================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-K/A

   (Mark One)

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934 for the fiscal year ended January 31, 1998

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934 for the transition period from _______________ to
    __________________.

   
                        Commission file number 0-27568
    


                                PHYMATRIX CORP.
                             (Name of Registrant)


<TABLE>
<S>                            <C>
          Delaware                          65-0617076
  (State or Incorporation)     (I.R.S. Employer Identification No.)
</TABLE>

                          Phillips Point, Suite 1000E
                             777 S. Flagler Drive
                        West Palm Beach, Florida, 33401
                                (561) 655-3500
  (Address and Telephone Number of Registrant's Principal Executive Offices)


   
          Securities Registered Pursuant to Section 12(g) of the Act:


                    COMMON STOCK, PAR VALUE $.01 PER SHARE
    


Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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. [X] Yes [ ] No


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]


   
As of April 23, 1998, 33,074,975 shares of common stock were outstanding, of
which 23,013,541 shares were held of record by nonaffiliates. The aggregate
market value of shares held by non affiliates was approximately $250,272,258
based on the closing price per share of such common stock on such date as
reported by the NASDAQ National Market System.
    

================================================================================

<PAGE>

   
                                   PART III
    


Item 10. Directors and Executive Officers of the Registrant

     The following table sets forth certain information as of April 30, 1998
concerning the directors and executive officers of the Company.


   
<TABLE>
<CAPTION>
Name                                   Age     Position
------------------------------------   -----   ---------------------------------------------------
<S>                                    <C>     <C>
Abraham D. Gosman ..................    69     Chairman of the Board of Directors and Chief
                                               Executive Officer
Frederick R. Leathers ..............    40     Chief Financial Officer and Treasurer
Edward E. Goldman, M.D. ............    53     Executive Vice President of Physician Development
                                               and Chief Medical Officer
Gregory Gardner ....................    42     Executive Vice President Finance
Robert A. Miller ...................    43     Director and President
Eric Moskow ........................    39     Director and Executive Vice President of Strategic
                                               Planning
Bruce A. Rendina ...................    44     Vice Chairman of the Board of Directors and
                                               Chairman and Chief Executive Officer of DASCO
Michael T. Heffernan ...............    33     Director and Chief Executive Officer of CSL
Hugh L. Carey ......................    78     Director
Joseph N. Cassese ..................    67     Director
John T. Chay .......................    40     Director
David M. Livingston, M.D. ..........    57     Director
Stephen E. Ronai ...................    61     Director
</TABLE>
    

     The following is a biographical summary of the experience of the executive
officers and directors of the Company:

   
     Abraham D. Gosman has served since June 1994 as an executive officer of
the Company and is presently the Chairman of the Board of Directors and Chief
Executive Officer of the Company. Previously, he founded and was the principal
owner of The Mediplex Group, Inc. ("Mediplex"), a diversified health care
company, and its predecessor companies for more than 15 years, with the
exception of the period from April 1986 to August 1990 when Mediplex was owned
by Avon Products, Inc. ("Avon"). He was the Chief Executive Officer of Mediplex
from its inception to September 1988 and assumed that position again after
Mediplex was purchased from Avon in August 1990. In addition, Mr. Gosman has
served as Chairman of the Board of Trustees and Chief Executive Officer of
Meditrust, the nation's largest health care real estate investment trust, since
its inception in 1985. In October 1996, Mr. Gosman became Chairman of the Board
of CareMatrix Corporation, an assisted living development and management
company.

     Frederick R. Leathers has served since June 1994 as the Chief Financial
Officer and Treasurer of the Company. Previously, he served as Treasurer, Chief
Financial Officer and Principal Accounting Officer of Mediplex from October
1991 to June 1994, Corporate Controller from May 1991 to October 1991 and held
the position of Assistant Controller from May 1986 to May 1987. He was
Treasurer of A.M.A. Advisory Corp. (the advisor to Meditrust) and Controller of
Meditrust from July 1988 to January 1991. Mr. Leathers was associated with
State Street Bank and Trust Company, Inc. in the mutual funds division from May
1987 to July 1988.

     Edward E. Goldman, M.D. has served since October 1994 as President of a
subsidiary of the Company, since October 1995 as an executive officer of the
Company and is presently Executive Vice President of Physician Development and
the Company's Chief Medical Officer. Dr. Goldman is a board certified family
practice physician and previously served as Chairman of PAL-MED Health Services
from February 1983 to September 1994, a multi-specialty IPA which provides
physicians services and manages health care related services.
    

   
     Gregory Gardner has served since November 1996 as Executive Vice President
of Finance of the Company. Previously, he served as Senior Vice President,
Financial Operations of Good Samaritan & St. Mary's Medical Centers from August
1995 to November 1996. From November 1990 to December 1993 Mr. Gardner served
as American Medical International, Inc.'s Corporate Director of Finance and
from January 1994 to July 1995 as its Corporate Director of Development.
    


                                       1
<PAGE>

   
     Robert A. Miller has served as the Company's President and a director of
the Company since March 1997. He also served from June 1994 to February 1997 as
the Company's Executive Vice President of Acquisitions. Previously, he served
as Senior Vice President/Development Operations of Mediplex from September 1992
and Vice President from June 1991. Mr. Miller served as Regional Operations
Director for New Medico Associates from January 1991 to October 1991.
Previously, Mr. Miller was Vice President of Hospital Operations of Glenbeigh,
Inc., where he was employed from 1979 through 1991.

     Eric Moskow, M.D, has served as a director of the Company since September
1996 and has been Executive Vice President of Strategic Planning of the Company
since September 1996. He founded Physician's Choice Management, LLC
("Physician's Choice") in October 1995 and served as its Executive Vice
President from October 1995 to October 1996. Prior to establishing Physician's
Choice, he served as Medical Director for Mediplex of Ridgefield from November
1994 to August 1996 and as Associate Medical Director for US Healthcare in
Connecticut from 1988 to 1990. Dr. Moskow is board-certified in internal
medicine and served as President of the Family Medical Associates of Ridgefield
for nine years.

     Bruce A. Rendina has served as a director of the Company since January
1996 and as Vice Chairman of the Board of Directors since March 1997. Mr.
Rendina was the co-founder of DASCO Development Corporation ("DASCO"), a
medical facility development company acquired by the Company in January 1996,
and served as its Executive Vice President from 1987 to 1994, its President
since 1994 and its Chairman and Chief Executive Officer since 1997. Prior to
founding DASCO, Mr. Rendina was associated with Coopers & Lybrand LLP from 1975
to 1985.

     Michael T. Heffernan has served as a director of the Company since
February 1998 and as the Chief Executive Officer of Clinical Studies, Ltd.
("CSL"), a multitherapeutic site management organization acquired by the
Company in October 1997. Prior to the Company's acquisition of CSL, Mr.
Heffernan served as the President and Chief Executive Officer of CSL, a
position he held since 1994. From 1993 to 1994 Mr. Heffernan served as a
Regional Manager with Eli Lilly & Company.

     Hugh L. Carey has served as a director of the Company since February 1996.
Currently, he is of counsel to the New York law firm of Whitman Breed Abbott &
Morgan. He served as an Executive Vice President of W.R. Grace & Company from
1987 to December 1995. He was Governor of the State of New York from 1975 to
1983 and a member of Congress from 1960 until 1975. He is currently a director
of Triarc Companies, Inc. and China Trust Bank.

     Joseph N. Cassese has served as a director of the Company since January
1996. Mr. Cassese was the Vice President of Mediplex from January 1976 to March
1986 and the President of Mediplex from March 1986 to March 1988 and again from
August 1990 to December 1991. Mr. Cassese was also a Vice President of A.M.A.
Advisory Corp. from 1988 to 1990. Mr. Cassese has been retired since December
1991.

     John T. Chay has served as a director of the Company since April 1996. Mr.
Chay has served as an executive officer of Nutrichem, Inc. which he co-founded
in November 1993, and has served since June 1991 as Chief Executive Officer of
The HealthLink Group, Inc., a practice management consulting firm which he also
founded.

     David M. Livingston, M.D. has served as a director of the Company since
January 1996. Dr. Livingston has been a Senior Leader of Dana-Farber Cancer
Institute in Boston, Massachusetts since 1991 and has been employed as a
physician at the Institute since 1973. He currently serves as Chairman of the
Institute's Executive Committee for Research and as a Trustee of the Institute.
He is also the Emil Frei Professor of Medicine at Harvard Medical School where
he has taught since 1973.

     Stephen E. Ronai has served as a director of the Company since January
1996. Mr. Ronai has been a partner in the Connecticut law firm of Murtha,
Cullina, Richter and Pinney since 1984 where he serves as Chairman of the
firm's Health Care Department. He is a member of the American Academy of
Healthcare Attorneys of the American Hospital Association and the National
Health Lawyers Association. From 1989 to 1995 he served as a member of the
Board of Directors of the National Health Lawyers Association. He also formerly
served as Chairman of the Board of Trustees of the Connecticut Hospital
Association. He is currently a director of CareMatrix Corporation.
    

     The Board of Directors is divided into three classes, with staggered
three-year terms. The terms of Messrs. Gosman, Carey and Chay will expire at
the Company's 1998 annual meeting; the terms of Messrs. Miller, Rendina


                                       2
<PAGE>

   
and Ronai will expire at the Company's 1999 annual meeting; and the terms of
Mr. Cassese and Drs. Livingston and Moskow will expire at the Company's 2000
annual meeting. Successors to the directors whose terms expire at each annual
meeting are eligible for election for three-year terms. A director holds office
until the annual meeting for the year in which his term expires and until his
successor is elected and qualified. These provisions may make it more difficult
for holders of the Common Stock to remove the directors and officers of the
Company than if all directors were elected on an annual basis.

     Officers are appointed by and serve at the discretion of the Board of
Directors. The officers, other than Mr. Gosman, will devote substantially all
of their business time to the business and affairs of the Company.


Section 16(a) Beneficial Ownership Reporting Compliance

     Mr. Gardner filed a Form 5 with the Securities and Exchange Commission
(the "SEC") for the fiscal year ended January 31, 1997 on February 4, 1998. Mr.
Heffernan filed a Form 3 with the SEC on April 13, 1998. Mr. Heffernan became a
director of the Company in February 1998. Messrs. Chay and Goldman each filed a
Form 4 with the SEC on November 25, 1997 in connection with transactions which
occurred in October 1997. Mr. Rendina filed a Form 4 with the SEC on January
12, 1998 in connection with transactions which occurred in December 1997.
Messrs. Carey and Cassese each intend to file Form 5s with respect to one
transaction occurring in November 1996 and one transaction occurring in
September 1997.
    


Item 11. Executive Compensation


Compensation of Directors

     Officers who are members of the Board of Directors do not receive
compensation for serving on the Board. Each other member of the Board receives
annual compensation of $15,000 for serving on the Board, plus a fee of $1,000
for each Board of Directors' meeting attended. In addition, such directors
receive an additional fee of $500 for each committee meeting attended, except
that only one fee will be paid in the event that more than one such meeting is
held on a single day. All directors receive reimbursement of reasonable
expenses incurred in attending Board and committee meetings and otherwise
carrying out their duties. Each non-employee director who was a member of the
Compensation Committee at the time of the closing of the Initial Public
Offering received an option to purchase 10,000 shares of Common Stock at the
offering price pursuant to the Equity Plan. Each director who is a member of
the Compensation Committee on the first business day following each annual
meeting of the shareholders will receive an option to purchase 2,500 shares of
Common Stock. Any of such options granted to a member of the Compensation
Committee under the Equity Plan will be exercisable one year following the date
of grant.


   
Compensation of Executive Officers

     The following table sets forth certain information regarding compensation
paid or accrued by the Company during the years ended December 31, 1995,
January 31, 1997 and January 31, 1998, to the Company's Chief Executive Officer
and to four other executive officers of the Company (the "Named Executive
Officers").
    


                                       3
<PAGE>

                          SUMMARY COMPENSATION TABLE

   
<TABLE>
<CAPTION>
                                                                     Long-Term
                                                                Compensation Awards
                                                   Annual      ----------------------      All Other
                                                Compensation    Securities Underlying   Compensation(2)
Name and Principal Position            Year(1)    Salary ($)         Options (#)              ($)
------------------------------------- --------- -------------- ----------------------- ----------------
<S>                                   <C>       <C>            <C>                     <C>
Abraham D. Gosman ...................   1998       225,000               --                     --
 Chairman and Chief Executive Officer   1997       225,000               --                     --
                                        1995       225,000               --                     --
Bruce A. Rendina (3) ................   1998       460,435          300,000 (5)             81,207
 Vice Chairman and Chairman and Chief   1997       435,782               --                 53,948
 Executive Officer of DASCO
Francis S. Tidikis (3)(4) ...........   1998       287,698               --                     --
 Chief Operating Officer                1997       275,156          150,000 (6)                 --
Michael T. Heffernan ................   1998       275,295          300,000 (7)                720
 Chief Executive Officer of CSL         1997       348,871               --                     --
                                        1995       156,896               --                     --
Robert A. Miller ....................   1998       304,135               --                     --
 President                              1997       304,171               --                     --
                                        1995       206,382               --                     --
</TABLE>
    

------------
   
(1) In January 1996, the Company changed its fiscal year end from December 31
    to January 31.
(2) Amounts indicated are for life insurance premiums paid by the Company.
(3) Messrs. Rendina and Tidikis became executive officers of the Company in
    January 1996.
(4) Mr. Tidikis' resigned as an officer of the Company during April 1998.
(5) Represents options granted to Mr. Rendina on September 25, 1997.
(6) Represents options granted to Mr. Tidikis on January 23, 1996.
(7) Represents options granted to Mr. Heffernan on October 14, 1997.
    


Option Grants in Last Fiscal Year

   
     The following table sets forth certain information regarding options
granted during the year ended January 31, 1998 by the Company to each of the
Named Executive Officers:
    

   
<TABLE>
<CAPTION>
                                                                                                    Potential Realizable
                                                                                                   Value at Assumed Rates
                                                                                                       of Stock Price
                                                                                                        Appreciation
                                      Individuals Grants                                            for Option Term (1)
-----------------------------------------------------------------------------------------------   ------------------------
                                                     % of Total
                                     Number of         Options
                                    Securities       Granted to       Exercise
                                    Underlying        Employees          or
                                      Options         in Fiscal         Base         Expiration
Name                                Granted (#)         Year        Price ($/Sh)        Date         5% ($)       10% ($)
------------------------------   ----------------   ------------   --------------   -----------   -----------   ----------
<S>                              <C>                <C>            <C>              <C>           <C>           <C>
Bruce A. Rendina .............        300,000(2)        15%           $ 14.625        9/25/07     2,759,275     6,992,545
Michael T. Heffernan .........        300,000(2)        15%           $ 16.250       10/14/07     3,065,861     7,769,494
</TABLE>
    

------------
   
(1) Amounts represent hypothetical gains that could be achieved for the
    respective options if exercised at the end of the option term. These gains
    are based on assumed rates of stock appreciation of 5% and 10% compounded
    annually from the date the respective options were granted to their
    expiration date. Actual gains, if any, on stock option exercises will
    depend on the future performance of the Common Stock and the date on which
    the options are exercised. The Company has not granted stock appreciation
    rights to date.
(2) Each option vests in three equal annual installments of 100,000 shares. Mr.
    Rendina's option vests on July 1, 1998, 1999 and 2000. Mr. Heffernan's
    option vests on October 14, 1998, 1999 and 2000.
    


                                       4
<PAGE>

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
   Values.

   
     The Named Executive Officers did not exercise any options during the
fiscal year ended January 31, 1998. As of such date, Mr. Rendina and Mr.
Heffernan each held options to purchase 300,000 shares of Common Stock, none of
which were exercisable, and Mr. Tidikis held options to purchase 150,000 shares
of Common Stock, 120,000 shares of which were exercisable. None of the options
held by Messrs. Rendina, Tidikis and Heffernan were in-the-money as of January
31, 1998 and none of the other Named Executive Officers held any options as of
such date.


Employment and Severance Agreements

     The Company, through DASCO, has entered into an employment agreement with
Mr. Rendina that provides for an initial one-year term automatically renewable
for successive one-year periods until either party elects not to renew. The
base salary for Mr. Rendina under the agreement is $330,000 per year. In
addition, he is entitled to receive bonuses and benefits, including life,
accident, health and dental insurance. The agreement may be terminated by the
Company without cause upon 90 days notice and with cause effective immediately
upon notice. The agreement may be terminated by Mr. Rendina immediately upon
notice.

     The Company has entered into an employment agreement with Mr. Heffernan
that provides for an initial three-year term which may be renewed upon
agreement of the parties. The base salary for Mr. Heffernan under the agreement
is $200,000 per year, plus a guaranteed bonus of $100,000 per year, payable in
quarterly installments. The agreement also provides for the grant of options to
purchase 300,000 shares of the Common Stock of the Company at a price equal to
the price per share of the Common Stock as of the date of the agreement, which
options shall vest over three years in one-third increments commencing on the
first anniversary of the date of the agreement. In addition, Mr. Heffernan is
entitled to receive other bonuses and benefits which may be offered by the
Company to its executive officers. The agreement may be terminated by the
Company without cause effective immediately upon delivery of written notice by
the Company to Mr. Heffernan. Mr. Heffernan may terminate the agreement upon
delivery of written notice to the Company if the Company (i) fails to pay any
sums or grant any options due under the agreement, (ii) reassigns Mr. Heffernan
from Providence, Rhode Island without his consent, or (iii) materially changes
his employment duties without his consent. If the agreement is terminated by
the Company without cause or by Mr. Heffernan for one of the reasons noted in
the preceding sentence, Mr. Heffernan shall continue to receive his salary and
guaranteed bonus for a period of 18 months after such a termination or for the
remainder of the term of the agreement, whichever is longer. In the event of a
"change in control" (as defined in the agreement) of the Company or CSL during
the term of the agreement, Mr. Heffernan is entitled to receive a bonus payment
from the Company equal to 2.99 times the sum of his salary and guaranteed
annual bonus. The agreement contains restrictive covenants prohibiting Mr.
Heffernan from competing with the Company, or soliciting employees of the
Company to leave, during his employment and for a period equal to the longer of
(i) one year after termination of the agreement or (ii) the period during which
Mr. Heffernan is paid by as a result of a termination of the agreement by the
Company without cause or by Mr. Heffernan for cause.

     The Company has entered into a separation and settlement agreement with
Frank Tidikis, the Company's former Chief Operating Officer. Under the
agreement, Mr. Tidikis ceased to be an executive officer of the Company on April
30, 1998, but will continue to be employed by the Company on a part-time basis
until April 30, 1999. The agreement provides a base salary of $98,000, plus the
payment of $192,000 as a one-time bonus and the payment of $9,728.60 to cover
insurance premiums incurred during the term of the agreement. Under the terms of
the agreement, such payments represent a full, final and complete satisfaction
of any claims relating to Mr. Tidikis' employment prior to April 30, 1998.
    


1995 Equity Incentive Plan

     The Company maintains the 1995 Equity Incentive Plan (the "Equity Plan"),
which provides for the award ("Award") of up to 4,100,000 shares of Common Stock
in the form of incentive stock options ("ISOs"), non-qualified stock options
("Non-Qualified Stock Options"), bonus stock, restricted stock, performance
stock units and stock appreciation rights. All employees, directors and
consultants of the Company and any of its subsidiaries are eligible to
participate in the Equity Plan, except directors who are members of the
Compensation Committee (the "Committee"). In addition, certain directors are
eligible for non-discretionary grants under the Equity Plan.


                                       5
<PAGE>


     The Equity Plan is administered by the Committee, which determines who
shall receive Awards from those employees and directors who are eligible to
participate in the Equity Plan, the type of Award to be made, the number of
shares of Common Stock which may be acquired pursuant to the Award and the
specific terms and conditions of each Award, including the purchase price,
term, vesting schedule, restrictions on transfer and any other conditions and
limitations applicable to the Awards or their exercise. The purchase price per
share of Common Stock cannot be less than 100% of the fair market value of the
Common Stock on the date of grant with respect to ISOs and not less than 50% of
the fair market value of the Common Stock on the date of grant with respect to
Non-Qualified Options. ISOs cannot be exercisable more than ten years following
the date of grant and Non-Qualified Stock Options cannot be exercisable more
than ten years and one day following the date of grant. The Committee may at
any time accelerate the exercisability of all or any portion of any option.

     Each Award may be made alone, in addition to or in relation to any other
Award. The terms of each Award need not be identical, and the Committee need
not treat participants uniformly. Except as otherwise provided by the Equity
Plan or a particular Award, any determination with respect to an Award may be
made by the Committee at the time of award or at any time thereafter. The
Committee determines whether Awards are settled in whole or in part in cash,
Common Stock, other securities of the Company, Awards or other property. The
Committee may permit a participant to defer all or any portion of a payment
under the Equity Plan, including the crediting of interest on deferred amounts
denominated in Common Stock. Such a deferral may have no effect for purposes of
determining the timing of taxation of payments. In the event of certain
corporate events, including a merger, consolidation, dissolution, liquidation
or the sale of substantially all of the Company's assets, all Awards become
fully exercisable and realizable.

     The Committee may amend, modify or terminate any outstanding Award,
including substituting therefor another Award of the same or a different type,
changing the date of exercise or realization, and converting an ISO to a
Non-Qualified Stock Option, if the participant consents to such action, or if
the Committee determines that the action would not materially and adversely
affect the participant. Awards may not be made under the Equity Plan after
November 14, 2005, but outstanding Awards may extend beyond such date.

     The number of shares of Common Stock issuable pursuant to the Equity Plan
may not be changed except by approval of the stockholders. However, in the
event that the Committee determines that any stock dividend, extraordinary cash
dividend, creation of a class of equity securities, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination,
exchange of shares, warrants or rights offering to purchase Common Stock at a
price substantially below fair market value, or other similar transaction
affects the Common Stock such that an adjustment is required to preserve the
benefits intended to be made available under the Equity Plan, the Committee may
adjust equitably the number and kind of shares of stock or securities in
respect of which Awards may be made under the Equity Plan, the number and kind
of shares subject to outstanding Awards, and the award, exercise or conversion
price with respect to any of the foregoing, and if considered appropriate, the
Committee may make provision for a cash payment with respect to an outstanding
Award. In addition, upon the adoption of a plan or agreement concerning a
change in control, sale of substantially all the assets, or liquidation or
dissolution of the Company, all Awards which are not then fully exercisable or
realizable become so. Common Stock subject to Awards which expire or are
terminated prior to exercise or Common Stock which has been forfeited under the
Equity Plan will be available for future Awards under the Equity Plan. Both
treasury shares and authorized but unissued shares may be used to satisfy
Awards under the Equity Plan.

     The Equity Plan may be amended from time to time by the Board of Directors
or terminated in its entirety; however, no amendment may be made without
stockholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement, including any requirement for
stockholder approval under Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any successor provision.


                                       6
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management

   
     The following table sets forth, as of May 15, 1998, certain information
regarding the beneficial ownership of shares of Common Stock by each person
known by the Company to be the beneficial owner of more than 5% of outstanding
Common Stock, by each director and each of the Named Executive Officers of the
Company and by all directors and executive officers as a group. Except as
indicated in the footnotes, all of such shares of Common Stock set forth in the
following table are owned directly, and the indicated person has sole voting
and investment power with respect to all Common Stock shown as beneficially
owned by such person:
    



   
<TABLE>
<CAPTION>
                                                                              Amount of Beneficial
                                                                                   Ownership
                                                                           --------------------------
                                                                               Shares
                                                                            Beneficially   Percentage
                                                                                Owned       Owned(1)
                                                                           -------------- -----------
<S>                                                                        <C>            <C>
Named Executive Officers & Directors
------------------------------------
Abraham D. Gosman (2) ....................................................  8,137,126         24.4%
Bruce A. Rendina (3) .....................................................    803,866          2.4
Francis S. Tidikis (4) ...................................................    121,085            *
Michael T. Heffernan .....................................................    316,793          1.0
Robert A. Miller .........................................................    459,655          1.4
Hugh L. Carey (5) ........................................................      2,500            *
Joseph N. Cassese (6) ....................................................     32,500            *
John T. Chay .............................................................     92,833            *
David M. Livingston, M.D. ................................................         --           --
Erik Moskow (7) ..........................................................    165,252            *
Stephen E. Ronai (8) .....................................................     14,000            *
All directors and executive officers as a group (14 persons) (9) ......... 10,746,560         32.2
Other 5% Stockholders
---------------------
Crabbe Hudson Group, Inc. (10) ...........................................  2,470,800          7.4
Walter Brown (11) ........................................................  2,042,756          6.1
Putnam Investments, Inc. (12) ............................................  2,124,449          6.4
</TABLE>
    

----------
   
* Less than one percent.


 (1) Percentages based on 33,339,788 shares outstanding as of May 15, 1998.


 (2) Includes 3,668,707 shares held by Chancellor Partners Limited Partnership
     I ("CLP I"), a family limited partnership whose sole limited partners are
     Mr. Gosman's two adult sons. Mr. Gosman, as the sole stockholder and
     director of CLP, Inc., the general partner of CLP I, has sole dispositive
     and voting power over all shares held by CLP I. Mr. Gosman's business
     address is PhyMatrix Corp., 777 South Flagler Drive, West Palm Beach, FL
     33401.

 (3) Includes 100,000 shares which Mr. Rendina has the right to acquire upon
     the exercise of an option.

 (4) Includes 85 shares owned by Mr. Tidikis' wife with respect to which Mr.
     Tidikis disclaims beneficial ownership and 120,000 shares which Mr.
     Tidikis has the right to acquire upon exercise of an option.

 (5) Represents shares which Mr. Carey has the right to acquire upon exercise
     of an option.

 (6) Includes 12,500 shares which Mr. Cassese has the right to acquire upon
     exercise of an option.

 (7) Includes 90,000 shares which Dr. Moskow has the right to acquire upon
     exercise of an option.

 (8) Includes 10,000 shares which Mr. Ronai has the right to acquire upon
     exercise of an option.

 (9) Includes 368,333 shares which the directors and executive officers have
     the right to acquire upon exercise of options.

(10) The address of Crabbe Hudson Group, Inc. ("Crabbe") is 121 SW Morrison,
     Suite 1400, Portland, Oregon 97204. The foregoing is based upon the
     Schedule 13G dated February 6, 1998 filed by Crabbe.

(11) Mr. Brown's address is 106 Driftwood Drive, Tiverton, RI 02878.
    

                                       7
<PAGE>

   
(12) Putnam Investment Management, Inc. ("PIM") and Putnam Advisory Company,
     Inc. ("PAC") are investment adviser subsidiaries of Putnam Investments,
     Inc. ("PIT"). PIM and PAC have shared dispositive power with respect to
     such shares, and PAC has shared voting power with respect to certain of
     such shares. The address of PIT, PIM and PAC is One Post Office Square,
     Boston, Massachusetts 02109. The foregoing is based upon the Schedule 13G
     dated January 31, 1997 filed by PIT, PIM and PAC.

 
    

                                       8
<PAGE>

Item 13. Certain Relationships and Related Transactions

     The Company was incorporated in October 1995 to combine the business
operations of certain companies (the "Related Companies") controlled by Mr.
Gosman. During 1994 and 1995, the Related Companies and Mr. Gosman completed
the acquisition of various companies and businesses which were transferred to
the Company simultaneously with the closing of the Company's initial public
offering on January 29, 1996 (the "Formation").

     At December 31, 1995 the Company had a $19.5 million loan from
NationsBank, which was guaranteed by Mr. Gosman. Mr. Gosman did not receive any
consideration for this or any other guarantee he has provided on behalf of the
Company. The $19.5 million loan was repaid from the net proceeds of the
Company's January 1996 initial public offering. After repayments to Mr. Gosman
made from the net proceeds of the initial public offering totalling $28.7
million, the Company owed Mr. Gosman approximately $10.8 million, which was
repaid from the net proceeds of the Company's June 1996 issuance of convertible
subordinated debentures (the "Debentures"). All amounts loaned to the Company
by Mr. Gosman accrued interest at a floating rate equal to NationsBank's prime
rate. The Company agreed to repay in full the amount owed to Mr. Gosman from
the proceeds of any public offering by the Company of its debt or equity
securities; and to repay Mr. Gosman from the proceeds of any institutional debt
financing by the Company for working capital purposes, except that the amount
to be repaid from such institutional debt financing proceeds would not exceed
25% of the maximum amount available to be borrowed under the terms of the
financing. Pursuant to such agreement, the $11.7 million the Company owed Mr.
Gosman (including additional amounts borrowed since the closing of the initial
public offering) was repaid from the net proceeds of the Debentures.

     In connection with the acquisition of Oncology Therapies, Inc. in March
1995, Mr. Gosman guaranteed until the later of the satisfaction of certain
financial covenants or July 31, 1998 the repayment by a subsidiary of the
Company of a portion of the $17.5 million in acquisition financing from FINOVA
Capital Corporation ("FINOVA"). Mr. Gosman's liability under the guarantee was
limited to no more than $6.1 million. The Company used the net proceeds of the
initial public offering to repay in full its obligations to FINOVA.

     During 1995, in addition to the guarantee discussed above, Mr. Gosman
guaranteed the payment by the Company of indebtedness in the amount of $4.6
million incurred in connection with the acquisition of DASCO, all of which was
repaid during 1996. In addition, Mr. Gosman executed a reimbursement agreement
and provided collateral for a letter of credit to secure other indebtedness of
the Company in the amount of $5.4 million incurred in connection with the
acquisition of Oncology & Radiation Associates, P.A. Upon the closing of the
initial public offering, the Company obtained the release of Mr. Gosman from
these guarantees and from his other obligations with respect to acquisition
indebtedness through the assumption by the Company of Mr. Gosman's obligation
to pay such Acquisition indebtedness and of the obligation to provide cash
collateral for the letter of credit.

     The Company occupies office space for its principal offices in West Palm
Beach, Florida under the terms of a lease which the Company assumed from a
company the stockholders and executive officers of which include Messrs.
Gosman, Leathers and Miller and Dr. Goldman. The Company estimates that the
total amount of lease payments to be made under the assumed lease through the
end of the current lease term will equal approximately $843,000.

     In connection with the Formation, the following executive officers and
directors of the Company received the indicated number of shares of Common
Stock in exchange for their shares of common stock of the Related Companies:
Mr. Gosman (including shares held for the benefit of his two adult sons),
8,282,305; Mr. Rendina, 916,667; Mr. Chay, 133,333; Mr. Leathers, 459,505; Mr.
Miller, 459,505; and Dr. Goldman, 168,112.

     DASCO provides development and other services in connection with the
establishment of health parks, medical malls and medical office buildings. DASCO
provides these services to or for the benefit of the owners of the new
facilities, which owners are either corporations or limited partnerships. Mr.
Rendina has obtained equity interests in an aggregate of 34 facilities developed
or being developed by DASCO, and currently has interests in 13 of such
facilities. In addition, Mr. Gosman individually and as trustee for his two sons
and Frederick R. Leathers, Robert A. Miller, and Edward E. Goldman have obtained
equity interests in an aggregate of 17 facilities developed or being developed
by DASCO, and currently have interests in five of such facilities. The interests
of Mr. Rendina and Mr. Gosman (individually and as trustee) in such facilities
range from 2.1% to 50.0% and 6.0% to 40.1%, respectively. The interests of each
of Mr. Leathers, Mr. Miller and Dr. Goldman range from 0.1% to 3.6%. The Company
anticipates that Messrs. Rendina, Gosman, Leathers and Miller and Dr. Goldman
will continue to obtain


                                       9
<PAGE>

equity interests in facilities developed by DASCO. During the years ended
January 31, 1998 and 1997, DASCO recorded revenues in the amount of $19.2
million and $10 million, respectively, related to facilities developed by DASCO
in which equity interests have been obtained by related parties.

     The Company provides construction management, development marketing and
consulting services to entities principally owned by Mr. Gosman in connection
with the development and operation by such entities of several healthcare
related facilities (including a medical office building and a retirement
community). During the years ended January 31, 1998 and 1997, the Company
recorded revenues in the amount of $10.5 million and $7.1 million,
respectively, related to such services. The Company provides these services to
affiliated parties on terms no more or less favorable to the Company than those
provided to unaffiliated parties.

     Meditrust, a publicly traded real estate investment trust with assets in
excess of $3.3 billion of which Mr. Gosman is the Chairman of the Board, has
provided financing to customers of DASCO in the aggregate amount of
approximately $229 million for 25 facilities developed by DASCO. In January
1998, Meditrust acquired, at fair market value, 21 medical office buildings
developed by DASCO from the corporate or limited partnership owners of such
facilities for an aggregate purchase price of approximately $200 million. The
Company received $9.1 million in these transactions from the corporation or
limited partnership owners of such facilities. As a result of their ownership
interests in the corporations or limited partnerships owning the facilities sold
to Meditrust, Messrs. Rendina, Gosman (individually and as trustee for his two
sons), Leathers and Miller and Dr. Goldman received $7.2 million, $4.7 million,
$116,000, $291,000 and $87,000, respectively, from the sale of the facilities.

     In January 1998, the Company transferred to CareMatrix Corp., of which Mr.
Gosman is the Chairman of the Board, its rights under a management agreement
with respect to a Florida skilled nursing facility in exchange for $800,000.

     Mr. Ronai is a partner in the Connecticut law firm of Murtha, Cullina,
Richter and Pinney which has been retained to perform certain legal services
for the Company.

     During December 1995, the Company obtained a 43.75% interest in Physicians
Choice Management, LLC, a newly formed management services organization that
provides management services to an independent physician association composed
of over 400 physicians based in Connecticut ("Physician's Choice"). The Company
acquired this interest in exchange for a payment of $1.5 million to the
stockholders of Physician's Choice, including Dr. Moskow. During September
1996, the Company acquired the remaining 56.25% interest from such stockholders
for a payment of $1 million in cash plus 363,442 shares of the Company's Common
Stock.

     As of January 31, 1998 the Company loaned the shareholders of Physician's
Choice, including Dr. Moskow, an aggregate of $2.7 million to pay the tax
liability related to the sale of Physician's Choice. The loans are secured by a
pledge of the Common Stock held by the former shareholders of Physician's
Choice.

     During April 1998, the Company loaned Dr. Moskow $1.0 million pursuant to
a promissory note. The note bears interest at 5.56% and is payable on May 1,
2005.

     The Company leases space on behalf of its affiliated physicians from a
related entity. Mr. Gosman owns a limited partnership interest in the limited
partnership which is general partner of the limited partnership which owns the
medical mall. The aggregate base rent under such leases is approximately
$537,000.

     During November 1994, the Company acquired Nutrichem. In connection with
the acquisition, the Company was required to make contingent note payments of
$4.4 million to the stockholders of Nutrichem, including Mr. Chay. The Company
paid in full the contingent note with the proceeds of the initial public
offering.

     In connection with an acquisition, the Company was required to assume an
unfavorable lease which was assigned in January 1997 to an entity principally
owned by Mr. Gosman. The difference between the cost and value of the lease is
approximately $559,000.


                                       10
<PAGE>

                                    PART IV


   
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
    

     1.  Financial Statements


   
<TABLE>
<CAPTION>
                                                                                              Page
                                                                                             -----
<S>                                                                                          <C>
         Report of Independent Accountants ...............................................    F-2

         Balance Sheets as of January 31, 1998 and January 31, 1997 ......................    F-3

         Statements of Operations for the years ended January 31, 1998, January 31, 1997
           and December 31, 1995 .........................................................    F-4

         Statements of Changes in Shareholders' Equity for the years ended January 31,
           1998, January 31, 1997 and December 31, 1995 ..................................    F-5

         Statements of Cash Flows for the years ended January 31, 1998, January 31, 1997
           and December 31, 1995 .........................................................    F-6

         Notes to Financial Statements ...................................................    F-7

     2.  Financial Statement Schedules

         Report of Independent Accountants                                                    S-1

         Schedule II   Valuation and Qualifying Accounts for the years
                       ended January 31, 1998, January 31, 1997 and
                       December 31, 1995                                                      S-2

         All other schedules for which provision is made in the applicable
         accounting regulations of the Securities and Exchange Commission are
         not required under the related instructions or are inapplicable and
         therefore have been omitted.

     3.  Exhibits
                                                                                      Exhibit No.
                                                                                      -----------
         Consent of Coopers & Lybrand L.L.P.                                                 23.1

</TABLE>
    



                                       11

<PAGE>


                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on this 22nd day of
May, 1998.

                                          PHYMATRIX CORP.


   
                                          By: /s/ Frederick R. Leathers
                                              ----------------------------------
                                              Frederick R. Leathers
                                              Chief Financial Officer
    



                                       12


<PAGE>

                                PHYMATRIX CORP.

                         INDEX TO FINANCIAL STATEMENTS

   
<TABLE>
<CAPTION>
                                                                                       Page
                                                                                      -----
<S>                                                                                   <C>
Report of Independent Accountants                                                     F-2

Consolidated Balance Sheets as of January 31, 1998 and January 31, 1997               F-3

Statements of Operations for the years ended January 31, 1998, January 31, 1997,      F-4
  and December 31, 1995

Statements of Changes in Shareholders' Equity for the years ended January 31, 1998,   F-5
January 31, 1997, and December 31, 1995

Statements of Cash Flows for the years ended January 31, 1998, January 31, 1997       F-6
and December 31, 1995

Notes to Financial Statements                                                         F-7
</TABLE>
    

                                      F-1
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Shareholders of PhyMatrix Corp.:


     We have audited the consolidated balance sheets of PhyMatrix Corp. as of
January 31, 1998 and 1997, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the years ended
January 31, 1998 and 1997, and the combined statement of operations, changes in
shareholders' equity and cash flows for the year ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PhyMatrix
Corp. as of January 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for the year ended January 31, 1998 and 1997, and
the combined results of its operations and its cash flows for the year ended
December 31, 1995 in conformity with generally accepted accounting principles.



COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
March 13, 1998, except for Note 21,
for which the date is April 9, 1998

                                        
                                      F-2
<PAGE>

                                PHYMATRIX CORP.

                          CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                                                               January 31,       January 31,
                                                                                   1998             1997
                                                                             ---------------   --------------
<S>                                                                          <C>               <C>
                                 ASSETS
Current assets
   Cash and cash equivalents .............................................    $ 49,535,784     $ 81,321,955
   Receivables:
      Accounts receivable, net of allowances of $48,428,000 and
       $29,525,000 at January 31, 1998 and January 31, 1997,
       respectively ......................................................      57,251,979       41,743,737
      Other receivables ..................................................      14,240,438        2,318,395
      Notes receivable (Note 4) ..........................................       1,851,000       10,125,000
   Prepaid expenses and other current assets .............................       6,167,070        3,680,709
                                                                              ------------     ------------
      Total current assets ...............................................     129,046,271      139,189,796
Property, plant and equipment, net (Note 5) ..............................      44,294,808       39,128,292
Notes receivable (Note 4) ................................................       7,830,800        4,938,700
Goodwill, net (Note 2) ...................................................      93,879,672       74,426,572
Management service agreements, net (Note 2) ..............................      89,469,869       40,196,102
Investment in affiliates (Note 6) ........................................       4,943,516        3,399,859
Other assets (including restricted cash) .................................       8,694,208       12,030,884
                                                                              ------------     ------------
      Total assets .......................................................    $378,159,144     $313,310,205
                                                                              ============     ============
                   LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
   Current portion of debt and capital leases (Note 8) ...................    $ 13,741,594     $  3,835,569
   Accounts payable ......................................................      13,100,907        9,436,189
   Accrued compensation ..................................................       2,282,268        1,480,250
   Accrued and other current liabilities (Note 7) ........................      13,531,197       12,627,164
                                                                              ------------     ------------
      Total current liabilities ..........................................      42,655,966       27,379,172
Long-term debt and capital leases, less current maturities (Note 8) ......      20,617,165       14,994,690
Convertible subordinated debentures (Note 8) .............................     100,000,000      100,000,000
Other long term liabilities (Notes 3 and 7) ..............................       1,651,115       14,004,143
Deferred tax liability (Note 14) .........................................              --        1,354,182
Minority interest ........................................................       1,200,544        1,798,321
                                                                              ------------     ------------
      Total liabilities ..................................................     166,124,790      159,530,508
Commitments and contingencies (Notes 9 and 10)
Shareholders' equity:
   Common stock, par value $.01, 40,000,000 shares authorized,
    31,248,474 and 27,625,338 shares issued and outstanding at
    January 31, 1998 and January 31, 1997, respectively ..................         312,485          276,253
   Treasury stock ........................................................         (74,626)              --
   Additional paid in capital ............................................     198,891,664      150,025,403
   Retained earnings .....................................................      12,904,831        3,478,041
                                                                              ------------     ------------
      Total shareholders' equity .........................................     212,034,354      153,779,697
                                                                              ------------     ------------
      Total liabilities and shareholders' equity .........................    $378,159,144     $313,310,205
                                                                              ============     ============
</TABLE>


    The accompanying notes are an integral part of the financial statements.

                                      F-3
<PAGE>

                                PHYMATRIX CORP.

                           STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                                               Consolidated                  Combined
                                                                     ---------------------------------   ---------------
                                                                        Year Ended        Year Ended        Year Ended
                                                                       January 31,       January 31,       December 31,
                                                                           1998              1997              1995
                                                                     ---------------   ---------------   ---------------
<S>                                                                  <C>               <C>               <C>
Net revenues (Note 2):
 Net revenues from services ......................................    $157,665,788      $ 98,764,526      $ 61,712,559
 Net revenue from management service agreements ..................     157,782,514        90,187,458        22,372,566
 Net revenue from real estate services ...........................      31,099,347        19,048,875                --
                                                                      ------------      ------------      ------------
  Total revenue ..................................................     346,547,649       208,000,859        84,085,125
                                                                      ------------      ------------      ------------
Operating costs and administrative expenses:
 Cost of affiliated physician management services ................      65,369,377        42,245,211         9,655,973
 Salaries, wages and benefits ....................................      88,221,287        58,350,848        33,540,769
 Salaries, wages and benefits--related party (Note 11) ...........              --                --         2,267,891
 Professional fees ...............................................       9,597,310         7,321,849         4,466,897
 Professional fees--related party (Note 11) ......................              --                --           273,941
 Supplies ........................................................      44,908,880        27,202,905        12,117,362
 Utilities .......................................................       4,574,279         2,868,484         1,498,755
 Depreciation and amortization ...................................      10,799,686         7,381,666         3,955,511
 Rent ............................................................      16,648,563         8,518,812         4,642,144
 Rent--related party (Note 11) ...................................              --                --           459,732
 Earn out payment ................................................              --                --         1,271,000
 Provision for closure loss (Note 7) .............................              --                --         2,500,000
 Provision for bad debts .........................................       5,914,737         4,607,888           744,111
 Merger and other noncontinuing expenses (Note 3) ................      11,057,000         1,929,000         2,133,000
 Other--primarily capitation expense .............................      65,290,737        24,430,859         7,664,589
 Other--related party (Note 11) ..................................              --                --           728,116
                                                                      ------------      ------------      ------------
                                                                       322,381,856       184,857,522        87,919,791
                                                                      ------------      ------------      ------------
Interest expense, net ............................................       4,774,978         1,357,210         3,120,056
Interest expense shareholder .....................................              --           369,366         1,708,174
(Income) from investment in affiliates ...........................        (730,973)         (709,295)         (569,156)
                                                                      ------------      ------------      ------------
                                                                         4,044,005         1,017,281         4,259,074
                                                                      ------------      ------------      ------------
Income (loss) before provision for income taxes ..................      20,121,788        22,126,056        (8,093,740)
Income tax expense ...............................................       9,822,685         6,836,066                --
                                                                      ------------      ------------      ------------
Net income (loss) (Note 2) .......................................    $ 10,299,103      $ 15,289,990      $ (8,093,740)
                                                                      ============      ============      ============
Net income per weighted average share--basic (Note 17) ...........    $       0.35      $       0.56
Net income per weighted average share--diluted (Note 17) .........    $       0.35      $       0.55
Proforma Information (Unaudited) (Note 2):
 Adjustment to income tax expense ................................    $    624,296      $  1,293,385
 Net income ......................................................    $  9,674,807      $ 13,996,605
 Net income per weighted average share--basic ....................    $       0.33      $       0.51
 Net income per weighted average share--diluted ..................    $       0.33      $       0.51
 Weighted average shares outstanding--basic (Note 17) ............      29,690,000        27,295,000
                                                                      ============      ============
 Weighted average shares outstanding--diluted (Note 17) ..........      30,229,000        27,682,000
                                                                      ============      ============
</TABLE>

 

    The accompanying notes are an integral part of the financial statements.

                                      F-4
<PAGE>

                                PHYMATRIX CORP.

                 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                     For the years ended January 31, 1998,
                    January 31, 1997, and December 31, 1995



<TABLE>
<CAPTION>
                                           Common Stock                                       Retained
                                           Outstanding                       Additional       Earnings
                                     -----------------------   Treasury       Paid-in       (Accumulated
                                        Shares      Amount       Stock        Capital         Deficit)           Total
                                     ------------ ---------- ------------ --------------- ---------------- ----------------
<S>                                  <C>          <C>        <C>          <C>             <C>              <C>
Balances--December 31, 1994 ........   4,885,512   $ 48,855   $      --    $ 13,035,158     $ (1,369,349)    $ 11,714,664
Capital contribution ...............          --         --          --      12,036,287               --       12,036,287
Net loss for the year ended
 December 31, 1995 .................          --         --          --              --       (8,093,740)      (8,093,740)
Dividends ..........................          --         --          --              --         (220,000)        (220,000)
                                       ---------   --------   ---------    ------------     ------------     ------------
Balances--December 31, 1995 ........   4,885,512     48,855          --      25,071,445       (9,683,089)      15,437,211
Initial public offering, net of
 costs .............................  21,263,284    212,633          --     111,494,224               --      111,706,857
Issuance of common stock for
 acquisitions ......................     266,666      2,667          --       3,997,333               --        4,000,000
Issuance of stock pursuant to
 pooling of interests with
 Clinical Studies Ltd.
 ("CSL") ...........................     318,793      3,188          --         624,452               --          627,640
Adjustment for immaterial
 pooling of interests ..............     432,645      4,326          --              --          778,960          783,286
Issuance costs .....................          --         --          --        (743,316)              --         (743,316)
Issuance of stock pursuant to
 acquisitions ......................     406,272      4,062          --       9,222,977               --        9,227,039
Issuance of stock pursuant to
 stock plans .......................      52,166        522          --         358,288               --          358,810
Net loss for month ended
 January 31, 1996 ..................          --         --          --              --       (1,176,228)      (1,176,228)
Net income for the year ended
 January 31, 1997 ..................          --         --          --              --       15,289,990       15,289,990
Dividends ..........................          --         --          --              --       (1,731,592)      (1,731,592)
                                      ----------   --------   ---------    ------------     ------------     ------------
Balances--January 31, 1997 .........  27,625,338    276,253          --     150,025,403        3,478,041      153,779,697
Adjustment for immaterial
 pooling of interests ..............          --         --          --              --          644,326          644,326
CSL's January 1997 earnings
 excluded from net income
 (as described in Note 2) ..........          --         --          --              --          343,861          343,861
Purchase of treasury stock
 at cost ...........................          --         --     (74,626)             --               --          (74,626)
Issuance of stock pursuant to
 acquisitions ......................   3,430,238     34,303          --      48,058,820               --       48,093,123
Issuance of stock pursuant to
 stock plans .......................     192,898      1,929          --         919,948               --          921,877
Issuance costs .....................          --         --          --        (112,507)              --         (112,507)
Net income for the year ended
 January 31, 1998 ..................          --         --          --              --       10,299,103       10,299,103
Dividends ..........................          --         --          --              --       (1,860,500)      (1,860,500)
                                      ----------   --------   ---------    ------------     ------------     ------------
Balances--January 31, 1998 .........  31,248,474   $312,485   $ (74,626)   $198,891,664     $ 12,904,831     $212,034,354
                                      ==========   ========   =========    ============     ============     ============
</TABLE>

 

    The accompanying notes are an integral part of the financial statements.

                                      F-5
<PAGE>

                                PHYMATRIX CORP.

                           STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                     Consolidated       Consolidated         Combined
                                                                   ----------------   ----------------   ----------------
                                                                      Year Ended         Year Ended         Year Ended
                                                                      January 31,        January 31,       December 31,
                                                                         1998               1997               1995
                                                                   ----------------   ----------------   ----------------
<S>                                                                <C>                <C>                <C>
Cash flows from operating activities:
 Net income (loss) .............................................    $  10,299,103      $  15,289,990      $  (8,093,740)
 Noncash items included in net income (loss):
   Depreciation and amortization ...............................       10,799,686          7,381,666          3,955,511
   Amortization of debt issuance costs .........................          727,484            276,625                 --
   Writedown of assets .........................................               --                 --          1,554,607
   Issuance of common stock as compensation ....................               --            627,640                 --
   Other (including gains on sale of assets) ...................       (2,578,922)          (650,940)           140,151
Changes in receivables .........................................       (8,570,781)       (14,154,057)        (7,415,851)
Changes in accounts payable and accrued liabilities ............          215,069         (3,636,548)        11,402,118
Changes in amounts due from physicians .........................       (6,242,958)        (1,005,997)          (166,846)
Changes in other assets ........................................       (6,932,501)         1,517,672         (1,511,032)
                                                                    -------------      -------------      -------------
      Net cash provided (used) by operating activities .........       (2,283,820)         5,646,051           (135,082)
Cash flows from investing activities: 
 Capital expenditures ..........................................      (10,247,596)        (5,686,484)        (1,378,630)
 Sale of assets ................................................        4,018,514          1,243,762                 --
 Notes receivable, net .........................................        6,956,900        (15,213,700)          (686,400)
 Purchase of investments in affiliates .........................       (1,354,154)                --         (9,790,588)
 Other assets ..................................................          438,910         (1,440,176)           (20,287)
 Acquisitions, net of cash acquired (Note 15) ..................      (34,444,104)       (27,734,210)       (44,365,741)
                                                                    -------------      -------------      -------------
      Net cash used by investing activities ....................      (34,631,530)       (48,830,808)       (56,241,646)
Cash flows from financing activities: 
 Capital contributions .........................................               --                 --         12,036,287
 Borrowings under revolving lines of credit, net ...............       26,571,214          3,132,300                 --
 Advances from (repayment to) shareholders .....................               --        (15,523,287)        36,690,180
 Proceeds from issuance of common stock ........................          914,160            359,614                200
 Dividends to shareholders .....................................       (1,860,500)        (1,731,592)          (220,000)
 Proceeds from issuance of convertible subordinated
   debentures ..................................................               --         96,565,758                 --
 Proceeds from issuance of debt ................................               --                 --         19,143,127
 Release of cash collateral ....................................        4,504,116          1,996,786                 --
 Offering costs and other ......................................          (88,312)        (2,823,130)        (1,030,632)
 Repayment of debt .............................................      (25,239,439)        (7,178,810)        (3,834,714)
                                                                    -------------      -------------      -------------
      Net cash provided by financing activities ................        4,801,239         74,797,639         62,784,448
 Increase (decrease) in cash and cash equivalents ..............      (32,114,111)        31,612,882          6,407,720
 Cash and cash equivalents, beginning of period ................       81,649,895         49,709,073            784,647
                                                                    -------------      -------------      -------------
 Cash and cash equivalents, end of period ......................    $  49,535,784      $  81,321,955      $   7,192,367
                                                                    =============      =============      =============
</TABLE>



    The accompanying notes are an integral part of the financial statements.

                                      F-6
<PAGE>

                                PHYMATRIX CORP.

                         NOTES TO FINANCIAL STATEMENTS

1. Description of Business and Organization

     PhyMatrix Corp. ("the Company") is a physician-driven, integrated medical
management company that provides management services to the medical community.
The Company also provides real estate development and consulting services to
related and unrelated third parties for the development of medical malls,
medical office buildings, and health parks. The Company's primary strategy is
to develop management networks in specific geographic locations by affiliating
with physicians, medical providers, and medical networks. The Company
affiliates with physicians by acquiring their practices and entering into
long-term management agreements with the acquired practices and by managing
independent physician associations ("IPAs") and specialty care physician
networks by management service organizations ("MSOs") in which the Company has
ownership interests. Where appropriate, the Company supports its affiliated
physicians with related diagnostic and therapeutic ancillary services. The
Company's ancillary services include radiation therapy, diagnostic imaging,
infusion therapy, home healthcare, lithotripsy services, clinical research and
ambulatory surgery.

     PhyMatrix Corp., formerly known as Continuum Care Corporation, was formed
to create a healthcare company which consummated an initial public offering
(the "offering") during January 1996 and simultaneously exchanged 13,040,784
shares of its Common Stock for all of the outstanding Common Stock of several
business entities (the "IPO entities") which were operated under common control
prior to the offering by Abraham D. Gosman, and with respect to DASCO
Development Corporation and affiliate (collectively, "DASCO"), by Mr. Gosman
and Bruce A. Rendina (collectively, the principal shareholders of the Company),
since their respective dates of acquisition. Subsequent to the offering, the
Company changed its fiscal year end from December 31 to January 31.

     During October 1997, the Company combined with Clinical Studies Ltd.
("CSL"). This business combination was accounted for as a pooling of interests.
CSL is a site management organization conducting clinical research for
pharmaceutical companies and clinical research organizations at 33 centers
located in 15 states. Accordingly, the financial statements for all periods
prior to the effective date of the merger have been restated to include CSL and
Clinical Marketing Ltd. ("CML") which was merged into CSL on January 1, 1997.

     Prior to the offering, each of the acquisitions of the business entities,
except where otherwise noted, was accounted for under the purchase method of
accounting and was recorded at the price paid by companies controlled by Mr.
Gosman when they purchased the entities from third parties. The audited
combined financial statements for the year ended December 31, 1995 have been
prepared to reflect the combination of these business entities which have
operated since their purchase date under common control. Because certain of
these entities operated under common control were nontaxpaying (i.e., primarily
S corporations, which results in taxes being the responsibility of the
respective owners), the financial statements for the year ended December 31,
1995 have been presented on a pretax basis, as further described in Note 2.


2. Summary of Significant Accounting Policies

   Principles of Consolidation
     The consolidated financial statements include the accounts of the Company
and its 50% or greater owned subsidiaries over which it exercises control.
Significant intercompany accounts and transactions have been eliminated in
consolidation.


   Estimates Used in Preparation of Financial Statements

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
are used when accounting for the collectibility of receivables and third party
settlements, depreciation and amortization, taxes and contingencies.


                                      F-7
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

   Cash and Cash Equivalents

     Cash and cash equivalents consist of highly liquid instruments with
original maturities at the time of purchase of three months or less.


   Revenue Recognition

     Net revenue from services is reported at the estimated realizable amounts
from patients, third-party payors and others for services rendered. Revenue
under certain third-party payor agreements is subject to audit and retroactive
adjustments. Provisions for estimated third-party payor settlements and
adjustments are estimated in the period the related services are rendered and
adjusted in future periods as final settlements are determined. The provision
and related allowance are adjusted periodically, based upon an evaluation of
historical collection experience with specific payors for particular services,
anticipated reimbursement levels with specific payors for new services,
industry reimbursement trends, and other relevant factors. Included in net
revenues from services are revenues from the diagnostic imaging centers in New
York which the Company operates pursuant to Administrative Service Agreements.

     Net revenues from management service agreements generally includes the net
revenue generated by the physician practices. Under the agreements, the
Company, in most cases, is responsible and at risk for the operating costs. The
costs include the reimbursement of all medical practice operating costs and
payments to physicians (which are reflected as cost of affiliated physician
management services).

     Net revenues from clinical studies equals the fees to be received as
services are provided to patients enrolled in the studies. Revenues are
recognized as patient visits are conducted and such services are provided.
Payments received prior to providing services are recorded as unearned revenue.
Included in accounts receivable at January 31, 1998 and 1997 are unbilled
contract receivables of $3,926,117 and $5,497,469, respectively.

     Net revenues from real estate services are recognized at the time services
are performed. In some cases fees are earned upon the achievement of certain
milestones in the development process, including the receipt of a building
permit and a certificate of occupancy of the building. Unearned revenue relates
to all fees received in advance of services being completed on development
projects.


   Third Party Reimbursement

     For the years ended January 31, 1998, January 31, 1997, and December 31,
1995, approximately 23%, 31%, and 34%, respectively, of the Company's net
revenue was primarily from the participation of the Company's home healthcare
entities and physician practices in Medicare programs. Medicare compensates the
Company on a "cost reimbursement" basis for home healthcare, meaning Medicare
covers all reasonable costs incurred in providing home healthcare. Medicare
compensates the Company for physician services based on predetermined fee
schedules. In addition to extensive existing governmental healthcare
regulation, there are numerous initiatives at the federal and state levels for
comprehensive reforms affecting the payment for and availability of healthcare
services. Legislative changes to federal or state reimbursement systems could
adversely and retroactively affect recorded revenues.


   Accounting Developments

     In 1997, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued EITF 97-2 concerning the consolidation of physician
practice revenues. Physician practice management companies ("PPMs") will be
required to consolidate financial information of a physician where the PPM
acquires a "controlling financial interest" in the practice through the
execution of a contractual management agreement even though the PPM does not
own a controlling equity interest in the physician practice. EITF 97-2 outlines
six requirements for establishing a controlling financial interest. EITF 97-2
is effective for the Company's financial statements for the year ended January
31, 1999 and for any transactions occurring after November 20, 1997. The
Company does not believe that


                                      F-8
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

the implementation of EITF 97-2 will have a material impact on its financial
condition or its earnings. However, adoption of this statement could reduce
reported revenues for the year ended January 31, 1998, by a maximum of 19% from
$346.5 million to $281.2 million.


   Property and Equipment

     Additions are recorded at cost, or in the case of capital lease property,
at the net present value of the minimum lease payments required, and
depreciation is recorded principally by use of the straight-line method of
depreciation for buildings, improvements and equipment over their useful lives.
Upon disposition, the cost and related accumulated depreciation are removed
from the accounts and any gain or loss is included in income. Maintenance and
repairs are charged to expense as incurred. Major renewals or improvements are
capitalized. Assets recorded under capital leases are amortized over the
shorter of their estimated useful lives or the lease terms.


   Income Taxes

     The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Deferred taxes arise
primarily from the recognition of revenues and expenses in different periods
for income tax and financial reporting purposes.

     Prior to the offering, certain of the entities subsequently purchased by
the Company were S Corporations or partnerships; accordingly, income tax
liabilities were the responsibility of the respective owners or partners.
Provisions for income taxes and deferred assets and liabilities of the taxable
entities were not reflected in the combined financial statements prior to the
offering since there was no taxable income on a combined basis.

     Prior to the business combination with CSL, CSL had elected to be treated
as S Corporations as provided under the Internal Revenue Code (the "Code"),
whereby income taxes are the responsibility of the shareholders. Accordingly,
the Company's statements of operations do not include provisions for income
taxes for income related to CSL prior to the business combination. Prior to the
business combination, dividends were primarily intended to reimburse
shareholders for income tax liabilities incurred.


   Pro Forma Information

     The pro forma net income and net income per share information in the
consolidated statement of operations reflect the effect on historical results
as if CSL had been a C Corporation rather than an S Corporation for income tax
purposes.


   Goodwill

     Goodwill relates to the excess of cost over the value of net assets of the
businesses acquired. Amortization is calculated on a straight line basis over
periods ranging from ten to 40 years. Accumulated amortization of goodwill was
$6,043,598 and $2,771,727 at January 31, 1998 and January 31, 1997,
respectively.


   Management Service Agreements

     Management service agreements consist of the costs of purchasing the
rights to manage medical oncology, physician groups and certain diagnostic
imaging centers. These costs are amortized over the initial noncancelable terms
of the related management service agreements ranging from ten to 40 years.
Under the long-term agreements, the medical groups have agreed to provide
medical services on an exclusive basis only through facilities managed by the
Company. In most cases, in the event of termination of a management agreement,
the medical group is required to purchase all related assets, including the
unamortized portion of any intangible assets, including management service
agreements, generally at the then net book value. Accumulated amortization of
management service agreements was $4,072,237 and $1,640,765 at January 31, 1998
and January 31, 1997, respectively.


                                      F-9
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

   Debt Issuance Costs

     Offering costs of approximately $5,259,358 related to the convertible
subordinated debentures (Note 8) and the revolving line of credit agreement
have been deferred and are being amortized over the life of the convertible
subordinated debentures and the term of the revolving line of credit agreement,
respectively. Amortization expense of $727,484 and $276,625 has been included
as interest expense in the accompanying financial statements for the years
ended January 31, 1998 and January 31, 1997, respectively.


   Long-Lived Assets

     The Company periodically assesses the recoverability of long-lived assets,
including property and equipment and intangibles, when there are indications of
potential impairment, based on estimates of undiscounted future cash flows. The
amount of impairment is calculated by comparing anticipated discounted future
cash flows with the carrying value of the related asset. In performing this
analysis, management considers such factors as current results, trends and
future prospects, in addition to other economic factors.


   Investments

     The equity method of accounting is used for investments when there exists
a noncontrolling ownership interest in another company that is greater than
20%. Under the equity method of accounting, original investments are recorded
at cost and adjusted by the Company's share of earnings or losses of such
companies, net of distributions.


   Net Income (Loss) Per Common Share

     Effective December 15, 1997, the Company adopted SFAS No. 128, "Earnings
Per Share." Under SFAS No. 128, the basic earnings per share is calculated by
dividing net income by the weighted average number of shares of common stock
outstanding during the period. Stock to be issued at a future date pursuant to
acquisition agreements is treated as outstanding in determining basic earnings
per share. In addition, diluted earnings per share is calculated using the
weighted average number of shares of common stock and common stock equivalents,
if dilutive. Per share amounts and weighted average number of shares
outstanding for the year ended January 31, 1997 have been restated to conform
with the requirements of SFAS No. 128.


   Stock Option Plans

     On February 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation", which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made
during the years ended January 31, 1998 and 1997, and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.


   Fiscal Year

     Upon the completion of the merger during October 1997, CSL changed its
fiscal year end from December 31 to January 31. Amounts consolidated for CSL
for the year ended January 31, 1997 were based on a December 31 fiscal year
end. As a result, CSL's historical results of operations for the month ending
January 31, 1997 are not included in the Company's consolidated statements of
operations or cash flows.


   Reclassifications

     Certain prior year balances have been reclassified to conform with the
current year presentation. Such reclassifications had no material effect on the
previously reported consolidated financial position, results of operations or
cash flows of the Company.


                                      F-10
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

   Accounting Pronouncements for Future Adoption

     The FASB recently issued Statement No. 130, "Comprehensive Income," which
is effective for the Company's financial statements as of and for the year
ending January 31, 1999. In addition to net income, comprehensive income is
comprised of "other comprehensive income" which includes all charges and
credits to equity that are not the result of transactions with owners of the
Company's Common Stock. This Statement is not anticipated to materially affect
the Company's financial statements.

     The FASB recently issued statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which is effective for the Company's
financial statements as of and for the year ending January 31, 1999. This
Statement requires reporting of summarized financial results for operating
segments as well as established standards for related disclosures about
products and services, geographic areas and major customers. Primary disclosure
requirements include total segment revenues, total segment profit or loss and
total segment assets. The Company has not yet completed its evaluation of the
impact of this Statement on the Company's financial statements.


3. Acquisitions

Year Ended January 31, 1998 Acquisitions

   Physician Practice Acquisitions (all information related to the number of
     physicians is as of the acquisition date)

     During February 1997, the Company purchased the stock of a six physician
practice pursuant to a merger and entered into a 40-year management agreement
with the practice in exchange for 159,312 shares of Common Stock of the Company
having a value of approximately $2,440,000. The transaction has been accounted
for using the pooling-of-interests method of accounting.

     During February 1997, the Company purchased the assets of and entered into
a 40-year management agreement with five physicians in Utah. The purchase price
was $2,498,148. Of such purchase price, $1,378,148 was paid in cash and 75,293
shares of Common Stock of the Company were issued having a value of $1,120,000.
The purchase price was allocated to the assets at their fair market value,
including management service agreements of $1,364,482. The resulting intangible
is being amortized over 40 years.

     During May 1997, the Company entered into a 40-year management agreement
with a radiation therapy center in Westchester, New York. The consideration
paid in this transaction was $2,550,000. Of such amount $1,200,000 was paid in
cash and $1,350,000 is payable during May 1998 in Common Stock of the Company
with such number of shares to be issued based upon the average price of the
stock during the five business days prior to the issuance. The value of the
Common Stock to be issued has been recorded in other long-term liabilities at
January 31, 1998. The amount paid has been allocated to management service
agreements and is being amortized over 40 years.

     During July 1997, the Company entered into a 40-year management services
agreement with Beth Israel Hospital to manage its DOCS Division which consists
of more than 100 physicians located throughout the greater Metropolitan New
York area. Pursuant to this management services agreement, the Company is
reimbursed for all operating expenses incurred by the Company for the provision
of services to the practices plus its applicable management fee. The Company
has committed up to $40 million in conjunction with the transaction to be
utilized for the expansion of the Beth Israel delivery system throughout the
New York region. In connection with the agreement, the Company paid $13,660,000
in cash, which was allocated to management service agreements and is being
amortized over 40 years.


Ancillary Service Companies Acquisitions and CSL Merger

     During April 1997, the Company acquired the business and certain assets of
a clinical research company in the Washington, DC area for $725,000 in the form
of a promissory note plus contingent consideration based on revenue and
profitability measures over the next five years. The contingent payments will
equal 10% of the excess


                                      F-11
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

gross revenue, as defined, provided the gross operating margins of the acquired
business exceed 30%. The purchase price was allocated to intangibles, including
goodwill, and is being amortized over 20 years. The note and contingent
payments are, in certain circumstances, convertible into shares of Common
Stock.

     During June 1997, the Company purchased the assets of two diagnostic
imaging centers in Dade County, Florida. The purchase price was approximately
$12,600,000 plus the assumption of debt and capital leases totaling $1,570,078.
Of such purchase price, $600,000 was paid in cash and the remaining $12,000,000
was paid by the issuance of 773,026 shares of Common Stock of the Company,
562,500 of which were issued in June 1997 and 210,526 of which were issued in
September 1997. There is also a contingent payment up to a maximum of
$2,675,000 based on the centers' earnings before taxes over the two years
subsequent to the closing, which is payable in cash. The purchase price was
allocated to the assets at their fair market value, including goodwill of
$10,280,273. The resulting intangible is being amortized over 30 years.

     During June 1997, the Company acquired the remaining 20% interest in a
lithotripsy company that it purchased during 1994. The interest was acquired in
exchange for cash and 54,500 shares of Common Stock of the Company having a
total value of $2,005,000. The purchase price was allocated to goodwill and is
being amortized over 20 years.

     During August 1997, the Company purchased certain assets and assumed
certain liabilities of, and entered into an administrative services agreement
with BAB Nuclear Radiology, P.C., to provide administrative services to five
diagnostic imaging centers on Long Island, New York. The consideration paid in
this transaction was approximately $10,450,000 in cash, $15,000,000 in
convertible notes and the assumption of $1,621,000 in debt. The convertible
notes bear interest at 5% and are payable in three equal installments in
November 1997 and February and May 1998. At the option of the Company, the
notes are payable in either cash or shares of Common Stock of the Company. The
first two installments were paid in shares of Common Stock of the Company. The
amount paid was allocated to the assets at their fair market value, including
management service agreements of $23,023,256 and is being amortized over 30
years.

     During November 1997, the Company purchased certain assets of, and entered
into an administrative services agreement with Highway Imaging Associates, LLP,
to provide administrative services to a diagnostic imaging center in Brooklyn,
New York. The consideration paid in this transaction was approximately
$1,700,000. Of such amount, approximately $200,000 was paid in cash and
$1,500,000 was paid by the issuance of 108,108 shares of Common Stock of the
Company. The amount paid was allocated to the assets at their fair market
value, including management service agreements of $1,598,421, and is being
amortized over 30 years.

     During December 1997, the Company purchased certain assets, assumed
certain liabilities of, and entered into an administrative services agreement
with Ray-X Management Services, Inc., to provide administrative services to a
diagnostic imaging center in Queens, New York. The consideration paid in this
transaction was approximately $9,500,000. Of such amount, approximately
$175,000 was paid in cash, $775,000 was assumed debt and $8,550,000 was paid by
the issuance of 616,215 shares of Common Stock of the Company. The amount paid
was allocated to the assets at their fair market value, including management
service agreements of $8,133,680, and is being amortized over 30 years.


   CSL Merger
   
     Effective October 15, 1997, a subsidiary of the Company merged with CSL in
a transaction that was accounted for as a pooling of interests. The Company
exchanged 5,204,305 shares of its common stock for all of the outstanding common
stock of CSL. The Company's historical financial statements for all periods have
been restated to include the results of CSL.

     The following table, which is unaudited, reflects the combined revenues,
net income, net income per share and weighted average number of shares
outstanding for the respective periods. The Pro Forma Combined column adjusts


                                      F-12
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

the historical net income for CSL to reflect the results of operations as if
CSL had been a C corporation rather than an S corporation for income tax
purposes. The Adjusted Pro Forma Combined column adjusts the Pro Forma Combined
column by eliminating certain noncontinuing charges incurred by CSL. Provisions
for income taxes have not been reflected for the year ended December 31, 1995
because there is no taxable income on a combined basis.


<TABLE>
<CAPTION>
                                                                                                      Adjusted
                                                                                   Pro Forma          Pro Forma
                                              PhyMatrix            CSL             Combined           Combined
                                          ----------------   ---------------   ----------------   ----------------
                                                            For the year ended January 31, 1998
                                          ------------------------------------------------------------------------
<S>                                       <C>                <C>               <C>                <C>
Revenue ...............................    $ 316,579,760       $29,967,889       $346,547,649       $346,547,649
Net income ............................    $   7,253,038       $ 2,421,769       $  9,674,807       $ 20,368,303
Net income per share--basic ...........    $        0.30       $      0.46       $       0.33       $       0.69
Net income per share--diluted .........    $        0.30       $      0.46       $       0.33       $       0.68
Weighted average number of shares
 outstanding--basic ...................       24,481,911         5,207,743         29,689,654         29,689,654
Weighted average number of shares
 outstanding--diluted .................       24,940,099         5,289,221         30,229,320         30,229,320

                                                              For the year ended January 31, 1997
                                          ------------------------------------------------------------------------
Revenue ...............................    $ 189,960,735       $18,040,124       $208,000,859       $208,000,859
Net income ............................    $  12,056,531       $ 1,940,074       $ 13,996,605       $ 15,154,005
Net income per share--basic ...........    $        0.54       $      0.38       $       0.51       $       0.56
Net income per share--diluted .........    $        0.54       $      0.37       $       0.51       $       0.55
Weighted average number of shares
 outstanding--basic ...................       22,195,744         5,099,496         27,295,240         27,295,240
Weighted average number of shares
 outstanding--diluted .................       22,490,807         5,191,625         27,682,432         27,682,432

                                                             For the year ended December 31, 1995
                                          ------------------------------------------------------------------------
Revenue ...............................    $  70,733,282       $13,351,843       $ 84,085,125       $ 84,085,125
Net income (loss) .....................    $ (11,024,915)      $ 2,931,175       $ (8,093,740)      $ (5,960,740)
</TABLE>

     The following items reflect the noncontinuing charges, referred to above,
incurred by CSL during the respective periods (unaudited):

<TABLE>
<CAPTION>
                                                                       Year Ended
                                                     ----------------------------------------------
                                                      December 31,     December 31,     January 31,
                                                          1995             1996            1998
                                                     --------------   --------------   ------------
<S>                                                  <C>              <C>              <C>
Salaries expense related to the equity interest
 granted to an officer of CSL. During January
 1997, the officer entered into an employment
 agreement with no provisions for sharing of
 profits or proceeds. ............................     $       --       $  628,000       $     --
Consulting fees based on a profit sharing
 arrangement. The profit sharing arrangement was
 terminated during 1997. .........................        433,000          314,000             --
Management fees paid to the principal shareholders
 of CSL. .........................................      1,700,000          987,000        907,000
                                                       ----------       ----------       --------
Total nonrecurring items .........................      2,133,000        1,929,000        907,000
After tax impact of nonrecurring items ...........     $2,133,000       $1,157,400       $544,200
</TABLE>

                                      F-13
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

     Prior to its merger with the Company, CSL reported on a fiscal year ending
December 31. Prior to its initial public offering during January 1996, the
Company reported on a fiscal year ending December 31. The fiscal year end of
the Company was changed to January beginning with the one month period ended
January 31, 1996. The restated financial statements for the year ended January
31, 1997 are based on a combination of the Company's results for its January 31
fiscal year and a December 31 fiscal year for CSL. CSL's historical results of
operations for the month ending January 31, 1997 are not included in the
Company's consolidated statements of operations or cash flows. An adjustment
has been made to shareholder's equity as of February 1, 1997 to adjust for the
effect of excluding CSL's results of operations for the month ending January
31, 1997.

     As a result of using the pooling of interests method of accounting,
estimated transaction expenses of $10,150,000 were recorded as a one-time
charge to the Company's statement of operations during the quarter ended
October 31, 1997 which represents the period in which the transaction closed. A
summary of these expenses is as shown below:


<TABLE>
<CAPTION>
                                               Clinical
                                               Studies       PhyMatrix         Total
                                            -------------   -----------   --------------
<S>                                         <C>             <C>           <C>
Legal ...................................    $  200,000      $300,000      $   500,000
Accounting ..............................       200,000       175,000          375,000
Investment Banking ......................     3,600,000       325,000        3,925,000
Other ...................................       250,000       100,000          350,000
                                             ----------      --------      -----------
  Subtotal transaction expenses .........     4,250,000       900,000        5,150,000
                                             ----------      --------      -----------
CNS Consulting (1) ......................     5,000,000             0        5,000,000
                                             ----------      --------      -----------
  Total .................................    $9,250,000      $900,000      $10,150,000
                                             ==========      ========      ===========
</TABLE>

------------
(1) Represents buyout of consulting contract.

Contract Management Acquisitions

     During April 1997, the Company acquired a pulmonary physician network
company for a base purchase price of $3,049,811. Of such purchase price,
$756,964 was paid in cash and 180,717 shares of Common Stock of the Company
were issued during May 1997 having a value of $2,292,847. There is also a
contingent payment up to a maximum of $2,000,000 based on the acquired
entities' earnings before taxes during the three years subsequent to the
closing, which will be paid in cash and/or Common Stock of the Company. The
purchase price was allocated to goodwill and is being amortized over 30 years.

     During December 1997 the Company purchased the stock of Urology
Consultants of South Florida. The base purchase price was approximately
$3,555,000, paid in 244,510 shares of Common Stock of the Company. There is
also a contingent payment up to a maximum of $2,000,000 based on the acquired
entities' earnings before taxes during the three years subsequent to the
closing, which will be paid in cash and/or Common Stock of the Company. The
purchase price has been allocated to the assets at their fair market value
including goodwill of $3,555,000. The resulting goodwill is being amortized
over 30 years.


Year Ended January 31, 1997 Acquisitions

     Physician Practice Acquisitions (all information related to the numbers of
     physicians is as of the acquisition date)  

     Between April and June 1996, the Company purchased the assets of and
entered into employment agreements with Drs. Lawler, Cutler and Surowitz. The
total purchase price for these assets was $2,154,999 in cash and 69,799 shares
of Common Stock of the Company were issued during July 1997 having a value of
$1,058,400. The value of the Common Stock issued had been recorded in other
long-term liabilities at January 31, 1997. The purchase price has been allocated
to the assets at their fair market value including goodwill of $2,862,035. The
resulting goodwill is being amortized over 20 years.


                                      F-14
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

     During May 1996, the Company purchased the stock of Atlanta
Gastroenterology Associates, P.C. pursuant to a tax free merger and entered
into a 40-year management agreement with the medical practice in exchange for
324,252 shares of Common Stock of the Company having a value of approximately
$6,100,000. The transaction has been accounted for using the
pooling-of-interests method of accounting.

     During May 1996, the Company amended its existing management agreement
with Oncology Care Associates and extended the term of the agreement to 20
years. Simultaneously, the Company expanded the Oncology Care Associates
practice by adding three oncologists whose practices the Company acquired for
$609,124. $309,124 of such purchase price was paid in cash and 20,684 shares of
Common Stock of the Company were issued in July 1997 having a value of
$300,000. The purchase price has been allocated to the assets at their fair
market value, including management service agreements of approximately
$611,018. The resulting intangible is being amortized over 20 years.

     During May and June 1996, the Company entered into agreements to purchase
the assets of and entered into 20-year management agreements with two physician
practices consisting of three physicians. These practices are located in South
Florida and Washington, D.C. The total purchase price for the assets of these
practices was $1,214,291. Of this amount, $663,667 was paid in cash and 29,350
shares of Common Stock of the Company were issued during May and June 1997
having a value of $550,954. The value of the Common Stock issued had been
recorded in other long-term liabilities at January 31, 1997. The purchase price
has been allocated to the assets at their fair market value, including
management service agreements of $749,646. The resulting intangible is being
amortized over 20 years.

     During July 1996, the Company purchased the assets of and entered into a
20-year management agreement with four physicians in Florida. The purchase
price for these assets was approximately $1,298,610, which was paid in cash.
The purchase price has been allocated to these assets at their fair market
value, including management service agreements of $678,838. The resulting
intangible is being amortized over 20 years.

     During July 1996, the Company purchased the assets of and entered into a
20-year management agreement with three urologists in Atlanta, Georgia. The
purchase price for these assets was $755,163. Of such purchase price, $475,163
was paid in cash and 18,046 shares of Common Stock of the Company were issued
during July 1997 having a value of $280,000. The value of the Common Stock
issued had been recorded in other long-term liabilities at January 31, 1997.
The purchase price has been allocated to these assets at their fair market
value, including management service agreements of approximately $399,974. The
resulting intangible is being amortized over 20 years.

     During August 1996, the Company purchased the assets of and entered into a
management agreement with Atlantic Pediatrics. The purchase price for these
assets was $412,539. Simultaneous with the closing, Atlantic Pediatrics was
merged into Osler Medical, Inc. During the second quarter of 1996, the Company
also acquired certain copyright and trademark interests for a purchase price of
$887,000. The total purchase price for the assets acquired was allocated to
such assets at their fair market value, including management service agreements
of $1,215,074. The resulting intangible is being amortized over 20 years.

     During August 1996, the Company purchased the assets of and entered into a
40-year management agreement with eight physicians in Florida. The purchase
price for these assets was $3,439,331. Of such purchase price, $1,519,331 was
paid in cash and 122,841 shares of Common Stock of the Company were issued
during August 1997 having a value of $1,920,000. The value of the Common Stock
issued had been recorded in other long-term liabilities at January 31, 1997.
The purchase price has been allocated to these assets at their fair market
value, including management service agreements of $2,625,699. The resulting
intangible is being amortized over 40 years.

     During August 1996, the Company purchased the assets of and entered into a
40-year management agreement with four physicians in Georgia. The purchase
price for these assets was $1,548,756. Of such purchase price, $855,956 was
paid in cash and 44,126 shares of Common Stock of the Company were issued
during August 1997


                                      F-15
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

having a value of $692,800. The value of the Common Stock issued had been
recorded in other long-term liabilities at January 31, 1997. The purchase price
has been allocated to these assets at their fair market value, including
management service agreements of $1,116,259. The resulting intangible is being
amortized over 40 years.

     During August 1996, the Company purchased the assets of and entered into a
40-year management agreement with 10 physicians in Florida. The purchase price
for these assets was $3,294,499. Of such purchase price, $920,099 was paid in
cash and 192,649 shares of Common Stock of the Company were issued during
August 1997 having a value of $2,374,400. The value of the Common Stock issued
had been recorded in other long-term liabilities at January 31, 1997. The
purchase price has been allocated to these assets at their fair market value,
including management service agreements of $3,161,192. The resulting intangible
is being amortized over 40 years.

     During October 1996, the Company purchased the assets of and entered into
20-year management agreements with five physicians in Florida. The purchase
price for these assets was $1,341,521. Of such purchase price $806,521 was paid
in cash and 33,331 shares of Common Stock of the Company were issued during
October 1997 having a value of $535,000. The value of the Common Stock issued
had been recorded in other long-term liabilities at January 31, 1997. The
purchase price has been allocated to these assets at their fair market value,
including management service agreements of $670,000. The resulting intangible
is being amortized over 20 years.

     During January 1997, the Company purchased the stock of Atlanta
Specialists in Gastroenterology pursuant to a merger and entered into a 40-year
management agreement with the medical practice in exchange for 108,393 shares
of Common Stock of the Company having a value of approximately $1,578,205. The
transaction was accounted for using the pooling-of-interests method of
accounting.

     During January 1997, the Company purchased the assets of and entered into
a 40-year management agreement with 14 physicians in Texas. The purchase price
for these assets was $6,634,272. Of such purchase price, $2,938,272 was paid in
cash and 251,430 shares of Common Stock of the Company were issued during
January 1998 having a value of $3,696,000. The value of the Common Stock issued
had been recorded in other long-term liabilities at January 31, 1997. The
purchase price has been allocated to these assets at their fair market value,
including management service agreements of $5,245,493. The resulting intangible
is being amortized over 40 years.

     During January 1997, the Company purchased the assets of and entered into
a 40-year management agreement with 18 physicians in Florida. The purchase
price for these assets was $4,500,652. Of such purchase price, $2,273,613 was
paid in cash, $1,500,000 of bank debt was assumed and 42,830 shares of Common
Stock were issued having a value of $727,039. The purchase price has been
allocated to these assets at their fair market value, including management
service agreements of $3,814,400. The resulting intangible is being amortized
over 40 years.


Ancillary Service Companies Acquisitions

     During August 1996, the Company acquired the business and certain assets
of a single site clinical research company in Sarasota, Florida for $300,000
plus contingent consideration based on profitability measures over the next
five years. The purchase price consisted of $100,000 of cash and the issuance
of two subordinated promissory notes of $100,000 each. The contingent payments
will equal 15% of the increase in adjusted income before tax, of the acquired
business, over the prior year's amount. The contingent payments will not be
less than $221,025. The full amount of the minimum payments was accrued for at
the date of the acquisition. During October 1996, the Company acquired the
business and certain assets of a multi-site clinical research company in
Pennsylvania for $6,850,000 plus contingent consideration based on
profitability measures over the next five years. The purchase price consisted
of $3,100,000 of cash and the issuance of two subordinated promissory notes of
$2,000,000 and $1,750,000, respectively. The contingent payments will equal 15%
of the excess of adjusted income before tax over $2,000,000 per year for five
years. The cost of these acquisitions was allocated on the basis of the
estimated fair value of the assets acquired and the liabilities assumed. This
allocation resulted in goodwill of $6,966,000, noncompete agreements of
$355,000 and trained workforces of $50,000. The notes mentioned above are
convertible into shares of common stock.


                                      F-16
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

     During October 1996, the Company purchased the assets of an outpatient
ambulatory surgical center in Florida. The Company entered into a lease under
which the surgical center was leased to a partnership with an initial term of
15 years. In addition, the Company entered into a 20-year management agreement
pursuant to which the Company receives a management fee which is based upon the
performance of the surgical center. The purchase price for these assets was
$3,531,630 plus the assumption of debt of $1,344,424 which consisted of
$717,557 in a mortgage payable and $626,867 in capital leases. The purchase
price has been allocated to the assets at their fair market value, including
management service agreements of $2,718,208. The resulting intangible is being
amortized over 20 years.


Management Services Organizations and Contract Management Acquisitions

     During December 1995, the Company obtained a 43.75% interest in Physicians
Choice Management, LLC, an MSO that provides management services to an IPA
composed of over 375 physicians based in Connecticut. The Company acquired this
interest in exchange for a payment of $1.5 million to the MSO's shareholders
($1.0 million paid during 1995 and $.5 million paid during the second quarter
of 1996) and a capital contribution of $2.0 million to the MSO ($1.5 million
paid during 1995 and $.5 million paid during the second quarter of 1996). In
addition, upon the closing of the Company's initial public offering in January
1996, the Company granted options to purchase 300,000 shares of Common Stock to
certain MSO employees in conjunction with their employment agreements. These
options vest over a two-year period with the exercise price equaling the fair
market value of the Company's stock on the date such shares become exercisable.
During September 1996, the Company acquired the remaining 56.25% ownership
interest in the MSO. The Company acquired the remaining interests in exchange
for a payment of $1,000,000 in cash plus 363,442 shares of Common Stock of the
Company. The Company also committed to loan the MSO's selling shareholders
$2,800,000 to pay the tax liability related to the sale. As of January 31,
1998, $2,701,000 of the loan amount committed had been advanced to the selling
shareholders by the Company. The total purchase price for the 100% interest was
approximately $12,148,822 and has been allocated to these assets at their fair
market value including goodwill of $12,099,111. The resulting intangible is
being amortized over 40 years.

     During April 1996, the Company purchased a 50% interest in Central Georgia
Medical Management, LLC, an MSO that provides management services to an IPA
composed of 45 physicians based in Georgia. The Company acquired this interest
in exchange for a payment of $550,000 to existing shareholders and a capital
contribution of $700,000 to the MSO. The Company's balance sheet as of January
31, 1998 includes the 50% interest not owned by the Company as minority
interest. The owners of the other 50% interest in the MSO have a put option to
the Company to purchase their interests. This put option vests over a four year
period. The price to the Company to purchase these interests equals 40% of the
MSO's net operating income as of the most recent fiscal year multiplied by the
price earnings ratio of the Company. The minimum price earnings ratio used in
such calculation will be four and the maximum ten.

     During September 1996, the Company purchased an 80% interest in New Jersey
Medical Management, LLC, an MSO that provides management services to an IPA
with more than 450 physicians in New Jersey. The Company acquired this interest
in exchange for a payment of $350,000 to existing shareholders.

     During September 1996, the Company purchased the stock of Physicians
Consultant and Management Corporation ("PCMC"), a company based in Florida that
provides the managed healthcare industry with assistance in provider relations,
utilization review and quality assurance. The base purchase price for the stock
was $2,000,000 with $1,000,000 paid on the closing date and $1,000,000 paid
during February 1997. There is also a contingent payment up to a maximum of
$10,000,000 based on PCMC's earnings before taxes during the five years
subsequent to the closing, which will be paid in cash and/or Common Stock of
the Company. The purchase price has been allocated to the assets at their fair
market value including goodwill of approximately $3,078,568. The resulting
intangible is being amortized over 30 years.

     During November 1996, the Company established New York Network Management,
L.L.C. ("Network"), which is 51% owned by the Company, to purchase the assets
and stock of various entities which comprise Brooklyn Medical Systems ("BMS").
BMS arranges for the delivery of healthcare services to members through
affiliations


                                      F-17
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

with more than 600 physicians in the New York City area. The purchase price for
Network was $2,200,000. The Company has committed to fund approximately
$2,400,000 to Network during the next three years. During the first three years
the Company has the option to purchase up to an additional 29% ownership
interest. During years four and five the owners of 29% of Network have the
right to require the Company to purchase their interests at a price equal to
the greater of $5,000,000 or the option price, which is determined primarily
based upon the earnings of Network. In addition, during years six and seven,
the owners of 20% of Network have the right to require the Company to purchase
their interests at the option price.

     The accompanying financial statements include the results of operations
derived from the entities purchased by the Company since the date of
acquisition. The following unaudited pro forma information presents the results
of operations of the Company for the years ended January 31, 1998 and January
31, 1997 as if the acquisition of the entities purchased to date had been
consummated on February 1, 1996. In addition, the unaudited pro forma
information also gives effect to the Company's June 1996 Convertible
Subordinated Debenture offering as if such transaction had occurred on February
1, 1996. Such unaudited pro forma information is based on the historical
financial information of the entities that have been purchased and does not
include operational or other changes which might have been effected pursuant to
the Company's management. The unaudited pro forma information presented below
is for illustrative informational purposes only and is not necessarily
indicative of results which would have been achieved or results which may be
achieved in the future (in thousands except per share amounts):


<TABLE>
<CAPTION>
                                                      Pro Forma
                                             ----------------------------
                                              January 31,     January 31,
                                                  1998           1997
                                              (unaudited)     (unaudited)
                                             -------------   ------------
<S>                                          <C>             <C>
   Revenue ...............................     $ 367,973      $ 288,309
   Net income ............................        11,642         16,805
   Net income per share--basic ...........     $    0.37      $    0.54
   Net income per share--diluted .........     $    0.37      $    0.53
</TABLE>

4. Notes Receivable

     During 1996, the Company loaned $10,000,000 to an unrelated healthcare
entity. The principal and interest were repaid during May 1997. Interest on the
loan accrued at the rate of prime plus 2%.

     During the years ended January 31, 1998 and 1997, the Company loaned an
aggregate of $2,701,000 to the shareholders of Physicians Choice, LLC pursuant
to the agreement under which the Company purchased the remaining ownership
interests in Physicians Choice Management, LLC (see Note 3). The notes have a
variable rate of interest and a final maturity in April 2004.

     During the years ended January 31, 1998 and 1997, the Company loaned an
aggregate net amount of $4,195,100 and $2,685,700, respectively, to various
entities and individuals (including $1,000,000 to an employee of the Company
during March 1997). The notes bear interest at rates ranging from 5.83% to the
prime rate plus 1% and have final maturities ranging from October 1998 to June
2012.


                                      F-18
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

5. Property and Equipment

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                               Estimated
                                              Useful Life       January 31,       January 31,
                                                (Years)            1998               1997
                                             -------------   ----------------   ---------------
<S>                                          <C>             <C>                <C>
   Land ..................................          --        $   5,501,612      $  2,714,948
   Building ..............................       15-20              834,853         1,569,170
   Furniture and fixtures ................         5-7           12,968,849        10,515,074
   Equipment .............................        5-10           29,078,871        24,048,121
   Automobiles ...........................         3-5               66,104           140,926
   Computer software .....................           5            1,481,844           981,696
   Leasehold improvements ................        4-20            7,642,195         6,823,262
                                                              -------------      ------------
   Property and equipment, gross .........                       57,574,328        46,793,197
   Less accumulated depreciation .........                      (13,279,520)       (7,664,905)
                                                              -------------      ------------
   Property and equipment, net ...........                    $  44,294,808      $ 39,128,292
                                                              =============      ============
</TABLE>

     Depreciation expense was $5,016,266, $4,217,481 and $2,853,992,
respectively, for the years ended January 31, 1998, January 31, 1997 and
December 31, 1995, respectively.

     Included in property and equipment at January 31, 1998 and January 31,
1997 are assets under capital leases of $4,841,257 and $3,730,819,
respectively, with accumulated depreciation of $1,068,741 and $1,113,070,
respectively.


6. Investment in Affiliates

     On December 31, 1994, the Company purchased a 36.8% interest in Mobile
Lithotripter of Indiana Partners, for $2,663,000. During August 1995, the
Company purchased a 46% interest in I Systems, Inc., for $180,000. I Systems,
Inc. is engaged in the business of claims processing and related services. The
Company has the option to purchase up to an additional 30% interest in I
Systems for $33,333 in cash for each additional one percent of ownership
interest purchased. As of January 31, 1998, the Company's ownership interest in
I Systems, Inc. was approximately 49%. During July 1997 the Company entered
into a partnership agreement whereby it became a 50% partner in an ambulatory
surgery center. The Company contributed approximately $1,354,000 to the
partnership for its partnership interests. These investments are being
accounted for using the equity method at January 31, 1998. During May, 1995,
Mr. Gosman purchased a 50% interest in DASCO, a medical facility development
services company, for $9,610,000. Upon the completion of the offering, the
remaining 50% interest in DASCO was purchased and DASCO has been consolidated
subsequent to the offering.


7. Accrued and Other Current Liabilities

     Accrued and other current liabilities consist of the following:

<TABLE>
<CAPTION>
                                                              January 31,      January 31,
                                                                  1998            1997
                                                             -------------   --------------
<S>                                                          <C>             <C>
   Accrued closure costs .................................   $        --      $   570,000
   Accrued rent ..........................................       320,700        1,141,618
   Accrued income taxes (1)...............................     2,325,574        1,991,368
   Accrued professional fees .............................     2,367,788        4,502,263
   Accrued additional purchase price .....................            --        1,000,000
   Accrued interest ......................................     1,332,419          991,977
   Unearned revenue ......................................     3,432,968        1,513,669
   Other .................................................     3,751,748          916,269
                                                             -----------      -----------
     Total accrued and other current liabilities .........   $13,531,197      $12,627,164
                                                             ===========      ===========
</TABLE>

------------
(1) Included in accrued income taxes is a deferred tax liability of $399,354 at
    January 31, 1998.

                                      F-19
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

     The accrued closure costs at January 31, 1997 were primarily for the
remaining lease obligation for the closure of five radiation therapy centers
acquired when the Company purchased OTI during March 1995. $1,074,013 of
accrued closure costs was classified as a long-term liability at January 31,
1997. During the year ended December 31, 1995, the Company recorded a charge of
$2,500,000 which represented the remaining lease obligation and the writedown
of assets to their estimated fair market value for two of the closed centers.


8. Long-term Debt, Notes Payable and Capital Leases

     Long-term debt, notes payable and capital leases consist of the following:
 

<TABLE>
<CAPTION>
                                                                                    January 31,       January 31,
                                                                                        1998              1997
                                                                                  ---------------   ---------------
<S>                                                                               <C>               <C>
   Convertible subordinated debentures, with an interest rate of 6.75%
    and a maturity date of June 15, 2003. .....................................    $ 100,000,000     $100,000,000
   Note payable due to four individuals payable in eight equal semi-
    annual installments of $28,125, including interest at 8% through
    November 1998. ............................................................           28,125           84,375
   Note payable to a bank with an interest rate of 8.25%. .....................               --           85,111
   Note payable to an individual, payable on demand including interest
    at 9%. ....................................................................               --            6,762
   Note payable to a bank, collateralized by the assets of a multispecialty
    group practice, payable in monthly installments of $14,027,
    including interest at 7.50% and a final payment in February 1999. .........          173,498          322,675
   Note payable to a bank, collateralized by the assets of a multispecialty
    group practice, payable in monthly installments of $20,608, at
    8.75% and a final payment in August 2000. .................................          579,906          758,335
   Convertible note payable to the former shareholders of a medical
    practice in Pennsylvania, with a maturity date of May 1997 and an
    interest rate of 9%. The Company made the payment in shares of
    Common Stock of the Company. ..............................................               --          300,000
   Mortgage note payable to a bank, collateralized by the assets of an
    outpatient surgery center, payable in monthly installments of $6,628
    including interest at 8.86% and a final maturity of November 2001..........          696,668          712,836
   Note payable to a bank, payable in monthly installments, interest at
    the prime rate plus .375% and a final maturity of June 1998. ..............          355,769        1,475,000
   Note payable to the former shareholders of a medical oncology
    practice in South Florida, payable in ten equal semi-annual
    installments of $682,867, which includes interest at 9%. The note
    payable is collateralized by an irrevocable letter of credit. .............        3,522,145        4,504,184
   Revolving bank line of credit with a maturity date of September 1999
    and an interest rate at 1/4% above the bank's base rate. ..................               --        3,132,300
   Convertible acquisition notes payable with various maturity dates
    through August 31, 2001 and interest rates ranging from 5% to 7%...........       14,425,000        3,950,000
   Acquisition earnouts payable with various maturity dates through 2001. .....          181,025          221,025
   Other notes payable with various maturity dates through 1999. ..............               --            8,203
   Revolving line of credit with a financial institution with a maturity date
    of September 2000 and an interest rate of 8.5% at January 31, 1998. .......       10,000,000
   Note payable to a financing institution with a maturity date of January
    2000 and an interest rate of 16.50%. ......................................          316,161
   Capital lease obligations with maturity dates through September 2015
    and interest rates ranging from 8.75% to 12%. .............................        4,080,462        3,269,453
                                                                                   -------------     ------------
                                                                                     134,358,759      118,830,259
   Less current portion of capital leases .....................................       (1,192,753)        (889,536)
   Less current portion of debt ...............................................      (12,548,841)      (2,946,033)
                                                                                   -------------     ------------
   Long-term debt and capital leases ..........................................    $ 120,617,165     $114,994,690
                                                                                   =============     ============
</TABLE>

                                      F-20
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

     During June 1996, the Company raised $100 million through the sale of its
6-3/4% Convertible Subordinated Debentures (the "Debentures") to certain
institutional investors and non-U.S. investors. The Debentures are convertible
into shares of the Company's Common Stock at a conversion price of $28.20 per
share, and are due in 2003. Net proceeds to the Company from the Debentures,
after deduction of the initial purchasers' discounts and commissions and
offering expenses, were approximately $96,566,000. The Company used
approximately $10,752,000 from the net proceeds of the Debenture offering to
repay advances from the principal shareholder. During July 1996, the Company
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission to register the resale of the Debentures by the holders thereof.

     The convertible acquisition notes payable are convertible into Common
Stock of the Company. At the option of the note holders, $4,425,000 are
convertible at a conversion price of $16.425 per share. At the option of the
Company, $10,000,000 are convertible based on the closing price of the Common
Stock of the Company for the five business days prior to the payment date.

     In September 1997, the Company entered into a secured credit agreement
with a bank providing for a $100 million revolving line of credit for working
capital and acquisition purposes. The credit agreement (i) prohibits the
payment of dividends by the Company, (ii) limits the Company's ability to incur
indebtedness and make acquisitions except as permitted under the credit
agreement and (iii) requires the Company to comply with certain financial
covenants, which include minimum net worth and interest coverage requirements
and a maximum funded debt to cash flow limitation. The credit agreement expires
in September 2000. At January 31, 1998, $10,000,000 was outstanding under this
credit line. The maximum amount outstanding under the line of credit during the
year ended January 31, 1998 was $15,000,000. In addition, at January 31, 1998
the Company had outstanding letters of credit totaling approximately
$6,000,000.

     The following is a schedule of future minimum principal payments of the
Company's long-term and convertible debt and the present value of the minimum
lease commitments at January 31, 1998:

<TABLE>
<CAPTION>
                                                                                                    Capital
                                                                                   Debt              Leases
                                                                             ----------------   ---------------
<S>                                                                          <C>                <C>
   Through January 31, 1999 ..............................................    $  12,548,841      $  2,053,905
   Through January 31, 2000 ..............................................        2,628,497         1,653,362
   Through January 31, 2001 ..............................................       12,347,763         1,327,977
   Through January 31, 2002 ..............................................        2,753,196           375,755
   Through January 31, 2003 ..............................................               --           212,306
   Thereafter ............................................................      100,000,000         1,112,172
                                                                              -------------      ------------
   Total .................................................................      130,278,297         6,735,477
   Less amounts representing interest and executory costs ................               --        (2,655,015)
                                                                              -------------      ------------
   Total long-term debt and present value of minimum lease payments ......      130,278,297         4,080,462
   Less current portion ..................................................      (12,548,841)       (1,192,753)
                                                                              -------------      ------------
   Long-term portion .....................................................    $ 117,729,456      $  2,887,709
                                                                              =============      ============
</TABLE>

 

                                      F-21
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

9. Lease Commitments

     The Company leases various office space and certain equipment pursuant to
operating lease agreements.

     Future minimum lease commitments consisted of the following at January 31:
 


<TABLE>
<S>                       <C>
   1999 ...............    $11,622,898
   2000 ...............      9,937,510
   2001 ...............      7,548,137
   2002 ...............      6,178,978
   2003 ...............      4,754,105
   Thereafter .........     11,579,900
                           -----------
                           $51,621,528
                           ===========
</TABLE>

10. Commitments and Contingencies

     The Company is subject to legal proceedings in the ordinary course of its
business. While the Company cannot estimate the ultimate settlements, if any,
it does not believe that any such legal proceedings will have a material
adverse effect on the Company, its liquidity, financial position or results of
operations, although there can be no assurance to this effect.

     A subsidiary of the Company, Oncology Therapies, Inc. ("OTI") (formerly
Radiation Care, Inc., ("RCI")) is subject to the litigation which relates to
events prior to the Company's operation of RCI, and the Company has agreed to
indemnify and defend certain defendants in the litigation who were former
directors and officers of RCI, subject to certain conditions. The Company has
entered into definitive agreements to settle this litigation. The terms of the
settlements will not have a material adverse effect on the Company's business,
financial position or results of operations.

     The Company has entered into employment agreements with certain of its
employees, which include, among other terms, noncompetition provisions and
salary and benefits continuation.

     The Company has committed to expend up to $1,500,000 per year for each of
three years, subsequent to the closing, to assist in the expansion activities
of Osler Medical, Inc., a 22-physician multispecialty group practice it entered
into a management agreement with in September 1995.

     In conjunction with the acquisition of a clinical research center during
the year ended January 31, 1998, the Company may be required to make contingent
payments based on revenue and profitability measures over the next five years.
The contingent payment will equal 10% of the excess gross revenue, as defined,
provided the gross operating margins exceed 30%.

     In conjunction with various acquisitions that were completed during the
years ended January 31, 1998 and 1997, the Company may be required to make
various contingent payments in the event that the acquired companies attain
predetermined financial targets during established periods of time following
the acquisitions. If all of the applicable financial targets were satisfied,
for the periods covered, the Company would be required to pay an aggregate of
approximately $21.7 million over the next five years. The payments, if
required, shall be payable in cash and/or Common Stock of the Company.

     In conjunction with certain of its acquisitions, the Company has agreed to
make payments in shares of Common Stock of the Company which are generally
issued one year from the closing date of such acquisitions with the number of
shares generally determined based upon the average price of the stock during
the five business days prior to the date of issuance. As of January 31, 1998
the Company had committed to issue $1.4 million of Common Stock of the Company
using the methodology discussed above.


                                      F-22
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

11. Related Party Transactions

     Included in operating expenses are discretionary management fees that were
paid or accrued, prior to the CSL merger, to the principal shareholders of CSL
for management-related services. Approximately $907,000, $987,000 and
$1,700,000 of such management fees were incurred for the years ended January
31, 1998, January 31, 1997 and December 31, 1995, respectively, and are
included in operating expenses.

     A key officer of CSL entered into an employment agreement with CSL, dated
January 1995, which entitled him to additional compensation of 5.5% of annual
net profits and, in the event of an IPO or sale of CSL, 5% of the proceeds from
any such transaction. In June 1996, the principal shareholders in CSL decided
to formalize their arrangement with this officer as to his equity participation
in the business. To effect this decision, the employee was granted a 15% equity
interest in CML, which was merged into CSL effective January 1, 1997. Based on
an independent appraisal, the Company valued the transaction at $627,640 and
recorded the amount as a 1996 operating expense. On January 1, 1997, the
officer entered into a new employment agreement with CSL, with no provisions as
to the sharing of profits, or proceeds, in the event of an IPO or sale of CSL.

     DASCO provides development and other services in connection with the
establishment of health parks, medical malls and medical office buildings.
DASCO provides these services to or for the benefit of the owners of the new
facilities, which owners are either corporations or limited partnerships. Mr.
Rendina has obtained equity interests in an aggregate of 34 facilities
developed or being developed by DASCO, and currently has interests in 13 of
such facilities. In addition, Mr. Gosman individually and as trustee for his
two sons and Frederick R. Leathers, Robert A. Miller, and Edward E. Goldman
have obtained equity interests in an aggregate of 17 facilities developed or
being developed by DASCO, and currently have interests in five of such
facilities. The interests of Mr. Rendina and Mr. Gosman (individually and as
trustee) in such facilities range from 2.1% to 50.0% and 6.0% to 40.1%,
respectively. The interests of each of Mr. Leathers, Mr. Miller and Dr. Goldman
range from 0.1% to 3.6%. The Company anticipates that Messrs. Rendina, Gosman,
Leathers and Miller and Dr. Goldman will continue to obtain equity interests in
facilities developed by DASCO. During the years ended January 31, 1998 and
1997, DASCO recorded revenues in the amount of $19.2 million and $10 million,
respectively, related to facilities developed by DASCO in which equity
interests have been obtained by related parties.

     The Company provides construction management, development marketing and
consulting services to entities principally owned by Mr. Gosman in connection
with the development and operation by such entities of several healthcare
related facilities (including a medical office building and a retirement
community). During the years ended January 31, 1998 and 1997, the Company
recorded revenues in the amount of $10.5 million and $7.1 million,
respectively, related to such services. The Company provides these services to
affiliated parties on terms no more or less favorable to the Company than those
provided to unaffiliated parties.

     Meditrust, a publicly traded real estate investment trust with assets in
excess of $3.3 billion of which Mr. Gosman is the Chairman of the Board, has
provided financing to customers of DASCO in the aggregate amount of
approximately $229 million for 25 facilities developed by DASCO. In January
1998, Meditrust acquired, at fair market value, 21 medical office buildings
developed by DASCO from the corporate or limited partnership owners of such
facilities for an aggregate purchase price of approximately $200 million. The
Company received $9.1 million in these transactions from the corporation or
limited partnership owners of such facilities. As a result of their ownership
interests in the corporations or limited partnerships owning the facilities
sold to Meditrust, Messrs. Rendina, Gosman (individually and as trustee for his
two sons), Leathers and Miller and Dr. Goldman received $7.2 million, $4.7
million, $116,000, $291,000 and $87,000, respectively, from the sale of the
facilities.

     In January 1998, the Company transferred to CareMatrix Corp., of which Mr.
Gosman is the Chairman of the Board, its rights under a management agreement
with respect to a Florida skilled nursing facility in exchange for $800,000.


                                      F-23
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

     The Company was required to assume an unfavorable lease in one of its
acquisitions. The Company planned to dispose of the lease and accrued $559,000
in purchase accounting which represents the difference between the unfavorable
lease costs and the estimated fair market value rent. The Company assigned the
lease in January 1997 to an entity principally owned by Mr. Gosman.

     For the year ended December 31, 1995, Continuum Care of Massachusetts,
Inc., whose principal shareholder is Mr. Gosman, provided management services
to the Company. Fees for these services in the amount of $3,729,680 have been
included in the financial statements and consist of the following:


<TABLE>
<CAPTION>
                                             December 31,
                                                 1995
                                            -------------
<S>                                         <C>
   Salaries, wages and benefits .........    $2,267,891
   Professional fees ....................       273,941
   Rent .................................       459,732
   Other ................................       728,116
                                             ----------
                                             $3,729,680
                                             ==========
</TABLE>

     Such fees were based on the discretion of Continuum Care of Massachusetts,
Inc., and may not have been indicative of what they would have been if the
Company had performed these services internally or had contracted for such
services with unaffiliated entities. Included in rent was rent expense of
approximately $415,000 for the year ended December 31, 1995, for the Company's
principal office space in West Palm Beach, Florida. The lessee of the office
space prior to the offering was Continuum Care of Massachusetts, Inc. The
current lease term expires January 31, 2000. The Company assumed the lease from
Continuum Care of Massachusetts, Inc. upon the consummation of the offering.

     During September 1995, the Company provided a letter of credit in the
amount of $5,403,337 to a seller in connection with entering into a management
agreement and purchasing the assets of a medical oncology practice. Cash
collateralizing the letter of credit, which had a balance of $4,504,184 at
January 31, 1997, was released during the year ended January 31, 1998. Prior to
the completion of the offering, the collateral for the letter of credit was
provided by Mr. Gosman.

     During July 1995, the Company purchased the assets of and entered into a
15-year management agreement with a medical oncology practice with three
medical oncologists. An affiliate of the Company, Continuum Care of
Massachusetts, Inc., guarantees the performance of the Company's obligations
under the management agreement.


12. Disclosures about Fair Value of Financial Instruments

     The methods and assumptions used to estimate the fair value of each class
of financial instruments, for which it is practicable to estimate that value,
and the estimated fair values of the financial instruments are as follows:


     Cash and Cash Equivalents
     The carrying amount approximates fair value because of the short effective
maturity of these instruments.


     Long-term Debt
     The fair value of the Company's long-term debt and capital leases is
estimated based on the quoted market prices for the same or similar issues or
on the current rates offered to the Company for debt of the same remaining
maturities. At January 31, 1998 and January 31, 1997, the book value of
long-term debt and capital leases, including current maturities is $134,358,759
and $118,830,259, respectively, which approximates fair value.


13. Employee Benefit Plan

     The Company sponsors 401(k) plans, covering substantially all of its
employees. Contributions under the primary 401(k) plan equal 50% of the
participants' contributions up to a maximum of $400 per participant per year.


                                      F-24
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

14. Income Taxes

     The financial statements of the Company for the periods prior to the
offering do not include a provision for income taxes because the taxable income
of the various entities that comprise the Company were either included in the
tax return of the Partnership's partners and former Subchapter S corporation's
shareholders, or the entities generated significant losses.

     The Company became subject to federal and state income taxes effective the
date of the Company's initial public offering. Significant components of the
Company's provision for income taxes for the years ended January 31, 1998 and
1997:


<TABLE>
<CAPTION>
                                    1998            1997
                               -------------   -------------
<S>                            <C>             <C>
   Federal:
   Current .................    $9,031,822      $4,305,329
   Deferred ................      (812,873)      1,084,693
                                ----------      ----------
     Total federal .........     8,218,949       5,390,022
                                ----------      ----------
   State:
   Current .................     1,827,610       1,176,555
   Deferred ................      (201,956)        269,489
                                ----------      ----------
     Total state ...........     1,625,564       1,446,044
                                ----------      ----------
   Totals: .................    $9,844,603      $6,836,066
                                ==========      ==========
</TABLE>

     Significant components of the Company's deferred tax assets and
liabilities as of January 31, 1998 and 1997 are as follows:


<TABLE>
<CAPTION>
                                                       1998              1997
                                                 ---------------   ---------------
<S>                                              <C>               <C>
   Deferred tax asset
   Allowance for doubtful accounts, reserves and
    other accrued expenses ...................    $   2,063,801     $   1,493,180
   Net operating loss carryforward ...........       12,005,371        13,226,228
                                                  -------------     -------------
     Total deferred tax assets ...............       14,069,172        14,719,408
                                                  -------------     -------------
   Deferred tax liability
   Property and depreciation .................       (1,897,305)         (856,173)
   Amortization ..............................       (1,198,761)         (647,902)
   Other .....................................         (356,383)         (318,165)
                                                  -------------     -------------
     Total deferred tax liability ............       (3,452,449)       (1,822,240)
                                                  -------------     -------------
   Deferred tax asset (liability) ............       10,616,723        12,897,168
                                                  -------------     -------------
   Valuation allowance .......................      (10,956,077)      (14,251,349)
                                                  -------------     -------------
   Net deferred tax liability ................    $    (339,354)    $  (1,354,181)
                                                  =============     =============
</TABLE>

     The reduction in the valuation allowance during the year ended January 31,
1998 is primarily the result of utilization of post acquisition net operating
losses by the Company. The Company reasonably believes that, because of
limitations imposed by the Internal Revenue Code, net operating losses prior to
the Company's purchase of OTI of $29,864,108 and other deferred tax assets,
which arise out of OTI, may not be fully recognized in future years.
Accordingly, the Company has established a partial valuation allowance for
these deferred tax assets.


     The net operating losses of $29,864,108 will begin to expire in 2005.

                                      F-25
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

     The reconciliation of income tax computed at statutory rates to income tax
expense is as follows:


<TABLE>
<CAPTION>
                                                             1998         1997
                                                          ----------   ---------
<S>                                                       <C>          <C>
   Statutory rate .....................................        35%         35%
   Non-deductible merger expenses .....................        18%         --
   Permanent differences ..............................         1%          1%
   State income tax (net of federal benefit) ..........         6%          5%
   Valuation allowance ................................       (11%)        (7%)
   Other ..............................................        --           2%
                                                              ---          --
                                                               49%         36%
                                                              ===          ==
</TABLE>

15. Supplemental Cash Flow Information

     During the years ended January 31, 1998, January 31, 1997 and December 31,
1995, the Company acquired the assets and assumed certain liabilities of
various entities. The transactions had the following non-cash impact on the
balance sheets:


<TABLE>
<CAPTION>
                                                   January 31,       January 31,       December 31,
                                                      1998               1997              1995
                                                ----------------   ---------------   ---------------
<S>                                             <C>                <C>               <C>
   Current assets ...........................    $   7,442,073      $   4,692,389     $  12,463,007
   Property, plant and equipment ............        5,075,720          4,693,603        40,817,404
   Intangibles ..............................       74,657,344         56,964,439        43,155,934
   Other noncurrent assets ..................        1,408,429             25,541         2,197,691
   Current liabilities ......................         (760,794)        (9,667,604)       (8,174,988)
   Debt .....................................      (14,380,150)        (7,360,320)      (43,179,672)
   Noncurrent liabilities ...................        9,739,400        (11,603,513)       (2,913,635)
   Equity ...................................      (48,737,918)       (10,010,325)               --
                                                 -------------      -------------     -------------
     Net cash used for acquisitions .........    $  34,444,104      $  27,734,210     $  44,365,741
                                                 =============      =============     =============
</TABLE>

     During the year ended January 31, 1997, the Company purchased $643,500 of
equipment under capital leases. In addition, cash paid for interest during the
years ended January 31,1998, January 31, 1997 and December 31, 1995 was
$8,468,637, $5,571,800, and $2,772,082, respectively. Cash paid for income
taxes for the years ended January 31, 1998 and January 31, 1997 were
$10,842,661 and $3,320,241, respectively. There were no income taxes paid for
the year ended December 31, 1995.


                                      F-26
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

16. Stock Option Plan

     The Company has adopted a stock option plan and authorized the issuance of
4,100,000 shares of the Company's Common Stock to key employees and directors
of the Company. Under this plan, the exercise provision and price of the
options will be established on an individual basis generally with the exercise
price of the options being not less than the market price of the underlying
stock at the date of grant. The options generally will become exercisable
beginning in the first year after grant in 20%--33% increments per year and
expire ten years after the date of grant. Information related to the stock
option plan is summarized as follows:


<TABLE>
<CAPTION>
                                                  Year Ended                   Year Ended                Year Ended
                                               January 31, 1998             January 31, 1997          December 31, 1995
                                          --------------------------   --------------------------   ---------------------
                                                           Weighted                     Weighted                 Weighted
                                                            Average                      Average                 Average
                                                           Exercise                     Exercise                 Exercise
                                              Shares         Price         Shares         Price       Shares      Price
                                          -------------   ----------   -------------   ----------   ---------   ---------
<S>                                       <C>             <C>          <C>             <C>          <C>         <C>
   Outstanding, beginning of
    period ............................     2,201,414      $  16.68      1,060,500      $  15.03     127,500    $  4.00
   Options granted:
    At fair market value ..............     2,020,250         14.66      1,107,500         19.16     445,000      13.65
    Above fair market value
     (CSL options--see below)                      --            --        108,914          3.13          --         --
   Options exercised ..................      (145,304)         6.31        (52,166)         6.97          --         --
   Options canceled ...................      (167,002)        14.23        (23,334)        18.14          --         --
                                            ---------      --------      ---------      --------     -------    -------
   Outstanding, end of period .........     3,909,358      $  16.12      2,201,414      $  16.68     572,500    $ 10.93
                                            =========      ========      =========      ========     =======    =======
   Weighted average fair value
    of options ........................                    $   7.55                     $  10.08                $  6.67
                                                           ========                     ========                =======
</TABLE>

     At January 31, 1998, January 31, 1997 and December 31, 1995, options for
1,288,042, 797,632 and 47,500, respectively were exercisable.

     Significant option groups outstanding at January 31, 1998 and related
weighted average price and life are as follows:


<TABLE>
<CAPTION>
                                    Options Outstanding                  Options Exercisable
                        -------------------------------------------   -------------------------
                            Shares                                        Shares
                         Outstanding                      Weighted     Exercisable     Weighted
                              at           Remaining       Average          at         Average
       Range of          January 31,     Constructual     Exercise     January 31,     Exercise
    Exercise Price           1998            Life           Price          1998         Price
---------------------   -------------   --------------   ----------   -------------   ---------
<S>                     <C>             <C>              <C>          <C>             <C>
  $     3.00-$ 5.00          76,108     7.6 years        $  3.36          39,803      $  3.57
  $    12.50-$18.75       3,118,250     8.7              $ 15.39         893,246      $ 16.13
  $    19.00-$24.75         715,000     7.2              $ 20.67         354,993      $ 20.35
</TABLE>

     The fair value of each option grant is estimated on the date of grant
using the Black-Sholes option-pricing model with the following weighted average
assumptions for grants in the years ended January 31, 1998, January 31, 1997,
and December 31, 1995: expected volatility (post-offering) of 56%, risk free
interest rates of 6.4%, expected life of 4.5 years, and expected dividends of
$0.

     Options which were assumed in connection with CSL employees during 1996
were valued using the minimum value method, which is appropriate for nonpublic
companies, assuming a ten year option life, 5.5% risk free interest rate, and
no volatility. These options were granted with an exercise price significantly
greater than the market value of the company and accordingly had a fair market
value and associated expense of zero. Former CSL options have been converted to
108,914 of the Company's options with an exercise price of $3.13 and are
included above.


                                      F-27
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

     The Company continues to account for stock based compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", as allowed by SFAS No. 123. Accordingly, no compensation cost has
been recognized for options granted. Had compensation for those plans been
determined based on the fair value at the grant date for awards during the
years ended January 31, 1998, January 31, 1997, and December 31, 1995
consistent with SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts:



<TABLE>
<CAPTION>
                                              Year Ended                           Year Ended
                                             January 31,        Year Ended        December 31,
                                                 1998        January 31, 1997         1995
  (In thousands, except per share data)     -------------   ------------------   -------------
<S>                                         <C>             <C>                  <C>
   Net income (loss)
    As reported .........................     $ 10,299           $ 15,290          $ (8,094)
    Pro forma ...........................        6,148             12,992            (8,192)
   Basic earnings per share
    As reported .........................     $   0.35           $   0.56                --
    Pro forma ...........................     $   0.21           $   0.47                --
   Diluted earnings per share
    As reported .........................     $   0.35           $   0.55                --
    Pro forma ...........................     $   0.21           $   0.47                --
</TABLE>

     Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.


17. Net Income Per Share

     The following is a reconciliation of the numerators and denominators of
the basic and fully diluted earnings per share computations for net income:


<TABLE>
<CAPTION>
                                                                                 Per-share
                                                          Income      Shares      Amount
  (In thousands, except per share data)                 ----------   --------   ----------
<S>                                                     <C>          <C>        <C>
   Year Ended January 31, 1998
   Basic earnings per share 
    Income available to common stockholders .........    $10,299      29,690      $ 0.35
   Effect of dilutive securities
    Stock options ...................................         --         145
    Convertible debt ................................        191         394
                                                         -------      ------      ------
   Diluted earnings per share .......................    $10,490      30,229      $ 0.35
                                                         =======      ======      ======
</TABLE>


<TABLE>
<CAPTION>
                                                                                 Per-share
                                                          Income      Shares      Amount
  Year Ended January 31, 1997                           ----------   --------   ----------
<S>                                                     <C>          <C>        <C>
   Basic earnings per share
    Income available to common stockholders .........    $15,291      27,295      $ 0.56
   Effect of dilutive securities
    Stock options ...................................         --         387
                                                         -------      ------      ------
   Diluted earnings per share .......................    $15,291      27,682      $ 0.55
                                                         =======      ======      ======
</TABLE>

     For the years ended January 31, 1998 and 1997, approximately 3,533,000 and
649,000 shares, respectively, related to stock options were not included in the
computation of diluted earnings per share because the option exercise price was
greater than the average market price of the common shares.

     For the years ended January 31, 1998 and 1997, no additional securities or
related adjustments to income were made for the common stock equivalents
related to the Debentures since the effect would be antidilutive.


                                      F-28
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

18. Ratio of Earnings to Fixed Charges

     For the years ended January 31, 1998, January 31, 1997 and December 31,
1995, the ratio of earnings to fixed charges was 2.29, 3.46 and less than 1.0X,
respectively. For purposes of computing the ratio of earnings to fixed charges,
earnings represent income from operations before minority interest and income
taxes, plus fixed charges. Earnings also includes the equity in
less-than-fifty-percent-owned investees only to the extent of distributions.
Fixed charges include interest, amortization of financing costs and the portion
of operating rental expense which management believes is representative of the
interest component of the rental expense. For the year ended December 31, 1995
for purposes of computing the ratio of earnings to fixed charges, the Company
had an earnings deficiency of $1.2 million.


19. Segment Information (Unaudited)

     The Company derives revenues from healthcare services and real estate
services. The Company commenced operations of the real estate services segment
with the purchase of DASCO upon the completion of the offering in January 1996.
The activities related to the healthcare services and real estate services
segment are as follows (dollars in thousands):


<TABLE>
<CAPTION>
                                                         Healthcare     Real Estate
             Year Ended January 31, 1998                  Services       Services        Total
-----------------------------------------------------   ------------   ------------   -----------
<S>                                                     <C>            <C>            <C>
   Net revenues .....................................     $315,449        $31,099      $346,548
   Operating income .................................        4,676         25,100        29,776
   Operating income prior to merger and noncontinuing
    costs ...........................................       15,733         25,100        40,833
   Identifiable assets ..............................      345,476         32,683       378,159
   Depreciation and amortization ....................       10,506            293        10,799
   Capital expenditures .............................        9,753            495        10,248

               Year Ended January 31, 1997
------------------------------------------------------
   Net revenues .....................................      188,952         19,049       208,001
   Operating income .................................       17,420         11,268        28,688
   Operating income prior to merger .................
   and noncontinuing costs ..........................       19,349         11,268        30,617
   Identifiable assets ..............................      294,309         19,001       313,310
   Depreciation and amortization ....................        7,094            288         7,382
   Capital expenditures .............................        3,246          2,440         5,686
</TABLE>

20. Quarterly Results of Operations (Unaudited)

     The following is a summary of the unaudited quarterly results of
operations for the periods shown:


<TABLE>
<CAPTION>
                                                       (Dollars in thousands, except per share data)
                                                                Year Ended January 31, 1998
                                                  --------------------------------------------------------
                                                      First         Second         Third         Fourth
                                                     Quarter        Quarter       Quarter        Quarter
                                                  ------------   ------------   -----------   ------------
<S>                                               <C>            <C>            <C>           <C>
   Net revenues ...............................     $ 75,868       $ 82,908      $ 91,568       $ 96,204
   Income (loss) before income taxes ..........        6,485          6,887        (1,830)         8,580
   Net income (loss) ..........................        4,240          4,586        (4,369)         5,842
   Net income (loss) per share--basic .........     $   0.15       $   0.16      $  (0.15)      $   0.19
   Net income per share--diluted ..............     $   0.15       $   0.16      $  (0.14)      $   0.19
</TABLE>

                                      F-29
<PAGE>

                                PHYMATRIX CORP.

                   NOTES TO FINANCIAL STATEMENTS (Continued)


<TABLE>
<CAPTION>
                                                            Year Ended January 31, 1997
                                             ---------------------------------------------------------
                                                 First         Second          Third         Fourth
                                                Quarter        Quarter        Quarter        Quarter
                                             ------------   ------------   ------------   ------------
<S>                                          <C>            <C>            <C>            <C>
   Net revenues ..........................     $ 40,459       $ 44,204       $ 55,439       $ 67,899
   Income before income taxes ............        4,164          4,583          5,712          7,667
   Net income ............................        2,760          2,956          3,826          5,749
   Net income per share--basic ...........     $   0.10       $   0.11       $   0.14       $   0.20
   Net income per share--diluted .........     $   0.10       $   0.11       $   0.14       $   0.20
</TABLE>

21. Subsequent Events

     During February 1998, the Company purchased New England Research Center.
Located in Massachusetts, New England Research Center is a clinical research
site with over 50 ongoing studies, primarily in allergy and asthma. In
conjunction with the acquisition, the Company entered into a 40-year agreement
with the physicians and employees to manage the clinical trials at New England
Research Center. The purchase price was approximately $5,700,000.

     During February 1998, the Company completed the formation of an MSO with
Beth Israel Medical Center and the physician organizations that represent more
than 1,700 physicians of Beth Israel and its parent corporation. The Company
owns one-third of the MSO. The Company will provide management services for the
MSO which will provide the physicians and hospitals with medical management and
contract negotiation support for risk agreements with managed care payors. In
connection with the formation of the MSO, PhyMatrix Management Company, Inc.
("Management"), a subsidiary of the Company, agreed with Beth Israel Medical
Center ("Beth Israel") that Management and its affiliates (including the
Company) would not, directly or indirectly, (i) operate, manage or provide risk
contract management services to any physicians, IPAs or group practices located
in New York County, Kings County or Westchester County, New York (the
"Restricted Zone") which are affiliated with a hospital or hospital system or
any affiliate (with certain exceptions) or (ii) participate with a hospital or
hospital system or any affiliate (other than Beth Israel) in an MSO or other
person that operates, manages or provides risk contract management services
within the Restricted Zone (with certain exceptions). In addition, the owners
of two-thirds of the MSO have the right to require the Company to purchase
their interests at the option price, which is based upon earnings, during years
six and seven.

     During February 1998, the Company purchased a diagnostic imaging center
located in Delray Beach, Florida. The base purchase price was approximately
$6,500,000. There is also a contingent payment up to a maximum of $2,000,000
based on the center's earnings before taxes during the first six months of
1998, which is payable in cash and/or Common Stock of the Company.

     During March 1998, the Company entered into an administrative services
agreement with HIA Bensonhurst Imaging Associates, LLP, a diagnostic imaging
center in Brooklyn, New York. The consideration paid was approximately
$5,100,000. There is also a contingent payment up to a maximum of $1,900,000
based on the center's earnings before taxes, which is payable in cash and/or
Common Stock of the Company.

   
     During April 1998, the Company completed the formation of an MSO, which is
51% owned by the Company, with LIPH, LLC. The Company will manage for the MSO
the medical risk contracting for the more than 2,600 physicians in IPAs in New
York. The base purchase price was $2,500,000. There are also contingent
payments up to a maximum of $5,000,000 with $4,000,000 of such amount based
upon earnings which are not payable until three years after the closing date.
The remaining $1,000,000 may become payable during the first nine months after
the closing date if certain thresholds are achieved.
    


                                      F-30

<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS


The Board of Directors and Shareholders of PhyMatrix Corp.:

     In connection with our audits of the consolidated financial statements of
PhyMatrix Corp. as of January 31, 1998 and January 31, 1997 and for the years
then ended, and the combined financial statements for the year ended December
31, 1995, we have also audited the financial statement schedule included on page
S-2 of this Form 10-K.

     In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included herein.


Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 13, 1998


                                      S-1
<PAGE>


                                 PHYMATRIX CORP.

                        VALUATION AND QUALIFYING ACCOUNTS

  For the years ended January 31, 1998, January 31, 1997 and December 31, 1995

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                    Additions
                                                        Balance at  Charged to    Deductions                 Balance at
                                                       Beginning    Operating         From                     End of
                                                        of Period   Expenses       Reserves     Other (a)      Period
                                                        ---------   --------       --------     ---------      ------

<S>                                                       <C>         <C>          <C>          <C>         <C>
Allowance for Doubtful Accounts and
        Contractual Adjustments

Year ended January 31, 1998                               $ 29,525    $ 156,145    $ 146,591    $ 9,349     $ 48,428

Year ended January 31, 1997                                 16,802      100,504       91,246      3,465       29,525

Year ended December 31, 1995                                   963       35,997       29,509      6,762       14,213


(a) Represents allowances of acquired entities.
</TABLE>