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, 2002.
|_| 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)
- ------------------------------------------------------------------------------
Indicate by check mark 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_ __
Number of shares outstanding of each class of common equity, as of May 8, 2002:
Class A Common Stock 12,108,948
Class B Common Stock 726,991
Transitional Small Business Disclosure Format
(Check one): Yes______ No X
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PHC, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 2002 and June 30,
2001.
Condensed Consolidated Statements of Operations - Three and nine
months ended March 31, 2002 and March 31, 2001.
Condensed Consolidated Statements of Cash Flows - Nine months ended
March 31, 2002 and March 31, 2001.
Notes to Condensed Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Plan of Operation
PART II. OTHER INFORMATION
Signatures
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
PHC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, June 30,
2002 2001
____________ ____________
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 138,487 $ 43,732
Accounts receivable, net of allowance for bad
debts of $2,765,930 at March 31, 2002 and
$2,632,525 at June 30, 2001 5,305,990 5,620,715
Prepaid expenses 135,038 63,940
Other receivables and advances 79,161 112,579
Deferred income tax asset 754,139 613,980
___________ __________
Total current assets 6,412,815 6,454,946
Accounts receivable, noncurrent 710,000 600,000
Other receivable 122,960 104,863
Property and equipment, net 1,293,197 1,338,066
Deferred financing costs, net of amortization of
$120,109 at March 31, 2002 and $114,109 at June
30, 2001 14,000 20,000
Goodwill, net of accumulated amortization of $270,105
at March 31, 2002 and June 30, 2001 (Note F) 969,099 969,099
Other assets 259,659 236,478
___________ __________
Total assets $ 9,781,730 $ 9,723,452
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,711,693 $ 1,746,280
Notes payable--related parties 300,000 200,000
Current maturities of long-term debt 761,230 2,038,077
Revolving credit note 1,842,334 2,111,586
Current portion of obligations under capital
leases 11,745 16,725
Accrued payroll, payroll taxes and benefits 421,688 460,723
Accrued expenses and other liabilities 1,192,930 1,328,820
Convertible debentures 500,000 500,000
Net current liabilities of discontinued operations
(Note E) 935,576 960,552
___________ __________
Total current liabilities 7,677,196 9,362,763
___________ __________
Long-term debt 2,506,790 1,609,649
Obligations under capital leases 23,984 32,160
___________ __________
Total noncurrent liabilities 2,530,774 1,641,809
___________ __________
Total liabilities 10,207,970 11,004,572
___________ __________
Stockholders' equity (deficit) :
Preferred stock, $.01 par value; 1,000,000 shares
authorized, 140,700 and 150,700 issued and
outstanding at March 31, 2002 and June 30, 2001,
respectively 1,407 1,507
Class A common stock, $.01 par value; 20,000,000
shares authorized, 9,182,300 and 8,709,834
shares issued at March 31, 2002 and June 30,
2001, respectively 91,823 87,098
Class B common stock, $.01 par value; 2,000,000
shares authorized, 726,991 issued and outstanding
at March 31, 2002 and June 30, 2001,
convertible into one share of Class A common stock 7,270 7,270
Additional paid-in capital 18,735,206 18,696,779
Treasury stock, 38,126 shares at March 31, 2002
and 22,926 shares at June 30, 2001, at cost (30,988) (24,894)
Notes receivable, common stock (80,000) (80,000)
Accumulated deficit (19,150,958) (19,968,880)
___________ __________
Total stockholders' equity (deficit) (426,240) (1,281,120)
___________ __________
Total liabilities and stockholders' equity
(deficit) $9,781,730 $9,723,452
========== ==========
See Notes to Condensed Consolidated Financial Statements.
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PHC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
______________________ _______________________
2002 2001 2002 2001
Revenues:
Patient care, net $5,502,673 $5,763,309 $15,874,763 $15,516,547
Management fees -- -- -- 345,111
Pharmaceutical study 184,985 115,196 388,397 210,104
Website services 544 1,405 3,845 16,486
Contract support services 201,727 334,945 616,953 723,098
__________ __________ ___________ ___________
Total revenues 5,889,929 6,214,855 16,883,958 16,811,346
__________ __________ ___________ ___________
Operating expenses:
Patient care expenses 2,720,445 2,555,605 7,963,481 7,140,700
Cost of management
contracts 180,377 288,470 525,476 651,602
Provision for doubtful
accounts 139,007 289,687 554,546 1,914,594
Website expenses 74,478 365,946 232,683 1,103,835
Administrative expenses 2,172,484 1,980,646 6,200,797 5,427,774
Practice management closing
expenses -- -- -- 4,855,966
__________ __________ ___________ ___________
Total operating expenses 5,286,791 5,480,354 15,476,983 21,094,471
__________ __________ ___________ ___________
Income (loss)from operations 603,138 734,501 1,406,975 (4,283,125)
__________ __________ ___________ ___________
Interest income 1,134 8,288 8,182 22,774
Other income 16,015 24,663 67,105 46,790
Interest expense (176,101) (268,661) (577,264) (782,826)
__________ __________ ___________ ___________
Total other expenses (158,952) (235,710) (501,947) (713,262)
__________ __________ ___________ ___________
Income (loss) before provision
for taxes 444,186 498,791 905,028 (4,996,387)
Provision for income taxes -- -- -- 44,450
__________ __________ ___________ ___________
Net income (loss) $ 444,186 $ 498,791 $ 905,028 $(5,040,837)
========== ========== ========== =============
Net income (loss) $ 444,186 $ 498,791 $ 905,028 $(5,040,837)
Preferred stock dividends (27,755) (31,613) (87,106) (180,385)
__________ __________ ___________ ___________
Income (loss) applicable to
common shareholders $ 416,431 $ 467,178 $ 817,922 $(5,221,222)
========== ========== ========== =============
Basic income (loss)per
common share $ 0.04 $ 0.05 $ 0.08 $ (0.63)
Basic weighted average number
of shares outstanding 9,851,124 8,655,613 9,643,486 8,264,481
Diluted income (loss) per
common share $ 0.03 $ 0.05 $ 0.06 $ (0.63)
Diluted weighted average
number of shares
outstanding 14,195,971 9,743,334 14,111,929 8,264,481
See Notes to Condensed Consolidated Financial Statements
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PHC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended
March 31,
2002 2001
____________ ____________
Cash flows from operating activities:
Net income (loss) $ 905,028 $(5,040,837)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 161,965 187,942
Goodwill impairment -- 1,545,609
Write down of accounts receivable, professional
corporation -- 3,071,310
Compensatory stock options, stock and warrants issued
for obligations 36,572 22,630
Changes in:
Accounts receivable 220,046 121,681
Prepaid expenses (71,098) 8,088
Other assets (163,340) (19,312)
Accounts payable (222,748) 900,517
Accrued expenses and other liabilities (52,931) (511,848)
Net liabilities of discontinued operations (24,976) (919,021)
___________ ___________
Net cash provided by (used in) operating activities 788,518 (633,241)
___________ ___________
Cash flows from investing activities:
Acquisition of property and equipment (117,100) (154,796)
Web development -- (70,226)
Disposition of property, equipment and intangibles -- 3,689
___________ ___________
Net cash used in investing activities (117,100) (221,333)
___________ ___________
Cash flows from financing activities:
Revolving debt, net (269,252) 305,618
Proceeds (repayment) of debt, net (292,862) (272,299)
Deferred financing costs 6,000 24,554
Preferred stock dividends -- (93,292)
Issuance of preferred stock at a discount -- 250,000
Common stock issued in earnout -- 297,500
Issuance of common stock 300 --
Purchase of treasury stock (6,094) --
Cost related to issuance of capital stock (14,755) (43,901)
Notes issued for stock purchase -- (90,000)
___________ ___________
Net cash provided by (used in) financing activities (576,663) 378,180
___________ ___________
NET INCREASE (DECREASE) IN CASH AND CASH EQUILIVANTS 94,755 (476,394)
BEGINNING CASH 43,732 551,713
___________ ___________
ENDING CASH $ 138,487 $ 75,319
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $531,956 $780,072
Income taxes 9,718 94,780
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Accrued dividends $ 87,106 $180,385
Conversion of preferred stock to common stock 100,000 143,000
Issuance of common stock in lieu of cash dividends 12,395 3,506
See Notes to Condensed Consolidated Financial Statements
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PHC, INC. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2002
Note A - The Company
PHC, Inc. and its wholly owned subsidiaries (the "Company") is a national
health care Company specializing in behavioral health services including the
treatment of substance abuse, which includes alcohol and drug dependency and
related disorders and the provision of psychiatric services. The Company also
provides management, administrative and online behavioral health services. The
Company primarily operates under three business segments:
(1) Behavioral health treatment services, including two substance abuse
treatment facilities: Highland Ridge Hospital, located in Salt Lake City, Utah,
which has recently begun a treatment program for psychiatric patients; and Mount
Regis Center, located in Salem, Virginia, and eight psychiatric treatment
locations which include Harbor Oaks Hospital, a 64-bed psychiatric hospital
located in New Baltimore, Michigan and seven outpatient behavioral health
locations (two in Las Vegas, Nevada operating as Harmony Healthcare, one in
Overland Park, Kansas operating as Total Concept and four locations operating as
Pioneer Counseling Center in the Detroit, Michigan metropolitan area);
(2) Behavioral health administrative services, including delivery of
management, administrative and help line services. PHC, Inc. provides management
and administrative services for its behavioral health treatment subsidiaries.
Pioneer Development and Support Services ("PDSS") provides help line services
primarily through contracts with major railroads. Pioneer Pharmaceutical
Research conducts studies of the effects of psychiatric pharmaceuticals on a
controlled population through contracts with major manufacturers of these
pharmaceuticals; and
(3) Behavioral health online services, are provided through Behavioral
Health Online, Inc., the Company's internet subsidiary, which provides Internet
support services for all other subsidiaries of the Company and provides
behavioral health education, training and products for the behavioral health
professional, through its website Wellplace.com.
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
liabilities of this facility are shown as net liabilities of discontinued
operations in the accompanying financial statements. The liquidation of the
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 matters,
which is expected to occur in the quarter ending June 2002.
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, 2002
are not necessarily indicative of the results that may be expected for the year
ending June 30, 2002. The accompanying financial statements should be read in
conjunction with the June 30, 2001 consolidated financial statements and
footnotes thereto included in the Company's 10-KSB filed on September 26, 2001.
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Note C - Reclassifications
Certain March 31, 2001 amounts have been reclassified to conform with the
March 31, 2002 presentation.
Note D - Business Segment Information
The Company's behavioral health treatment services have similar economic
characteristics, services, patients and clients. Accordingly, all behavioral
health treatment services are reported on an aggregate basis under one segment.
The Company's segments are more fully described in Note A above. Residual income
and expenses from closed facilities are included in the administrative services
segment. The administrative services segment for the nine months ended March 31,
2001 include $4,855,966 of facility closing expenses for the New York
operations. The following summarizes the Company's segment data:
BEHAVIORAL HEALTH
TREATMENT ADMINISTRATIVE ONLINE
SERVICES SERVICES SERVICES ELIMINATIONS TOTAL
________________________________________________________________________
For the three months ended
March 31, 2002
Revenues - external customers $ 5,502,673 $ 386,712 $ 544 -- $ 5,889,929
Revenues - intersegment 54,198 474,000 75,000 $ (603,198) --
Net income (loss) 1,003,168 (485,048) (73,934) -- 444,186
For the three months ended
March 31, 2001
Revenues - external customers $ 5,763,309 $ 450,141 $ 1,405 $ -- $ 6,214,855
Revenues - intersegment -- 478,698 17,928 (496,626) --
Net income (loss) 1,173,941 (440,241) (234,909) -- 498,791
For the nine months ended
March 31, 2002
Revenues - external customers $15,874,763 $ 780,350 $ 3,845 $ -- $ 16,883,958
Revenues - intersegment 54,198 1,647,000 225,000 (1,701,198) --
Net income (loss) 2,278,883 (1,150,712) (223,143) -- 905,028
Identifiable Assets at
March 31, 2002 8,339,229 1,339,705 102,796 -- 9,781,730
For the nine months ended
March 31, 2001
Revenues - external customers $15,516,547 $ 1,278,313 $ 16,486 $ -- $ 16,811,346
Revenues - intersegment -- 1,454,094 31,448 (1,485,542) --
Net income (loss) 2,148,422 (6,499,041) (690,218) -- (5,040,837)
Identifiable Assets at
March 31, 2001 8,932,971 1,638,660 130,505 -- 10,702,136
Note E - Net Liabilities of Discontinued Operations
Net liabilities of discontinued operations relates to the Franvale closure
in 1998 and consists of the following:
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March 31, June 30,
2002 2001
___________ __________
Debt forgiveness and reserve for
contingencies $2,641,537 $2,641,537
___________ __________
Less legal and other expenses incurred
to date $1,705,963 $1,680,986
___________ __________
Net liabilities of discontinued
operations $ 935,576 $ 960,552
=============== ==============
The recognition of gain, if any, has been deferred until final resolution of all
contingent liabilities related to the discontinued operations. (See note G.)
Note F - New Accounting Standards
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations ("SFAS 141") and No. 142, Goodwill and
Other Intangible Assets ("SFAS 142"). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interest method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after July 1, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also may
require, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purpose of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidelines in SFAS 142. SFAS 142 is required to be applied
in fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.
The Company elected early adoption of SFAS 142 in the quarter ended
September 30, 2001. The Company's net goodwill of $969,099 relating to the
treatment services segment of the Company was evaluated as of July 1, 2001.
There were no impairment issues or amortizable intangible assets identified.
Accordingly, the Company ceased amortization of goodwill resulting in a decrease
in expenses of $57,704 for the nine months ended March 31, 2002.
- 8 -
The impact of the adoption of SFAS 142 is summarized as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
2002 2001 2002 2001
Reported net income (loss) applicable
to common stockholders $ 416,431 $ 467,178 $817,922 $(5,221,222)
Add back: Goodwill amortization -- 16,425 -- 57,704
__________ ________ _________ ____________
Adjusted net income (loss) 416,431 483,603 817,922 (5,163,518)
__________ ________ _________ ____________
Basic earnings per share:
Reported net income (loss)
applicable to common
stockholders $ .04 $ .05 $ .08 $ (.63)
Goodwill amortization -- .00 -- .01
__________ ________ _________ ____________
Adjusted net income (loss) $ .04 $ .05 $ .08 $ (.62)
__________ ________ _________ ____________
Diluted earnings per share:
Reported net income (loss) applicable to
common stockholders $ .03 $ .05 $ .06 $ (.63)
Goodwill amortization -- .00 -- .01
__________ ________ _________ ____________
Adjusted net income (loss) $ .03 $ .05 $ .06 $ (.62)
__________ ________ _________ ____________
Note G - Subsequent Events
During the quarter ended March 31, 2002 the Company was notified that the
bankruptcy hearing for Franvale Nursing and Rehabilitation center would be held
on April 30, 2002. On April 26, 2002 the Company was notified by its bankruptcy
attorney that, there being no claims or objections presented, the hearing was
cancelled and the bankruptcy discharge will be finalized within the next 30
days.
Also subsequent to the end of the quarter the holder of the series C
convertible preferred stock sold 103,570 shares of series C convertible
preferred stock with a stated value of $10.00 per share, to a number of
individuals who converted the shares into 2,301,556 shares of class A common
stock. The conversion price was $0.45 per share. The Company also issued an
aggregate of 449,760 shares of class A common stock in payment of all accrued
and unpaid dividends on the series C preferred stock to the original holder.
Following these transactions, the original holder has agreed to convert the
balance of the preferred stock into 747,333 shares of class A common stock at
$0.45 a share, which transaction is in process. Upon completion of these
transactions all of the series C convertible preferred stock will be retired.
- 9 -
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 4.5% to $5,502,673 for the three months
ended March 31, 2002 from $5,763,309 for the three months ended March 31, 2001
and increased 2.3% to $15,874,763 for the nine months ended March 31, 2002 from
$15,516,547 for the nine months ended March 31, 2001. The decrease in revenue
for the quarter was primarily due to slow increases in census after the holidays
causing low January census at our inpatient facilities. The lower January census
may be partially related to the September 11th tragedy. The census increased in
February and was at a record level for the month of March 2002.
The key indicators of profitability of inpatient facilities are patient
days, or census, and payor mix. Patient days is the product of the number of
patients times length of stay. Increases in the number of patient days result in
higher census, which coupled with a more favorable payor mix (more patients with
higher paying insurance contracts or paying privately) will usually result in
higher profitability. Therefore, patient census and payor mix are monitored very
closely.
Income before interest, taxes, depreciation, amortization, dividends and
the New York operations was $666,391 for the three months ended March 31, 2002
and $1,617,917 for the nine months ended March 31, 2002 compared to $848,058 and
$1,233,218 for the same periods last year.
Management fees of $345,111 for the nine months ended March 31, 2001 were
related to the New York practice management Company, BSC-NY, Inc., which closed
in the quarter ended December 31, 2000.
Revenue from pharmaceutical studies increased 60.5% to $184,985 for the
three months ended March 31, 2002 as compared to $115,196 for the three months
ended March 31, 2001 and 84.9% to $388,397 for the nine months ended March 31,
2002 from $210,104 for the same period last year. These substantial increases
are expected during this start up phase of the operation. Future revenues are
expected to fluctuate quarterly with the completion of studies, addition of new
studies and increased participation of study clients.
Contract support services revenue provided by PDSS decreased 39.8% to
$201,727 for the three months ended March 31, 2002 from $334,945 for the three
months ended March 31, 2001 and 14.7% to $616,953 for the nine months ended
March 31, 2002 from $723,098 for the same period last year. The cost of
providing these services decreased 37.5% to $180,377 for the three months ended
March 31, 2002 from $288,470 for the three months ended March 31, 2001 and 19.4%
to $525,476 for the nine months ended March 31, 2002 from $651,602 for the same
period last year. These decreases in revenue and expenses are due primarily to a
short-term contract completed last year. This contract was labor intensive and,
in addition to providing additional revenue, carried with it high costs.
During the last quarter of the fiscal year ended June 30, 2001, the Company
changed the focus of its internet services company to provide internal support
to all PHC operations. As a result of this change, website services revenue from
outside sources decreased 76.7% to $3,845 for the nine months ended March 31,
2002 from $16,486 for the same period last year. Website expenses decreased
78.9% to $232,683 for the nine months ended March 31, 2002 from $1,103,835 for
the same period last year also due to the change in direction of the internet
company.
- 10 -
Patient care expenses increased by 6.5% to $2,720,445 for the three months
ended March 31, 2002 from $2,555,605 for the three months ended March 31, 2001
and 11.5% to $7,963,481 for the nine months ended March 31, 2002 from $7,140,700
for the nine months ended March 31, 2001. These increases in expenses are due
primarily to increased acuity in patient census resulting in higher expenses
directly related to patient care such as payroll, food, laundry, laboratory and
pharmacy and the increase in the costs related to pharmacy study patients.
Administrative expenses increased approximately 9.7% to $2,172,484 for the
quarter ended March 31, 2002 from $1,980,646 for the quarter ended March 31,
2001 and 14.3% to $6,200,797 for the nine months ended March 31, 2002 from
$5,427,774 compared to the same periods last year. The largest increases were in
salary expenses, with the addition of administrative staff for the collection of
pharmaceutical study data, marketing expenses and advertising expenses.
Bad debt expense decreased 52.0% to $139,007 for the three months ended
March 31, 2002 from $289,687 for the three months ended March 31, 2001 and 71.0%
to $554,546 for the nine months ended March 31, 2002 from $1,914,594 for the
same period last year. This decrease is due primarily to the elimination of
approximately $500,000 in bad debt recorded for the closed New York operations
in the period ended September 30, 2000 and a significant bad debt expense
charged for the Michigan in-patient facility in the quarter ended December 31,
2000.
Interest expense decreased 34.5% to $176,101 for the three months ended
March 31, 2002 from $268,661 for the three months ended March 31, 2001 and 26.3%
to $577,234 for the nine months ended March 31, 2002 from $782,826 for the same
period last year. This decrease is due to the general decline in interest rates
and the refinancing of debt in November 2001 at a more favorable rate.
Other Income increased 8.2% to $75,287 for the nine months ended March 31,
2002 from $69,564 for the same period last year. This increase is primarily due
to the sublease of the property formerly used in the New York operations.
The Company has no provision for income taxes for the three months or nine
months ended March 31, 2002 due to the utilization of net operating loss
carry-forward.
We continue to closely monitor accounts receivable collections and are
maintaining significant reserves for bad debts. The bad debt reserve was
approximately 31% of the accounts receivable balance, which decreased
approximately 1% to $8,781,920 at March 31, 2002 from $8,853,240 at June 30,
2001. The reserve for bad debt is based on the current age of accounts
receivable and is expected to decrease as our more aggressive collection
practices decrease the number of days our patient receivables remain unpaid. In
addition to decreasing the number of days our patient receivables remain
outstanding, our more timely follow-up practice has resulted in fewer accounts
charged to bad debts due to untimely filing of claims since errors on claims are
identified and corrected in a more timely manner than in prior years. The
$710,000 shown as non-current patient accounts receivable is presented at
estimated net realizable value. These amounts are due from individuals in
payment for treatment on which extended payment plans have been arranged and are
being met.
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 nine months ended March 31, 2002 by
approximately 1%, $71,320. The Company continues to closely monitor its accounts
receivable balances and is working to reduce amounts due consistent with growth
in revenues.
- 11 -
During the quarter ended March 31, 2002 the Company met its operating needs
through ongoing accounts receivable financing and through debt and equity
transactions as follows:
During the quarter ended March 31, 2002 the Company issued warrants to
purchase 41,000 shares of class A common stock in payment for corporate
marketing services resulting in a non-cash marketing charge of approximately
$2,700.
During the quarter ended March 31, 2002 the Company issued 25,871 shares of
class A common stock under the Employee Stock Purchase Plan resulting in a
non-cash salaries charge of approximately $ 1,300.
In December 2001 the Company amended its Heller Healthcare Finance, Inc.
revolving credit debt for the Virginia facility and the term notes outstanding
totaling $2,575,542. The amended and restated Term Note requires monthly
principle payments of $45,000 for the first year beginning December 31, 2001 and
increasing to $50,000 in the second year and $55,000 in the third year with the
remaining balance due and payable on November 30, 2004 and carries an interest
rate of prime plus 3.5%. In conjunction with the refinancing the Company also
signed an amendment to the revolving credit note to exclude the Virginia
facility receivables from the borrowing base and to amend the mortgage and cross
collateralization documents to reflect the new terms and amounts. This
refinancing resulted in a decrease in the interest rate and a significant
decrease in the amount of monthly principle payments.
The Company also occasionally accesses an overline to fund short-term cash
flow needs. Principal payments on an overline are generally made weekly with
payoffs scheduled for less than three months. As of March 31, 2002, $20,000
remained to be paid on the overline. The Company currently has no overline
balance remaining.
During the quarter ended March 31, 2002 the Company borrowed $150,000 from
a related party to supplement cash collections and accounts receivable funding.
This debt carries an interest rate of 12% per annum and is payable on demand
with 30 days notice. The outstanding balance of this Note at March 31, 2002 was
$100,000. The current balance is $75,000.
We utilize our accounts receivable funding facilities to the maximum extent
available to meet current cash needs and sustain existing operations. Our
treatment facilities are operating at a profit and are collecting old
outstanding receivables, which resulted in positive cash flow from operations.
These additional funds were used primarily for the repayment of outstanding
debt. We continue to aggressively pursue payments on accounts receivable in
order to continue to reduce debt.
In addition to the debt due to Heller Healthcare as described above, the
Company also has $500,000 in outstanding convertible debentures, which include
the provision that the holders of the debentures may put all or any portion of
the debentures to the Company at the original purchase price plus unpaid
interest upon 30 days written notice beginning December 3, 2001. The Company
does not anticipate that the put provision will be exercised since the coupon
rate is paid quarterly at 12% per annum which is a higher rate than would be
available through other sources at this time.
The Company believes that, with the refinancing of the debt as described
above and its revolving credit facility through its primary lender, it will have
sufficient financing available to fund its growing operations for the
foreseeable future. The Company is concentrating on its core business and
expansion of its pharmaceutical research operations through additional
contracts, to continue increasing revenues and cash flows from operations.
- 12 -
PART II OTHER INFORMATION
Signatures
In accordance wth 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 10, 2002 /s/ Bruce A. Shear
President
Chief Executive Officer
Date: May 10, 2002 /s/ Paula C. Wurts
Controller Treasurer