U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB/A-1 (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, 1996 |_| 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) 508-536-2777 (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_____ PHC, Inc. became subject to the Exchange Act on March 3, 1994 . Applicable only to corporate issuers Number of shares outstanding of each class of common equity, as of October 31, 1995: Class A Common Stock 1,557,755 Class B Common Stock 847,300 Class C Common Stock 199,964 Transitional Small Business Disclosure Format (Check one): Yes No X The obligated payments to the Surviving Company has been redefined in Part II, Item 5 below: Also, the number of nursing homes in "Nursing Home Contracts" has been increased to 35 from 31. PART II. OTHER INFORMATION Item 5. Other Information Effective November 1, 1996, the Company acquired Behavioral Stress Centers, Inc. ("BSC"), a New York corporation which provides management and administrative services to psychotherapy and psychological practices in the greater New York City Metropolitan Area. The acquisition was consummated through the merger of a newly formed wholly owned subsidiary of the Company, BSC-NY, Inc., and BSC with BSC-NY, Inc. being the surviving company (the "Surviving Company") pursuant to an Agreement and Plan of Merger (the "Merger") between the Company, BSC, the subsidiary, and Messrs. Irwin Mansdorf and Yakov Burstein, each a stockholder of BSC (collectively, Messrs. Mansdorf and Burstein are referred to as the "Sellers"). In connection with the Merger, the Company issued 150,000 shares of its Class A Common Stock to the Sellers. The Agreement provides that the Company is also obligated to pay the Sellers 49% of the profits of the Surviving Company over the next three years plus an additional amount equal to four times 49% of the profits of the Surviving Company during the third year. The profits of the Surviving Company will also include profits, if any, from the professional corporation (defined below). The earn-out consideration is payable 50% in Class A Common Stock shares and 50% in cash provided that the Sellers are not obligated to receive more than $200,000 in the form of Class A shares based on its fair market value at time of payment. Each Seller agreed not to compete directly or indirectly with the Surviving Company during the four years following Closing. At Closing, the Company and Perlow Physicians P.C., a professional corporation (the "Professional Corporation") of which Gerald M. Perlow, M.D., a director of the Company, is a principal stockholder, entered into an Asset Purchase Agreement (the "Purchase Agreement") with the Sellers pursuant to which the Company purchased certain assets of Clinical Associates, a partnership of which the Sellers are the general partners ("CA"), and certain assets of Mansdorf, which were used in a business operated by Mansdorf doing business as Clinical Diagnostics ("CD"), for $1,500,000 and the Professional Corporation purchased contracts between CA or CD and 31 nursing homes (the "Nursing Home Contracts") under which CA and/or CD provides psychotherapy and psychological consulting services to patients at the nursing homes for a $750,000 note of which the Company is the maker. Also at Closing, the Professional Corporation entered into a five year Management Agreement, renewable for five additional years, with the Surviving Company pursuant to which the Surviving Company agreed to provide management, administrative and billing services to the Professional Corporation and will receive a fee in connection therewith plus reimbursement of all the practice expenses (as defined in the Management Agreement) of the Professional Corporation. The Management Agreement also requires the Professional Corporation to repay up to $750,000, plus interest at 8% per annum, to the extent payments are made on the $750,000 note issued to the Sellers under the Purchase Agreement. The note is subject to pro rata reduction for each nursing home which terminates its contract with the Professional Corporation during the 90-day period following Closing. Also at closing, Dr. Burstein, who is a psychologist and has a Ph.D. degree, entered into a three year employment agreement and Dr. Mansdorf, who is a psychologist and has a Ph.D. degree, entered into a three year consulting agreement with the Professional Corporation pursuant to which Dr. Burstein agreed to continue to provide psychotherapy services to the Professional Corporation and to be involved in its business and operations and Dr. Mansdorf agreed to provide consulting services to the Professional Corporation. Dr. Mansdorf will also provide psychotherapy services to the Professional Corporation. The Professional Corporation also employs approximately 20 psychotherapists, psychologists and psychiatrists in the greater New York City Metropolitan Area to provide psychiatric and psychotherapy services to patients, in clinical settings including those at the nursing homes. CA and CD were providing professional services in excessive of 30,000 patient visits per year at more than 30 nursing homes and other institutions. The foregoing is only a summary of the principal terms of the Merger Agreement, the Purchase Agreement, the Employment Agreement, the Consulting Agreement and the Management Agreement, and reference is made to the agreements, copies of which accompany this filing, for additional information. BSC, which has been in operation since 1978, provides management, administrative and billing services to psychiatrists and psychologists, including CA and CD, and furnishes them with office facilities, secretarial assistance, billing and general support. It also provides assessment counseling referral and follow-up services to governmental agencies or employee associations, while CA and CD provide psychotherapy and psychological clinical services to businesses, governmental entities and nursing home patients. The Company intends to continue the business and operation of BSC and, pursuant to the Management Agreement with the Professional Corporation, to provide services to the Professional Corporation, and the Professional Corporation intends to continue the business and operation of CA and CD. For the seven month period ended July 31, 1996, the acquired companies had aggregate net cash flow of approximately $970,000 on cash receipts of approximately $2,100,000 and expenditures of approximately $1,130,000. 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: December 5, 1996 /s/ Bruce A. Shear Bruce A. Shear President Chief Executive Officer Date: December 5, 1996 /s/ Paula C. Wurts Paula C. Wurts Controller Assistant Treasurer