-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ExFa368VehaGWkj46ispW+4lyom/saQ8xGW9XgWq3YPsRhONxZxPRjzS3XjrH7kx d8fjfQ4eApAB63p5uAdX0g== 0000915127-02-000068.txt : 20021105 0000915127-02-000068.hdr.sgml : 20021105 20021105125045 ACCESSION NUMBER: 0000915127-02-000068 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHC INC /MA/ CENTRAL INDEX KEY: 0000915127 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 042601571 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22916 FILM NUMBER: 02809457 BUSINESS ADDRESS: STREET 1: 200 LAKE ST STE 102 CITY: PEABODY STATE: MA ZIP: 01960 BUSINESS PHONE: 9785362777 MAIL ADDRESS: STREET 1: 200 LAKE ST STREET 2: STE 102 CITY: PEABODY STATE: MA ZIP: 01960 10-Q 1 q10q31102.txt 10-QSB FOR THIRD QUARTER 09/30/02 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 SEPTEMBER 30, 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) ________________________________________________________________________________ (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 October 31, 2002 Class A Common Stock 13,349,544 Class B Common Stock 726,991 Transitional Small Business Disclosure Format (Check one): Yes______ No X -- 1 -- PHC, Inc. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets - September 30, 2002 (unaudited) and June 30, 2002. Condensed Consolidated Statements of Operations (unaudited) - Three months ended September 30, 2002 and September 30, 2001. Condensed Consolidated Statements of Cash Flows (unaudited) - Three months ended September 30, 2002 and September 30, 2001. Notes to Condensed Consolidated Financial Statements - September 30, 2002. Item 2. Management's Discussion and Analysis or Plan of Operation PART II. OTHER INFORMATION Item 6. Exhibits Signatures -- 2 -- PART I. FINANCIAL INFORMATION Item 1 Financial Statements PHC, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, June 30, ASSETS 2002 2002 ___________ ___________ Current assets: (unaudited) Cash and cash equivalents $ 31,201 $ 204,564 Accounts receivable, net of allowance for doubtful accounts of $2,576,762 at September 30, 2002, $2,715,760 at June 30, 2002 4,874,018 5,078,419 Prepaid expenses 222,997 66,652 Other receivables and advances 196,080 137,032 Deferred income tax asset 808,607 766,793 ___________ ___________ Total current assets 6,132,903 6,253,460 Accounts receivable, non-current 725,000 690,000 Other receivable 97,375 92,068 Property and equipment, net 1,315,257 1,259,648 Deferred financing costs, net of amortization of $124,109 at September 30, 2002 and $122,109 at June 30, 2002 10,000 12,000 Goodwill, net of accumulated amortization of $270,105 at September 30, 2002 and June 30, 2002 969,099 969,099 Other assets 194,910 197,340 ___________ ___________ Total assets $9,444,544 $9,473,615 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 983,152 $1,283,389 Notes payable--related parties 150,000 200,000 Current maturities of long-term debt 769,718 765,415 Revolving credit note 1,350,779 1,468,644 Deferred revenue 160,963 129,258 Current portion of obligations under capital leases 16,690 11,020 Accrued payroll, payroll taxes and benefits 387,448 452,177 Accrued expenses and other liabilities 1,324,436 1,597,642 Convertible debentures 500,000 500,000 ___________ ___________ Total current liabilities 5,643,186 6,407,545 ___________ ___________ Long-term debt 2,233,537 2,428,945 Obligations under capital leases 45,137 21,140 ___________ ___________ Total noncurrent liabilities 2,278,674 2,450,085 ___________ ___________ Total liabilities 7,921,860 8,857,630 ___________ ___________ Stockholders' equity Class A common stock, $.01 par value; 20,000,000 shares authorized, 13,363,460 and 12,919,042 shares issued September 30, 2002 and June 30, 2002, respectively 133,635 129,190 Class B common stock, $.01 par value; 2,000,000 shares authorized, 726,991 issued and outstanding September 30, 2002 and June 30, 2002, convertible into one share of Class A common stock 7,270 7,270 Additional paid-in capital 19,118,347 18,769,863 Treasury stock, 38,126 shares at September 30, 2002 and June 30, 2002, at cost (30,988) (30,988) Notes receivable, common stock (80,000) (80,000) Accumulated deficit (17,625,580) (18,179,350) ___________ ___________ Total stockholders' equity 1,522,684 615,985 ___________ ___________ Total liabilities and stockholders' equity $9,444,544 $9,473,615 ============= ============ See Notes to Condensed Consolidated Financial Statements. -- 3 -- PHC, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended September 30, 2002 2001 ___________ ___________ Revenues: Patient care, net $ 5,311,625 $5,319,144 Pharmaceutical studies 361,889 79,817 Website services -- 2,301 Contract support services 297,873 212,976 ___________ ___________ Total revenue 5,971,387 5,614,238 ___________ ___________ Operating expenses: Patient care expenses 2,475,661 2,672,391 Cost of contract support services 280,962 168,972 Provision for doubtful accounts 297,775 116,439 Website expenses 56,041 80,947 Administrative and other operating expenses 2,190,972 1,927,347 ___________ ___________ Total operating expenses 5,301,411 4,966,096 ___________ ___________ Income from operations 669,976 648,142 Other income (expense): Interest income 3,814 3,342 Other income, net 26,182 19,327 Interest expense (146,202) (217,830) ___________ ___________ Total other expense, net (116,206) (195,161) ____________ ___________ Income before provision for taxes 553,770 452,981 Provision for income taxes -- -- ___________ ___________ Net income $ 553,770 $ 452,981 Dividends -- (30,388) ___________ ___________ Income applicable to common stockholders $ 553,770 $ 422,593 =========== ============ Basic income per common share $ .04 $ .04 Basic weighted average number of shares outstanding 13,727,657 9,399,161 Fully diluted income per common share $ .04 $ .03 Fully diluted weighted average number of shares outstanding 14,352,963 14,530,625 See Notes to Condensed Consolidated Financial Statements. -- 4 -- PHC, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended September 30, 2002 2001 ___________ ___________ Cash flows from operating activities: Net income $ 553,770 $ 452,981 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 39,771 56,214 Amortization of financing costs 2,000 2,000 Compensatory stock options (12,825) -- Stock options and warrants issued for obligations 655 2,110 Changes in: Accounts receivable 105,047 5,995 Prepaid expenses (156,345) (144,460) Other assets (41,399) (22,579) Accounts payable (300,237) (14,616) Accrued expenses and other liabilities 8,455 19,208 Net liabilities of discontinued operations -- (2,967) ___________ ___________ Net cash provided by operating activities 198,892 353,886 ___________ ___________ Cash flows from investing activities: Acquisition of property and equipment (93,365) (50,048) ___________ ___________ Net cash used in investing activities (93,365) (50,048) ___________ ___________ Cash flows from financing activities: Revolving debt, net (117,865) (30,377) Principal payments on long-term debt (211,438) (159,310) Costs related to issuance of capital stock (7,212) (13,380) Purchase of treasury stock -- (6,094) Issuance of common stock 57,625 300 ___________ ___________ Net cash used in financing activities (278,890) (208,861) ___________ ___________ NET INCREASE (DECREASE) IN CASH (173,363) 94,977 Beginning cash balance 204,564 43,732 ___________ ___________ ENDING CASH BALANCE $ 31,201 $ 138,709 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 130,669 $ 211,679 Income taxes 48,910 500 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock for options $ 302,516 $ -- Accrued dividends on series C preferred stock -- 30,388 See Notes to Condensed Consolidated Financial Statements. -- 5 -- PHC, INC. and Subsidiaries Notes to Condensed Consolidated Financial Statements September 30, 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 also treats 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 Shawnee Mission, 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 Wellplace, the company's internet operations, 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. 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 three months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending June 30, 2003. The accompanying financial statements should be read in conjunction with the June 30, 2002 consolidated financial statements and footnotes thereto included in the company's 10-KSB filed on September 19, 2002. -- 6 -- Note C - 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 following summarizes the company's segment data: BEHAVIORAL HEALTH TREATMENT ADMINISTRATIVE ONLINE SERVICES SERVICES SERVICES ELIMINATIONS TOTAL ______________________________________________________________________ For the three months ended September 30, 2002 Revenues - external customers 5,311,625 659,762 -- -- 5,971,387 Revenues - intersegment 153,600 656,556 75,000 (885,156) -- Net income (loss) 909,039 (299,228) (56,041) -- 553,770 Identifiable assets 8,090,946 1,258,899 94,699 -- 9,444,544 ______________________________________________________________________ For the three months ended September 30, 2001 Revenues - external customers $ 5,319,144 $ 292,793 $ 2,301 $ -- $ 5,614,238 Revenues - intersegment -- 474,000 75,000 (549,000) -- Net income (loss) 932,089 (400,462) (78,646) -- 452,981 Identifiable assets 8,653,165 1,202,862 115,280 -- 9,971,307 ______________________________________________________________________
-- 7 -- Note D - New Accounting Standards In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of," and APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144 becomes effective for the fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 in the quarter ended September 30, 2002 with no impact to its financial position or results of operations. In July 2002, the FASB issued SFAS No. 146, "Accounting for Cost Associated with Exit or Disposal Activities". SFAS No. 146 requires companies to recognize cost associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 will be applied prospectively to any exit or disposal activities initiated after December 31, 2002. The company expects there will be no effect on its financial results relating to the adoption of SFAS No. 146. -- 8 -- Item 2. Management's Discussion and Analysis or Plan of Operation Overview The company presently provides behavioral health care services through two substance abuse treatment centers, a psychiatric hospital and seven outpatient psychiatric centers (collectively called "treatment facilities"). The company's revenue for providing behavioral health services through these facilities is derived from contracts with managed care companies, Medicare, Medicaid, state agencies, railroads, gaming industry corporations and individual clients. The profitability of the company is largely dependent on the level of patient census and the payor mix at these treatment facilities. Patient census is measured by the number of days a client remains overnight at an inpatient facility or the number of visits or encounters with clients at out patient clinics. Payor mix is determined by the source of payment to be received for each client being provided billable services. The company's administrative expenses do not vary greatly as a percentage of total revenue but the percentage tends to decrease slightly as revenue increases. Although the company has changed the focus and reduced expenses of its' internet operation, Behavioral Health Online, Inc., to provide technology and internet support for the company's other operations, it also continues to provide behavioral health information and education through its web site at Wellplace.com. The company's most recent addition, Pioneer Pharmaceutical Research, contracts with major manufacturers of psychiatric pharmaceuticals to assist in the study of the effects of certain pharmaceuticals in the treatment of specific mental illness. The healthcare industry is subject to extensive federal, state and local regulation governing, among other things, licensure and certification, conduct of operations, audit and retroactive adjustment of prior government billings and reimbursement. In addition, there are on going debates and initiatives regarding the restructuring of the health care system in its entirety. The extent of any regulatory changes and their impact on the company's business is unknown. The current administration has put forth proposals to mandate equality in the benefits available to those individuals suffering from mental illness. If passed this legislation will improve access to the companies programs. Managed care has had a profound impact on the company's operations, in the form of shorter lengths of stay, extensive certification of benefits requirements and, in some cases, reduced payment for services. Critical Accounting Policies The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an on-going basis, we evaluate our estimates and assumptions, including but not limited to those related to revenue recognition, accounts receivable reserves and the impairment of long-lived assets, goodwill and other intangible assets. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Revenue recognition and accounts receivable: Patient care revenues and accounts receivable are recorded at established billing rates or at the amount realizable under agreements with third-party payors, including Medicaid and Medicare. Revenues under third-party payor agreements are subject to examination and contractual adjustment, and amounts realizable may change due to periodic changes in the regulatory environment. Provisions for estimated third party payor settlements are provided in the period the related services are rendered. Differences between the amounts -- 9 -- provided and subsequent settlements are recorded in operations in the year of settlement. The provision for contractual allowances is deducted directly from revenue and the net revenue amount is recorded as accounts receivable. The allowance for doubtful accounts does not include the contractual allowances. Allowance for doubtful accounts: Reserves for bad debt are maintained at a percentage of outstanding accounts receivable based on the company's historic collection results, the age of the receivable and other relevant information. Property and equipment: Property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets using accelerated and straight-line methods. Goodwill: The excess of the purchase price over the fair market value of net assets of an acquisition is recorded as goodwill. The company's net goodwill relates to the treatment services segment of the company and is evaluated at least annually for impairment. Results of Operations Total net revenue from operations increased 6.4% to $5,971,387 for the three months ended September 30, 2002 from $5,614,238 for the three months ended September 30, 2001 primarily due to increases in pharmaceutical study revenue and contract support services revenue as detailed below. Net patient care revenue remained relatively stable at $5,311,625 for the three months ended September 30, 2002 as compared to $5,319,144 for the three months ended September 30, 2001. This stability of core business revenues coupled with reductions in expenses resulted in increased net income. The company anticipates increases in top line revenues as marketing efforts produce increased census at all three inpatient facilities. Income before interest, taxes, depreciation, amortization and dividends was $739,743 for the three months ended September 30, 2002 compared to $720,025 for the three months ended September 30, 2001. Two of 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 results in higher census, which coupled with a more favorable payor mix (more patients with higher paying insurance contracts or paying privately) usually results in higher profitability. Therefore, patient census and payor mix are monitored very closely. Contract support services revenue provided by PDSS increased 39.9% to $297,873 for the three months ended September 30, 2002 from $212,976 for the three months ended September 30, 2001. The cost of providing these services increased 66.3% to $280,962 for the three months ended September 30, 2002 from $168,972 for the three months ended September 30, 2001. This is due to start-up costs related to the new smoking cessation contract for the State of Nebraska. Revenue from pharmaceutical studies increased 353.4% to $361,889 for the three months ended September 30, 2002 from $79,817 for the three months ended September 30, 2001. This increase is due to the start up of new studies and is expected to fluctuate from period to period based on the number of studies currently in progress and the number of participants in each study. -- 10 -- Administrative expenses increased 13.7% to $2,190,972 for the three months ended September 30, 2002 from $1,927,347 for the three months ended September 30, 2001. This increase is primarily due to the increase in consultant fees, marketing and office expenses indirectly related to the increases in census. Rent expense increased 13.9% to $219,488 for the three months ended September 30, 2002 from $192,725 for the three months ended September 30, 2001. This increase is due to the addition of space for the pharmaceutical research company to provide more and better-allocated space for patient visits. The company also experienced a 14.9% increase in cost of insurance and other employee benefits to $99,125 for the three months ended September 30, 2002 from $86,254 for the three months ended September 30, 2001. In addition the company experienced a 177.8% increase in fees and licenses to $25,604 for the three months ended September 30, 2002 from $9,217 for the three months ended September 30, 2001 primarily attributable to the cost of the routine survey by the Joint Commission on the Accreditation of Healthcare Organizations (JCAHO) at our Utah facility. As a result of this survey, the facility earned re-accreditation for an additional three years. Patient care expenses decreased by 7.4% to $2,475,661 for the three months ended September 30, 2002 from $2,672,391 for the three months ended September 30, 2001. This decrease in expenses is due to the more efficient use of salaried staff time for patient services, which resulted in a 17% decrease in the cost of outside consultants to provide these direct patient services. The company also cut cost by 42% in hospital printing and hospital supplies by eliminating unnecessary usage. The company continues to look for new ways to cut costs through operating efficiencies without sacrificing patient care. Bad debt expense increased 155.7% to $297,775 for the three months ended September 30, 2002 from $116,439 for the three months ended September 30, 2001. This is a result of the company's policy to maintain a higher reserve against certain older receivables. Interest expense decreased 32.9% to $146,202 for the three months ended September 30, 2002 from $217,830 for the three months ended September 30, 2001. This decrease in interest is due to the decrease in interest rates on the company's long term debt and a decrease of approximately $211,000 in long-term debt for the period ended September 30, 2002 as compared to the period ended September 30, 2001. The company has no provision for income taxes due to the utilization of net operating loss carry forwards. The company has no preferred stock outstanding as of September 30, 2002 and no stock dividends were paid during the quarter. The environment the company operates in today makes collection of receivables, particularly older receivables, more difficult than in previous years. Accordingly, the company has increased staff, standardized some procedures for collecting receivables and instituted a more aggressive collection policy, which has resulted in an overall decrease in its accounts receivable. Although the company's receivables have decreased, the company continues to reserve for bad debts based on managed care denials and past difficulty in collections. We continue to view receivables most conservatively by maintaining the ratio of reserves for bad debt to receivables at approximately 31% on an accounts receivable balance, which decreased 3.6% to $8,175,780 at September 30, 2002 from $8,484,179 at June 30, 2002. The growth of managed care has negatively impacted reimbursement for behavioral health services with a higher rate of denials requiring higher reserves. The $725,000 shown as non-current patient accounts receivable is presented at 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. -- 11 -- Liquidity and Capital Resources The company`s net cash provided by operating activities was $198,892 for the quarter ended September 30, 2002 compared to $351,886 for the quarter ended September 30, 2001. Cash flow from operations in the quarter ended September 30, 2002 consists of net income of $553,770 plus depreciation and amortization of $37,756, decrease in accounts receivable of $105,047 and non-cash equity based charges of $655 less cash used for net changes in other operating assets and liabilities of $500,336. Cash used in investing activities in the quarter ended September 30, 2002 consisted of $93,365 in capital expenditures compared to $50,048 in capital expenditures in the quarter ended September 30, 2001. Cash used in financing activities in the quarter ended September 30, 2002 primarily consisted of $329,303 in debt repayments compared to $189,687 in debt repayments for the quarter ended September 30, 2001. A significant factor in the liquidity and cash flow of the company is the timely collection of its accounts receivable. Current accounts receivable from patient care, net of allowance for doubtful accounts, decreased approximately 2.9% to $5,599,018 on September 30, 2002 from $5,768,419 on June 30, 2002. This decrease is a result of better accounts receivable management due to increased staff, standardization of some procedures for collecting receivables and a more aggressive collection policy. The increased staff has allowed the company to concentrate on current accounts receivable and resolve any problem issues before they become uncollectable. The company's collection policy calls for earlier contact with insurance carriers with regard to payment, use of fax and registered mail to follow-up or resubmit claims and earlier employment of collection agencies to assist in the collection process. Our collectors will also seek assistance through every legal means, including the State Insurance Commissioner's office, when appropriate, to collect claims. At the same time, the company continues to closely monitor reserves for bad debt based on potential insurance denials and past difficulty in collections. The company has operated ongoing operations profitably for seven consecutive quarters. The current positive business environment towards behavioral health treatment and the new business opportunities give us confidence to foresee continued improved results. New accounting standards In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of," and APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144 becomes effective for the fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 in the quarter ended September 30, 2002 with no impact in its financial position or results of operations. In July 2002, the FASB issued SFAS No. 146, "Accounting for Cost Associated with Exit or Disposal Activities". SFAS No. 146 requires companies to recognize cost associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 will be applied prospectively to any exit or disposal activities initiated after December 31, 2002. The company expects there will be no effect on its financial results relating to the adoption of SFAS No. 146. -- 12 -- PART II OTHER INFORMATION Item 6. Exhibits Exhibit List Exhibit No. Description 99.1 Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 99.3 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. -- 13 -- 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: November 5, 2002 /s/ Bruce A. Shear Bruce A. Shear President Chief Executive Officer Date: November 5, 2002 /s/ Paula C. Wurts Paula C. Wurts Controller Treasurer -- 14 -- EX-99.A 3 ex99_1.txt WRITTEN STATEMENT OF CEO & CFO Exhibit 99.1 WRITTEN STATEMENT OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER Section 906 Certification The undersigned hereby certify that the Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002 filed by PHC, Inc. with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the issuer. Date: November 5, 2002 By: /s/ Bruce A. Shear Bruce A. Shear,President and Chief Executive Officer Date: November 5, 2002 By: /s/ Paula C. Wurts Paula C. Wurts, Controller and Chief Financial Officer EX-99.A 4 ex99_2.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 99.2 PHC, INC. CERTIFICATION OF CHIEF EXECUTIVE OFFICER Section 302 Certification I, Bruce A. Shear, certify that: (1) I have reviewed this quarterly report on Form 10-QSB of PHC, Inc., a Massachusetts corporation (the "registrant"); (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; (4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 5, 2002 by: /s/ Bruce A. Shear _______________________________ Bruce A. Shear Chief Executive Officer -- 16 -- EX-99.A 5 ex99_3.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 99.3 PHC, INC. CERTIFICATION OF CHIEF FINANCIAL OFFICER Section 302 Certification I, Paula C. Wurts, certify that: (1) I have reviewed this quarterly report on Form 10-QSB of PHC, Inc., a Massachusetts corporation (the "registrant"); (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; (4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 5, 2002 by: /s/ Paula C. Wurts __________________________________ Paula C. Wurts Chief Financial Officer -- 17 -- -----END PRIVACY-ENHANCED MESSAGE-----