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, 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 April 30, 1999: Class A Common Stock 5,530,206 Class B Common Stock 727,210 Transitional Small Business Disclosure Format (Check one): Yes______ No X PHC, Inc. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - March 31, 1999 and June 30, 1998. Condensed Consolidated Statements of Operations - Three months ended March 31, 1999 and March 31, 1998; Nine months ended March 31, 1999 and March 31, 1998. Condensed Consolidated Statements of Cash Flows - Nine months ended March 31, 1999 and March 31, 1998. Notes to Condensed Consolidated Financial Statements - March 31, 1999. Item 2. Management's Discussion and Analysis of Plan of Operation PART II. OTHER INFORMATION Item 6. Exhibits Signatures PART I. FINANCIAL INFORMATION Item 1 Financial Statements PHC INC. AND SUBSIDIARIES (UNAUDITED) CONSOLIDATED BALANCE SHEETS Mar. 31 June 30 ASSETS 1999 1998 Current assets: Cash & Cash Equivalents $ 137,949 $ 227,077 Accounts receivable, net of allowance for bad debts of $3,079,521 at Mar. 31, 1999, $3,488,029 at June 30, 1998 6,697,074 7,441,972 Prepaid expenses 322,207 156,695 Other receivables and advances 367,604 127,064 Deferred Income Tax Asset 459,280 515,300 Other Receivables, related party 75,531 64,065 _________ _________ Total current assets 8,059,654 8,532,173 Accounts Receivable, noncurrent 640,000 685,000 Other receivables, noncurrent, related party, net of allowance for doubtful accounts of $407,000 Mar 31, 1999 and $382,000 June 30, 1998 3,464,745 2,941,402 Other Receivable 115,520 426,195 Property and equipment, net 1,512,119 2,128,273 Deferred income taxes 154,700 154,700 Deferred financing costs, net of amortization of $50,181 at Mar. 31, 1999 and $18,065 at June 30, 1998 56,927 53,608 Goodwill, net of accumulated amortization of $79,347 at Mar. 31, 1999 and $307,707 at June 30, 1998 1,881,611 2,011,613 Other assets 181,512 167,004 ___________ ___________ Total assets $16,066,779 $17,099,968 ___________ ___________ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $2,540,949 $2,346,213 Notes payable--related parties 267,356 159,496 Current maturities of long term debt 1,292,666 1,107,167 Revolving credit note 1,400,277 1,683,458 Current portion of obligations under capital leases 62,349 67,492 Accrued Payroll, Payroll Taxes and Benefits 325,923 729,194 Accrued expenses and other liabilities 1,377,006 1,004,763 Net current liabilities of discontinued operations 1,232,394 1,232,394 ___________ ___________ Total Current liabilities 8,498,920 8,330,177 ___________ ___________ Long-term debt 1,865,665 2,850,089 Obligations under capital lease 67,787 93,747 Net long term liabilities of discontinued operations 88,374 1,409,143 Convertible Debentures 500,000 -- ____________ ___________ Total noncurrent liabilities 2,521,826 4,352,979 ____________ ___________ Total liabilities 11,020,746 12,683,156 ____________ ___________ Stockholders' Equity: Preferred stock, $.01 par value; 1,000,000 shares authorized, 864 and 950 shares issued and outstanding Mar. 31, 1999 and June 30, 1998 liquidation preference ($864,000 and $950,000 respectively) 9 10 Class A common stock, $.01 value; 20,000,000 shares authorized, 5,530,206 and 4,935,267 shares issued Mar. 99 and June 98 respectively 55,302 49,353 Class B common stock, $.01 par value; 2,000,000 shares authorized, 727,210 and 727,328 issued Mar. 99 and June 98 respectively, convertible into one share of Class A common stock 7,272 7,273 Additional paid-in capital. 15,580,621 15,295,895 Treasury stock, 2,776 shares at cost (12,122) (12,122) Accumulated Deficit (10,585,049) (10,923,597) ____________ ____________ Total Stockholders' Equity 5,046,033 4,416,812 ____________ ____________ Total Liabilities and Stockholders' Equity $16,066,779 $17,099,968 ____________ ____________ See Notes to Consolidated Financial Statements PHC INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended March 31 March 31 1999 1998 1999 1998 ____ ____ ____ ____ Revenues: Patient Care, net $4,587,743 $5,362,955 $13,852,546 $15,503,447 Management Fees 122,141 182,290 518,983 644,983 __________ __________ ___________ ___________ Total revenue 4,709,884 5,545,245 14,371,529 16,148,430 __________ __________ ___________ ___________ Operating expenses: Patient care expenses 2,296,160 2,822,708 7,218,008 8,509,056 Provision for doubtful accounts 275,263 537,128 1,419,583 1,536,377 Administrative expenses 1,776,668 2,075,115 5,551,240 6,702,613 __________ _________ __________ __________ Total operating expenses 4,348,091 5,434,951 14,188,831 16,748,046 __________ _________ __________ ___________ Income (loss) from 361,793 110,294 182,698 (599,616) operations __________ _________ __________ ___________ Interest income 118,149 87,725 356,897 288,323 Other income 19,286 58,960 58,206 180,709 Interest expense (240,503) (336,943) (869,199) (935,145) Facility Closing Costs -- -- (304,994) -- HRH Relocation Expense -- -- (36,935) -- __________ _________ __________ ___________ Total other income (expense) (103,068) (190,258) (796,025) (466,113) __________ _________ __________ ___________ Income (Loss) before Provision for Taxes 258,725 (79,964) (613,327) (1,065,729) Provision for Income Taxes 43,724 98,309 44,635 105,509 __________ _________ __________ ___________ Income (loss) from Continuing Operations $ 215,001 $(178,273) $(657,962) $(1,171,238) __________ _________ __________ ___________ Loss from Discontinued Operations -- $(807,802) -- $(1,829,508) __________ _________ __________ ___________ Income (Loss) before Extraordinary Item $ 215,001 $(986,075) $(657,962) $(3,000,746) Extraordinary Gain (net of estimated taxes) $ -- -- $1,089,076 -- ___________ __________ __________ ____________ Net Income (Loss) $ 215,001 $ (986,075) $ 431,114 $(3,000,746) ___________ __________ __________ ____________ Basic Earnings (loss) per common share: Income (loss) from continuing operations .03 (.03) (.11) (.23) Loss from discontinued operations -- (.15) -- (.36) Extraordinary Gain -- -- .18 -- Total .03 (.18) .08 (.58) Basic Weighted average number of shares outstanding 6,182,204 5,431,196 5,910,928 5,090,919 Diluted Earnings (loss) per common share: Income (loss) from continuing operations .03 (.03) (.11) (.23) Loss from discontinued operations -- (.15) -- (.36) Extraordinary Gain -- -- .18 -- Total .03 (.18) .08 (.58) Diluted Weighted average number of shares outstanding 6,194,456 5,431,196 5,921,910 5,090,919 See Notes to Consolidated Financial Statements PHC INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Months Ended March 31 1999 1998 Cash flows from operating activities: Net income (loss) $ 431,114 $(3,000,746) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Non-Cash charge (credit) related to discontinued operations (1,320,769) 999,121 Depreciation and amortization 248,987 334,066 Changes in: Accounts Receivable 325,224 (710,969) Prepaid expenses and other current assets (165,512) 90,597 Other assets 41,512 (6,932) Accounts payable 194,736 (452,565) Accrued expenses and other liabilities (31,028) 291,201 ____________ _____________ Net cash used in operating activities (275,736) (2,456,227) ____________ _____________ Cash flows from investing activities: Acquisition of property and equipment (150,420) (112,911) Disposition of property, equipment and intangibles 363,104 (13,275) Costs related to business acquisition -- (626,267) ____________ _____________ Net cash provided by (used in) investing activities 212,684 (752,453) ____________ _____________ Cash flows from financing activities, Revolving debt, net (283,181) -- Other debt activity (165,339) 407,320 Preferred stock dividends paid (92,567) -- Issuance of Common Stock 15,011 2,049,480 Convertible debt 500,000 -- ____________ _____________ Net cash provided by (used in) financing activities (26,076) 2,456,800 ____________ _____________ NET INCREASE (DECREASE) IN CASH (89,128) (751,880) Beginning cash balance 227,077 844,471 ____________ _____________ ENDING CASH BALANCE $ 137,949 $ 92,591 ____________ _____________ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 802,549 $ 619,523 Income taxes 94,919 82,703 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Conversion of Debt to Common Stock -- 2,710,106 Conversion of Preferred Stock to Common Stock 185,571 500,000 Stock issued for Acquisitions and Earnout Agreement 219,165 614,280 Issuance of Preferred Stock in lieu of cash for Dividends due 44,000 -- See Notes to Consolidated Financial Statements PHC, INC. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 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, ("Highland Ridge"); and Mount Regis Center, located in Salem, Virginia, near Roanoke ("Mount Regis") and eight psychiatric facilities: Harbor Oaks Hospital ("Harbor Oaks"), a 64-bed psychiatric hospital located in New Baltimore, Michigan; Harmony Healthcare ("Harmony Healthcare"), a provider of outpatient behavioral health services in Las Vegas, Nevada; Total Concept EAP ("Total Concept"), a provider of outpatient behavioral health services in Shawnee Mission, Kansas;" and North Point-Pioneer, Inc. ("NP") 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. ("BSC") which provides management and administrative services to psychotherapy and psychological practices in the greater New York City metropolitan area. 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 Franvale facility instituted 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. In January 1999 the company closed its Virginia out patient operations, Pioneer Counseling of Virginia ("PCV"), and sold the PCV real estate in a transaction consummated in March 1999. In a separate agreement the Company also acquired the minority interest shares in PCV. The elimination of the losses incurred by the PCV operations should have a positive impact on the Company. The sale of the PCV real estate and the acquisition of the minority interest did not materially impact the Company's Financial Statements. 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, 1999 are not necessarily indicative of the results that may be expected for the year ending June 30, 1999. The accompanying financial statements should be read in conjunction with the June 30, 1998 consolidated financial statements and footnotes thereto included in the Company's 10-KSB filed on October 13, 1998. Note C - Subsequent Events In May, 1999 the Company launched its Web page operated by Behavioralhealthonline.com ("BHO"). Through its Web site the Company offers articles related to current events and advances in behavioral health and books written by well known authors and practitioners in the field. 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 14.5% to $4,587,743 for the three months ended March 31, 1999 from $5,362,955 for the three months ended March 31, 1998 and 10.6% to $13,852,546 for the nine months ended March 31, 1999 from $15,503,447 for the nine months ended March, 31, 1998. This decrease in revenue is due primarily to the close of the Rhode Island facility in May, 1998 and the phase out and close of the Pioneer Counseling of Virginia operations in January 1999. Patient care expenses decreased 18.6% to $2,296,160 for the three months ended March 31, 1999 from $2,822,708 for the three months ended March 31, 1998 and 15.2% to $7,218,008 for the nine months ended March 31, 1999 from $8,509,056 for the nine months ended March 31, 1998. This decrease in expenses is a result of the continued reengineering of all subsidiaries and the closing of the facilities noted above. Administrative expenses have also decreased 14.3% to $1,776,668 for the three months ended March 31, 1999 from $2,075,115 for the three months ended March 31, 1998 and 17.2% to $5,551,240 for the nine months ended March 31, 1999 from $6,702,613 for the nine months ended March 31, 1998. This decrease in expenses is also a result of the reengineering and streamlining of all operations. 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 increased during the quarter ended March 31, 1999 by 2.0%, approximately $146,759. 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 March 31, 1999 the Company issued 113,199 shares of Class A Common Stock in exchange for 90 shares of Series B Convertible Preferred Stock and $1,125 in dividends. The Company has 864 additional shares of Series B Convertible Preferred Stock still outstanding. Also during the quarter ended March 31, 1999 the Company issued 53,374 shares of Class A Common Stock to the former owners of Behavioral Stress Centers, now BSC-NY, Inc. in connection with the earnout as stipulated in the original purchase and sale agreement. In conjunction with the 12% convertible debentures issued by the Company in December 1998, the Company has issued warrants to purchase 145,000 shares of Class A Common Stock and will issue warrants to purchase an additional 30,000 shares of Class A Common Stock over the next three months. 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 expand its operations through the acquisition or establishment of additional treatment facilities. The Company's expansion plans will be dependent upon obtaining adequate financing as such opportunities arise. Year 2000 Compliance The Company has been unable to reach an agreement with its Information Systems Vendor to upgrade its current accounts receivable software to accommodate a four digit year and bill, track and age receivables accordingly. The Company is currently pursuing other software packages which are already year 2000 compliant and in the interim has contacted each facilities' fiscal intermediaries requesting an extension of time beyond the HCFA April 5, 1999 deadline for year 2000 compliance. The Company has also contracted with another company to provide case management software which is year 2000 compliant. This software has already been installed at Pioneer Development and Support Services in Utah and is currently being modified to meet the needs of Harmony Healthcare in Nevada. The Company has already upgraded network software at some locations and is currently upgrading hardware to accommodate the software upgrade at all other locations. The Company is currently in the process of contacting each third party payor of accounts receivable, landlords, financial institutions, major suppliers of essential products and utilities to request the status of their year 2000 compliance. To date the Company has expended approximately $52,000 on items relating to the year 2000 issues and anticipates approximately $165,000 in additional expenses relating to the upgrade of Company's computer and telephone systems. PART II OTHER INFORMATION Item 6. Exhibits Exhibit No. Description 4.27 Warrant Agreements by and between PHC, Inc., and George H. Gordon for 10,000 shares of Class A Common Stock dated May 1, 1999. 10.62 Agreement for Purchase and Sale of Pioneer Counseling of Virginia, Inc. to Dr. Mukesh Patel and Dr. Himanshu Patel dated February 15, 1999. 10.63 Letter Agreement by and between PHC, Inc. and Dr. Mukesh Patel and Dr. Himanshu Patel dated March 3, 1999 regarding the transfer of minority ownership in Pioneer Counseling of Virginia, Inc. to PHC, Inc. 10.64 Seller's Settlement Statement related to the sale of the real estate owned by Pioneer Counseling of Virginia, Inc. dated March 15, 1999. 27 Financial Data Schedule 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 14, 1999 /s/ Bruce A. Shear President Chief Executive Officer Date: May 14, 1999 /s/ Paula C. Wurts Controller Assistant Treasurer Exhibit No. Description 4.27 Warrant Agreements by and between PHC, Inc., and George H. Gordon for 10,000 shares of Class A Common Stock dated May 1, 1999. 10.62 Agreement for Purchase and Sale of Pioneer Counseling of Virginia, Inc. to Dr. Mukesh Patel and Dr. Himanshu Patel dated February 15, 1999. 10.63 Letter Agreement by and between PHC, Inc. and Dr. Mukesh Patel and Dr. Himanshu Patel dated March 3, 1999 regarding the transfer of minority ownership in Pioneer Counseling of Virginia, Inc. to PHC, Inc. 10.64 Seller's Settlement Statement related to the sale of the real estate owned by Pioneer Counseling of Virginia, Inc. dated March 15, 1999. 27 Financial Data Schedule Exhibit 10.62 PURCHASE & SALE AGREEMENT Under the terms of this Agreement, dated the 15th day of February, 1999, by and between Pioneer Counseling of Virginia, Inc. (hereinafter "Seller") and Dr. Mukesh Patel and Dr. Himanshu Patel or their assign (together hereinafter referred to as "Purchaser"), the parties hereto agree as follows: 1. SALE. The Seller agrees to sell and convey, and the Purchaser agrees to purchase, all that certain plot, piece or parcel of land, with all buildings and improvements thereon, lying and being in the City of Salem, Virginia, described as 400 East Burwell Street (the "Premises"). 2. STREET RIGHTS. This sale includes all the right title and interest, if any, of the Seller in and to any land lying in the bed of any street, road, or avenue opened in front of or adjoining the Premises. 3. PURCHASE PRICE. The Purchase price is Five Hundred Forty Five Thousand Dollars ($545,000.00), payable as follows: a. Non-refundable cash deposit of Five Thousand Dollars ($5,000.00), paid to Michael Ferguson, Esq. of Osterhoudt, Ferguson, Natt, Aheron & Agee, 1919 Electric Road SW, Roanoke, VA 24018 as escrow agent, upon execution of this Agreement; b. The balance of Five Hundred Forty Thousand Dollars ($540,000.00) to be paid, in cash, to the Seller at the closing. 4. DEED. The Deed shall be a General Warranty Deed with Modern English Covenants of Title, and shall be duly executed, acknowledged, and prepared at the Seller's expense. The Deed shall convey to the Purchaser the fee simple of the Premises, free of all encumbrances, save and except easements which do not materially adversely affect the Premises, 5. CANCELLATION WHERE TITLE DEFECTIVE. If, at closing, the Seller is unable to convey a good and marketable title as to the Premises and the Purchaser rejects title for that reason, this Agreement: a. May be deemed canceled as to the Premises at Purchaser's option; b. The Purchaser may waive said objections as to the Premises on such terms and conditions as shall be appropriate; or c. May be extended for such period as the Purchaser may designate, during which time Seller may cause the same to be corrected. 6. SELLER TO KEEP PREMISES IN REPAIR. The Seller agrees to keep the Premises in their present state of repair, ordinary wear and tear excluded, up to the date of Closing and shall not commit waste upon the said Premises while thereon. However, notwithstanding the foregoing, the Purchaser is currently in possession of a substantial portion of the Premises and, therefore, the Seller is absolved from any obligation, liability or risk of loss for damage and/or waste resulting from or created by, either the Purchaser, their agents, employees and/or invited guests. 7. REPRESENTATIONS AND WARRANTIES. a. Purchaser's Representations and Warranties. Purchaser represents, warrants and agrees that on the date of execution of this Agreement and on and as of the date of Closing, Purchaser will have all right, power and authorization to execute and perform Purchaser's obligations under this Agreement. Purchaser further warrants, represents and agrees that this Agreement has been duly executed by Purchaser and is enforceable against Purchaser in accordance with its terms. b. Seller's Representations and Warranties. Seller represents, warrants and agrees that on the date of execution of this Agreement and on and as of the date of Closing, Seller will have all right, power and authorization to execute and perform its obligations under this Agreement. Seller further represents, warrants and agrees that this Agreement has been duly executed by Seller and is enforceable against Seller in accordance with its terms. Seller additionally warrants that Seller is not a foreign person for purposes of Internal Revenue Code Section 1445 and agrees to deliver at Closing an affidavit to that effect and stating Seller's federal tax identification number. 8. CLOSING AND POSSESSION. a. Closing shall take place at the offices of Seller's attorney in Roanoke, Virginia, or at such other location as may be mutually agreed upon by Seller and Purchaser, on or before March 15, 1999. At closing, possession will be delivered to Purchaser. b. At Closing, real property taxes, utilities, rental payments from current tenants and insurance premiums applicable to the Premises will be pro-rated to the date of Closing. C. Seller shall be responsible for the costs of the preparation of the deed, certificate of non-foreign status, Seller's settlement statement, Form 1099 and the fees and expenses of its attorneys. Purchaser shall be responsible for all other fees and expenses of Closing including, but not limited to, the fees and expenses of its attorneys. 9. COMPLETENESS OF CONTRACT. The Seller and Purchaser acknowledge that this Agreement represents the entire understanding of the parties, that neither oral nor written representations have been made other than those contained herein, and that this Agreement may not be modified except in writing by the parties hereto. 10. TIME. Time is of the essence in this Agreement. The terms evidenced by this Agreement remain open until Friday, February 19, 1999 at 5:00 pm Eastern Time. Notwithstanding the foregoing, deadlines defined and imposed under this Agreement may be extended at the sole discretion and option of Seller. 11. DEFAULT. If either party shall default in its obligations hereunder, the other party shall have all remedies available to it under law and equity, including the right to the recovery of its reasonable attorney's fees and all costs of litigation. 12. NOTICES. All notices and other communications or permitted under this Agreement shall be in writing and shall be sent either: a. Through the, U.S. Postal Service, registered or certified mail, return receipt requested and bearing adequate postage; or b. By means of a nationally recognized overnight delivery service if it obtains a written receipt to verify delivery. Each such notice shall be effective three (3) days after deposit for delivery or upon receipt, whichever is earlier. By giving the other party hereto at least seven (7) days notice thereof, any party shall have the right while this Agreement is in effect to change its address for purposes of this Paragraph. Each notice or other communication shall be addressed, until receipt of notice of change of address as aforesaid, as follows: If to Seller: Pioneer Counseling of Virginia, Inc. Attn: Bruce A. Shear, President 200 Lake Street; Suite 102 Peabody, MA 01960 Phone: (978) 536-2777 Fax: (978) 536-2677 If to Purchaser: W. William Gust, Esq. 10 Franklin Road, S.E. P.O. Box 40013 Roanoke, VA 24018 Phone (540) 983-9305 Fax: (540) 983-9400 13. PARAGRAPH HEADINGS. Paragraph headings are provided for convenience only and shall not serve as a basis for interpretation or construction of this Agreement, nor as evidence of the intention of the parties hereto. 14. WAIVER REMEDIES. No waver by Seller or Purchaser of any default or breach under this Agreement shall operate as a wavier of any future default, whether of like or different character. All remedies, rights, undertakings, obligations and agreements contained in this Agreement, unless otherwise specified, shall be cumulative and not mutually exclusive. 15. SEVERABILITY. If any provision of this Agreement, as applied to either party or to any circumstance, shall be adjudged by a court of competent jurisdiction to be void or unenforceable, the same shall in no way effect any other provision of this Agreement, the application of any such provision in any other circumstance, or the availability or enforceability of the Agreement as a whole. 16. APPLICABLE LAW. This Agreement shall be governed by the laws of the Commonwealth of Virginia excluding its law as to conflicts. 17. SUCCESSORS AND ASSIGNS. The parties agree that all of the provisions hereof shall be binding upon, and inure to the benefit of, the parties hereto, their respective heirs, legal representatives, successors and assigns. 18. AGREEMENT. This Agreement, together with any attachments or exhibits hereto, contains the entire agreement between the parties and no addition to, modification, or cancellation of any term or provision of this Agreement shall be effective unless set forth in writing and signed by the parties hereto. 19. BROKER. Seller and Purchaser hereby represent and warrant that they have not dealt with any broker or real estate agent and the parties will hold each other harmless from and against any and all claims, loss, liability, cost and expenses resulting from any claim that may be made by any broker or person claiming a commission, fee or other compensation by reason of this transaction. 20. TENANTS. Purchaser acknowledges that approximately One Thousand Five Hundred Square Feet (1,500 sq. ft) of the Premises are currently occupied by an Optician whose tenancy is "at will". Rent is paid by this tenant at the rate of One Thousand Dollars ($1,000.00) per month due on or before the tenth (10th) day of each month. Purchaser further acknowledges that Seller has no obligation with respect to removal of this tenant or termination of the tenancy and the arrangements by which the tenant occupies the Premises will remain, at the option of the tenant, intact at the time of Closing. 21. EXTENSION OF TIME TO CLOSE. In the event Purchaser is not prepared or otherwise able to close on or prior to the deadline established in Paragraph 8 above, an extension may be granted at the sole option and discretion of Seller. If an extension is granted, for the entire term of the same, Purchaser will be obligated to remit directly to Seller, monthly and in advance, a per diem rate equating the pro-rated cost of Seller's present monthly mortgage payment ($5,557.64/month) plus pro-rated estimated property taxes (approximately $4,600.00 annually) less the pro-rated value of any rental payments received from tenants occupying the Premises. Pro-ration will be based on the actual number of days within a given month. In the event such an extension is granted and accepted by Purchaser, the first such payment owing under this Paragraph will due March 16, 1999. Subsequent payments, if applicable will be owing on the first day of each month in which any extension is provided, regardless of the length of the extension. In the event an extension is not granted, or Purchaser elects to not accept the same, then Purchaser will forfeit all amounts remitted to date and will vacate the Premises on or before March 31, 1999. 22. SURVIVAL. All representation and warranties by both Seller and Purchaser shall survive the Closing. 23. ASSIGNABILITY. This Agreement may be assigned by the Purchaser to an entity owned or controlled by the Purchaser without the consent, whether written or otherwise, of the Seller. [signatures on the following page] IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto. SELLER: PURCHASER: Pioneer Counseling of Virginia, Inc. Dr. Mukesh Patel & Dr. Himanshu Patel By: /s/ Bruce A. Shear /s/ Mukesh Patel Its: President Date: _____________________ Date: _______________________ /s/ Himanshu Patel Date: _____________________ Exhibit 10.63 March 3, 1999 Dr. Mukesh Patel 5271 Roselawn Road, S.W. Roanoke, VA 24018 Dr. Himanshu Patel 5432 Snow Owl Drive, S.W. Roanoke, VA 24018 LETTER AGREEMENT Dear Drs. Patel: In accordance with our many recent conversations and in consideration of our entering into a binding agreement for the sale of that certain real estate located at 400 East Burwell Street in Salem, Virginia, this Letter Agreement serves to affirm your agreement to cancel all outstanding issues, debts, obligations and rights presently existing between each of you and PHC, Inc. and/or its affiliated organizations. It is expressly understood by all parties that the release of your rights, as provided for herein, is contingent upon your entering into a written agreement for the purchase of the Salem real estate and consummation of the purchase of said property. In the absence of such binding agreement and consummation of said purchase, the provisions of this Letter Agreement shall be void as without consideration and shall in no way limit or otherwise prevent you from pursuing your lawful claims against PHC, Inc. or any of its affiliates. This Letter Agreement does not address, in any manner, Dr. Mukesh Patel's re-engagement as the Medical Director of the Mount Regis Center beginning January 1, 1999, or the completion of the related Administrative Services Agreement evidencing said relationship. By the terms of our accord, each of you, your successors and/or assigns hereby forgive, waive and cancel any and all outstanding obligations, duties or debts of PHC, Inc., Pioneer Counseling of Virginia, Inc. ("PCV"), or any of their affiliated, subsidiary or sister companies, and their officers, directors and employees, existing as of the date of this Letter Agreement, including, but not limited to, those items described within letters written by Attorney William Gust on or around December 16, 1998, January 6, 1999 and February 9, 1999. Furthermore, in exchange for the tendering, to PHC, Inc., PCV stock certificates representing Ten (10) shares held by Dr. Mukesh Patel (PCV Certificate Number 2) and Ten (10) shares held by Dr. Himanshu Patel (PCV Certificate Number 3) as well as the affirmative representation that each of you will either provide for the continuation of the APA Sponsored Professional Liability Insurance Policies currently held, obtain comparable "tail coverage", or obtain a policy with another carrier which provides the identical coverage and retroactive date as the APA Policy for a minimum period of four (4) years after the date of this Letter Agreement, PCV will issue a letter indemnifying each of you from any liability derived from your association with PCV. However, this indemnification will exclude any liability of PCV, PHC, Inc. or their affiliates resulting from the intentional or negligent acts, errors or omissions of Dr. Mukesh Patel and/or Dr. Himanshu Patel. I believe the above accurately memorializes our understanding. If you are in Agreement, please acknowledge the same by your signatures below. Sincerely, /s/ Bruce A. Shear President AGREED: AGREED: /s/ Mukesh Patel /s/ Himanshu Patel By: Dr. Mukesh Patel By: Dr. Himanshu Patel Date: ____________________ Date: ______________________ Exhibit 10.64 SELLER'S SETTLEMENT STATEMENT HARIOM, LLC 400 EAST BURWELL STREET, SALEM, VA PURCHASE PRICE: Payoff 508,616.39 Deposit 5,000.00 Additional 30,000.00 ___________ Total $543,616.39 Less: Payoff to Dillon & Dillon Associates $508,616.39 Attorney's Fees (Osterhoudt, Ferguson, Natt, 315.00 Aheron & Agee) 1997/98 & 1st Half 1998/99 Real Estate Taxes 7,915.82 Pro Rata Real Estate Taxes (1/l/99-3/15/99) 923.80 Recordation Costs: Deed: Grantor's Tax 544.00 Certificates of Satisfaction ( 2 @ $16.00) 32.00 SUBTOTAL $523,347.01 Payoff to Beneficiary of Cross-Collateralization and Cross-Default 25,269.38 Agreement TOTAL $543,616.39 AMOUNT DUE TO SELLER $-0- PIONEER COUNSELING OF VIRGINIA, INC. Date: March 15, 1999 By: /s/ Paula C. Wurts Its: Chief Financial Officer