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 SEPTEMBER 30, 1997
| | 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)
978-536-2777
______________________________________________________________________________
(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 _ No X In a no action letter, the U. S. Securities and
Exchange Commission indicated that the company's failure to file a report on
Form 8-K in connection with its acquisition of Behavioral Stress Centers,
Inc. in November 1, 1996 will not preclude stockholders from selling under
Rule 144.
Applicable only to corporate issuers
Number of shares outstanding of each class of common equity, as of October 27,
1997:
Class A Common Stock 4,689,304
Class B Common Stock 730,331
Class C Common Stock 0
Transitional Small Business Disclosure Format
(Check one):
Yes _____ No X
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - September 30, 1997 and
June 30, 1997.
Condensed Consolidated Statements of Operations - Three months
ended September 30, 1997 and September 30, 1996.
Condensed Consolidated Statements of Cash Flows - Three months
ended September 30, 1997 and September 30, 1996.
Notes to Condensed Consolidated Financial Statements - September
30, 1997.
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
PHC INC. AND SUBSIDIARIES (UNAUDITED)
CONSOLIDATED BALANCE SHEETS
Sept. 30 June 30
__________ _________
1997 1997
ASSETS
Current assets:
Cash & Cash Equivalents............................ $ 144,645 $ 905,692
Accounts receivable, net of allowance for bad
debts of $3,219,992 at Sept. 30, 1997, $2,982,138
at June 30, 1997................................. 10,266,259 10,650,368
Prepaid expenses................................... 208,276 375,382
Other receivables and advances..................... 156,878 260,212
Deferred Income Tax Asset.......................... 515,300 515,300
Other Receivables, related party................... 110,000 80,000
__________ __________
Total current assets............................ 11,401,358 12,786,954
Accounts Receivable, noncurrent...................... 645,000 605,000
Loan Receivable...................................... 118,284 134,284
Property and equipment, net.......................... 8,315,963 8,408,211
Deferred income taxes................................ 154,700 154,700
Deferred financing costs, net of amortization........ 756,006 751,325
Goodwill, net of accumulated amortization............ 1,719,629 1,644,252
Restricted deposits and funded reserves.............. 175,616 170,874
Other assets......................................... 134,906 222,032
Other receivables, noncurrent, related party........ 3,328,062 2,983,177
___________ ___________
Total............................................$26,749,524 $27,860,809
___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... 4,149,005 $ 4,171,334
Notes payable--related parties..................... 51,600 51,600
Current maturities of long term debt............... 574,278 580,275
Revolving credit note and secured term note........ 1,525,022 1,789,971
Current portion of obligations under capital
leases............................................ 150,530 139,948
Accrued Payroll, Payroll Taxes and Benefits........ 577,365 703,842
Accrued expenses and other liabilities............. 480,217 587,024
___________ ___________
Total Current liabilities....................... 7,508,017 8,023,994
___________ ___________
Long-term debt....................................... 9,596,305 9,759,601
Obligations under capital lease...................... 1,563,275 1,594,562
Notes payable related parties........................ 15,796 23,696
Convertible debenture................................ -- 2,734,375
___________ ___________
Total noncurrent liabilities....................... 11,175,376 14,112,234
___________ ___________
Total liabilities.................................. 18,683,393 22,136,228
___________ ___________
Stockholders' Equity:
Preferred stock, $.01 par value; 1,000,000
shares authorized, 500 shares issued and
outstanding June 30, 1997 (liquidation
preference $504,333).............................. -- 5
Class A common stock, $.01 value; 20,000,000
shares authorized, 4,643,280 and 2,877,836 shares
issued Sept. 97 and June 97....................... 46,433 28,778
Class B common stock, $.01 par value; 2,000,000
shares authorized, 730,331 and 730,360 issued Sept.
97 and June 97 convertible into one share of Class
A common stock.................................... 7,303 7,304
Class C common stock, $.01 par value; 200,000
shares authorized, 199,816 issued and outstanding
June 97........................................... -- 1,998
Additional paid-in capital......................... 13,643,167 10,398,630
Treasury stock, 8,656 shares at cost............... (37,818) (37,818)
Accumulated Deficit................................ (5,592,954) (4,674,316)
___________ ___________
Total Stockholders' Equity......................... 8,066,131 5,724,581
___________ ___________
Total.............................................. 26,749,524 $27,860,809
___________ ___________
See Notes to Consolidated Financial Statements
<PAGE>
PHC INC. AND SUBSIDIARIES (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
September 30
_____________
1997 1996
Revenues:
Patient Care, net............................ $5,903,995 $5,784,856
Management Fees.............................. 233,283 --
Other........................................ 173,477 133,204
__________ __________
Total revenue................................ 6,310,755 5,918,060
Operating expenses:
Patient care expenses........................ 3,622,231 3,056,894
Cost of Management Contracts................. 102,400 69,893
Provision for doubtful accounts............. 483,778 269,943
Administrative expenses...................... 2,692,035 2,199,501
___________ __________
Total operating expenses.... 6,900,444 5,596,231
___________ __________
Income (Loss) from operations................... (589,689) 321,829
___________ __________
Other income (expense):
Interest income............................... 97,676 2,650
Other income.................................. 69,385 81,464
Interest expense.............................. (488,010) (295,344)
Gain from operations held for sale............ -- (724)
___________ __________
Total other income (expense).................... (320,949) (211,954)
___________ __________
Income (Loss) before Provision for Taxes........ (910,638) 109,875
Provision for Income Taxes...................... 8,000 44,133
__________ __________
Net Income (Loss)............................... $ (918,638) $ 65,742
___________ __________
Income (Loss) per Share:
Net Income (Loss) per share................... $ (.21) $ .02
Weighted average number
of shares outstanding......................... 4,444,706 3,117,915
See Notes to Consolidated Financial Statements
<PAGE>
PHC INC. AND SUBSIDIARIES (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
September 30,
_____________
1997 1996
Cash flows from operating activities:
Net income (loss).......................... $(918,638) $65,742
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization............. 161,975 138,872
Warrants issued for services.............. 46,131 --
(Increase) decrease in accounts
receivable.............................. 88,558 (1,446,109)
Decrease (increase) in prepaid expenses
and other current assets................ 167,106 (147,887)
(Increase) decrease in other assets....... 11,456 124,945
(Increase) decrease in net assets of
operations held for sale................ -- (1,185)
Increase (decrease) in accounts
payable................................. (163,555) (93,288)
Increase (decrease) in accrued and
withheld taxes.......................... -- 6,923
Increase (decrease) in accrued expenses
and other liabilities................... (92,058) (308,532)
__________ __________
Net cash provided by (used in) operating
activities.................................. (699,025) (1,660,519)
Cash flows from investing activities:
Costs related to business acquisition..... (8,390) (344,407)
Acquisition of property and equipment..... (39,084) (224,602)
___________ __________
Net cash provided by (used in) investing
activities.................................. (47,474) (569,009)
___________ __________
Cash flows from financing activities:
Issuance of common stock:
Exercise of Options.................... -- 54,547
Private Placement...................... 448,299 --
Net debt activity...................... (462,847) 1,888,013
___________ __________
Net cash provided by (used in) financing
activities................................. (14,548) 1,942,560
___________ __________
NET INCREASE (DECREASE) IN CASH.............. (761,047) (286,968)
Beginning cash balance...................... 905,692 293,515
___________ __________
ENDING CASH BALANCE.......................... 144,645 6,547
___________ __________
NON-CASH TRANSACTIONS
Conversion of Debt to Common Stock....... $2,734,375
Conversion of Preferred Stock to Common
Stock.................................. $ 584,587
Stock issued for North Point
Acquisition............................ $ 31,383 $ 75,600
See Notes to Consolidated Financial Statements
<PAGE>
PHC, INC. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1997
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, Kansas, Michigan and Virginia and
a long-term care facility in Massachusetts. PHC also manages a psychiatric
practice in New York through BSC-NY, Inc. The consolidated financial
statements include PHC and its subsidiaries, all of which are 100% owned
except Pioneer Counseling of Virginia, Inc. which is owned 80% by PHC,
Inc.(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. 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. 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. 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. PHK operates Employee Assistance
Programs and provides outpatient behavioral health care to children,
adolescents and adults. North Point-Pioneer, Inc. ("NPP"), operates five
outpatient behavioral health centers under the name of Pioneer Counseling
Centers. Three of the centers were purchased on August 31, 1996 for $110,000
and 15,000 shares of PHC, Inc. Class A Common Stock. During the current
quarter 15,000 additional shares of PHC, Inc. Class A Common Stock were
issued in connection with this acquisition. The other two centers were
purchased on September 6, 1996 for $150,000. BSC-NY, Inc. ("BSC"), is a
provider of management and administrative services to psychotherapy and
psychological practices in the greater New York City Metropolitan Area.
Pioneer Counseling of Virginia, Inc., ("PCV") provides psychiatric services
to adults, adolescents and children through an outpatient clinic located in
Salem, Virginia. Pioneer Counseling of Virginia, Inc. is owned 80% by PHC,
Inc., 10% by Dr. H. Patel and 10% by Dr. M. Patel. STL, Inc. ("STL")
operated day care centers prior to July, 1993. Since that time, PHC has
phased out its day care center operations and the operating results of STL
have been classified as "gain from operations held for sale" in the
Condensed Consolidated Financial Statements.
<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 three months ended September 30, 1997 are not necessarily indicative of
the results that may be expected for the year ending June 30, 1998. The
accompanying financial statements should be read in conjunction with the June
30, 1997 consolidated financial statements and footnotes thereto included in
the Company's 10-KSB filed on October 14, 1997 and amended on October 29,
1997.
Note C - Subsequent Events
On October 1, 1997, the Company purchased the assets of an outpatient
clinic in Blacksburg, Virginia for 26,024 shares of Class A Common Stock and
$50,000 in cash. The clinic's operations will be included in Pioneer
Counseling of Virginia, Inc.
On November 5, 1997 the Company filed a Post-Effective Amendment on
Form SB-2/A2 to update information in the Registration Statement filed on
Form SB-2 which became effective in June 1997. No additional Securities are
being registered with this Post-Effective Amendment.
<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 2% to $5,903,995 for the three
months ended September 30, 1997 from $5,784,856 for the three months ended
September 30, 1996. This increase in revenue is due to the acquisition
of Pioneer Counseling of Virginia in January 1997. This amount does not
include $203,283 in management fees generated by BSC-NY, Inc. which was
acquired in November 1996. The company recorded a loss of $918,638 for the
three months ended September 30, 1997 as compared to net income of $65,742
for the three months ended September 30, 1996. This decrease in net
income is due in part to a decline in census in the chemical dependency
facilities and an overall increase in provision for bad debts. Good Hope, the
Company's chemical dependency facility in Rhode Island, continues to operate
at a loss because of a decline in length of stay and lower reimbursements
from third party payors. However, the Company's management team is focused
on reducing expenses, increasing revenue and enhancing programming and has
recently established new contracts which should help to stabilize the patient
census. Also contributing to the decline in Net Income is the continued low
census at the Company's long-term care facility. The occupancy rate for the
long-term care facility for the three months ended September 30, 1997 was
67.0% as compared to 94.1% for the same period last year. The Company's
intention is to sell Franvale allowing management to focus its efforts on
its core business.
Net patient care revenue for Pioneer's core behavioral healthcare
business increased to $5,177,495 for the quarter ended September 30, 1997
from $4,346,076 for the same period in 1996. This increase in
revenue is due primarily to newly acquired psychiatric practice in Virginia
and the Management fees generated by BSC-NY, Inc. Net patient care revenue
for the long term care facility decreased to $1,133,260 for the three
months ended September 30, 1997 from $1,571,984 for the three months
ended September 30, 1996 due to the decline in patient census.
Liquidity and Capital Resources
A significant factor in the liquidity and cash flow of the Company is
the timely collection of its accounts receivable. Accounts receivable
decreased during the quarter ended September 30, 1997 by approximately
$88,500. This small decrease in receivables is due to continued success in
the collection of the receivables of new acquisitions. The Company
continues to closely monitor its accounts receivable balances and implement
procedures and policies, including more aggressive collection techniques, to
manage receivables growth and keep it 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 behavioral
healthcare related businesses. The Company's expansion plans will be
dependent upon obtaining adequate financing as such opportunities arise.
During the current quarter the company issued 172,414 Shares of
Unregistered Class A Common Stock to ProFutures Special Equities Fund, L. P.
resulting in proceeds to the Company of approximately $445,000.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The Company received a notice from Pioneer Health Care, Inc., a
Massachusetts non-profit corporation demanding that the Company discontinue
use of its PIONEER HEALTHCARE trademark upon the grounds that mark
infringes the rights of Pioneer Health Care, Inc. under applicable law.
Pioneer Health Care, Inc. threatened to proceed with the necessary legal
action to prevent the Company from using the PIONEER HEALTHCARE mark, and
to seek a cancellation of the registration that has been issued by the U.S.
Patent Trademark Office (the "PTO") to the Company for the PIONEER HEALTHCARE
mark, unless the Company complied with this demand. The Company refused to
comply with this demand, whereupon Pioneer Health Care, Inc. filed a
petition in the PTO seeking the cancellation of the Company's registration
of its PIONEER HEALTHCARE trademark. The Company thereupon commenced
litigation in the United States District Court for the District of
Massachusetts seeking a declaratory judgment that its use of the PIONEER
HEALTHCARE trademark does not infringe any rights of Pioneer Health Care,
Inc. under applicable law, and that it has the right to maintain its
registration of that mark. Pioneer Health Care, Inc. has filed a counterclaim
in that litigation seeking injunctive and monetary relief against the Company
upon claims of trademark infringement, trademark dilution and unfair
competition. The Company is defending itself vigorously against those
claims. Proceedings upon the petition filed by Pioneer Health Care,
Inc. in the PTO seeking the cancellation of the Company's registration of
its PIONEER HEALTHCARE trademark have been stayed pending the resolution of
the litigation between the parties. Although the Company regards Pioneer
Health Care, Inc.'s counterclaims as being without merit, an adverse decision
could result in money damages against the Company and required discontinuance
by the Company of the PIONEER HEALTHCARE mark could result in costs to the
Company which could have a material adverse effect on the Company.
In January 1996, the Company received notice that Mullikin Medical
Center, A Medical Group, Inc., located in Artesia, California, filed a
petition with the PTO seeking cancellation of the registration of the PIONEER
HEALTHCARE mark. This cancellation proceeding has been suspended pending the
outcome of the litigation described above.
<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: November 18, 1997 /s/ Bruce A. Shear
Bruce A. Shear
President
Chief Executive Officer
Date: November 18, 1997 /s/ Paula C. Wurts
Paula C. Wurts
Controller
Assistant Treasurer
<PAGE>
<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-KSB and is qualified in its entirety by
reference to such report on Form 10-KSB.
</LEGEND>
<CIK> 0000915127
<NAME> PHC, Inc
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<PERIOD-START> JUL-1-1997
<PERIOD-END> Sep-30-1997
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<CASH> 144,645
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