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, 1999.
|_| 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 _ X
No____
Applicable only to corporate issuers
Number of shares outstanding of each class of common equity, as of October 31,
1999:
Class A Common Stock 5,610,194
Class B Common Stock 727,170
Transitional Small Business Disclosure Format
(Check one):
Yes______ No X
<PAGE>
PHC, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - September 30, 1999 and June
30, 1999.
Condensed Consolidated Statements of Operations - Three months ended
September 30, 1999 and September 30, 1998.
Condensed Consolidated Statements of Cash Flows - Three months ended
September 30, 1999 and September 30, 1998.
Notes to Condensed Consolidated Financial Statements - September 30,
1999.
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 6. Exhibits
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
PHC INC. AND SUBSIDIARIES (UNAUDITED)
CONSOLIDATED BALANCE SHEETS
Sept. 30 June 30
1999 1999
__________ _________
ASSETS
Current assets:
Cash & Cash Equivalents $ 57,597 $ 381,170
Accounts receivable, net of allowance for
bad debts of $3,429,725 at Sept. 30, 1999,
$ 3,647,848 at June 30, 1999 5,923,365 6,343,227
Prepaid expenses 225,847 101,865
Other receivables and advances 219,133 334,155
Deferred Income Tax Asset 459,280 459,280
Other Receivables, related party 77,245 53,517
___________ _________
Total current assets 6,962,467 7,673,214
Accounts Receivable, noncurrent 575,000 595,000
Other receivables, noncurrent, related party,
net of allowance for doubtful accounts
of $782,000 Sept. 30, 1999 and June 30, 1999 3,054,122 2,908,113
Other Receivable 93,880 109,165
Property and equipment, net 1,456,196 1,483,319
Deferred income taxes 154,700 154,700
Deferred financing costs, net of amortization of
$5,677 at Sept. 30, $64,041 at June 30, 1999 39,390 45,067
Goodwill, net of accumulated amortization of
$143,878 at Sept. 30, 1999 and $116,900 at June
30, 1999 1,734,097 1,761,075
Other assets 376,457 297,781
_____________ ____________
Total assets $ 14,446,309 $15,027,434
_____________ ____________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,797,451 $ 1,832,750
Notes payable--related parties 200,000 200,000
Current maturities of long term debt 1,025,057 1,286,318
Revolving credit note 1,429,053 1,669,830
Current portion of obligations under capital
leases 54,179 60,815
Accrued payroll, payroll taxes and benefits 282,229 333,955
Accrued expenses and other liabilities 1,380,476 1,459,290
Net current liabilities of discontinued
operations 2,641,537 2,641,537
___________ _________
Total current liabilities 8,809,982 9,484,495
___________ _________
Long-term debt 1,883,267 1,730,230
Obligations under capital lease 41,868 51,657
Convertible debentures 500,000 500,000
___________ _________
Total noncurrent liabilities 2,425,135 2,281,887
_____________ ____________
Total liabilities 11,235,117 11,766,382
_____________ ____________
Stockholders' Equity:
Preferred stock, $.01 par value; 1,000,000
shares authorized, 813 shares issued and
outstanding Sept. 30, 1999 and June 30, 1999 8 8
Class A common stock, $.01 par value; 20,000,000
shares authorized, 5,612,970 and 5,612,930
shares issued Sept. 99 and June 99
respectively 56,129 56,129
Class B common stock, $.01 par value; 2,000,000
shares authorized, 727,170 and 727,210 issued
Sept. 99 and June 99 respectively, convertible
into one share of Class A Common
Stock 7,272 7,272
Additional paid-in capital 15,989,729 15,967,176
Treasury stock, 2,776 shares at cost (12,122) (12,122)
Accumulated Deficit (12,829,824) (12,757,411)
_____________ ____________
Total Stockholders' Equity 3,211,192 3,261,052
_____________ ____________
Total Liabilities and Stockholders'Equity $14,446,309 $15,027,434
_____________ ____________
See Notes to Consolidated Financial Statements
<PAGE>
PHC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
September 30
1999 1998
(As restated)
__________ ___________
Revenues:
Patient Care, net $3,951,498 $4,476,738
Management Fees 265,404 199,453
Other 165,907 235,104
__________ ___________
Total revenue. 4,382,809 4,911,295
Operating expenses:
Patient care expenses 2,125,408 2,308,051
Cost of Management Contracts 111,906 128,165
Provision for doubtful accounts 438,352 356,190
Administrative expenses 1,762,564 1,905,917
__________ ___________
Total operating expenses 4,438,230 4,698,323
__________ ___________
Income (loss) from operations (55,421) 212,972
__________ ___________
Other income (expense):
Interest income 96,441 109,382
Interest expense (190,868) (312,312)
Other income (expense), net 89,996 4,342
__________ ___________
Total other expense, net (4,431) (198,588)
__________ ___________
Income (loss) before Provision for Taxes (59,852) 14,384
Provision for Income Taxes 100 911
__________ ___________
Net Income (loss) (59,952) 13,473
Dividends (12,463) (14,544)
__________ ___________
Loss applicable to common shareholders $ (72,415) $ ( 1,071)
__________ ___________
Basic and Diluted loss per common share $ (.01) $ (.00)
Basic and Diluted weighted average number
of shares outstanding 6,337,364 5,659,819
See Notes to Consolidated Financial Statements
<PAGE>
PHC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended
September 30
1999 1998
(As restated)
___________________________
Cash flows from operating activities:
Net Income (loss) $ (59,952) $ 13,473
Adjustments to reconcile net income or loss
to net cash provided by (used in) operating
activities:
Depreciation and amortization 82,009 78,775
Compensatory stock options and stock and
warrants issued for obligations 22,876 25,624
Changes in:
Accounts receivable 400,432 (43,681)
Prepaid expenses and other current assets (123,982) (25,289)
Other assets (78,676) 30,436
Accounts payable (35,299) 344,811
Accrued expenses and other liabilities (130,540) (379,603)
_____________ __________
Net cash provided by operating activities 76,868 44,546
_____________ __________
Cash flows from investing activities:
Acquisition of property and equipment (27,965) (46,737)
_____________ __________
Net cash used in investing activities (27,965) (46,737)
_____________ __________
Cash flows from financing activities:
Revolving debt, net (240,778) (123,968)
Proceeds from borrowings 146,301 100,000
Payments on debt (270,891) (111,895)
Deferred financing costs 5,677 (5,985)
Preferred Stock Dividends (2,463) (1,763)
Costs related to issuance of capital stock (10,322) --
_____________ __________
Net cash used in financing activities (372,476) (143,611)
_____________ __________
NET INCREASE (DECREASE) IN CASH (323,573) (145,802)
Beginning cash balance 381,170 227,077
_____________ __________
ENDING CASH BALANCE $ 57,597 $ 81,275
_____________ __________
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 195,764 $ 282,821
Income taxes 35,500 51,195
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of Preferred Stock in lieu of
cash for Dividends due $ 10,000 $ 26,000
See Notes to Consolidated Financial Statements
<PAGE>
PHC, INC. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1999
Note A - The Company
PHC, Inc. (the "Company") is a national health care company specializing in
the treatment of substance abuse, which includes alcohol and drug dependency and
related disorders, and in the provision of psychiatric services. The Company
currently operates two substance abuse treatment facilities: Highland Ridge
Hospital, located in Salt Lake City, Utah; and Mount Regis Center, located in
Salem, Virginia, near Roanoke and eight psychiatric facilities: Harbor Oaks
Hospital, a 64-bed psychiatric hospital located in New Baltimore, Michigan;
Harmony Healthcare, a provider of outpatient behavioral health services at two
locations in Las Vegas, Nevada; Total Concept EAP, a provider of outpatient
behavioral health services in Shawnee Mission, Kansas; and North Point-Pioneer,
Inc. ("NPP") which operates four outpatient behavioral health centers under the
name Pioneer Counseling Center in the greater Detroit metropolitan area. The
Company also operates BSC-NY, Inc., which provides management and administrative
services to psychotherapy and psychological practices in the greater New York
City metropolitan area. Through its subsidiary, Behavioral Health Online, Inc.,
(BHO"), the Company operates its web site, Behavioralhealthonline.com.
In June, 1998 the Company's sub acute long-term care facility, Franvale
Nursing and Rehabilitation Center ("Franvale"), in Braintree, Massachusetts was
closed in a State Receivership action which was precipitated when the Company
caused the owner of the Franvale facility, Quality Care Centers of
Massachusetts, Inc., to institute a proceeding under Chapter 11 of the Federal
Bankruptcy Code. The net assets and liabilities of this facility are shown as
discontinued operations on the accompanying financial statements. The
liquidation of the assets and liabilities of Franvale may result in a non-cash
financial statement gain of approximately $2,000,000. The recognition of the
gain has been deferred until final resolution of all contingent liabilities.
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,
1999 are not necessarily indicative of the results that may be expected for the
year ending June 30, 2000. The accompanying financial statements should be read
in conjunction with the June 30, 1999 consolidated financial statements and
footnotes thereto included in the Company's 10-KSB filed on October 13, 1999 and
10-KSB/A filed on October 20, 1999.
NOTE C - Restatement of September 30, 1998 financial information
In July 1998 the Company issued warrants to purchase 72,500 shares of PHC,
Inc. Class A common stock in a debt extension agreement. In error the value of
these warrants was not charged as an expense during the period. The Company has
restated the accompanying September 30, 1998 financial information to reflect
the Black-Scholes value of these warrants as additional interest of $25,624.
<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 decreased 11.7% to $3,951,498 for the three months
ended September 30, 1999 from $4,476,738 for the three months ended September
30, 1998. This decrease in revenue is due primarily to the close of the Virginia
clinics, which accounted for $319,086 of the net revenue for the three months
ended September 30, 1998 and an unusual, non-seasonal decline in census and
revenue at Harbor Oaks and Mount Regis facilities. Marketing efforts have aided
in increasing the census at Harbor Oaks but the census at Mount Regis center
remained low through much of October 1999.
Management fees increased by 33.1% to $265,404 for the three months ended
September 30, 1999 from $199,453 for the three months ended September 30, 1998.
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. These
management fees are expected to decline in future since they are now based on
the expenses of BSC-NY, Inc. and there has been a decline in the expenses due to
changes in operations and personnel.
Administrative expenses decreased 7.5% to $1,762,564 for the three months
ended September 30, 1999 from $1,905,917 for the three months ended September
30, 1998. Patient care expenses also decreased by 7.9% to $2,125,408 for the
three months ended September 30, 1999 from $2,308,051 for the three months ended
September 30, 1998. These decreases in expenses are due to the closing of the
Salem, Virginia clinic in January 1999. Although some residual expenses related
to the collection of receivables continued through the quarter ended September
30, 1999, these expenses have reduced considerably as expected.
Year 2000 Compliance
The Company's computer and software systems at the corporate office have
all been tested and upgraded. All hardware and software at the corporate offices
is now year 2000 compliant. Accounts receivable software has been upgraded and
is currently year 2000 compliant at four of its eight operating facilities. The
four remaining facilities are in the process of finalizing conversion decisions
to allow for a smooth transition into the year 2000. All related system changes
are expected to be final for testing by November 30, 1999 and operating live by
December 31, 1999. In the event that installation of the software is delayed,
each of the remaining facilities is making plans to complete the billing process
by manually for those bills that are not currently processed through a third
party electronic biller. Although this is a time consuming and costly
alternative, it will allow the Company to continue processing bills.
The Company is currently in the process of contacting each third party
payor of accounts receivable, financial institution, major supplier of essential
products and utility to request the status of their year 2000 compliance. The
Company has received responses from approximately 60% of all vendors contacted.
All operations critical equipment, telephones, elevators, etc., has been tested
and found to be compliant. There are a few suppliers of goods and services
critical to operations that have not yet responded. The Company has identified
alternate sources for these goods and services.
To date the Company has expended approximately $65,000 on items relating to
the year 2000 issues and anticipates approximately $150,000 in additional
expenses relating to the upgrade of Company's computer and telephone systems.
<PAGE>
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 decreased during the quarter ended September 30, 1999 by 11.2%,
approximately $440,000. This is primarily the result of a more aggressive
collection policy. In response to today's healthcare environment, the Company's
collection policy calls for earlier contact with insurance carriers with regard
to payment, use of fax and registered mail to follow-up or resubmit claims and
earlier employment of collection agencies to assist in the collection process.
The Company continues to closely monitor its accounts receivable balances and is
working to reduce amounts due consistent with growth in revenues.
During the quarter ended September 30, 1999 the Company met its cash flow
needs through ongoing accounts receivable financing and through debt and equity
transactions as follows:
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
DATE TRANSACTION TYPE NUMBER OF PROCEEDS MATURITY TERMS STATUS
SHARES
7/99 Warrants issued for 10,000 07/01/2004 exercise price outstanding
$1.00
7/99 Warrants issued for 37,500 07/05/2004 exercise price outstanding
$1.45
8/99 Warrants issued for 10,000 08/01/2004 exercise price outstanding
$1.00
8/98 Extension of existing $310,000 12/31/1999 $45,000 on outstanding
signing plus
prime 2.25%
annual interest
rate
</TABLE>
<PAGE>
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 new product lines and expansion of contracts. The Company
will also expand through its web site operations offering the behavioral health
professional goods and services unique and specific to their needs for a fee.
Subsequent to September 30, 1999 the Company signed a promissory note for
$160,000 in favor of Mellon US Leasing in settlement of the lease obligation of
Quality Care Centers of Massachusetts, Inc., the Company's subsidiary
that'instituted a proceeding under Chapter 11 of the Federal Bankruptcy Code.
This lease obligation was fully guaranteed by the parent corporation, at the
time of its original signing. The note calls for 36 monthly payments of
$5,087.96 monthly beginning November 30, 1999 and bear interest at 9% per annum.
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
the 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 6. Exhibits
(a) Exhibit List
Exhibit No. Description
10.68 Promissory Note by and between PHC, Inc. and Mellon US Leasing
Corporation dated
27 Financial Data Schedule
99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private
<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 15, 1999 /s/ Bruce A. Shear
President
Chief Executive Officer
Date: November 15, 1999 /s/ Paula C. Wurts
Controller
Assistant Treasurer
<PAGE>
Exhibit 10.68
PROMISSORY NOTE
$160,000.00
November _____ , 1999
For value received, PHC, Inc., d/b/a Pioneer Behavioral Health, (herein
"Borrower"), promises to pay Mellon US Leasing, A Division of Mellon Leasing
Corporation, or its assigns (herein "Lender"), at its offices of its attorneys,
Cohn & Dussi, P.C. at 151 Merrimac Street, Suite 600, Boston, Massachusetts
02114 or such other address designated by Lender, the sum of One Hundred Sixty
Thousand 00/1 00 ($160,000.00) Dollars, (the "Principal") together with interest
thereon at the rate of Nine Percent (9%) per annum from November 1, 1999,
payable as follows:
Thirty-Six (36) consecutive monthly payments in the amount of Five Thousand
Eighty-Seven and 96/100 ($5,087.96) Dollars per month commencing on November 1,
1999. Each monthly payment is due and payable on the thirtieth (30th) of each
month until all monies due hereunder are paid.
This Note may be prepaid in whole or in part at any time. Any prepayment shall
be applied as directed by Borrower either to the last principal due hereunder or
to proportionately reduce all succeeding payments.
Lender shall accept payment of arrears; and if any defaulted payment is more
than twenty (20) days in arrears, the Borrower shall pay as liquidated damages,
in addition to all other amounts due hereunder, a late charge equal to five
percent (5%) for each payment so in arrears, but only to the extent permitted by
law. After the maturity date of this Note, the borrower shall pay interest on
unpaid balances at the rate of twelve percent (12%) per annum. In the event
Lender institutes an action upon this note, the borrower shall pay, in addition
to unpaid principal, interest and late charges, the expenditures incurred by
Lender, including costs and reasonable collection and attorneys' fees. In the
event of default in the payment of any sums when due hereunder, at Lender's
option, the due date of this Note may be accelerated so that the entire
principal is immediately due and payable and the interest rate increases to
twelve percent (12%) per annum. Borrower shall have the right to cure default by
making payments within 30 days of the due date.
Undersigned and any endorser waive presentment, demand for payment, notice of
dishonor and protest and consent to any renewal, extension or modification of
the terms of payment or release or substitution of security now or hereafter
held as collateral for this Note.
Any notices required hereunder shall be deemed sufficient if given personally in
writing or delivered by regular First Class Mail to the party intended at its
address shown herein or to any other intended recipient at its address shown
below, or to such other address as the intended recipient shall have previously
designated in writing.
This Note shall be deemed delivered in Boston, Massachusetts, and the validity
thereof shall be construed pursuant to the laws of the State of Massachusetts.
The undersigned and each endorser hereby consent to the jurisdiction of any
Federal Court in the State of Massachusetts or any State Court located in
Massachusetts for any action or proceeding brought with respect to this Note.
Nothing contained herein is intended to preclude Lender from commencing any
action hereunder in any court having jurisdiction thereof. Service of process in
any such action shall be sufficient if served by certified mail, return receipt
requested, to the address of the party set forth herein. To the extent permitted
by law, undersigned waives trial by jury in any action by or against Lender
hereunder.
<PAGE>
This Note is given in full satisfaction of all amounts due from Borrower to
Lender by reason of any transaction between Lender and either Borrower or any
subsidiary of Borrower.
(CORPORATE SEAL) PHC, Inc.
d/b/a Pioneer Behavioral Health
200 Lake Street, Suite 102
Peabody, Massachusetts 01960
ATTEST: /s/ Terri Bates By: /s/ Bruce A. Shear
Title: President
-2-
<PAGE>
Exhibit 99.1
CAUTIONARY STATEMENT FOR PURPOSES
OF THE SAFE HARBOR" PROVISIONS OF THE
RIVATE 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-KSB 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.
<PAGE>
<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> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-1-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 57,597
<SECURITIES> 0
<RECEIVABLES> 9,928,090
<ALLOWANCES> 3,429,725
<INVENTORY> 0
<CURRENT-ASSETS> 6,962,467
<PP&E> 2,507,004
<DEPRECIATION> 1,050,808
<TOTAL-ASSETS> 14,446,309
<CURRENT-LIABILITIES> 8,809,982
<BONDS> 0
0
8
<COMMON> 63,401
<OTHER-SE> 3,147,783
<TOTAL-LIABILITY-AND-EQUITY> 14,446,309
<SALES> 0
<TOTAL-REVENUES> 4,382,809
<CGS> 0
<TOTAL-COSTS> 4,438,230
<OTHER-EXPENSES> 190,868
<LOSS-PROVISION> 438,352
<INTEREST-EXPENSE> 190,868
<INCOME-PRETAX> (59,852)
<INCOME-TAX> 100
<INCOME-CONTINUING> (59,952)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59,952)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
