U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A (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, 1998. | | 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, 1999: Class A Common Stock 5,348,158 Class B Common Stock 727,210 TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check one): Yes______ No X - 1 - PHC, INC. Part I, Item 1 financial statements filed in the Company's 10-QSB for the period ended December 31, 1998, filed with the Securities and Exchange Commission on February 16, 1999, are being amended to reflect the following: 1. The effect of the changes to the financial statements for the period ended June 30, 1998, as amended. a. Increase in general and administrative expenses amounting to approximately $148,000 related to the issuance of warrants to a financial advisor to the Company. b. Increase in dividends related to the beneficial conversion feature of series B convertible preferred stock of approximately $190,000. 2. The effect of changes to the financial statements for the period ended September 30, 1998 as amended. a. Increase in interest expense related to the issuance of warrants with debt, approximately $26,000 for the three months ended September 30, 1998. 3. Increase in Interest expense related to the issuance of warrants with debt, approximately $26,000 for the three months ended December 31, 1998. 4. Increase in Professional fees related to the issuance of warrants with convertible debentures as a finders fee, approximately $43,357 for the three months ended December 31, 1998. 5. Correct the accounting for price guarantee shares issued to the former owners of BSC. Previously recorded as a part of the acquisition price and capitalized, the value of these price guarantee shares should have been charged to expense as interest. Net effect of these changes is approximately $92,000 increase in expense and reduction in intangible assets. 6. Reverse the recognition of part of the gain related to the liquidation of assets of Quality Care Centers of Massachusetts, Inc. The Company subsequently determined that it was more appropriate to defer recognition of any gain until final resolution of all potential liabilities. - 2 - PART I. FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS PHC INC. AND SUBSIDIARIES (UNAUDITED) CONSOLIDATED BALANCE SHEETS DEC. 31 JUNE 30 1998 1998 ASSETS (as restated) (as restated) __________________________ Current assets: Cash & Cash Equivalents $ 512,801 $ 227,077 Accounts receivable, net of allowance for bad debts of $3,505,310 at Dec. 31, 1998, $ 3,488,029 at June 30, 1998 6,580,315 7,441,972 Prepaid expenses 336,292 156,695 Other receivables and advances 186,314 127,064 Deferred Income Tax Asset 515,300 515,300 Other Receivables, related party 70,213 64,065 _________ _________ Total current assets 8,201,235 8,532,173 Accounts Receivable, noncurrent 610,000 685,000 Other receivables, noncurrent, related party, net of allowance for doubtful accounts of $382,000 Dec. 31, 1998 and June 30, 1998 3,453,836 2,941,402 Other Receivable 117,680 426,195 Property and equipment, net 2,096,815 2,128,273 Deferred income taxes 154,700 154,700 Deferred financing costs, net of amortization of $25,195 at Dec. 31, 1998, 18,065 at June 30, 1998 83,912 53,608 Goodwill, net of accumulated amortization of $53,124 at Dec. 31, 1998 $307,707 at June 30, 1998 1,703,689 2,011,613 Other assets 217,047 19,386 _________ _________ Total $16,638,914 $16,952,350 _________ _________ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,793,571 $ 2,346,213 Notes payable--related parties 220,000 159,496 Current maturities of long term debt 1,407,020 1,107,167 Revolving credit note 1,626,587 1,683,458 Current portion of obligations under capital leases 67,408 67,492 Accrued Payroll, Payroll Taxes and Benefits 484,573 729,194 Accrued expenses and other liabilities 927,820 1,004,763 Net current liabilities of discontinued operations 2,641,537 2,641,537 _________ _________ Total Current liabilities 10,168,516 9,739,320 Long-term debt 2,468,276 2,850,089 Obligations under capital lease 79,778 93,747 Convertible Debentures 500,000 -- _________ _________ Total noncurrent liabilities 3,048,054 2,943,836 _________ _________ Total liabilities 13,216,570 12,683,156 _________ _________ Stockholders' Equity: Preferred stock, $.01 par value; 1,000,000 shares authorized, 943 and 950 shares issued and outstanding Dec. 31, 1998 and June 30, 1998 liquidation preference ($943,000 and 950,000 respectively) 9 10 Class A common stock, $.01 par value; 20,000,000 shares authorized, 5,348,158 and 4,935,267 shares issued Dec. 98 and June 98, respectively 53,482 49,353 Class B common stock, $.01 par value; 2,000,000 shares authorized, 727,210 and 727,328 issued Dec. 98 and June 98 respectively, convertible into one share of Class A common stock 7,272 7,273 Additional paid-in capital 15,724,630 15,485,895 Treasury stock, 2,776 shares at cost (12,122) (12,122) Accumulated Deficit (12,350,927) (11,261,215) _________ _________ Total Stockholders' Equity 3,422,344 4,269,194 _________ _________ Total Liabilities and Stockholders' Equity $ 16,638,914 $ 16,952,350 _________ _________ See Notes to Consolidated Financial Statements - 3 - PHC INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31 DECEMBER 31 1998 1997 1998 1997 (as restated) (as restated) ______________________________________________________ Revenues: Patient Care, net $4,552,961 $5,196,280 $9,264,803 $10,140,492 Management Fees 197,389 229,410 396,842 462,693 __________ __________ __________ ____________ Total revenue 4,750,350 5,425,690 9,661,645 10,603,185 __________ __________ __________ ____________ Operating expenses: Patient care expenses 2,485,632 2,912,131 4,921,848 5,686,348 Provision for doubtful accounts 788,130 515,471 1,144,320 999,249 Administrative expenses 1,911,648 2,392,919 3,817,565 4,627,498 __________ __________ __________ ____________ Total operating expenses 5,185,410 5,820,521 9,883,733 11,313,095 __________ __________ __________ ____________ Income (loss) from operations (435,060) (394,831) (222,088) (709,910) Interest income 129,366 102,951 238,748 200,598 Other income 34,578 52,499 38,920 121,749 Interest expense (460,122) (271,614) (772,434) (598,202) Facility Closing Costs (304,994) -- (304,994) -- HRH Relocation Expense (36,935) -- (36,935) -- __________ __________ __________ ____________ Total other income (expense) (638,107) (116,164) (836,695) (275,855) Loss before Provision for Taxes (1,073,167) (510,995) (1,058,783) (985,765) Provision for Income Taxes (Benefit) -- -- 911 7,200 __________ __________ __________ ____________ Loss from Continuing Operations $(1,073,167)$ (510,995) $(1,059,694) $ (992,965) __________ __________ __________ ____________ Discontinued Operations: Income (Loss) from Operations -- $ (585,038) -- $(1,021,706) __________ __________ __________ ____________ Net Income (Loss) $(1,073,167) $(1,096,033) $(1,059,694) $(2,014,671) Dividends (15,265) -- (29,809) -- __________ __________ __________ ____________ Loss applicable to common shareholders $(1,088,432) $(1,096,033) $(1,089,503) $(2,014,671) __________ __________ __________ ____________ Basic and diluted (loss) per common share: Loss from continuing operations (.19) (.09) (.19) (.20) Loss from discontinued operations -- (.11) -- (.21) Total (.19) (.20) (.19) (.41) Basic Weighted average number of shares outstanding 5,896,659 5,404,251 5,778,239 4,924,479 See Notes to Consolidated Financial Statements - 4 - PHC INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED DECEMBER 31 1998 1997 (as restated) _________________________________ Cash flows from operating activities: Net income (loss) $(1,059,694) $(2,014,671) Adjustments to reconcile net income to net cash provided by (used in) operating activities Non-Cash charge of net cash provided by discontinued operations -- 372,498 Depreciation and amortization 161,421 225,932 Compensatory stock options and stock and warrants issued for obligations 143,738 46,131 Changes in: Accounts Receivable 519,722 (311,684) Prepaid expenses and other current assets (179,597) 53,690 Other assets (14,760) 38,245 Accounts payable 447,358 993,483 Accrued expenses and other liabilities (321,564) 250,385 ____________ ___________ Net cash used in operating activities (303,376) (345,991) Cash flows from investing activities: Acquisition of property and equipment (123,227) (41,045) Disposition of property, equipment and intangibles 341,929 -- Costs related to business acquisition -- (616,276) ____________ ___________ Net cash provided by (used in) investing activities 218,702 (657,321) ____________ ___________ Cash flows from financing activities: Revolving debt, net (56,871) (196,823) Net debt activity (35,509) (181,373) Deferred financing costs (7,202) -- Preferred stock dividends paid (30,020) -- Issuance of Common Stock -- 3,328,915 Convertible debt 500,000 (2,734,375) ____________ ___________ Net cash provided by financing activities 370,398 216,344 ____________ ___________ NET INCREASE (DECREASE) IN CASH 285,724 (786,968) Beginning cash balance 227,077 844,471 ____________ ___________ ENDING CASH BALANCE 512,801 57,503 ____________ ___________ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 562,046 $ 282,580 Income taxes 51,195 37,956 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Conversion of Debt to Common Stock $ -- $2,734,375 Conversion of Preferred Stock to Common Stock 40,000 584,587 Stock issued for North Point Acquisition -- 31,383 Stock issued for Harmony Acquisition agreement 39,000 39,000 Issuance of Preferred Stock in lieu of cash for Dividends due $ 33,000 -- See Notes to Consolidated Financial Statements - 5 - Signatures In accordance with the requirements of the Exchange Act, the registratn caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PHC, Inc. Registrant Date: December 7, 1999 /s/ Bruce A. Shear President Chief Executive Office Date: December 7, 1999 /s/ Paula C. Wurts Controller Assistant Treasurer