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 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 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 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 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 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 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 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