<PAGE>

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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   ----------

                                    FORM 10-K

                                   ----------

(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, 1999


      [ ]   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.
             (Exact name of registrant as specified in its charter)


              Delaware                                  65-0617076 
      (State of incorporation)              (I.R.S. Employer Identification No.)


10 Dorrance Street, Suite 400, Providence, Rhode Island            02903 
    (Address of principal executive offices)                     (Zip Code) 


       Registrant's telephone number, including area code: (401) 831-6755

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                    COMMON STOCK, PAR VALUE $ 0.01 PER SHARE


      Indicate by check mark whether the registrant (1) has filed all reports
required 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. Yes [X] 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 definite proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

      On April 9, 1999, the aggregate market value of the Common Stock of the 
registrant held by non-affiliates of the registrant was $39,979,551. On April 
9, 1999, the number of outstanding shares of the registrant's Common Stock, 
par value $0.01 per share, was 32,697,844.

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<PAGE>

                                     PART I

ITEM 1.  BUSINESS

GENERAL

      PhyMatrix Corp. (together with its subsidiaries, the "Company" or 
"PhyMatrix") is repositioning itself as a company that provides diverse 
services supporting the needs of the pharmaceutical and managed care 
industries. The Company is focusing its operations on two integrated business 
lines: pharmaceutical services, including investigative site management, 
clinical and outcomes research and disease management, as well as multi and 
single-specialty provider network management. Historically, the Company has 
been an integrated medical management company that provides medical 
management services to the medical community, certain ancillary medical 
services to patients and medical real estate development and consulting 
services to related and unrelated third parties. In August 1998, the Company 
announced that it planned to change this business model. The Company is in 
the process of terminating its management of individual and group physician 
practices and divesting itself of related assets, and selling and divesting 
itself of its ancillary medical service businesses, such as diagnostic 
imaging, radiation therapy, lithotripsy services, home healthcare and 
infusion therapy. The Company also has significantly downsized its medical 
facility development and consulting services. The Company currently estimates 
that by the end of its current fiscal year it will have exited a majority of 
its physician practice management ("PPM") and ancillary medical service 
businesses.

      The Company's strategic goal is to become a leader in the development 
of innovative healthcare solutions capable of meeting the current and 
emerging research, marketing and operations demands of the pharmaceutical and 
managed care industries services. The Company believes that significant 
synergy exists among its pharmaceutical services and provider network 
management divisions. The Company intends to leverage its key competencies - 
clinical trial site management, outcomes research and network management 
services - to provide solutions that benefit both pharmaceutical and managed 
care companies. Through the Company's ability to access clinical 
practitioners and patients, the Company will attempt to accelerate the rate 
of Food and Drug Administration ("FDA") approval of pharmaceutical products 
for its clients and enhance market acceptance of such products.

      The Company provides its clinical and outcomes research services 
through a wholly-owned subsidiary, Clinical Studies, Ltd. ("CSL"), a 
multi-therapeutic site management organization ("SMO") based in Providence, 
Rhode Island. CSL, which was acquired by the Company in October 1997, 
provides clinical investigative site management services to 38 research 
facilities in 16 states. The Company owns and centrally manages Phase I 
through IV research facilities to conduct clinical trials for the 
pharmaceutical and biotechnology industries and contract research 
organizations ("CROs") and provides a broad range of pre- and post-FDA 
approval services designed to expedite new product approval and market 
acceptance. The Company has participated in over 600 clinical trials for 
approximately 100 clients and enrolled over 20,000 patients. The Company 
conducts clinical research in over 10 therapeutic areas, with focused 
expertise in central nervous system, asthma and allergy, respiratory, 
oncology, endocrinology and women's health. The Company also designs and 
conducts customized economic and epidemiological research. The Company 
provides an environment for proactively collecting medical and economic data, 
thereby linking clinical with "real life" marketing considerations and 
quality cost-effective patient outcomes. The Company believes that a critical 
element of its ability to expedite the clinical process is its relationship 
with existing networks of approximately 9,000 physicians who have more than 8 
million member patients.

      The Company provides network management services to independent physician
associations ("IPAs"), specialty care physician networks and hospitals. The
Company provides services to IPAs through management service organizations
("MSOs") in which the Company has ownership interests. The Company provides
services to hospitals and specialty care networks primarily through management
agreements. The Company offers these organized groups of physicians
comprehensive network management services to enable them to fulfill their
obligations to managed care organizations. These services include network
development, medical management and managed care contracting. The Company also
provides management expertise and services to managed care organizations. These
services allow managed care organizations to provide efficient, cost-effective
healthcare delivery while maintaining access to high-quality providers.


                                       2

<PAGE>

      Upon the completion of the sale of a majority of its non-core assets, the
Company intends to change its name to Innovative Clinical Solutions, Ltd.

CLINICAL RESEARCH INDUSTRY OVERVIEW

      The clinical research industry is driven by the need of the
pharmaceutical, biotechnology and medical device companies to thoroughly test
new drugs and medical devices prior to commercialization in accordance with
strict government regulations imposed by the FDA in the United States and
various international authorities.

      Competitive and cost-containment pressures are forcing the pharmaceutical
and biotechnology industries to become more efficient in developing new drugs.
To improve returns on research and development investments, pharmaceutical and
biotechnology companies ("Sponsors") are expanding their product pipelines and
attempting to shorten the product development process. In response to similar
pressures in the healthcare industry, many hospitals, physicians and other
healthcare providers have added clinical research capabilities as an additional
revenue source. Clinical research allows healthcare providers to extend their
core competencies and leverage their direct access to patients.

      Sponsors have attempted to create process efficiencies, control fixed
costs and expand capacity by outsourcing certain drug development and clinical
research activities to CROs and SMOs. The amount of clinical research that is
outsourced varies by Sponsor. In general, the Company believes that Sponsors
will continue to increase the amount of outsourcing for a variety of reasons,
including the ability to obtain temporary access to a particular therapeutic
focus and expertise to develop products for many diseases.

      The global pharmaceutical and biotechnology industries spent 
approximately $35.0 billion in 1997 on research and development. 
Approximately $7.0 billion in total was outsourced, including approximately 
$3.0 billion outsourced to CROs and approximately $4.0 billion outsourced to 
investigative sites.

CLINICAL INVESTIGATIVE SITE MANAGEMENT SERVICES

      The Company provides clinical investigative site management services to 38
research facilities in 16 states. The Company both owns and centrally manages
Phase I through IV research facilities to provide a broad range of pre- and
post-FDA approval services designed to expedite new product approval and market
acceptance. The Company conducts clinical research in a wide variety of
therapeutic areas, including central nervous system, asthma and allergy,
respiratory, oncology, endocrinology and women's health. Services include
project initiation (contracting, budgeting and regulatory), project management,
patient recruitment and data collection.

      The Company believes that the size, therapeutic breadth and depth,
experience and national scope of its SMO business together with its strong
relationships with physicians and managed care companies offer it a competitive
advantage as the SMO industry evolves. The Company is able to provide
pharmaceutical companies and CROs with access to patients and cost-effective
organization of data collection.

      Clinical trials represent one of the most expensive and time-consuming
parts of the overall drug development process. The trial's success depends on
the successful recruitment of experienced physicians (and other medical
professionals) to serve as investigators for the clinical trials. The Company
has direct access to approximately 80 investigators through its 38 sites. The
speed with which trials can be completed is significantly affected by the rate
at which patients who satisfy the requirements of the trial's protocol can be
identified and enrolled. The Company believes it has an advantage in its
ability to enroll qualified patients due to its relationship with networks of
approximately 9,000 primary care and specialty-care physicians with over 8
million member patients.

      The information generated during clinical trials is critical for gaining
marketing approval from the FDA or other regulatory agencies. Clinical trials
must be monitored for strict adherence to good clinical practices ("GCP"). The
Company's training programs, standard operating procedures and quality assurance
and control programs aid the clinical investigators and their staff in following
GCP and the established protocols of the studies. The Company


                                       3

<PAGE>

has adopted standard operating procedures which are intended to satisfy
regulatory requirements and serve as a tool for controlling and enhancing the
quality of the Company's nationwide clinical services.

      When prospective patients are enrolled in a clinical trial, they are
required to review information about the drug and its possible side effects and
sign an informed consent form to record their knowledge and acceptance of
potential side effects. Patients also undergo a medical examination to determine
whether they meet the requirements of the study protocol. Patients then receive
the drug under investigation and are examined by the investigator as specified
by the study protocol. Investigators are responsible for administering drugs to
patients, as well as examining patients and conducting necessary tests. The
Company's clinical research coordinators are responsible for completing Case
Report Forms and tracking the patients' visits throughout the period of the
study. The data is reviewed by clinical research associates from either the
Sponsor or CRO and sent to the Sponsor for analysis.

      The Company's contracts provide a fixed price for each component or
service delivered. The ultimate contract value depends on such variables as the
number of research sites selected, patients enrolled and other services required
by the Sponsor. The Company's contracts range in duration from several months to
several years. Revenue is earned as patient visits are conducted and such
services are provided. Costs associated with contract revenue are recognized as
incurred. Cash flows vary with each contract, although generally a portion of
the contract fee is paid at the time the trial begins, with the balance paid as
pre-determined contract milestones are satisfied.

      Generally, Sponsors may terminate a contract with the Company with or
without cause. In the event of termination, the Company is entitled to payment
for all work performed through the date of notice of termination and for costs
associated with termination of the study. Clinical trials may be terminated for
several reasons, including unexpected results or adverse patient reactions to
the drug, inadequate patient enrollment, manufacturing problems resulting in
shortage of the drug and decisions by the Sponsor to de-emphasize or terminate
either a particular trial or drug. A Sponsor's decision to terminate a sizable
trial in which the Company participates could have a material adverse effect on
the Company's business and results of operations.

OUTCOMES RESEARCH

      The Company designs and conducts customized economic and 
epidemiological research for the pharmaceutical, biotechnology, medical 
device and managed care industries. The Company also has expertise in 
developing patient registries and designing disease management programs. The 
Company provides an environment for proactively collecting medical and 
economic data, thereby linking clinical research with "real life" marketing 
considerations and quality cost-effective patient outcomes. These services 
enable regulators, healthcare providers, pharmaceutical and biotechnology 
companies and others to assess information concerning new medical therapies, 
including pricing and cost-effectiveness of new medical therapies.

PROVIDER NETWORK MANAGEMENT

INDUSTRY OVERVIEW

      The Health Care Financing Administration ("HCFA") estimates that 
national healthcare spending in 1996 exceeded $1 trillion, or 9% of the gross 
domestic product ("GDP"). HCFA projects that annual healthcare spending will 
increase at a compound annual growth rate of over 8% to $1.5 trillion, or 16% 
of the GDP by year 2000. Increasing concern over the cost of healthcare in 
the United States has led to numerous initiatives to contain the growth of 
healthcare expenditures, particularly in the government entitlement programs 
of Medicare and Medicaid. These concerns and initiatives have contributed to 
the growth of managed care. From 1991 to 1996, HMO enrollment in the United 
States increased from 37 million to 60 million. As markets evolve from 
traditional fee-for-service medicine to managed care, HMOs and healthcare 
providers confront market pressures to provide high quality healthcare in a 
cost-effective manner. Managed care typically involves a third party 
(frequently the payor) governing the provision of healthcare with the 
objective of ensuring delivery in a high quality and cost effective manner. 
One method for achieving this objective is the implementation of capitated 
payment systems in which traditional fee-for-service methods of compensating 
healthcare providers are replaced with systems that create incentives for the 
provider to manage the healthcare needs of a defined population for a set fee.

                                       4

<PAGE>

PROVIDER NETWORK MANAGEMENT SERVICES

      The Company provides network management expertise and services to single
and multi-specialty healthcare providers and managed care organizations. These
services allow managed care organizations to provide efficient, cost-effective
healthcare delivery while maintaining access to high-quality providers. The
Company also offers comprehensive network managed care services to organized
groups of physicians, enabling them to fulfill their obligations to managed care
organizations.

      The Company actively pursues contractual arrangements with managed care 
organizations. The Company develops specialty care networks within which the 
affiliated physicians are responsible for providing all or a portion of 
specific healthcare services to a particular patient population. The Company 
provides managed care contracting services to national and local physician 
specialty care networks containing over 3,000 physician members. Through its 
specialty care networks, the Company facilitates the delivery of healthcare 
services to approximately 8 million member patients. The Company provides 
services, including initiating and completing contract negotiations, claim 
adjudication processing, financial, quality assurance and utilization 
management reporting, credentialing, network management (such as provider 
relations and recruitment), financial management (which involves risk pool 
management) and providing payment arrangements for providers and shared 
member services with health plans. The Company plans to continue to increase 
its managed care capabilities into additional specialty care physician 
networks and expand existing relationships with established managed care 
organizations. Currently, the Company does not share in any downside 
capitation risk. The Company's network specialties include allergy, 
chiropractic, dermatology, gastroenterology, hospitalist, podiatry, pulmonary 
and urology.

      The Company manages IPAs through MSOs in which the Company has ownership
interests. The Company operates six MSOs in three states, providing network
management services to more than 5,000 physicians, primarily in the Northeast.

      An IPA is generally composed of a group of independent physicians who 
form an association for the purpose of contracting as a single entity. 
Participation in IPAs and specialty care networks allow individual 
practitioners to access patients in their respective areas through contracts 
with HMOs without having to join a group practice. The IPA structure not only 
increases the contracting power of the constituent practices, but also 
provides a foundation for the development of an integrated physician network. 
IPAs provide or contract for medical management services to assist physician 
networks in obtaining and servicing managed care contracts. As a result, 
previously unaffiliated physicians can assume and more effectively manage 
capitated risk. The Company believes that organized providers of healthcare, 
like IPAs, will play a significant role in delivering cost effective, quality 
medical care.

      The MSO is a joint venture between a physician organization (usually an 
IPA, although sometimes a hospital) and a management organization, such as 
the Company. The Company generally affiliates with an MSO by acquiring an 
equity interest in it. The MSO enters into a long-term management services 
agreement with an IPA or other physician organization pursuant to which the 
MSO provides management services to the IPA or organization. The MSO then 
enters into a services agreement with the Company pursuant to which the 
Company provides some or all of the management services that the MSO is 
required to provide to its affiliated physicians. The fee paid to the Company 
is generally either a fixed amount per enrollee or a specified percentage of 
capitated revenues. In addition, the Company may be entitled to participate 
in risk pools. Currently, the Company does not share in any downside risk. 
The fees are set to be competitive within the geographic area in which the 
IPA is located.

      The Company has formed an MSO with Beth Israel Medical Center and
physician organizations that represent approximately 1,000 primary care and
specialty physicians of Beth Israel and St. Luke's-Roosevelt Hospital Center,
the hospitals that comprise Greater Metropolitan Health Systems, Inc. This MSO
provides the physicians and hospitals with medical management and contract
negotiation support for risk agreements with managed care payors. The Company
and Beth Israel Medical Center also have entered into a management agreement to
expand both organizations' involvement in pharmaceutical industry-sponsored
research. The Company and Beth Israel will work with many leading pharmaceutical
companies on Phase I through Phase IV clinical trials.


                                       5

<PAGE>

      The Company is focused on integrating its network physicians with its 
clinical site management services because it believes that doing so will 
provide the IPA physicians with enhanced clinical information, the 
opportunity to generate more revenue and an enhanced reputation by 
participating in trials.

BUSINESSES HELD FOR SALE

      During August 1998, the Board of Directors approved, consistent with 
its goal of repositioning the Company, a plan to divest and exit the 
Company's PPM business and certain of its ancillary services businesses, 
including diagnostic imaging, lithotripsy and radiation therapy. After 
further evaluation, the Company also decided to divest its home health 
business and exit its infusion therapy businesses. Net loss for the year 
ended January 31, 1999 includes an extraordinary item of $96.8 million which 
is primarily a non-cash charge resulting from divestitures or disposals that 
had occurred subsequent to August 1998, as well as the write-down of the 
assets of businesses identified to be divested or disposed subsequent to 
January 31, 1999.

      From August 1998 through April 15, 1999, the Company has divested eight 
physician practices, terminated its relationships with four employed 
physicians and sold two radiation therapy centers and an equity investment in 
a lithotripsy business.

      As of April 15, 1999, the Company's assets held for sale has remaining 
affiliations through management and/or employment agreements with 
approximately 150 physicians in eight states, 14 diagnostic imaging centers 
in four states, seven radiation therapy centers in three states and six 
mobile lithotripters.

      The Company is continuing to provide information to and negotiate with
various purchasers of its remaining businesses. Based upon current fair market
value estimates, the Company expects to realize net proceeds of approximately
$100.8 million from the sale of these remaining businesses identified to be
divested or disposed and has recorded this amount as an asset held for sale on
the balance sheet at January 31, 1999.

REAL ESTATE SERVICES SEGMENT

      The Company historically has provided real estate services to related and
unrelated third parties primarily for the establishment of various healthcare
related facilities, including health parks, medical malls and medical office
buildings. The Company's real estate services have included project finance
assistance, project management, construction management, construction design
engineering, consulting, asset conversions, due diligence services, physician
recruitment, leasing and marketing.

      Under its development agreements, the Company is generally obligated to
secure funding for and guaranty the maximum cost of a project. In order to
minimize the risks from these obligations, the Company enters into construction
agreements with general contractors to construct the project for a "guaranteed
maximum cost." Furthermore, each construction agreement provides for
indemnification of the Company by the general contractor for certain losses and
damages. Each construction agreement also requires the contractor to obtain and
maintain a performance bond and a labor and material payment bond, written by a
surety company with a Best's Key Guide Rating of not less than A+12 and
satisfactory to the owner of the land on which a project is developed and the
construction lender.

      In connection with the Board of Directors' plan to reposition the Company,
and due in part to the resignation of Bruce A. Rendina as Chief Executive
Officer of the Company's real estate services segment, see "Certain
Transactions," the Company has decided to significantly downsize its real estate
services segment. During the fourth quarter ended January 31, 1999, the Company
recorded a goodwill impairment write-down of approximately $9.1 million which
eliminates the remaining goodwill of the real estate services segment.

POTENTIAL LIABILITY AND INSURANCE

      The Company is subject to medical malpractice, personal injury and other
liability claims related to the operation of its clinical studies business,
healthcare facilities and provision of other healthcare services.


                                       6

<PAGE>

      Clinical trials involve the testing of approved and non-approved drugs on
human beings. This testing carries with it a significant risk of liability for
personal injury or death to participants resulting from an adverse reaction to,
or improper administration of, the trial drug. Many clinical trial participants
are seriously ill and are at great risk of further illness or death as a result
of factors other than their participation in the trial. The Company contracts on
behalf of Sponsors with physicians who render professional services, including
administering the drugs being tested, to participants in these trials. Company
personnel and subcontractors also render professional services to participants
in trials and are materially involved in the patient treatment process.
Consequently, the Company may be subject to claims in the event of personal
injury or death of persons participating in clinical trials and arising from
professional malpractice of physicians with whom it has contracted and its own
employees. To date, the Company has not received any claims resulting from
either the testing of new drugs or professional malpractice.

      The Company believes that the risk of liability associated with clinical
trials is mitigated by various regulatory requirements, including the role of
independent review boards ("IRBs"). An IRB is an independent committee that
includes medical and non-medical personnel and is obligated to protect the
interests of patients enrolled in the trials. The FDA requires each human
clinical trial to be reviewed and approved by the IRB at each research site.
After the trial begins, the IRB monitors the protocol and the measures designed
to protect patients, such as the requirement to obtain informed consent. In
addition, regulations governing the conduct of clinical trials and the
protection of human subjects place responsibility for proper study conduct and
subject protection directly on the principal investigator at each location where
a study is performed.

      The Company maintains liability and medical professional insurance
policies with such coverages and deductibles as are deemed appropriate by
management, based upon historical claims, industry standards and the nature and
risks of its business. There can be no assurance that a future claim will not
exceed available insurance coverages or that such coverages will continue to be
available for the same scope of coverages at reasonable premium rates. Any
substantial increase in the cost of such insurance or the unavailability of any
such coverages could have a material adverse effect on the Company's business.

GOVERNMENT REGULATION

      The clinical investigation of new drugs is highly regulated by government
agencies to ensure the products are safe and effective before broad public use.
Before a new drug may be approved and marketed, the drug must undergo extensive
testing and regulatory review in order to determine that the drug is safe and
effective. The standard for the conduct of clinical research and development
studies comprises GCP, which stipulates procedures designed to ensure the
quality and integrity of data obtained from clinical testing and to protect the
rights and safety of clinical subjects. While GCP has not been formally adopted
by the FDA nor, with certain exceptions, by similar regulatory authorities in
other countries, some provisions of GCP have been included in regulations
adopted by the FDA. Furthermore, in practice, the FDA and many other regulatory
authorities require that study results submitted to such authorities be based on
studies conducted in accordance with GCP.

      The clinical investigative site management services provided by the 
Company are ultimately subject to FDA regulation in the United States. The 
Company is obligated to comply with FDA requirements governing such 
activities as obtaining patient informed consents, verifying qualifications 
of investigators, reporting patients' adverse reactions to drugs and 
maintaining thorough and accurate records. The Company must maintain 
documents for each study for specified periods, and such documents may be 
reviewed by the study sponsor and the FDA during audits. If FDA audits 
indicate that the Company has failed to adequately comply with federal 
regulations and guidelines, it could have a material adverse effect on the 
Company's results of operations, financial condition and reputation. In 
addition, non-compliance with GCP can result in the disqualification of data 
collected during a clinical trial.

      The Company is also subject to various government regulations related to
the businesses held for sale.

REIMBURSEMENT AND COST CONTAINMENT

      Approximately 16% of the net revenues of the Company for its fiscal year
ended January 31, 1999 was derived from payments made by government sponsored
health care programs (principally, Medicare and Medicaid). As a


                                       7

<PAGE>

result, any change in reimbursement regulations, policies, practices,
interpretations or statutes could adversely affect the operations of the
Company. Congress has passed a fiscal year 1996 budget resolution that calls for
reductions in the rate of spending increases over the next seven years of $270
billion in the Medicare program and $182 billion in the Medicaid program.
Through the Medicare program, the federal government has implemented a
resource-based relative value scale ("RBRVS") payment methodology for physician
services. RBRVS is a fee schedule that, except for certain geographical and
other adjustments, pays similarly situated physicians the same amount for the
same services. The RBRVS is adjusted each year and is subject to increases or
decreases at the discretion of Congress. The implementation of RBRVS may result
in reductions in payment rates for procedures provided by physicians under
current contract with the Company. RBRVS-type payment systems have also been
adopted by certain private third party payors and may become a predominant
payment methodology. A broader implementation of such programs would reduce
payments by private third party payors and could indirectly reduce the Company's
operating margins to the extent that the cost of providing management services
related to such procedures could not be proportionately reduced. To the extent
the Company's costs increase, the Company may not be able to recover such cost
increases from government reimbursement programs. In addition, because of cost
containment measures and market changes in nongovernmental insurance plans, the
Company may not be able to shift cost increases to nongovernmental payors. The
Company expects a reduction from historical levels in per patient Medicare
revenue received by certain of the physician groups with which the Company
contracts; however, the Company does not believe such reductions would, if
implemented, result in a material adverse effect on the Company.

      In addition to current governmental regulation, the Clinton Administration
and several members of Congress have proposed legislation for comprehensive
reforms affecting the payment for and availability of health care services.
Aspects of certain of such health care proposals, such as reductions in Medicare
and Medicaid payments, if adopted, could adversely affect the Company. Other
aspects of such proposals, such as universal health insurance coverage and
coverage of certain previously uncovered services, could have a positive impact
on the Company's business. It is not possible at this time to predict what, if
any, reforms will be adopted by Congress or state legislatures or when such
reforms would be adopted and implemented. As health care reform progresses and
the regulatory environment accommodates reform, it is likely that changes in
state and federal regulations will necessitate modifications to the Company's
agreements and operations. While the Company believes it will be able to
restructure in accordance with applicable laws and regulations, the Company
cannot assure that such restructuring in all cases will be possible or
profitable.

EMPLOYEES

      As of January 31, 1999, the Company employed approximately 1,440 
persons, primarily all of whom were full-time employees. The Company
believes that its labor relations are good.


ITEM 2.  PROPERTIES

      The Company leases approximately 19,000 square feet of space in
Providence, Rhode Island, where the Company's new headquarters are located. The
lease expires in 2005.

      The Company also leases clinical research sites in 16 states. The Company
leases other locations, many of which are related to businesses held for sale.


ITEM 3.  LEGAL PROCEEDINGS

      The Company is subject to legal proceedings in the ordinary course of its
business. The Company does not believe that any such legal proceedings will have
a material adverse effect on the Company, although there can be no assurance to
this effect.

      On October 18, 1997, the Florida Board of Medicine, which governs
physicians in Florida, declared that the payment of percentage-based fees by a
physician to a physician practice management company in connection with


                                       8

<PAGE>

practice-enhancement activities subjects a physician to disciplinary action for
a violation of a statute which prohibits fee-splitting. Some of the Company's
contracts with Florida physicians include provisions providing for such
payments. The Company has appealed the ruling to a Florida District Court of
Appeals and the Board of Medicine has stayed the enforceability of its ruling
pending the appeal. In the event the Board of Medicine's ruling is eventually
upheld, a party to an affected contract may initiate legal process to invalidate
the contract, or the Company may be forced to renegotiate those provisions of
the contracts which are affected by the ruling. While these contracts call for
renegotiation in the event that a provision is not found to comply with state
law, there can be no assurance that the contracts will not be invalidated or
that the Company would be able to renegotiate such provisions on acceptable
terms. The majority of the contracts affected by this ruling are with the
physician practices the Company has identified to be divested or disposed and
the assets related to these practices are included in assets held for sale at
January 31, 1999.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      The following persons were elected as directors at the Annual Meeting 
of the Company's stockholders held on January 26, 1999 to serve as directors 
in the class of the Board of Directors whose terms expire at the annual 
meeting of stockholders to be held in 2001.

<TABLE>
<CAPTION>

                                          Number of Shares/Votes
                                          ----------------------
                                                            Authority
                                       For                  Withheld
                                       ---                  --------

<S>                                 <C>                     <C>    
Abraham D. Gosman                   18,907,827                315,315
Hugh L. Carey                       16,915,779              2,307,363

</TABLE>


                                       9

<PAGE>

                                     PART II

ITEM 5.     MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
            RELATED STOCKHOLDER MATTERS

      The Company's Common Stock is traded on the Nasdaq Stock Market under the
symbol PHMX. The following table sets forth the range of high and low closing
prices per share of the Common Stock for the periods indicated, as reported on
the Nasdaq National Market.

<TABLE>
<CAPTION>

     1998                                               High          Low
--------------                                        --------      --------
<S>                                                    <C>          <C>    
First Quarter                                          $ 16.25      $ 11.00
Second Quarter                                           16.38        11.13
Third Quarter                                            17.00        12.00
Fourth Quarter                                           15.75        12.38

     1999 
--------------
First Quarter                                          $ 13.44      $  9.50
Second Quarter                                           10.50         5.75
Third Quarter                                             6.25         2.00
Fourth Quarter                                            3.32         1.63

     2000
--------------
First Quarter (through April 9, 1999)                  $  2.63      $  1.63

</TABLE>

      On April 9, 1999, the last reported sales price for the Common Shares was
$1.72. On April 9, 1999, there were 217 record holders for the Common Stock.

      The Company has never paid cash dividends on its capital stock and does
not anticipate paying cash dividends in the foreseeable future. The declaration
of dividends is currently restricted, in certain circumstances, by the Company's
revolving line of credit agreement, and it is anticipated that other loan
agreements the Company may enter into in the future will also contain
restrictions on the payment of dividends by the Company.

ITEM 6.     SELECTED FINANCIAL DATA

      The following selected historical financial data was derived from the
Company's Financial Statements, which have been audited by independent
accountants, PricewaterhouseCoopers LLP. During October 1997, a subsidiary of
the Company merged with CSL in a business combination that was accounted for as
a pooling of interests. Accordingly, the financial statements for all periods
prior to the effective date of the merger have been restated to include CSL. The
data presented below should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto, included elsewhere in
this Annual Report on Form 10-K. The amounts below are in thousands except per
share data.


                                       10

<PAGE>

<TABLE>
<CAPTION>

                                                                  Combined                       Consolidated
                                                                                    Year Ended 
                                                            --------------------------------------------------------------
                                                                December 31,                     January 31,
                                                            --------------------     -------------------------------------
                                                             1994        1995          1997          1998          1999
                                                            -------    ---------     ---------     ---------     --------- 
<S>                                                         <C>        <C>           <C>           <C>           <C>      
Statement of Operations Data:                               
  Net revenues:                                              
  Net revenues from services                                $ 7,368    $  61,712     $  98,765     $ 155,946     $ 179,472
  Net revenues from management service agreements              --         12,717        47,942        94,134       103,112
  Net revenues from real estate services                       --           --          19,049        31,099         8,694
                                                            -------    ---------     ---------     ---------     --------- 
    Total revenue                                             7,368       74,429       165,756       281,179       291,278
                                                            
Operating expenses:                                         
  Salaries, wages and benefits                                3,956       35,809        58,351        88,221        94,710
  Depreciation and amortization                                 166        3,956         7,382        10,800        14,786
  Rent expense                                                  554        5,102         8,519        16,649        20,671
  Earn out payment                                             --          1,271          --            --            --   
  Provision for closure loss                                   --          2,500          --            --            --   
  Gain on sale of assets                                       --           --            (262)       (1,891)       (5,414)
  Provision for write-down of notes receivable                 --           --            --            --           2,674
  Merger and other noncontinuing expenses related to CSL        922        2,133         1,929        11,057          --   
  Goodwill impairment write-down                               --           --            --            --           9,093
  Nonrecurring expenses                                        --           --            --            --          10,465
  Other (primarily capitation expense)                        3,070       27,493        66,694       132,177       181,813
                                                            -------    ---------     ---------     ---------     --------- 
Income (loss) from operations                                (1,300)      (3,835)       23,143        24,166       (37,520)
Interest expense, net                                            96        4,828         1,726         4,775         8,005
(Income) from investments in affiliates                        --           (569)         (709)         (731)         --   
                                                            -------    ---------     ---------     ---------     --------- 
Net income (loss) before taxes and extraordinary item        (1,396)      (8,094)       22,126        20,122       (45,525)
Income tax expense (benefit)                                   --           --           6,836         9,823       (11,549)
                                                            -------    ---------     ---------     ---------     --------- 
Net income (loss) before extraordinary item (1)              (1,396)      (8,094)       15,290        10,299       (33,976)
                                                            -------    ---------     ---------     ---------     --------- 
Extraordinary item, net of tax of $0                           --           --            --            --          96,784
                                                            -------    ---------     ---------     ---------     --------- 
Net income (loss)                                           $(1,396)   $  (8,094)    $  15,290     $  10,299     $(130,760)
                                                            -------    ---------     ---------     ---------     --------- 
                                                            -------    ---------     ---------     ---------     --------- 
Net income (loss) per share- basic                          
  Income (loss) before extraordinary item                   $  --      $  --         $    0.56     $    0.35     $   (1.02)
  Extraordinary item, net of tax of $0                      $  --      $  --         $    --       $    --       $   (2.89)
  Net income (loss)                                         $  --      $  --         $    0.56     $    0.35     $   (3.91)
Net income (loss) per share - diluted                       
  Income (loss) before extraordinary item                   $  --      $  --         $    0.55     $    0.35     $   (1.02)
  Extraordinary item, net of tax of $0                      $  --      $  --         $    --       $    --       $   (2.89)
  Net income (loss)                                         $  --      $  --         $    0.55     $    0.35     $   (3.91)

Pro Forma Information (Unaudited) (2):                      
Adjustment to income tax expense                            $  --      $  --         $   1,293     $     624     $     -- 
Net income                                                     --         --            13,997         9,675           -- 
Net income per share - basic                                $  --      $  --         $    0.51     $    0.33     $     -- 
Net income per share - diluted                              $  --      $  --         $    0.51     $    0.33     $     -- 

Weighted average shares outstanding - basic                    --         --            27,295        29,690        33,401
Weighted average shares outstanding - diluted                  --         --            27,682        30,229        33,401

</TABLE>


                                       11

<PAGE>

<TABLE>
<CAPTION>

                                    Combined                            Consolidated
                           --------------------------     ------------------------------------------
                                  December 31,                           January 31,
                              1994           1995            1997           1998           1999 
                           ------------   ------------    -----------    -----------     -----------
<S>                         <C>            <C>             <C>            <C>            <C>      
Balance Sheet Data:                                                                      
Working capital             $   2,518      $ (19,897)      $ 111,811      $  86,390      $ 111,185
Accounts receivable, net        3,993         22,921          41,744         57,252         15,276
Total assets                   15,976        138,467         313,310        378,160        252,851
Total debt                      1,532         97,090         118,830        134,359        117,657
Shareholders' equity           11,714         15,437         153,780        212,035        105,900
                                                                                       

</TABLE>

(1)   Provisions for income taxes have not been reflected in the combined
      financial statements because there is no taxable income on a combined
      basis.
                                                
(2)   The pro forma net income and net income per share information reflect the
      effect on historical results (prior to the merger with CSL) as if CSL had
      been a C corporation rather than an S corporation and had paid income
      taxes.


ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

INTRODUCTION

      PhyMatrix is repositioning itself as a company that provides diverse 
services supporting the needs of the pharmaceutical and managed care 
industries. The Company is focusing its operations on two integrated business 
lines: pharmaceutical services, including investigative site management, 
clinical and outcomes research and disease management, as well as multi and 
single-specialty provider network management. Historically, the Company has 
been an integrated medical management company that provides medical 
management services to the medical community, certain ancillary medical 
services to patients and medical real estate development and consulting 
services to related and unrelated third parties. In August 1998, the Company 
announced that it planned to change this business model. The Company is in 
the process of terminating its management of individual and group physician 
practices and divesting itself of related assets, and selling and divesting 
itself of its ancillary medical service businesses, such as diagnostic 
imaging, radiation therapy, lithotripsy services, home healthcare and 
infusion therapy. The Company also has significantly downsized its medical 
facility development and consulting services. The Company currently estimates 
that by the end of its current fiscal year it will have exited its physician 
practice management ("PPM") and ancillary medical service businesses.

      In January 1996, the Company changed its fiscal year end from December 31
to January 31.

RECENT EVENTS

      During May 1998, the Company announced that the Board of Directors had
instructed management to explore various strategic alternatives for the Company
that could maximize stockholder value. During August 1998, the Company announced
that the Board of Directors approved several strategic alternatives to enhance
stockholder value. The Board authorized a series of initiatives designed to
restructure the Company as a significant company in pharmaceutical contract
research, specifically clinical trials site management and outcomes research.
The Company intends to link its nationally focused hospital affiliations and its
physician networks with its clinical trials site management and outcomes
research operations.

      During August 1998, the Board approved, consistent with achieving its 
stated restructuring goal, its plan to divest and exit the Company's PPM 
business and certain of its ancillary services businesses, including 
diagnostic imaging, lithotripsy and radiation therapy. Subsequent to August 
1998, the Company also decided to divest its home health business and exit 
its infusion therapy business. The revenue and pretax income of these 
businesses which have been identified to be divested or disposed for the year 
ended January 31, 1999 were $155.4 million and $0.5 million, respectively. 
Net loss for the year ended January 31, 1999 included an extraordinary item 
of $96.8 million which is primarily a non-cash charge related to these 
divestitures. In accordance with APB 16, the 

                                       12

<PAGE>

Company is required to record these charges as an extraordinary item since 
impairment losses are being recognized for divestitures and disposals 
expected to be completed within two years subsequent to a pooling of 
interests (the pooling of interests with CSL was effective October 15, 1997). 
Based on fair market value estimates, which have primarily been derived from 
letters of intent, letters of interest and discussions with prospective 
buyers, the Company currently expects to realize net proceeds of 
approximately $100.8 million from the sale of the businesses identified to be 
divested or disposed and has recorded this amount as an asset held for sale 
on the balance sheet at January 31, 1999.

      During the fourth quarter ended January 31, 1999, the Company made the 
decision to significantly downsize its real estate services segment and 
recorded a goodwill impairment write-down of approximately $9.1 million which 
eliminates the remaining goodwill of the real estate services segment.

YEAR ENDED JANUARY 31, 1999 TRANSACTIONS (ALL INFORMATION RELATED TO THE 
NUMBER OF PHYSICIANS IS AS OF THE TRANSACTION DATE)

      During February 1998, the Company purchased New England Research 
Center, a clinical research center located in Massachusetts. At the time of 
its acquisition, New England Research Center had 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 $5.7 million. Of such purchase price, approximately $1.5 
million was paid in cash and 333,006 shares of Common Stock were issued 
having a value of $4.3 million. The purchase price was allocated primarily to 
management services agreements and is currently being amortized over 25 years.

      During February 1998, the Company completed the formation of an MSO with
Beth Israel Medical Center and the physician organizations that represented more
than 1,700 physicians of Beth Israel and its parent corporation. The Company
owns one-third of the MSO. The Company provides management services for the MSO
which provides 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 $6.6
million. The base purchase price was paid in 495,237 shares of Common Stock of
the Company. There was also a potential contingent payment up to a maximum of
$2.0 million which was not earned. The purchase price was allocated to the
assets at fair market value including goodwill of $6.6 million. The resulting
intangible has been amortized over 25 years. At January 31, 1999, the Company
has recorded the estimated net realizable value of this business as assets held
for sale.

      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 $5.1
million of Common Stock. There is also a contingent payment up to a maximum of
$1.9 million based on the center's earnings before taxes, which is payable in
cash and/or Common Stock of the Company. As of January 31, 1999, this contingent
payment has not been earned. The purchase price was allocated to the assets at
fair market value including management services agreements of $5.1 million. The
resulting intangible has been amortized over 25 years. At January 31, 1999, the
Company has recorded the estimated net realizable value of this business as
assets held for sale.

      During April 1998, the Company completed the formation of an MSO, which is
51% owned by the Company, with LIPH, LLC. The Company manages for the MSO the
medical risk contracting for more than 2,600 physicians which are members in
IPAs in New York. The base purchase price was $3.0 million. Of such price, $1.5
million


                                       13

<PAGE>

was paid in cash and 143,026 shares of Common Stock were issued having a value
of $1.5 million. There are also contingent payments up to a maximum of $5.0
million payable in cash and Common Stock, with $4.0 million of such amount based
upon earnings during the three years after the closing date and the remaining
$1.0 million based upon the achievement of certain conditions during any
twelve-month period during the three years after the closing date. The Company
and LIPH, LLC are in dispute as to amounts owed to the Company primarily for
management services provided.

      During April 1998, the Company acquired the business and certain assets of
a clinical research company in Massachusetts. The base purchase price was $2.6
million plus the assumption of liabilities of approximately $0.4 million. Of
such purchase price, $1.5 million was paid in 144,405 shares of Common Stock of
the Company, $70,000 is payable in shares of Common Stock on the first
anniversary of the closing date and $1.1 million is payable in shares of Common
Stock of the Company on the second anniversary of the closing date. In addition,
there is a contingent payment up to a maximum of $2.4 million payable in Common
Stock based on earnings before taxes during the next four years. As of January
31, 1999, this contingent payment has not been earned. The purchase price was
allocated to the assets at fair market value including goodwill of $2.7 million.
The resulting intangible is being amortized over 20 years.

      During January 1999, the Company acquired the stock of, and entered into a
management agreement with, a clinical research company specializing in allergy
and asthma research located in Illinois. The purchase price for the stock was
approximately $4.2 million. Of such purchase price, $1.6 million was paid in
cash during March 1999 and $2.6 million is payable primarily under non-interest
bearing promissory notes between the second and fifth anniversaries of the
closing date. The purchase price was allocated to the assets at fair market
value including management service agreements of $3.5 million. The resulting
intangible is being amortized over 25 years.

ACCOUNTING TREATMENT

      The terms of the Company's relationships with its remaining affiliated
physicians are set forth in various asset and stock purchase agreements,
management services agreements and employment and consulting agreements.
Through the asset and/or stock purchase agreement, the Company acquired the
equipment, furniture, fixtures, supplies and, in certain instances, service
agreements, of a physician practice at the fair market value of the assets. The
accounts receivable typically were purchased at the net realizable value. The
purchase price of the practice generally consisted of cash, notes and/or Common
Stock of the Company and the assumption of certain debt, leases and other
contracts necessary for the operation of the practice. The management services
or employment agreements delineate the responsibilities and obligations of each
party.

      Net revenues 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. These revenues
are reported net of payments to physicians.

      Net revenues from management services agreements include the revenues
generated by the physician practices net of payments to physicians. The Company,
in most cases, is responsible and at risk for the operating costs of the
physician practices. Expenses include the reimbursement of all medical practice
operating costs as required under the various management agreements. For
providing services under management services agreements entered into prior to
April 30, 1996, physicians generally received a fixed percentage of net revenue
of the practice. "Net revenues" is defined as all revenue computed on an accrual
basis generated by or on behalf of the practice after taking into account
certain contractual adjustments or allowances. The revenue is generated from
professional medical services furnished to patients by physicians or other
clinicians under physician supervision. In several of the practices, the Company
has guaranteed that the net revenues of the practice will not decrease below the
net revenues that existed immediately prior to the agreement with the Company.
Under most management services agreements 


                                       14

<PAGE>

entered into after April 30, 1996, the physicians receive a portion of the 
operating income of the practice which amounts vary depending on the 
profitability of the practice. In 1997, the Emerging Issues Task Force of the 
Financial Accounting Standards Board issued EITF 97-2 concerning the 
consolidation of physician practice revenues. PPMs are 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. The Company 
adopted EITF 97-2 in the fourth quarter of its fiscal year ended January 31, 
1999. Adoption of this statement reduced previously reported revenues and 
expenses for the years ended January 31, 1998 and 1997 by $65.4 million and 
$42.2 million, respectively. During August 1998, the Company announced its 
plan to divest and exit the PPM business. The Company is currently working to 
complete these divestitures and the majority of these assets are recorded as 
assets held for sale at January 31, 1999.

RESULTS OF OPERATIONS

The following table shows the percentage of net revenue represented by various
expense categories reflected in the Consolidated Statements of Operations. The
information that follows should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere herein.

<TABLE>
<CAPTION>

                                                            1999        1998       1997
                                                            -----       ----       ---- 
<S>                                                         <C>        <C>        <C>   
Net revenues                                                100.0%     100.0%     100.0%

Salaries, wages and benefits                                 32.5%      31.4%      35.2%
Supplies                                                     20.6%      16.0%      16.4%
Depreciation and amortization                                 5.1%       3.9%       4.5%
Rent expense                                                  7.1%       5.9%       5.1%
Provision for bad debts                                       2.9%       2.1%       2.8%
Gain on sale of assets                                       (1.8%)     (0.7%)     (0.2%)
Provision for write-down of notes receivable                  0.9%       0.0%       0.0%
Merger and other noncontinuing expenses related to CSL        0.0%       3.9%       1.2%
Goodwill impairment write-down                                3.1%       0.0%       0.0%
Nonrecurring expenses                                         3.6%       0.0%       0.0%
Other (primarily capitation expense)                         38.9%      28.9%      21.0%
                                                            -----       ----       ---- 
                                                            112.9%      91.4%      86.0%

Interest expense, net                                         2.7%       1.7%       1.0%
(Income) from investment in affiliate                         0.0%      (0.3%)     (0.4%)
                                                            -----       ----       ---- 
Income (loss) before taxes and extraordinary item           (15.7%)      7.2%      13.3%

Income tax expense (benefit)                                 (4.0%)      3.5%       4.1%
                                                            -----       ----       ---- 
Income (loss) before extraordinary item                     (11.7%)      3.7%       9.2%

Extraordinary item, net of tax                               33.2%       0.0%       0.0%
                                                            -----       ----       ---- 
Net income (loss)                                           (44.9%)      3.7%       9.2%
                                                            -----       ----       ---- 

</TABLE>

THE YEAR ENDED JANUARY 31, 1999 COMPARED TO THE YEAR ENDED JANUARY 31, 1998

      The following discussion reviews the results of operations for the year
ended January 31, 1999 ("1999") compared to the year ended January 31, 1998 
("1998").


                                       15

<PAGE>

REVENUES

      The Company currently derives revenues primarily from the following 
segments: provider network management, site management organizations, real 
estate services and assets held for sale. Revenues from provider network 
management are derived from management services provided to hospitals, 
management services to MSOs and administrative services to health plans which 
include reviewing, processing and paying claims and subcontracting with 
specialty care physicians to provide covered services. Revenues from site 
management organizations are derived primarily from services provided to 
pharmaceutical companies for clinical trials. Revenues from real estate 
services are derived from the provision of a variety of services which 
include development fees, general contracting management fees, leasing and 
marketing fees, project cost savings income and consulting fees. Revenues 
from assets held for sale are derived primarily from providing the following 
services: physician practice management, diagnostic imaging, radiation 
therapy, home healthcare, infusion therapy and lithotripsy.

      Net revenues were $291.3 million during 1999. Of this amount, $93.5 
million or 32.1% of such revenues was attributable to provider network 
management; $33.7 million or 11.6% was related to site management 
organizations; $8.7 million or 3.0% was attributable to real estate services; 
and $155.4 million or 53.3% was attributable to assets held for sale.

      Net revenues were $281.2 million during 1998. Of this amount, $67.8 
million or 24.1% of such revenues was attributable to provider network 
management; $30.0 million or 10.7% was related to site management 
organizations; $31.1 million or 11.0% was attributable to real estate 
services; and $152.3 million or 54.2% was attributable to assets held for 
sale.

EXPENSES

      The Company's salaries, wages, and benefits increased by $6.5 million 
from $88.2 million or 31.4% of net revenues during 1998 to $94.7 million or 
32.5% of net revenues during 1999. The increase is primarily attributable to 
the additional salaries, wages and benefits from the acquisitions and 
affiliations of the Company's businesses during 1998 and early 1999, offset 
in part, by reductions in personnel in conjunction with the asset 
divestitures.

                                       16

<PAGE>

      The Company's supplies expense increased by $15.1 million from $44.9 
million or 16.0% of net revenues during 1998 to $60.0 million or 20.6% of net 
revenues during 1999. The increase in supplies expense as a percentage of net 
revenues was due to the growth of various ancillary services specifically 
infusion services, that are more supply intensive and for which the cost of 
pharmaceutical supplies is higher.

      The Company's depreciation and amortization expense increased by $4.0
million from $10.8 million or 3.9% of net revenues during 1998 to $14.8 million
or 5.1% of net revenues during 1999. The increase is primarily a result of the
acquisitions completed after 1997 and the allocation of the purchase prices as
required by purchase accounting and also the effect of the Company's change in
policy regarding certain intangibles. Effective February 1, 1998, management
changed its policies regarding amortization of its management services agreement
intangible assets. The Company adopted a maximum of 25 years (from the inception
of the respective intangible asset) as the useful life for amortization of its
management services agreement intangible assets. Using the unamortized portion
of the intangible at January 31, 1998, the Company began amortizing the
intangible over the remainder of the 25 year useful life. These costs had
historically been charged to expense through amortization using the straight
line method over the periods during which the agreements are effective,
generally 30 to 40 years. This change represented a change in accounting
estimate and, accordingly, does not require the Company to restate reported
results for prior years. This change increased amortization expense relating to
existing intangible assets at January 31, 1998, by approximately $0.7 million
annually.

      The Company's rent expense increased by $4.0 million from $16.6 million 
or 5.9% of net revenues during 1998 to $20.6 million or 7.1% of net revenues 
during 1999, primarily as a result of acquisitions of imaging centers and the 
expansion of sites operated by the Company's site management organization. 
Rent expense as a percentage of net revenue also varies depending upon the 
size of each of the affiliated practice's offices, the number of satellite 
offices and the current market rental rate for medical office space in a 
particular geographic market.

      The Company's provision for bad debt increased by $2.5 million from 
$5.9 million or 2.1% of net revenues during 1998 to $8.4 million or 2.9% of 
net revenues during 1999. The increase as a percentage of revenues is 
primarily attributable to the additional provision required on the businesses 
held for sale.

      The Company's gain on sale of assets of $5.4 million during 1999
represents gains from the sale of real estate of approximately $4.5 million
during July 1998 and from the sale of a radiation therapy center of
approximately $0.9 million during February 1998. The gain on sale of assets of
$1.9 million during 1998 resulted from the sale of real estate and a radiation
therapy center.

      The Company's provision for write-down on notes receivable of $2.7 million
during 1999 represents the write-down of several notes receivable, that were
collateralized by shares of Common Stock of the Company, to their net realizable
value.

      The Company's merger and other noncontinuing costs of $11.1 million during
1998 represent the merger transaction costs, of $10.2 million, related to the
CSL merger as well as certain noncontinuing salary, consulting and management
fee expenses incurred by CSL.

      The Company's goodwill impairment write-down of $9.1 million during 1999
represents the write-down of the remaining goodwill of the real estate services
segment. The asset of goodwill was determined to have been impaired because of
the Company's decision to significantly downsize the real estate segment and the
inability to generate future operating income without substantial revenue
growth, which is uncertain. Moreover, anticipated future cash flows of the real
estate segment indicate that the recoverability of the asset is not likely.

      The Company's nonrecurring expenses of $10.5 million during 1999 
primarily represent the termination of several physician management and 
employment agreements prior to the Company's decision in August 1998 to 
restructure as well as the write-off of the remaining investment in an 
ambulatory surgery center.

      The Company's other expenses increased by $32.0 million from $81.3 
million or 28.9% of net revenues during 1998 to $113.3 million or 38.9% of 
net revenues during 1999 primarily due to an increase in the Company's 
provider network management services.

                                       17

<PAGE>

      The Company's extraordinary item of $96.8 million during 1999 represents
the charge resulting from divestitures or disposals that had occurred subsequent
to August 1998 as well as the write-down of the assets of the businesses being
held for sale at January 31, 1999. The carrying value of the assets of these
businesses was written down to their estimated net realizable value (less costs
to sell).

      The Company's loss prior to income taxes and extraordinary charges 
during 1999 was $45.2 million compared to income prior to income taxes and 
extraordinary charges during 1998 of $20.1 million. The deterioration of 
income during 1999 is primarily due to several factors, including: (i) The 
downsizing of the real estate services segment which was done in connection 
with the repositioning of the Company, and in part due to the resignation of 
Bruce A. Rendina as Chief Executive Officer of the Company's real estate 
services segment. The real estate services segment generated a pretax loss of 
$8.5 million during 1999 (which included a goodwill impairment write-down of 
$9.1 million) compared to pretax income of $24.7 million during 1998, (ii) 
Nonrecurring charges of $10.5 million (described above), (iii) The 
deterioration of the operating results during the second half of 1999 of 
certain of the businesses divested or to be divested. The assets held for 
sale segment generated pretax income, prior to extraordinary item, of $0.5 
million during 1999 compared to pretax income of $13.4 million during 1998, 
and (iv) The provision for write-down of notes receivable of $2.7 million 
(described above).

      The Company's income tax expense (benefit) decreased by $21.4 million from
$9.8 million or 32.4% of pretax income (prior to merger expenses of $10.2
million which are not tax deductible) during 1998 to $(11.5) million or 25.4% of
pretax loss (prior to extraordinary item) during 1999. 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 and had paid income taxes.

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

      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, and no tax benefit arose as a result of the change in tax status.

REAL ESTATE SERVICES

      While the Company has historically derived significant revenues from real
estate services, in the future the Company anticipates that it will generate
significantly fewer revenues from such services. As a result, the Company
decided to significantly downsize its real estate services.

      The Company has derived its real estate service revenues from the
provision of a variety of services. In rendering such services, the Company
generates income without bearing the costs of construction, expending
significant capital or incurring substantial indebtedness. 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.

      During August 1998, Bruce A. Rendina resigned as CEO and President of
DASCO (the Company's real estate services subsidiary) and Vice Chairman of the
Company. During September 1998, Mr. Rendina entered into a Business Agreement
(the "Business Agreement") with the Company. The Business Agreement was entered
into in settlement of certain claims by both the Company and Rendina relating to
Mr. Rendina's future competition with the Company. The Business Agreement
provides that the Company has the exclusive development rights to 27 separate
projects located in 12 separate states. In addition, the Company and Mr. Rendina
have agreed to share fees with respect to five asset conversion projects and six
medical facility development projects whereby Mr. Rendina is entitled to the
first 25% of the projected development fees received on any shared fee 
project and the Company and Mr. Rendina evenly split the remaining portion of 
the fees for such projects. The Business Agreement also permits Mr. Rendina 
and his affiliates to pursue independently the development of six separate 
projects in five states. Finally, the Company and Mr. Rendina have provided 
mutual releases of each other with respect to any event related to the 
business and employment relationships of the parties.

      During the fourth quarter ended January 31, 1999, the Company recorded a
goodwill impairment write-down of $9.1 million which eliminates the remaining
goodwill of the real estate services segment. The asset of goodwill was
determined to have been impaired because of the Company's decision to
significantly downsize the real estate segment and the inability to generate
future operating income without substantial revenue growth, which is uncertain.
Moreover, anticipated future cash flows of the real estate segment indicate that
the recoverability of the asset is not likely.

      During 1999, the Company's real estate services generated revenues of $8.7
million and pretax income (prior to goodwill impairment write-down) of $0.6
million. In addition, the real estate services segment recorded a gain on sale
of real estate of $4.5 million during 1999.


                                       18

<PAGE>

RESULTS OF OPERATIONS

THE YEAR ENDED JANUARY 31, 1998 COMPARED TO THE YEAR ENDED JANUARY 31, 1997

      The following discussion reviews the results of operations for the year
ended January 31, 1998 ("1998") compared to the year ended January 31, 1997 
("1997").

REVENUES

      Net revenues were $281.2 million during 1998. Of this amount, $67.8
million or 24.1% of such revenues was attributable to provider network
management; $30.0 million or 10.7% was related to site management organizations;
$31.1 million or 11.0% was attributable to real estate services; and $152.3
million or 54.2% was attributable to assets held for sale.

      Net revenues were $165.8 million during 1997. Of this amount, $16.5
million or 9.9% was related to provider network management; $18.0 million or
10.9% was related to site management organizations; $19.0 million or 11.5% was
attributable to real estate services; and $112.2 million or 67.7% was
attributable to assets held for sale.


                                       19

<PAGE>

EXPENSES

      The Company's salaries, wages and benefits increased by $29.8 million 
from $58.4 million or 35.2% of net revenues during 1997 to $88.2 million or 
31.4% of net revenues during 1998. The decrease as a percentage of net 
revenues was primarily attributable to the Company's ability to spread its 
salaries, wages and benefits over a revenue base which expanded rapidly due 
to acquisitions and affiliations. In general, salaries, wages and benefits 
vary depending on whether the physician practice is owned or managed.

      The Company's supplies expense increased by $17.7 million from $27.2
million or 16.4% of net revenues during 1997 to $44.9 million or 16.0% of net
revenues during 1998. The increase in supplies expense was primarily a result of
the acquisition of additional physician practices. Supplies expense as a
percentage of net revenues also varies depending upon the type of physician
practices.

      The Company's depreciation and amortization expense increased by $3.4
million from $7.4 million or 4.5% of net revenues during 1997 to $10.8 million
or 3.9% of net revenues during 1998. The increase was primarily a result of the
acquisitions completed after 1997 and the allocation of the purchase prices as
required by purchase accounting. During 1998, the Company sold assets that
resulted in net gains of $2.2 million. In addition, the Company recorded
nonrecurring charges of $0.3 million during 1998.

      The Company's rent expense increased by $8.1 million from $8.5 million or
5.1% of net revenues during 1997 to $16.6 million or 5.9% of net revenues during
1998, primarily as a result of acquisitions and affiliations completed by the
Company. Rent expense as a percentage of net revenue varies depending upon the
size of each of the affiliated practice's offices, the number of satellite
offices and the current market rental rate for medical office space in a
particular geographic market.

      The Company's merger and other noncontinuing costs of $1.9 million and
$11.1 million during 1997 and 1998, respectively, represent the merger
transaction costs, of $10.2 million, related to the CSL merger as well as
certain noncontinuing salary, consulting and management fee expenses incurred by
CSL. The merger transaction costs, of $10.2 million, were recorded during the
quarter ended October 31, 1997, which represents the quarter in which the
transaction closed.

      The Company's income tax expense increased by $3.0 million from $6.8
million or 30.9% of pretax income during 1997 to $9.8 million or 32.4% of pretax
income (prior to merger costs of $10.2 million which are not tax deductible)
during 1998. 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 and had
paid income taxes. The Company's pro forma income tax expense increased by $2.3
million from $8.1 million or 36.7% of pretax income during 1997 to $10.4 million
or 34.5% of pre tax income (prior to merger costs of $10.2 million which are not
tax deductible) during 1998.

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

      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, and no tax benefit arose as a result of the change in tax status.

REAL ESTATE SERVICES

      During 1998, the Company's real estate services generated revenues of
$31.1 million and pretax income of $24.7 million. During the fourth quarter
ended January 31, 1998, the Company received $9.1 million for arranging the sale
of 21 medical office buildings with a total sales price of $200 million, which
approximated fair market value.


                                       20

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      Cash used by operating activities was $4.9 million during 1999. Cash 
used by operating activities was $2.3 million during 1998. At January 31, 
1999, the Company's principal sources of liquidity consisted of working 
capital of $111.2 million which included $10.1 million in cash, $10.8 million 
in a tax refund receivable and $100.8 million in assets held for sale (see 
below for further discussion of assets held for sale). The Company also had 
$38.9 million of current liabilities, including approximately $12.2 million 
of indebtedness maturing before January 31, 2000.

      Cash used by investing activities was $12.5 million during 1999 and 
primarily represented the funds required by the Company for acquisitions and 
capital expenditures of $17.8 million, and advances under notes receivable of 
$2.5 million, offset by net cash received from the sale of assets of $7.9 
million. Cash used by investing activities was $34.6 million during 1998. 
This primarily represented the funds required by the Company for acquisitions 
and capital expenditures of $46.0 million, and the advances under notes 
receivable of $3.3 million, offset by the repayments of notes receivable of 
$10.2 million and cash received from the sale of land and two radiation 
therapy centers of $4.0 million.

      Cash used by financing activities was $22.0 million during 1999 and 
primarily represented the repayment of debt of $10.2 million, purchase of 
treasury stock of $0.8 million and a $10.9 million note to a company 
principally owned by Mr. Gosman primarily related to the development of a 
healthcare facility. Cash provided by financing activities was $4.8 million 
during 1998, which was primarily composed of the borrowings (net of issuance 
costs) from revolving lines of credit of $26.6 million and the release of 
restricted cash collateralizing debt of $4.5 million offset by the repayment 
of debt of $25.2 million and payment of dividends of $1.9 million (to the 
stockholders of CSL prior to its merger with the Company).

      In conjunction with various acquisitions that were completed through
January 31, 1999, 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 $24.9 million
over the next four years, of which $2.3 million is accrued at January 31, 1999.
The payments, if required, are payable in cash and/or Common Stock of the
Company. In addition, in conjunction with the acquisition of a clinical research
center and in conjunction with a joint venture entered into by the Company
during the year ended January 31, 1998, the Company may be required to make
additional 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%.

      During July 1997, the Company entered into a management services 
agreement to manage a network of over 100 physicians in New York. In 
connection with this transaction, the Company may expend, in certain 
circumstances, up to $40 million (of which none has been expended as of 
January 31, 1999) to be utilized for the expansion of the network.

      During February 1998, the Company completed the formation on an MSO in 
New York, one-third of which it owns. The owners of the remaining 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.

      In conjunction with certain of its acquisitions the Company has agreed to
make payments in shares of Common Stock of the Company at a predetermined future
date. The number of shares to be issued are generally determined based upon the
average price of the Company's Common Stock during the five business days prior
to the date of issuance. As of January 31, 1999, the Company had committed to
issue $1.1 million of Common Stock of the Company using the methodology
discussed above. This amount is included in other long-term liabilities on the
balance sheet. The Company also guarantees a loan in the amount of $3.5 
million which matures in March 2000.

      In conjunction with the restructuring (as described earlier in "Recent 
Events"), the Board of Directors approved its plan to divest and exit the 
Company's PPM business and certain of its ancillary services businesses 
including diagnostic imaging, lithotripsy, radiation therapy, home health and 
infusion therapy. The revenue and pretax income of these businesses which 
have been identified to be divested or disposed for the year ended January 
31, 1999 were $155.4 million and $0.5 million. Net loss for the year ended 
January 31, 1999 includes an extraordinary item of $96.8 million which is 
primarily a non-cash charge related to these divestitures. In accordance with 
APB 16, the Company is required to 

                                       21

<PAGE>

record these charges as an extraordinary item since impairment losses are 
being recognized for divestitures and disposals expected to be completed 
within two years subsequent to a pooling of interests (the pooling of 
interests with CSL was effective October 15, 1997). Based on fair market 
value estimates, which have primarily been derived from letters of intent, 
letters of interest and discussions with prospective buyers, the net 
realizable value of the assets identified to be divested or disposed was 
$100.8 million at January 31, 1999.

      In conjunction with a physician practice management agreement with a
physician practice in Florida, the Company has filed suit against the practice
to enforce the guarantees executed in connection with the management agreement.
The practice has filed a counterclaim. The Company intends to vigorously
prosecute and defend the case. However, if the Company is not successful it
may be required to record an impairment charge up to a maximum of $3.7 million.

      The Board of Directors of the Company authorized a share repurchase 
plan pursuant to which the Company may repurchase up to $15 million of its 
Common Stock from time to time on the open market at prevailing market 
prices. Through January 31, 1999, the Company had repurchased 304,000 shares 
at a net purchase price of $0.8 million. Through April 22, 1999 the Company 
has repurchased an additional 294,000 shares at a net purchase price of 
approximately $0.6 million.

      The development and implementation of the Company's management 
information systems will require ongoing capital expenditures. The Company 
has estimated the total costs to be incurred for completion of its Year 2000 
strategy is approximately $3.0 million, which includes costs for new systems 
and system upgrades which would have been incurred regardless of the need to 
remedy the Year 2000 issue. The Company expects that its working capital of 
$111.2 million at January 31, 1999, which includes cash of $10.1 million and 
the expected cash to be generated from the assets held for sale, will be 
adequate to satisfy the Company's cash requirements for the next 12 months. 
The Company's capital needs over the next several years may exceed capital 
generated from operations.

      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. During December 1998, the Company amended the
credit agreement to reduce the availability thereunder, modify covenants and
provide for the expiration of the line of credit in March 1999. At January 31,
1999, $14.6 million was outstanding ($5.5 million of which was for letters of
credit). The credit agreement existing at January 31, 1999: (i) prohibited the
payment of dividends by the Company; (ii) limited the Company's ability to incur
indebtedness and make acquisitions except as permitted under the credit
agreement and (iii) required the Company to comply with certain financial
covenants which include minimum net cash flow requirements.

      During March 1999, the Company obtained a new $30.0 million revolving 
line of credit which has a three-year term and availability based upon 
eligible accounts receivable. Approximately $9.2 million of proceeds from the 
new line of credit were used to repay the previous line of credit. The new 
line of credit is secured by the assets of the Company, limits the ability of 
the Company to incur certain indebtedness and make certain dividend payments, 
and requires the Company to comply with other customary covenants.

RISKS ASSOCIATED WITH YEAR 2000

      The Year 2000 date change issue is believed to affect virtually all
companies and organizations. If not corrected, many computer applications could
fail or create erroneous results by or at the year 2000. The Company recognizes
the need to ensure its operations will not be adversely impacted by the
inability of the Company's information systems to process data having dates on
or after January 1, 2000 (the "Year 2000" issue). The Company expects to
complete its full assessment of the Year 2000 issue no later than May 31, 1999,
which is prior to any anticipated impact on its operating systems.

      The Company has a committee, led by its Chief Information Officer, to
build, develop and implement the information systems required for its
pharmaceutical and provider network management services business lines and to
assess and remediate the effect of the Year 2000 Issue on the Company's
operations. The Company is contacting its clients, principal suppliers and other
vendors to assess whether their Year 2000 Issues, if any, will affect the
Company. There is no guarantee that the systems of other companies on which the
Company relies will be corrected in a timely manner or that the failure to
correct such systems will not have a material adverse effect on the Company's
systems. Many Year 2000 deficiencies have already been identified and addressed
through planned systems and infrastructure evolution, replacement or
elimination. The continuing program described below is designed to permit the
Company to identify and address all remaining Year 2000 systems and deficiencies
well in advance of the millennium change.


                                       22

<PAGE>

      The first phase of the program, conducting an inventory of all systems and
deficiencies that may be affected by the Year 2000 issue, is substantially
complete. The second phase of the program, the assessment and categorization of
all the inventoried systems and deficiencies by level of priority, reflecting
their potential impact on business continuation, is underway. Based on this
prioritization, the third phase will be to develop detailed plans to address
each Year 2000 issue and a general contingency plan in the event that any
critical systems cannot be made fully compliant by January 1, 2000.

      The Company's information technology systems ("IT Systems") can be broadly
categorized into the following areas: (i) clinical studies information systems,
(ii) managed care information systems, (iii) other administrative information
systems including financial accounting, payroll, human resource and other
desktop systems and applications and (iv) information systems of businesses held
for sale.

      The Company recognizes that investment in information systems is 
integral to its operations. The majority of the Company's technology 
expenditures are related to the development and implementation of both 
clinical information and managed care information systems that are Year 2000 
compliant. The clinical information systems are expected to be fully 
operational at all sites by July 31, 1999. The managed care information 
systems are expected to be fully operational by December 31, 1999. The 
Company believes that the Year 2000 issue-related remediation costs incurred 
through 1998 have not been material to its results of operations. The Company 
has estimated the total costs to be incurred for completion of its Year 2000 
strategy is approximately $3.0 million, which includes costs for new systems 
and system upgrades which would have been incurred regardless of the need to 
remedy the Year 2000 issue.

      The Company's financial accounting system is fully Year 2000 compliant 
at a total cost of approximately $30,000. Currently the Company is not 
assessing Year 2000 compliance for the information systems of the businesses 
held for sale since the Company expects these businesses to be divested by 
December 31, 1999.

      Risks involved in the managed care applications include the risk that
failures in the Company's managed care systems causing a backlog of claims or
failures at one or more of the Company's payors will cause a delay in the
payment of claims and capitation payments, either of which could negatively
affect cash flows of the Company. The Company intends to develop contingency
plans for failures at the Company's electronic trading partners. The Company
intends to have contingency plans in place by July 1999. The nature of the Year
2000 issue, and the lack of historical experience in addressing it, however,
could result in unforeseen risks.


      The Company bills and collects for medical services from numerous third
party payors in operating its business. These third parties include fiscal
intermediaries that process claims and make payments on behalf of the Medicare
program as well as insurance companies, HMO's and other private payors. As part
of the Company's Year 2000 strategy, a comprehensive survey has been sent to all
significant payors to assess their timeline for Year 2000 compliance and the
impact to the Company of any potential interruptions in services or payments.
The Company is working to accumulate the results by July 31, 1999. The Company
is in the process of contacting its principal clients, suppliers and other
vendors concerning the state of their Year 2000 compliance. Until that effort is
completed, the Company cannot be assured that such third party systems are or
will be Year 2000 compliant and the Company is unable to estimate at this time
the impact on the Company if one or more third party systems is not Year 2000
compliant.

      The foregoing assessment is based on information currently available to
the Company. The Company can provide no assurance that applications and
equipment that the Company believes to be Year 2000 compliant will not
experience problems. Failure by the Company or third parties on which it relies
to resolve Year 2000 problems could have a material adverse effect on the
Company's results of operations.

FACTORS TO BE CONSIDERED

      THE PARTS OF THIS ANNUAL REPORT ON FORM 10-K TITLED "BUSINESS," "LEGAL
PROCEEDINGS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K,
THE WORDS "MAY," "WILL," "SEEK," "PLAN," "EXPECT," "BELIEVE," "ANTICIPATE,"
"CONTINUE," "ESTIMATE," "PROJECT," "INTEND" AND 


                                       23

<PAGE>

SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT REGARDING EVENTS, CONDITIONS AND FINANCIAL TRENDS THAT MAY AFFECT THE
COMPANY'S FUTURE PLANS OF OPERATIONS, BUSINESS STRATEGY, RESULTS OF OPERATIONS
AND FINANCIAL POSITION. THE COMPANY WISHES TO ENSURE THAT SUCH STATEMENTS ARE
ACCOMPANIED BY MEANINGFUL CAUTIONARY STATEMENTS PURSUANT TO THE SAFE HARBOR
ESTABLISHED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES
OF FUTURE PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES AND THAT ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE INCLUDED WITHIN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS. SUCH FORWARD-LOOKING STATEMENTS
SHOULD, THEREFORE, BE CONSIDERED IN LIGHT OF VARIOUS IMPORTANT FACTORS,
INCLUDING THOSE SET FORTH HEREIN, INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH
BELOW AND UNDER "BUSINESS - PHYSICIAN MANAGEMENT SERVICES" AND "BUSINESS -
GOVERNMENT REGULATION," AND OTHERS SET FORTH FROM TIME TO TIME IN THE COMPANY'S
REPORTS AND REGISTRATION STATEMENTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION (THE "COMMISSION"). THE COMPANY DISCLAIMS ANY INTENT OR OBLIGATION TO
UPDATE SUCH FORWARD-LOOKING STATEMENTS.

      RISKS RELATED TO REPOSITIONING. During the last fiscal year, the Board 
of Directors adopted strategic initiatives to reposition the Company along 
two primary business lines: pharmaceutical services, including clinical and 
outcomes research and provider network management services. There can be no 
assurance that the Company will be successful in repositioning itself or that 
these business lines will be profitable. The Company intends to grow these 
business lines. The Company is subject to various risks associated with its 
growth strategy, including the risk that the Company will be unsuccessful in 
its effort to grow its businesses internally and that it will be unable to 
identify, acquire and integrate acquisition candidates in the clinical 
studies management area or to identify, affiliate with and manage additional 
physician networks. Any failure of the Company to grow its business 
internally and implement economically feasible affiliations and acquisitions 
may have a material adverse effect on the Company. There can be no assurance 
that the Company will be able to achieve synergies between its provider 
network and clinical studies site management businesses.

      ASSETS HELD FOR SALE. The Company's repositioning strategy involves the
sale of approximately $100.8 million of assets held for sale, the proceeds from
which would be used primarily for expansion of its clinical and outcomes
research and provider network management businesses. The Company also is
considering using proceeds to repurchase outstanding Common Stock and/or retire
debt. There can be no assurance that the Company will be able to sell these
businesses before the end of the current fiscal year or that the Company will
receive proceeds equal to the current estimated value of such assets. In
addition, there can be no assurance that the application of the net proceeds
from the sale will have a positive effect on the Company's business, future
results of operations or stock price.

      DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS. The Company's investigative
site management revenues are dependent on research and development expenditures
by the pharmaceutical and biotechnology industries. The Company's operations
could be materially and adversely affected by general economic downturns in its
clients' industries, the impact of the current trend toward consolidation in
these industries or any decrease in research and development expenditures.

      POTENTIAL LOSS OF CONTRACTS. Although the Company's clinical research
study contracts with Sponsors provide that it is entitled to receive fees earned
through the date of termination, as well as all non-cancelable costs, Sponsors
generally are free to terminate a clinical trial or the Company's contract
related thereto at any time. The length of a typical clinical trial contract
varies from several weeks to several years. Sponsors may terminate clinical
trials for several reasons, including unexpected results or adverse patient
reactions to a potential product, inadequate patient enrollment or investigator
recruitment, manufacturing problems resulting in shortages of a potential
product or decisions by the Sponsor to de-emphasize or terminate a particular
trial or development efforts with respect to a particular potential product. A
Sponsor's decision to terminate a trial in which the Company participates could
have a material adverse effect on the Company's business, results of operations
and financial condition.

      GOVERNMENT REGULATION; POTENTIAL IMPACT OF REFORM. Demand for the
Company's clinical research site management services is largely a function of
the regulatory requirements associated with the approval of a new drug
application imposed by the FDA. These requirements are more stringent and thus
more burdensome than those 


                                       24

<PAGE>

imposed by many other developed countries. In recent years, efforts have been
made to streamline the drug approval process and coordinate United States
standards with those of other developed countries. Changes in the level of
regulation, including a relaxation in regulatory requirements or the
introduction of simplified drug approval procedures could have a material
adverse effect on the demand for the Company's clinical trial services. Several
competing proposals to reform the system of healthcare delivery in the United
States have been considered by Congress from time to time. The process by which
the government will pursue additional or modified proposals for national
healthcare reform and the precise nature of any such proposals is unclear at
this time. Some of the proposals put forth to date incorporate price controls on
drugs and limits on overall medical spending which may adversely affect
expenditures by the pharmaceutical and biotechnology industries for research and
development, which could have a material adverse effect on the Company's
business, results of operations and financial condition. At present, it is
impossible to predict the effect of any new legislation or changes in regulatory
environment on the Company. The failure of the Company to comply with applicable
regulations could result in the termination of on-going research or the
disqualification of data for submission to regulatory authorities. Further, the
issuance of a notice or finding by the FDA to either the Company or its clients
based upon a material violation by the Company of either Good Clinical Practices
or Good Laboratory Practices could have a material adverse effect on the
Company's business, results of operations and financial condition.

      POTENTIAL LIABILITY FROM OPERATIONS. Clinical trials involve the testing
of approved and experimental drugs on human beings. This testing carries with it
a significant risk of liability for personal injury or death to participants
resulting from an adverse reaction to, or improper administration of, the
potential product. The Company participates with Sponsors in the selection
process. The Company also contracts on behalf of its clients with physicians who
render, and itself renders, professional services including administering the
drugs being tested to participants in these trials. Consequently, the Company
may be subject to claims in the event of personal injury or death of persons
participating in clinical trials and arising from professional malpractice of
physicians with whom it has contracted and its own employees. Although the
Company is generally indemnified by its clients for liability relating to
adverse drug reactions, in order for such indemnification to be valid, the
Company and its employees and agents must act within the bounds of specific
procedural requirements governing the conduct of the clinical trial. Since the
value of the Company's indemnification depends on the financial viability of the
indemnifying party, there can be no assurance that the Company will be able to
rely on such indemnification in each instance of potential liability. If the
Company was forced to undertake the defense of, or found financially responsible
for, claims based upon the foregoing or related risks, there could be a material
adverse effect on the Company's business, results of operations and financial
condition. With respect to the businesses held for sale, there can be no
assurance that claims, suits or complaints relating to services delivered by an
affiliated physician or medical service provider will not be asserted against
the Company. Although the Company maintains insurance it believes is adequate
both as to risks and amounts, there can be no assurance that any claim asserted
against the Company for professional or other liability will be covered by, or
will not exceed the coverage limits of, such insurance.

      YEAR 2000 MAY ADVERSELY IMPACT OPERATIONS. As described under "Risks
Associated with Year 2000," the Company is attempting to address its Year 2000
issues. If the Company fails to identify or correct all such problems in its
operations, or if the Company is affected by the inability of a supplier or
major customer to continue operations due to such a problem, the Company's
business and financial results could be materially adversely affected.

      RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS. As an increasing percentage
of patients come under the control of managed care entities, the Company
believes that its success will be, in part, dependent upon the Company's ability
to negotiate contracts with health maintenance organizations ("HMOs"), employer
groups and other private third party payors pursuant to which services will be
provided on a risk-sharing or capitated basis. Under some of these agreements, a
healthcare provider accepts a predetermined amount per member per month ("PMPM")
in exchange for providing all covered services to patients. Such contracts pass
much of the economic risk of providing care from the payor to the provider. To
date, the Company has not taken the risk of any shortfall between PMPM revenue
and expenses for patient care.


                                       25

<PAGE>

There is no certainty that the Company will be able to establish and maintain 
satisfactory relationships with third party payors, many of which already 
have existing provider structures in place and may not be able or willing to 
rearrange their provider networks. Increasingly, some jurisdictions are 
taking the position that capitated agreements in which the provider bears the 
risk should be regulated by insurance laws. As a consequence, the Company may 
be limited in some of the states in which it operates in its attempt to enter 
into or arrange capitated agreements for its provider network management 
business when those capitated arrangements involve the assumption of risk.

      DEPENDENCE ON THIRD PARTY REIMBURSEMENT; TRENDS AND COST CONTAINMENT.
Substantially all of the Company's patient service revenues are derived from
third party payors. The Company's revenues and profitability may be materially
adversely affected by the current trend within the healthcare industry toward
cost containment as government and private third party payors seek to impose
lower reimbursement and utilization rates and negotiate reduced payment
schedules with service providers. The Company believes that this trend will
continue to result in a reduction from historical levels of per-patient revenue.
Continuing budgetary constraints at both the federal and state level and the
rapidly escalating costs of healthcare and reimbursement programs have led, and
may continue to lead, to significant reductions in government and other third
party reimbursements for certain medical charges and to the negotiation of
reduced contract rates or capital or other financial risk-shifting payment
systems by third party payors with service providers. Both the federal
government and various states are considering imposing limitations on the amount
of funding available for various healthcare services. The federal government and
government agencies have taken various actions over the years to reduce
reimbursement rates for diagnostic imaging services and proposals to reduce
rates further are anticipated. There have been many proposals discussed within
the last few years to further modify reimbursement. The Company cannot predict
whether or when any such proposals will be adopted or, if adopted and
implemented, what effect, if any, such proposals would have on the Company.
Further reductions in payments to physicians or other changes in reimbursement
for healthcare services could have a material adverse effect on the Company,
unless the Company is otherwise able to offset such payment reductions.

      Rates paid by private third party payors, including those that provide
Medicare supplemental insurance, are based on established physician, clinic and
hospital charges and are generally higher than Medicare payment rates. Changes
in the mix of the Company's patients among the non-government payors and
government sponsored healthcare programs, and among different types of
non-government payor sources, could have a material adverse effect on the
Company.

      The Company is a provider of certain medical treatment and diagnostic 
services including, but not limited to radiation therapy, infusion therapy, 
lithotripsy and home healthcare. Because many of these services receive 
governmental reimbursement, they may be subject from time to time to changes 
in both the degree of regulation and level of reimbursement. Additionally, 
factors such as price competition and managed care also could reduce the 
Company's revenues.

      There can be no assurance that payments under governmental and private
third party payor programs will not be reduced or will, in the future, be
sufficient to cover costs allocable to patients eligible for reimbursement
pursuant to such programs, or that any reductions in the Company's revenues
resulting from reduced payments will be offset by the Company through cost
reductions, increased volume, introduction of new procedures or otherwise.

      GOVERNMENT REGULATION. Providers of healthcare services, including
physicians and other clinicians, are subject to extensive federal and state
regulation. The fraud and abuse provisions of the Social Security Act prohibit
the solicitation, payment, receipt or offering of any direct or indirect
remuneration in return for, or the inducement of, the referral of patients,
items or services that are paid for, in whole or in part, by Medicare or
Medicaid. These laws also impose significant penalties for false or improper
billings for physician services and impose restrictions on physicians' referrals
for designated health services to entities with which they have financial
relationships. Violations of these laws may result in substantial civil or
criminal penalties for individuals or entities, including large civil monetary
penalties and exclusion from participation in the Medicare and Medicaid
programs. Similar 


                                       26

<PAGE>

state laws also apply to the Company. Such exclusion and penalties, if applied
to the Company's affiliated physician groups or ancillary service providers,
could have a material adverse effect on the Company.

      The laws of many states prohibit business corporations such as the Company
from exercising control over the medical judgments or decisions of physicians
and from engaging in certain financial arrangements, such as splitting fees with
physicians. These laws and their interpretations vary from state to state and
are enforced by both the courts and regulatory authorities, each with broad
discretion. Expansion of the operations of the Company to certain jurisdictions
may require structural and organizational modifications of the Company's form of
relationship with physician groups, which could have an adverse effect on the
Company. There can be no assurance that the Company's physician management
agreements will not be challenged as constituting the unlicensed practice of
medicine or that the enforceability of the provisions of such agreements,
including non-competition covenants, will not be limited.

      Under certain provisions of the Omnibus Budget Reconciliation Act of 1993
known as "Stark II," physicians who refer Medicare and Medicaid patients to the
Company for certain designated services may not own stock in the Company, and
the Company may not accept such referrals from physicians who own stock in the
Company. Stark II contains an exemption which applies to the Company during any
year if at the end of the previous fiscal year the Company had stockholders'
equity in the amount of at least $75 million. The Company was not eligible for
this exemption as of its fiscal year ending December 31, 1995. In 1996, the
Company changed its fiscal year end to January 31, at which time it satisfied
the Stark II stockholders' equity exemption. Violation of Stark II by the
Company could have a material adverse effect on the Company.

      The Company believes that its operations are conducted in material
compliance with applicable laws, however, the Company has not received a legal
opinion to this effect and many aspects of the Company's business operations
have not been the subject of state or federal regulatory interpretation.
Moreover, as a result of the Company providing both physician practice
management services and ancillary services, the Company may be the subject of
more stringent review by regulatory authorities, and there can be no assurance
that a review of the Company's operations by such authorities will not result in
a determination that could have a material adverse effect on the Company or its
affiliated physicians. Additionally, there can be no assurance that the
healthcare regulatory environment will not change so as to restrict the
Company's or the affiliated physicians' existing operations or their expansion.
The regulatory framework of certain jurisdictions may limit the Company's
expansion into, or ability to continue operations within, such jurisdictions if
the Company is unable to modify its operational structure to conform to such
regulatory framework or to obtain necessary approvals, licenses and permits. Any
limitation on the Company's ability to expand could have a material adverse
effect on the Company.

      CONTROL BY EXISTING STOCKHOLDERS. All of the Company's executive officers
and directors as a group beneficially own approximately 29.0% of the outstanding
shares of Common Stock. As a result, such executive officers and directors,
should they choose to act together, will be able to determine the outcome of
corporate actions requiring stockholder approval and to control the election of
the Company's Board of Directors. This ownership may have the effect of
discouraging unsolicited offers to acquire the Company.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company is subject to market risk from exposure to changes in interest
rates based on its financing, investing and cash management activities. The
Company does not expect changes in interest rates to have a material effect on
income or cash flows for the year ended January 31, 2000, although there can be
no assurances that interest rates will not significantly change.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      Information with respect to Item 8 of Part II is included herein as to the
Company's financial statements and 


                                       27

<PAGE>

financial statement schedules filed with this report; See Item 14 of Part IV.

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE.

      None.

RECENT ACCOUNTING PRONOUNCEMENTS AND OTHER MATTERS

      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 ended 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 adoption of SFAS 131 did not affect results of
operations or financial position but did affect the disclosure of segment
information.

      In 1997, the Emerging Issues Task Force of the Financial Accounting 
Standards Board issued EITF 97-2 concerning the consolidation of physician 
practice revenues. 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. The Company adopted EITF 97-2 in the fourth quarter ended 
January 31, 1999. Adoption of this statement reduced reported revenues and 
expenses for the years ended January 31, 1998 and 1997 by $65.4 million and 
$42.2 million, respectively.

                                       28
<PAGE>

                                    PART III

ITEM 10.                DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

            The following table sets forth certain information pertaining to the
Company's directors and executive officers.

<TABLE>
<CAPTION>

NAME                           CURRENT POSITION
----                           ---------------

<S>                            <C>
Abraham D. Gosman              Chairman of the Board of Directors and
                               Co-Chief Executive Officer
                               
Michael T. Heffernan           Co-Chief Executive Officer, President and Director
                               
Gregory Gardner                Executive Vice President Finance
                               
James M. Hogan, M.D.           Chief Medical Officer

Frederick R. Leathers          Chief Financial Officer and Treasurer
                               
Eric Moskow, M.D.              Executive Vice President 
                               of Strategic Planning and Director
                               
John Wardle                    Chief Operating Officer for Provider 
                               Network Services

H. Loy Anderson, Jr.           Director
                               
Hugh L. Carey                  Director
                               
Joseph N. Cassese              Director
                               
David M. Livingston, M.D.      Director
                               
Kevin E. Moley                 Director
                               
Stephen E. Ronai               Director

</TABLE>

      Set forth below is a description of the backgrounds of each of the
directors and executive officers of the Company.

      ABRAHAM D. GOSMAN, age 70, has served since June 1994 as an executive
officer of the Company and is presently the Chairman of the Board of Directors
and Co-Chief Executive Officer of the Company. Mr. Gosman has served as Chairman
of the Board of CareMatrix Corporation, an assisted living development and
management company, since October 1996 and as its Chief Executive Officer since
April 1999. Previously, Mr. Gosman was the Chief Executive Officer of The
Mediplex Group, Inc. ("Mediplex"), a diversified health care company, from its
inception in 1982 to September 1988 and from August 1990 to June 1994. In
addition, Mr. Gosman served as Chairman of the Board of Meditrust Corporation
and Chairman of the Board, Chief Executive Officer and Treasurer of Meditrust
Operating Company from November 1997 to August 1998 and Chairman of the Board
and Chief Executive Officer of their predecessor, Meditrust, from its inception
in 1985 until November 1997.

      MICHAEL T. HEFFERNAN, age 34, has served as President of the Company since
December 1998, as Co-Chief Executive Officer since April 1999 and as a director
of the Company since February 1998. He also serves as the Chief Executive
Officer of the Company's subsidiary 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.


                                       29

<PAGE>

      GREGORY GARDNER, age 43, 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.

      JAMES M. HOGAN, M.D., age 54, has been an employee of the Company since 
January 1997 and has served as Chief Medical Officer of the Company since 
December 1998. Dr. Hogan was Corporate Medical Director of Health Insurance 
Plan of Greater New York from July 1996 to April 1997 and its Senior Vice 
President for Professional Affairs and Medical Director from October 1994 to 
April 1997. Dr. Hogan served as Vice President of the Medical Division and 
Medical Director of Health Insurance Plan of Florida from January 1994 to 
October 1994 and as its Medical Director from May 1993 to January 1994.

      FREDERICK R. LEATHERS, age 41, 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. He was Treasurer of A.M.A. Advisory Corp. and
Controller of Meditrust from July 1988 to January 1991.

      ERIC MOSKOW, M.D., age 40, 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
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 1992.
Dr. Moskow is board-certified in internal medicine and served as President of
the Family Medical Associates of Ridgefield for nine years.

      JOHN WARDLE, age 44, has served since April 1999 as the Chief Operating
Officer of the Company. Previously, he served as Senior Vice President of United
HealthCare of New England from July 1997 to April 1999. Mr. Wardle served as the
General Manager for External Affairs at Southern Health Care from November 1995
to July 1997. He also served United HealthCare Corporation as a Vice President
from May 1994 to November 1995 and as a Director of Subsidiary Network
Development from June 1993 to May 1994.

      H. LOY ANDERSON, JR., age 55, has served as a director of the Company
since December 1998. He has served as President, Chief Executive Officer and a
director of Palm Beach National Bank & Trust Company since June 1990. Mr.
Anderson is a director of CareMatrix Corporation.

      HUGH L. CAREY, age 79, 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, age 69, has served as a director of the Company since
January 1996. He also serves as a director of Liberty Healthcare Management
Company. Mr. Cassese was 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., an advisor to Meditrust, from April 1988 to August 1990. Mr.
Cassese has been retired since December 1991.

      DAVID M. LIVINGSTON, M.D., age 57, has served as a director of the Company
since January 1996. Dr. Livingston has previously served as Director of
Dana-Farber Cancer Institute in Boston, Massachusetts 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 and Genetics at Harvard Medical
School where he has taught since 1973.




                                       30

<PAGE>

      KEVIN E. MOLEY, age 52, has served as a director of the Company since
February 1999. From March to October of 1998, Mr. Moley was an executive
consultant to Kinetra LLC. He served as President and Chief Executive Officer of
Integrated Medical Systems, Inc. from January 1996 to March 1998. From February
1993 to January 1996, he served as Senior Vice President to PCS Health Systems,
Inc. During the Administration of President George Bush, Mr. Moley served in the
United States Department of Health and Human Services in various capacities
including as a member of the Transition Team from February to May of 1989, as an
Assistant Secretary for Management and Budget from May 1989 to November 1991,
and as a Deputy Secretary from November 1991 to January 1993. Mr. Moley has
served as the Chairman of the Board of Patient Care Dynamics since November
1998. Mr. Moley has served as a director of each of Cephalon, Inc., Merge
Technology Inc. and Medaphis Corporation since March 1994, February 1998, and
April 1998, respectively.

      STEPHEN E. RONAI, age 62, 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 Health Lawyers
Association. From 1989 to 1995, he served as a member of the Board of Directors
of the National Health Lawyers Association, which merged in 1998 with the
American Academy of Health Care Attorneys of the American Hospital Association
and was subsequently denominated as the American Health Lawyers Association. He
also has served as Chairman of the Board of Trustees of the Connecticut Hospital
Association. He is currently a director of CareMatrix Corporation and also
serves as a director of various non-profit tax-exempt health care provider
organizations.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Dr. Hogan filed a Form 3 with the Securities Exchange Commission on
January 19, 1999 in connection with his appointment as an executive officer of
the Company on December 7, 1998. Dr. Moskow filed a Form 5 with the Securities
and Exchange Commission on February 5, 1999 for stock options granted on January
21, 1998. Messrs. Cassese and Carey intend to file Form 5s, with respect to 
the grant of stock options on November 14, 1996, September 8, 1997 and 
January 26, 1999.

ITEM 11.    EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

      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 director who is a member of the Equity Incentive and
Compensation Committee on the first business day following each annual meeting
of the stockholders will receive an option to purchase 2,500 shares of Common
Stock. Any of such options granted to a member of the Equity Incentive and
Compensation Committee under the Equity Plan will be exercisable one year
following the date of grant.


                                       31

<PAGE>

                             EXECUTIVE COMPENSATION


SUMMARY COMPENSATION TABLE

      The following table contains a summary of the compensation paid or 
accrued during the fiscal years ended January 31, 1997, 1998 and 1999 to the 
Chief Executive Officer of the Company and the four other named executive 
officers (the "Named Executive Officers").

<TABLE>
<CAPTION>
                                                                                                 LONG TERM
                                                                ANNUAL COMPENSATION         COMPENSATION AWARDS 
                                                            ----------------------------   ---------------------
                                                                             BONUS              SECURITIES             ALL OTHER
             NAME AND PRINCIPAL POSITION         YEAR(1)     SALARY ($)  COMPENSATION($)   UNDERLYING OPTIONS (#)   COMPENSATION($)
             ---------------------------         -------    ------------ ---------------   ----------------------   ---------------
<S>                                           <C>            <C>        <C>                <C>                      <C>
Abraham D. Gosman                                  1999       225,000          --                  --                     --
  Chairman and Co-Chief Executive                  1998       225,000          --                  --                     --
  Officer                                          1997       225,000          --                  --                     --

Michael T. Heffernan                               1999       214,842       100,000                --                     --
  President, Co-Chief Executive Officer            1998       200,000        75,295              300,000                  720(5)
  and Director

James M. Hogan, M.D. (2)                           1999       507,200          --                  --                     --
  Chief Medical Officer

Frederick R. Leathers                              1999       229,525          --                  --                     --
  Chief Financial Officer and Treasurer            1998       229,197          --                  --                     --
                                                   1997       229,197          --                  --                     --

Gregory Gardner (3)                                1999       185,875          --                  --                     --
  Executive Vice President of Finance              1998       185,875          --                  --                     --

Bruce A. Rendina (4)                               1999       344,366          --                  --                   81,764(5)
  Former Vice Chairman and                         1998       460,435          --                300,000                81,207(5)
  Former Chairman                                  1997       435,782          --                  --                   53,948(5)
  and Chief Executive Officer of DASCO

Robert A. Miller (6)                               1999       283,944          --                  --                  617,528(7)
  Former President                                 1998       304,135          --                  --                     --
                                                   1997       304,171          --                  --                     --
</TABLE>

-----------------------

(1)  The Company's fiscal year end is January 31.
(2)  Dr. Hogan became an executive officer of the Company in December 1998.
(3)  Mr. Gardner became an executive officer of the Company in November 1996.
(4)  Mr. Rendina resigned as an executive officer of the Company during August
     1998.
(5)  Represents life insurance premiums paid by the Company.
(6)  Mr. Miller resigned as an executive officer of the Company during December
     1998.
(7)  Includes severance pay pursuant to the Miller Severance Agreement (defined
     herein). See "-- Separation Agreements" below.

                                       32

<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

      There were no options granted during the year ended January 31, 1999 by
the Company to any of the Named Executive Officers.

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, 1999. As of such date, Mr. Heffernan, Dr. Hogan 
and Mr. Gardner held options to purchase 300,000, 100,000 and 100,000 shares 
of Common Stock, respectively, 100,000 of which were exercisable by Mr. 
Heffernan, 33,333 of which were exercisable by Dr. Hogan and 43,333 of which 
were exercisable by Mr. Gardner. None of the options held by Mr. Heffernan, 
Dr. Hogan and Mr. Gardner were in-the-money as of January 31, 1999, and 
none of the other Named Executive Officers held any options as of such date.

EMPLOYMENT AGREEMENTS

      In connection with the Company's acquisition of Clinical Studies, Ltd.
("CSL"), on October 14, 1997, the Company entered into an employment agreement
with Mr. Heffernan to be the Chief Executive Officer of CSL. The agreement
provides for an initial three-year term (expiring on October 14, 2000), 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 an option to purchase 300,000 shares of the Common Stock of the Company
at $16.25 per share (the price per share of the Common Stock as of the date of
the agreement), which option is exercisable in three annual installments of
100,000 shares commencing on October 14, 1998. In addition, Mr. Heffernan is
entitled to receive other bonuses and benefits that 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 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 as a result of a termination of the agreement by the Company without cause
or by Mr. Heffernan for cause.

      On January 27, 1997, the Company entered into an employment agreement 
with James M. Hogan, M.D.. The agreement provides for an initial three-year 
term ending March 17, 2000, which is automatically renewed for successive one 
year periods unless either the Company or Dr. Hogan provides a written notice 
of an election not to renew at least 60 days but not more than 180 days 
before the termination of the agreement. The base salary for Dr. Hogan under 
the agreement is $500,000 per year, plus such benefits and bonuses as the 
Company in its sole discretion may grant to him. The agreement also provides 
for the grant of an option to purchase 100,000 shares of Common Stock at 
$12.50 per share (the fair market value of the Common Stock on the date of 
the agreement), which option is exercisable in three annual installments 
commencing on March 17, 1998. In addition, Dr. Hogan is entitled to receive 
other bonuses and benefits that may be offered by the Company to its 
executive officers. The agreement may be terminated by the Company on 30 days 
written notice to Dr. Hogan. In addition, the Company may terminate the 
agreement with cause if Dr. Hogan engages in certain proscribed behavior. Dr. 
Hogan may terminate the agreement on 30 days written notice to the Company if 
the Company fails to honor the terms of the agreement, upon a change of 
control of the Company or if a material change in his title, 
responsibilities, salary or benefits occurs. If the agreement is terminated 
by the Company without cause or by Dr. Hogan for one of the reasons noted in 
the immediately preceding sentence, Dr. Hogan shall continue to receive his 
salary for a period of 12 months after such termination or for the remainder 
of the term of the agreement, whichever is longer. The agreement contains 
restrictive covenants prohibiting Dr. Hogan from competing with the Company, 
or soliciting employees of the Company to leave during his employment or for 
a period equal to the longer of (i) one year after the termination of the 
agreement or (ii) the period during which Dr. Hogan is paid as a result of a 
termination of the agreement by the Company without cause or by Dr. Hogan for 
cause.

      The Company, through its subsidiary DASCO Development Corporation 
("DASCO"), entered into an employment agreement with Mr. Rendina that 
provided for an initial one-year term automatically renewable for successive 
one-year periods until either party elects not to renew. The initial base 
salary for Mr. Rendina under the agreement was $330,000 per year with 
automatic annual increases. In addition, he was entitled to receive bonuses 
and benefits, including life, accident, health and dental insurance. The 
agreement with Mr. Rendina was terminated in September 1998.

BUSINESS AGREEMENT


      In September 1998, Bruce A. Rendina entered into a Business Agreement 
(the "Business Agreement") with the Company, DASCO and Mr. Gosman. The 
Business Agreement was entered into to address the parties' future 
cooperation with respect to the development of certain real estate projects. 
The Business Agreement provides that the Company has the exclusive 
development rights to 27 separate projects located in 12 states, and Mr. 
Rendina has the exclusive development rights to six projects in five states. 
In addition, the Company and Mr. Rendina have agreed under certain conditions 
to share fees with respect to five asset conversion projects and six medical 
facility development projects. Pursuant to the terms of the Business 
Agreement, Mr. Rendina is entitled to the first 25% of the fees received on 
any shared fee project. Thereafter, the Company and Mr. Rendina evenly split 
the remaining portion of the fees for such projects.

SEPARATION AGREEMENT


      In December 1998, the Company and Robert A. Miller, former President of 
the Company entered into a Separation and Severance Agreement (the "Miller 
Severance Agreement") and a Consulting Agreement for Physician Practice 
Management Assets (the "Miller Consulting Agreement"). Pursuant to the Miller 
Severance Agreement, the Company will pay to Mr. Miller a severance payment 
equal to $617,528 less applicable taxes and deductions. Mr. Miller agreed not 
to solicit any employees of the Company and not to compete against the 
Company's site management and clinical trial related business for a period of 
two years from the termination of the Miller Consulting Agreement. The Miller 
Consulting Agreement provides for Mr. Miller to assist the Company in its 
divestiture of its non-network physician practice management assets for the 
six months following his resignation. In consideration for such services, the 
Company will pay to Mr. Miller $390,000 over the term of contract.

                                       33

<PAGE>


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth, as of April 22, 1999 (unless otherwise 
indicated), 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 current 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 OF
                                                                       OWNED                  OUTSTANDING(1)
                                                                       -----                  --------------
<S>                                                             <C>                           <C>  
DIRECTORS AND NAMED EXECUTIVE OFFICERS

Abraham D. Gosman (2)............................................    8,537,126                    25.6%
Michael T. Heffernan (3).........................................      419,493                     1.3
Gregory Gardner (4)..............................................       43,333                     *
James M. Hogan, M.D. (5).........................................       66,666                     *
Frederick R. Leathers............................................      491,505                     1.5
Eric Moskow, M.D. (6)............................................      187,252                     *
H. Loy Anderson, Jr..............................................          315                     *
Hugh L. Carey (7)................................................        5,000                     *
Joseph N. Cassese (8)............................................       35,000                     *
David M. Livingston, M.D.........................................           --                     *
Kevin E. Moley...................................................           --                     *
Stephen E. Ronai (9).............................................       12,000                     *
Robert A. Miller (10)............................................      459,655                     1.4
Bruce A. Rendina (11)............................................      604,766                     1.8

All current directors and executive officers as a group
  (12 persons) (12)..............................................    9,797,690                    29.0

OTHER 5% STOCKHOLDERS

Crabbe Huson Group, Inc.(13).....................................    3,320,600                     9.9
The WAB Family Limited Partnership (14)..........................    1,900,576                     5.7

</TABLE>

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

(1)      Based upon a total of 33,386,145 shares of Common Stock outstanding on
         April 22, 1999.
(2)      Includes (i) 4,018,707 shares held by Chancellor Partners Limited
         Partnership I ("CPLP I") and (ii) 2,000,000 shares held in a revocable
         trust. The sole general partner of CPLP I is CLP, Inc., which has 
         sole voting and dispositive powers as to the securities held by CPLP 
         I. Mr. Gosman is the sole stockholder and director of CLP, Inc. 
         Mr. Gosman's business address is PhyMatrix Corp., 777 South Flagler 
         Drive, Suite 1000E, West Palm Beach, Florida 33401.
(3)      Includes 100,000 shares that Mr. Heffernan has the right to acquire
         upon exercise of an option.
(4)      Consists of 43,333 shares that Mr. Gardner has a right to acquire upon
         exercise of an option.
(5)      Includes 66,666 shares that Dr. Hogan has a right to acquire upon
         exercise of an option.
(6)      Includes (i) 120,000 shares that Dr. Moskow has the right to acquire
         upon exercise of an option and (ii) 12,101 shares held of record by
         Physician's Choice Management, LLC.
(7)      Consists of 5,000 shares that Mr. Carey has the right to acquire upon
         exercise of an option.
(8)      Includes 15,000 shares that Mr. Cassese has the right to acquire upon
         exercise of an option.
(9)      Includes 10,000 shares that Mr. Ronai has the right to acquire upon
         exercise of an option.
(10)     Based upon information contained in Mr. Miller's most recent Form 4
         filed with the SEC for September 1996. Includes 150 shares held for the
         benefit of three of Mr. Miller's children.
(11)     Based upon information provided by Mr. Rendina in April 1999.
(12)     Includes 359,999 shares that the current directors and executive
         officers have the right to acquire upon exercise of options.


                                       34

<PAGE>


(13)        Crabbe Huson Group, Inc. ("CHG") disclaims beneficial ownership of
            all shares owned by each of its clients and also disclaims that a
            "group" within the meaning of Rule 13d-5(b) under the Securities
            Exchange Act of 1934 has been or will be formed. CHG asserts that it
            does not directly own any shares of the Company, but shares voting
            power with respect to 3,058,200 shares and dispositive power with
            respect to 3,320,600 shares owned by its clients. The address of CHG
            is 121 SW Morrison, Suite 1400, Portland, Oregon 97204. Based upon
            information contained in CHG's Schedule 13G filed with the SEC on
            February 12, 1999.
(14)        The partnership's address is 106 Driftwood Drive, Tiverton, Rhode
            Island 02878. Walter A. Brown is the sole limited partner and
            general partner of the partnership. Based upon information provided
            by Mr. Brown to the Company in April 1999.


ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


      The Company occupies office space for 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 and 
Leathers. The terms of the assumed lease are the same as those to which such 
affiliated company was obligated. As of January 31, 1999, the total amount of 
lease payments to be made under the assumed lease through the end of the 
current lease term was estimated to be approximately $0.4 million. During the 
year ended January 31, 1999, the Company leased office space on behalf of 
certain of its affiliated physicians from a limited partnership of which Mr. 
Gosman owns a controlling interest in the limited partner and general 
partner. The aggregate base rent paid during the year under such leases was 
approximately $0.1 million. In January 1997, a privately-held entity 
principally owned by Mr. Gosman assumed the Company's obligations as lessee 
under a capital lease, which obligations then exceeded the fair market value 
of the lease by $0.6 million.

      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. As of
January 31, 1999, Mr. Gosman individually and as trustee for his two sons, and
Frederick R. Leathers had obtained equity interests in an aggregate of 17
facilities developed or being developed by DASCO, and had interests in five of
such facilities. The interest 

                                       35

<PAGE>

of Mr. Gosman (individually and as trustee) in such facilities ranged from 
6.0% to 40.1%. The interest of Mr. Leathers ranged from 0. 1 % to 0.95%. 
During the year ended January 31, 1999, DASCO recorded revenues in the 
amount of approximately $3.0 million, 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, 1999 and 1998, the Company 
recorded revenues in the amount of $1.4 million and $10.5 million, 
respectively, related to such services and as of January 31, 1999, the 
Company advanced $10.9 million, pursuant to a note due in July 2000, to a 
company principally owned by Mr. Gosman relating to the development of a 
healthcare facility. The Company provides these services to such affiliated 
parties on terms no more or less favorable to the Company than those provided 
to unaffiliated parties. Interest on the note accrues at the prime rate.

      In May 1998, the Company made a loan in the original principal amount of 
$1.0 million to Dr. Moskow. The loan bears interest at a rate of 5.56% per 
annum and becomes due in May 2005. Pursuant to the terms of the note 
governing the loan, the balance due under the note will be forgiven upon a 
change of control of the Company. In addition, during the year ended 
January 31, 1999, the Company loaned $0.9 million to a limited 
partnership of which Mr. Gosman is a partner. The loan bears interest at 10% 
and has a final maturity of July 1999.

      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 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.


                                       36
<PAGE>

                                     PART IV

ITEM 14.    FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
      (a)1. Financial Statements                                              PAGE 
                                                                              ---- 
<S>                                                                           <C>
            Financial Statements                                             
            Report of Independent Accountants                                  F-2 
            Consolidated Balance Sheets as of January 31, 1999 and  1998       F-3
            Consolidated Statements of Operations for the years ended        
              January 31, 1999, 1998 and 1997                                  F-4 
            Consolidated Statements of Changes in Shareholders' Equity       
              for the years ended January 31, 1999, 1998 and  1997             F-5 
            Consolidated Statements of Cash Flows for the years ended        
              January 31, 1999, 1998 and 1997                                  F-6 
            Notes to Consolidated 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, 1999, 1998 and 1997                        S-2
</TABLE>

      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

<TABLE>
<CAPTION>

Exhibit No.          Exhibit
-----------          -------

<S>         <C>

3.1(1)      Restated Certificate of Incorporation of the Company.
3.2(1)      By-laws of the Company.
4(2)        Indenture with respect to the Company's 6-3/4% Convertible
            Subordinated Debentures.
10.1(1)     Registration Agreement dated January 29, 1996 between PhyMatrix
            Corp. and various stockholders of PhyMatrix Corp.
10.2(2)     Registration Agreement dated June 21, 1996 between PhyMatrix Corp.
            and the Initial Purchasers.
10.3(1)     Employment Agreement dated as of January 1, 1995 between DASCO and
            Bruce A. Rendina.
10.4(2)     Employment Agreement dated January 29, 1996 between PhyMatrix Corp.
            and Robert A. Miller.
10.5(1)     1995 Equity Incentive Plan.
10.6        Amended and Restated Agreement and Plan of Merger dated as of July
            15, 1997 by and among the Company, PhyMatrix Acquisition I, Inc.,
            Clinical Studies Ltd., Dr. Michael Rothman, Dr. Walter Brown,
            Michael T. Heffernan and Ronald Phillips as Trustee of The Alexander
            Rothman 1993 Qualified Sub-Chapter S Trust and as Trustee of The
            Julie Rothman Qualified Sub-Chapter S Trust (incorporated by
            reference from the Company's Current Report on Form 8-K filed on
            October 6, 1997).
10.7(3)     Employment Agreement dated October 14, 1997 between PhyMatrix Corp.
            and Michael T. Heffernan.
10.8(3)     Separation and Settlement Agreement dated April 30, 1998 between
            Frank Tidikis and PhyMatrix Corp.
*10.9       Loan and Security Agreement dated March 12, 1999 by and among the
            Company, certain of its subsidiaries and HCFP Funding, Inc.
*10.10      Loan and Security Agreement dated March 12, 1999 by and among the
            Company, PhyMatrix Diagnostic Imaging, Inc., PhyMatrix Management 
            Company, Inc. and HCFP Funding, Inc.
*10.11      Loan and Security Agreement dated March 12, 1999 by and between 
            the Company, Clinical Studies, Ltd., Clinical Marketing, Ltd. and
            HCFP Funding, Inc.
*10.12      Separation and Settlement Agreement dated December 8, 1998 between
            the Company and Robert A. Miller
*10.13      Consulting Agreement for Physician Practice Management Assets 
            dated December 8, 1999 between the Company and RAM Advisors, Inc.
*10.14      Business Agreement dated September 4, 1998 among the Company, 
            certain of its subsidiaries, Abraham D. Gosman, The Rendina
            Companies, Inc., The Rendina Companies West, Inc. and Bruce A. 
            Rendina.
10.15(3)    Section 3.4(a) of the Operating Agreement of Tri-State Network
            Management, L.L.C. dated February 17, 1998 among PhyMatrix
            Management Company, Inc. ("Management"), Beth Israel Medical Center
            and Landmark Physicians Organization, L.L.C., which imposes certain
            restrictions on Management and PhyMatrix Corp.
*10.16      Employment Agreement between the Company and James M. Hogan, M.D.
*21         Subsidiaries of the Registrant.
*23.1       Consent of PricewaterhouseCoopers LLP
*27         Financial Data Schedule.

</TABLE>


                                       37

<PAGE>

---------------

*     Filed herewith.

(1)   All exhibits not filed herewith or otherwise incorporated by reference are
      hereby incorporated by reference to the Company's Registration Statement
      on Form S-1 (Registration No. 33-97854).

(2)   Incorporated by reference to the Company's Registration Statement on Form
      S-1 (Reg. No. 333-08269).

(3)   Incorporated by reference to the Company's Annual Report on Form 10-K for
      the year ended January 31, 1998.

      (b)   Reports on Form 8-K

      None

                                       38

<PAGE>

                                   SIGNATURES



      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.


                                             PHYMATRIX CORP.



                                    By:      /S/    ABRAHAM D. GOSMAN        
                                             ----------------------------------
                                             Abraham D. Gosman
                                             Chairman of the Board of Directors
                                             and Co-Chief Executive Officer

                                    Date:    April 30, 1999

     Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated.

<TABLE>
<CAPTION>

          SIGNATURE                          TITLE                              DATE
          ---------                          -----                              ----
<S>                                 <C>                                    <C>

                                    Chairman of the Board of Directors
                                    and Co-Chief Executive Officer
/s/  Abraham D. Gosman              (Principal Executive Officer)          April 30, 1999
------------------------------                                                   

                                    Chief Financial Officer
                                    (Principal Financial and Accounting
/s/  Frederick R. Leathers          Officer)                               April 30, 1999
------------------------------                                                   

/s/  H. Loy Anderson                Director                               April 30, 1999
------------------------------                                                   

     Governor Hugh L. Carey         Director                               April 30, 1999
------------------------------                                                   

/s/  Joseph N. Cassese              Director                               April 30, 1999
------------------------------                                                   

                                    Director, President and Co-Chief
/s/  Michael T. Heffernan           Executive Officer                      April 30, 1999
------------------------------                                                   

     David M. Livingston, M.D.      Director                               April 30, 1999
------------------------------                                                   

/s/  Kevin Moley                    Director                               April 30, 1999
------------------------------                                                   

                                    Director and Executive Vice
     Eric Moskow                    President of Strategic Planning        April 30, 1999
------------------------------                                                   

/s/  Stephen E. Ronai, Esq.         Director                               April 30, 1999
------------------------------                                                   

</TABLE>

<PAGE>

                                 PHYMATRIX CORP.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>

                                                                                                PAGE
                                                                                                ----
<S>                                                                                             <C>

Report of Independent Accountants                                                                F-2

Consolidated Balance Sheets as of January 31, 1999 and 1998                                      F-3

Consolidated Statements of Operations for the years ended January 31, 1999, 1998, and 1997       F-4

Consolidated Statements of Changes in Shareholders' Equity for the years ended January 31,       F-5
     1999, 1998, and 1997

Consolidated Statements of Cash Flows for the years ended January 31, 1999, 1998 and 1997        F-6

Notes to Consolidated Financial Statements                                                       F-7

</TABLE>


                                      F-1

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS



The Board of Directors and Shareholders of PhyMatrix Corp.:

      In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of PhyMatrix Corp. and its subsidiaries at January 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended January 31, 1999, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.


PricewaterhouseCoopers LLP
Boston, Massachusetts
March 19, 1999, except for Note 23,
for which the date is April 22, 1999


                                      F-2

<PAGE>


                                 PHYMATRIX CORP.

                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                            January 31,
                                                                                            -----------
                                                                                         1999        1998
                                                                                       --------    --------
<S>                                                                                    <C>         <C>     
ASSETS
Current assets
  Cash and cash equivalents                                                            $ 10,137    $ 49,536
  Receivables:
    Accounts receivable, net of allowances of $1,350 and $48,428 at
      January 31, 1999 and 1998, respectively                                            15,276      57,252
    Income tax refund receivable                                                         10,789          --
    Other receivables                                                                     6,760      14,240
    Notes receivable (Note 5)                                                             5,060       1,851
  Prepaid expenses and other current assets                                               1,260       6,167
  Assets held for sale (Note 2)                                                         100,795          --
                                                                                       --------    --------
      Total current assets                                                              150,077     129,046

Property, plant and equipment, net (Note 6)                                              11,024      44,295
Notes receivable (Note 5)                                                                 7,274       7,831
Goodwill, net (Note 2)                                                                   41,007      93,880
Management service agreements, net (Note 2)                                              28,167      89,470
Investment in affiliates (Note 7)                                                            98       4,944
Other assets (including advances to shareholder)                                         15,204       8,694
                                                                                       --------    --------
      Total assets                                                                     $252,851    $378,160
                                                                                       --------    --------
                                                                                       --------    --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Current portion of debt and capital leases (Note 9)                                  $ 12,192    $ 13,742
  Accounts payable                                                                       13,602      13,101
  Accrued compensation                                                                    1,475       2,282
  Accrued  and other current liabilities (Note 8)                                        11,623      13,531
                                                                                       --------    --------
      Total current liabilities                                                          38,892      42,656

Long-term debt and capital leases  (Note 9)                                               5,465      20,617
Convertible subordinated debentures (Note 9)                                            100,000     100,000
Other long-term liabilities (Notes 3 and 12)                                              1,191       1,651
Minority interest                                                                         1,403       1,201
                                                                                       --------    --------
      Total liabilities                                                                 146,951     166,125

Commitments and contingencies (Notes 3 and 12)

Shareholders' equity:
   Common stock, par value $.01, 40,000 shares authorized, 
     33,344 and 31,248 shares issued at January 31, 1999 and 1998, respectively, 
     32,916 and 31,244 shares outstanding at January 31, 1999 and 1998, 
     respectively                                                                           329         312
     Treasury stock                                                                      (1,202)        (75)
     Additional paid in capital                                                         224,715     198,893
     Retained earnings (accumulated deficit)                                           (117,942)     12,905
                                                                                       --------    --------
       Total shareholders' equity                                                       105,900     212,035
                                                                                       --------    --------
       Total liabilities and shareholders' equity                                      $252,851    $378,160
                                                                                       --------    --------
                                                                                       --------    --------

The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>


                                      F-3
<PAGE>

                                PHYMATRIX CORP.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands except per share data)

<TABLE>
<CAPTION>

                                                                                    Year Ended January 31,          
                                                                                    ----------------------          
                                                                            1999           1998          1997 
                                                                          ---------     ---------     ---------
<S>                                                                       <C>           <C>           <C>      
Net revenues (Note 2):
Net revenues from services                                                $ 179,472     $ 155,946     $  98,765
Net revenues from management service agreements                             103,112        94,134        47,942
Net revenues from real estate services                                        8,694        31,099        19,049
                                                                          ---------     ---------     ---------
Total revenue                                                               291,278       281,179       165,756
                                                                          ---------     ---------     ---------
Operating costs and administrative expenses:
Salaries, wages and benefits                                                 94,710        88,221        58,351
Professional fees                                                            16,287         9,597         7,322
Supplies                                                                     60,055        44,909        27,203
Utilities                                                                     5,501         4,574         2,868
Depreciation and amortization                                                14,786        10,800         7,382
Rent                                                                         20,671        16,649         8,519
Provision for bad debts                                                       8,428         5,915         4,608
Gain on sale of assets (Note 6)                                              (5,414)       (1,891)         (262)
Provision for write-down of notes receivable (Note 5)                         2,674            --            --
Merger and other noncontinuing expenses related to CSL (Note 3)                  --        11,057         1,929
Goodwill impairment write-down (Note 2)                                       9,093            --            --
Nonrecurring expenses (Note 4)                                               10,465            --            --
Capitation expense                                                           53,875        44,341        12,442
Other                                                                        37,667        22,841        12,251
                                                                          ---------     ---------     ---------
                                                                            328,798       257,013       142,613
                                                                          ---------     ---------     ---------
Interest expense, net                                                         8,005         4,775         1,357
Interest expense shareholder                                                     --            --           369
(Income) from investment in affiliates                                           --          (731)         (709)
                                                                          ---------     ---------     ---------
                                                                              8,005         4,044         1,017
                                                                          ---------     ---------     ---------
Income (loss) before provision for income taxes and extraordinary item      (45,525)       20,122        22,126
Income tax expense (benefit)                                                (11,549)        9,823         6,836
                                                                          ---------     ---------     ---------
Net income (loss) before extraordinary item (Note 2)                        (33,976)       10,299        15,290
Extraordinary item, net of tax of $0 (Note 4)                                96,784            --            --
                                                                          ---------     ---------     ---------
Net income (loss)                                                         $(130,760)    $  10,299     $  15,290
                                                                          ---------     ---------     ---------
                                                                          ---------     ---------     ---------
Net income per weighted average share - basic (Note 19)
  Income (loss) before extraordinary item                                 $   (1.02)    $    0.35     $    0.56
  Extraordinary item                                                      $   (2.89)    $    --       $     --
  Net income (loss)                                                       $   (3.91)    $    0.35     $    0.56
Net income per weighted average share - diluted (Note 19)
  Income (loss) before extraordinary item                                 $   (1.02)    $    0.35     $    0.55
  Extraordinary item                                                      $   (2.89)    $    --       $     --
  Net income (loss)                                                       $   (3.91)    $    0.35     $    0.55

Proforma Information  (Note 2):
        Adjustment to income tax expense                                  $      --     $     624     $   1,293
        Net income                                                        $      --     $   9,675     $  13,997
        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 19)                        33,401        29,690        27,295
                                                                          ---------     ---------     ---------
                                                                          ---------     ---------     ---------
Weighted average shares outstanding - diluted (Note 19)                      33,401        30,229        27,682
                                                                          ---------     ---------     ---------
                                                                          ---------     ---------     ---------

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

</TABLE>


                                      F-4

<PAGE>

                                PHYMATRIX CORP.

                 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

              For the years ended January 31, 1999, 1998 and 1997
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                                           Retained        
                                                        Common Stock                        Additional     Earnings        
                                                         Outstanding           Treasury       Paid-in    (Accumulated
                                                    Shares        Amount         Stock        Capital       Deficit)       Total
                                                   ---------     ---------     ---------     ---------     ---------     ---------
<S>                                                <C>           <C>           <C>           <C>           <C>           <C>      
Balances - December 31, 1995                           4,885     $      49     $    --       $  25,071     $  (9,683)    $  15,437

Initial public offering, net of costs                 21,263           213          --         111,494          --         111,707
Issuance of common stock for acquisitions                267             3          --           3,997          --           4,000
Issuance of common stock pursuant to pooling of
  interests with Clinical Studies, Ltd. ("CSL")          319             3          --             625          --             628
Adjustment for immaterial pooling of interests           433             4          --            --             779           783
Issuance costs                                          --            --            --            (743)         --            (743)
Issuance of stock pursuant to acquisitions               406             4          --           9,223          --           9,227
Issuance of stock pursuant to stock plans                 52          --            --             359          --             359
Net loss for month ended January 31,1996                --            --            --            --          (1,176)       (1,176)
Net income for the year ended January 31, 1997          --            --            --            --          15,290        15,290
Dividends                                               --            --            --            --          (1,732)       (1,732)
                                                   ---------     ---------     ---------     ---------     ---------     ---------
Balances - January 31, 1997                           27,625           276          --         150,026         3,478       153,780

Adjustment for immaterial pooling of interests          --            --            --            --             644           644
CSL's January 1997 earnings excluded from
 net income (as described in Note 2)                    --            --            --            --             344           344
Purchase of treasury stock at cost                      --            --             (75)         --            --             (75)
Issuance of stock pursuant to acquisitions             3,430            34          --          48,059          --          48,093
Issuance of stock pursuant to stock plans                193             2          --             920          --             922
Issuance costs                                          --            --            --            (112)         --            (112)
Net income for the year ended January 31, 1998          --            --            --            --          10,299        10,299
Dividends                                               --            --            --            --          (1,860)       (1,860)
                                                   ---------     ---------     ---------     ---------     ---------     ---------
Balances - January 31, 1998                           31,248           312           (75)      198,893        12,905       212,035

Purchase of treasury stock at cost                      (427)           (4)       (1,127)         --            --          (1,131)
Issuance of stock pursuant to acquisitions             2,059            21          --          25,785          --          25,806
Issuance of stock pursuant to stock plans                 36          --            --             130          --             130
Issuance costs and other                                --            --            --             (93)          (87)         (180)
Net loss for the year ended January 31, 1999            --            --            --            --        (130,760)     (130,760)
                                                   ---------     ---------     ---------     ---------     ---------     ---------
Balances - January 31, 1999                           32,916     $     329     $  (1,202)    $ 224,715     $(117,942)    $ 105,900
                                                   ---------     ---------     ---------     ---------     ---------     ---------
                                                   ---------     ---------     ---------     ---------     ---------     ---------

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

</TABLE>


                                      F-5

<PAGE>

                                PHYMATRIX CORP.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                         Year Ended January 31,          
                                                                 -------------------------------------
                                                                    1999         1998          1997 
                                                                 ---------     ---------     ---------
<S>                                                              <C>           <C>           <C>      
Cash flows from operating activities:
  Net income (loss)                                              $(130,760)    $  10,299     $  15,290
  Noncash items included in net income (loss):
    Depreciation and amortization                                   14,786        10,800         7,382
    Extraordinary item                                              96,784          --            --
    Gain on sale of assets                                          (5,414)       (1,891)         (292)
    Nonrecurring charges                                            10,465          --            --
    Write-down of notes receivable                                   2,674          --            --
    Goodwill impairment write-down                                   9,093          --            --
    Amortization of debt issuance costs                              1,708           727           277
    Issuance of common stock as compensation                          --            --             628
    Other                                                              656          (688)         (359)
Changes in receivables                                              (1,699)       (8,571)      (14,154)
Changes in accounts payable and accrued liabilities                 (1,020)          215        (3,637)
Changes in amounts due from physicians                               3,216        (6,243)       (1,006)
Changes in other assets                                             (5,393)       (6,932)        1,518
                                                                 ---------     ---------     ---------
    Net cash provided (used) by operating activities                (4,904)       (2,284)        5,647

Cash flows from investing activities:
Capital expenditures                                                (6,601)      (10,248)       (5,687)
Sale of assets                                                       7,888         4,019         1,244
Notes receivable, net                                               (2,550)        6,957       (15,214)
Purchase of investments in affiliates                                 --          (1,354)         --
Other assets                                                          (110)          439        (1,440)
Acquisitions, net of cash acquired (Note 17)                       (11,164)      (34,444)      (27,734)
                                                                 ---------     ---------     ---------
    Net cash used by investing activities                          (12,537)      (34,631)      (48,831)

Cash flows from financing activities:
  Borrowings under revolving lines of credit, net                     --          26,571         3,132
  Advances to shareholders                                         (10,904)         --         (15,523)
  Proceeds from issuance of common stock                               130           914           360
  Dividends to shareholders                                           --          (1,861)       (1,732)
  Proceeds from issuance of convertible subordinated debentures       --            --          96,566
  Release of cash collateral                                          --           4,504         1,997
  Offering costs and other                                            (234)          (88)       (2,823)
  Repurchase of treasury stock                                        (769)         --            --
  Repayment of debt                                                (10,181)      (25,239)       (7,179)
                                                                 ---------     ---------     ---------
    Net cash provided (used) by financing activities               (21,958)        4,801        74,798

Increase (decrease) in cash and cash equivalents                   (39,399)      (32,114)       31,614
Cash and cash equivalents, beginning of year                        49,536        81,650        49,709
                                                                 ---------     ---------     ---------
Cash and cash equivalents, end of year                           $  10,137     $  49,536     $  81,323
                                                                 ---------     ---------     ---------
                                                                 ---------     ---------     ---------

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

</TABLE>


                                      F-6

<PAGE>


                                 PHYMATRIX CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   DESCRIPTION OF BUSINESS AND RECENT EVENTS

DESCRIPTION OF BUSINESS

     PhyMatrix Corp. (together with its subsidiaries, the "Company" or 
"PhyMatrix") is repositioning itself as a company that provides diverse 
services supporting the needs of the pharmaceutical and managed care 
industries. The Company is focusing its operations on two integrated business 
lines: pharmaceutical services, including investigative site management, 
clinical and outcomes research and disease management, as well as multi and 
single-specialty provider network management. Historically, the Company has 
been an integrated medical management company that provides medical 
management services to the medical community, certain ancillary medical 
services to patients and medical real estate development and consulting 
services to related and unrelated third parties. In August 1998, the Company 
announced that it planned to change this business model. The Company is in 
the process of terminating its management of individual and group physician 
practices and divesting itself of related assets, and selling and divesting 
itself of its ancillary medical service businesses, such as diagnostic 
imaging, radiation therapy, lithotripsy services, home healthcare and 
infusion therapy. The Company also has significantly downsized its medical 
facility development and consulting services. The Company currently estimates 
that by the end of its current fiscal year it will have exited its physician 
practice management ("PPM") and ancillary medical service businesses.

     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 ("DASCO") by Mr. Gosman and 
Bruce A. Rendina, 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 and biotechnology companies and clinical research 
organizations at 38 centers located in 16 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.

RECENT EVENTS

     During May 1998, the Company announced that the Board of Directors had
instructed management to explore various strategic alternatives for the Company
that could maximize stockholder value. During August 1998, the Company announced
that the Board of Directors approved several strategic alternatives to enhance
stockholder value. The Board authorized a series of initiatives designed to
restructure the Company as a significant company in pharmaceutical contract
research, specifically clinical trials site management and outcomes research.
The Company intends to link its nationally focused hospital affiliations and its
physician networks with its clinical trials site management and healthcare
outcomes research operations.

     During August 1998, the Board approved, consistent with achieving its 
stated restructuring goal, its plan to divest and exit the Company's PPM 
business and certain of its ancillary services businesses, including 
diagnostic imaging, lithotripsy and radiation therapy. Subsequent to August 
1998, the Company has also decided to divest its home health business and 
exit its infusion therapy business. Net loss for the year ended January 31, 
1999 included an extraordinary item of $96.8 million which is primarily a 
non-cash charge related to 

                                       F-7

<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


these divestitures. In accordance with APB 16, the Company is required to 
record these charges as an extraordinary item since impairment losses are 
being recognized for divestitures and disposals expected to be completed 
within two years subsequent to a pooling of interests (the pooling of 
interests with CSL was effective October 15, 1997). Based on fair market 
value estimates, which have primarily been derived from letters of intent, 
letters of interest and discussions with prospective buyers, the Company 
currently expects to realize net proceeds of approximately $100.8 million 
from the sale of the businesses identified to be divested or disposed and has 
recorded this amount as an asset held for sale on the balance sheet at 
January 31, 1999.

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 estimated proceeds to be realized from the
assets held for sale, collectibility of receivables and third party settlements,
depreciation and amortization, taxes and contingencies.

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 revenues 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. These revenues are reported 
net of payments to physicians.

     Net revenues from clinical studies (which are included in net revenues 
from services) equals the fees to be received, primarily from pharmaceutical 
companies, 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, 1999 and 
1998 are unbilled contract receivables of $4.6 million and $3.9 million, 
respectively.

     Net revenues from management service agreements include fees paid to the
Company by the management service agreements for providing management services.
These fees generally are either a fixed amount per enrollee or a specified
percentage of capitated revenues. In addition, the Company may be entitled to
participate in risk pools.


                                      F-8


<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


     In accordance with EITF 97-2, which the Company implemented during the
fourth quarter of fiscal 1999, net revenues from management service agreements
generally includes the net revenue generated by the physician practices net of
payments to physicians. Under the agreements, the Company, in most cases, is
responsible and at risk for the operating costs which include the reimbursement
of all medical practice operating costs. For the years ended January 31, 1999,
1998 and 1997, the payments to physicians which have been netted against
revenues were $67.7 million, $65.4 million and $42.2 million, 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, 1999, 1998 and 1997, approximately 16%, 19%
and 28%, 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.

ASSETS HELD FOR SALE

     During August 1998, the Board approved, consistent with achieving its 
stated restructuring goal, its plan to divest and exit the Company's PPM 
business and certain of its ancillary services businesses, including 
diagnostic imaging, lithotripsy and radiation therapy. Subsequent to August 
1998, the Company has also decided to divest its home health business and 
exit its infusion therapy business. Net loss for the year ended January 31, 
1999 includes an extraordinary item of $96.8 million which is primarily a 
non-cash charge related to these divestitures. In accordance with APB 16, the 
Company is required to record these charges as an extraordinary item since 
impairment losses are being recognized for divestitures and disposals 
expected to be completed within two years subsequent to a pooling of 
interests (the pooling of interests with CSL was effective October 15, 1997). 
Based on fair market value estimates, which estimates were primarily derived 
from letters of intent, letters of interest and discussions with prospective 
buyers, the Company currently expects to realize net proceeds of 
approximately $100.8 million from the sale of the businesses identified to be 
divested or disposed and has recorded this amount as an asset held for sale 
on the balance sheet at January 31, 1999. Assets and liabilities of the 
businesses held for sale have been removed from their respective accounts and 
therefore are excluded from the foregoing footnote disclosures related to 
these individual balance sheet items at January 31, 1999, since these amount 
have been reclassed to assets held for sale.

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


                                      F-9

<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


different periods for income tax and financial reporting purposes.

     Prior to the merger 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 merger. Prior to the merger, 
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
(prior to the merger with CSL) 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
$3.2 million and $6.0 million at January 31, 1999 and 1998, respectively. The
decrease in accumulated amortization of goodwill is primarily attributable to
the entities divested/disposed during the year ended January 31, 1999 or the
reclassification of accumulated amortization to assets held for sale at January
31, 1999.

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 25 
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. Accumulated amortization of management service 
agreements was $1.4 million and $4.1 million at January 31, 1999 and 1998, 
respectively. The decrease in accumulated amortization of management service 
agreements is primarily attributable to the entities divested/disposed during 
the year ended January 31, 1999 or the reclassification of accumulated 
amortization to assets held for sale at January 31, 1999. Effective February 
1, 1998, management changed its policies regarding amortization of its 
management services agreement intangible assets. The Company adopted a 
maximum of 25 years (from the inception of the respective intangible asset) 
as the useful life for amortization of its management services agreement 
intangible assets. Using the unamortized portion of the intangible at January 
31, 1998, the Company began amortizing the intangible over the remainder of 
the 25 year useful life. These costs had historically been charged to expense 
through amortization using the straight line method over the periods during 
which the agreements are effective, generally 30 to 40 years. This change 
represented a change in accounting estimate and, accordingly, does not 
require the Company to restate reported results for prior years. This change 
increased amortization expense relating to existing intangible assets at 
January 31, 1998, by approximately $0.7 million annually.

DEBT ISSUANCE COSTS

     Offering costs of approximately $5.6 million related to the convertible
subordinated debentures and the revolving line of credit agreement (see Note 9)
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. The revolving line of credit agreement was amended during December
1998 and the maturity was changed to March 1999. Therefore, the amortization of
the debt issuance costs related to this line of credit were accelerated,
resulting in additional amortization expense of $0.6 million for the year ended
January 31, 1999. Amortization expense of


                                      F-10


<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


$1.7 million, $0.7 million and $0.3 million has been included as interest
expense in the accompanying financial statements for the years ended January 31,
1999, 1998 and 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.

     In connection with the Board of Directors' plan to reposition the 
Company, and due in part to the resignation of Bruce A. Rendina as Chief 
Executive Officer of the Company's real estate services segment, the Company 
has made the decision to significantly downsize its real estate services 
segment. During the fourth quarter ended January 31, 1999, the Company 
recorded a goodwill impairment write-down of approximately $9.1 million which 
eliminates the remaining goodwill of the real estate services segment. The 
asset of goodwill was determined to have been impaired because of the 
Company's decision to significantly downsize the real estate segment and the 
inability to generate future operating income without substantial revenue 
growth, which is uncertain. Moreover, anticipated future cash flows of the 
real estate segment indicate that the recoverability of the asset is not 
likely.

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.

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, 1999, 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.


                                      F-11

<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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.

COMPREHENSIVE INCOME

     For the periods included in the Form 10-K, the Company does not have 
items of comprehensive income requiring reporting or disclosure.

ACCOUNTING PRONOUNCEMENTS AND 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. PPMs are 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. Adoption of this statement reduced previously
reported revenues and expenses for the years ended January 31, 1998 and 1997 by
$65.4 million and $42.2 million, respectively. During August 1998, the Company
announced its plan to divest and exit the PPM business. The majority of these
assets which have not yet been divested are recorded as assets held for sale at
January 31, 1999.

     During the year ended January 31, 1999, the Company adopted SFAS 131,
"Disclosures About Segments of an Enterprise and Related Information." 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 adoption of SFAS 131 did not affect results of
operations or financial position but did affect the disclosure of segment
information (see Note 21).


3.   ACQUISITIONS

YEAR ENDED JANUARY 31, 1999 TRANSACTIONS (ALL INFORMATION RELATED TO THE NUMBER
OF PHYSICIANS IS AS OF THE TRANSACTION DATE)

     During February 1998, the Company purchased New England Research Center, a
clinical research center located in Massachusetts. At the time of its
acquisition, New England Research Center had 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 $5.7 million. Of such purchase price, approximately $1.5 million
was paid in cash and 333,006 shares of Common Stock were issued having a value
of $4.3 million. The purchase price was allocated primarily to management
services agreements and is currently being amortized over 25 years.

     During February 1998, the Company completed the formation of an MSO with
Beth Israel Medical Center and the physician organizations that represented more
than 1,700 physicians of Beth Israel and its parent corporation. The Company
owns one-third of the MSO. The Company provides management services for the MSO
which provides 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.


                                      F-12


<PAGE>
                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


     During February 1998, the Company purchased a diagnostic imaging center
located in Delray Beach, Florida. The base purchase price was approximately $6.6
million. The base purchase price was paid in 495,237 shares of Common Stock of
the Company. There was also a potential contingent payment up to a maximum of
$2.0 million which was not earned. The purchase price was allocated to the
assets at fair market value including goodwill of $6.6 million. The resulting
intangible has been amortized over 25 years. At January 31, 1999, the Company
has recorded the estimated net realizable value of this business as assets held
for sale.

     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 $5.1
million of Common Stock. There is also a contingent payment up to a maximum of
$1.9 million based on the center's earnings before taxes, which is payable in
cash and/or Common Stock of the Company. As of January 31, 1999, this contingent
payment has not been earned. The purchase price was allocated to the assets at
fair market value including management services agreements of $5.1 million. The
resulting intangible has been amortized over 25 years. At January 31, 1999, the
Company has recorded the estimated net realizable value of this business as
assets held for sale.

     During April 1998, the Company completed the formation of an MSO, which is
51% owned by the Company, with LIPH, LLC. The Company manages for the MSO the
medical risk contracting for more than 2,600 physicians which are members in
IPAs in New York. The base purchase price was $3.0 million. Of such price, $1.5
million was paid in cash and 143,026 shares of Common Stock were issued having a
value of $1.5 million. There are also contingent payments up to a maximum of
$5.0 million payable in cash and Common Stock, with $4.0 million of such amount
based upon earnings during the three years after the closing date and the
remaining $1.0 million based upon the achievement of certain conditions during
any twelve-month period during the three years after the closing date. The
Company and LIPH, LLC are in dispute as to amounts owed to the Company primarily
for management services provided.

     During April 1998, the Company acquired the business and certain assets of
a clinical research company in Massachusetts. The base purchase price was $2.6
million plus the assumption of liabilities of approximately $0.4 million. Of
such purchase price, $1.5 million was paid in 144,405 shares of Common Stock of
the Company, $70,000 is payable in shares of Common Stock on the first
anniversary of the closing date and $1.1 million is payable in shares of Common
Stock of the Company on the second anniversary of the closing date. In addition,
there is a contingent payment up to a maximum of $2.4 million payable in Common
Stock based on earnings before taxes during the next four years. As of January
31, 1999, this contingent payment has not been earned. The purchase price was
allocated to the assets at fair market value including goodwill of $2.7 million.
The resulting intangible is being amortized over 20 years.

     During January 1999, the Company acquired the stock of, and entered into 
a management agreement with, a clinical research company specializing in 
allergy and asthma research located in Illinois. The purchase price for the 
stock was approximately $4.2 million. Of such purchase price, $1.6 million 
was paid in cash during March 1999 and $2.6 million is payable primarily 
under non-interest bearing promissory notes between the second and fifth 
anniversaries of the closing date. The purchase price was allocated to the 
assets at fair market value including management service agreements of $3.5 
million. The resulting intangible is being amortized over 25 years.

                                      F-13

<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



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 $2.4 million. The transaction has been accounted
for using the pooling-of-interests method of accounting. During the year ended
January 31, 1999, the Company divested this practice.

     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 $2.5 million. Of such purchase price, $1.4 million was paid in cash and
75,293 shares of Common Stock of the Company were issued having a value of $1.1
million. The purchase price was allocated to the assets at their fair market
value, including management service agreements of $1.4 million. The resulting
intangible is being amortized over 25 years. At January 31, 1999, the Company
has recorded the estimated net realizable value of this business as assets held
for sale.

     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 $2.6 million. The amount paid has been allocated to
management service agreements and is being amortized over 25 years. At January
31, 1999, the Company has recorded the estimated net realizable value of this
business as assets held for sale.

     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 may expend up to $40 million, in certain circumstances (none 
of which has been expended as of January 31, 1999), 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 $13.7 million in cash, which was allocated to management service 
agreements and is being amortized over 25 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 $0.7 million 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 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
$12.6 million plus the assumption of debt and capital leases totaling $1.6
million. Of such purchase price, $0.6 million was paid in cash and the remaining
$12.0 million 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
$2.7 million based on the centers' earnings before taxes over the two years
subsequent to the closing, which is payable in cash. During September 1998, the
Company paid $1.3 million of such contingent payment in cash and has accrued for
the remaining $1.3 million at January 31, 1999. The purchase price was allocated
to the assets at their fair market value, including goodwill of $13.0 million.
The resulting intangible is being amortized over 30 years. At January 31, 1999,
the Company has recorded the estimated net realizable value of this business as
assets held for sale.

     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


                                      F-14

<PAGE>

                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

having a total value of $2.0 million. The purchase price was allocated to
goodwill and is being amortized over 20 years. At January 31, 1999, the Company
has recorded the estimated net realizable value of this business as assets held
for sale.

     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 $10.5 million in cash, $15.0 million in
convertible notes and the assumption of $1.6 million in debt. The convertible
notes bear interest at 5% and were paid in three equal installments in November
1997 and February and May 1998. At the option of the Company, the notes were
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 and the final
installment was paid in cash during May 1998. The amount paid was allocated to
the assets at their fair market value, including management service agreements
of $23.0 million and is being amortized over 25 years. At January 31, 1999, the
Company has recorded the estimated net realizable value of this business as
assets held for sale.

     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 $1.7
million. Of such amount, approximately $0.2 million was paid in cash and $1.5
million 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 $1.6 million, and is being amortized
over 25 years. At January 31, 1999, the Company has recorded the estimated net
realizable value of this business as assets held for sale.

     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 $9.5 million. Of such amount, approximately $0.2 million was
paid in cash, $0.8 million was assumed debt and $8.5 million 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 $8.1 million, and is being amortized over 25 years. At January 31,
1999, the Company has recorded the estimated net realizable value of this
business as assets held for sale.

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
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.


                                      F-15

<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                ADJUSTED
                                                                                  PRO FORMA     PRO FORMA
                                                           PHYMATRIX      CSL     COMBINED      COMBINED
                                                           ---------      ---     ---------     ---------
                                                                    (IN THOUSANDS EXCEPT PER SHARE DATA)

                                                                FOR THE YEAR ENDED JANUARY 31, 1998
                                                           ----------------------------------------------
<S>                                                         <C>         <C>        <C>           <C>     
Revenues                                                    $251,211    $29,968    $281,179      $281,179
Net income                                                    $7,253     $2,422      $9,675       $20,368
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          24,482      5,208      29,690        29,690
Weighted average number of shares outstanding--diluted        24,940      5,289      30,229        30,229

</TABLE>

<TABLE>
<CAPTION>

                                                                 FOR THE YEAR ENDED JANUARY 31, 1997
                                                           ----------------------------------------------
<S>                                                         <C>         <C>        <C>          <C>     
Revenues                                                    $147,716    $18,040    $165,756     $165,756
Net income                                                  $ 12,057    $ 1,940    $ 13,997     $ 15,154
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          22,196      5,099      27,295       27,295
Weighted average number of shares outstanding--diluted        22,491      5,192      27,682       27,682

</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,        JANUARY 31,
                                                                                   1996               1998
                                                                               ------------        -----------
                                                                                        (IN THOUSANDS)
<S>                                                                             <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                $ --
Consulting fees based on a profit sharing arrangement. The profit
   sharing arrangement was terminated during 1997.                                  314                  --
Management fees paid to the principal shareholders of CSL.                          987                  907
                                                                                -------                -----
 Total nonrecurring items                                                         1,929                  907
 After tax impact of nonrecurring items                                         $ 1,157                $ 544

</TABLE>

     Prior to its merger with the Company, CSL reported on a fiscal year ending
December 31. 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, 
transaction expenses of $10.2 million 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:

                                      F-16
<PAGE>

                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<TABLE>
<CAPTION>

                                        CSL        PHYMATRIX        TOTAL
                                        ---        ---------        -----
                                                (IN THOUSANDS)
<S>                                   <C>             <C>         <C> 
Legal                                   $200          $300           $500
Accounting                               200           175            375
Investment Banking                     3,600           325          3,925
Other                                    250           100            350
                                      ------          ----        -------
Subtotal transaction expenses          4,250           900          5,150
                                      ------          ----        -------
CNS Consulting (1)                     5,000           --           5,000
                                      ------          ----        -------
Total                                 $9,250          $900        $10,150
                                      ------          ----        -------
                                      ------          ----        -------

</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 $3.2 million. Of such purchase price, $0.9
million was paid in cash and 180,717 shares of Common Stock of the Company were
issued during May 1997 having a value of $2.3 million. There is also a
contingent payment up to a maximum of $2.0 million 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. During
May 1998, the Company issued 88,149 shares of Common Stock of the Company having
a value of $1.1 million, representing a portion of the aforementioned contingent
payment. As of January 31, 1999, no additional amount has been earned. 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 $3.6
million, paid in 244,510 shares of Common Stock of the Company. There is also a
contingent payment up to a maximum of $2.0 million 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. As of
January 31, 1999, this contingent amount has not been earned. The purchase price
has been allocated to the assets at their fair market value including goodwill
of $3.6 million. The resulting goodwill is being amortized over 30 years.

     The accompanying financial statements include the results of operations
derived from the businesses purchased by the Company since their respective date
of acquisition. The following unaudited pro forma information presents the
results of operations of the Company for the years ended January 31, 1999 and
1998 as if the acquisition of the entities purchased during such fiscal years
had been consummated on February 1, 1997. 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:


                                      F-17
<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>

                                                        PRO FORMA
                                                       JANUARY 31,
                                            ------------------------------------
                                                  1999               1998
                                            ---------------     ----------------
                                                        (UNAUDITED)
                                            (IN THOUSANDS EXCEPT PER SHARE DATA)
                                            ------------------------------------

      <S>                                        <C>              <C>
      Revenues                                   $295,369         $310,729
      Net income (loss)                          (129,070)          15,647
      Net income (loss) per share--basic         $  (3.92)        $   0.48
      Net income (loss) per share--diluted       $  (3.92)        $   0.48

</TABLE>


4.   EXTRAORDINARY ITEMS AND NONRECURRING CHARGES

     During August 1998, the Company initiated its plan to divest and exit 
the PPM business and certain of its ancillary service businesses. Through the 
nine months ended October 31, 1998, the Company had recorded an extraordinary 
charge (net of tax of $8.4 million) of $51.6 million related to the planned 
divestitures. During the fourth quarter ended January 31, 1999, the Company 
recorded an additional extraordinary charge of $45.2 million. In accordance 
with APB 16, the Company is required to record these charges as an 
extraordinary item since impairment losses are being recognized for 
divestitures and disposals expected to be completed within two years 
subsequent to a pooling of interests (the pooling of interests with CSL was 
effective October 15, 1997). The $45.2 million extraordinary charge during 
the fourth quarter, which was primarily a non-cash charge, consisted of (i) 
approximately $19.0 million resulting from the entities divested during the 
fourth quarter as well as a revision of the estimated proceeds, based on 
current fair market value estimates, for the sale of the remaining businesses 
originally identified to be divested or disposed; (ii) approximately $17.8 
million primarily related to the Company's decision, during the fourth 
quarter, to divest its home health business and exit its infusion therapy 
business; and (iii) approximately $8.4 million represented a tax benefit that 
was applied to the extraordinary item during the nine months ended October 
31, 1998 and subsequently applied to ordinary income in the fourth quarter as 
required by SFAS 109. Extraordinary items generated a tax loss of $54.0 
million. This loss cannot reasonably be expected to be utilized in the 
future. Accordingly, a full valuation allowance has been established at 
January 31, 1999.

     During the year ended January 31, 1999, the Company recorded a 
nonrecurring pretax charge of $10.5 million. Of this amount, $8.7 million 
related primarily to the termination of several physician management and 
employment agreements prior to the Company's decision in August 1998 to 
restructure (see Note 1) and $1.8 million related to the write-off of the 
remaining investment in an ambulatory surgery center.

5.   NOTES RECEIVABLE

     As of January 31, 1999 and 1998, the Company loaned an aggregate of $2.7
million 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. The notes have a variable rate of interest, a
final maturity in April 2004 and are collateralized by shares of Common Stock of
the Company.

     In connection with the sale of real estate during the years ended January
31, 1999 and 1998, the Company recorded notes receivable of $5.2 million and
$1.7 million, respectively. The notes bear interest at 9.5% and 8.5%,
respectively, and have final maturities through August 2008.


                                      F-18
<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


     As of January 31, 1999 and 1998, the Company had loaned an aggregate net
amount of $1.9 million and $2.5 million, respectively, to various other entities
and individuals (including $1.0 million to an officer of the Company during May
1998, $0.9 million to a limited partnership in which Mr. Gosman is a partner and
$1.0 million to an employee during March 1997). The $1.0 million loaned to an
employee during March 1997 was collateralized by shares of Common Stock of the
Company. The notes bear interest at rates ranging from 5.56% to the prime rate
plus 1% and have final maturities ranging from October 1998 to June 2012.

     During the year ended January 31, 1999, the Company wrote down certain
notes receivable that were collateralized by shares of Common Stock of the
Company to their estimated net realizable value. In the case of one such note
receivable the shares of Common Stock were tendered to the Company in
satisfaction of the note and accordingly the Company recorded the shares as
treasury stock. Based on the estimated net realizable value of these notes
receivable which were collateralized by shares of Common Stock of the Company,
the Company recorded a pretax charge of approximately $2.7 million.

     In connection with the divestiture of two physician practices and an
investment in a lithotripsy entity, the Company had recorded notes receivable of
approximately $2.6 million during the year ended January 31, 1999 which remained
outstanding at January 31, 1999.

6.   PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

<TABLE>
<CAPTION>

                                  ESTIMATED                JANUARY 31,        
                                 USEFUL LIFE       ---------------------------
                                    (YEARS)           1999             1998   
                                 -----------       -----------      ----------
                                                          (IN THOUSANDS)
<S>                                 <C>             <C>               <C>    
Land                                --              $ 3,926           $ 5,502
Building                            15                  795               835
Furniture and fixtures              5-7               5,152            12,969
Equipment                           5-10              2,160            29,079
Automobiles                         3-5                --                  66
Computer software                   5                 1,173             1,482
Leasehold improvements              4-20                640             7,642
                                                    -------           -------
Property and equipment, gross                        13,846            57,575
                                                    -------           -------
Less accumulated depreciation                        (2,822)          (13,280)
                                                    -------           -------
Property and equipment, net                         $11,024           $44,295
                                                    -------           -------
                                                    -------           -------

</TABLE>

     Depreciation expense was $6.1 million, $5.0 million and $4.2 million,
respectively, for the years ended January 31, 1999, 1998 and 1997, respectively.

     Included in property and equipment at January 31, 1998 are assets under
capital leases of $4.8 million, with accumulated depreciation of $1.1 million.

     During the year ended January 31, 1999, the Company sold real estate and a
radiation therapy center for $7.8 million and $2.5 million, respectively. These
sales resulted in gains of $4.5 million and $0.9 million, respectively. In
connection with the sale of real estate, $2.6 million was paid in cash and the
Company recorded a note receivable for the balance of $5.2 million. During the
year ended January 31, 1998 the gain on sale of assets resulted primarily from
the sale of a radiation therapy center and real estate. Proceeds from these
sales were $1.5 million and $3.1


                                      F-19
<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


million (including a $1.7 million note receivable), respectively. These sales
resulted in gains of $0.7 million and $1.2 million, respectively.


7.   INVESTMENT IN AFFILIATES

     On December 31, 1994, the Company purchased a 36.8% interest in Mobile 
Lithotripter of Indiana Partners, for $2.7 million. During December 1998, the 
Company, in connection with its plan to divest and exit the lithotripsy 
business, sold this investment for $1.9 million. During August 1995, the 
Company purchased a 46% interest in I Systems, Inc., for $0.2 million. 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, 1999, the Company's ownership 
interest in I Systems, Inc. was approximately 49% and such investment is 
included in assets held for sale. This investment is being accounted for 
using the equity method at January 31, 1999. During 1997, the Company entered 
into a partnership agreement whereby it became a 50% partner in an ambulatory 
surgery center. The Company contributed approximately $1.5 million to the 
partnership for its partnership interest. During the year ended January 31, 
1999, the Company recorded a nonrecurring pretax charge of $1.8 million to 
write-off its remaining investment in the ambulatory surgery center as well 
as accrue for its portion of the future lease obligations.

8.   ACCRUED AND OTHER CURRENT LIABILITIES

     Accrued and other current liabilities consist of the following:
<TABLE>
<CAPTION>

                                                          JANUARY 31,
                                                 ----------------------------
                                                    1999              1998
                                                 ----------        ----------
                                                         (IN THOUSANDS)
<S>                                                <C>             <C>
Accrued rent                                       $ 1,442         $   321
Accrued income taxes (1)                               515           2,325
Accrued professional fees                            2,116           2,368
Accrued additional purchase price                    1,000            --
Accrued interest                                       907           1,332
Unearned revenue                                     2,015           3,433
Other                                                3,628           3,752
                                                   -------         -------
Total accrued and other current liabilities        $11,623         $13,531
                                                   -------         -------
                                                   -------         -------
                                                            
</TABLE>

(1) Included in accrued income taxes is a deferred tax liability of $0.4 million
    at January 31, 1998.


                                      F-20

<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


9.   LONG-TERM DEBT, NOTES PAYABLE AND CAPITAL LEASES

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

<TABLE>
<CAPTION>

                                                                                               JANUARY 31,
                                                                                         -----------------------
                                                                                            1999         1998
                                                                                         ----------   ----------
                                                                                              (IN THOUSANDS)

<S>                                                                                       <C>          <C>
Convertible subordinated debentures, with an interest rate of 6.75%,  a
    maturity date of June 15, 2003, and a conversion price of $28.20 per share.           $100,000     $100,000
Note payable due to four individuals payable in eight equal semi-annual
    installments of $28,125, including interest at 8% through November 1998.                  --             28
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%.        --            174
Note payable to a bank, collateralized by the assets of a multispecialty group
    practice, payable in monthly installments of $20,608, at 8.75%.                           --            580
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.                                            686          697
Note payable to a bank, payable in monthly installments, interest at the prime
    rate plus .375% and a final maturity of June 1998.                                        --            356
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
Note payable to former shareholders of a clinical research company. The note is
    non-interest bearing and has a final maturity of January 2004.                           3,760          --
Convertible acquisition notes payable with various maturity dates through
    August 31, 2001 and interest rates ranging from 5% to 7%.                                3,925        14,425
Acquisition earnouts payable with various maturity dates through 2001.                         138           181
Revolving line of credit with a financial institution with a maturity date of
    March 1999 and an interest rate of 9% at January 31, 1999.                               9,117        10,000
Note payable to a financing institution with a maturity date of January 2000 and
    an interest rate of 16.50%.                                                                --            316
Capital lease obligations with maturity dates through September 2015 and
    interest rates ranging from 8.75% to 12%.                                                   31         4,080
                                                                                          --------      --------
                                                                                           117,657       134,359
Less current portion of capital leases                                                          (6)       (1,193)
Less current portion of debt                                                               (12,186)      (12,549)
                                                                                          --------      --------
Long-term debt and capital leases                                                         $105,465      $120,617
                                                                                          --------      --------
                                                                                          --------      --------

</TABLE>

     The convertible acquisition notes payable are convertible into Common Stock
of the Company. At the option of the note holders, $4.4 million of the amount
outstanding at January 31, 1998 is convertible at a conversion price of $16.425
per share. Of this amount, $0.5 million was repaid in cash during the year ended
January 31, 1999. At the option of the Company, $10.0 million of the amount
outstanding at January 31, 1998 was payable in either cash or Common Stock of
the Company. Of such amount $5.0 million was paid in shares of Common Stock of
the Company during February 1998 and $5.0 million was paid in cash during May
1998.

     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. During December 1998, the Company amended the credit
agreement to reduce the availability thereunder, modify covenants and provide
for the expiration of the line of credit in March 1999. At January 31, 1999,
$14.6 million was outstanding ($5.5 million of which was


                                      F-21
<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


for letters of credit). The credit agreement existing at January 31, 1999
(i) prohibited the payment of dividends by the Company; (ii) limited the
Company's ability to incur indebtedness and make acquisitions except as
permitted under the credit agreement and (iii) required the Company to comply
with certain financial covenants which include minimum net cash flow
requirements. The maximum amount outstanding under the line of credit during the
year ended January 31, 1999 was $10.0 million (not including letters of credit).

     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, 1999:

<TABLE>
<CAPTION>

                                                                                      CAPITAL
                                                                        DEBT          LEASES
                                                                        ----          -------
                                                                           (IN THOUSANDS)

<S>                                                                  <C>            <C> 
Through  January 31, 2000                                            $  12,186      $ 10
Through  January 31, 2001                                                  892        10
Through  January 31, 2002                                                2,794        10
Through  January 31, 2003                                                1,054         8
Through  January 31, 2004                                              100,000       --
Thereafter                                                                 701       --
                                                                     ---------      ----
Total                                                                  117,627        38
Less amounts representing interest and executory costs                    --          (8)
                                                                     ---------      ----
Total long-term debt and present value of minimum lease payments       117,627        30
Less current portion                                                   (12,186)       (6)
                                                                     ---------      ----
Long-term portion                                                    $ 105,441      $ 24
                                                                     ---------      ----
                                                                     ---------      ----

</TABLE>

10.  LEASE COMMITMENTS

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

     Future minimum lease commitments (including entities held for sale)
consisted of the following at January 31 (in thousands):

<TABLE>
               <S>               <C>
               2000             $11,019
               2001               8,026
               2002               6,732
               2003               5,811
               2004               4,489
               Thereafter         7,743
                                -------
                                $43,820
                                -------
                                -------

</TABLE>

11.  TREASURY STOCK

     During 1998, the Board of Directors authorized a share repurchase plan
pursuant to which the Company may repurchase up to $15.0 million of its Common
Stock from time to time on the open market at prevailing market prices. Through
January 31, 1999, the Company had repurchased 304,000 shares at a net purchase
price of $0.8 million. During December 1998, the Board of Directors temporarily
discontinued the share repurchase plan until the completion of certain asset
sales at which time it will be reinstated.


                                      F-22
<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


12.  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, or awards
with respect to these legal proceedings, if any, it does not believe that they
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.

     On October 18, 1997, the Florida Board of Medicine, which governs
physicians in Florida, declared that the payment of percentage-based fees by a
physician to a physician practice management company in connection with
practice-enhancement activities subjects a physician to disciplinary action for
a violation of a statute which prohibits fee-splitting. Some of the Company's
contracts with Florida physicians include provisions providing for such
payments. The Company is currently in the process of appealing the ruling to a
Florida District Court of Appeals and the Board has stayed the enforceability of
its ruling pending the appeal. In the event the Board of Medicine's ruling is
eventually upheld, the Company may be forced to renegotiate those provisions of
the contracts which are affected by the ruling. While these contracts call for
renegotiation in the event that a provision is not found to comply with state
law, there can be no assurance that the Company would be able to renegotiate
such provisions on acceptable terms. The majority of the contracts affected by
this ruling are with the physician practices the Company has identified to be
divested or disposed and for which the assets are included in assets held for
sale at January 31, 1999.

     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.

     In conjunction with a physician practice management agreement with a
physician practice in Florida, the Company has filed suit against the practice
to enforce the guarantees executed in connection with the management agreement.
The practice has filed a counterclaim. The Company intends to vigorously
prosecute and defend the case. However, if the Company is not successful it
may be required to record an impairment charge up to a maximum of $3.7 million.

     The Company has entered into employment agreements with certain of its 
employees, which include, among other terms, noncompetition provisions and 
salary and benefits continuation. During December 1998, Robert A. Miller 
resigned as President and a member of the Board of Directors of the Company. 
In addition, during December 1998, the Company and Robert A. Miller entered 
into a Separation and Severance Agreement (the "Miller Severance Agreement") 
and a Consulting Agreement for Physician Practice Management Assets (the 
"Miller Consulting Agreement"). Pursuant to the Miller Severance Agreement, 
the Company is required to pay Mr. Miller a severance payment equal to $0.6 
million, which was recorded as severance expense during the fourth quarter 
ended January 31, 1999. Mr. Miller agreed not to solicit any employees of the 
Company and not to compete against the Company for a period of two years from 
the termination of the Miller Consulting Agreement. The Miller Consulting 
Agreement provides for Mr. Miller to assist the Company in its divestiture of 
certain assets held for sale. In consideration for such services, the Company 
is required to pay to Mr. Miller $0.4 million.

     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, 1999, 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 $24.9 million over the next four years, of which $2.3 million has
been accrued at January 31, 1999. The payments, if required, shall be payable in
cash and/or Common Stock of the Company. The Company also guarantees a loan in
the amount of $3.5 million which matures in March 2000.

     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


                                      F-23

<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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,
1999, the Company had committed to issue $1.1 million of Common Stock of the
Company using the methodology discussed above.


13.  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 $0.9 million and $1.0 million of
such management fees were incurred for the years ended January 31, 1998 and
1997, respectively, and are included in operating expenses.

     An 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 $0.7 million 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.

     The Company occupies office space for 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 and 
Leathers. The terms of the assumed lease are the same as those to which such 
affiliated company was obligated. As of January 31, 1999, the total amount of 
lease payments to be made under the assumed lease through the end of the 
current lease term was estimated to be approximately $0.4 million. During the 
year ended January 31, 1999, the Company leased office space on behalf of 
certain of its affiliated physicians from a limited partnership of which Mr. 
Gosman owns a controlling interest in the limited partner and general 
partner. The aggregate base rent paid during the year under such leases was 
approximately $0.1 million. In January 1997, a privately-held entity 
principally owned by Mr. Gosman assumed the Company's obligations as lessee 
under a capital lease, which obligations then exceeded the fair market value 
of the lease by $0.6 million.

     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. As 
of January 31, 1999, Mr. Gosman, individually and as trustee for his two 
sons, and Frederick R. Leathers had obtained equity interests in an aggregate 
of 17 facilities developed or being developed by DASCO and had interests in 
five of such facilities. The interest of Mr. Gosman (individually and as 
trustee) in such facilities ranged from 6.0% to 40.1%. The interest of Mr. 
Leathers ranged from 0.1% to 0.95%. During the years ended January 31, 1999 
and 1998, DASCO recorded revenues in the amount of approximately $3.0 million 
and $19.2 million, respectively, related to facilities developed by DASCO in 
which equity interests have been obtained by related parties. Meditrust 
Corporation and Meditrust Operating Company, a publicly traded real estate 
investment trust (the "Meditrust Companies") of which Mr. Gosman served as 
Chairman of the Board and Chief Executive Officer, respectively, until August 
1998, had provided financing to customers of DASCO in the aggregate amount of 
approximately $229.0 million as of January 31, 1998 for 25 facilities 
developed by DASCO. In January 1998, the Meditrust Companies 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 $200.0 million. The Company received $9.1 
million during 1998 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 the Meditrust Companies during 1998, Messrs. Gosman (individually and 
as trustee for his two sons) and Leathers received $4.7 million and $0.1 
million, respectively, from the sale of the facilities.

     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


                                      F-24

<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


healthcare related facilities (including a medical office building and a 
retirement community). During the years ended January 31, 1999 and 1998, the 
Company recorded revenues in the amount of $1.4 million and $10.5 million, 
respectively, related to such services and as of January 31, 1999, the 
Company advanced $10.9 million, pursuant to a note due in July 2000, to a 
company principally owned by Mr. Gosman relating to the development of a 
healthcare facility. The Company provides these services to such affiliated 
parties on terms no more or less favorable to the Company than those provided 
to unaffiliated parties. Interest on the note accrues at the prime rate. In 
January 1998, the Company transferred to CareMatrix Corporation, of which Mr. 
Gosman is the Chairman of the Board and a principal stockholder, its rights 
under a management agreement with respect to a Florida skilled nursing 
facility in exchange for $0.8 million.

     During September 1995, the Company provided a letter of credit in the
amount of $5.4 million 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 $4.5 million 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.


14.  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 current rates offered to the Company for debt of the 
same remaining maturities or quoted market prices. At January 31, 1999, the 
book value of long-term debt (other than the convertible subordinated 
debentures) and capital leases, including current maturities is $17.7 million 
and which approximates fair value. At January 31, 1999, the estimated fair 
value of the convertible subordinated debentures was $48.4 million. The

                                      F-25

<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


estimated fair value of these convertible subordinated debentures is based on
quoted market prices at January 31, 1999.


15.  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.


16.  INCOME TAXES

     The Company became subject to federal and state income taxes effective the
date of the Company's initial public offering. As a result of the Company's
restructuring, large net operating losses will be utilized to offset prior tax
liabilities.

     Significant components of the Company's provision for income taxes for the
years ended January 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>

                                       1999         1998
                                       ----         ----
                                         (IN THOUSANDS)
<S>                                 <C>            <C>
         Federal
         Current                    $(11,155)      $9,032
         Deferred                       (272)        (813)
                                    ---------      ------
         Total federal               (11,427)       8,219
                                    ---------      ------
         
         State:
         Current                         (54)       1,828
         Deferred                        (68)        (202)
                                    ---------      ------
         Total state                    (122)       1,626
                                    ---------      ------
         Totals:                    $(11,549)      $9,845
                                    ---------      ------
                                    ---------      ------

</TABLE>


                                      F-26

<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


     Significant components of the Company's deferred tax assets and liabilities
as of January 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>

                                                              1999         1998
                                                              ----         ----
                                                                (IN THOUSANDS)
     <S>                                                   <C>           <C>      
     Deferred tax asset
     Allowance for doubtful accounts, reserves
      and other accrued expenses                           $  2,898      $  2,064
     Net operating loss carryforward                         13,550        12,005
     Assets held for sale                                    21,704            --
                                                           --------      --------
     Total deferred tax assets                               38,152        14,069
                                                           --------      --------
     Deferred tax liability
     Property and depreciation                                 (307)       (1,897)
     Amortization                                            (1,767)       (1,199)
     Installment gain                                        (1,210)           --
     Other                                                     (296)         (356)
                                                           --------      --------
     Total deferred tax liability                            (3,580)       (3,452)
                                                           --------      --------

     Deferred tax asset (liability)                          34,572        10,617
                                                           --------      --------
     Valuation allowance                                    (34,572)      (10,956)
                                                           --------      --------
     Net deferred tax liability                            $   --        $   (339)
                                                           --------      --------
                                                           --------      --------

</TABLE>

     The Company reasonably believes that because of the large net operating
loss for the year ended January 31, 1999 and the anticipated losses due to the
restructuring of the Company, the Company may not be able to fully utilize all
the net operating losses. Accordingly, the Company has established a full
valuation allowance on the Company's net deferred tax assets.

     The net operating losses attributable to OTI of $33.1 million will begin 
to expire in 2005.

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

<TABLE>
<CAPTION>

                                                    1999     1998
                                                    ----     ----

     <S>                                            <C>       <C>
     Statutory rate                                 (35%)     35%
     Nondeductible merger expenses                    0%      18%
     Permanent differences                            3%       1%
     Basis difference, assets held for sale          10%       0%
     State income tax (net of federal benefit)        0%       6%
     Change in valuation allowance                   14%     (11%)
                                                    ----     -----
                                                     (8%)     49%
                                                    ----     -----
                                                    ----     -----
</TABLE>



17.  SUPPLEMENTAL CASH FLOW INFORMATION

     During the years ended January 31, 1999, 1998 and 1997, the Company
acquired the assets and/or stock, entered into management and employment
agreements, assumed certain liabilities of various physician practices,
ancillary service companies, networks and organizations and sold certain assets.
In addition, during the years ended January 31, 1999 and 1998, the Company
issued shares of stock which had been committed to be issued in conjunction with
acquisitions completed during the year ended January 31, 1998. During the year
ended


                                      F-27

<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


January 31, 1999, the Company also recorded a goodwill impairment charge, 
terminated several physician management and employment agreements, wrote down 
certain notes receivable to their estimated net realizable value and wrote 
down certain assets that are being held for sale at January 31, 1999 to their 
net realizable value (less cost to sell). The transactions had the following 
non-cash impact on the balance sheets of the Company as of January 31, 1999, 
1998 and 1999:

<TABLE>
<CAPTION>
                                     1999          1998          1997
                                     ----          ----          ----
                                             (IN THOUSANDS)
<S>                               <C>            <C>           <C>     
Current assets                    $  50,284      $  8,981      $  4,692
Property, plant and equipment       (33,806)           16         4,413
Intangibles                        (105,661)       74,418        56,964
Other noncurrent assets              (3,052)        1,391            26
Current liabilities                  (1,836)         (535)       (9,668)
Debt                                  6,520       (12,816)       (8,004)
Noncurrent liabilities                  339         9,740       (11,923)
Equity                               90,489       (50,977)      (10,010)

</TABLE>

     During the year ended January 31, 1997, the Company purchased $0.6 million
of equipment under capital leases. In addition, cash paid for interest during
the years ended January 31, 1999, 1998 and 1997 was $9.3 million, $8.5 million
and $5.6 million, respectively. Cash paid for income taxes for the years ended
January 31, 1999, 1998 and 1997 was $1.1 million, $10.8 million and $3.3
million, respectively.


18.  STOCK OPTION PLAN

     The Company has adopted a stock option plan and authorized the issuance of
4.1 million 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 JANUARY 31,
                                                                  ---------------------------------------------------------------
                                                                         1999                  1998                  1997
                                                                  -------------------    ------------------    ------------------
                                                                             WEIGHTED              WEIGHTED              WEIGHTED
                                                                             AVERAGE               AVERAGE               AVERAGE
                                                                             EXERCISE              EXERCISE              EXERCISE
                                                                   SHARES    PRICE       SHARES    PRICE       SHARES    PRICE
                                                                   ------    --------    ------    --------    ------    --------
                                                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                                                 <C>       <C>        <C>        <C>         <C>       <C>   
Outstanding, beginning of period                                    3,909     $16.12     2,201      $16.68      1,060     $15.03
Options granted:
At fair market value                                                  894       4.94     2,020       14.66      1,107      19.16
Above fair market value (CSL options--see below)                      --          --      --           --         109       3.13
Options exercised                                                     (36)      3.61      (145)       6.31        (52)      6.97
Options canceled                                                   (1,741)     16.95      (167)      14.23        (23)     18.14
                                                                    -----     ------     -----      ------      -----     ------
Outstanding, end of period                                          3,026     $12.11     3,909      $16.12      2,201     $16.68
                                                                    -----     ------     -----      ------      -----     ------

Weighted average fair value of options granted during the year                $ 4.94                $ 7.55                $10.08
                                                                              ------                ------                ------
                                                                              ------                ------                ------

</TABLE>


                                      F-28
<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


     At January 31, 1999, 1998 and 1997, options for 1.3 million, 1.3 million
and 0.8 million, respectively, were exercisable.

     Significant option groups outstanding at January 31, 1999 and related
weighted average price and life are as follows (in thousands):


<TABLE>
<CAPTION>


                                              OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                                -----------------------------------------------    ---------------------------
                                       SHARES                                         SHARES
                                    OUTSTANDING                       WEIGHTED      EXERCISABLE      WEIGHTED
                                         AT           REMAINING        AVERAGE          AT            AVERAGE
             RANGE OF               JANUARY 31,      CONTRACTUAL      EXERCISE      JANUARY 31,      EXERCISE
          EXERCISE PRICE                1999             LIFE           PRICE          1999            PRICE
          --------------           -------------    -------------    ----------    ------------     ----------
          <S>                      <C>              <C>              <C>           <C>              <C>
           $3.00 - $5.00                840            9.8 years         $3.99           12            $3.13
           $6.00 - $12.00                35            9.2               10.13           --               --
          $12.50 - $18.75             1,921            8.2               14.93        1,043            14.99 
          $19.00 - $24.75               230            7.4               19.70          197            19.81 

</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, 1999, 1998 and 
1997: expected volatility (post-offering) of 65%, 56% and 56%, respectively; 
risk free interest rates of 4.7%, 6.0% and 6.4%, respectively; expected 
option life of 4.5, 4.4 and 4.4 years, respectively; 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.

     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, 1999, 1998 and 1997, consistent with SFAS No. 123, 
the Company's net income (loss) and earnings (loss) per share would have been 
reduced to the following pro forma amounts:

<TABLE>
<CAPTION>

                                              YEAR ENDED JANUARY 31,
                                    ----------------------------------------
                                     1999             1998             1997
                                    ------           ------           ------
                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
 <S>                              <C>                <C>             <C>    
 Net income (loss)
 As reported                      $(130,760)         $10,299         $15,290
 Pro forma                        $(133,844)         $ 5,601         $12,536
 Basic earnings (loss) per share
 As reported                         $(3.91)           $0.35           $0.56
 Pro forma                           $(4.01)           $0.19           $0.46
 Diluted earnings (loss) 
   per share
 As reported                         $(3.91)           $0.35           $0.55
 Pro forma                           $(4.01)           $0.19           $0.45

</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.


                                      F-29
<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


19.  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 (LOSS)  SHARES     AMOUNT
                                               ------------   ------    ---------
                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                          <C>               <C>        <C>
YEAR ENDED JANUARY 31, 1999
---------------------------

Basic loss per share
  Loss available to common stockholders      $  (33,976)       33,401     $(1.02)
  Extraordinary item                            (96,784)         --        (2.89)
                                             ----------        ------     ------
Net loss available to common stockholders      (130,760)       33,401      (3.91)

Effect of dilutive securities:                     --            --          --
                                             ----------        ------     ------

Diluted earnings per share                   $ (130,760)       33,401     $(3.91)
                                             ----------        ------     ------
                                             ----------        ------     ------
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
                                             ----------        ------     ------
                                             ----------        ------     ------
YEAR ENDED JANUARY 31, 1997
---------------------------

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, 1999, 1998 and 1997, approximately 3.0
million, 3.5 million and 0.6 million 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, 1999, 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-30
<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


20.  RATIO OF EARNINGS TO FIXED CHARGES

     For the year ended January 31, 1999, the ratio of earnings to fixed charges
was less than 1.0. For the years ended January 31, 1998 and 1997, the ratio of
earnings to fixed charges was 2.29 and 3.46, 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 January 31, 1999, for purposes of computing
the ratio of earnings to fixed charges, the Company's earnings were inadequate
to cover fixed charges by $45.1 million.


21.  SEGMENT INFORMATION

     For the fiscal year ending January 31, 1999, the Company adopted SFAS 
131. The prior year's segment information has been restated to present the 
Company's reportable segments. The Company has determined that its reportable 
segments are those that are based on its current method of internal 
reporting. The reportable segments are: provider network management, site 
management organization, real estate services and assets held for sale. The 
accounting policies of the segments are the same as those described in the 
"Summary of Significant Accounting Policies." There are no intersegment 
revenues and the Company does not allocate corporate overhead to its 
segments. The tables below present revenue, pretax income (loss) prior to 
extraordinary item and net assets of each reportable segment for the 
indicated periods:

<TABLE>
<CAPTION>

                                         PROVIDER         SITE                     ASSETS
                                         NETWORK       MANAGEMENT       REAL      HELD FOR     RECONCILING     CONSOLIDATED
                                        MANAGEMENT    ORGANIZATIONS    ESTATE       SALE        ITEMS (1)         TOTALS
                                        ----------    -------------    ------     --------     -----------     ------------

<S>                                      <C>            <C>           <C>        <C>            <C>             <C>
YEAR ENDED JANUARY 31, 1999
---------------------------

Net revenues                             $ 93,479       $ 33,695      $  8,694   $ 155,410      $   --          $ 291,278
Income (loss) before income
   taxes and extraordinary
   item                                    (2,907)        (6,723)       (8,471)        517       (27,941)         (45,525)
Net assets                                 44,398         20,509         9,301     100,795       (69,103)         105,900

YEAR ENDED JANUARY 31, 1998
---------------------------

Net revenues                              $67,761        $29,968       $31,099     $152,351     $   --           $281,179
Income (loss) before income
   taxes and extraordinary
   item                                     2,310         (7,970)       24,674       13,860      (12,752)          20,122
Net assets                                 45,966         12,195        15,582      189,785      (51,493)         212,035

YEAR ENDED JANUARY 31, 1997
---------------------------

Net revenues                              $16,479        $18,040       $19,049     $112,188     $   --           $165,756
Income (loss) before income
   taxes and extraordinary
   item                                       727          3,233        10,519       11,890       (4,243)          22,126
Net assets                                 18,559          3,460        11,684      119,038        1,039          153,780

</TABLE>

(1)  Reconciling items consist of corporate expenses and corporate net assets
     (primarily the Convertible subordinated debentures, net of cash) which are
     not allocated.


                                      F-31

<PAGE>


                                 PHYMATRIX CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


22.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     The following is a summary of the unaudited quarterly results of operations
for the periods shown (in thousands, except per share data):

<TABLE>
<CAPTION>

                                                                          YEAR ENDED JANUARY 31, 1999
                                                                  -------------------------------------------
                                                                  FIRST       SECOND      THIRD       FOURTH
                                                                  QUARTER     QUARTER     QUARTER     QUARTER
                                                                  -------     -------     -------     -------
<S>                                                               <C>         <C>        <C>         <C>     
 Net revenues                                                     $84,193     $77,362    $ 67,946    $ 61,777
 Income (loss) before income taxes and extraordinary item           9,601          75     (13,790)    (41,411)
 Income (loss) before extraordinary item                            6,453          51      (9,119)    (31,361)
 Extraordinary item                                                  --          --       (51,552)    (45,232)
 Net income (loss)                                                  6,453          51     (60,671)    (76,593)

 Net income per share--basic:
 Income (loss) before extraordinary item                           $ 0.20     $  --      $  (0.27)   $  (0.94)
 Extraordinary item                                                $  --      $  --      $  (1.54)   $  (1.35)
 Net income (loss)                                                 $ 0.20     $  --      $  (1.81)   $  (2.29)

 Net income per share--diluted:
 Income (loss) before extraordinary item                           $ 0.20     $  --      $  (0.27)   $  (0.94)
 Extraordinary item                                                $  --      $  --      $  (1.54)   $  (1.35)
 Net income (loss)                                                 $ 0.20     $  --      $  (1.81)   $  (2.29)

</TABLE>

<TABLE>
<CAPTION>

                                                                          YEAR ENDED JANUARY 31, 1998
                                                                  -------------------------------------------
                                                                  FIRST       SECOND      THIRD       FOURTH
                                                                  QUARTER     QUARTER     QUARTER     QUARTER
                                                                  -------     -------     -------     -------

<S>                                                               <C>         <C>         <C>         <C>    
 Net revenues                                                     $58,891     $66,350     $74,704     $81,234
 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 (loss) per share--diluted                             $  0.15     $  0.16     $ (0.14)    $  0.19

</TABLE>


23.  SUBSEQUENT EVENTS

     During March 1999, the Company obtained a new $30.0 million revolving line
of credit. The revolving line of credit has a three-year term and availability
based upon eligible accounts receivable. Approximately $9.2 million of proceeds
from the new line of credit were used to repay the previous line of credit
agreement which matured during March 1999.

     During March 1999, the Company reinstated the share repurchase program
which had been temporarily discontinued during December 1998. Subsequent to
January 31, 1999, the Company has repurchased an additional 294,000 shares.

     During April 1999, the Company announced the appointment of Michael
Heffernan to the role of Co-Chief Executive Officer. Mr. Heffernan assumed the
role of President of the Company in December 1998. The Company also announced
that effective upon the completion of the sale of a majority of its non-core
assets it intends to change its name to Innovative Clinical Solutions, Ltd.


                                      F-32

<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS





The Board of Directors and Shareholders of PhyMatrix Corp.:

     Our audits of the consolidated financial statements referred to in our 
report dated March 19, 1999 (except for Note 23, for which the date is April 
22, 1999) appearing in this Annual Report on Form 10-K also included an audit 
of the Financial Statement Schedule on page S-2 of this Form 10-K. In our 
opinion, this Financial Statement Schedule presents fairly, in all material 
respects, the information set forth therein when read in conjunction with the 
related consolidated financial statements.

PricewaterhouseCoopers LLP
Boston, Massachusetts
March 19, 1999


                                       S-1


<PAGE>


                                 PHYMATRIX CORP.

                        VALUATION AND QUALIFYING ACCOUNTS

                      For the years ended January 31, 1999,
                                  1998 and 1997

                                 (In thousands)

<TABLE>
<CAPTION>

                                                        ADDITIONS
                                         BALANCE AT     CHARGED TO     DEDUCTIONS   RECLASSIFICATION                    BALANCE AT
                                         BEGINNING      OPERATING        FROM       OF RESERVES TO                        END OF
                                         OF PERIOD      EXPENSES       RESERVES     ASSETS HELD FOR SALE    OTHER (A)     PERIOD
                                         ----------     ----------     ----------   --------------------    ---------   ----------
<S>                                       <C>            <C>            <C>          <C>                   <C>           <C>    
      Year ended January 31, 1999         $48,428        $167,443       $168,685        $46,640             $   804       $ 1,350

      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

</TABLE>

(A)  Other represents the allowances of acquired entities.


                                      S-2