##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For Quarter Ended March 31, 2007
    
    Commission File Number 0-120152
 HEALTHCARE SERVICES GROUP, INC.
  Pennsylvania
    
    23-2018365(State or other jurisdiction of
    
    (IRS Employer Identificationincorporation or organization)
    
    number)
 3220 Tillman Drive-Suite 300, Bensalem, Pennsylvania
    
    19020(Address of principal executive office)
    
    (Zip code)
 215-639-4274
 þ o
  o þ o
 o þ




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##### 



INDEX
 PAGE NO.PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Consolidated Balance Sheets as of
March 31, 2007 and December 31, 2006
    
    
    2Consolidated Statements of Income for the Three Months Ended March 31,
2007 and March 31, 2006
    
    
    3Consolidated Statements of Cash Flows for the Three Months ended March
31, 2007 and March 31, 2006
    
    
    4Consolidated Statement of Stockholders Equity for the Three Months
Ended March 31, 2007
    
    
    5Notes To Consolidated Financial Statements
    
    
    6  14Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results Of Operations
    
    
    15  28Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    29Item 4.
    
    Controls and Procedures
    
    
    29Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    30Item 1A.
    
    Risk Factors
    
    
    30Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3.
    
    Defaults Upon Senior Securities
    
    
    30Item 4.
    
    Submission of Matters to a Vote of Security
Holders
    
    
    30Item 5.
    
    Other Information
    
    
    30Item 6.
    
    Exhibits
    
    
    30Signatures
    
    
    31Certification of Principal Executive OfficerCertification of Principal Financial OfficerCertification of Principal Executive Officer pursuant to Section 906Certification of Principal Financial Officer pursuant to Section 906
  -1-




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##### Table of Contents



Consolidated Balance Sheets
 (Unaudited)March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    78,999,000
    
    
    $
    72,997,000Accounts and notes receivable, less allowance for doubtful
accounts of $4,612,000 in 2007 and $2,716,000 in 2006
    
    
    80,691,000
    
    
    
    78,086,000Inventories and supplies
    
    
    13,162,000
    
    
    
    12,640,000Deferred income taxes
    
    
    1,204,000
    
    
    
    652,000Prepaid expenses and other
    
    
    4,192,000
    
    
    
    3,862,000Total current assets
    
    
    178,248,000
    
    
    
    168,237,000PROPERTY AND EQUIPMENT:Laundry and linen equipment installations
    
    
    1,748,000
    
    
    
    1,781,000Housekeeping equipment and office equipment
    
    
    16,223,000
    
    
    
    16,086,000Autos and trucks
    
    
    85,000
    
    
    
    85,00018,056,000
    
    
    
    17,952,000Less accumulated depreciation
    
    
    13,308,000
    
    
    
    13,077,0004,748,000
    
    
    
    4,875,000GOODWILL, Less accumulated amortization of $1,743,000 in 2007 and 2006
    
    
    14,570,000
    
    
    
    14,543,000OTHER INTANGIBLE ASSETS, Less accumulated amortization of
$617,000 in 2007 and $352,000 in 2006
    
    
    6,883,000
    
    
    
    7,148,000NOTES RECEIVABLE- long term portion, net of discount
    
    
    8,082,000
    
    
    
    7,861,000DEFERRED COMPENSATION FUNDING
    
    
    8,356,000
    
    
    
    7,385,000DEFERRED INCOME TAXES- long term portion
    
    
    5,739,000
    
    
    
    5,403,000OTHER NONCURRENT ASSETS
    
    
    105,000
    
    
    
    104,000TOTAL ASSETS
    
    $
    226,731,000
    
    
    $
    215,556,000LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    7,474,000
    
    
    $
    10,139,000Accrued payroll, accrued and withheld payroll taxes
    
    
    15,594,000
    
    
    
    10,125,000Other accrued expenses
    
    
    2,171,000
    
    
    
    2,425,000Income taxes payable
    
    
    192,000
    
    
    
    274,000Accrued insurance claims
    
    
    4,623,000
    
    
    
    4,647,000Total current liabilities
    
    
    30,054,000
    
    
    
    27,610,000ACCRUED INSURANCE CLAIMS- long term portion
    
    
    10,786,000
    
    
    
    10,843,000DEFERRED COMPENSATION LIABILITY
    
    
    12,497,000
    
    
    
    11,626,000COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common stock, $.01 par value: 30,000,000 shares authorized,
29,172,000 shares issued in 2007 and 28,999,000 shares in 2006
    
    
    292,000
    
    
    
    290,000Additional paid in capital
    
    
    62,565,000
    
    
    
    58,809,000Retained earnings
    
    
    127,831,000
    
    
    
    124,268,000Common stock in treasury, at cost, 1,458,000 shares in 2007 and
1,517,000 shares in 2006
    
    
    (17,294,000
    )
    
    
    (17,890,000
    )Total stockholders equity
    
    
    173,394,000
    
    
    
    165,477,000TOTAL LIABILITITIES AND STOCKHOLDERS EQUITY
    
    $
    226,731,000
    
    
    $
    215,556,000
  -2-




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##### Table of Contents



Consolidated Statements of Income  (Unaudited)
 For the Three Months Ended March 31,2007
    
    
    2006Revenues
    
    $
    140,679,000
    
    
    $
    118,918,000Operating costs and expenses:Costs of services provided
    
    
    119,314,000
    
    
    
    102,182,000Selling, general and administrative
    
    
    10,511,000
    
    
    
    9,074,000Other Income :Investment and interest income
    
    
    1,261,000
    
    
    
    1,347,000Income before income taxes
    
    
    12,115,000
    
    
    
    9,009,000Income taxes
    
    
    4,665,000
    
    
    
    3,333,000Net Income
    
    $
    7,450,000
    
    
    $
    5,676,000Basic earnings per common share
    
    $
    0.27
    
    
    $
    0.21Diluted earnings per common share
    
    $
    0.26
    
    
    $
    0.20Cash dividends per common share
    
    $
    0.14
    
    
    $
    0.10Basic weighted average number of
common shares outstanding
    
    
    27,771,000
    
    
    
    27,320,000Diluted weighted average number of
common shares outstanding
    
    
    29,108,000
    
    
    
    28,620,000
  -3-




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##### Table of Contents



Consolidated Statements of Cash Flows
 ( Unaudited )For the Three Months EndedMarch 31,2007
    
    
    2006Cash flows from operating activities:Net Income
    
    $
    7,450,000
    
    
    $
    5,676,000Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation and amortization
    
    
    745,000
    
    
    
    473,000Bad debt provision
    
    
    1,977,000
    
    
    
    375,000Deferred income taxes benefits
    
    
    (888,000
    )
    
    
    (386,000
    )Stock-based compensation expense
    
    
    103,000
    
    
    
    81,000Tax benefit of stock option transactions
    
    
    
    
    
    
    513,000Unrealized gain on deferred compensation
fund investments
    
    
    (382,000
    )
    
    
    (434,000
    )Changes in operating assets and liabilities:Accounts and notes receivable
    
    
    (4,582,000
    )
    
    
    (3,955,000
    )Inventories and supplies
    
    
    (522,000
    )
    
    
    (220,000
    )Notes receivable- long term portion
    
    
    (221,000
    )
    
    
    226,000Deferred compensation funding
    
    
    (589,000
    )
    
    
    (91,000
    )Accounts payable and other accrued expenses
    
    
    (2,541,000
    )
    
    
    416,000Accrued payroll, accrued and withheld payroll taxes
    
    
    6,242,000
    
    
    
    5,493,000Accrued insurance claims
    
    
    (81,000
    )
    
    
    135,000Deferred compensation liability
    
    
    871,000
    
    
    
    885,000Income taxes payable
    
    
    (82,000
    )
    
    
    434,000Prepaid expenses and other assets
    
    
    (330,000
    )
    
    
    (613,000
    )Net cash provided by operating activities
    
    
    7,170,000
    
    
    
    9,008,000Cash flows from investing activities:Disposals of fixed assets
    
    
    61,000
    
    
    
    32,000Additions to property and equipment
    
    
    (415,000
    )Cash paid for acquisition
    
    
    (27,000
    )
    
    
    (487,000
    )Net cash used in investing activities
    
    
    (381,000
    )
    
    
    (455,000
    )Cash flows from financing activities:Treasury stock transactions in benefit plans
    
    
    82,000
    
    
    
    (37,000
    )Dividends paid
    
    
    (3,887,000
    )
    
    
    (2,730,000
    )Reissuance of treasury stock pursuant to Dividend
Reinvestment Plan
    
    
    14,000
    
    
    
    9,000Tax benefit from equity compensation plans
    
    
    1,307,000
    
    
    
    Proceeds from the exercise of stock options
    
    
    1,697,000
    
    
    
    1,209,000Net cash used in financing activities
    
    
    (787,000
    )
    
    
    (1,549,000
    )Net increase in cash and cash equivalents
    
    
    6,002,000
    
    
    
    7,004,000Cash and cash equivalents at beginning of the period
    
    
    72,997,000
    
    
    
    91,005,000Cash and cash equivalents at end of the period
    
    $
    78,999,000
    
    
    $
    98,009,000Supplementary Cash Flow Information:Income taxes cash payments, net of refunds
    
    $
    4,328,000
    
    
    $
    2,771,000Issuance of 43,000 shares of Common Stock in 2007 and
64,000 shares of Common Stock in 2006 pursuant to
Employee Stock Plans
    
    $
    1,254,000
    
    
    $
    728,000
  -4-




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##### Table of Contents



For the Three Months Ended March 31, 2007
 AdditionalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Treasury
    
    
    Stockholders'Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    EquityBalance, December 31, 2006
    
    
    28,999,000
    
    
    $
    290,000
    
    
    $
    58,809,000
    
    
    $
    124,268,000
    
    
    
    ($17,890,000
    )
    
    $
    165,477,000Net income for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,450,000
    
    
    
    
    
    
    
    7,450,000Exercise of stock options and other share-based compensation,
net of 4,000 shares tendered for payment
    
    
    173,000
    
    
    
    2,000
    
    
    
    1,695,000
    
    
    
    
    
    
    
    
    
    
    
    1,697,000Tax benefit arising from stock option transactions
    
    
    
    
    
    
    
    
    
    
    1,307,000
    
    
    
    
    
    
    
    
    
    
    
    1,307,000Shares purchased and shares sold in employee Deferred
Compensation Plan and other benefit plans (15,000 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,000
    
    
    
    82,000Shares issued pursuant to Employee Stock Plans (43,000 shares)
    
    
    
    
    
    
    
    
    
    
    745,000
    
    
    
    
    
    
    
    509,000
    
    
    
    1,254,000Cash dividends  $.14 per common share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,887,000
    )
    
    
    
    
    
    
    (3,887,000
    )Shares issued pursuant to Dividend Reinvestment Plan (1,000 shares)
    
    
    
    
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    5,000
    
    
    
    14,000Balance, March 31, 2007
    
    
    29,172,000
    
    
    $
    292,000
    
    
    $
    62,565,000
    
    
    $
    127,831,000
    
    
    
    ($17,294,000
    )
    
    $
    173,394,000
  -5-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1
-  Basis of Reporting
   Note 2 -  Acquisition
   -6-




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##### Table of Contents



Note 3 -  Goodwill and Other Intangible Assets
   Acquisition
    
    
    AmortizationAmount
    
    
    ExpenseCustomer Relationships
    
    $
    6,700,000
    
    
    $
    239,000Non-compete Agreements
    
    
    800,000
    
    
    
    25,000Total
    
    $
    7,500,000
    
    
    $
    264,000
  Customer
    
    Non-CompetePeriod/Year
    
    Relationships
    
    Agreements
    
    TotalApril 1 to
December 31, 2007
    
    $
    718,000
    
    
    $
    75,000
    
    
    $
    793,0002008
    
    $
    957,000
    
    
    $
    100,000
    
    
    $
    1,057,0002009
    
    $
    957,000
    
    
    $
    100,000
    
    
    $
    1,057,0002010
    
    $
    957,000
    
    
    $
    100,000
    
    
    $
    1,057,0002011
    
    $
    957,000
    
    
    $
    100,000
    
    
    $
    1,057,000
  Summit
    
    
    All other
    
    
    TotalGoodwill as of December 31, 2006
    
    $
    12,931,000
    
    
    $
    1,612,000
    
    
    $
    14,543,000Goodwill adjustments during first quarter(1)
    
    
    27,000
    
    
    
    
    
    
    
    27,000Goodwill as of March 31, 2007
    
    $
    12,958,000
    
    
    $
    1,612,000
    
    
    $
    14,570,000
 
 (1)
    
    Goodwill adjusted during the quarter relates to professional fees expense incurred. -7-




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##### Table of Contents



Segment
    
    AmountFood
    
    $
    1,351,000Housekeeping
    
    
    13,219,000Total
    
    $
    14,570,000
 Note 4- Other Contingencies
       -8-




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##### Table of Contents



Note 5- Segment Information
 Reportable Operating Segments
    Corporate andHousekeeping
    
    Food
    
    Eliminations
    
    TotalQuarter Ended March 31, 2007Revenues
    
    $
    113,201,000
    
    
    $
    26,553,000
    
    
    $
    925,000
    
    
    $
    140,679,000Income before income
taxes
    
    $
    11,320,000
    
    
    $
    1,181,000
    
    
    $
    (386,000
    )(1)
    
    $
    12,115,000Quarter Ended March 31, 2006Revenues
    
    $
    94,859,000
    
    
    $
    23,039,000
    
    
    $
    1,020,000
    
    
    $
    118,918,000Income before income
taxes
    
    $
    9,414,000
    
    
    $
    703,000
    
    
    $
    (1,108,000
    )(1)
    
    $
    9,009,000
 
 (1)
    
    represents primarily corporate office cost and related overhead, as well as
consolidated subsidiaries operating expenses that are not allocated to the reportable
segments. -9-




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##### Table of Contents



Total Revenues from Clients
  For the Quarter Ended March 31,2007
    
    
    2006Housekeeping services
    
    $
    79,529,000
    
    
    $
    67,307,000Laundry and linen services
    
    
    34,212,000
    
    
    
    28,091,000Food Services
    
    
    26,319,000
    
    
    
    22,909,000Maintenance services
and Other
    
    
    619,000
    
    
    
    611,000$
    140,679,000
    
    
    $
    118,918,000
 Major Client
 .
 Note 6 - Earnings Per Common Share
  Quarter Ended March 31, 2007Income
    
    
    Shares
    
    
    Per-share(Numerator)
    
    
    (Denominator)
    
    
    AmountNet income
    
    $
    7,450,000Basic earnings per
common share
    
    $
    7,450,000
    
    
    
    27,771,000
    
    
    $
    .27Effect of dilutive securities:Options
    
    
    
    
    
    
    1,337,000
    
    
    
    (.01
    )Diluted earnings per
common share
    
    $
    7,450,000
    
    
    
    29,108,000
    
    
    $
    .26
 -10-




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##### Table of Contents



Quarter Ended March 31, 2006Income
    
    
    Shares
    
    
    Per-share(Numerator)
    
    
    (Denominator)
    
    
    AmountNet income
    
    $
    5,676,000Basic earnings per
common share
    
    $
    5,676,000
    
    
    
    27,320,000
    
    
    $
    .21Effect of dilutive securities:Options
    
    
    
    
    
    
    1,300,000
    
    
    
    (.01
    )Diluted earnings per
common share
    
    $
    5,676,000
    
    
    
    28,620,000
    
    
    $
    .20
  Note 7  Dividends
  Note 8  Share-Based Compensation
  Weighted AverageRemainingContractual
    
    
    AggregateWeighted Average
    
    
    Number
    
    
    Term
    
    
    IntrinsicPrice
    
    
    of Shares
    
    
    (In Years)
    
    
    ValueOutstanding, January 1, 2007
    
    $
    8.70
    
    
    
    2,434,000Granted
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Exercised
    
    
    9.76
    
    
    
    (  177,000
    )Outstanding, March 31, 2007
    
    $
    8.62
    
    
    
    2,257,000
    
    
    
    5.08
    
    
    $
    45,213,000Options exercisable as of March 31, 2007
    
    
    
    
    
    
    2,257,000
    
    
    
    5.08
    
    
    $
    45,213,000
 -11-




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##### Table of Contents



Options Outstanding
    
    
    
    
    
    
    Options ExercisableAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExercisePrice Range
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$2.25 - 3.75
    
    
    428,000
    
    
    
    2.73
    
    
    $
    3.04
    
    
    
    428,000
    
    
    $
    3.04$4.11 - 5.62
    
    
    775,000
    
    
    
    4.94
    
    
    
    4.66
    
    
    
    775,000
    
    
    
    4.66$8.29 - 8.29
    
    
    397,000
    
    
    
    6.74
    
    
    
    8.29
    
    
    
    397,000
    
    
    
    8.29$13.65 - 13.65
    
    
    335,000
    
    
    
    7.74
    
    
    
    13.65
    
    
    
    335,000
    
    
    
    13.65$20.71 - 20.71
    
    
    322,000
    
    
    
    3.75
    
    
    
    20.71
    
    
    
    322,000
    
    
    
    20.712,257,000
    
    
    
    5.08
    
    
    $
    8.62
    
    
    
    2,257,000
    
    
    $
    8.62
  March
    
    March31, 2007
    
    31, 2006Weighted average grant-date fair value of stock options granted:
    
    Not applicable
    
    Not applicableTotal fair value of stock options vested:
    
    Not applicable
    
    Not applicableTotal intrinsic value of stock options exercised:
    
    $
    3,345,000
    
    
    $
    1,512,000
    2007
    
    2006Pre-tax shared-based compensation expense
    
    $
    103,000
    
    
    $
    81,000Risk-free interest rate
    
    
    4.9
    %
    
    
    4.0
    %Expected volatility
    
    
    33.9
    %
    
    
    35.0
    %Weighted average expected life (in years)
    
    
    .75
    
    
    
    1.0Dividend yield
    
    
    1.6
    %
    
    
    1.9
    %
 -12-




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##### Table of Contents



Note 9  Related Party Transactions
   Note 10- Cumulative Effect of Adjustment to Deferred Compensation Liability
  -13-




---



##### Table of Contents



Note 11- Income Taxes
    Note 12  Recently Issued Accounting Pronouncements
    -14-




---



##### Table of Contents



ITEM
2  -  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
 CONDITION AND RESULTS OF OPERATIONS
 Cautionary Statement Regarding Forward Looking Statements
   -15-




---



##### Table of Contents



RESULTS OF OPERATIONS
    Overview
  -16-




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##### Table of Contents



Consolidated Operations
  Relation to Consolidated RevenuesFor the Quarter Ended March 31,2007
    
    2006Revenues
    
    
    100.0
    %
    
    
    100.0
    %Operating costs and expenses:Costs of services provided
    
    
    84.8
    
    
    
    85.9Selling, general and
administration
    
    
    7.5
    
    
    
    7.6Investment and interest income
    
    
    .9
    
    
    
    1.1Income before income taxes
    
    
    8.6
    
    
    
    7.6Income taxes
    
    
    3.3
    
    
    
    2.8Net income
    
    
    5.3
    %
    
    
    4.8
    %
  -17-




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##### Table of Contents



2007 First Quarter Compared with 2006 First Quarter
  Reportable SegmentsPercent
    
    Corporate and
    
    Housekeeping
    
    FoodConsolidated
    
    incr (decr)
    
    eliminations
    
    Amount
    
    %incr
    
    Amount
    
    %incrRevenues
    
    $
    140,679,000
    
    
    
    18.3
    %
    
    $
    925,000
    
    
    $
    113,201,000
    
    
    
    19.3
    %
    
    $
    26,553,000
    
    
    
    15.2
    %Cost of services provided
    
    
    119,314,000
    
    
    
    16.8
    
    
    
    (7,939,000
    )
    
    
    101,881,000
    
    
    
    19.2
    
    
    
    25,372,000
    
    
    
    13.6Selling, general and
administrative expense
    
    
    10,511 ,000
    
    
    
    15.8
    
    
    
    10,511,000
    
    
    
    
    
    
    
    
    
    
    
    Investment and interest
Income
    
    
    1,261,000
    
    
    
    (6.4
    )
    
    
    1,261,000
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    $
    12,115,000
    
    
    
    34.5
    %
    
    
    (386,000
    )
    
    $
    11,320,000
    
    
    
    20.2
    
    
    $
    1,181,000
    
    
    
    68.1
 Revenues
 Consolidated
  .
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##### Table of Contents



Reportable Segments
    Costs of services provided
 Consolidated
  Cost of Services Provided-Key Indicators
    
    2007 %
    
    2006 %
    
    Incr (Decr) %Bad debt provision
    
    
    1.4
    
    
    
    .3
    
    
    
    1.1Workers compensation and general
liability insurance
    
    
    3.0
    
    
    
    3.6
    
    
    
    ( .6
    )
   Reportable Segments
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##### Table of Contents



Cost of Services Provided-Key Indicators
    
    2007 %
    
    2006 %
    
    Decr %Housekeeping labor and other labor costs
    
    
    81.2
    
    
    
    81.3
    
    
    
    (   .1
    )Housekeeping segment supplies
    
    
    4.7
    
    
    
    5.4
    
    
    
    (   .7
    )Food labor and other labor costs
    
    
    54.0
    
    
    
    54.6
    
    
    
    (  .6
    )Food segment supplies
    
    
    36.2
    
    
    
    37.7
    
    
    
    ( 1.5
    )
     Consolidated Selling, General and Administrative Expense
  Consolidated Investment and Interest Income
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##### Table of Contents



Income before Income Taxes
 Consolidated
  Reportable Segments
   Consolidated Income Taxes
  Consolidated Net Income
  Critical Accounting Policies and Estimates
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##### Table of Contents



Allowance for Doubtful Accounts
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##### Table of Contents



Aggregate AccountBalances of Clientsin Bankruptcy orIn/Pending
    
    Net Write-Offs
    
    Bad Debt
    
    Allowance forPeriod Ended
    
    Collection/Litigation
    
    of Client Accounts
    
    Provision
    
    Doubtful AccountsMarch 31, 2007
    
    $
    10,978,000
    
    
    $
    81,000
    
    
    $
    1,977,000
    
    
    $
    4,612,000December 31, 2006
    
    $
    6,098,000
    
    
    $
    181,000
    
    
    $
    622,000
    
    
    $
    2,716,000
   Accrued Insurance Claims
 
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##### Table of Contents



Asset Valuations and Review for Potential Impairment
  -24-




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##### Table of Contents



Liquidity and Capital Resources
  Operating Activities
  Investing Activities
  Financing Activities
    Line of Credit
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##### Table of Contents



Covenant Description and Requirement
    
    Status at March 31, 2007Commitment coverage ratio: cash and cash
equivalents must equal or exceed outstanding
obligations under the line by a multiple of 2.
    
    Commitment coverage is 2.9Tangible net worth: must exceed $128,000,000.
    
    Tangible net worth is $151,940,000
  Accounts and Notes Receivable
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Insurance Programs
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##### Table of Contents



Capital Expenditures
  Material Off-Balance Sheet Arrangements
  Effects of Inflation
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##### Table of Contents



ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
    Certifications
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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1 Legal Proceedings
 
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 3 Defaults under Senior Securities.
 
 ITEM 4. Submission of Matters to a Vote of Security Holders
 
 ITEM 5. Other Information.
  
 ITEM 6. Exhibits
  31.1
    
    Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350.32.2
    
    Certification of Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350.
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##### Table of Contents



SIGNATURES
  HEALTHCARE SERVICES GROUP, INC.April 23, 2007
    
    /s/ Daniel P. McCartneyDate
    
    DANIEL P. McCARTNEY, ChiefExecutive OfficerApril 23, 2007
    
    /s/ Thomas A. CookDate
    
    THOMAS A. COOK, President andChief Operating OfficerApril 23, 2007
    
    /s/ Richard W. HudsonDate
    
    RICHARD W. HUDSON, ChiefFinancial Officer and Secretary
 -31-