##### Table of Contents



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 March 31, 2009
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 
Incorporation or Organization)
    
    (IRS Employer
Identification No.)
 1650 West 82 nd Street, Bloomington, MN 55431
(Address of Principal Executive Offices)
 Registrants telephone number (952) 831-6830
 
 þ o
 o o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ o þ




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##### 



Health Fitness Corporation
Consolidated Financial Statements
Table of Contents
 PAGEPART I.
    
    FINANCIAL INFORMATION
    
    
    3ITEM 1.
    
    Consolidated Financial Statements (unaudited)
    
    
    3Consolidated Balance Sheets as of March 31, 2009 and
December 31, 2008
    
    
    3Consolidated Statements of Operations for the three
months ended March 31, 2009 and 2008
    
    
    4Consolidated Statements of Cash Flows for the three
months ended March 31, 2009 and 2008
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    15ITEM 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    21ITEM 4.
    
    Controls and Procedures
    
    
    21PART II.
    
    OTHER INFORMATION
    
    
    21ITEM 1.
    
    Legal Proceedings
    
    
    21ITEM 1A.
    
    Risk Factors
    
    
    21ITEM 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22ITEMS 3-4.
    
    Not Applicable
    
    
    22ITEM 5.
    
    Other Information
    
    
    22ITEM 6.
    
    Exhibits
    
    
    22Signatures
    
    
    23Exhibit Index
    
    
    24EX-11.0EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I.  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 HEALTH FITNESS CORPORATION
 
 CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, 2009 AND DECEMBER 31, 2008
 March 31,
    
    
    December 31,2009
    
    
    2008ASSETSCURRENT ASSETSCash
    
    $
    5,300,681
    
    
    $
    1,300,620Trade and other accounts receivable, less allowances of $305,000 and $317,600
    
    
    13,337,434
    
    
    
    16,306,197Inventory
    
    
    368,373
    
    
    
    347,510Prepaid expenses and other
    
    
    647,529
    
    
    
    354,257Deferred tax assets
    
    
    288,626
    
    
    
    288,626Total current assets
    
    
    19,942,643
    
    
    
    18,597,210PROPERTY AND EQUIPMENT, net
    
    
    1,183,786
    
    
    
    1,243,413OTHER ASSETSGoodwill
    
    
    14,546,250
    
    
    
    14,546,250Software technology, less accumulated amortization of $1,454,300 and $1,301,300
    
    
    2,033,155
    
    
    
    1,977,071Trademark, less accumulated amortization of $445,500 and $438,700
    
    
    47,600
    
    
    
    54,400Other intangible assets, less accumulated amortization of $331,500 and $313,600
    
    
    197,542
    
    
    
    215,500$
    37,950,976
    
    
    $
    36,633,844LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESTrade accounts payable
    
    $
    1,306,624
    
    
    $
    1,470,440Accrued salaries, wages, and payroll taxes
    
    
    2,791,466
    
    
    
    2,632,329Other accrued liabilities
    
    
    2,081,410
    
    
    
    1,664,710Accrued self funded insurance
    
    
    263,936
    
    
    
    310,511Deferred revenue
    
    
    1,581,451
    
    
    
    1,820,960Total current liabilities
    
    
    8,024,887
    
    
    
    7,898,950DEFERRED TAX LIABILITY
    
    
    751,769
    
    
    
    751,769LONG-TERM OBLIGATIONS
    
    
    
    
    
    
    COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYCommon stock, $0.01 par value; 25,000,000 shares authorized; 10,033,351 and
9,647,404 shares issued and outstanding at March 31, 2009 and December 31, 2008,
respectively
    
    
    100,333
    
    
    
    96,474Additional paid-in capital
    
    
    28,451,754
    
    
    
    28,263,803Accumulated comprehensive loss from foreign currency translation
    
    
    (87,638
    )
    
    
    (83,835
    )Retained earnings (accumulated deficit)
    
    
    709,871
    
    
    
    (293,317
    )29,174,320
    
    
    
    27,983,125$
    37,950,976
    
    
    $
    36,633,844
  3




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HEALTH FITNESS CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three Months EndedMarch 31,2009
    
    
    2008REVENUE
    
    $
    19,207,230
    
    
    $
    18,702,667COSTS OF REVENUE
    
    
    12,916,006
    
    
    
    13,360,402GROSS PROFIT
    
    
    6,291,224
    
    
    
    5,342,265OPERATING EXPENSESSalaries
    
    
    2,943,755
    
    
    
    2,972,377Other selling, general and administrative
    
    
    1,623,529
    
    
    
    1,763,665Amortization of trademarks and other intangible assets
    
    
    24,758
    
    
    
    42,770Total operating expenses
    
    
    4,592,042
    
    
    
    4,778,812OPERATING INCOME
    
    
    1,699,182
    
    
    
    563,453OTHER INCOME (EXPENSE)Interest expense
    
    
    
    
    
    
    (923
    )Other, net
    
    
    971
    
    
    
    2,285EARNINGS BEFORE INCOME TAX EXPENSE
    
    
    1,700,153
    
    
    
    564,815INCOME TAX EXPENSE
    
    
    696,965
    
    
    
    240,103NET EARNINGS
    
    $
    1,003,188
    
    
    $
    324,712NET EARNINGS PER COMMON SHARE:Basic
    
    $
    0.10
    
    
    $
    0.03Diluted
    
    
    0.10
    
    
    
    0.03WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic
    
    
    9,666,876
    
    
    
    10,040,374Diluted
    
    
    10,014,623
    
    
    
    10,206,232
  4




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HEALTH FITNESS CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Three Months EndedMarch 31,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net earnings
    
    $
    1,003,188
    
    
    $
    324,712Adjustment to reconcile net earnings
to net cash provided by (used in) operating activities:Stock-based compensation
    
    
    89,284
    
    
    
    183,454Depreciation and amortization
    
    
    276,115
    
    
    
    266,822Change in assets and liabilities:Trade and other accounts receivable
    
    
    2,968,763
    
    
    
    1,607,472Inventory
    
    
    (20,863
    )
    
    
    138,259Prepaid expenses and other
    
    
    (293,272
    )
    
    
    (321,481
    )Other assets
    
    
    
    
    
    
    4,200Trade accounts payable
    
    
    (167,619
    )
    
    
    (723,960
    )Accrued liabilities and other
    
    
    529,262
    
    
    
    (2,282,212
    )Deferred revenue
    
    
    (239,509
    )
    
    
    (356,443
    )Net cash provided by (used in) operating activities
    
    
    4,145,349
    
    
    
    (1,159,177
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (38,745
    )
    
    
    (11,812
    )Capitalized software development costs
    
    
    (209,069
    )
    
    
    (105,789
    )Net cash used in investing activities
    
    
    (247,814
    )
    
    
    (117,601
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from the issuance of common stock
    
    
    92,463
    
    
    
    92,206Proceeds from the exercise of stock options
    
    
    10,063
    
    
    
    154,228Net cash provided by financing activities
    
    
    102,526
    
    
    
    246,434NET INCREASE (DECREASE) IN CASH
    
    
    4,000,061
    
    
    
    (1,030,344
    )CASH AT BEGINNING OF YEAR
    
    
    1,300,620
    
    
    
    1,946,028CASH AT END OF YEAR
    
    $
    5,300,681
    
    
    $
    915,684SUPPLEMENTAL CASH FLOW DISCLOSURESSupplemental cash flow information:Cash paid for interest
    
    $
    
    
    
    $
    923Cash paid for taxes
    
    
    163,947
    
    
    
    65,963
  5




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HEALTH FITNESS CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
    nd www.hfit.com
     Consolidation
 Cash
 6




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Trade and Other Accounts Receivable
 Inventories 
 Property and Equipment
 Software Development Costs
 Accounting for the Impairment or Disposal of Long-Lived
Assets
  7




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Goodwill
 Goodwill and Other
Intangibles
    8




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Intangible Assets
 Accrued Self-Funded Insurance
 Revenue Recognition 
    Advertising
 Comprehensive Income
 9




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Net Earnings Per Common Share
 Stock-Based Compensation
 Fair Values of Financial Instruments 
 Income Taxes
 Use of Estimates
   10




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##### Table of Contents



Segment Data:
 Three Months EndedMarch 31,2009
    
    
    2008REVENUE:Fitness ManagementStaffing Services
    
    $
    9,202,132
    
    
    $
    9,706,347Program Services
    
    
    563,780
    
    
    
    619,7599,765,912
    
    
    
    10,326,106Health ManagementStaffing Services
    
    
    4,542,034
    
    
    
    4,295,744Program Services
    
    
    4,899,284
    
    
    
    4,080,8179,441,318
    
    
    
    8,376,561Total RevenueStaffing Services
    
    
    13,744,166
    
    
    
    14,002,091Program Services
    
    
    5,463,064
    
    
    
    4,700,576$
    19,207,230
    
    
    $
    18,702,667GROSS PROFIT:Fitness ManagementStaffing Services
    
    
    2,139,774
    
    
    
    2,115,870Program Services
    
    
    223,402
    
    
    
    237,0452,363,176
    
    
    
    2,352,915Health ManagementStaffing Services
    
    
    1,140,409
    
    
    
    938,907Program Services
    
    
    2,787,639
    
    
    
    2,050,4433,928,048
    
    
    
    2,989,350Total Gross ProfitStaffing Services
    
    
    3,280,183
    
    
    
    3,054,777Program Services
    
    
    3,011,041
    
    
    
    2,287,488$
    6,291,224
    
    
    $
    5,342,265
      11




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.
  Additional
    
    
    Accumulated
    
    
    RetainedEarnings
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    (Accumulated
    
    
    Stockholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Income
    
    
    Deficit)
    
    
    Equity
    
    
    IncomeBALANCE AT DECEMBER 31, 2008
    
    
    9,647,404
    
    
    $
    96,474
    
    
    $
    28,263,803
    
    
    $
    (83,835
    )
    
    $
    (293,317
    )
    
    $
    27,983,125Issuance of common stock through stock
purchase plan
    
    
    44,647
    
    
    
    446
    
    
    
    92,017
    
    
    
    
    
    
    
    
    
    
    
    92,463Redemption of common stock for option
exercises
    
    
    (6,295
    )
    
    
    (63
    )
    
    
    (13,470
    )
    
    
    
    
    
    
    
    
    
    
    (13,533
    )Issuance of common stock for option
exercises
    
    
    30,250
    
    
    
    303
    
    
    
    23,293
    
    
    
    
    
    
    
    
    
    
    
    23,596Issuance of common stock for executive
compensation
    
    
    35,914
    
    
    
    359
    
    
    
    9,476
    
    
    
    
    
    
    
    
    
    
    
    9,835Executive equity compensation program
    
    
    281,431
    
    
    
    2,814
    
    
    
    59,231
    
    
    
    
    
    
    
    
    
    
    
    62,045Stock option compenation
    
    
    
    
    
    
    
    
    
    
    17,404
    
    
    
    
    
    
    
    
    
    
    
    17,404Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,003,188
    
    
    
    1,003,188
    
    
    $
    1,003,188Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,803
    )
    
    
    
    
    
    
    (3,803
    )
    
    
    (3,803
    )Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    999,385BALANCE AT MARCH 31, 2009
    
    
    10,033,351
    
    
    $
    100,333
    
    
    $
    28,451,754
    
    
    $
    (87,638
    )
    
    $
    709,871
    
    
    $
    29,174,320
 Stock Options
   12




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Weighted Average
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageRange of
    
    Number
    
    Contractual Life
    
    Exercise
    
    Number
    
    ExerciseExercise Prices
    
    Outstanding
    
    In Years
    
    Price
    
    Exercisable
    
    Price$0.94 - $1.77
    
    
    106,000
    
    
    
    3.83
    
    
    $
    0.48
    
    
    
    47,500
    
    
    $
    1.071.90 - 2.50
    
    
    88,250
    
    
    
    2.27
    
    
    
    3.61
    
    
    
    63,250
    
    
    
    2.422.52 - 4.54
    
    
    240,550
    
    
    
    3.47
    
    
    
    3.82
    
    
    
    228,050
    
    
    
    3.824.56 - 6.10
    
    
    645,250
    
    
    
    3.76
    
    
    
    5.37
    
    
    
    368,188
    
    
    
    5.411,080,050
    
    
    
    3.58
    
    
    $
    4.40
    
    
    
    706,988
    
    
    $
    4.34
  Three Months EndedMarch 31,2009
    
    2008Risk-free interest rate
    
    
    2.06
    %
    
    
    2.83
    %Expected volatility
    
    
    39.7
    %
    
    
    41.0
    %Expected life (in years)
    
    
    4.25
    
    
    
    4.25Dividend yield
    
    
    
    
    
    
    Forfeitures
    
    
    13.0
    %
    
    
    2.5
    %
  Average
    
    
    Aggregate
    
    
    AverageExercise
    
    
    Intrinsic
    
    
    RemainingOptions
    
    
    Price
    
    
    Value
    
    
    TermOutstanding at December 31, 2008
    
    
    1,055,550
    
    
    $
    4.43Granted
    
    
    58,500
    
    
    
    1.77Exercised
    
    
    (30,250
    )
    
    
    0.78Canceled/Forfeited
    
    
    (3,750
    )
    
    
    1.90Outstanding at March 31, 2009
    
    
    1,080,050
    
    
    $
    4.40
    
    
    $
    75,543
    
    
    
    3.58Exercisable at March 31, 2009
    
    
    706,988
    
    
    $
    4.34
    
    
    $
    53,313
    
    
    
    3.02
 Restricted Stock
  13




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Employee Stock Purchase Plan
 Equity Incentive Plan
 Common Stock Repurchase Plan
 Reverse Stock Split
 14




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.
 Legal Proceedings
 Automotive Bankruptcies
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 You should read the following discussion and analysis of our financial condition and results of
operations together with our financial statements and the related notes appearing under Item 1 of
Part 1. Some of the information contained in this discussion and analysis or set forth elsewhere in
this quarterly report, including information with respect to our plans and strategy for our
business and expected financial results, includes forward-looking statements that involve risks and
uncertainties. You should review the Risk Factors under Item 1A of the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2008 for a discussion of important factors that
could cause actual results to differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion and analysis.
 CRITICAL ACCOUNTING POLICIES
  BUSINESS DESCRIPTION
   15




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RESULTS OF OPERATIONS
  Three Months EndedMarch 31,2009
    
    2008REVENUE
    
    
    100.0
    %
    
    
    100.0
    %COSTS OF REVENUE
    
    
    67.2
    %
    
    
    71.4
    %GROSS PROFIT
    
    
    32.8
    %
    
    
    28.6
    %OPERATING EXPENSESSalaries
    
    
    15.3
    %
    
    
    15.9
    %Other selling, general and
administrative
    
    
    8.5
    %
    
    
    9.4
    %Amortization of acquired intangible
assets
    
    
    0.1
    %
    
    
    0.2
    %Total operating expenses
    
    
    23.9
    %
    
    
    25.5
    %OPERATING INCOME
    
    
    8.9
    %
    
    
    3.1
    %OTHER INCOME (EXPENSE)
    
    
    0.0
    %
    
    
    0.0
    %EARNINGS BEFORE INCOME TAXES
    
    
    8.9
    %
    
    
    3.1
    %INCOME TAX EXPENSE
    
    
    4.0
    %
    
    
    1.3
    %NET EARNINGS
    
    
    4.9
    %
    
    
    1.8
    %
 Results of Operations for the quarter ended March 31, 2009 compared to the quarter ended March 31,
2008.
 Revenue.
 Fitness Management
 .
   16




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Health Management
   2009 Customer Commitments and Cancellations
  Gross Profit.
 Fitness Management
  17




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##### Table of Contents



Health Management
   Operating Expenses and Operating Income.
    Other Income and Expense.
 Income Taxes.
  Net Earnings Applicable to Common Shareholders.
 18




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LIQUIDITY AND CAPITAL RESOURCES
     INFLATION
  19




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OFF-BALANCE SHEET ARRANGEMENTS
  PRIVATE SECURITIES LITIGATION REFORM ACT
   20




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
   
 PART II.  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  21




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Name
    
    Title
    
    Number of SharesGregg Lehman
    
    President & CEO
    
    
    10,140Wes Winnekins
    
    Chief Financial Officer
    
    
    5,070Jeanne Crawford
    
    Chief Human Resources Officer
    
    
    3,803John Griffin
    
    Chief Operations Officer
    
    
    3,803Jim Reynolds
    
    Chief Medical Officer
    
    
    3,803Brian Gagne
    
    Sr. Vice President Account Management
    
    
    2,535John Ellis
    
    Chief Information Officer
    
    
    2,535Katherine Meacham
    
    Vice President Account Services
    
    
    2,535Dave Hurt
    
    Vice President Account Services
    
    
    1,690
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 (a)
    
    Exhibits  See Exhibit Index on page following signatures
 22




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SIGNATURES
  Dated:  May 14, 2009
    HEALTH FITNESS CORPORATIONBy
    /s/ Gregg O. LehmanGregg O. LehmanPresident and Chief Executive Officer
(Principal Executive Officer)By
    /s/ Wesley W. WinnekinsWesley W. WinnekinsChief Financial Officer and Treasurer
(Principal Financial and Accounting Officer) 23




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Exhibit No.
    
    Description*10.1
    
    2009 Executive Bonus Plan  incorporated by reference to
Exhibit 10.46 to our Form 10-K for the fiscal year ended
December 31, 2008*10.2
    
    Compensation Arrangements for Executive Officers for Fiscal
Year 2009  incorporated by reference to Exhibit 10.47 to our
Form 10-K for the fiscal year ended December 31, 200810.3
    
    Revolving Line of Credit Note, dated March 24, 2009, between
the Company and Wells Fargo Bank, N.A.  incorporated by
reference to Exhibit 10.48 to our Form 10-K for the fiscal
year ended December 31, 200810.4
    
    Seventh Amendment, dated March 24, 2009, to Credit Agreement
dated August 22, 2003, between the Company and Wells Fargo
Bank, N.A.  incorporated by reference to Exhibit 10.49 to
our Form 10-K for the fiscal year ended December 31, 2008**11.0
    
    Statement re: Computation of Earnings per Share**31.1
    
    Certification of President and 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 President and 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
 
 *
    
    Indicates management contract or compensatory plan or arrangement**
    
    Filed herewith 24