U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A2
(Mark
One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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 0-22916
-----------
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 January 31,
2000:
Class A Common Stock 5,760,438
Class B Common Stock 727,170
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(Check one):
Yes______ No X
------
2
<PAGE>
PHC, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Note E to the condensed consolidated financial statements is being
amended to correct segment information previously reported.
Signatures
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
PHC INC. AND SUBSIDIARIES (UNAUDITED)
CONSOLIDATED BALANCE SHEETS
DEC. 31 JUNE 30
------- -------
1999 1999
---- ----
ASSETS
Current assets:
Cash & Cash Equivalents $ 25,034 $ 381,170
Accounts receivable, net of allowance for bad
debts of $3,398,687 at Dec. 31, 1999,
$3,647,848 at June 30, 1999 5,582,163 6,343,227
Prepaid expenses 177,949 101,865
Other receivables and advances 234,924 334,155
Deferred Income Tax Asset 459,280 459,280
Other Receivables, related party 77,245 53,517
------- -------
Total current assets 6,556,595 7,673,214
Accounts Receivable, noncurrent 632,500 595,000
Other receivables, noncurrent, related party, net
of allowance for doubtful accounts of $948,533 at
Dec 31, 1999 and $782,000 at June 30, 1999 2,987,338 2,908,113
Other Receivable 106,152 109,165
Property and equipment, net 1,425,081 1,483,319
Deferred income taxes 154,700 154,700
Deferred financing costs, net of amortization of
$73,395 at Dec. 31, 1999 and $64,041 at June 30, 1999 35,713 45,067
Goodwill, net of accumulated amortization of
$169,760 at Dec. 31, 1999 and $116,900 at June 30,
1999 1,708,215 1,761,075
Deferred costs related to discontinued operations 530,397 219,443
Other assets 99,462 78,338
--------- ---------
Total assets $14,236,153 $15,027,434
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,812,022 $1,832,750
Notes payable--related parties 200,000 200,000
Current maturities of long term debt 795,170 1,286,318
Revolving credit note 1,047,867 1,669,830
Current portion of obligations under capital
leases 118,292 60,815
Accrued payroll, payroll taxes and benefits 314,505 333,955
Accrued expenses and other liabilities 1,357,556 1,459,290
Net current liabilities of discontinued
operations 2,641,537 2,641,537
--------- ----------
Total current liabilities 8,286,949 9,484,495
---------- ---------
Long-term debt 2,614,409 1,730,230
Obligations under capital leases 159,193 51,657
Convertible debentures 500,000 500,000
---------- ---------
Total noncurrent liabilities 3,273,602 2,281,887
---------- ---------
Total liabilities 11,560,551 11,766,382
Stockholders' Equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, 781 and 813 shares issued and
outstanding Dec. 1999 and June 1999 respectively 8 8
Class A common stock, $.01 par value; 20,000,000
shares authorized, 5,749,642 and 5,612,930 shares
issued Dec. 1999 and June 1999 respectively 57,496 56,129
Class B common stock, $.01 par value; 2,000,000 shares
authorized, 727,170 and 727,210 issued Dec. 99 and
June 99 respectively, convertible into one share of
Class A common stock 7,272 7,272
Additional paid-in capital 16,074,670 15,967,176
Treasury stock, 2,776 shares at cost (12,122) (12,122)
Accumulated Deficit (13,451,722) (12,757,411)
------------ ------------
Total Stockholders' Equity 2,675,602 3,261,052
------------ ------------
Total Liabilities and Stockholders' Equity $14,236,153 $15,027,434
------------ ------------
See Notes to Consolidated Financial Statements
4
<PAGE>
PHC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
----------- -----------
1999 1998 1999 1998
(as restated) (as restated)
Revenues:
Patient Care, net $4,106,185 $4,315,192 $8,057,683 $8,791,930
Management Fees 227,831 197,389 493,235 396,842
Other 154,735 237,769 320,642 472,873
---------- ---------- ---------- ----------
Total revenue 4,488,751 4,750,350 8,871,560 9,661,645
---------- ---------- ---------- ----------
Operating expenses:
Patient care expenses 2,211,866 2,354,785 4,337,274 4,662,836
Cost of management
contracts 105,860 130,847 217,766 259,012
Provision for doubtful
accounts 630,036 788,130 1,068,388 1,144,320
Website expenses 213,785 -- 347,840 --
Administrative expenses 1,848,759 2,253,577 3,477,268 4,159,494
---------- ---------- ---------- ----------
Total operating
expenses 5,010,306 5,527,339 9,448,536 10,225,662
---------- ---------- ---------- ----------
Loss from operations (521,555) (776,989) (576,976) (564,017)
---------- ---------- ---------- ----------
Interest income 101,735 129,366 198,176 238,748
Other income 36,065 34,578 126,061 38,920
Interest expense (194,410) (460,122) (385,278) (772,434)
Total other expenses (56,510) (296,178) (61,041) (494,766)
Loss before Provision for
Taxes (578,165) (1,073,167) (638,017) (1,058,783)
Provision for Income Taxes -- -- 100 911
---------- ---------- ---------- ----------
Loss from Operations $ (578,165) $(1,073,167) $ (638,117) $(1,059,694)
---------- ---------- ---------- ----------
Dividends (43,733) (15,265) (56,196) (29,809)
---------- ---------- ---------- ----------
Loss applicable to common
shareholders $ (621,898) $(1,088,432) $ (694,313) $(1,089,503)
Basic and diluted (loss) per
common share $ (0.09) $ (0.19) $ (0.11) $ (0.19)
Basic and diluted weighted
average number of shares
outstanding 6,380,958 5,896,659 6,359,254 5,778,239
See Notes to Consolidated Financial Statements
5
<PAGE>
PHC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED
DECEMBER 31
1999 1998
---- ----
(as restated)
Cash flows from operating activities:
Net (loss) $(638,117) $(1,059,694)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 163,444 161,421
Compensatory stock options and stock and warrants
issued for obligations 67,797 143,738
Changes in:
Accounts Receivable 722,855 519,722
Prepaid expenses and other current assets (76,084) (179,597)
Other assets (332,078) (14,760)
Accounts payable (20,728) 447,358
Accrued expenses and other liabilities (121,184) (321,564)
--------- ---------
Net cash used in operating activities (234,095) (303,376)
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (53,313) (123,227)
Disposition of property, equipment and
intangibles -- 341,929
-------- --------
Net cash provided by (used in) investing activities (53,313) 218,702
-------- --------
Cash flows from financing activities:
Revolving debt, net (621,963) (56,871)
Net debt activity 558,044 (35,509)
Deferred financing costs -- (7,202)
Preferred stock dividends paid (4,809) (30,020)
Convertible debt -- 500,000
-------- --------
Net cash provided by (used in) financing activities (68,728) 370,398
-------- --------
NET INCREASE (DECREASE) IN CASH (356,136) 285,724
Beginning cash balance 381,170 227,077
-------- --------
ENDING CASH BALANCE 25,034 512,801
-------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $400,278 $562,046
Income taxes 35,500 51,195
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of Preferred Stock to Common Stock $50,000 $40,000
Issuance of Preferred Stock in lieu of cash
for Dividends due $18,000 $33,000
Issuance of Common Stock in lieu of cash for
for Dividends due $33,386 $ 0
See Notes to Consolidated Financial Statements
6
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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, which
offers behavioral health education, training and products for the behavioral
health professional.
In June, 1998 the Company's sub acute long-term care facility, Franvale
Nursing and Rehabilitation Center, 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 in
the accompanying financial statements. The liquidation of the assets and
liabilities of Franvale may result in a non-cash financial statement gain. The
recognition of any 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 six months ended December 31, 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 as
amended on October 20, 1999 and November 29, 1999.
NOTE C - RESTATEMENT OF DECEMBER 31, 1998 FINANCIAL INFORMATION
In December 1998 the Company issued $500,000 in convertible debentures
together with 25,000 warrants and 105,000 warrants in lieu of cash for
professional fees. In error the value of these warrants was not charged as an
expense during the period. The Company has amended the December 31, 1998
financial information to reflect the Black-Scholes value of these warrants as
additional expense of $69,357.
During the December 31, 1998 quarter the Company issued shares to the former
owners of BSC in a price guarantee agreement. The value of these shares was
incorrectly recorded as acquisition price at the time of issuance. The Company
has amended the December 31, 1998 financial information to expense approximately
$92,000 in increased expenses related to this transaction.
7
<PAGE>
The Company also amended the December 31, 1998 financial information to
reverse the recognition of part of the gain related to the liquidation of assets
of Quality Care Centers of Massachusetts, Inc. having determined that it was
more appropriate to defer recognition of any gain until final resolution of all
contingent liabilities. The accompanying balance sheet includes approximately
$2,600,000 in current liabilities and $530,000 in deferred expenses related to
the closing of the Quality Care Centers of Massachusetts facility, Franvale. The
deferred expenses are from various litigations brought against the subsidiary,
which except for the Massachusetts litigation, have been settled and related
legal costs. The Company anticipates that the final case pending, which was
filed by the State of Massachusetts, will result in additional costs of less
than the reserves available when all cases are settled. Based on existing facts
and conditions we anticipate that the elimination of this liability will result
in a non-cash gain and a substantial increase in net worth. (See "Part II, Item
1, Legal Proceedings" for details regarding the case filed by the State of
Massachusetts)
Note D - Receivable due from unrelated Professional Corporation
On November 1, 1996, BSC-NY, Inc. ("BSC"), merged with Behavioral Stress
Centers, Inc., a provider of management and administrative services to
psychotherapy and psychological practices in the greater New York City
Metropolitan Area. In connection with the merger, the Company issued 150,000
shares of PHC, Inc. Class A common stock to the former owners of Behavioral
Stress Centers, Inc. Also, in connection with the merger, another entity was
formed, Shliselberg Physician Services, P.C. formerly Perlow Physicians, P.C.
("Shliselberg"), to acquire the assets of the medical practices theretofore
serviced by Behavioral Health Centers, Inc.. The Company advanced Shliselberg
the funds to acquire those assets and at December 31, 1999 Shliselberg owed the
Company $3,935,871 which includes in addition to acquisition costs, management
fees of approximately $2,090,735 and interest on the advances of approximately
$765,921. During fiscal 1998 the Company established a reserve against this
receivable in the amount of $382,000. The Company increased the reserve to
$782,000 in the fiscal year ended June 30, 1999 and to $948,533 through December
31, 1999. It is expected that collections will be received over the next several
years and accordingly, these amounts have been classified as noncurrent. The
Company has no ownership interest in Shliselberg.
Note E - Business Segment Information
The Company's nine operating business units have separate management teams
and infrastructures that offer behavioral health treatment through different
delivery systems as presented in Note A above. As allowed by Statement of
Financial Accounting Standards 131, Harbor Oaks Hospital, Highland Ridge
Hospital, Harmony Healthcare, North Point-Pioneer, Mount Regis Center, BSC-NY
and Total Concept have been aggregated. None of the other operating units of the
Company exceed the quantitative thresholds of the Standard for separately
reporting segment information. Accordingly the following information is
presented as required by SFAS 131:
AGGREGATED ALL
SEGMENTS OTHERS TOTAL
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1999
REVENUES $8,490,918 $380,642 $8,871,560
SEGMENT PROFIT (LOSS) 302,755 (940,872) (638,117)
TOTAL ASSETS 12,531,345 1,704,808 14,236,153
DEPRECIATION & AMORTIZATION 134,080 31,331 165,411
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998
REVENUES $ 8,599,565 $1,062,080 $9,661,645
SEGMENT PROFIT (LOSS) 177,914 (1,237,608) (1,059,694)
TOTAL ASSETS 14,030,690 2,608,224 16,638,914
DEPRECIATION & AMORTIZATION 124,512 36,909 161,421
8
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
PHC, Inc.
Registrant
Date: May 9, 2000 /s/ Bruce A. Shear
Bruce A. Shear
President
Chief Executive Officer
Date: May 9, 2000 /s/ Paula C. Wurts
Paula C. Wurts
Controller
Assistant Treasurer
9
<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> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-1-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 25,034
<SECURITIES> 0
<RECEIVABLES> 9,613,350
<ALLOWANCES> 3,398,687
<INVENTORY> 0
<CURRENT-ASSETS> 6,556,595
<PP&E> 2,531,407
<DEPRECIATION> 1,106,326
<TOTAL-ASSETS> 14,236,153
<CURRENT-LIABILITIES> 8,286,949
<BONDS> 0
0
8
<COMMON> 64,768
<OTHER-SE> 2,610,826
<TOTAL-LIABILITY-AND-EQUITY> 14,236,153
<SALES> 0
<TOTAL-REVENUES> 8,871,560
<CGS> 0
<TOTAL-COSTS> 9,448,536
<OTHER-EXPENSES> 385,278
<LOSS-PROVISION> 1,068,388
<INTEREST-EXPENSE> 385,278
<INCOME-PRETAX> (638,017)
<INCOME-TAX> 100
<INCOME-CONTINUING> (638,117)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (638,117)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>
