SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                              -------------------
                                    FORM 10-Q

(Mark One)

[X]      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 for the quarterly period ended October 31, 1997

[ ]      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.)

     Phillips Point, Suite 1000E
777 S. Flagler Drive, West Palm Beach, Florida       33401
    (Address of principal executive offices)       (Zip Code)

       Registrant's telephone number, including area code: (561) 655-3500

          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 [ ]


     On December 8, 1997, the number of outstanding shares of the registrant's
Common Stock, par value $0.01 per share, was 30,047,168.

<PAGE>

                                 PHYMATRIX CORP.

                          QUARTERLY REPORT ON FORM 10-Q

                                      INDEX

                                                                            PAGE
                                                                            ----
PART I -    FINANCIAL INFORMATION

Item 1.     Financial Statements.

            Consolidated Balance Sheets -- October 31, 1997 (unaudited)
            and January 31, 1997                                            3

            Consolidated Statements of Operations (unaudited) -Three and
            Nine Months Ended October 31, 1997 and 1996                     4

            Consolidated Statements of Cash Flows (unaudited) -Nine
            Months Ended October 31, 1997 and 1996                          5

            Notes to Consolidated Financial Statements (unaudited) -
            Three and Nine Months Ended October 31, 1997 and 1996          6-12

Item 2.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                     13-21


PART II -   OTHER INFORMATION

Item 2.     Changes in Securities                                           21

Item 4.     Submission of Matters to a Vote of Security Holders             21

Item 6.     Exhibits and Reports on Form 8-K                                22




<PAGE>

PART I -    FINANCIAL INFORMATION
Item 1.     Financial Statements

                                 PHYMATRIX CORP.

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                             October 31,        January 31,
                                                               1997                1997
                                                               -----               ----
                                                             (unaudited)
<S>                                                           <C>              <C>         
 ASSETS
 Current assets
         Cash and cash equivalents                            $  52,179,477    $ 81,321,955
         Receivables:
                 Accounts receivable, net                        60,261,910      41,743,737
                 Other receivables                                4,431,635       2,318,395
                 Notes receivable                                 1,835,000      10,125,000
          Prepaid expenses and other current assets               5,454,722       3,680,709
                                                              -------------    ------------
                         Total current assets                   124,162,744     139,189,796

 Property, plant and equipment, net                              45,673,927      39,128,292
 Notes receivable                                                 8,260,200       4,938,700
 Goodwill, net                                                  114,073,518      74,426,572
 Management service agreements, net                              55,767,629      40,196,102
 Investment in affiliates                                         3,580,090       3,399,859
 Other assets (including restricted cash)                         9,875,632      12,030,884
                                                              -------------    ------------
                         Total assets                         $ 361,393,740    $313,310,205
                                                              =============    =============

 LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities
         Current portion of debt and capital leases           $  18,662,048     $ 3,835,569
         Accounts payable                                         9,850,670       9,436,189
         Accrued compensation                                     2,814,166       1,480,250
         Accrued liabilities                                     14,333,924      12,627,164
                                                              -------------    ------------
                         Total current liabilities               45,660,808      27,379,172

 Long-term debt and capital leases, less current portion         24,838,325      14,994,690
 Convertible subordinated debentures                            100,000,000     100,000,000
 Other long term liabilities                                      5,807,240      14,004,143
 Deferred tax liability                                                  --       1,354,182
 Minority interest                                                1,836,000       1,798,321
                                                              -------------     -----------
                         Total liabilities                      178,142,373     159,530,508

 Commitments and contingencies
 Shareholders' equity:
         Common Stock, par value $.01; 40,000,000 shares
           authorized; 29,590,176 and 27,625,338 shares
           issued and outstanding at October 31, 1997
           and January 31, 1997, respectively                       295,902         276,253
         Treasury Stock                                             (74,626)              -
         Additional paid in capital                             175,869,914     150,025,403
         Retained earnings                                        7,160,177       3,478,041
                                                               ------------     -----------
                         Total shareholders' equity             183,251,367     153,779,697
                                                                ------------    -----------

 Total liabilities and shareholders' equity                   $ 361,393,740    $313,310,205
                                                              ==============   =============
</TABLE>

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

                                      -3-
<PAGE>

                                 PHYMATRIX CORP.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                   Three Months Ended                Nine Months Ended
                                                                      October 31,                       October 31,
                                                                 1997             1996             1997             1996
                                                             -----------      -----------      -----------      -----------
<S>                                                         <C>              <C>             <C>              <C>         
 Net revenues from services                                  $49,283,594      $30,481,102     $132,373,540     $ 78,620,169
 Net revenue from management service agreements               42,283,922       24,957,207      117,969,145       61,480,762
                                                             -----------      -----------     ------------     ------------
                 Total revenue                                91,567,516       55,438,309      250,342,685      140,100,931
                                                             -----------      -----------     ------------     ------------

 Operating costs and administrative expenses:
         Cost of affiliated physician management services     16,864,444       12,251,717       50,399,435       29,663,964
         Salaries, wages and benefits                         24,447,463       15,851,170       63,579,932       42,540,447
         Professional fees                                     2,635,639        1,519,337        6,890,360        4,584,474
         Supplies                                             11,980,407        7,393,090       31,880,852       19,058,174
         Utilities                                             1,166,688          800,062        3,274,134        2,121,884
         Depreciation and amortization                         2,975,797        1,979,010        7,832,793        5,292,429
         Rent                                                  4,574,988        2,417,970       11,731,733        6,254,468
         Provision for bad debts                                 923,202          457,044        3,238,273        1,777,821
         Merger and other noncontinuing expenses              10,150,000          234,971       11,057,000        1,715,638
         Other                                                16,379,409        6,769,991       46,356,106       12,087,163
                                                             -----------      -----------     ------------     ------------
                 Total operating costs and
                        administrative expenses               92,098,037       49,674,362      236,240,618      125,096,462
                                                             -----------      -----------     ------------     ------------

 Interest expense, net                                         1,471,896          278,046        3,145,855          671,019
 Interest expense shareholder                                          -                -                -          369,366
 Income from investment in affiliates                           (172,556)        (226,838)        (585,541)        (495,836)
                                                             -----------      -----------     ------------     ------------
                                                               1,299,340           51,208        2,560,314          544,549
                                                             -----------      -----------     ------------     ------------
 Income (loss) before provision for income taxes              (1,829,861)       5,712,739       11,541,753       14,459,920
 Income tax expense                                            2,538,800        1,885,769        7,084,704        4,917,650
                                                             -----------      -----------     ------------     ------------

 Net income (loss) (Note 3)                                  $(4,368,661)     $ 3,826,970     $  4,457,049     $  9,542,270
                                                             ===========      ===========     ============     ============
 Net income (loss) per weighted average share                    $ (0.15)          $ 0.14           $ 0.15           $ 0.35
                                                             -----------      -----------     ------------     ------------

 Pro forma information (Note 3):
         Adjustment to income tax expense                        372,504          217,589          624,296          478,705
         Net income (loss)                                    (4,741,165)       3,609,381        3,832,753        9,063,565
         Net income (loss) per weighted average share            $ (0.16)          $ 0.13           $ 0.13           $ 0.33

 Weighted average shares outstanding                          30,058,813       27,804,471       29,467,843       27,265,778
                                                             ===========      ===========     ============     ============

</TABLE>

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

                                      -4-
<PAGE>

                                 PHYMATRIX CORP.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                   Nine Months Ended
                                                                                       October 31,
                                                                                 1997               1996
                                                                            ------------       ------------
<S>                                                                          <C>                <C>        
 Cash flows from operating activities:
         Net income                                                          $ 4,457,049        $ 9,542,270
         Noncash items included in net income:
                 Depreciation and amortization                                 7,832,793          5,292,429
                 Issuance of common stock as compensation                              -            627,640
                 Other                                                        (1,744,495)          (272,635)
         Changes in receivables                                              (12,476,287)       (10,975,186)
         Changes in accounts payable and accrued liabilities                     674,925            662,144
         Changes in other assets                                              (2,990,886)        (3,969,859)
                                                                            ------------       ------------
                         Net cash provided (used) by operating activities     (4,246,901)           906,803
                                                                            ------------       ------------

 Cash flows from investing activities:
         Capital expenditures                                                 (9,113,278)        (4,730,152)
         Sale of assets                                                        3,011,062          1,500,000
         Advances under notes receivable                                      (3,456,500)       (11,831,000)
         Repayments of notes receivable                                       10,000,000                  -
         Other assets                                                           (515,442)        (1,457,594)
         Acquisitions, net of cash acquired                                  (33,354,557)       (15,006,916)
                                                                            ------------       ------------
                         Net cash used by investing activities               (33,428,715)       (31,525,662)
                                                                            ------------       ------------

 Cash flows from financing activities:
         Repayment to Shareholder                                                      -        (15,523,287)
         Proceeds from issuance of common stock                                  742,884            243,010
         Proceeds from issuance of convertible
                subordinated debentures                                                -         96,661,882
         Proceeds from issuance of debt                                       12,021,782                  -
         Release of cash collateral                                            4,504,116          1,996,786
         Offering costs and other                                                (37,291)        (2,458,181)
         Payment of dividends                                                 (1,760,100)        (1,279,188)
         Repayment of debt                                                    (7,266,193)        (6,264,137)
                                                                            ------------       ------------
                         Net cash provided by financing activities             8,205,198         73,376,885
                                                                            ------------       ------------

 Increase (decrease) in cash and cash equivalents                           $(29,470,418)      $ 42,758,026
                                                                            =============      ============
 Cash and cash equivalents, beginning of period                             $ 81,649,895       $ 49,709,073
                                                                            =============      ============
 Cash and cash equivalents, end of period                                   $ 52,179,477       $ 92,467,099
                                                                            =============      ============
</TABLE>
                  The accompanying notes are an integral part
                    of the consolidated financial statements.

                                      -5-


<PAGE>
                                 PHYMATRIX CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        Three and Nine Months Ended October 31, 1997 and 1996 (Unaudited)



1.   ORGANIZATION AND BASIS OF PRESENTATION

     The accompanying unaudited interim consolidated financial statements
include the accounts of PhyMatrix Corp. ("the Company"). These interim
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and the requirements of the Securities
and Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted. It
is management's opinion that the accompanying interim financial statements
reflect all adjustments (which are normal and recurring) necessary for a fair
presentation of the results for the interim periods. During October 1997, a
subsidiary of the Company merged with Clinical Studies Ltd. ("CSL"). This
business combination 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 and Clinical Marketing Ltd. ("CML")
which was merged into CSL on January 1, 1997. These interim financial statements
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
January 31, 1997 as well as the supplemental financial statements and notes
thereto included in the Company's Current Report on Form 8-K filed on October
27, 1997. Operating results for the three and nine months ended October 31, 1997
are not necessarily indicative of results that may be expected for the year.

2.   ACQUISITIONS AND CSL MERGER

Acquisitions

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

     During February 1997, the Company purchased the assets of and entered into
a 40-year management agreement with five physicians in Utah. The purchase price
was $2,498,148. Of such purchase price, $1,378,148 was paid in cash and 75,293
shares of Common Stock of the Company were issued having a value of $1,120,000.
The purchase price was allocated to the assets at their fair market value,
including management service agreements of $1,499,013. The resulting intangible
is being amortized over 40 years.

     During April 1997, the Company acquired a pulmonary physician network
company for a base purchase price of $2,966,058. Of such purchase price,
$673,211 was paid in cash and 180,717 shares of Common Stock of the Company were
issued during May 1997 having a value of $2,292,847. There is also a contingent
payment up to a maximum of $2,000,000 based on the acquired entities' earnings
before taxes during the next three years which will be paid in cash and/or
Common Stock of the Company. The purchase price was allocated to goodwill and is
being amortized over 30 years.

     During April 1997, the Company acquired the business and certain assets of
a clinical research company in the Washington, D.C. area for $725,000 in the
form of a promissory note plus contingent consideration based on revenue and
profitability measures over the next five years. The contingent payments will
equal 10% of the excess gross revenue, as defined, provided the gross operating
margins of the acquired business exceed 30%. The purchase price was allocated to
goodwill. The note and contingent payments are, in certain circumstances,
convertible into shares of Common Stock.

     During May 1997, the Company entered into a 40-year management agreement
with a radiation therapy center in Westchester, New York. The purchase price was
$2,550,000. Of such purchase price $1,200,000 was 


                                      -6-
<PAGE>
                                 PHYMATRIX CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        Three and Nine Months Ended October 31, 1997 and 1996 (Unaudited)


paid in cash and $1,350,000 is payable during May 1998 in Common Stock of the
Company with the number of shares to be issued based upon the average price of
the stock during the five business days prior to the issuance. The value of the
Common Stock to be issued has been recorded in other long-term liabilities at
October 31, 1997. The purchase price has been allocated to management service
agreements and is being amortized over 40 years.

     During June 1997, the Company purchased the assets of two diagnostic
imaging centers in Dade County, Florida. The purchase price was approximately
$12,500,000 plus the assumption of debt and capital leases totaling $1,570,078.
Of such purchase price, $500,000 was paid in cash and the remaining $12,000,000
was paid by the issuance of 773,026 shares of Common Stock of the Company. The
purchase price was allocated to the assets at their fair market value, including
goodwill of $10,180,273. The resulting intangible is being amortized over 30
years.

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

     During June 1997, the Company issued 100,002 shares of Common Stock of the
Company having a value of approximately $1,500,000 to the former shareholders of
Pinnacle Associates, Inc. ("Pinnacle"). The issuance of the shares represented
the merger consideration for Pinnacle which was purchased during 1995.

     During July 1997, the Company entered into a 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.
In addition, the Company and Beth Israel Hospital will be completing the
formation of an MSO to manage medical risk contracting to the more than 2,000
physicians affiliated with Beth Israel Hospital and its parent corporation. The
Management Services Agreement became effective July 1, 1997, and will remain in
effect for 40 years contingent upon the closing of the MSO joint venture prior
to January 15, 1998. The Company has committed up to $40 million in conjunction
with the transaction to be utilized for the expansion of the Beth Israel
delivery system throughout the New York region. In connection with the
agreement, the Company paid $13,560,000 in cash, which was allocated to
management service agreements and is being amortized over 40 years.

     During August 1997, the Company purchased certain assets of, and entered
into a 20-year administrative services agreement with BAB Nuclear Radiology,
P.C., to operate five diagnostic imaging centers on Long Island, New York. The
purchase price was approximately $10,000,000 in cash, plus $15,000,000 in
convertible notes which are included in the current portion of debt at October
31, 1997. The notes bear interest at 5% and are payable in three equal
installments in November 1997 and February and May 1998. At the option of the
Company, the notes are payable in either cash or shares of Common Stock of the
Company. The first installment on the notes was paid during November 1997 in
336,135 shares of Common Stock of the Company.

    During the nine months ended October 31, 1997, the Company issued
741,370 shares of stock, having a value of $10,470,434, which had been committed
to be issued in conjunction with acquisitions completed during the fiscal year
ending January 31, 1997 and the nine months ended October 31, 1997, and were
registered with the Securities and Exchange Commission pursuant to a
Registration Statement on Form S-4. Prior to issuance, the value of the shares
to be issued was included in long term liabilities on the balance sheet. The
number of shares issued was generally determined based on the average price of
the stock prior to the issuance. As of October 31, 1997, the Company has
committed to issue an additional $5,046,000 in Common Stock over the next 12
months. This amount has been included in other long-term liabilities on the
balance sheet.


                                      -7-
<PAGE>

                                 PHYMATRIX CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        Three and Nine Months Ended October 31, 1997 and 1996 (Unaudited)


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. As a result of using the pooling of
interests method of accounting, the transaction expenses of $10,150,000,
primarily composed of investment banking, accounting and legal fees and a buyout
of a consulting contract, have been recorded as a one-time charge in PhyMatrix's
statement of operations during the three months ended October 31, 1997. In
addition, as a result of the merger certain costs incurred by CSL will be
noncontinuing.

     The following table reflects in the As Reported column the restated
consolidated net revenues, merger and other noncontinuing costs, net income, net
income per share and weighted average number of shares outstanding for the
indicated periods. The Pro Forma 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
column adjusts the Pro Forma column by eliminating merger costs and certain
noncontinuing charges incurred by CSL.

<TABLE>
<CAPTION>
                                                                                    (B)
                                                                    (A)          Adjusted
                                                  As Reported     Pro Forma      Pro Forma
                                                  -----------     ---------      ---------
                                                    (In thousands, except per share data)
<S>                                                  <C>            <C>             <C>   
FOR THE THREE MONTHS ENDED OCTOBER 31, 1997
Net revenue                                         $ 91,568       $ 91,568       $ 91,568
Merger and other noncontinuing costs                  10,150         10,150              -
Net income (loss)                                     (4,369)        (4,742)         5,408
Net income (loss) per weighted average share         $ (0.15)       $ (0.16)        $ 0.18
Weighted average number of shares outstanding         30,059         30,059         30,059

FOR THE THREE MONTHS ENDED OCTOBER 31, 1996
Net revenue                                         $ 55,438       $ 55,438       $ 55,438
Merger and other noncontinuing costs                     235            235              -
Net income                                             3,827          3,609          3,750
Net income per weighted average share                 $ 0.14         $ 0.13         $ 0.13
Weighted average number of shares outstanding         27,804         27,804         27,804

FOR THE NINE MONTHS ENDED OCTOBER 31, 1997
Net revenue                                        $ 250,344      $ 250,344      $ 250,344
Merger and other noncontinuing costs                  11,057         11,057              -
Net income                                             4,457          3,832         14,526
Net income per weighted average share                 $ 0.15         $ 0.13         $ 0.49
Weighted average number of shares outstanding         29,468         29,468         29,468

FOR THE NINE MONTHS ENDED OCTOBER 31, 1996
Net revenue                                        $ 140,102      $ 140,102      $ 140,102
Merger and other noncontinuing costs                   1,716          1,716              -
Net income                                             9,542          9,063         10,093
Net income per weighted average share                 $ 0.35         $ 0.33         $ 0.37
Weighted average number of shares outstanding         27,266         27,266         27,266
</TABLE>


                                      -8-
<PAGE>
                                 PHYMATRIX CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        Three and Nine Months Ended October 31, 1997 and 1996 (Unaudited)


(A)  Adjusts the As Reported results for CSL to reflect the operations of CSL as
     if CSL had been a C corporation rather than an S corporation for income tax
     purposes.

(B)  Adjusts the As Reported results by eliminating CSL merger expenses and
     certain noncontinuing costs of CSL and providing for income tax expense as
     if CSL had been a C corporation rather than an S corporation for income tax
     purposes.

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

<TABLE>
<CAPTION>
                                                            Three Months Ended      Nine Months Ended
                                                              October 31,             October 31,    
                                                            ------------------      -----------------
                                                              1997       1996         1997      1996 
                                                              ----       ----         ----      ---- 
                                                                             (Unaudited)             
<S>                                                           <C>         <C>         <C>       <C> 
Salaries expense related to the equity interest                                       
granted to an officer of CSL.  During January 1997,                                   
the officer entered into an employment agreement                                      
with no provisions for sharing of profits or proceeds.          -            -           -       628 
                                                                                                     
Consulting fees based on a profit sharing arrangement.                                
The profit sharing arrangement was terminated during 1997.      -           57           -       202 
                                                                                                     
Management fees paid to the principal shareholders of CSL.      -          178         907       886 
                                                               ----       ----         ---     ----- 
                                                                                                     
Total nonrecurring items                                        -          235         907     1,716 
                                                                                                     
After tax impact of nonrecurring items                          -          141         544     1,030 
                                                               ====       ====         ===     ===== 
</TABLE>                                                                       


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



                                      -9-
<PAGE>
                                 PHYMATRIX CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        Three and Nine Months Ended October 31, 1997 and 1996 (Unaudited)


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

                                        CSL          PhyMatrix        Total
                                    ----------       --------    -----------
Legal                               $  200,000       $300,000      $ 500,000
Accounting                             200,000        175,000        375,000
Investment banking                   3,600,000        325,000      3,925,000
Other                                  250,000        100,000        350,000
                                    ----------       --------    -----------
    Subtotal transaction expenses    4,250,000        900,000      5,150,000
CNS consulting (1)                   5,000,000             -       5,000,000
                                    ----------       --------    -----------
    Total                           $9,250,000       $900,000    $10,150,000
                                    ==========       ========    ===========


(1)  Represents buyout of consulting contract.

     During the nine months ended October 31, 1997 and 1996, the Company
acquired the assets and/or stock, entered into management and employment
agreements, and/or assumed certain liabilities of various physician practices,
medical support services companies, networks and organizations. During the nine
months ended October 31, 1997, the Company also issued shares of stock which had
been committed to be issued in conjunction with acquisitions completed during
the year ended January 31, 1997. The transactions had the following non-cash
impact on the balance sheets of the Company as of the indicated dates:

                                                     October 31,
                                         -------------------------------------
                                              1997                 1996
                                         ---------------      ----------------

Current assets                            $  6,546,251          $  2,910,958
Property, plant and equipment                4,102,751             4,026,529
Intangibles                                 59,537,382            31,167,707
Other noncurrent assets                      1,108,627                20,441
Current liabilities                           (683,824)           (5,204,234)
Debt                                       (18,616,470)           (1,947,102)
Noncurrent liabilities                      (5,833,233)           (6,754,572)
Equity                                     (25,841,041)           (9,212,811)



                                      -10-
<PAGE>
                                 PHYMATRIX CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        Three and Nine Months Ended October 31, 1997 and 1996 (Unaudited)


3.   PRO FORMA INFORMATION

     Prior to the CSL merger, CSL was treated as an S corporation under the
Internal Revenue Code (the "Code") and its stockholders recognized its income
for income tax purposes. Accordingly, the Company's statements of operations do
not include provisions for income taxes for income related to CSL. Prior to the
CSL merger, dividends were paid primarily to reimburse stockholders for income
tax liabilities incurred by them.

     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.

4.   LONG TERM DEBT

     In September 1997, the Company entered into a secured credit agreement with
a bank providing for a $100 million revolving line of credit for working capital
and acquisition purposes. The credit agreement (i) prohibits the payment of
dividends by the Company, (ii) limits the Company's ability to incur
indebtedness and make acquisitions except as permitted under the credit
agreement and (iii) requires the Company to comply with certain financial
covenants. As of October 31, 1997, the Company had $12,000,000 outstanding under
the line of credit.

5.   NET INCOME PER SHARE

     Net income per common share is based upon the weighted average number of
common shares outstanding (including stock required to be issued in the future
pursuant to acquisition agreements) during the period. For the three and nine
months ended October 31, 1997 and 1996, the weighted average number of common
shares outstanding was 30,058,813, 29,467,843, 27,804,471, and 27,265,778,
respectively. When dilutive, stock options (less the number of treasury shares
assumed to be purchased from the proceeds) are included in the calculation of
the weighted average number of common shares outstanding. For the three and nine
months ended October 31, 1997, conversion of the 6-3/4% Convertible Subordinated
Debentures issued in June 1996, is not assumed because the effect is
anti-dilutive.

6.   RATIO OF EARNINGS TO FIXED CHARGES

     For the three and nine months ended October 31, 1997, the ratio of earnings
to fixed charges was 0.5 and 2.1, respectively. Prior to merger and
noncontinuing costs, for the three and nine months ended October 31, 1997 the
ratio of earnings to fixed charges would have been 3.1 and 3.1, 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 investments 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.

7.   ACCOUNTING DEVELOPMENTS AND PRONOUNCEMENTS

     The Emerging Issues Task Force (the "Task Force") of the Financial
Accounting Standards Board has recently issued tentative conclusions on the
various accounting and reporting matters related to the physician practice
management industry, which it has been reviewing during the past year. Among
other things, the Task Force has addressed the consolidation of revenues of
professional associations and accounting for business combinations. These
tentative conclusions provide for one year to implement the requirements for all
existing arrangements. The Company will review its existing arrangements to
determine if there is any financial statement impact. The Company does not
believe that this, in any event, will negatively affect net income of the
Company for any past or future period.

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share", which is
effective for fiscal year 1997. SFAS No. 128 is designed to improve the EPS
information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements and increasing
the comparability of EPS data on an international basis. The Company will
implement the new Standard in its fiscal year ending January 31, 1998.
Management believes that the Company's adoption of this Standard, when
effective, will not have a significant impact on the Company's financial
statements.


                                      -11-
<PAGE>

                                 PHYMATRIX CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        Three and Nine Months Ended October 31, 1997 and 1996 (Unaudited)


8.   LEGAL PROCEEDINGS

     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 provision on acceptable terms. 

9.   SUBSEQUENT EVENTS

     During November 1997, the Company acquired a urology independent physician
association ("IPA") in South Florida for $3,480,000. The total purchase price is
payable in shares of the Company's Common Stock. Thirty percent, or 73,263
shares, was paid on the closing date and 70% is payable within 30 days of the
closing date. There is also a contingent payment, up to a maximum of $2,000,000,
based on the entity's earnings before taxes during the next three years which
will be paid in cash and/or Common Stock of the Company.



                                      -12-
<PAGE>

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

Introduction

     The Company is a multispecialty physician practice management company that
provides management services to the medical community. The Company also develops
medical malls, medical office buildings, and health parks, both for its own
account and for leading hospitals and health systems. The Company's primary
strategy is to develop management networks in specific geographic locations by
affiliating with physicians, medical providers and medical networks. The Company
affiliates with physicians by acquiring their practices and entering into
long-term management agreements with the acquired practices and by managing
independent physician associations ("IPAs") and specialty care physician
networks through management service organizations ("MSOs") in which the Company
has ownership interests. Where appropriate, the Company supports its affiliated
physicians with related diagnostic and therapeutic medical support services. The
Company's medical support services include radiation therapy, diagnostic
imaging, infusion therapy, home health care, lithotripsy services, ambulatory
surgery and clinical research studies. Since its first acquisition in September
1994, the Company has acquired the practices of and entered into long-term
agreements to affiliate with approximately 372 physicians; has obtained
interests in MSOs in Connecticut, Georgia, New Jersey, New York and Florida that
provide management services to IPAs composed of over 3,800 multispecialty
physicians; purchased a company that provides contract management services to
over 2,500 physicians in specialty care networks; purchased CSL, a site
management organization conducting clinical research for pharmaceutical
companies and clinical research organizations at 24 centers located in 13
states; and acquired several medical support services companies and a medical
facility development company.

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

Acquisitions and CSL Merger

Acquisitions

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

     During February 1997, the Company purchased the assets of and entered into
a 40-year management agreement with five physicians in Utah. The purchase price
was $2,498,148. Of such purchase price, $1,378,148 was paid in cash and 75,293
shares of Common Stock of the Company were issued having a value of $1,120,000.
The purchase price was allocated to the assets at their fair market value,
including management service agreements of $1,499,013. The resulting intangible
is being amortized over 40 years.

     During April 1997, the Company acquired a pulmonary physician network
company for a base purchase price of $2,966,058. Of such purchase price,
$673,211 was paid in cash and 180,717 shares of Common Stock of the Company were
issued during May 1997 having a value of $2,292,847. There is also a contingent
payment up to a maximum of $2,000,000 based on the acquired entities' earnings
before taxes during the next three years which will be paid in cash and/or
Common Stock of the Company. The purchase price was allocated to management
service agreements and is being amortized over 30 years.

     During April 1997, the Company acquired the business and certain assets of
a clinical research company in the Washington, D.C. area for $725,000 in the
form of a promissory note plus contingent consideration based on revenue and
profitability measures over the next five years. The contingent payments will
equal 10% of the excess gross revenue, as defined, provided the gross operating
margins of the acquired business exceed 30%. The purchase price was allocated to
goodwill. The note and contingent payments are, in certain circumstances,
convertible into shares of Common Stock.



                                      -13-
<PAGE>


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

     During June 1997, the Company purchased the assets of two diagnostic
imaging centers in Dade County, Florida. The purchase price was approximately
$12,500,000 plus the assumption of debt and capital leases totaling $1,570,078.
Of such purchase price, $500,000 was paid in cash and the remaining $12,000,000
was paid by the issuance of 773,026 shares of Common Stock of the Company. The
purchase price was allocated to the assets at their fair market value, including
goodwill of $10,180,273. The resulting intangible is being amortized over 30
years.

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

     During June 1997, the Company issued 100,002 shares of Common Stock of the
Company having a value of approximately $1,500,000 to the former shareholders of
Pinnacle Associates, Inc. ("Pinnacle"). The issuance of the shares represented
the merger consideration for Pinnacle which was purchased during 1995.

     During July 1997, the Company entered into a 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.
In addition, the Company and Beth Israel Hospital will be completing the
formation of an MSO to manage medical risk contracting to the more than 2,000
physicians affiliated with Beth Israel Hospital and its parent corporation. The
Management Services Agreement became effective July 1, 1997, and will remain in
effect for 40 years contingent upon the closing of the MSO joint venture prior
to January 15, 1998. The Company has committed up to $40 million in conjunction
with the transaction to be utilized for the expansion of the Beth Israel
delivery system throughout the New York region. In connection with the
agreement, the Company paid $13,560,000 in cash, which was allocated to
management service agreements and is being amortized over 40 years.

     During August 1997, the Company purchased certain assets of, and entered
into a 20-year administrative services agreement with BAB Nuclear Radiology,
P.C., to operate five diagnostic imaging centers on Long Island, New York. The
purchase price was approximately $10,000,000 in cash, plus $15,000,000 in
convertible notes. The notes bear interest at 5% and are payable in three equal
installments in November 1997 and February and May 1998. At the option of the
Company, the notes are payable in either cash or shares of Common Stock of the
Company.

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. As a result of using the pooling of
interests method of accounting, the transaction expenses of $10,150,000,
primarily composed of investment banking, accounting and legal fees and a buyout
of a consulting contract, have been recorded as a one-time charge in PhyMatrix's
statement of operations during the three months ended October 31, 1997. In
addition, as a result of the merger certain costs incurred by CSL will be
noncontinuing.


                                      -14-
<PAGE>

     The following table reflects in the As Reported column the restated
consolidated net revenues, merger and other noncontinuing costs, net income, net
income per share and weighted average number of shares outstanding for the
indicated periods. The Pro Forma 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
column adjusts the Pro Forma column by eliminating merger costs and certain
noncontinuing charges incurred by CSL.


<TABLE>
<CAPTION>
                                                                                      (B)
                                                                       (A)          Adjusted
                                                     As Reported     Pro Forma      Pro Forma
                                                     -----------     ---------      ---------
                                                       (In thousands, except per share data)
<S>                                                   <C>            <C>            <C>     
FOR THE THREE MONTHS ENDED OCTOBER 31, 1997
Net revenue                                           $ 91,568       $ 91,568       $ 91,568
Merger and other noncontinuing costs                    10,150         10,150              -
Net income (loss)                                       (4,369)        (4,742)         5,408
Net income (loss) per weighted average share           $ (0.15)       $ (0.16)        $ 0.18
Weighted average number of shares outstanding           30,059         30,059         30,059

FOR THE THREE MONTHS ENDED OCTOBER 31, 1996
Net revenue                                           $ 55,438       $ 55,438       $ 55,438
Merger and other noncontinuing costs                       235            235              -
Net income                                               3,827          3,609          3,750
Net income per weighted average share                   $ 0.14         $ 0.13         $ 0.13
Weighted average number of shares outstanding           27,804         27,804         27,804

FOR THE NINE MONTHS ENDED OCTOBER 31, 1997
Net revenue                                          $ 250,344      $ 250,344      $ 250,344
Merger and other noncontinuing costs                    11,057         11,057              -
Net income                                               4,457          3,832         14,526
Net income per weighted average share                   $ 0.15         $ 0.13         $ 0.49
Weighted average number of shares outstanding           29,468         29,468         29,468

FOR THE NINE MONTHS ENDED OCTOBER 31, 1996
Net revenue                                          $ 140,102      $ 140,102      $ 140,102
Merger and other noncontinuing costs                     1,716          1,716              -
Net income                                               9,542          9,063         10,093
Net income per weighted average share                   $ 0.35         $ 0.33         $ 0.37
Weighted average number of shares outstanding           27,266         27,266         27,266
</TABLE>



(A)  Adjusts the As Reported results for CSL to reflect the operations of CSL as
     if CSL had been a C corporation rather than an S corporation for income tax
     purposes.

(B)  Adjusts the As Reported results by eliminating CSL merger expenses and
     certain noncontinuing costs of CSL and providing for income tax expense as
     if CSL had been a C corporation rather than an S corporation for income tax
     purposes.



                                      -15-
<PAGE>

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

<TABLE>
<CAPTION>
                                                            Three Months Ended       Nine Months Ended
                                                                October 31,              October 31,
                                                            ------------------       -----------------
                                                             1997      1996          1997       1996
                                                             ----      ----          ----       ----
                                                                           (Unaudited)
<S>                                                          <C>       <C>          <C>        <C>
 Salaries expense related to the equity                                            
  interest granted to an officer of CSL.                                           
  During January 1997, the officer entered                                         
  into an employment agreement with no provisions                                  
  for sharing of profits or proceeds.                           -         -            -        628
                                                                                   
 Consulting fees based on a profit sharing                                         
  arrangement.  The profit sharing arrangement was                                 
  terminated during 1997.                                       -        57            -        202
                                                                                   
 Management fees paid to the principal
  shareholders of CSL.                                          -       178          907        886
                                                             ----      ----          ----     ------
                                                                            
                                                                                   
 Total nonrecurring items                                       -       235          907      1,716
                                                                                   
 After tax impact of nonrecurring items                         -       141          544      1,030
                                                             ====      ====          ====     ======
</TABLE>


     Prior to its merger with the Company, CSL reported on a fiscal year ending
December 31. Prior to its initial public offering during January 1996, the
Company reported on a fiscal year ending December 31. The fiscal year end of the
Company was changed to January beginning with the one month period ended January
31, 1996. The restated financial statements for the year ended January 31, 1997
are based on a combination of the Company's results for its January 31 fiscal
year and a December 31 fiscal year for CSL. CSL's historical results of
operations for the month ending January 31, 197 are not included in the
Company's consolidated statements of operations or cash flows. An adjustment has
been made to stockholder's equity as of February 1, 1997 to adjust for the
effect of excluding CSL's results of operations for the month ended January 31,
1997.

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

                                             CSL        PhyMatrix        Total
                                        ----------      --------    -----------
Legal                                    $ 200,000      $300,000     $  500,000
Accounting                                 200,000       175,000        375,000
Investment banking                       3,600,000       325,000      3,925,000
Other                                      250,000       100,000        350,000
                                        ----------      --------    -----------
        Subtotal transaction expenses    4,250,000       900,000      5,150,000
CNS consulting (1)                       5,000,000            -       5,000,000
                                        ----------      --------    -----------
        Total                           $9,250,000      $900,000    $10,150,000
                                        ==========      ========    ===========

(1)      Represents buyout of consulting contract.



                                      -16-
<PAGE>


Accounting Treatment

     The terms of the Company's relationships with its affiliated physicians are
set forth in various asset and stock purchase agreements, management service
agreements, and employment and consulting agreements. Through the asset and/or
stock purchase agreement, the Company acquires 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 are
typically purchased at the net realizable value. The purchase price of the
practice generally consists 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 revenue from management service agreements include the revenues
generated by the physician practices. The Company is responsible and at risk for
the operating costs of the physician practices. Expenses include the
reimbursement of all medical practice operating costs and all payments to
physicians (which are reflected as cost of affiliated physician management
services) 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 management services agreements 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. Net revenues under
management services agreements for the three and nine months ended October 31,
1997, were $42.3 and $118.0 million, respectively.

Results of Operations

Three and Nine Months Ended October 31, 1997 Compared to Three and Nine Months
Ended October 31, 1996

     The following discussion reviews the results of operations for the three
and nine months ended October 31, 1997 (the "1997 Quarter" and "1997 Period"),
respectively, compared to the three and nine months ended October 31, 1996 (the
"1996 Quarter" and "1996 Period"), respectively.

Revenues

     The Company derives revenues from health care services and medical facility
development services. Within the health care segment, the Company distinguishes
between revenues from cancer services, noncancer physician services and other
medical support services. Cancer services include physician practice management
services to oncology practices and certain medical support services, including
radiation therapy, diagnostic imaging and infusion therapy. Noncancer physician
services include physician practice management services to all practices managed
by the Company other than oncology practices and administrative services to
health plans which include reviewing, processing, and paying claims and
subcontracting with specialty care physicians to provide covered services. Other
medical support services include home health care services, lithotripsy, various
health care management services, diagnostic imaging, ambulatory surgery, and
clinical research studies.

     Net revenues were $91.6 million and $250.3 million for the 1997 Quarter and
1997 Period, respectively. Of this amount, $27.7 million and $80.0 million or
30.3% and 31.9% of such revenues was attributable to cancer services; $38.6
million and $106.5 million or 42.2% and 42.6% was related to noncancer physician
services; $20.1 million and $48.2 million or 21.9% and 19.3% of such revenues
was attributable to other medical support services; and $5.2 million and $15.6
million or 5.6% and 6.2% related to medical facility development.

     Net revenues were $55.4 million and $140.1 million for the 1996 Quarter and
the 1996 Period. Such revenues consisted of $25.3 million and $69.6 million or
45.7% and 49.7% related to cancer services; $16.7 




                                      -17-
<PAGE>

million and $32.6 million or 30.1% and 23.2% related to noncancer physician
services; $8.8 million and $25.9 million or 15.9% and 18.5% related to other
medical support services; and $4.6 million and $12.0 million or 8.3% and 8.6%
related to medical facility development.

Expenses

     The Company's cost of affiliated physician management services was $16.9
million and $50.4 million or 39.9% and 42.7% of net revenue from management
services agreements during the 1997 Quarter and 1997 Period, respectively. The
cost of affiliated physician management services was $12.3 million and $29.7
million or 49.1% and 48.2% of net revenue from management services agreements
during the 1996 Quarter and 1996 Period, respectively. Net revenue for the
physician practices managed by the Company was $42.3 million and $118.0 million
during the 1997 Quarter and 1997 Period and $25.0 million and $61.5 million
during the 1996 Quarter and 1996 Period, respectively. The cost of affiliated
physician management services as a percentage of net revenue from management
services varies based upon the type of physician practices.

     The Company's salaries, wages, and benefits increased by $8.6 million from
$15.9 million or 28.6% of net revenues during the 1996 Quarter to $24.5 million
or 26.7% of net revenues during the 1997 Quarter and $21.0 million from $42.5
million or 30.4% of net revenues during the 1996 Period to $63.6 million or
25.4% of net revenues during the 1997 Period. The change as a percentage of net
revenues is primarily attributable to the fact that (i) salaries, wages, and 
benefits varies depending on whether the physician practice is owned or managed
and (ii) salaries, wages, and benefits varies as the Company expands its other 
medical support services.

     The Company's supplies expense increased by $4.6 million from $7.4 million
or 13.3% of net revenues during the 1996 Quarter to $12.0 million or 13.1% of
net revenues during the 1997 Quarter and $12.8 million from $19.1 million or
13.6% of net revenues during the 1996 Period to $31.9 million or 12.7% of net
revenues during the 1997 Period. The increase in supplies expense is primarily a
result of the acquisition of additional physician practices. Supplies expense as
a percentage of net revenues varies depending upon the type of physician
practices.

     The Company's depreciation and amortization expense increased by $1.0
million from $2.0 million or 3.6% of net revenues during the 1996 Quarter to
$3.0 million or 3.3% of net revenues during the 1997 Quarter and $2.5 million
from $5.3 million or 3.8% of net revenues during the 1996 Period to $7.8 million
or 3.1% of net revenues during the 1997 Period. The increase is primarily a
result of the acquisitions completed after the 1996 Period and the allocation of
the purchase prices as required by purchase accounting. During the 1997 Period,
the Company sold assets which resulted in total gains of $1.9 million. In
addition, the Company recorded nonrecurring charges of $0.4 million during the
1997 Period. These nonrecurring items have been included in other expenses on
the statement of operations.

     The Company's rent expense increased by $2.2 million from $2.4 million or
4.4% of net revenues during the 1996 Quarter to $4.6 million or 5.0% of net
revenues during the 1997 Quarter and $5.5 million from $6.3 million or 4.5% of
net revenues during the 1996 Period to $11.7 million or 4.7% of net revenues
during the 1997 Period. 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 $10.2 million, $11.1
million, $0.2 million and $1.7 million during the 1997 Quarter, the 1997 Period,
the 1996 Quarter, and the 1996 Period, respectively, represent the merger
transaction costs related to the CSL merger as well as certain noncontinuing
salary, consulting and management fee expenses incurred by CSL. The merger
transaction costs were recorded during the 1997 Quarter which represents the
quarter in which the transaction closed.

     Prior to the CSL merger, CSL was treated as an S corporation under the
Internal Revenue Code (the "Code") and its stockholders recognized its income
for income tax purposes. Accordingly, the Company's 



                                      -18-
<PAGE>

statements of operations do not include provisions for income taxes for income
related to CSL. Prior to the CSL merger, dividends were paid primarily to
reimburse stockholders for income tax liabilities incurred by them.

     The Company's income tax expense increased by $2.2 million from $4.9
million or 34.0% of pre-tax income during the 1996 Period to $7.1 million or
32.7% of pretax income (prior to merger costs of $10.2 million which are not tax
deductible) during the 1997 Period. 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 $5.4 million or 37.3% of pretax income
during the 1996 Period to $7.7 million or 35.5% of pretax income (prior to
merger costs of $10.2 million which are not tax deductible) during the 1997
Period. The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes."

Medical Facility Development

     The Company provides medical facility development services to related and
unrelated third parties in connection with the establishment of health parks,
medical malls and medical office buildings. The Company believes that the
development of such facilities, in certain markets, will aid in the integration
of its affiliated physicians and medical support services and will provide
future opportunities to affiliate with physicians and acquire future physician
practices or support services. Further, the Company believes that the
development of health parks, medical malls and medical office buildings in
certain markets will aid in the integration of its affiliated physicians and
medical support services.

     The Company derives its medical facility development 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
medical facility development 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.

     The Company typically receives the following compensation for its services:
development fees (including management of land acquisition, subdivision, zoning,
surveying, site planning, permitting and building design), general contracting
management fees, leasing and marketing fees, project cost savings income (based
on the difference between total budgeted project costs and actual costs) and
consulting fees.

     The amount of development fees and leasing and marketing fees are stated in
the development and marketing agreements. Those agreements also provide the
basis for payment of the fees. The financing fees and consulting fees are
generally not included in specific agreements but are negotiated and disclosed
in project pro formas provided to the owners of the buildings and hospital
clients. Specific agreements usually incorporate those pro formas and provide
that the projects will be developed in conformity therewith. General contracting
management fees and project cost savings income are included in guaranteed
maximum cost contracts entered into with the general contractor. These contracts
are usually approved by the owners which in many cases include hospital clients
and prospective tenants. During the 1997 Quarter and the 1997 Period, the
Company's medical facility development generated revenues of $5.2 and $15.6
million, respectively, and pretax income of $3.6 and $10.1 million,
respectively.

Liquidity and Capital Resources

     Cash used by operating activities was $4.2 million for the 1997 Period.
Cash provided by operating activities was $0.9 million for the 1996 Period. At
October 31, 1997, the Company's principal sources of liquidity consisted of
working capital of $78.5 million which included $52.2 million in cash. The
Company also had $45.7 million of current liabilities, including approximately
$18.7 million of indebtedness, which includes $15 million of convertible debt,
maturing before October 31, 1998.



                                      -19-
<PAGE>


     Cash used by investing activities was $33.4 million for the 1997 Period.
This primarily represents the funds required by the Company for acquisitions and
capital expenditures of $42.5 million and the advances under notes receivable of
$3.5 million, partially offset by the repayments of notes receivable of $10.0
million and proceeds from the sale of assets of $3.0 million during the 1997
Period. Cash used by investing activities was $31.5 million for the 1996 Period.
This primarily represents funds required by the Company for acquisitions and
capital expenditures of $19.7 million and advances under notes receivable of
$11.8 million, offset by proceeds of $1.5 million from the sale of assets during
the 1996 Period.

         Cash provided by financing activities was $8.2 million for the 1997
Period and primarily represented the proceeds from issuance of debt of $12.0
million and the release of cash collateralizing debt of $4.5 million offset by
the repayment of debt of $7.3 million and the payment of dividends of $1.8
million. Cash provided by financing activities was $73.4 million for the 1996
Period, which was primarily comprised of the proceeds (net of offering costs)
from the issuance of the Convertible Subordinated Debentures of $96.7 million
and the release of cash collateral of $2.0 million offset by the repayment of
advances from shareholder, the payment of dividends, and the repayment of other
debt of $15.5 million and $6.3 million, respectively.

     During 1996, the Company purchased the stock of a company based in Florida
that provides the managed health care industry with assistance in provider
relations, utilization review and quality assurance. In conjunction with this
acquisition, the Company may be required to make a contingent payment up to a
maximum of $10 million based on the acquired company's earnings before taxes
during the next five years. The payment, if required, shall be paid in cash
and/or Common Stock of the Company.

         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 has committed to expend up to $40 million to
be utilized for the expansion of the network.

     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. 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 October 31, 1997, the Company had committed to issue $5.0
million of Common Stock of the Company using the methodology discussed above.

     The Company's acquisition and expansion programs will require substantial
capital resources. In addition, the operation of physician groups, integrated
networks and related medical support services companies, and the development and
implementation of the Company's management information systems, will require
ongoing capital expenditures. The Company expects that its capital needs over
the next several years will substantially exceed capital generated from
operations. To finance its capital needs, the Company plans both to incur
indebtedness and to issue, from time to time, additional debt or equity
securities, including Common Stock or convertible notes, in connection with its
acquisitions and affiliations.

     In September 1997, the Company entered into a secured credit agreement with
a bank providing for a $100 million revolving line of credit for working capital
and acquisition purposes. The credit agreement (i) prohibits the payment of
dividends by the Company, (ii) limits the Company's ability to incur
indebtedness and make acquisitions except as permitted under the credit
agreement and (iii) requires the Company to comply with certain financial
covenants.

     The Company expects that the existing working capital of $78.5 million,
which includes cash of $52.2 million, and the $88 million which is available
under the revolving line of credit will be adequate to satisfy the Company's
cash requirements for the next 12 months. However, there can be no assurance
that the Company will not be required to seek additional financing during this
period. The failure to raise the funds necessary to finance its future cash
requirements would adversely affect the Company's ability to pursue its strategy
and could adversely affect its results of operations for future periods.



                                      -20-
<PAGE>

Factors to be Considered

     The part of this Quarterly Report on Form 10-Q captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains certain forward-looking statements which involve risks and
uncertainties. Readers should refer to a discussion under "Factors to be
Considered" contained in Part I, Item 1 of the Company's Annual Report on Form
10-K for the year ended January 31, 1997 concerning certain factors that could
cause the Company's actual results to differ materially from the results
anticipated in such forward-looking statements. This discussion is hereby
incorporated by reference into this Quarterly Report.


PART II--OTHER INFORMATION

Item 2.  Changes in Securities - Recent Sales of Unregistered Securities

     During August, September and October 1997, the Company issued a total of
227,496 shares of Common Stock pursuant to acquisition agreements entered into
during the fiscal year ended January 31, 1997. The sale of these shares and the
acquisitions in connection with which they were sold were reported and described
in the Company's Annual Report on Form 10-K for the year ended January 31, 1997.

     On October 15, 1997, in connection with the acquisition of CSL and pursuant
to the terms of an Amended and Restated Agreement and Plan of Merger dated as of
July 15, 1997, the Company issued 5,204,305 shares of Common Stock to the former
stockholders of CSL. The acquisition is more fully described herein under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

     The above referenced sales of shares of Common Stock were not
registered under the Securities Act of 1933, as amended, in reliance upon
Section 4(2) thereof.


Item 4.  Submission of Matters to a Vote of Security Holders.

     The following matters were approved at the Annual Meeting of the Company's
stockholders held on September 8, 1997:

(a)  Election of the following directors in the class of the Board of Directors
     whose terms expired at the Annual Meeting:

                                         Number of Shares/Votes
                                    --------------------------------
                                       For        Authority Withheld
                                    ----------    ------------------
     Joseph N. Cassese              12,960,052        25,013
     David M. Livingston, M.D.      12,958,892        26,173
     Eric Moskow, M.D.              12,959,317        25,748


(b)  Amendment to the Company's 1995 Equity Incentive Plan to increase the total
     number of shares of Common Stock which may be awarded under such plan by
     1,100,000 shares and limiting the number of shares of Common Stock
     available for issuance under the Equity Plan to any participant in any
     fiscal year to 300,000 shares.

                    For                      11,184,432
                    Against                   1,757,084
                    Abstain                      43,549



                                      -21-
<PAGE>


Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit 2.1     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 of Form 8-K filed on
                October 6, 1997).

Exhibit 10.1    Credit Agreement dated September 17, 1997 among the Company,
                various subsidiaries of the Company, PNC Bank, National 
                Association and certain other banks.


Exhibit 27      Financial Data Schedule

(b) Reports on Form 8-K
     The Company filed Current Reports on Form 8-K on October 6, 1997 and
October 27, 1997 with the Securities and Exchange Commission reporting under
Item 2 the acquisition of CSL.



                              -22-
<PAGE>



                            SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 12th day of December, 1997.




                                         PHYMATRIX CORP.

                                         By:    /s/ Frederick R. Leathers
                                                --------------------------------
                                                Financial Officer, Treasurer
                                                and Principal Accounting Officer



                              -23-