U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
|_| TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
COMMISSION FILE NUMBER 0-23524
PHC, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Massachusetts 04-2601571
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 Lake Street, Suite 102, Peabody MA 01960
- - -------------------------------------------- -----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
508-536-2777
(ISSUER'S TELEPHONE NUMBER)
- - ------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_| PHC,
Inc. became subject to the Exchange Act on March 3, 1994.
APPLICABLE ONLY TO CORPORATE ISSUERS
Number of shares outstanding of each class of common equity, as of May 2, 1996
Class A Common Stock 2,227,310
Class B Common Stock 812,889
Class C Common Stock 199,816
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(Check one):
Yes |_| No |X|
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
PHC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Mar. 31 June 30
1996 1995
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash ............................................................. $ 82,552 $ 586,738
Accounts receivable, net of allowance for bad debts of
1,638,035 at Mar. 31, 1996 and 815,458 at June 30, 1995 .......... 9,090,625 5,964,279
Prepaid expenses ................................................. 279,742 174,539
Other receivables and advances ................................... 73,232 81,889
Deferred Income Tax Asset ........................................ 364,646 251,863
------------ ------------
Total current assets ........................................... 9,890,797 7,059,308
Accounts Receivable, Non Current .................................... 670,000 656,734
Loan Receivable ..................................................... -- 96,343
Property and equipment, net ......................................... 8,279,019 7,086,637
Other assets ........................................................ 1,138,405 352,795
Net assets of operations held for sale .............................. 56,474 163,568
------------ ------------
Total .......................................................... 20,034,695 15,415,385
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. 2,454,125 $ 2,282,765
Notes payable--related parties .................................... 36,600 46,598
Notes payable-- bank .............................................. -- 100,000
Current maturities of long term debt .............................. 290,330 61,438
Current portion of obligations under capital leases ............... 83,872 59,212
Accrued and withheld taxes ........................................ 13,910 17,948
Accrued payroll, payroll taxes and benefits ....................... -- 535,525
Accrued expenses and other liabilities ............................ 1,296,513 549,898
Deferred revenue .................................................. -- 55,453
------------ ------------
Total Current liabilities ...................................... 4,175,350 3,708,837
------------ ------------
Construction note payable ........................................... -- 5,041,243
Long-term debt ...................................................... 7,637,375 640,793
Obligations under capital lease ..................................... 1,484,498 1,474,976
Notes payable related parties ....................................... 55,296 88,996
------------ ------------
Total noncurrent liabilities ...................................... 9,177,169 7,246,008
------------ ------------
Total liabilities ................................................. 13,352,519 10,954,845
------------ ------------
Stockholders' Equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized,
none issued ................................................... -- --
Class A common stock, $.01 value; 10,000,000 shares authorized,
2,203,843 and 1,504,662 shares issued March 1996 and June 1995 .. 22,038 15,047
Class B common stock, $.01 par value; 2,000,000 shares authorized,
815,469 and 898,795 shares issued March 1996 and June, 1995,
convertible into one share of Class A common stock .............. 8,155 8,988
Class C common stock, $.01 par value; 200,000 shares authorized
and 199,816 and 199,966 shares issued March 1996 and June, 1995 . 1,998 2,000
Additional paid-in capital ........................................ 7,823,218 5,554,874
Notes receivable related to purchase of 31,000 shares of Class A
common stock .................................................... (65,697) (75,362)
Accumulated Deficit ............................................... (1,107,536) (1,045,007)
------------ ------------
Total Stockholders' Equity ........................................ 6,682,176 4,460,540
------------ ------------
Total ............................................................. $ 20,034,695 $ 15,415,385
============ ============
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
PHC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Patient Care, net ................. $ 6,567,335 $ 4,658,441 $ 15,935,970 $ 12,088,821
Management Fees ................... 63,599 31,387 164,844 94,656
----------- ----------- ------------ ------------
Total revenue ............. 6,630,934 4,689,828 16,100,814 12,183,477
=========== =========== ============ ============
Operating expenses:
Patient care expenses ........... 3,276,949 2,591,310 8,893,030 7,048,258
Administrative expenses ......... 2,966,822 1,591,092 6,589,688 4,330,765
Contract expenses ............... 31,671 33,328 93,673 101,586
----------- ----------- ------------ ------------
Total operating expenses .. 6,275,442 4,215,730 15,576,391 11,480,609
=========== =========== ============ ============
Income from operations ............ 355,492 474,098 524,423 702,868
Other income (expense):
Interest income ................. 4,225 1,996 10,787 23,737
Other income .................... 46,282 10,327 141,744 174,617
Startup costs nursing facility .. -- -- (128,313) --
Interest expense ................ (260,264) (145,775) (629,988) (413,282)
Gain (loss) from operations held
for sale ...................... 1,136 (1,926) 18,819 (589)
----------- ----------- ------------ ------------
Total other income expense) (208,621) (135,378) (586,951) (215,517)
----------- ----------- ------------ ------------
Income before Provision for Taxes . $ 146,871 $ 338,720 $ (62,528) $ 487,351
Provision for Income Taxes ........ -- 111,298 -- 164,775
----------- ----------- ------------ ------------
NET INCOME ........................ 146,871 $ 227,422 (62,528) $ 322,576
=========== =========== ============ ============
Net Income (Loss) per share ....... .05 .09 (.02) .13
Weighted average number
of shares outstanding ........... 2,783,505 2,418,518 2,539,800 2,427,951
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
PHC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
For the Nine Months Ended
March 31
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ (62,528) $ 322,576
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and Amortization .......................... 352,231 188,097
(Increase) in accounts receivable ...................... (3,139,612) (1,292,969)
(Increase) in Prepaids and other current
Assets .............................................. (209,329) (414,380)
(Increase) decrease in other assets .................... (31,971) 445,240
(Increase) decrease in net assets of operations held for
Resale .............................................. 107,094 (19,243)
Increase in accounts payable ........................... 49,769 114,100
Increase (decrease) in accrued and withheld taxes ...... 13,910 --
Increase (decrease) in accrued expenses and other
liabilities ........................................... 155,637 (269,536)
----------- -----------
Net cash used in operating activities .............. (2,764,799) (926,115)
----------- -----------
Cash flows from investing activities:
Acquisition of PHC-MI .................................. -- (584,435)
Acquisition of property & equipment .................... (1,530,567) (789,189)
Cost related to business acquisition ................... (575,000) --
Disposal of property & equipment ......................... -- 20,422
----------- -----------
Net cash used in investing activities .............. (2,105,567) (1,353,202)
----------- -----------
Cash flows from financing activities:
Issuance of Common Stock ............................... 2,274,501 --
Net debt activity ...................................... 2,091,679 731,823
----------- -----------
Net cash provided by financing activities .......... 4,366,180 731,823
----------- -----------
NET INCREASE (DECREASE) IN CASH .......................... (504,186) (1,547,494)
Beginning cash balance ................................... 586,738 2,209,777
----------- -----------
ENDING CASH BALANCE ...................................... $ 82,552 $ 662,283
=========== ===========
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE A - THE COMPANY
PHC, Inc. ("PHC") operates substance abuse treatment centers in several
locations in the United States, a psychiatric hospital in Michigan, out-patient
psychiatric centers in Nevada and Kansas and a long-term care facility in
Massachusetts. The consolidated financial statements include PHC and its
subsidiaries, all of which are 100% owned (collectively the "Company"):
PHC's subsidiaries, PHC of Utah, Inc., ("PHU"), PHC of Virginia, Inc.
("PHV"), and PHC of Rhode Island , Inc. ("PHRI"), provide treatment of addictive
disorders and chemical dependency. Prior to the closing of Marin Grove (a
substance abuse treatment facility in California) in August 1994, PHC of
California, Inc. ("PHCC") also provided treatment of addictive disorders and
chemical dependency. PHC of Rhode Island, Inc. operates Good Hope Center which
was purchased on March 16, 1994. Quality Care Centers of Massachusetts, Inc.
("Quality Care") operates a long-term care facility known as the Franvale
Nursing and Rehabilitation Center. PHC of Michigan, Inc. ("PHM"), operates
Harbor Oaks Hospital which was purchased on September 20, 1994. PHM provides
inpatient psychiatric care to children, adolescents and adults and operates a
partial hospitalization program that includes outpatient treatment services. PHC
of Nevada, Inc. ("PHN"), operates Harmony Healthcare which was purchased on
November 1, 1995 for $575,000 and 75,000 shares of PHC, Inc. stock. PHN provides
outpatient psychiatric care to children, adolescents and adults. PHC of Kansas,
Inc. (PHK), operates Total Concept EAP which was purchased on March 15, 1996 for
12,000 shares of PHC, Inc. class A common stock. PHK operates Employee
Assistance Programs and provides outpatient behavioral health care to children,
adolescents and adults. STL, Inc. ("STL") operated day care centers prior to
July, 1993. Since that time, PHC has been systematically phasing out its day
care center operations and the operating results of STL and its net assets have
been classified as "operations held for sale" in the Condensed Consolidated
Financial Statements. All significant intercompany transactions and balances
have been eliminated in consolidation.
<PAGE>
NOTE B - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-QSB and Item
310 of Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine months ended March 31, 1996
are not indicative of the results that may be expected for the year ending June
30, 1996. The accompanying financial statements should be read in conjunction
with the June 30, 1995 consolidated financial statements and footnotes thereto
included in the Company's 10-KSB filed on October 2, 1995.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PHC, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net patient care revenue increased 41% from $4,658,441 for the three
months ended March 31, 1995 to $6,567,335 for the three months ended March 31,
1996. This increase in revenue is due primarily to the acquisition in November
1995 of the Company's first outpatient psychiatric center, and an increase in
available beds for the long term care facility. Net Income decreased 35% from
$227,422 for the three months ended March 31, 1995 to $146,871 for the three
months ended March 31, 1996. This decrease in net income is due primarily to
start up costs incurred relating to the increase in long term care beds and
costs associated with the acquisition of new outpatient psychiatric centers
located in Nevada and Kansas.
Net patient care revenue for the substance abuse facilities decreased
from $2,344,675 for the quarter ended March 31, 1995 to $2,195,508 for the same
period in 1996. This decrease in revenue is due to a decline in patient census.
Net patient care revenue for the long term care facility increased from
$1,073,360 for the three months ended March 31, 1995 to $1,742,732 for the three
months ended March 31, 1996 due to an increase in net revenue per patient day
and the number of occupied beds. The long term care facility opened the
thirty-seven bed addition on September 29, 1995 which resulted in increased bed
rates and census.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On February 13, 1996, the Company issued in a private placement to
accredited investors, shares of Class A Common Stock, par value $.01 per share,
of the Company ("Class A Common Stock") and Warrants to purchase shares of Class
A Common Stock ("Warrants"), in Units comprised of 6,250 Shares of Class A
common Stock and 9,375 Warrants. A total of 79 Units, representing 493,750
shares of Class A Common Stock and 740,625 Warrants were issued in the offering
at a gross purchase price of $1,975,000. Fees and expenses payable in connection
with the offering include $256,750 of fees and expenses payable to the Placement
Agent. Subject to the terms and conditions of the applicable Warrant Agreement,
each Warrant is exercisable for one share of Class A Common Stock at an exercise
price of $4.00, subject to adjustment upon certain events. The Warrants expire
three years from the date of issuance. The Company granted the purchasers in
such offering certain registration rights with respect to their offer and sale
of the securities issued in such offering. Upon the issuance of the Units
described above, certain additional shares of Class A Common Stock or securities
exercisable therefor became issuable under the antidilution provisions of
certain outstanding securities of the Company. In addition, a total of 33,694
Bridge Warrants were exercised during the quarter resulting in approximately
$153,950 in additional cash flow to the company.
A significant factor in the liquidity and cash flow of the Company is
the timely collection of its accounts receivable. Accounts receivable increased
during the quarter ended March 31, 1996 by 19.2%, approximately $1,575,500,
which contributed to cash used in operations during the quarter of approximately
$2,167,500. This increase in accounts receivable is primarily the result of an
increase in revenue, a change in receivables ownership, and a decrease in
receivables funding due to a stronger cash position. The company continues to
closely monitor its accounts receivable balances and is working to reduce
amounts due consistent with growth in revenues.
The Company believes that it has the necessary liquidity and capital
resources and contingent funding commitments to sustain existing operations for
the foreseeable future. The Company also intends to expand its operations
through the acquisition or establishment of additional treatment facilities. The
Company's expansion plans will be dependent upon obtaining adequate financing as
such opportunities arise.
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
PHC, Inc.
Registrant
Date: May 14, 1996 /s/ Bruce A. Shear
Bruce A. Shear
President
Chief Executive Officer
Date: May 14, 1996 /s/ Paula C. Wurts
Paula C. Wurts
Controller
Assistant Treasurer
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of income filed as
part of the report on Form 10-Q and is qualified in its entirety by reference to
such report on Form 10-Q.
</LEGEND>
<CIK> 0000915127
<NAME> PHC, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 82,552
<SECURITIES> 0
<RECEIVABLES> 10,728,660
<ALLOWANCES> 1,638,035
<INVENTORY> 0
<CURRENT-ASSETS> 9,890,797
<PP&E> 9,611,081
<DEPRECIATION> 1,332,062
<TOTAL-ASSETS> 20,034,695
<CURRENT-LIABILITIES> 4,175,350
<BONDS> 0
0
0
<COMMON> 32,191
<OTHER-SE> 6,649,985
<TOTAL-LIABILITY-AND-EQUITY> 20,034,695
<SALES> 0
<TOTAL-REVENUES> 16,100,814
<CGS> 0
<TOTAL-COSTS> 15,576,391
<OTHER-EXPENSES> 758,301
<LOSS-PROVISION> 968,818
<INTEREST-EXPENSE> 629,988
<INCOME-PRETAX> (62,528)
<INCOME-TAX> 0
<INCOME-CONTINUING> (62,528)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,528)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
