Completion of Significant Strategic Initiatives
MINNEAPOLIS, March 27 /PRNewswire-FirstCall/ -- Health Fitness Corporation
(OTC Bulletin Board: HFIT) today announced financial results for the fourth
quarter and year ended December 31, 2005. Highlights for the fiscal year
were:
-- A $10.2 million equity financing in November 2005 to redeem previously
issued, higher cost equity and to fund a contemplated acquisition;
-- The December 2005 acquisition of HealthCalc.Net, Inc., a leading
provider of web-based fitness, health management and wellness programs;
-- Total revenue growth of 4.7% to $54.9 million from $52.5 million for
2004; and
-- A significant increase in program and consulting services revenue of
75.8% to $4.4 million from $2.5 million for 2004;
"We accomplished two, very important strategic objectives during 2005,"
said Jerry Noyce, President and Chief Executive Officer. "We raised
$10.2 million of equity from a limited number of accredited investors. This
financing allowed us to repurchase previously issued, higher cost equity, and
importantly, gives us access to new investors who are committed to helping us
realize our longer-term growth potential. In December, we acquired
HealthCalc.Net, Inc., who had been our technology partner for almost ten
years. HealthCalc's proven technology platform, which has been used by over
1.5 million registered users, will enable us to deliver electronic programs
and services, as well as collect program outcomes data. We believe this
system will improve our ability to help customers decrease their employee
healthcare costs. These strategic moves strengthened our competitive
position, which should result in a larger number of future business
opportunities."
Financing Transaction
Our $10.2 million equity financing involved the issuance of 1,000 shares
of Series B Convertible Preferred Stock, which converted into 5,100,000 shares
of common stock on March 10, 2006, and warrants to purchase 1,530,000 shares
of common stock at $2.40 per share. Because the investors in this financing
have the right to put the value of the warrants, as determined by Black-
Scholes, back to the Company for cash upon a "change of control", the Company
was obligated to record a liability of $1,576,454, which represents the fair
value of the warrants at the time of the financing. At the end of each
quarter, the Company must adjust the carrying value of the warrant liability,
with the offset being a non-cash charge or benefit to the statement of
operations. For the quarter ended December 31, 2005, the Company recorded a
non-cash charge of $634,435 for the change in fair value of the warrants since
November 2005.
Fourth Quarter Performance
For the fourth quarter of 2005, revenue increased $829,972, or 6.1% to
$14,334,211, from $13,504,239 for the same period in 2004. Of this increase,
$135,457 is primarily attributable to growth in fitness management staffing
services, and $694,515 is primarily attributable to growth in health
management program and consulting services.
Gross profit for the quarter decreased 4.4% to $3,425,942, from $3,582,839
for the same quarter in 2004. Gross profit as a percent of revenue was 23.9%
for the quarter compared with 26.5% for the same period last year. These
decreases are primarily attributable to an increase in medical benefits per
full-time employee from 2004 to 2005.
The non-cash charge of $634,435 related to the revaluation of warrants
resulted in a net loss applicable to common shareholders of $428,204 for the
quarter, which is down from net earnings applicable to common shareholders of
$314,995 for the same period in 2004. Excluding the non-cash charge from the
results of the fourth quarter of 2005, and also excluding a non-cash charge of
$394,669 from the results of the fourth quarter of 2004 for the early
repayment of debt, net earnings applicable to common shareholders was $206,231
and $709,664 for 2005 and 2004, respectively. This shortfall of $503,433 is
primarily attributable to a $133,881 increase in operating expenses, and a
$340,140 increase in income taxes, which is primarily due to the non-
deductibility, for tax purposes, of the non-cash charge related to the
revaluation of warrants.
Net loss per diluted share was $0.03 for the fourth quarter of 2005,
compared with net earnings per diluted share of $0.02 for the same period in
2004.
Year-end Performance
For 2005, revenue increased $2,487,537, or 4.7% to $54,942,205, from
$52,454,668 for 2004. Of this increase, $569,973 is primarily attributable to
growth in health management staffing services, and $1,917,564 is primarily
attributable to growth in fitness and health management programs and
consulting services.
Gross profit for 2005 increased 2.7% to $13,817,174, from $13,459,217 for
2004. This increase is primarily attributable to revenue growth noted above.
Gross profit as a percent of revenue fell to 25.1% for 2005 from 25.7% for
2004. This decrease is primarily attributable to an increase in medical
benefits per full-time employee from 2004 to 2005.
The non-cash charge of $634,435 related to the revaluation of warrants
lowered net earnings applicable to common shareholders to $1,204,401 for 2005,
compared to net earnings applicable to common shareholders of $1,587,620 for
2004. Excluding the non-cash charge from 2005 results, and also excluding a
non-cash charge of $394,669 from 2004 results related to the early repayment
of debt, net earnings applicable to common shareholders was $1,838,836 and
$1,982,289 for 2005 and 2004, respectively. This shortfall of $143,453 is
primarily attributable to a $384,452 increase in operating expenses, and a
$591,017 increase in income taxes, which is primarily due to the non-
deductibility, for tax purposes, of the non-cash charge related to the
revaluation of warrants. These expense increases were primarily offset by
interest expense savings of $439,606 due to the repayment of long-term debt,
and a $357,957 increase in gross profit.
Net earnings per diluted share were $0.08 for 2005, compared to net
earnings per diluted share of $0.10 for 2004.
About The Company
Health Fitness Corporation is a leading provider of fitness and health
management services to corporations, hospitals, and communities. Serving
clients for over 30 years, HFC provides fitness and health management services
to more than 400 on-site and remote locations across the U.S. and Canada. For
more information about Health Fitness Corporation, go to http://www.hfit.com .
Forward-Looking Statements
Certain statements in this release that are not historical facts,
including, without limitation, those relating to management's belief that its
recent strategic moves strengthened the Company's competitive position, and
that such moves should result in a larger number of future business
opportunities, are forward-looking statements that involve risks and
uncertainties. Such statements are based upon the current beliefs and
expectations of our management. Actual results may vary materially from those
contained in forward-looking statements based on a number of factors
including, without limitation, our inability to meet the growing demands of
major corporations and other factors disclosed from time to time in our
filings with the U.S. Securities and Exchange Commission. Investors should
take such risks into account when making investment decisions. Shareholders
and other readers 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.
Non-GAAP Financial Measures
Management's discussion of results of operation for the three months ended
December 31, 2005 and 2004, and the results of operation for the years ended
December 31, 2005 and 2004, are presented on a basis that excludes certain
non-cash charges. Such presentation is considered "non-GAAP financial
information" as contemplated by SEC Regulation G. Management believes the
presentation of these non-GAAP financial results provide useful information to
investors regarding our results of operation, as these non-GAAP financial
measures allow investors to better evaluate ongoing business performance, and
factors that influenced performance during the periods under report.
Management also uses these non-GAAP measures internally to monitor performance
of the business. These non-GAAP financial measures should be considered in
addition to, and not a substitute for, financial measures prepared in
accordance with GAAP.
HEALTH FITNESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ending Years Ending
12/31/05 12/31/04 12/31/05 12/31/04
Unaudited Unaudited
REVENUE $14,334,211 $13,504,239 $54,942,205 $52,454,668
COSTS OF REVENUE 10,908,269 9,921,400 41,125,031 38,995,451
GROSS PROFIT 3,425,942 3,582,839 13,817,174 13,459,217
OPERATING EXPENSES
Salaries 1,525,300 1,419,443 5,769,082 5,600,203
Selling, general,
and administrative 1,087,392 1,001,964 3,712,429 3,440,134
Amortization of
acquired intangible
assets 162,179 219,583 821,611 878,333
Total operating
expenses 2,774,871 2,640,990 10,303,122 9,918,670
OPERATING INCOME 651,071 941,849 3,514,052 3,540,547
OTHER INCOME (EXPENSE)
Interest expense (1,752) (84,873) (25,965) (465,571)
Interest costs
- early debt repayment -- (474,669) -- (474,669)
Change in fair value
of warrants (634,435) -- (634,435) --
Other, net 14,979 (656) 10,585 1,642
EARNINGS BEFORE INCOME
TAXES 29,863 381,651 2,864,237 2,601,949
INCOME TAX EXPENSE 385,196 45,056 1,518,946 927,929
NET EARNINGS (LOSS) (355,333) 336,595 1,345,291 1,674,020
Dividend to preferred
shareholders 72,871 21,600 140,890 86,400
NET EARNINGS (LOSS)
APPLICABLE TO COMMON
SHAREHOLDERS $(428,204) $314,995 $1,204,401 $1,587,620
NET EARNINGS (LOSS)
PER COMMON SHARE
Basic $(0.03) $0.03 $ 0.09 $ 0.13
Diluted (0.03) 0.02 0.08 0.10
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING
Basic 13,008,291 12,566,735 12,780,724 12,503,345
Diluted 13,008,291 16,349,043 16,929,636 16,151,017
HEALTH FITNESS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
2005 2004
ASSETS
CURRENT ASSETS
Cash $1,471,505 $241,302
Trade and other accounts receivable, less
allowances of $200,700 and $210,700 at
December 31, 2005 and 2004 8,839,046 8,147,430
Prepaid expenses and other 509,273 213,954
Deferred tax assets 337,800 1,660,100
Total current assets 11,157,624 10,262,786
PROPERTY AND EQUIPMENT, net 347,820 150,308
OTHER ASSETS
Goodwill 12,919,689 9,022,501
Software, less accumulated amortization of
$0 at December 31, 2005 and 2004 1,762,000 --
Customer contracts, less accumulated
amortization of $1,626,100 and $875,700
at December 31, 2005 and 2004 188,889 854,306
Trademark, less accumulated amortization of
$147,000 and $75,800 at December 31, 2005
and 2004 346,057 274,167
Other intangible assets, less accumulated
amortization of $88,000 and $81,300 at
December 31, 2005 and 2004 441,086 61,493
Deferred tax assets 374,500 221,400
Other 47,105 87,015
$27,584,770 $20,933,976
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable 687,125 840,155
Accrued salaries, wages, and payroll taxes 2,693,927 2,768,734
Other accrued liabilities 763,115 495,770
Accrued self funded insurance 250,000 225,500
Deferred revenue 1,868,446 1,977,093
Total current liabilities 6,262,613 6,307,252
LONG-TERM OBLIGATIONS -- 1,612,759
COMMITMENTS AND CONTINGENCIES -- --
WARRANTS 2,210,889 --
PREFERRED STOCK, $0.01 par value; 10,000,000
shares authorized, 1,000 and 1,063,945 shares
issued and outstanding at December 31, 2005
and 2004 8,623,546 1,530,232
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; 50,000,000
shares authorized; 13,787,349 and
12,582,170 shares issued and outstanding
at December 31, 2005 and 2004 137,874 125,822
Additional paid-in capital 15,625,425 17,836,675
Accumulated comprehensive income from
foreign currency translation 1,245 2,459
Accumulated deficit (5,276,822) (6,481,223)
10,487,722 11,483,733
$27,584,770 $20,933,976
SOURCE Health Fitness Corporation
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Related links:
http://www.hfit.com
CONTACT:
Wes Winnekins, Chief Financial Officer, of
Health Fitness Corporation, +1-952-897-5275,
wes.winnekins@hfit.com
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