company had applied the fair value method of accounting for stock options:
7
Three Months ended Nine Months ended
September 30, September 30,
-------------------------- --------------------------
2005 2004 2005 2004
----------- ---------- ---------- -----------
Net earnings, applicable to common
Shareholders - basic $ 506,488 $ 465,164 $ 1,632,605 $ 1,272,625
Add: Dividends to preferred shareholders 24,819 21,600 68,019 64,800
----------- ----------- ----------- -----------
Net earnings - diluted 531,307 486,764 1,700,624 1,337,425
----------- ----------- ----------- -----------
Less: Compensation expense determined
under the fair value method, net of tax (41,533) (23,445) (179,198) (137,438)
----------- ----------- ----------- -----------
Proforma net earnings - basic $ 464,955 $ 441,719 $ 1,453,407 $ 1,135,187
=========== =========== =========== ===========
Proforma net earnings - diluted $ 489,774 $ 463,319 $ 1,521,426 $ 1,199,987
=========== =========== =========== ===========
Earnings per Share:
Basic, as reported $ 0.04 $ 0.04 $ 0.13 $ 0.10
=========== =========== =========== ===========
Basic, proforma $ 0.04 $ 0.04 $ 0.11 $ 0.09
=========== =========== =========== ===========
Diluted, as reported $ 0.03 $ 0.03 $ 0.10 $ 0.08
=========== =========== =========== ===========
Diluted, proforma $ 0.03 $ 0.03 $ 0.09 $ 0.07
=========== =========== =========== ===========
The proforma information above should be read in conjunction with the related
historical information.
The fair value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model with the following assumptions and results
for the grants:
2005 2004
------------ ---------
Dividend yield None None
Expected volatility 61% - 78% 88%
Expected life of option 1-4 years 1-4 years
Risk-free interest rate 2.43% - 3.47% 3.27%
Weighted average fair value of options on grant date $1.27 $1.01
In December 2004, the Financial Accounting Standards Board (FASB), issued
Statement 123R, Share-Based Payment. Statement 123R is a revision of FASB
Statement No. 123, Accounting for Stock-Based Compensation, and supercedes
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. The revision requires all entities to recognize compensation expense
in an amount equal to the fair value of share-based payments granted to
employees.
In April 2005, the United States Securities and Exchange Commission announced
the adoption of a new rule that amended the compliance dates for Statement 123R
as first adopted by the FASB. As a result of this change, the Company is
required to implement Statement 123R beginning with the Company's next fiscal
year starting January 1, 2006. The Company expects that the adoption of
Statement 123R will result in a decrease of net income due to additional
compensation expense attributed to employee stock options.
Fair Values of Financial Instruments - Due to their short-term nature, the
carrying value of the Company's current financial assets and liabilities
approximates their fair values. The fair value of long-term obligations, if
recalculated based on current interest rates, would not significantly differ
from the recorded amounts.
Use of Estimates - Preparing consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
8
NOTE 3. FINANCING
On August 22, 2003, the Company entered into a $7,500,000 Credit Agreement with
Wells Fargo Bank, N.A. to provide the Company with acquisition financing and
general working capital (the "Wells Loan"). Working capital advances from the
Wells Loan are available on a revolving basis and are based upon a percentage of
the Company's eligible accounts receivable, less any amounts previously drawn.
At the option of the Company, the Wells Loan bears interest at prime or the
one-month LIBOR plus a margin of 2.25% to 2.75% based upon the Company's Senior
Leverage Ratio (effective rate of 6.75% and 5.25% at September 30, 2005 and
December 31, 2004). Borrowing capacity under the Wells Loan decreases $250,000
on the last day of each calendar quarter, beginning September 30, 2003, and
matures on June 30, 2007. The facility provided maximum borrowing capacity of
$5,250,000 and $6,000,000 at September 30, 2005 and December 31, 2004. Excluding
current outstanding balances, and based upon eligible accounts receivable,
$5,152,467 and $3,758,851 was available for borrowing on such respective dates.
Borrowings under the Wells Loan are collateralized by substantially all of the
Company's assets. The Company is required to comply with certain monthly
financial covenants, including a fixed charge coverage ratio, minimum earnings
before interest, taxes, depreciation and amortization, cash flow leverage ratio
and a senior leverage ratio. At September 30, 2005, the Company had no
outstanding balance under the Wells Loan, and was in compliance with all of its
financial covenants.
On August 25, 2003, the Company entered into a $3,000,000 Securities Purchase
Agreement with Bayview Capital Partners LP ("Bayview") to provide the Company
with acquisition financing and general working capital (the "Bayview
Investment"). The Bayview Investment was initially structured as a bridge note
(the "Bridge Note"), the proceeds of which were placed into escrow to fund a
portion of our purchase of the Health & Fitness Services Division of Johnson &
Johnson Health Care Systems Inc.
On December 8, 2003 (the "Effective Date"), the $3,000,000 Bridge Note issued to
Bayview was converted into a $2,000,000 term note (the "Term Note"), $1,000,000
in Series A Convertible Preferred Stock (the "Preferred Stock") and a warrant to
purchase common stock of the Company (the "Warrant") pursuant to the terms set
forth in the August 25, 2003 Securities Purchase Agreement.
The Preferred Stock was issued to Bayview at a price of $1.00 per share,
resulting in 1,000,000 shares issued on the Effective Date. The Preferred Stock
has a stated dividend rate of 6% per year, computed on a simple interest basis,
paid in kind in the form of additional shares of Preferred Stock using a price
of $1.00 per share ("PIK Dividends"). At the option of the holder, the Preferred
Stock, including any PIK Dividends, may be converted, at any time and from time
to time, into common stock of the Company at a price of $0.50 per share. In
addition, Bayview may require redemption of the Preferred Stock and PIK
Dividends upon a change of control or default (including default under the Term
Note).
The Warrant issued to Bayview on the Effective Date represents the right to
purchase, subject to customary weighted-average anti-dilution adjustments,
1,210,320 shares of common stock, which represented 8% of the Company's common
stock outstanding on a fully diluted basis at the Effective Date, excluding the
common stock issuable to Bayview upon conversion of the Preferred Stock. The
Warrant is exercisable at any time for a period of ten years at an exercise
price equal to $0.50 per share, and the shares obtainable upon exercise of the
Warrant may be put to the Company at fair market value (net of the exercise
price) upon a change of control or default.
On December 29, 2004, the Company prepaid its Bayview Term Note by utilizing
funds from the Wells Loan. In connection with the Term Note repayment, the
Company also paid a prepayment penalty of $80,000, which represents 4% of the
face value of the Term Note. In addition, the Company incurred a one-time,
non-cash charge to interest expense of $394,669, representing $345,754 of
unamortized difference between the face value of the Term Note and its assigned
relative fair value, as well as $48,916 of unamortized financing costs related
to the Term Note. At the same time, the Company and Wells Fargo agreed to amend
the Wells Loan to change the senior leverage ratio covenant to reflect the
Company's financial position subsequent to the Term Note repayment. The Company
was in compliance with this change in covenant at September 30, 2005.
9
Balances of long-term obligations are as follows:
September 30, December 31,
2005 2004
------------- ------------
Wells Loan $ 0 $ 1,612,759
The outstanding principal balance on the Wells Loan matures June 2007.
NOTE 4. INCOME TAXES
The Company records income taxes in accordance with the liability method of
accounting. Deferred income taxes are provided for temporary differences between
the financial reporting and tax basis of assets and liabilities and federal
operating loss carryforwards. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of the enactment.
Income taxes are calculated based on management's estimate of the Company's
effective tax rate, which takes into consideration a federal tax rate of 34% and
an effective state tax rate of 6%. At December 31, 2004, the Company had
approximately $3,343,000 of federal operating loss carryforwards. The
carryforwards, if they are not used, will expire in 2021.
NOTE 5. STOCK OPTIONS
The Company maintains a stock option plan for the benefit of certain eligible
employees and directors of the Company. A total of 1,163,600 shares of common
stock are reserved for additional grants of options under the plan at September
30, 2005. Generally, the options outstanding (1) are granted at prices equal to
the market value of the stock on the date of grant, (2) vest over various terms
and, (3) expire over a period of five or ten years from the date of grant.
A summary of stock option activity for the nine months ended September 30, 2005
is as follows:
Weighted
Number of Average
Shares Exercise Price
---------- --------------
Outstanding at December 31, 2004 1,921,550 $ 1.06
Granted 175,000 2.70
Exercised (23,375) 0.49
---------- ------
Outstanding at March 31, 2005 2,073,175 1.21
Granted 150,000 2.48
---------- ------
Outstanding at June 30, 2005 2,223,175 $ 1.29
Granted 17,500 2.24
Exercised (78,750) 0.34
---------- ------
Outstanding at September 30, 2005 2,161,925 $ 1.34
========== ======
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes included in Item 1 of Part 1 of this Quarterly
Report and the audited consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2004.
CRITICAL ACCOUNTING POLICIES. Our most critical accounting policies, which are
those that require significant estimates and judgment, include: revenue
recognition, trade and other accounts receivable, goodwill and stock-based
compensation. By their nature, these estimates and judgments are subject to an
inherent degree of uncertainty. Actual results may differ from these estimates
under different assumptions or conditions. A more in-depth description of our
accounting policies can be found in footnote 2 to the interim financial
statements included in this report and in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2004.
RESULTS OF OPERATIONS
The following table sets forth our statement of operations data as a percentage
of total revenues and also sets forth other financial and operating data for the
quarter ended September 30, 2005 and 2004, and for the nine months ended
September 30, 2005 and 2004:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2005 2004 2005 2004
----- ------ ----- -------
REVENUE 100.0% 100.0% 100.0% 100.0%
COSTS OF REVENUE 74.0 74.6 74.4 74.6
----- ------ ----- -------
GROSS PROFIT 26.0 25.4 25.6 25.4
OPERATING EXPENSES
Salaries 10.8 10.7 10.4 10.7
Other selling, general and administrative 7.0 5.9 6.5 6.3
Amortization of acquired intangible assets 1.6 1.7 1.6 1.7
----- ------ ----- -------
Total operating expenses 19.4 18.3 18.5 18.7
----- ------ ----- -------
OPERATING INCOME 6.6 7.1 7.1 6.7
OTHER INCOME (EXPENSE) 0.0 (0.9) (0.1) (1.0)
----- ------ ----- -------
EARNINGS BEFORE INCOME TAXES 6.6 6.2 7.0 5.7
INCOME TAX EXPENSE 2.6 2.5 2.8 2.2
----- ------ ----- -------
NET EARNINGS 4.0 3.7 4.2 3.5
Dividend to preferred shareholders 0.2 0.2 0.2 0.2
----- ------ ----- -------
NET EARNINGS APPLICABLE TO
COMMON SHAREHOLDERS 3.8% 3.5% 4.0% 3.3%
===== ====== ===== =======
11
OTHER FINANCIAL AND OPERATING DATA: Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2005 2004 2005 2004
------------ ----------- ------------ ------------
Fitness Management Revenue
Staffing Services $ 9,504,194 $ 9,855,438 $ 28,801,495 $ 29,336,224
Program Services 769,924 470,988 2,350,584 1,411,836
Consulting Services 50,941 43,323 163,658 114,588
------------ ----------- ------------ ------------
10,325,059 10,369,749 31,315,737 30,862,648
------------ ----------- ------------ ------------
Health Management Revenue
Staffing Services 2,982,339 2,659,217 8,829,253 7,860,008
Program Services 146,518 116,525 438,211 209,443
Consulting Services 10,362 8,849 24,793 18,330
------------ ----------- ------------ ------------
3,139,219 2,784,591 9,292,257 8,087,781
------------ ----------- ------------ ------------
Total Revenue
Staffing Services 12,486,533 12,514,655 37,630,748 37,196,232
Program Services 916,442 587,513 2,788,795 1,621,279
Consulting Services 61,303 52,172 188,451 132,918
------------ ----------- ------------ ------------
$ 13,464,278 $13,154,340 $ 40,607,994 $ 38,950,429
------------ ----------- ------------ ------------
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 2005 AS COMPARED TO
THE QUARTER ENDED SEPTEMBER 30, 2004.
REVENUE. Revenues increased $310,000, or 2.4%, to $13,464,000 for the three
months ended September 30, 2005, from $13,154,000 for the three months ended
September 30, 2004. This increase is attributable to fitness and health program
services growth of $329,000 and growth from consulting services of $9,000. The
growth in fitness and health program services is primarily attributable to
higher utilization by fitness center members. These increases were partially
offset by a decrease in staffing services revenue of $28,000, which is
attributed to a $351,000 decrease in fitness management staffing services. The
decrease in fitness management staffing revenue for the third quarter is
attributed to higher-than-normal revenue attrition from contracts that were
acquired in December 2003. Since contract attrition can be unpredictable, the
Company generally does not view short-term changes in contract revenue to be
indicative of future results, or a trend in the business. New contracts the
Company secures may take 90 to 180 days to generate full revenue. At the same
time, many of the Company's contracts can be terminated with a 30 day notice.
Because this timing difference can temporarily affect revenue results, the
Company generally evaluates prospective revenue trends over a 12 to 18 month
period.
GROSS PROFIT. Gross profit increased $152,000, or 4.5%, to $3,499,000 for the
three months ended September 30, 2005, from $3,347,000 for the three months
ended September 30, 2004. This increase is primarily attributed to a $225,000
refund of 2004 worker's compensation insurance premiums, which is due to
favorable 2004 claims activity. The Company also experienced a $139,000 increase
in program services gross profit, which is primarily due to revenue growth.
Offsetting these increases was a $184,000 decrease in gross profit from staffing
services, which is primarily due to termination of fitness center staffing
contracts and higher costs for employee medical benefits.
As a percent of revenue, gross profit increased to 26.0%, from 25.4% for the
third quarter of 2004. This increase is due primarily to the refund of 2004
worker's compensation insurance premium being offset by contract terminations
that had higher margins and higher costs for employee medical benefits.
OPERATING EXPENSES. Operating expenses increased $202,000, or 8.4%, to
$2,615,000 for the three months ended September 30, 2005 from $2,413,000 for the
three months ended September 30, 2004. This increase is primarily attributed to
anticipated increases in salaries and other operating expenses in our contract
administration, programs management, sales and corporate administration areas.
12
OTHER INCOME AND EXPENSE. Interest expense decreased $122,000 to income of
$4,000 for the three months ended September 30, 2005, compared to an expense of
$118,000 for the same period in 2004. This decrease is primarily due to the
December 2004 repayment of the Company's $2,000,000 Senior Subordinated Note
held by Bayview Capital Partners LP. Since there was interest income for the
third quarter of 2005, the Company's cost of borrowed funds was inconsequential.
The cost of borrowed funds during the third quarter of 2004 was 9.8%.
INCOME TAXES. Income tax expense increased $24,000 to $354,000 for the three
months ended September 30, 2005 compared to $330,000 for the same period in
2004. The increase is primarily due to the $68,000 increase in earnings before
taxes.
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS. As a result of the above, net
earnings applicable to common shareholders for the three months ended September
30, 2005 increased $41,000, or 8.8%, to $506,000, from $465,000 for the three
months ended September 30, 2004.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AS COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 2004.
REVENUE. Revenues increased $1,658,000, or 4.3%, to $40,608,000 for the nine
months ended September 30, 2005, from $38,950,000 for the nine months ended
September 30, 2004. This increase is attributable to fitness and health program
services growth of $1,168,000, health management staffing services growth of
$969,000 and growth from consulting services of $56,000. Growth in these areas
was primarily attributable to incremental business from existing customers.
Fitness management staffing services decreased $535,000 in 2005 compared to
2004. The decrease in fitness management staffing revenue is attributed to
higher-than-normal revenue attrition from contracts that were acquired in
December 2003. Since contract attrition can be unpredictable, the Company
generally does not view short-term changes in contract revenue to be indicative
of future results, or a trend in the business. New contracts the Company secures
may take 90 to 180 days to generate full revenue. At the same time, many of the
Company's contracts can be terminated with a 30 day notice. Because this timing
difference can temporarily affect revenue results, the Company generally
evaluates prospective revenue trends over a 12 to 18 month period.
GROSS PROFIT. Gross profit increased $514,000, or 5.2%, to $10,391,000 for the
nine months ended September 30, 2005, from $9,877,000 for the nine months ended
September 30, 2004. This increase is due primarily to revenue growth and the
refund of 2004 worker's compensation insurance premium discussed previously.
As a percent of revenue, gross profit increased to 25.6%, from 25.4% for the
nine months ended September 30, 2005. This increase is due primarily to the
refund of 2004 worker's compensation insurance premium, which is being offset by
decreases from contract terminations that had higher margins and higher costs
for employee medical benefits.
OPERATING EXPENSES. Operating expenses increased $250,000, or 3.4%, to
$7,528,000 for the nine months ended September 30, 2005, from $7,278,000 for the
nine months ended September 30, 2004. This increase is primarily attributed to
anticipated increases in salaries and other operating expenses in our contract
administration, programs management, sales and corporate administration areas.
OTHER INCOME AND EXPENSE. Interest expense decreased $357,000 to $24,000 for the
nine months ended September 30, 2005, compared to $381,000 for the same period
in 2004. This decrease is primarily due to the December 2004 repayment of the
Company's $2,000,000 Senior Subordinated Note held by Bayview Capital Partners
LP. Since interest was immaterial for the nine months ended September 30, 2005,
the Company's cost
13
of borrowed funds was inconsequential. The cost of borrowed funds for the nine
months ended September 30, 2004 was 7.5%.
INCOME TAXES. Income tax expense increased $251,000 to $1,134,000 for the nine
months ended September 30, 2005, compared to $883,000 for the same period in
2004. The increase is primarily due to the $614,000 increase in earnings before
taxes.
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS. As a result of the above, net
earnings applicable to common shareholders for the nine months ended September
30, 2005 increased $360,000, or 28.3%, to $1,633,000, from $1,273,000 for the
nine months ended September 30, 2004.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased $773,000 to $4,729,000 at September 30,
2005, compared to working capital of $3,956,000 at December 31, 2004. The
increase in working capital is due primarily to an increase in prepaid expense
and accounts receivable and decreases in accrued expenses and deferred revenue,
which were offset by decreases in deferred tax assets and cash, and an increase
in other accrued liabilities.
In addition to cash flows generated from operating activities, the Company's
other source of liquidity and working capital is provided by a $7,500,000 Credit
Agreement with Wells Fargo Bank, N.A. (the "Wells Loan"). The availability of
the Wells Loan decreases $250,000 on the last day of each calendar quarter,
beginning September 30, 2003, and matures on June 30, 2007. Working capital
advances from the Wells Loan are based upon a percentage of the Company's
eligible accounts receivable, less any amounts previously drawn. The facility
provided maximum borrowing capacity of $5,250,000 and $6,000,000 at September
30, 2005 and December 31, 2004. Excluding current outstanding balances, and
based upon eligible accounts receivable, $5,152,467 and $3,758,851 was available
for borrowing on such respective dates.
As of September 30, 2005, the Company had no off-balance sheet arrangements or
transactions with unconsolidated, limited purpose entities. Refer to the
footnotes in the Company's Annual Report on Form 10-K for the year ended
December 31, 2004 for disclosure related to the Company's "Commitments and
Contingencies."
The Company believes that sources of capital to meet its existing obligations
and conduct its operations over the next 12 months will be provided by cash
generated through operations and the Company's Wells Loan. The Company, from
time to time, may purchase significant assets or other entities as it attempts
to grow its business and expand its services. In the event the Company makes any
such acquisitions, it may be required to obtain additional debt or equity
financing. There can be no assurance that the Company's efforts to obtain any
such additional financing will be successful or on terms favorable to the
Company. If the Company sells equity securities, existing shareholders may
suffer economic and voting dilution.
The Company does not believe that inflation has had a significant impact on the
results of its operations.
RISK FACTORS / FORWARD-LOOKING STATEMENTS
The foregoing discussion contains various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements are based on current expectations or beliefs concerning future
events. Any statements that are not based upon historical facts, including the
outcome of events that have not yet occurred and our expectations for future
performance, are forward-looking. Such statements can be identified by the use
of terminology such as "anticipate," "believe," "estimate," "expect," "intend,"
"may," "could," "possible,"
14
"plan," "project," "will," "forecast" and similar words or expressions. The
Company's forward-looking statements generally relate to its growth strategies,
recent reorganization, financial results, marketing efforts, acquisition plans
and cash requirements. Although it is not possible to foresee all of the factors
that may cause actual results to differ from the Company's forward-looking
statements, such factors include, among others, the risk factors that follow.
You should not consider the below risks to be the only ones we may face from
time to time. You should take such factors into account when making investment
decisions and are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on which they are made. We undertake
no obligation to update any forward-looking statements.
THE TIMING OF NEW AND LOST MANAGEMENT SERVICE CONTRACTS MAY NOT BE INDICATIVE OF
TRENDS IN OUR BUSINESS OR OF FUTURE QUARTERLY FINANCIAL RESULTS. The Company
evaluates its business, in part, by reviewing trends in its financial
performance. Management believes an important indicator of the Company's outlook
is revenue to be derived from fitness and health management service contracts
the Company enters into with customers. Fitness and health management service
contracts are often long-term contracts (i.e., 3 - 5 years), contain annual,
automatic renewals and generally require 30 to 60 days notice to terminate, or
to avoid the automatic annual renewal feature. Revenue from new contracts often
is not recognized for a period of 90 to 180 days after proposal acceptance due
to lead times necessary to execute a contract and hire staff to begin providing
services. Since termination notice periods are considerably less than the time
it takes to begin servicing new contracts, the revenue lost in a reporting
period may significantly exceed the revenue gained from new contracts.
Because of these timing differences, management generally does not view changes
in quarterly revenue, whether sequential or comparable prior quarter changes, to
be indicative of its outlook or trends in the Company's business or to be
reflective of revenue expected in succeeding quarters. Rather, management
generally evaluates revenue trends in the Company's fitness and health
management services business based upon 12- to 18-month periods since it
believes this helps minimize the timing impact from new and terminated
contracts. Management cautions investors not to place undue reliance upon
fluctuations in quarterly revenue viewed in isolation from revenue information
over longer periods of time (e.g., comparative trailing 12-month information),
and to not view quarterly revenue as necessarily being indicative of the
Company's outlook or results to be expected in future quarters.
FAILURE TO IDENTIFY ACQUISITION OPPORTUNITIES MAY LIMIT OUR GROWTH. An important
part of the Company's growth has been the acquisition of complementary
businesses. The Company may choose to continue this strategy in the future.
Management's identification of suitable acquisition candidates involves risks
inherent in assessing the value, strengths, weaknesses, overall risks and
profitability of acquisition candidates. Management may be unable to identify
suitable acquisition candidates. If the Company does not make suitable
acquisitions, it may find it more difficult to realize growth objectives and to
enhance shareholder value.
In addition, future acquisitions by the Company may be dilutive to shareholders,
cause the Company to incur additional indebtedness and large one-time expenses
or create intangible assets that could result in significant amortization
expense. If the Company spends significant funds or incurs additional debt, the
Company's ability to obtain necessary financing may decline and it may be more
vulnerable to economic downturns and competitive pressures. Management cannot
guarantee that the Company will be able to successfully complete any future
acquisitions, that it will be able to finance acquisitions or that it will
realize any anticipated benefits from completed acquisitions.
THE COMPANY MAY EXPERIENCE DIFFICULTY MANAGING GROWTH, INCLUDING ATTRACTING
QUALIFIED STAFF. The Company has experienced substantial growth during the past
few years, both organically and by acquisition. The Company's ability to grow in
the future will depend on a number of factors, including the ability to obtain
new customers, expand existing customer relationships, develop additional
fitness and health improvement programs and services and hire and train
qualified staff. The Company may experience difficulty in attracting and
retaining qualified staff in various markets to meet growth opportunities.
Further, in order to attract qualified staff, the Company may be required to pay
higher salaries and enhance benefits in more competitive
15
markets, which may result in a material adverse effect on the Company's results
of operation and financial condition. Sustaining growth may require the Company
to sell its services at lower prices to remain competitive, which may result in
a material adverse effect on the Company's results of operation and financial
condition. There can be no assurance that the Company will be able to manage
expanding operations effectively or that it will be able to maintain or
accelerate its growth, and any failure to do so may result in a material adverse
effect on the Company's results of operation and financial condition.
FAILURE TO RENEW EXISTING CUSTOMER CONTRACTS COULD HAVE A NEGATIVE EFFECT ON OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Company's growth strategy
depends in part upon continuous development and improvement of attractive and
effective health management programs and services. The Company's failure to
anticipate trends or to successfully develop, improve or implement such programs
or services may have a material adverse effect on the Company's results of
operation and financial condition. The Company currently contracts with third
party partners to provide a portion of such programs and services and
anticipates that this will continue to be the case. If any of such third party
partners no longer made these programs and services available to the Company,
there is no assurance that the Company would be able to replace such third-party
partner programs and services, and if the Company could not do so, the Company's
ability to pursue its growth strategies would be seriously compromised.
THE COMPANY IS DEPENDENT ON MAINTAINING ITS CORPORATE RELATIONSHIPS. The
majority of the Company's contracts are with large corporations regarding the
management of on-site fitness centers. While the specific terms of such
agreements vary, some contracts are subject to early termination by the
corporate customer without cause. Although the Company has a history of
consistent contract renewals, there can be no assurance that future renewals
will be secured. The early termination or non-renewal of corporate contracts may
have a material adverse effect on the Company's results of operation and
financial condition.
THE COMPANY'S CUSTOMERS ARE PRIMARILY CORPORATIONS AND THEREFORE ITS FINANCIAL
RESULTS ARE SUBJECT TO GENERAL ECONOMIC CONDITIONS. The Company's revenue,
expenses and net income are subject to general economic conditions. A
significant portion of the Company's revenue is derived from companies who
historically have reduced their expenditures for on-site fitness management
services during economic downturns. Should the economy weaken, or experience
more significant recessionary pressures, corporate customers may reduce or
eliminate their expenditures for on-site fitness center management services, and
prospective customers may not commit resources to such services. Also, should
the size of a customer's workforce be reduced, the Company may have to reduce
the number of staff assigned to manage a customer's fitness center.
Additionally, the Company's operations in Canada are subject to foreign currency
risk, although these operations currently represent less than 5% of the
Company's overall revenues. These factors may have a material adverse effect on
the Company's results of operation and financial condition.
THE COMPANY IS DEPENDENT ON ITS KEY EMPLOYEES. THE LOSS OF ANY OF THESE
EMPLOYEES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR PERFORMANCE AND RESULTS OF
OPERATIONS. The success of the Company is highly dependent on the efforts,
abilities and continued services of its executive officers and other key
employees. The loss of any of the executive officers or key employees may have a
material adverse effect on the Company results of operation and financial
condition. The Company believes that its future success will depend on its
ability to attract, motivate and retain highly-skilled corporate, divisional,
regional and site-based personnel. Although historically the Company has been
successful in retaining the services of its senior management, there can be no
assurance that the Company will be able to do so in the future.
THE COMPANY OPERATES WITHIN A HIGHLY COMPETITIVE MARKET AGAINST FORMIDABLE
COMPANIES. The Company competes for new and existing corporate customers in a
highly fragmented and competitive market. Management believes that the Company's
ability to compete successfully depends on a number of factors, including
quality and depth of service, locational convenience and cost. The market for
on-site fitness center management services is price-sensitive. From time to
time, the Company may be at a price disadvantage with respect to the
competition, as such competition may propose a substantially lower price than
the Company.
16
There can be no assurance that the Company will be able to compete successfully
against current and future competitors, or that competitive pressures faced by
the Company will not have a material adverse effect on the Company's results of
operation and financial condition.
THE COMPANY'S RESULTS OF OPERATIONS COULD BE ADVERSELY IMPACTED BY LITIGATION.
Because of the nature of its business, the Company expects that it may be
subject to claims and litigation alleging negligence or other grounds for
liability arising from injuries or other harm to the customers it serves. The
Company has occasionally been named a defendant in claims relating to accidents
that occurred in the fitness centers it manages. There can be no assurance that
additional claims will not be filed, and that the Company's insurance will be
adequate to cover liabilities resulting from any claim.
THE COMPANY COULD EXPERIENCE A POTENTIAL DEPRESSIVE EFFECT ON THE PRICE OF ITS
COMMON STOCK FOLLOWING THE EXERCISE AND SALE OF EXISTING CONVERTIBLE SECURITIES.
At September 30, 2005, the Company had outstanding stock options and warrants to
purchase an aggregate of 3,467,388 shares of common stock. The Company also had
outstanding 1,111,105 shares of preferred stock that are convertible into
2,222,210 shares of common stock. The exercise of such outstanding stock options
and warrants and the sale of the common stock acquired thereby, as well as the
conversion of preferred stock and the sale of common stock acquired thereby, may
have a material adverse effect on the price of the Company's common stock. In
addition, the exercise of such outstanding stock options and warrants and sale
of such shares of the Company's common stock could occur at a time when the
Company might otherwise be able to obtain additional equity capital on terms and
conditions more favorable to the Company.
THE COMPANY HAS IMPLEMENTED, ON A LIMITED BASIS, A BUSINESS MODEL FOR MANAGING
CORPORATE FITNESS CENTERS ON A COST-NEUTRAL OR FOR-PROFIT BASIS. The Company
has, on a limited basis, implemented a model of managing corporate fitness
centers on a cost-neutral or for-profit basis without receiving a management fee
from the corporate owner of such centers. Corporate-owned centers are resistant
to significant membership fees and fee increases, and the Company may not be
successful in sufficiently managing costs and/or in raising service levels and
associated revenues, as required to achieve profit objectives.
THE COMPANY'S COMMON STOCK IS THINLY TRADED, AND SUBJECT TO VOLATILITY. The
Company's common stock is traded on the Over the Counter Bulletin Board.
Investing in OTC securities is speculative and carries a high degree of risk.
Many OTC securities are relatively illiquid, or "thinly traded," which can
enhance volatility in the share price and make it difficult for investors to buy
or sell without dramatically affecting the quoted price or may be unable to sell
a position at a later date. As a result, an investor may find it more difficult
to dispose of or obtain accurate quotations as to the price of the Company's
shares of the common stock. If limited trading in our stock continues, it may be
difficult for investors to sell their shares in the public market at any given
time at prevailing prices.
RECENTLY PASSED LEGISLATION
HIPPA. The Administrative Simplification provisions of the Health Insurance
Portability and Accountability Act of 1996 ("HIPAA") require group health plans
and health care providers who conduct certain administrative and financial
transactions electronically ("Standard Transactions") to (a) comply with a
certain data format and coding standards when conducting electronic
transactions; (b) use appropriate technologies to protect the security and
integrity of individually identifiable health information transmitted or
maintained in an electronic format; and (c) protect the privacy of patient
health information. The Company's occupational health line of business, which
accounts for approximately five percent of the Company's total revenue, and the
group health plan the Company sponsors for its employees are subject to HIPAA's
requirements. The Company expects to be in compliance with HIPPA requirements
within the timeline specified for the Company's affected business areas. The
Company's corporate, hospital, community and university based fitness center
management lines of business are not subject to the requirements of HIPAA.
17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks related to changes in U.S. and
international interest rates. All of the Company's long-term obligations bear
interest at a variable rate. An interest rate increase by one percentage point
would reduce the Company's future annual net income by less than $10,000 at
current debt levels.
The Company has no history of, and does not anticipate in the future, investing
in derivative financial instruments, derivative commodity instruments or other
such financial instruments. Transactions with international customers are
entered into in U.S. dollars, precluding the need for foreign currency hedges.
As a result, the exposure to market risk is not material.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer (collectively,
the "Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures for the Company. The Certifying Officers have
concluded (based upon their evaluation of these controls and procedures as of
the end of the period covered by this report) that the Company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the rules of the Securities and Exchange Commission. The Certifying
Officers also have indicated that there were no significant changes in the
Company's internal control over financial reporting that occurred during the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
18
PART II. - OTHER INFORMATION
ITEM 1. Legal Proceedings
Refer to Item 3 (Legal Proceedings) of the Company's Annual Report on Form 10-K
for the year ended December 31, 2004.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
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
(a) Exhibits
See Exhibit Index on page following signatures
19
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 14, 2005
HEALTH FITNESS CORPORATION
By /s/ Jerry V. Noyce
---------------------------
Jerry V. Noyce
Chief Executive Officer
(Principal Executive Officer)
By /s/ Wesley W. Winnekins
---------------------------
Wesley W. Winnekins
Chief Financial Officer
(Principal Financial and Accounting Officer)
20
EXHIBIT INDEX
HEALTH FITNESS CORPORATION
FORM 10-Q
Exhibit # Description
*11.0 Statement re: Computation of Earnings per Share
*31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
*31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
*32.1 Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
*32.2 Certification of Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
----------------
* Filed herewith
21