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, 1998.
| | 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
Applicable only to corporate issuers
Number of shares outstanding of each class of common equity, as of May 7, 1998:
Class A Common Stock 4,932,303
Class B Common Stock 730,292
Transitional Small Business Disclosure Format
(Check one):
Yes X No
<PAGE>
PHC, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31,1998 and June 30,
1997.
Condensed Consolidated Statements of Operations - Three months ended
March 31, 1998 and March 31, 1997; Nine months ended March 31, 1998
and March 31, 1997.
Condensed Consolidated Statements of Cash Flows - Nine months ended
March 31, 1998 and March 31, 1997.
Notes to Condensed Consolidated Financial Statements-March 31, 1998.
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 6. Exhibits and Reports on Form 8K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
PHC INC. AND SUBSIDIARIES (UNAUDITED)
CONSOLIDATED BALANCE SHEETS
Mar. 31 June 30
1998 1997
ASSETS
Current assets:
Cash & Cash Equivalents....................... $ 92,591 $ 844,471
Accounts receivable, net of allowance for bad
debts of $2,062,093 at Mar. 31, 1998,
$ 1,942,602 at June 30, 1997 9,378,264 9,066,763
Prepaid expenses.............................. 255,494 346,091
Other receivables and advances................ 467,706 249,218
Deferred Income Tax Asset..................... 515,300 515,300
Other Receivables, related party.............. 236,980 80,000
___________ ___________
Total current assets........................ 10,946,335 11,101,843
Accounts Receivable, noncurrent.................. 645,000 605,000
Loan Receivable.................................. 118,284 134,284
Property and equipment, net...................... 3,426,581 3,525,195
Deferred income taxes............................ 154,700 154,700
Deferred financing costs, net of amortization.... 85,695 60,575
Goodwill, net of accumulated amortization........ 2,218,901 1,644,252
Other assets..................................... 125,034 214,150
Other receivables, noncurrent, related party.... 2,996,452 2,983,177
___________ ____________
Total........................................... $20,716,982 $20,423,176
___________ ____________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... 2,269,118 $ 2,529,126
Notes payable--related parties................. 51,596 51,600
Current maturities of long term debt........... 1,018,039 560,914
Revolving credit note and secured term note.... 1,731,938 1,789,971
Current portion of obligations under capital
leases........................................ 111,729 97,038
Accrued Payroll, Payroll Taxes and Benefits.... 525,960 303,731
Accrued expenses and other liabilities......... 548,567 672,154
Net current liabilities of discontinued
operations.................................... 1,084,382 334,349
___________ ____________
Total Current liabilities................... 7,341,329 6,338,883
___________ ____________
Long-term debt................................... 3,031,530 3,021,540
Obligations under capital lease.................. 1,442,063 1,434,816
Notes payable related parties.................... -- 23,696
Convertible debentures........................... -- 2,734,375
Net long term liabilities of discontinued
operations....................................... 1,394,373 1,145,285
___________ ____________
Total noncurrent liabilities................... 5,867,966 8,359,712
___________ ____________
Tota liabilities............................... 13,209,295 14,698,595
___________ ____________
Stockholders' Equity:
Preferred stock, $.01 par value; 1,000,000
shares authorized, 950 and 500 shares issued
and outstanding March 31,1998 and June 30,
1997 liquidation preference $950,000 and
$504,333 respectively......................... 10 5
Class A common stock, $.01 value; 20,000,000
shares authorized, 4,932,303 and 2,877,836 shares
issued Mar. 98 and June 97.................... 49,323 28,778
Class B common stock, $.01 par value; 2,000,000
shares authorized, 730,292 and 730,360 issued
Mar. 98 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.................... 15,216,280 10,398,630
Treasury stock, 8,656 shares at cost.......... (37,818) (37,818)
Accumulated Deficit........................... (7,727,411) (4,674,316)
___________ ____________
Total Stockholders' Equity.................... 7,507,687 5,724,581
___________ ____________
Total....................................... $20,716,982 $20,423,176
___________ ____________
See Notes to Consolidated Financial Statements
<PAGE>
PHC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
March 31 March 31
1998 1997 1998 1997
Revenues:
Patient Care, net ............. $ 5,362,955 $6,110,505 $15,503,447 $15,420,374
Management Fees................ 182,290 134,537 644,983 274,597
___________ __________ ___________ ____________
Total revenue.............. 5,545,245 6,245,042 16,148,430 15,694,971
___________ __________ ___________ ____________
Operating expenses:
Patient care expenses........... 2,822,708 3,000,828 8,509,056 7,468,614
Contract expenses............... -- 92,200 -- 232,098
Provision for doubtful accounts. 537,128 287,644 1,536,377 837,524
Administrative expenses......... 2,075,115 2,084,221 6,702,613 6,227,412
___________ __________ ___________ ____________
Total operating expenses... 5,434,951 5,464,893 16,748,046 14,765,648
___________ __________ ___________ ____________
Income (loss) from operations..... 110,294 780,149 (599,616) 929,323
___________ __________ ___________ ____________
Interest income................... 87,725 73,457 288,323 105,506
Other income...................... 58,960 122,005 180,709 332,641
Interest expense.................. (336,943) (395,056) (935,145) (949,681)
Gain (loss) from operations held
for sale...................... -- -- -- 36,478
___________ __________ ___________ ___________
Total other income (expense). (190,258) (199,594) (466,113) (475,056)
___________ __________ ___________ ___________
Income(Loss) before Provision for
Taxes............................ (79,964) 580,555 (1,065,729) 454,267
Provision for Income Taxes (Benefit) 98,309 28,536 105,509 30,000
___________ __________ ___________ ___________
Income(Loss) Continuing Operations.. $(178,273) $ 552,019 $(1,171,238) $ 424,267
Income (Loss) from Discontinued
Operations....................... $(807,802) $(472,656) $(1,829,508) $ (341,486)
___________ __________ ___________ ___________
Net Income (Loss).................. $(986,075) $ 79,363 $(3,000,746) $ 82,781
___________ __________ ___________ ___________
Basic Earnings (loss) per common share:
Income (Loss) from continuing
operations.................... (.03) .16 (.23) .13
Income (Loss) from discontinued
operations.................... (.15) (.14) (.36) (.11)
Total............................ (.18) .02 (.58) .02
Basic Weighted average number
of shares outstanding............ 5,431,196 3,354,940 5,090,919 3,170,222
Diluted Earnings (loss) per common share:
Income (loss) from continuing
operations...................... (.03) .12 (.23) .09
Income (loss) from discontinued
operations...................... (.15) (.10) (.36) (.07)
Total............................. (.18) .02 (.58) .02
Diluted Weighted average number of
shares outstanding............... 5,431,196 4,506,690 5,090,919 4,855,753
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
PHC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended
March 31
1998 1997
Cash flows from operating activities:
Net income (loss)....................... $(3,000,746) $ 82,781
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Non-Cash charge of Net cash provided (used)
by discontinued operations............... 999,121 335,183
Depreciation and amortization........... 334,066 342,340
Increase in accounts receivable......... (710,969) (4,978,221)
(Increase) Decrease in prepaid expenses
and other current assets............... 90,597 (340,449)
(Increase) Decrease in other assets..... (6,932) 1,743
Decrease in net assets of operations held
for sale................................ -- 56,682
Increase (Decrease) in accounts payable.. (452,565) 476,002
Increase (decrease) in accrued expenses and
other liabilities...................... 291,201 (105,709)
_________ _________
Net cash used in operating activities..... (2,456,227) (4,129,648)
__________ _________
Cash flows from investing activities:
Acquisition of property and
equipment.............................. (112,911) (198,956)
Loan Receivable......................... (13,275) (1,461,645)
Costs related to business
acquisition............................ (626,267) (945,116)
__________ _________
Net cash used in investing activities..... (752,453) (2,605,717)
__________ _________
Cash flows from financing activities:
Issuance of Common Stock................ 2,049,480 1,027,767
Net debt activity....................... 407,320 2,835,439
Convertible debt........................ -- 2,656,250
__________ _________
Net cash provided by financing
activities.............................. 2,456,800 6,519,456
__________ _________
NET INCREASE (DECREASE) IN CASH........... (751,880) (215,909)
Beginning cash balance.................... 844,471 284,044
__________ _________
ENDING CASH BALANCE....................... $ 92,591 $ 68,135
__________ _________
See Notes to Consolidated Financial Statements
<PAGE>
PHC, INC. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 1998
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 and Michigan and a
long-term care facility in Massachusetts. PHC, Inc. 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. 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.
Pioneer Counseling of Virginia, Inc., ("PCV") provides psychiatric services
to adults, adolescents and children through outpatient clinics located in
Salem, Virginia and Blacksburg, Virginia. Pioneer Counseling of Virginia,
Inc. is owned 80% by PHC, Inc., 10% by Dr. H. Patel and 10% by Dr. M. Patel.
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. Quality Care Centers of Massachusetts, Inc. ("Quality
Care") operates a long-term care facility known as the Franvale Nursing and
Rehabilitation Center. This facility is currently under a Purchase and Sale
Agreement (see Note C) and the operating results of Quality Care have been
classified as Discontinued Operations in the Condensed Consolidated Financial
Statements. 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.
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, 1998 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 April 14, 1998 the State completed the resurvey of the Company's
Franvale Nursing and Rehabilitation Center ("Franvale") to determine if the
facility had corrected all patient care and safety deficiencies cited by the
Massachusetts Department of Public Health in it's January 29, 1998 routine
survey. As a result of the resurvey the facility was found to be in
substantial compliance with regulatory requirements. Despite the successful
survey the state has not lifted the ban on admissions at the facility.
As a result of the decrease in census resulting from the inability of
Franvale to admit new patients, the monetary penalties and the expenses that
have been incurred by the Company in an attempt to cure the cited
deficiencies, the Company anticipates an adverse financial impact on future
quarters in addition to the negative impact reflected in the results for the
period ended March 31, 1998.
On May 7, 1998 the company announced it's intention to close the Rhode
Island facility by May 31, 1998. Continued efforts to turn around operations
and return the Good Hope Center to profitability have been unsuccessful. PHC
of Rhode Island, Inc. is committed under a long term lease for the property;
however, the continuing monthly expenses under the lease are less than the
monthly operating losses currently being incurred. Discussions are ongoing
with the landlord for early termination of the lease.
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 decreased 12.2% to $5,362,955 for the three
months ended March 31, 1998 from $6,110,505 for the three months ended March
31, 1997. This decrease in revenue is due primarily to a sharp decline in
census in the chemical dependency facilities. This decrease reflects only
Patient Care revenues for the psychiatric and substance abuse facilities
since Franvale, the long-term care facility is reported as discontinued
operations.
Management fees increased by 35% to $182,290 for the three months ended
March 31, 1998 from $134,537 for the three months ended March 31, 1997. This
increase in revenue is due to increases in BSC-NY, Inc. related fees for the
management of Psychological and Psychotherapy practices in New York.
Net patient care revenue increased .5% to $15,503,447 for the nine
months ended March 31, 1998 from $15,420,374 for the six months ended March
31, 1997. This marginal increase is due to the management fee increase for
the nine months as noted for the three months ended March 31, 1998.
Liquidity and Capital Resources
A significant factor in the liquidity and cash flow of the Company is
the timely collection of its accounts receivable. Net accounts receivable
from patient care increased during the quarter ended March 31, 1998 by 4.5%,
approximately $405,000. This is primarily the result of a change in Accounts
Receivable Financing from a Purchase and Sale of Receivables to an asset
based lending arrangement. The Company continues to closely monitor its
accounts receivable balances and is working to reduce amounts due consistent
with growth in revenues.
The former owners of Behavioral Stress Centers, Inc., now BSC-NY, Inc.,
agreed to accept full payment for the earn-out consideration required to be
paid to them for the year ended October 31, 1997 pursuant to the Agreement
and Plan of Merger in PHC, Inc. common stock. The total amount of the
earn-out for which PHC, Class A Common Stock was issued is $467,288. According
to the original agreement 50% of this would have been paid in cash. As a
result of this agreement 227,347 shares of PHC, Inc. Class A Common Stock
were issued on March 26, 1998.
In February 1998 the Company entered into an Accounts Receivable funding
arrangement with HealthCare Financial Partners, Inc. The agreement provides
for advance funding of the Accounts Receivable of five of the PHC, Inc.
subsidiaries. In conjunction with this agreement the Company liquidated the
Accounts Receivable Purchase and Sale agreement with Finova Capital.
On March 10, 1998 the company issued a warrant to purchase 52,500
shares of PHC, Inc. Class A Common Stock, exercisable at $2.38 per share, in
conjunction with a $350,000 financing provided to PHC, Inc.
On March 18, 1998 the company issued 950 shares of Series B Convertible
Preferred Stock at $1,000 each. which provided net proceeds to the company
of $855,000. The company also issued warrants to purchase 49,990 shares of
PHC, Inc. Class A Common Stock exercisable at $2.31.
On May 15, 1998 the Company entered into a joint venture with Lexington
Healthcare Group, Inc. to provide Psychiatric services to Nursing Homes in
Connecticut through Behavioral Rehab Services of Connecticut, Inc. PHC,
Inc. will be the managing party in the agreement and BSC-NY, Inc. will
provide billing services and technical support. As of May 15, 1998 the
Behavioral Rehab Services of Connecticut, Inc. has signed contracts to
provide services to five nursing homes in Connecticut.
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 renew the expansion
of its operations through the acquisition or establishment of additional
treatment facilities after the sale of Franvale is consummated and the Good
Hope Center is closed. The Company's expansion plans will be dependent upon
obtaining adequate financing as opportunities arise.
FORWARD LOOKING STATEMENTS
This quarterly report contains certain forward-looking statements regarding
the Company, its business prospects and results of operations that are subject
to certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be anticipated by such forward-looking
statements.
Factors that may affect such forward-looking statements include, without
limitations, the Company's ability to successfully and timely develop and
finance new projects, the impact of competition on the Company's revenues, and
changes in reimbursement rates, patient mix, and demand for the Company's
services.
When used, words such as "believes", "anticipates," "expects," "intends"
and similar expressions are intended to identify forward-looking statements, but
are not the exclusive means of identifying forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this report. The Company undertakes no
obligation to revise any forward-looking statements in order to reflect events
or circumstances that may subsequently arise.
Readers are urged to carefully review and consider the various disclosures
made by the Company in this report, news releases, and other reports filed with
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
In January 1996, the Company received notice that Mullikin Medical
Center, A Medical Group, Inc. ("Mullikin"), located in Artesia, California,
filed a petition with the U.S. Patent Trademark Office (the "PTO") seeking
cancellation of the registration of the PIONEER HEALTHCARE mark. This
cancellation proceeding is currently pending before the PTO. Although the
Company regards Mullikan's petition to be without merit, an adverse decision
could result in required discontinuance of the PIONEER HEALTHCARE mark and
inconsequential money damages.
On January 26, 1998 the Company's wholly owned subsidiary Quality Care
Centers of Massachusetts, Inc., d/b/a Franvale Nursing & Rehabilitation
Center was served with a complaint filed by Healthcare Services Group, Inc.
in the Norfolk County Superior Court (Civil Action No. 98-00132). The
complaint alleges claims for breach of contract and quantum meruit and seeks
recovery of approximately Sixty Seven Thousand Five Hundred Dollars
($67,500.00) in connection with a prior business arrangement between the
parties. On February 5, 1998, the court approved Healthcare Services Group,
Inc.'s Motion To Attach Real Estate and issued an Attachment in the amount of
Seventy Thousand Dollars ($70,000.00) against the real estate held by
Franvale. The Company is defending this claim and does not believe that an
adverse outcome would have a material effect on the Company.
<PAGE>
Item 6. Exhibits and Reports on Form 8K
(a) Exhibit List
Exhibit No. Description
10.137 First Amendment to Mortgage between PHC, of Michigan Inc. and HCFP
Funding, Inc.
(b) Reports on Form 8K
On April 29, 1998 the Company filed a Current Report on Form 8-K
regarding the changes in Registrant's Certifying Accountant to BDO Seidman, LLP.
On May 7, 1998 the Company filed a report on Form 8K-A regarding the agreement
of termination by Richard A. Eisner & Company, LLP.
<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.
Date: May 15, 1998 /s/ Bruce A. Shear
President
Chief Executive Officer
Date: May 15, 1998 /s/ Paula C. Wurts
Controller
Assistant Treasurer
<PAGE>
Exhibit Index Description
27 Financial Data Schedule
99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
10.137 First Amendment to Mortgage between PHC, of Michigan Inc. and HCFP
Funding, Inc.
<PAGE>
Exhibit 10.137
FIRST AMENDMENT TO MORTGAGE
This First Amendment is made to the Mortgage recorded in Liber 7442, Pages
186-1 96, on May 5, 1997, Macomb County Records ("Mortgage") between PHC OF
MICHIGAN, INC., a Massachusetts corporation, having its principal office at 200
Lake Street, Suite 102, Peabody, Massachusetts 01960 ("Mortgagor") and HCFP
FUNDING, INC., a Delaware corporation having its principal office at 2 Wisconsin
Circle, Fourth Floor, Chevy Chase, Maryland 20815 ("Mortgagee").
RECITALS
A. Mortgagor, PHC of Utah, Inc., PHC of Virginia, Inc., PHC of Rhode
Island, Inc. and Pioneer Counseling of Virginia, Inc. are sister corporations
("Affiliates").
B. Mortgagee loaned money to each of the Affiliates on February 18, 1998
("Loans"), pursuant to and secured by a Loan and Security Agreement. The
consideration for this First Amendment is set forth in that Loan and Security
Agreement.
C. The Mortgage benefits each of the Affiliates, and each of the Affiliates
acknowledges the Mortgage and debt secured thereby as sufficient consideration
for entering into this First Amendment.
The parties agree as follows:
1. The Mortgage is amended to add the following provisions:
a. This is a future advance mortgage. The maximum principal amount,
excluding protective advances, that may be secured by this Mortgage is
$4,000,000.
As a result, each of the loans made in February of 1998, will relate back
to the secured position of the Mortgage and be secured by the Mortgage.
b. The debt secured by the Mortgage has been amended and restated per the
provisions of the Loan and Security Agreement.
c. Any default under the terms of the Loan and Security Agreement or the
Loan Documents (as defined in the Loan and Security Agreement) is an
event of default under the Mortgage.
d. A default by any one of the Affiliates under the Loan and Security
Agreement will be treated as a default by each of the Affiliates and
shall entitle Mortgagee to pursue all rights and remedies as set forth
in the Mortgage and the Loan and Security Agreement.
Except for these revisions, the Mortgage as originally executed remains in
full force and effect.
Executed in Chevy Chase, Maryland on April ________, 1998.
WITNESSES: HCFP FUNDING, INC., a Delaware corporation
________________________________ By: ____________________________________
_____________________________ __ Its: _____________________________________
The foregoing instrument was acknowledged before me in Montgomery County,
Maryland this ______ day of April, 1998 by __________ as _________________ of
HCFP Funding, Inc.
___________________________________________
Notary Public
Montgomery County, Maryland
My Commission Expires: ___________________
G:\LEGAL\OOPHCAmMortg.doc
2
<PAGE>
Executed in _____________________, Massachusetts on April ________, 1998.
WITNESSES: PHC OF MICHIGAN, INC.,
a Massachusetts corporation
________________________________ By: _________________________________
Bruce A. Shear, President
________________________________
The foregoing instrument was acknowledged before me in _______________
County, Massachusetts this _______ day of April, 1998 by Bruce A. Shear as
President of PHC of Michigan, Inc.
_______________________________________________
Notary Public
_______________ County, Massachusetts
My Commission Expires: ________________________
Executed in ___________, __________ on April _________, 1998.
WITNESSES: PHC OF UTAH, INC.,
a Massachusetts corporation
_____________________________________ By: ________________________________
Bruce A. Shear, President
_____________________________________
The foregoing instrument was acknowledged before me in __________ County,
Massachusetts this __________ day of April, 1998 by Bruce A. Shear as President
of PHC of Utah, Inc.
__________________________________________
Notary Public
_______________ County, Massachusetts
My Commission Expires: __________________
G:\LEGAL\OOPHCAmMortg.doc
3
<PAGE>
Executed in _________________________, Massachusetts on April ________, 1998.
WITNESSES: PHC OF VIRGINIA, INC.,
a Massachusetts corporation
_______________________________ By: _______________________________________
Bruce A. Shear, President
______________________________
The foregoing instrument was acknowledged before me in _______________
County, Massachusetts this _______ day of April, 1998 by Bruce A. Shear as
President of PHC of Virginia, Inc.
____________________________________________
Notary Public
______________ County, Massachusetts
My Commission Expires: __________________
Executed in ___________, Massachusetts on April _________, 1998.
WITNESSES: PHC OF RHODE ISLAND, INC.,
a Massachusetts corporation
_____________________________________ By: ________________________________
Bruce A. Shear, President
_____________________________________
The foregoing instrument was acknowledged before me in __________ County,
Massachusetts this __________ day of April, 1998 by Bruce A. Shear as President
of PHC of Rhode Island, Inc.
________________________________________
Notary Public
_______________ County, Massachusetts
My Commission Expires: _________________
G:\LEGAL\OOPHCAmMortg.doc
4
<PAGE>
Executed in ___________________________, Massachusetts on April ________, 1998.
WITNESSES: PIONEER COUNSELING OF VIRGINIA, INC.,
a Massachusetts corporation
_____________________________________ By: _______________________________
Bruce A. Shear, President
_____________________________________
The foregoing instrument was acknowledged before me in _______________
County, Massachusetts this _______ day of April, 1998 by Bruce A. Shear as
President of Pioneer Counseling of Virginia, Inc.
___________________________________________
Notary Public
_______________ County, Massachusetts
My Commission Expires: ___________________
This instrument prepared by and
when recorded return to:
Stephen L. Burlingame
Fraser Trebilcock Davis & Foster, P.C.
1000 Michigan National Tower
Lansing, Michigan 48933
G:\LEGAL\OOPHCAmMortg.doc
5
<PAGE>
Exhibit
CAUTIONARY STATEMENT FOR PURPOSES
OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE LITIGATION REFORM ACT OF 1995
PHC, Inc. (the "Company") desires to take advantage of the new "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 and
is including this Exhibit 99.1 in its Form 10-QSB in order to do so.
The Company wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual consolidated
results for the Company's current quarter and beyond, to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company.
During its last fiscal year and in certain other fiscal years of its
operation, the Company has generated losses and there can be no assurance that
future losses will not occur.
The Company has experienced a significant increase in accounts receivable
in recent years and there can be no assurance that this trend will not continue,
and that if it does, that it will not have a material adverse effect on the
Company's cash flow and financial performance.
The Company historically experiences and expects to continue to experience
a decline in revenue in its fiscal quarters ending December 31 due to a
seasonality decline in revenue from the Company's substance abuse facilities
during such period.
Payment for the company's substance abuse treatment is provided by private
insurance carriers and managed care organizations; payment for long-term and
subacute care is provided by private insurance carriers, managed care
organizations and the Medicare and Medicaid programs; payment for psychiatric
services is provided by private insurance carriers, managed care organizations
and the Medicare and Medicaid programs. In general, revenues derived from the
Medicare and Medicaid programs in connection with the long-term and subacute
care services provided by the Company have been less profitable to the Company
than revenues derived from private insurers and managed care organizations in
connection with the substance abuse treatment provided by the Company and
changes in the sources of the Company's revenues could significantly alter the
Company's profitability. Additionally, the Company experiences greater delays in
the collection of amounts reimbursable by the Medicare and Medicaid programs
than in the collection of amounts reimbursable by private insurers and managed
care organizations. Accordingly, a change in the Company's service mix from
substance abuse to long-term care could have a materially adverse effect on the
Company as would an increase in the percentage of the Company's patients who are
insured by Medicare or Medicaid.
Cost containment pressures from private insurers in the Medicare and
Medicaid programs may begin to restrict the amount that the Company can charge
for its services.
There can be no assurance that the Company's existing facilities will
continue to meet, or that proposed facilities will meet, the requirements for
reimbursement by third party or government payors.
The Company has substantial receivables from Medicare and Medicaid which
constitute a concentration of credit risk should these agencies defer or be
unable to make reimbursement payments as due.
The Company often experiences significant delays in the collection of
amounts reimbursable by third-party payors. Although the Company believes it
maintains an adequate allowance for doubtful accounts, if the amount of
receivables which eventually becomes uncollectible exceeds such allowance, the
Company could be materially adversely affected.
If a growing number of managed care organizations and insurance companies
adopt policies which limit the length of stay for substance abuse treatment, the
Company's business would be materially adversely affected.
There can be no assurance that occupancy rates at the Company's facilities
will continue at present levels. Similarly, there can be no assurance that the
patient census will not decrease in the future.
There can be no assurance that the Company will be successful in
identifying appropriate acquisition opportunities, or if it does, that the
Company will be successful in acquiring such facilities or that such acquired
facilities will be profitable. The failure of the company to implement its
acquisition strategy could have a materially adverse effect an the Company's
financial performance. Moreover, the inherent risks of expansion could also have
a material adverse effect on the Company's business.
Additionally, the company's acquisition program will be directed by the
President and Chief Executive officer of the Company and the Company does not
intend to seek stockholder approval for any such acquisitions unless required by
applicable law or regulations. Accordingly, investors will be substantially
dependent upon the business judgment of management in making such acquisitions.
Furthermore, the company's acquisition strategy is highly dependent on access to
capital, of which there can be no assurance.
The Company and the healthcare industry in general are subject to extensive
federal, state and local regulation with respect to licensure and conduct of
operations. There can be no assurance that the Company will be able to obtain
new licenses to affect its acquisition strategy or maintain its existing
licenses and reimbursement program participation approvals.
It is not possible to accurately predict the content or impact of future
legislation and regulations affecting the healthcare industry. In addition, both
the Medicare and Medicaid programs are subject to statutory and regulatory
changes and there can be no assurances that payments under those programs to the
Company will, in the future, remain at a level comparable to the present level
or be sufficient to cover the cost allocable to such patients.
Bruce A. Shear the President and Chief Executive officer of the Company
together with his affiliates is able to control all matters requiring approval
of the stockholders, including the election of a majority of the directors, as a
result of his ownership of the Company's stock.
There can be no assurance that the Company will be successful in hiring or
retaining the personnel it requires for continued growth, or that the Company
will be able to continue to attract and retain highly qualified personnel,
particularly skilled healthcare personnel. The healthcare business is highly
competitive and subject to excess capacity.
The Company has entered into relationships with large employers, healthcare
institutions, labor unions and other key clients to provide treatment for
chemical dependency and substance abuse as well as other services and the loss
of any of these key clients would require the Company to expend considerable
effort to replace patient referrals and would result in revenue losses to the
Company and attendant loss in income.
Existing environmental contamination at certain of the Company's facilities
and potential future environmental contamination at facilities acquired by the
company could have a materially adverse effect on the Company's operations.
On October 31, 1994, the Company was served with a summons for a Civil
Action in the Superior Court Department of the Trial Court of the Commonwealth
of Massachusetts by NovaCare, Inc. ("NovaCare"), an entity which contracted with
the Company in 1992 to provide rehabilitation therapy and related administrative
services to the Company's long-term care facility (the "Action"). The complaint
alleged that the Company owed NovaCare contractual damages in the amount of
approximately $587,000, plus interest, attorney fees, costs of collection, and
double or triple damages pursuant to a Massachusetts statute prohibiting unfair
and deceptive trade practices. The Company filed a counterclaim alleging that
NovaCare breached the contract in question and that the Company may be owed
damages in excess of the amount sought by NovaCare.
On February 13, 1996, the company settled the Action by agreeing to pay
NovaCare an amount less than its claim. The Company is not paying NovaCare
accrued interest, attorney's fees, costs of collection, or multiple damages. A
portion of the settlement amount has already been paid. The balance of the
settlement amount is payable over twelve (12) months with interest on the unpaid
balance at 9.5%. In the event that the Company defaults on its obligation to pay
the settlement amount, it has agreed to entry of judgment against it in the
amount of $457, 637.46 (the "Judgment"). The Judgment represents the full unpaid
balance of NovaCare's claim against the Company, including interest, attorney's
fees, and costs of collection. Any amounts paid by the Company to NovaCare after
February 9, 1996 shall be deducted from the Judgment. Until the settlement
amount is paid, NovaCare will continue to hold a mortgage on a day care property
owned by the Company in Saugus, Massachusetts. As of Fiscal Year Ended June 30,
1997, this obligation has been paid in full.
Interruption by fire, earthquakes or other catastrophic events, power
failures, work stoppages, regulatory actions or other causes to any of the
Company's operations could have a materially adverse impact on the Company.
The company has and in the future may enter into transactions in which it
acquires businesses or obtains financing for a consideration that includes the
issuance of stock, warrants, options or convertible debt at a price less than
the value at which the Company's stock may then be trading in the public markets
or which are convertible into or exercisable for Common Stock at a conversion
rate or exercise price less than such value. Such transactions may result in
significant dilution to the existing holders of the Company's stock.
The Company has authorized 1,000,000 shares of Preferred Stock, the terms
of which may be fixed and which may be issued by the Company's Board of
Directors, without stockholder approval. The issuance of the Preferred Stock
could have the effect of making it more difficult for a third party to acquire
the Company and may result in the issuance of stock that dilutes the existing
stockholders and has liquidation, redemption, dividend and other preferences
superior to the Company's outstanding Class A Common Stock.
NOTE:
THIS DOES NOT DISCUSS PREFERRED STOCK, REDEMPTION OF WARRANTS, THE EFFECTS
OF DE-LISTING FROM NASDAQ, PENNY STOCK RULES OR THIN FLOAT. THOSE SUBJECTS ARE,
HOWEVER, INCLUDED IN THE RISK-FACTOR SECTION OF THE 06/97 S-3.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the consolidated
balance sheet and the consolidated statement of income filed as part of the
report on Form 10-QSB and is qualified in its entirety by reference to such
report on Form 10-QSB.
</LEGEND>
<CIK> 0000915127
<NAME> PHC, Inc.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 92,591
<SECURITIES> 0
<RECEIVABLES> 12,085,357
<ALLOWANCES> 2,062,093
<INVENTORY> 0
<CURRENT-ASSETS> 10,946,335
<PP&E> 4,662,328
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0
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<COMMON> 56,626
<OTHER-SE> 7,451,051
<TOTAL-LIABILITY-AND-EQUITY> 20,716,982
<SALES> 0
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<INTEREST-EXPENSE> 935,145
<INCOME-PRETAX> (1,065,729)
<INCOME-TAX> 105,509
<INCOME-CONTINUING> (1,171,238)
<DISCONTINUED> (1,829,508)
<EXTRAORDINARY> 0
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<NET-INCOME> (3,000,746)
<EPS-PRIMARY> (.58)
<EPS-DILUTED> (.58)
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